GP Investments, Ltd.

(a Bermuda company)
US$40,000,000
10% Perpetual Notes
GP Investments, Ltd., or the Issuer, a Bermuda company, is offering US$40,000,000 aggregate
principal amount of its 10% Perpetual Notes. The notes offered by this offering memorandum are called
the new notes. The new notes are being offered as additional debt securities under an indenture dated
January 23, 2007, pursuant to which the Issuer previously issued $150,000,000 of 10% Secured
Perpetual Notes. The notes issued on January 23, 2007 are called the initial notes. The initial notes and
the new notes are fully fungible and will constitute a single series of debt securities under the indenture and
are called collectively the notes. After giving effect to this offering, an aggregate of US$190,000,000 of
notes of this series will be outstanding. The Issuer will pay interest on the notes on January 23, April 23,
July 23 and October 23 of each year. The first interest payment on the new notes will be made on
October 23, 2007. The notes will be perpetual notes with no fixed final maturity date and will be repaid only
in the event that the Issuer redeems the notes or upon acceleration due to an event of default, as described
under Description of Notes. The notes will be general unsubordinated obligations of the Issuer and will
rank pari passu with the Issuers unsubordinated indebtedness. The obligations of the Issuer under the
initial notes were secured by a first priority pledge by the Issuer of shares representing 100% of the issued
and outstanding shares of GP Private Equity Ltd., or GPPE. The pledge was released following the
occurrence, on April 27, 2007, of the pledge release condition set forth in the indenture and the share
pledge agreement. The new notes will be issued only in denominations of US$100,000 and in integral
multiples of US$1,000 in excess thereof.
Application has been made to the Irish Financial Services Regulatory Authority, as competent authority
under Directive 2003/71/EC for the Offering Memorandum to be approved. Application has been made to
the Irish Stock Exchange for the new notes to be admitted to the Official List and trading on its regulated
market. Such approval relates only to the new notes which are to be admitted to trading on the regulated
market of Irish Stock Exchange or other regulated markets for the purposes of Directive 93/22/EEC or
which are to be offered to the public in any Member State of the European Economic Area.
Investing in the new notes involves risks. See Risk Factors beginning on page 23.
We have not registered the new notes under the U.S. Securities Act of 1933, as amended, or the
Securities Act, or under any state securities laws. Therefore, we may not offer or sell the new notes
within the United States or to, or for the account or benefit of, any U.S. person unless the offer or
sale would qualify for a registration exemption from the Securities Act and applicable state securities
laws. Accordingly, we are only offering the new notes (1) to qualified institutional buyers (as defined
in Rule 144A under the Securities Act) that are also qualified purchasers (as defined in the
Investment Company Act of 1940, as amended) and (2) to non-U.S. persons outside the United
States in compliance with Regulation S under the Securities Act. See Transfer Restrictions for
additional information about eligible offerees and transfer restrictions. None of the United States
Securities and Exchange Commission, or the SEC, the Irish Stock Exchange, the Bermuda Monetary
Authority, the Registrar of Companies in Bermuda, or any other securities authority has approved or
disapproved these securities or determined that this offering memorandum is accurate or complete.
Any representation to the contrary is a criminal offense.
The new notes have not been, and will not be, registered with the Brazilian Securities
Commission (Comisso de Valores Mobilirios), or CVM. Any public offering or distribution, as
defined under Brazilian laws and regulations, of the new notes in Brazil is not legal without such prior
registration under Law 6385/76.
The new notes will be delivered to purchasers in book-entry form through the facilities of
Euroclear Bank S.A./N.V., as the operator of the Euroclear System, or Euroclear, and Clearstream
Banking, socit anonyme, or Clearstream, on or about October 5, 2007.
Credit Suisse
The date of this offering memorandum is October 3, 2007.
TABLE OF CONTENTS
Page
PRESENTATION OF FINANCIAL AND OTHER
INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GLOSSARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FORWARD-LOOKING STATEMENTS. . . . . . . . . . . 8
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SUMMARY FINANCIAL INFORMATION . . . . . . . . 20
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . 34
TRACK RECORD . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 38
EXCHANGE RATES . . . . . . . . . . . . . . . . . . . . . . . . . 39
SELECTED FINANCIAL AND OTHER
INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
INDUSTRY OVERVIEW. . . . . . . . . . . . . . . . . . . . . . 65
Page
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . 116
RELATED PARTY TRANSACTIONS . . . . . . . . . . . . 117
DESCRIPTION OF NEW NOTES . . . . . . . . . . . . . . . 119
SETTLEMENT AND CLEARANCE. . . . . . . . . . . . . . 138
DESCRIPTION OF SHARE CAPITAL. . . . . . . . . . . . 140
DIVIDENDS AND DIVIDEND POLICY . . . . . . . . . . 146
TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . 147
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 153
NOTICE TO CANADIAN RESIDENTS. . . . . . . . . . . 157
TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . 158
ERISA CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . 160
LISTING AND GENERAL INFORMATION . . . . . . . 162
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 163
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . 163
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . F-1
APPENDIX AU.S. PURCHASERS LETTER . . . A-1
You should rely only on the information contained in this offering memorandum. We and the initial
purchasers have not authorized anyone to provide you with information that is different. If anyone
provides you with different or additional information, you should not rely on it. This offering
memorandum may only be used where it is legal to sell these securities. The information contained in this
offering memorandum may only be accurate on the date hereof regardless of the time of delivery of this
offering memorandum or of any sale of the new notes. Neither the delivery of this offering memorandum
nor any sale made hereunder shall under any circumstances imply that there has been no change in our
affairs or in the affairs of our subsidiaries or that the information set forth herein is correct as of any date
subsequent to the date hereof.
In this offering memorandum, the terms GP Investments, Issuer, we, us, our and our company
mean, unless otherwise indicated, GP Investments, Ltd.
The term GP Group refers to GP Investimentos S.A. and its affiliates through which the GP Partners or
the Founders, as the case may be, have been conducting their activities under the brand name GP. This offering
memorandum is being furnished by us in connection with an offering exempt from registration under the
Securities Act and applicable state securities laws solely for the purpose of enabling a prospective investor to
consider the purchase of the new notes. Delivery of this offering memorandum to any person or any reproduction
of this offering memorandum, in whole or in part, without our and the initial purchasers prior consent, is
prohibited. The information contained in this offering memorandum has been provided by us and other sources
believed by us to be reliable. The initial purchasers make no representation or warranty, express or implied, as to
the accuracy or completeness of the information contained in this offering memorandum. Nothing contained in
this offering memorandum is, or shall be relied upon as, a promise or representation by the initial purchasers as
to the past or future.
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This offering memorandum has been prepared solely for use in connection with the proposed offering of the
new notes described herein and does not purport to summarize all of the terms, conditions, covenants and other
provisions contained in the indenture, the new notes or other transaction documents. The information provided is
not all-inclusive and may not contain all the information that may be relevant to you. This offering memorandum
is personal to each offeree and does not constitute an offer to any other person or to the public generally to
subscribe for or otherwise to acquire such securities.
We are relying on an exemption from registration under the Securities Act for offers and sales of securities
that do not involve a public offering. Our new notes offered through this offering memorandum are subject to
restrictions on transferability and resale, and may not be transferred or resold in the United States except as
permitted under the Securities Act and applicable U.S. state securities laws pursuant to registration or exemption
from them. The new notes offered hereby have not been recommended by the United States Securities and
Exchange Commission, or the SEC, or any state or foreign securities commission or any regulatory authority.
The foregoing authorities have not confirmed the accuracy or determined the adequacy of this offering
memorandum. Any representation to the contrary is a criminal offense.
By purchasing these securities, you are required to make certain acknowledgements, representations and
warranties and agreements described under the heading Transfer Restrictions in this offering memorandum
(see also ERISA Considerations).
You should be aware that you may be required to bear the financial risks of this investment for an indefinite
period of time. In making an investment decision, you must rely on your own examination of our business and
the terms of this offering, including the merits and risks involved.
You must comply with all applicable laws and regulations in force in any jurisdiction in which you
purchase, offer or sell our new notes or possess or distribute this offering memorandum and must obtain any
consent, approval or permission required for your purchase, offer or sale of our new notes under the laws and
regulations in force in any jurisdiction to which you are subject or in which you make such purchases, offers or
sales, and neither we nor the initial purchasers will have any responsibility therefor. This offering does not
constitute an offer to sell or a solicitation of an offer to buy the new notes to any person in any jurisdiction where
it is unlawful to make such an offer or solicitation.
We reserve the right to withdraw this offering at any time and we and the initial purchasers reserve the right
to reject any commitment to subscribe for the new notes, in whole or in part, and for any reason, and to allot to
you less than all of the new notes offered to you.
This offering is being made solely on the basis of the information contained in this offering memorandum.
Investors should take this into account when making investment decisions.
In connection with the issue of the new notes, Credit Suisse Securities (USA) LLC (or persons acting on its
behalf) may over-allot new notes or effect transactions with a view to supporting the market price of the new
notes at a level higher than that which might otherwise prevail. However, there is no assurance that Credit Suisse
Securities (USA) LLC (or persons acting on its behalf) will undertake stabilization action. Such stabilizing, if
commenced, may be discontinued at any time, and must be brought to an end after a limited period.
This communication is directed only at persons who (i) are outside the United Kingdom, or (ii) are
investment professionals falling within Article 19(5) of the Financial Services and Markets Act of 2000
(Financial Promotion) Order 2001 (the Order) or (iii) are persons falling within Article 49(2)(a) to (d) (high
net worth companies, incorporated associations etc.) of the Order (all such persons together are being referred to
as relevant persons). This communication must not be acted on or relied on by persons who are not relevant
persons. Any investment or investment activity to which this communication relates is available only to relevant
persons and will be engaged in only with relevant persons.
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This offering memorandum constitutes a prospectus for the purposes of the Directive 2003/71/EC of the
European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities
are offered to the public or admitted to trading, or the Prospectus Directive.
We and the initial purchasers are not making any representation to any purchaser of the securities regarding
the legality of an investment in the securities by such purchaser under any legal investment or similar laws or
regulations. You should not consider any information in this offering memorandum to be legal, business or tax
advice. You should consult your own attorney, business advisor and tax advisor for legal, business and tax advice
regarding an investment in the securities.
This offering memorandum contains summaries intended to be accurate with respect to certain terms of
certain documents, but reference is made to the actual documents, all of which will be made available to you
upon request to us, for complete information with respect thereto, and all such summaries are qualified in their
entirety by such reference.
You hereby acknowledge that (i) you have been afforded an opportunity to request from us and to review,
and have received, all additional public information considered by you to be necessary to verify the accuracy of,
or to supplement, the information contained herein, (ii) you have had the opportunity to review all of the
documents described herein, (iii) you have not relied on the initial purchasers or any person affiliated with the
initial purchasers in connection with any investigation of the accuracy of such information or the investment
decision and (iv) no person has been authorized to give any information or to make any representations
concerning us or the new notes (other than those contained in this offering memorandum and information given
by our duly authorized officers and employees in connection with your examination of us and the terms of this
offering) and, if given or made, you should not rely upon any such other information or representation as having
been authorized by us or the initial purchasers.
Consent under the Exchange Control Act 1972 (and its related regulations) has been obtained from the
Bermuda Monetary Authority for the issue and transfer of our securities, including the new notes, to and between
non-residents of Bermuda for exchange control purposes provided our shares remain listed on an appointed stock
exchange, which includes the Luxembourg Stock Exchange and Irish Stock Exchange. This offering
memorandum will be filed with the Registrar of Companies in Bermuda in accordance with Bermuda law. In
granting such consent and in accepting this offering memorandum for filing, neither the Bermuda Monetary
Authority nor the Registrar of Companies in Bermuda accepts any responsibility for our financial soundness or
the correctness of any of the statements made or opinions expressed in this offering memorandum.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN
THE STATE OF NEW HAMPSHIRE IMPLIES THAT ANY DOCUMENT FILED UNDER RSA 421-B
IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT
THAN AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED
IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
All references herein to U.S. dollars, dollars, US$ or $ are to U.S. dollars. All references to the
real, reais or R$ are to the Brazilian real, the official currency of Brazil. All references herein to Euros
or are to the euro, the official currency of the European Union.
On June 29, 2007, the exchange rate for reais into U.S. dollars was R$1.926 to $1.00, and on December 31,
2006, the exchange rate for reais into U.S. dollars was R$2.138 to $1.00, based on the exchange rate as reported
by the Central Bank of Brazil, or Central Bank. The real/dollar exchange rate may fluctuate widely, and the
exchange rate as of the above dates may not be indicative of future exchange rates. See Exchange Rates for
information regarding exchange rates for the Brazilian currency.
Certain figures included in this offering memorandum have been subject to rounding adjustments.
Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that
precede them.
Financial Statements
Through March 15, 2006 we were domiciled in the British Virgin Islands and maintained our books and
records in the British Virgin Islands and in U.S. dollars, in accordance with applicable law. We prepare our
consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America, or U.S. GAAP. We do not prepare and publish unconsolidated financial statements in
U.S. dollars; however, we do prepare unaudited unconsolidated financial statements in reais in U.S. GAAP, with
reconciliation to the accounting practices adopted in Brazil, which we refer to hereinafter as Brazilian GAAP,
which are based on Brazilian Law No. 6,404/76, as amended, and the accounting standards issued by the
Brazilian Institute of Independent Accountants (Instituto dos Auditores Independentes do Brasil), and the
Brazilian Federal Accounting Council (Conselho Federal de Contabilidade), for filing with the Brazilian
Securities Commission (Comisso de Valores Mobilirios), or the CVM. Our audited consolidated financial
statements as of December 31, 2006, 2005 and 2004, prepared in accordance with U.S. GAAP, are included in
this offering. Our unaudited condensed consolidated interim financial information as of June 30, 2007 and for the
six-month periods ended June 30, 2007 and 2006 are also included in this offering.
The preparation of financial information requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures in the financial
information. Actual results could differ from those estimates.
The condensed consolidated interim financial information as at June 30, 2007 and for the six-month periods
ended June 30, 2007 and 2006 are unaudited. This condensed consolidated interim financial information includes
all adjustments consisting of normal recurring adjustments which, in the opinion of our management, are
necessary for a fair presentation of our consolidated financial position, results of operations and cash flows for
the interim periods presented.
The unaudited condensed consolidated interim financial information should be read in conjunction with our
financial statements prepared for the year ended December 31, 2006. Our results for the six-month period ended
June 30, 2007 are not necessarily indicative of the results reported by us for the entire year ending December 31,
2007.
The accounting policies adopted in preparing this unaudited interim financial information are consistent
with those used by us in the preparation of our audited financial statements for the year ended December 31,
2006.
Certain of our subsidiaries prepare their financial statements in accordance with Brazilian GAAP. All assets
and liabilities of the foreign subsidiaries which do not use U.S. dollars as their reporting currency are translated
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into U.S. dollars at the exchange rate prevailing at the date of the balance sheet, while statements of income and
of cash flow accounts are translated at the average rates of exchange in effect during the applicable periods. The
related translation adjustments are recorded directly to the cumulative translation adjustment account in
shareholders equity.
In December 2005, we effected a corporate reorganization whereby certain activities that were formerly
conducted by the GP Group, including the ownership of certain assets and liabilities, were distributed as a
dividend in kind to our controlling shareholder, Partners Holdings. These assets and liabilities include the general
partner of GPCP1 (which had, as of that date, a net book value of $4.0 million) and the general partner of GPCP2
(which had, as of that date, net book value of $8.8 million). During 2005 and 2004, certain other payments of
dividends in kind were effected to compensate shareholders withdrawing from our company.
On April 20, 2006, we completed the sale of our stake in GPRE, which contained our real estate business.
In addition, on May 10, 2006, we completed the transfer of the rights and obligations arising from the
management of GP Tecnologia to GP Tecnologia Administradora de Ativos Ltda., a subsidiary of Partners
Holdings, which also acquired from us our interest in that fund for $2 million; no gain or loss was recorded from
those transactions.
As of and for the six-month period ended June 30, 2007, as well as for the year ended December 31, 2006,
the application of EITF 04-5 (see Managements Discussion and Analysis of Financial Condition and Results of
Operations) caused us to consolidate the line items of GPCP3 in the financial statements of GP3, which in turn
are consolidated with our financial statements. The remaining 53.14% equity interest in GPCP3, held by the
limited partners of GPCP3, are classified as minority interest. Therefore, since January 1, 2006, all assets and
liabilities, as well as the revenues and expenses, of GPCP3 are reported on our consolidated balance sheet and
income statement, respectively, and the assets and liabilities not held by us, as well as the corresponding
revenues and expenses, are presented as minority interest in a single line item. In principle, the same accounting
treatment will be given regarding GPCP4.
In June 2007, the American Institute of Certified Public Accountants (AICPA) issued Statement of
Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies,
(SOP 07-1). The new guidance clarifies which entities are within the scope of the AICPA Audit and
Accounting Guide, Investment Companies (the Guide). Prior to the release of SOP 07-1, the definition of an
investment company was unclear, which led to inconsistent application of the Guide. SOP 07-1 also addresses
whether companies that own or have significant stakes in an investment company should retain the specialized
financial-statement accounting that the Guide prescribes for the investment company industry. The provisions of
the SOP are effective for fiscal years beginning on or after December 15, 2007, although earlier application is
encouraged. As of December 31, 2006 and June 30, 2007, the Company accounted at fair value the investments
owned by GPCP3 in accordance with the Guide. If in future periods, GPCP3 does not meet the definition of an
investment company as defined in SOP 07-1, GPCP3 will need to review the accounting treatment adopted for its
investments and conclude if the investments should be accounted for using the cost method, the equity method or
the consolidation instead of using the fair value accounting. The Company is also addressing the impacts on the
other entities included in the consolidated financial statements (including GPCP4).
Market Share and Other Information
We obtained the market and competitive position data, including market forecasts, used throughout this
offering memorandum from internal surveys, market research, publicly available information and industry
publications. We have made these statements on the basis of information from third-party sources that we believe
are reliable, such as the Venture Equity Latin Americas 2005 Year-End Report, or VE-LA, the Brazilian
Institute of Geography and Statistics, or IBGE, and the Central Bank, among others. Industry and government
4
publications, including those referenced here, generally state that the information presented therein has been
obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not
guaranteed. Although we have no reason to believe that any of this information or these reports are inaccurate in
any material respect, we have not independently verified the competitive position, market share, market size,
market growth or other data provided by third parties or by industry or other publications. Neither we nor the
initial purchasers make any representation as to the accuracy of such information.
The performance measurement technique EVA referenced in this offering memorandum is a registered
trademark of Stern Stewart & Co.
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GLOSSARY
BOVESPA . . . . . . . . . . . . . . . . . . . . . . . . . . So Paulo Stock Exchange (Bolsa de Valores de So Paulo)
Central Bank. . . . . . . . . . . . . . . . . . . . . . . . . Central Bank of Brazil
CMN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazilian National Monetary Council (Conselho Monetrio Nacional)
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Internal Revenue Code of 1986, as amended
Companies Act. . . . . . . . . . . . . . . . . . . . . . . Bermuda Companies Act 1981, as amended
CVM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazilian Securities Commission (Comisso de Valores Mobilirios)
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . earnings before interest, taxes, depreciation and amortization
EVCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . European Venture Capital Association
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . U.S. Securities Exchange Act of 1934, as amended
Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . Our board of directors estimate of fair value
Founders . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jorge Paulo Lemann, Carlos Alberto Sicupira, Marcel Hermann
Telles and Roberto Thompson Motta
GP Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Administrao de Recursos S.A.
GP Group . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Investimentos S.A. and its affiliates through which the GP
Partners or the Founders, as the case may be, have been conducting
their activities under the brand name GP
GP Partners or Partners . . . . . . . . . . . . . . . Antonio Bonchristiano, Fersen Lamas Lambranho, Carlos Medeiros,
Octavio Lopes, Eduardo Alcalay, Marcio Trigueiro and Danilo
Gamboa
GP1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Investments I, Ltd., the general partner of GPCP1
GP2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Investments II, Ltd. the general partner of GPCP2
GP3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Investments III (Cayman) Ltd., the general partner of GPCP3
GP4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Investments IV, Ltd., the general partner of GPCP4
GPCP1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Capital Partners, L.P.
GPCP2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Capital Partners II, L.P.
GPCP3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Capital Partners III, L.P.
GPCP3 Partnership Agreement. . . . . . . . . GPCP3 limited partnership agreement, as amended
GPCP4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Capital Partners IV, L.P.
6
GPCP4 Partnership Agreement. . . . . . . . . GPCP4 limited partnership agreement, as amended
GPCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Cash Management, Ltd.
GPPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Private Equity Ltd.
GPRE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prosperitas Investimentos S.A. (formerly named GP Investimentos
Imobilirios S.A.)
GP Tecnologia . . . . . . . . . . . . . . . . . . . . . . . GP Tecnologia Multimercado Fundo de Investimento em Quotas de
Fundos de Investimento em Ttulos e Valores Mobilirios
IBGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazilian Institute of Geography and Statistics (Instituto Brasileiro de
Geografia e Estatstica)
Investment Company Act. . . . . . . . . . . . . . U.S. Investment Company Act of 1940, as amended, and the related
rules
Irish Listing Agent . . . . . . . . . . . . . . . . . . . NCB Stockbrokers Limited
Irish Paying Agent. . . . . . . . . . . . . . . . . . . . HSBC Institutional Trust Services (Ireland) Limited
IRR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . internal rate of return
Legal Representative. . . . . . . . . . . . . . . . . . Antonio Bonchristiano, as legal representative in Brazil
Partners Holdings . . . . . . . . . . . . . . . . . . . . Partners Holdings, Inc.
PFIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Passive foreign investment company
Principal Paying Agent, Transfer Agent,
Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . HSBC Bank plc
Prospectus Directive . . . . . . . . . . . . . . . . . . Directive 2003/71/EC of the European Parliament and of the Council
of 4 November 2003 on the prospectus to be published when
securities are offered to the public or admitted to trading
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Securities and Exchange Commission
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . U.S. Securities Act of 1933, as amended
Similar Laws . . . . . . . . . . . . . . . . . . . . . . . . laws or regulations that are similar to the fiduciary responsibility or
prohibited transaction provisions contained in Title I of ERISA or
Section 4975 of the U.S. Internal Revenue Code
Trustee, Paying Agent, Escrow Agent
and Collateral Agent. . . . . . . . . . . . . . . . HSBC Bank USA, National Association
U.S. GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . accounting principles generally accepted in the United States
VE-LA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Venture Equity Latin Americas 2005 Year-End Report
7
FORWARD-LOOKING STATEMENTS
This offering memorandum contains estimates and forward-looking statements, principally in Risk
Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and
Business. Some of the matters discussed concerning our business operations and financial performance include
estimates and forward-looking statements within the meaning of the Securities Act and the Securities Exchange
Act of 1934, as amended, or the Exchange Act.
Our estimates and forward-looking statements are mainly based on our current expectations and estimates
on future events and trends, which affect or may affect our businesses and results of operations. Although we
believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are
subject to several risks and uncertainties and are made in light of information currently available to us.
Our estimates and forward-looking statements may be influenced by the following factors, among others:
our ability to find suitable assets for investment;
our ability to arrange financing and implement our expansion plan;
our ability to compete and conduct our businesses in the future;
changes in our businesses;
inflation, interest rate fluctuations and other macroeconomic factors in the regions where we or our
investments operate;
changes in the laws and regulations applicable to the private investment market;
government interventions, resulting in changes in the economy, taxes, rates or regulatory environment;
other factors that may affect our financial condition, liquidity and results of our operations; and
other risks factors discussed under Risk Factors.
Investors should understand that the following important factors, in addition to those discussed elsewhere in
this offering memorandum, among others, could affect our future results and could cause results to differ
materially from those expressed in such forward-looking statements:
general economic conditions in Brazil, such as the rates of economic growth, fluctuations in exchange
rates or inflation;
general social and political conditions in Brazil; and
governmental intervention, resulting in changes to the economic, tax, tariff or regulatory environment in
Brazil or other countries in which we may operate.
The words believe, understand, may, will, estimate, continue, anticipate, intend, expect
and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-
looking statements speak only as of the date they were made, and, except to the extent required by law, we
undertake no obligation to update or to review any estimate and/or forward-looking statement because of new
information, future events or other factors. Estimates and forward-looking statements involve risks and
uncertainties and are not guarantees of future performance. Our future results may differ materially from those
expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described
above, the estimates and forward-looking statements discussed in this offering memorandum might not occur and
our future results and our performance may differ materially from those expressed in these forward-looking
statements due to, including, but not limited to, the factors mentioned above. Because of these uncertainties, you
should not make any investment decision based on these estimates and forward-looking statements.
8
SUMMARY
To understand the offering and the risks of investing in our new notes more fully, you should read this entire
offering memorandum carefully, especially the risks discussed under Risk Factors and the consolidated
financial statements and notes to those financial statements included elsewhere in this offering memorandum.
Overview
GP Investments
We are a Bermuda exempted company that consolidates certain of the activities of the GP Group, which is
generally considered a leader in private equity in Latin America. Our activities consist of our core private equity
business and our asset management business, and our mission is to generate higher than average returns for our
shareholders.
Our private equity business is conducted by us, either directly or by funds that we manage. In either case,
we will continue to seek to acquire privately negotiated control or joint-control equity positions in a number of
companies conducting businesses principally either located, or with significant business activities, in Brazil and,
to a lesser extent, in other Latin American countries.
We will continue to target investment opportunities that allow for enhancement of shareholder value
through improved management and operations, leveraging proven international business models adapted to the
Latin American marketplace.
Certain private equity activities that were formerly conducted by the GP Group, including the ownership of
certain assets and liabilities, have been spun-off from us prior to our initial public offering, concluded on
May 31, 2006. These include the general partner of GP Capital Partners, L.P., or GPCP1, and GP Capital
Partners II, L.P. or GPCP2, and the interests in a Brazilian technology private equity fund, or GP Tecnologia,
each of which is already in its divestiture period. We will not benefit from revenues arising from these assets. At
the GP Tecnologia general members meeting held on April 27, 2006, the members of GP Tecnologia approved
our replacement as manager of the fund, and transferred all rights and duties related to the management of such
fund to GP Tecnologia Administradora de Ativos Ltda., a subsidiary of Partners Holdings. The transfer was
effective May 10, 2006. In addition, on April 20, 2006, we completed the sale of our stake in GPRE, which
contained our real estate business.
We are led by experienced professionals, including Antonio Bonchristiano, Fersen Lamas Lambranho,
Carlos Medeiros, Octavio Lopes, Eduardo Alcalay, Marcio Trigueiro, and Danilo Gamboa, or the GP Partners,
and Allan Hadid, our CFO. The GP Partners have been with the GP Group for a combined period of
approximately 45 years and have more than 100 years of experience in private equity, operations and corporate
finance. The GP Partners possess a common, disciplined investment philosophy, a complementary set of skills
and a deep understanding of the Brazilian marketplace.
We seek to invest at attractive valuations in established companies with one or more of the following
characteristics: (i) products with strong market positions, (ii) primarily dependent upon private sector orders,
(iii) potential for significant productivity or growth increases, (iv) global competitive advantage, (v) customer-
driven, (vi) low technological risk, (vii) high proportion of export revenues, (viii) high barriers to entry and
(ix) replicable buyout model.
In addition to our core private equity business, we also conduct asset management activities, focusing on the
local Brazilian market, through our majority-owned subsidiary, GP Administrao de Recursos S.A., or GP
9
Asset. GP Asset is led by Nelson Rozental, who has more than 30 years of investment experience in the private
and public sectors in Brazil and has been a partner of the GP Group since 1999, Marcus Martino, who has been
with the GP Group since 1997, Mariano Figueiredo, who has been with the GP Group since 2004, and Marcos
Falco, who joined GP Group in 2007.
GP Assets current product offerings include fixed income funds, equity funds and hedge funds, all of which
focus on different risk profiles and investor bases. We expect our asset management business to benefit from
growth in demand for alternative asset management products in the wake of decreasing interest rates in Brazil.
History of the GP Group
Jorge Paulo Lemann, Carlos Alberto Sicupira, Marcel Hermann Telles and Roberto Thompson Motta, or the
Founders, started the GP Group in 1993 with the goal of conducting private equity activities in Latin America. At
its foundation, the GP Group was conceived as a partnership, in which employees had the opportunity to become
partners. As a result, the Founders gradually transferred the management and control of the GP Group to some of
the GP Partners, as part of a natural succession plan. Since 2001, the GP Partners have managed the GP Group
and, since 2003, the GP Partners have held voting control of the GP Group.
The GP Group has since its inception raised more than $2.6 billion from Brazilian and international
investors. The GP Group has raised five private equity funds:
GPCP1, which was closed in 1994 with $500 million of committed capital;
GPCP2, which was closed in 1997 with $800 million of committed capital;
GP Tecnologia, which was closed in 2000 with R$122 million (equivalent to $63.3 million as of
June 29, 2007) of committed capital;
GPCP3, which was closed in June 2006, with $250 million of committed capital. GP Investments is the
largest investor in GPCP3, representing 46.86% of the committed capital; and
GPCP4, which was closed in July 2007, with $1.03 billion of committed capital. GP Investments is the
largest investor in GPCP4, representing 39.02% of the committed capital. Under the GPCP4 Partnership
Agreement, GP4 may hold additional closings at any time until the earlier of (i) the date when the
aggregate capital commitments of all the partners, together with the entire capital commitments of any
parallel funds, reach $1.3 billion and (ii) November 15, 2007.
In addition, the GP Group has also raised, through its subsidiaries, a number of local public equity, debt and
real estate funds.
From 1994, the GP Group has made investments, through the above mentioned private equity funds, in 42
companies, with 31 of these investments realized for total proceeds of approximately $2.05 billion, producing a
realized annual internal rate of return of 22.3% in U.S. dollar terms and of 32.4% in reais terms as of August 31,
2007.
Our History and Ownership Structure
In 2003, GP Investments was created under the name GP Global, Inc. as part of a corporate reorganization,
which culminated in 2004 when certain of the GP Partners acquired substantially all of our capital. The
GP Partners have reorganized their ownership in GP Investments prior to its initial public offering, contributing
all of their shares to an intermediary holding company, Partners Holdings Inc., or Partners Holdings. Currently,
Partners Holdings is our controlling shareholder. In 2006, we were redomiciled to Bermuda from the British
Virgin Islands. See BusinessCorporate Reorganization.
10
As a result of the various corporate reorganizations that we have conducted, our corporate structure includes
the following entities:
GP Capital Partners IV,
LP (Cayman)
GP Investments,
Ltd. (Bermuda)
Partners
Holdings
25.4%
Free Float
74.6%
38.86%
0.001%
GP Cash Management
(Bahamas)
100%
GP Capital Partners III,
LP (Cayman)
GP Investments III
Ltd. (Cayman)
GP Investimentos S.A.
99.97%
64.5%
8%
100%
39.03%
GP Investments IV
Ltd. (Cayman)
GP Private Equity
(Bermuda)
GP Holdings, Inc
(Cayman)
GP Participaes S.A.
GP Investimentos Ltda.
Offshore
Brazil
GP Asset
Management Inc
(Panama)
100%
99.99%
60% (indirectly)
GP Administrao de
Recursos S.A.
99.99%
100% 100%
Note: The participation in GP Participaes S.A. is held indirectly.
Our Competitive Strengths
We believe that our competitive strengths include the following:
Experienced Professionals. We have a group of highly talented professionals, with a strong reputation in the
private equity industry. Our investment team has solid academic credentials and significant expertise in the private
equity and financial industries, having successfully completed private equity investments and exits in many
industries throughout various economic cycles in Brazil. Many of our executive officers also have direct experience
in operations. The GP Group has meaningful transaction experience, having completed 42 investments and 31 exits.
In the past two years alone, we have been involved in investments in Equatorial Energia S.A. (or Equatorial
Energia), Cemars holding company, Lupatech S.A. (or Lupatech), Fogo de Cho Churrascaria (Holding), LLC (or
Fogo de Cho), BR Malls S.A. (formerly Ecisa Participaes S.A. and Ecisa Engenharia S.A.) (or BR Malls),
Tempo Participaes S.A. (formerly IHH/USS) (or Tempo), BR Properties S.A. (or BR Properties), Magnesita S.A.
(or Magnesita) and Pride Latam, and the IPOs of Amrica Latina Logstica S.A. (or ALL), Submarino S.A. (or
Submarino), Gafisa S.A. (or Gafisa), Equatorial Energia, Lupatech and BR Malls, and six block trades. Our group
of 14 professionals (including the GP Partners) is the largest private equity-dedicated team in Brazil.
Unique Investment and Management Philosophies. Our value and control-oriented investment philosophy
is well-suited to the potentially volatile environment of most Latin American countries, by reducing valuation
risk and the uncertainty relating to investment exits. In addition, our clearly defined management philosophy,
based on strict cost control, lean organizational structures, talent development, meritocracy and business ethics,
implemented through a set of management tools mastered by the GP Group, allows us to achieve maximum
11
impact on acquired companies in a very short timeframe. The key element in our management philosophy is the
alignment of interests with our shareholders, attained by motivating our operating executives through the use of
share option plans and variable results-based compensation.
Reputation and Credibility. We believe GP is the premier brand for control-oriented investment firms in Latin
America, and that it is synonymous in Brazil with integrity, entrepreneurship, meritocracy and professionalism. These
qualities have helped the GP Group attract and retain top talent, source transactions, successfully complete deals and
find co-investors for larger deals, which we believe will continue to help us in the future.
Ability to Source Transactions. The network of contacts and corporate relationships that the GP Partners
have developed over the past years are essential to us in identifying and developing investment opportunities.
Our deal sourcing network includes portfolio company managers, corporate executives, entrepreneurs, private
equity firms, financial intermediaries and professional advisors. In addition, our local presence in Brazil, coupled
with our strong brand and reputation, enables us to source transactions that may not be available to a majority of
our competitors.
Attractive Publicly Traded Model. Unlike traditional private equity funds, we are not subject to standard
periodic capital return requirements that typically stipulate that funds can only be invested once and must be
returned to investors after a previously agreed time period. These provisions often force private equity funds to
seek liquidity on their investments more quickly than they otherwise would, potentially resulting in both a lower
overall return to investors and an adverse impact on their portfolio companies. The flexibility to make
investments with a long-term view and without the capital return requirements of traditional private investment
vehicles should provide us with the opportunity to generate higher returns on invested capital and should enable
us to be a better long-term partner for our portfolio companies. Furthermore, GP Investments is the first public
private equity company in Latin America.
Synergies from Our Asset Management Business. GP Asset has developed asset origination capabilities by
leveraging the GP Groups reputation, network of contacts and portfolio companies to invest in assets unique to
the Brazilian financial markets. Moreover, it benefits from the GP Groups institutional and personal
relationships in its ongoing fundraising efforts. The success of this venture should strengthen our image with the
financial community as well as with prospective portfolio companies.
The Initial Public Offering
GP Investments is the first publicly traded private equity company in Latin America. The decision to
become a public company was based on the Partners firm conviction that as a public company we significantly
increase our ability to perpetuate our position as a leading private equity firm. The capital raised with our initial
public offering represents an important competitive advantage for GP Investments, as it increases our ability to
pursue new deals independently of the availability of funds for private equity investments in Brazil and provides
us with the ability to use such leverage to increase our investment capacity. As a public company we also benefit
from a broader and more diverse investor base and gain flexibility in the timing of investments in, and exits from,
our portfolio companies.
Brazilian Private Equity Environment
We believe that the Brazilian private equity environment is attractive for the following reasons:
Macroeconomic Conditions. We believe the Brazilian economy, and more importantly, the private equity
investment environment, is in a period of sustained growth. In particular, the prudent fiscal and monetary policies
12
undertaken by successive Brazilian governments over the last decade, together with the implementation of
political reforms, have improved Brazils economic fundamentals and should contribute to higher growth. The
control over inflation, substantial current account surpluses along with an appreciation of the real, falling interest
rates and unemployment, and an increase in purchasing power should reduce long-term investment risk and
create opportunities for us.
Capital Scarcity. High short-term interest rates in Brazil have historically kept local investors (such as
pension funds and large financial institutions) out of the private equity market due to its longer-term, less liquid
features. In addition, very few local firms have the capacity to raise funds internationally, while international
firms have in the past shown low commitment to the region. In this context, the GP Group has alone raised
approximately 25% of all private equity capital invested in Brazil, from 1993 to 2004, according to data included
in Modelo Brasileiro de PE-VC, a FEA-USP (Faculdade de Economia e Administrao da Universidade de So
Paulo) academic thesis. This lack of competition for deals has so far reduced entry valuations in private
investmentsprofitable, growing companies are available in Brazil at much lower valuation multiples when
compared to deals seen in India and China, although there is no assurance that this will continue to be the case.
Increased Openness of the Brazilian Economy. Increased involvement of the Brazilian economy in the
global trade, which has resulted from the export boom over the past few years, is a powerful incentive for local
companies to increase their competitiveness. Private equity groups are likely to benefit from this trend, as it
should increase demand for equity capital and professional management.
Vibrant Financial Markets. The recent liquidity in the Brazilian public equity markets, if sustained, will
substantially reduce the uncertainty associated with exits from private equity investments. As an illustration, the
GP Group has taken public six (ALL, Submarino, Gafisa, Equatorial Energia, Lupatech and BR Malls) of its
portfolio companies in the last 3 years, having subsequently divested a significant portion of its interests in those
companies. In addition, the breadth of the credit markets should also benefit the private equity industry, by
creating the possibility of leveraged buy-outs and enhanced returns for equity investors.
Our Strategy
Private Equity Business
We seek attractive returns by acquiring and actively managing established assets in a wide range of
industries either located, or with significant business activities, in Brazil and, to a lesser extent, in other Latin
American countries.
We target investment opportunities that allow for enhancement of shareholder value through improved
management and operating techniques, leveraging proven international business models adapted to the Latin
American marketplace. The GP Group has historically created value by: (i) recruiting outstanding management
teams; (ii) taking an active role in formulating the strategy of portfolio companies; (iii) identifying and
facilitating relationships with strategic and financial partners; (iv) negotiating and arranging financings;
(v) timing and executing opportunistic exits; and (vi) where necessary or desirable, actively managing companies
on a day-to-day basis.
We operate under an operations-oriented strategy. This strategy includes:
Pursuing Opportunistic Deal Types. We focus on leveraged acquisitions, recapitalizations and growth
financings of established businesses in a variety of industries. These types of transactions may arise as a result of
an opportunity for: (i) consolidation in fragmented industries; (ii) divestitures by larger companies of non-core
assets; (iii) acquisitions of family-owned businesses in need of growth capital or a highly skilled management
team; and (iv) restructurings of fundamentally sound but poorly managed companies or the recapitalization of
13
under-capitalized companies. We believe that these situations may generate opportunities to make interesting
investments at attractive entry valuations.
Focusing on Varied Sectors. Many companies in Brazil lack the financial resources and professional
management required to position them for the next stage of growth. Many of these target companies can
experience a rapid increase in value from the professional oversight, strategic guidance and capital resources that
we offer, regardless of their sector of activity. We believe it is important to be flexible so that we may capitalize
on opportunities as they arise. At the same time, our rigorous industry analyses and the adherence to our
philosophy of focusing on businesses in which we can improve operating performance will reduce risks to our
investors.
Focusing on Mature Companies and Business Models. We invest in companies of a certain size (typically
over R$100 million in revenues, which corresponded, on June 30, 2007, to $51.9 million) because they tend to
have a series of advantages over smaller businesses, including: (i) need for a larger equity investment, resulting
in a smaller number of companies in the portfolio, consistent with our operations-oriented strategy, (ii) smaller
competition for deals, given the capital scarcity observed in Brazil, (iii) easier attraction of management talent,
and (iv) broader exit prospects due to higher interest from strategic acquirers and access to the capital markets.
Reducing Risk Through a Disciplined Investment Process. We focus on the risk/reward profile of each
prospective portfolio company. We seek to reduce risks by: (i) focusing on companies with leading market positions
and strong cash flow, (ii) engaging in extensive due diligence from the perspective of a long-term investor,
(iii) investing at low price to cash flow multiples, (iv) acquiring control or joint control positions, (v) adopting
low-leverage capital structures, and (vi) devising likely exit alternatives still in the investment phase.
Implementing Management Philosophy in Portfolio Companies. We maintain and replicate at our portfolio
companies the successful management philosophy that the GP Group has refined in its over 30 years of investing.
This philosophy, based on the principles of strict cost control, lean organizational structures, talent development,
meritocracy, and business ethics, is a powerful framework that helps us maximize the operating performance of
each acquired asset, and reduce risks.
Seeking Return over Invested Capital on Exits. As a public company with an indefinite life rather than a
private equity fund, we are able to manage our businesses without the requirement to sell within a specified time
period. We retain, however, the flexibility to pursue refinancings and dispositions when we believe such actions
will maximize shareholder returns.
Despite our broad sector focus, we follow a very disciplined investment approach, initially abiding by the
investment guidelines below. These investment guidelines were approved by our board of directors and any
changes to them must be approved by the affirmative vote of not less than 80% of our board of directors then in
office.
We do not invest in situations without control or shared control of target companies;
We do not enter into any projects which have been determined in good faith by a majority of our board
of directors to be start-up or greenfield projects, nor do we enter into the technology and biotech sectors,
industries where we cannot fully leverage our management expertise;
We decline any investment opportunity which has been determined in good faith by a majority of our
board of directors to be related to weapons, tobacco or other industries that have negative social and
environmental implications;
We follow certain diversification limits, ensuring that a single company or sector will not represent
more than 25% or 35% of our assets, respectively; and
We do not contract leverage in our balance sheet higher than 50% of our assets.
14
Our investments are made either directly by GPPE or through private equity funds that we manage.
We are subject to certain investing restrictions because of GPCP4s existing arrangements.
The GPCP4 Partnership Agreement, prohibits us from investing in any opportunity presented to the general
partner of GPCP4 (GP Investments IV Ltd., or GP4) or to the sponsor (as defined in the GPCP 4 Partnership
Agreement), that is suitable for GPCP4 without first offering such opportunity to GPCP4, subject to certain
specific exceptions. This prohibition is effective until the earlier of the end of the commitment period or the date
at which 90% of the committed amounts have been invested or committed to investment. During this period, we
would only be able to invest in transactions that are suitable for GPCP4, indirectly as a holder of partnership
interests in GPCP4 to the pro-rata extent of our commitment in GPCP4, or if the advisory committee of GPCP4
refuses such transactions. See BusinessGPCP4.
In addition, the GPCP4 Partnership Agreement prohibits us from co-investing in a transaction unless the
co-investment has been first offered to the partners of GPCP4 (which may include us or any of our affiliates) on a
pro-rata basis.
Similar investing restrictions used to apply to GPCP3 but have become inapplicable considering that, as of
August 31, 2007, GPCP3 was fully invested in six different companies (Equatorial Energia, Fogo de Cho, BR
Malls, Tempo, BR Properties and Magnesita).
We also maintain the flexibility of raising and managing other private equity funds with investors. As is
typical for managers of such funds, we may commit to acquire a portion of the interest in any such funds through
GPPE. GP Investments, Ltd., directly or through one of its subsidiaries, will be the general partner of any other
fund that we may raise in the future and will benefit from management fees and performance fees that we will
charge those other funds.
Asset Management Businesses
Our asset management business provides investment management and advisory services to institutional
clients, financial intermediaries, private clients and investment vehicles. Our goal in this business is to produce
superior risk-adjusted investment returns and provide diverse investment solutions for our clients.
We expect our asset management business to benefit from expected growth in demand in the wake of
decreasing interest rates in Brazil. In addition, we expect this business to leverage our brand and network of
contacts to quickly grow its assets under management and to develop superior asset origination capabilities.
Our registered office is located at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda. We also
have an office located at Suite 411, fourth floor of the International Centre Building, in the City of Hamilton,
Bermuda, and a Legal Representative in Brazil, located at Av. Brigadeiro Faria Lima, 3900, 7 andar, 04538-132,
So Paulo, SP, Brazil, and our general telephone number is +55 11 3556-5505. The telephone number of our
investor relations department is +55 11 3556-5505. Our website is www.gp-investments.com. Our website and
the contents therein are not part of this offering memorandum.
15
THE OFFERING
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GP Investments, Ltd.
The New Notes . . . . . . . . . . . . . . . . . . . . . . US$40,000,000 aggregate principal amount of the Issuers 10%
Perpetual Notes.
Issue Price. . . . . . . . . . . . . . . . . . . . . . . . . . . 100% of the principal amount, plus accrued interest, if any, from
July 23, 2007.
The new notes are being offered as additional debt securities under an
indenture dated January 23, 2007, pursuant to which the Issuer
previously issued $150,000,000 of 10% Secured Perpetual Notes. The
initial notes and the new notes are fully fungible and will constitute a
single series of debt securities under the indenture. The initial notes
were secured by a first priority pledge on 100% of GPPEs issued and
outstanding shares. The share pledge agreement and the security
interests granted thereby were terminated following the occurrence,
on April 27, 2007, of the pledge release condition set forth in the
indenture and the share pledge agreement.
Issue Date . . . . . . . . . . . . . . . . . . . . . . . . . . . October 5, 2007.
Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . The new notes are perpetual notes with no fixed maturity date.
Optional Redemption at the Option of
the Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . The Issuer may, on any interest payment date on or after January 23,
2012, and by giving at least 30 but not more than 60 days notice to
the noteholders, redeem the new notes in whole, but not in part, at the
then outstanding principal amount of the new notes, together with
accrued but unpaid interest and additional amounts, if any, as further
described in this offering memorandum under Description of
NotesRedemptionOptional Redemption.
Tax Redemption. . . . . . . . . . . . . . . . . . . . . . The new notes will be redeemable in whole, but not in part, at their
principal amount, plus accrued but unpaid interest and additional
amounts, if any, to the date of redemption, at the Issuers option at
any time in the event of certain changes affecting taxation described
in this offering memorandum under Description of
NotesRedemptionTax Redemption.
Debt Service Reserve Account . . . . . . . . . The Trustee has established and maintains in the United States a U.S.
dollar-denominated account (the Debt Service Reserve Account)
over which the Trustee will have sole and exclusive control and
exclusive right of withdrawal. Subject to certain exceptions, the Debt
Service Reserve Account shall be deemed to be Fully Funded so
long as, at any time, the funds on deposit therein are in an amount
sufficient to provide for the payment in full of the amounts due on the
notes on the following six interest payment dates. The Issuer may,
under certain circumstances, by giving notice to the Trustee no later
than three business days prior to a given interest payment date, make
16
payments of interest and additional amounts, if any, due and payable
on the notes on such interest payment date with funds held in the Debt
Service Reserve Account. Under certain circumstances, the Issuer
will be entitled to substitute a letter of credit, financial guarantee
insurance policy or other form of liquidity support for the Debt
Service Reserve Account. See Description of NotesDebt Service
Reserve Account.
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . The net proceeds of the issuance of the new notes by the Issuer will
be used to make acquisitions in accordance with its investment
strategy, including making follow-on investments in businesses
acquired from time to time, and for general corporate purposes.
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . The new notes will be issued under an Indenture between the Issuer,
HSBC Bank USA, National Association, as trustee, HSBC Bank plc,
as registrar, principal paying agent and transfer agent, and HSBC
Institutional Trust Services (Ireland) Limited, as Irish paying agent.
Interest Payment Dates. . . . . . . . . . . . . . . . January 23, April 23, July 23 and October 23 of each year,
commencing on October 23, 2007 with respect to the new notes.
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The new notes will bear interest from July 23, 2007 at the annual rate
of 10%, payable quarterly in arrears on each interest payment date.
Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The new notes constitute general unsubordinated obligations of the
Issuer and will at all times rank pari passu among themselves and
with all other unsubordinated indebtedness of the Issuer.
Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Application has been made to the Irish Stock Exchange for the new
notes to be admitted to the Official List and trading on its regulated
market.
Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The new notes will be rated by Standard & Poors and Fitch.
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . The Indenture contains covenants that will:
prevent the Issuer and certain of its subsidiaries, other than
GPPE, from making certain investments;
limit the ability of the Issuer to create certain liens without
securing the notes;
limit the ability of the Issuer to amalgamate or consolidate with
or merge with or into, or convey, transfer or lease all or
substantially all of its assets to another person, unless the Issuer
complies with certain specified requirements;
limit the ability of the Issuer and certain of its subsidiaries to
enter into certain transaction with their affiliates; and
require the Issuer to provide certain reports to the Trustee.
17
Events of Default . . . . . . . . . . . . . . . . . . . . . The notes and the Indenture contain certain events of default,
consisting of, among others, the following:
Failure to the pay interest (including any related additional
amounts) on the notes when the same becomes due and payable,
and such default continues for a period of 30 days;
Failure to pay the principal (including any related additional
amounts) of the notes when the same becomes due and payable
upon acceleration or redemption or otherwise;
Failure to maintain the minimum required level of funds in the
Debt Service Reserve Account;
Failure to perform or comply with any covenants or agreements
in the notes or the indenture (other than those referred to above),
and such failure continues for 60 days after the notice specified
in the indenture;
Certain debt or guarantees of the Issuer or certain of its
subsidiaries equal to or exceeding US$2.5 million are not paid
when due or are accelerated;
A final, unappealable judgment for an amount equal to or greater
than US$2.5 million is rendered against the Issuer or certain of its
subsidiaries and continues unsatisfied for a period of 60 days;
and
Specified events of bankruptcy, liquidation or insolvency of the
Issuer or certain of its subsidiaries.
For a full description of the events of default, see Description of
NotesEvents of Default.
Additional Amounts . . . . . . . . . . . . . . . . . . All payments by the Issuer in respect of the new notes will be made
without withholding or deduction for or on account of any present or
future taxes, duties, assessments, or other governmental charges of or
on behalf of Bermuda, unless the Issuer is compelled by law to deduct
or withhold such taxes, duties, assessments, or governmental charges.
In such event, the Issuer will make such deduction or withholding,
make payment of the amount so withheld to the appropriate
governmental authority and pay such additional amounts as may be
necessary to ensure that the net amounts receivable by noteholders
after such withholding or deduction shall equal the respective
amounts of principal and interest which would have been receivable
in respect of the new notes in the absence of such withholding or
deduction. See Description of NotesAdditional Amounts.
Change of Control . . . . . . . . . . . . . . . . . . . . Upon the occurrence of a Change of Control (as defined in the
Indenture), noteholders will be entitled to require the Issuer to
purchase all or a portion of their new notes at 100% of their principal
amount, plus accrued and unpaid interest. See Description of
NotesChange of Control.
18
Transfer Restrictions. . . . . . . . . . . . . . . . . . The new notes have not been registered under the Securities Act and
the Issuer has not registered under the Investment Company Act.
Accordingly, the new notes are subject to limitations on transfers and
resales, as described under Transfer Restrictions.
Governing Law . . . . . . . . . . . . . . . . . . . . . . The Indenture, the new notes and all other transaction documents will
be governed by, and construed in accordance with, the laws of the
State of New York.
Clearance and Settlement. . . . . . . . . . . . . . The new notes will be issued in book-entry form through the facilities
of Euroclear Bank S.A./N.V., as the operator of the Euroclear System,
and Clearstream Banking, socit anonyme. Beneficial interests in
new notes held in book-entry form will not be entitled to receive
physical delivery of certificated notes except in certain limited
circumstances. For a description of certain factors relating to
clearance and settlement, see Settlement and Clearance.
Form and Denomination. . . . . . . . . . . . . . . The new notes will be issued in the form of one or more global notes
in fully registered form without interest coupons only in
denominations of US$100,000 and integral multiples of US$1,000 in
excess thereof.
19
SUMMARY FINANCIAL INFORMATION
The following summary financial data has been derived from our consolidated financial statements. The
summary financial data as of and for the years ended December 31, 2006, 2005 and 2004 have been derived from
our audited consolidated financial statements included in this offering memorandum. The summary financial data
as of June 30, 2007, and for the six-month periods ended June 30, 2007 and 2006 has been derived from our
unaudited condensed consolidated interim financial information. Such condensed consolidated interim financial
information includes all recurring ordinary adjustments that, in the opinion of our management, are required for
the proper disclosure of our consolidated financial position, our results of operations and the cash flows in such
interim periods. The accounting policies applied in the preparation of this unaudited condensed consolidated
interim financial information are consistent with the policies applied in the preparation of our audited financial
statements for the annual period ended on December 31, 2006. Our consolidated financial statements are
prepared in accordance with U.S. GAAP.
This financial information should be read in conjunction with our consolidated financial statements and the
related notes and the sections entitled Presentation of Financial and Other Information, Selected Financial and
Other Information and Managements Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this offering memorandum. The condensed consolidated interim financial
information should be read in conjunction with our consolidated financial statements prepared for the year ended
December 31, 2006. Our results for the six months ended June 30, 2007 are not necessarily indicative of the
results to be reported by us for the entire year ending December 31, 2007.
As of and for Six Months ended As of and for the Year ended
June 30,
2007(3)
June 30,
2006
December 31,
2006
December 31,
2005
December 31,
2004
(in thousands of US$, except per share data)
Consolidated Statement of Income Data
Revenues
Management and performance fees . . . . . . . . . . . . . . . . 8,567 12,112 15,519 1,565 713
Advisory fees and other services . . . . . . . . . . . . . . . . . . 487 487 1,453 478
Appreciation in fair value of trading securities . . . . . . 6,314 6,314 13,808
Realized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,806 3,464 4,385 12,908
Appreciation in fair value of investments of
consolidated Limited Partnerships . . . . . . . . . . . . . . 190,411 5,198 17,424
Equity in results of affiliated company . . . . . . . . . . . . . 28 146 10,314
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,025
Total Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,837 27,575 44,275 40,048 1,191
Expenses
General and administrative . . . . . . . . . . . . . . . . . . . . . . . (15,480) (7,766) (18,999) (2,720) (104)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,051) (3,637) (5,175) (5,440) (617)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 (27) (181)
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,319) (11,430) (24,355) (8,160) (721)
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,526 12,303 23,732 858 189
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,340) (239) (456) (105)
Foreign exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (1,316) (1,321) (2,280) (1,493)
Financial income (expenses), net. . . . . . . . . . . . . . . . . . . . . . . 8,217 10,748 21,955 (1,527) (1,304)
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,546 2,546
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,018) (7,332) (16,778)
Income (loss) from continuing operations before
taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,717 22,107 27,643 30,361 (834)
Income tax and social contribution. . . . . . . . . . . . . . . . . . . . (403) (203) (1,168)
Net income (loss) from continuing operations . . . . . . . . . . 94,314 21,904 26,475 30,361 (834)
Net income (loss) from discontinued operations. . . . . . . . . (457) (457) 5,723 6,798
Total net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,314 21,447 26,018 36,084 5,964
20
As of and for Six Months ended As of and for the Year ended
June 30,
2007(3)
June 30,
2006
December 31,
2006
December 31,
2005
December 31,
2004
(in thousands of US$, except per share data)
Basic earnings (loss) per share
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 2.39 1.28 4.05 (0.08)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . (0.05) (0.02) 0.76 0.68
Total net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 2.34 1.26 4.81 0.60
Diluted earnings (loss) per share
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 2.39 1.28 4.05 (0.08)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . (0.05) (0.02) 0.76 0.68
Total net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 2.34 1.26 4.81 0.60
Consolidated Balance Sheet Data(2)
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 414,718 312,665 30,403 2,389
Financial investmentstrading securities. . . . . . . . . . . 17,740 13,765 27,171 13,081
Management and performance fees receivable . . . . . . 1,769 1,519
Deferred issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . 777
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,025 1,366 450 8
Loans and receivables from related parties. . . . . . . . . . 4,594
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424,338 173,884 17,193 3,846
Other invested assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,984
Deferred issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . 2,716
Investment property advances(4) . . . . . . . . . . . . . . . . . . 6,025
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 1,802 579 562 41
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477 937 6 3
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875,346 504,715 81,810 23,962
Liabilities and shareholders equity
Accounts payable, payroll and tax accruals . . . . . . . . . 3,016 3,043 1,414 154
Accrued interest on perpetual notes . . . . . . . . . . . . . . . . 2,792
Accrued performance bonuses . . . . . . . . . . . . . . . . . . . . 3,057 2,234 6,501 307
Deferred management fee income . . . . . . . . . . . . . . . . . 1,062 3,199
Dividends declared and payable . . . . . . . . . . . . . . . . . . . 962 808 8,009 13
Payable to a related party for acquisition of
investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,500
Loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,487 7,184 6,454 700
Perpetual notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Asset-backed securities(4) . . . . . . . . . . . . . . . . . . . . . . . . 23,832
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 154
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,739 107,427 767
Total shareholders equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,139 372,365 33,771 18,909
Total liabilities and shareholders equity . . . . . . . . . . . . . . . 875,346 504,715 81,810 23,962
Consolidated Statement of Cash Flows:
Cash flow provided by (used in)
Continuing operations
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,211 15,741 17,641 7,736 22,117
Investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,169) 13,509 (88,006) 1,839 (3,703)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,137 299,834 356,428 16,973 (2,496)
Discontinued operations
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,325 15,325 2,213 6,675
Investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,520) (15,521)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867 867 (700) (20,765)
(1) GP was originally incorporated in the British Virgin Islands. On March 9, 2006, our board of directors approved our redomiciliation to
Bermuda and the change of our corporate name to GP Investments, Ltd.
(2) Year ended December 31, 2005 excludes assets and liabilities of GP1 and GP2 but includes the results of GP1 and GP2.
(3) GP Investments, Ltd. held a minority equity interest (directly and indirectly) of 46.86% in GPCP3 as of and for the period ended June 30,
2007. The application of EITF 04-5, which became effective January 1, 2006 caused us to consolidate the line items of GPCP3 in the
financial statements of GP3, which in turn are consolidated with our financial statements. The remaining 53.14% equity interest in
GPCP3, held by the limited partners of GP3, are classified as minority interests. Therefore, since January 1, 2006, all assets and
liabilities, as well as the revenues and expenses, of GPCP3 are reported on our consolidated balance sheet and income statement,
respectively, and the assets and liabilities not held by us, as well as the corresponding revenues and expenses, are presented as minority
interests in a single line item. See Managements Discussion and Analysis of Financial Condition and Results of Operations.
21
(4) On April 20, 2006, we completed the sale of our stake in GPRE. The following summarizes financial information for results of
discontinued operations related to real estate for the six-month period ended June 30, 2006.
Six Months Ended
June 30, 2006
(in thousands of US$)
Revenues
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Advisory fees and other services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Expenses
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (620)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182)
Financial income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457)
22
RISK FACTORS
An investment in the new notes involves significant risks. You should carefully consider all of the
information set forth in this offering memorandum, including the risks described below, before making any
investment decision. Our business, results of operations, financial condition or prospects could be adversely
affected if any of these risks occurs and, as a result, the trading price of the new notes could decline and you
could lose all or part of your investment. The risks described below are those that we currently believe may
adversely affect us. Additional risks and uncertainties not currently known to us, or those that we currently deem
to be immaterial, may also have a material adverse effect on us.
For the purposes of this section, the indication that a risk may or will have an adverse effect on us or some
other variation means that the risk could have an adverse effect on our business, financial condition, liquidity, or
results of operations.
Risks Relating to Our Business
We are a company with limited operating history.
We began operations in 2003 and we were redomiciled in Bermuda on March 15, 2006. We are subject to
all of the business risks and uncertainties associated with any developing business, including the risk that we will
not achieve our investment focus objectives and that the value of your investment could decline substantially. For
these and other reasons, our revenues and profitability reflected in our consolidated financial statements included
in this offering memorandum may not be representative of our results as a public company.
Past performance may not be indicative of our future results.
We have included significant information in this offering memorandum relating to our past financial
performance and that of our affiliated funds. See Track Record. In considering the performance information
contained herein, you should bear in mind that past performance is not necessarily indicative of future results,
and that there can be no assurance that we will achieve comparable results. When we make new investments, our
projected operating results will normally be based primarily on our managements judgments. Such projections
will only be estimates of future results that are based upon assumptions made at the time that such projections are
developed. There can be no assurance that the projected results will be obtained, and actual results may vary
significantly from our managements projections. Additionally, actual future conditions may require actions that
differ from those contemplated at this time, and there can be no assurance that managements projected results
will be achieved. There may be differences between such projections and actual results because events and
circumstances frequently do not occur as expected, and those differences may be material and adverse. In
addition, general economic conditions, which are not predictable, can also have a material adverse impact on the
reliability of managements projections. You are cautioned not to place undue reliance on any information in this
offering memorandum that contains performance information.
Additionally, we may use the proceeds of this offering at a slower or faster rate than GPCP1, GPCP2,
GPCP3 or GPCP4 has historically been able to deploy capital, which may negatively affect our ability to achieve
similar returns to the track record described in this offering memorandum.
We depend on our partners and a limited number of other individuals for our success, and the departure
of any of these individuals, particularly our partners, could materially adversely affect our ability to
execute our business strategies and continue to grow.
We are dependent on the diligence and skill of our partners and senior management for the execution of our
strategies, including the management and operation of our businesses and final selection, structuring and closing
of our investments. Our future success depends to a significant extent on the continued service and coordination
of our partners and senior management team, particularly Antonio Bonchristiano and Fersen Lambranho, our
23
chief executive officers. We also rely on the network of business relations of these individuals. In addition, we
depend on our associates and portfolio managers and their network of relationships to manage and operate our
businesses and identify, structure and help execute investments. None of these individuals would be easy to
replace on short notice. We do not maintain key man life insurance for any of our partners, members of our
senior management or other employees.
Any of the GP Partners may, subject to certain restrictions and time limitations set forth in Management
Our Relationship with the GP Partners, our Executive Officers and Directors, establish or work in businesses with
objectives similar to ours. In addition, a sale of shares of our Company by any of these individuals will not trigger a
Change of Control (as defined in the indenture) requiring us to repurchase any notes. See Description of Notes.
Although our partners are an integral part of our business and strategy, they may devote time to other
activities, and may at times have interests conflicting from ours.
The GP Partners intend to devote sufficient time to us so we can carry out our proposed activities. However,
you should be aware that each of our partners has significant other responsibilities. Antonio Bonchristiano and
Fersen Lamas Lambranho are and will continue to be active in numerous investment vehicles affiliated with the
GP Group, but whose results are independent from ours. Such investment vehicles include GPCP1, GPCP2 and
GP Tecnologia. You also should be aware that there may be occasions upon which our partners and our affiliates
may encounter potential conflicts of interest in connection with our activities. For example, our partners may
have conflicting investment, tax and other interests with respect to their investments in us. The conflicting
interests of individual partners may relate to or arise from, among other things, the nature of investments made
by us, the structuring or acquisition of investments and the timing of disposition of investments. The potential for
conflicts of interest should be carefully evaluated before making an investment in our notes.
The historical financial information contained in this offering memorandum may not be representative of
our results as a separate, independent public company.
Reorganizing our business from a privately held firm to a publicly traded company resulted in increased
administrative and regulatory costs and burdens that are not reflected in some of the historical financial statements
contained in this offering memorandum, which could adversely affect our results of operations. In addition, as a
result of becoming a publicly traded company, we implemented additional regulatory and administrative procedures
and processes for the purpose of addressing the standards and requirements applicable to public companies. The
costs of implementing and complying with these procedures and processes may be significant.
We may not realize gains from our equity investments.
We have invested, and intend to continue to invest, in various companies in exchange for equity interests in
such companies. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition
of such interests. It is expected that an investment generally will not be sold for a number of years after it is
made. Prior to such time, there generally will be no current return on the investment. Because most of our
investments may be in nonpublic securities, the disposition process may be time-consuming and the values
realized may be unfavorable. Additionally, the equity interests we acquire may not appreciate in value and, in
fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests and any
gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses
we experience.
Many of our portfolio investments will be recorded at fair value as determined in good faith by our board
of directors and, as a result, there will be uncertainty as to the value of our portfolio investments.
A large percentage of our portfolio investments are expected to be in companies whose securities are not
publicly traded. The fair value of such investments that are not publicly traded may not be readily determinable.
We will value these companies at fair value as determined in good faith by our board of directors, in accordance
24
with certain guidelines. Factors that may be considered in fair value pricing of our investments include such
companys earnings, the markets in which such company does business, comparison to publicly traded
companies, discounted cash flow and other relevant factors.
Because such valuations may fluctuate over short periods of time and may be based on estimates, our
determinations of fair value may differ materially from the values that would have been used if a ready market
for the securities of these private companies existed. Our net asset value could be adversely affected if our
determinations regarding the fair value of our investments were materially higher than the values that we
ultimately realize upon the disposal of such portfolio investments.
The lack of liquidity in our investments may adversely affect our business.
We expect to generally make investments in private companies. Substantially all of these securities will be
subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities.
Additionally, a majority of our investments are likely to be in Brazilian companies or companies with operations
predominantly located in Brazil. The historical illiquidity of the Brazilian market in general and of our
investments in particular may make it difficult for us to sell such investments if the need arises. In addition, if we
are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value
at which we have previously recorded our investments.
Our investments in prospective portfolio companies may be risky, and you could lose all or part of your
investment.
We are guided in our strategic efforts by our investment focus, which is to acquire control or joint control
equity investments in medium to large Brazilian companies that require change. Overleveraged, distressed,
underperforming or small regional or family-owned situations will also be considered. Such businesses will be
subject to increased exposure to adverse economic factors such as a significant rise in local interest rates, a
severe downturn in the relevant countrys economy or deterioration in the condition of such portfolio company or
its industry. In the event that such portfolio company is unable to generate sufficient cash flow to meet principal
and interest payments on its indebtedness, the value of our equity investment in such portfolio company could be
significantly reduced or even eliminated. Unfavorable economic conditions also could increase our funding costs,
limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events
could prevent us from increasing investments and harm our operating results.
An investment strategy focused primarily on privately held companies presents certain challenges, including
the lack of available information about these companies, a dependence on the talents and efforts of only a few
key portfolio company personnel and a greater vulnerability to economic downturns.
Generally, little public information exists about privately held companies, and we will be required to rely on
the ability of our investment professionals to obtain adequate information to evaluate the potential returns from
investing in these companies. If we are unable to uncover all material information about these companies, we
may not make a fully informed investment decision, and we may lose money on our investments. Also, privately
held companies frequently have less diverse product lines and smaller market presence than larger competitors.
These factors could affect our investment returns.
In addition, while it is not our intended investment focus, we may in the future purchase interests in
companies that we do not control, including joint ventures and minority interests in such companies. Such
purchases would be subject to risk we could not control.
25
Fluctuations in foreign currency exchange rates could lower our net income or negatively impact our
portfolio businesses.
Because our financial statements are denominated in U.S. dollars and we may invest in companies that have
a significant portion of their revenues in other currencies, predominantly in reais, we are exposed to fluctuations
in foreign currencies. In addition, we pay a significant amount of our expenses in other currencies, predominantly
in reais. The exchange rates of these currencies versus the U.S. dollar may affect our net income. We do not fully
hedge such non-dollar foreign exchange rate exposures. Fluctuations in foreign currencies may also make
period-to-period comparisons of our results of operations difficult.
We may not be able to successfully execute our investment focus because of difficulties identifying,
acquiring or financing acquisitions, which could cause our growth and profitability to decline.
We may have difficulties in identifying attractive acquisition targets, or we may be unable to acquire desired
businesses or assets on economically acceptable terms. In the event we are unable to complete future strategic
acquisitions, we may not grow in accordance with our expectations.
As a result of these risks, we may use the proceeds of the offering at a slower or faster rate than the GP
Group or funds managed by the GP Group historically were able to use its capital, which may negatively affect
our ability to achieve similar returns to the track record set forth in this offering memorandum.
We may not be able to successfully execute our investment focus because of increased competition, which
could cause our growth and profitability to decline.
The attractiveness of Brazil as a market in which to make investments appears to be increasing, which is
likely to result in more competition. Competition may also increase if investment opportunities decline.
Depending on the investment, our competitors may be substantially larger and have considerably greater
financial, technical and marketing resources than we do. For example, some competitors may have a lower cost
of funds and access to funding sources that are not available to us. In addition, some of our competitors may have
higher risk tolerances or different risk assessments from ours or be willing to accept lower returns than we are,
which could allow them to consider a wider variety of potential investments and to establish more relationships
than we can.
Because of the risk of increased competition, we cannot assure you that we will be able to successfully
execute our investment focus to continue the pace of growth or profitability that the GP Group experienced.
Certain factors may raise possible conflicts of interest.
Certain factors, some of which are described below, may give rise to conflicts of interest between (i) GP3,
GP4, GP Investimentos S.A., the GP Partners and their respective affiliates and (ii) holders of our securities.
Possible conflicts of interest may include:
(a) Portfolio companies will pay customary compensation to outside directors, which may include
shareholders or representatives of GP3, GP4, GP Investimentos S.A., the GP Partners or their affiliates (see
Management); and
(b) Certain members of the partnerships investment committee and, in limited circumstances, other
officers and employees of GP Investimentos S.A. who will play key roles in managing us may spend
substantial amounts of their time on matters other than or only tangentially related to us, mainly (but not
only) in relation to GPCP3, GPCP4 and other funds we may manage.
We are managed exclusively by our board of directors and executive officers, which make substantially all
decisions with respect to the acquisition, management, disposition or other realization of any investment, or other
decisions regarding our business and affairs.
26
We must rely on portfolio company management to operate our portfolio companies on a day-to-day basis.
We will monitor the performance of each investment by GPPE, and the respective general partner will
monitor the performance of each investment by GPCP3 and GPCP4, as applicable, in most cases, through active
participation on the board of directors of portfolio companies and by maintaining an ongoing dialogue with each
portfolio companys management. However, it will primarily be the responsibility of the management of each
portfolio company to operate such company on a day-to-day basis. Although it is our intent to invest in
companies with strong management, there can be no assurance that the existing management, or any new
management in a portfolio company, will be able to operate the portfolio company successfully.
There also exists the possibility that the portfolio company in which we invest may have economic or business
interests or goals which are inconsistent with ours, and we may not be in a position to influence or otherwise protect
the value of such investment. Although we generally seek board representation in connection with our investments,
there is no assurance that such representation, if sought, will be obtained or, if obtained, that we will have the ability
through this board representation to protect the value of our investments in all instances.
We are subject to certain contractual restrictions that may adversely limit our ability to conduct our
business.
The GPCP4 Partnership Agreement, prohibits us from investing in any opportunity presented to the general
partner of GPCP4 (GP Investments IV Ltd., or GP4) or to the sponsor (as defined in the GPCP 4 Partnership
Agreement), that is suitable for GPCP4 without first offering such opportunity to GPCP4, subject to certain
specific exceptions. This prohibition is effective until the earlier of the end of the commitment period or the date
at which 90% of the committed amounts have been invested or committed to investment. During this period, we
would only be able to invest in transactions that are suitable for GPCP4, indirectly as a holder of partnership
interests in GPCP4 to the pro-rata extent of our commitment in GPCP4, or if the advisory committee of GPCP4
refuses such transactions. See BusinessGPCP4.
In addition, the GPCP4 Partnership Agreement prohibits us from co-investing in a transaction unless the
co-investment has been first offered to the partners of GPCP4 (which may include us or any of our affiliates) on a
pro-rata basis.
Similar investing restrictions used to apply to GPCP3 but have become inapplicable considering that, as of
August 31 2007, GPCP3 was fully invested in six different companies (Equatorial Energia, Fogo de Cho, BR
Malls, Tempo, BR Properties and Magnesita).
Certain events which may be out of our control may affect our expected revenue flow from the general
partner of GPCP3.
Our wholly-owned subsidiary GP Investments III (Cayman) Ltd., or GP3, which acts as the general partner
of GPCP3, may be removed from such role as general partner without cause by 75% in interest of the limited
partners of GPCP3, subject to certain notice provisions and/or payment of fees to such general partner. After the
removal date, the management fee payable by GPCP3 to the removed general partner will be calculated only on
the basis of the removed general partners funded commitments applied to investments less certain amounts, and
distributions of the carried interest will also be subject to certain allocations with the replacement general partner.
If the event above occurs, we may experience a significant loss in expected revenues of GP3 from its
management activities of GPCP3.
Certain events which may be out of our control may affect our expected revenue flow from the general
partner of GPCP4.
Our wholly-owned subsidiary GP Investments IV Ltd., or GP4, which acts as the general partner of GPCP4
may be removed from such role as general partner without cause by 75% in interest of the limited partners of
27
GPCP4, subject to certain notice provisions and/or payment of fees to such general partner. After the removal
date, the management fee payable by GPCP4 to the removed general partner will be calculated only on the basis
of the removed general partners funded commitments applied to investments less certain amounts, and
distributions of the carried interest will also be subject to certain allocations with the replacement general partner.
In addition, upon the occurrence of certain key person events during the commitment period (such as both
Antonio Bonchristiano and Fersen Lamas Lambranho ceasing to devote a substantial amount their time to
GPCP4, or a majority among six Partners identified in the GPCP4 Partnership Agreement, ceasing to devote a
substantial amount of their time to GPCP4), the commitment period will terminate unless two-thirds in interest of
the limited partners of GPCP4 agree otherwise. If the commitment period terminates, management fees received
by GP4 will be calculated based on a smaller amount of investments than we could have otherwise obtained.
If any of these events occur, we may experience a significant loss in expected revenues of GP4 from its
management activities of GPCP4.
GP4 intends to propose to the limited partners an amendment to the GPCP4 Partnership Agreement that
would amend the key person event, above, in order to terminate the commitment period (unless two-thirds in
interest of the limited partners not related to GP4 agree otherwise) if (i) both Antonio Bonchristiano and Fersen
Lamas Lambranho shall cease to devote a substantial amount of their time to GPCP4, (ii) half or more among the
six Partners identified in the GPCP4 Partnership Agreement shall cease to devote a substantial amount of their
time to GPCP4, or (iii) Antonio Carlos Augusto Ribeiro Bonchristiano, Fersen Lamas Lambranho, Octavio
Cortes Pereira Lopes, Carlos Medeiros, Marcio Trigueiro, Eduardo Alcalay, Danilo Gamboa, Nelson Rozental
and Marcus Marques Martino shall cease to indirectly control GP Investments. Such amendment to the GPCP4
Partnership Agreement would also add the right to appoint an additional general partner prior to removal of GP4,
with the consent of 75% in interest of the limited partners not related to GP4 and subject to certain conditions
therein.
Risk Factors Relating to the Notes
The notes will be structurally subordinated to the obligations of our subsidiaries.
We are a holding company and conduct substantially all of our activities through our subsidiaries. As a
result of our holding company structure, the notes will effectively rank junior to all existing and future debt and
other liabilities of our subsidiaries. Although the holders of the notes will have direct, but unsecured claims on
our assets and property, in the event that such assets are insufficient to satisfy our obligations under the notes,
holders would have to rely on the assets of our subsidiaries for payment on the notes. Our right to receive any
assets of any of our subsidiaries upon their liquidation or reorganization, and therefore the right of holders of the
notes to participate in those assets, will be subject to the prior claims of that subsidiarys creditors, except to the
extent that we may ourselves be a creditor of such subsidiary.
There can be no assutance regarding the future liquidity of the new notes.
The new notes and initial notes will constitute a single series of debt securities. There can be no assurance
regarding the future development of a market for the new notes, the ability of holders of the new notes to sell
their notes or the price for which such holders may be able to sell their new notes. If such a market is to develop,
the new notes could trade at prices that may be higher or lower than the initial offering price, depending on many
factors including some beyond our control. We have been advised by the initial purchasers that they intend to
make a market in the new notes but they are not obligated to do so and may discontinue market making at any
time. Furthermore, the liquidity of, and trading market for, the new notes may be adversely affected by changes
in interest rates and declines and volatility in the market for similar securities as well as by any changes in our or
GPPEs financial condition or results of operations.
28
The new notes have no maturity date and are not redeemable by holders at their option at any time.
The new notes are perpetual and have no fixed maturity or mandatory redemption date, and are not
redeemable by holders at their option at any time. As a result, holders of the new notes will not be entitled to
receive a return of the principal amount of their investment unless we elect to redeem or repurchase the new
notes or in the event of an acceleration following an event of default. Therefore, holders of new notes should be
aware that they may be required to bear the risks of an investment in the new notes for an indefinite period of
time.
The new notes are subject to certain resale restrictions.
The new notes have not been registered under the Securities Act or any state securities laws and, unless so
registered, may not be offered, sold or otherwise transferred except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
See Transfer Restrictions.
We may not have sufficient funds to meet our obligations under the indenture to repurchase the new notes
upon a change of control.
Upon the occurrence of a Change of Control (as defined in the indenture), each holder of notes will have the
right to require us to repurchase all or a part of such holders notes at a price of 100% of the principal amount
plus accrued and unpaid interest, if any, to the date of purchase. We may not have the financial resources
necessary to meet our obligations in respect of the notes, including the required repurchase of new notes,
following a Change of Control. In this case, an event of default would occur under the indenture, which may
result in an acceleration of the notes requiring us to repay all of the notes. See Description of Notes.
The new notes may be characterized as indebtedness for U.S. federal income tax purposes, which may
affect their value.
Under current law and interpretations thereof, the new notes should be classified and treated as equity for
U.S. federal income tax purposes although the matter is not free from doubt. The Internal Revenue Service, or the
IRS, could assert, however, that the new notes should be classified and treated as indebtedness. If the IRS were to
assert successfully that the new notes should be treated as indebtedness for U.S. federal income tax purposes, the
tax treatment of the new notes would be different than the treatment described under Tax Considerations
Certain Material U.S. Federal Income Tax Considerations, and the value of the new notes could be adversely
affected.
It is likely that we will be a passive foreign investment company, which could result in adverse U.S. tax
consequences to U.S. investors.
The new notes should be treated as equity for U.S. federal income tax purposes, although the matter is not
free from doubt. Assuming the new notes are treated as equity, they will be considered to be our shares. Adverse
U.S. federal income tax rules apply to holders owning shares of a passive foreign investment company, or
PFIC, directly or indirectly. We will be classified as a PFIC for U.S. federal income tax purposes if (i) 50% or
more of our assets, including goodwill (based on an annual quarterly average), are passive assets or (ii) 75% or
more of our annual gross income is derived from passive assets. We believe that it is likely that we will be a
PFIC in 2007 and in future years. The characterization of GP Investments as a PFIC could result in adverse U.S.
tax consequences to U.S. investors in the new notes assuming that the new notes are treated as equity. In
particular, absent certain tax elections, a U.S. investor would be subject to U.S. federal income tax at ordinary
income tax rates, plus a possible interest charge, in respect of gain derived from a disposition of our shares, as
well as the payment of interest on the new notes. In addition, a step-up in the tax basis of the new notes would
not be available upon the death of an individual shareholder. For a more detailed discussion of the potential tax
impact on you of our being a PFIC, see Tax ConsiderationsCertain Material U.S. Federal Income Tax
ConsiderationsU.S. HoldersOur Status as a Passive Foreign Investment Company, or PFIC.
29
Risks Relating to Brazil
The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian
economy. This influence, as well as Brazilian political and economic conditions, could adversely affect our
activities.
The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes
significant changes in policies and regulations. The Brazilian governments actions to control inflation and other
regulations and policies have often involved, among other measures, increases in interest rates, changes in tax
policies, price controls, currency devaluations, capital controls, limits on imports and other actions. Measures
taken by the Brazilian government relating to the Brazilian economy may have significant effects on Brazilian
corporations and other entities, including us, as well as on market conditions and Brazilian securities prices. Our
financial condition and result of operations may be adversely affected by the following factors:
inflation;
monetary, exchange and interest policies;
liquidity of domestic capital and financial markets;
price control policies;
tax policies; and
other diplomatic, political, social and economic developments in or affecting Brazil.
Uncertainty over whether the Brazilian government will implement changes in policies or regulation
affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened
volatility in the Brazilian securities markets. In addition, since mid-2005, members of the Brazilian Executive
and Legislative powers, as well as other related people, have begun to be investigated as a result of allegations of
unethical or illegal conduct. It is impossible to foresee the possible conclusions of these investigations and
whether these conclusions will adversely affect the Brazilian economy. As a result, these uncertainties,
allegations of unethical or illegal conduct and other future developments in the Brazilian economy may adversely
affect us and our business and results of operations.
A possible reduction in the volume of foreign investments in Brazil may have an impact on the Brazilian
balance of payments and may have negative effects on the Brazilian economy by affecting Brazilian interest rates
and increasing the cost of raising funds by Brazilian companies.
The uncertainty about the future policies of the Brazilian government may contribute to a higher volatility of
the Brazilian securities markets and of the securities issued abroad by Brazilian companies. The Brazilian
economy grew 5.7% in 2004, 2.9% in 2005 and 3.7% in 2006. In view of the limited growth of the past few
years, it is not possible to determine whether the economic stabilization policy of the current government will
persist.
Because a significant part of our investments are in Brazilian companies, these and other developments in
the Brazilian economy and economic policy may have an adverse effect on the value of our investments and our
results of operations.
Inflation, coupled with the Brazilian governments measures to fight inflation, may significantly contribute
to economic uncertainty in Brazil and may have a material adverse effect on us.
Since the Brazilian debt crisis in the 1980s, Brazil has experienced extremely high rates of inflation. More
recently, the annual rate of inflation, as measured by the IGP-M, was 12.4% in 2004, 1.2% in 2005 and 3.8% in
2006. Inflation, in conjunction with the Brazilian governments measures to control it and speculation about such
measures, has had a negative effect on the Brazilian economy in the past. Future measures taken by the Brazilian
30
government, including interest rate adjustments, intervention in the foreign exchange market and actions to adjust
or fix the value of the real may have a material adverse effect on the Brazilian economy and our business. If
Brazil experiences substantial inflation in the future, our costs may increase, our operating and net margins may
decrease. Inflationary pressures may also affect our ability to access foreign financial markets and may lead to
counter-inflationary policies that may harm our business.
Political, economic and social developments, and the perception of risk in other countries, especially
emerging market countries, may adversely affect the Brazilian economy, our business, and the market
price of Brazilian securities, including our new notes.
The market for securities issued by companies headquartered, or with a substantial portion of their
operations, in Brazil is influenced, in varying degrees, by global economic and market conditions, and especially
by those of Latin American countries and other emerging markets. The reaction of investors to developments in
other countries may have an adverse impact on the market value of securities of companies headquartered, or
with a substantial portion of their operations, in Brazil. Crises in other emerging countries or the economic
policies of other countries, in particular those of the United States and countries of the European Union, may
reduce investor demand for securities of companies headquartered, or with a substantial portion of their
operations, in Brazil. Any of the foregoing developments may adversely affect our ability to access the capital
markets and finance our operations in the future on acceptable terms, or at all.
President Luiz Incio Lula da Silva was reelected in October 2006 for a second four-year term. However we
cannot guarantee whether the economic policies adopted in his first term in office or since his reelection will be
maintained. From 2001 to 2006, the Brazilian economy grew at an annual average rate of 2.9%. Due to the
limited growth of the Brazilian economy in the past several years, we cannot estimate whether the current
economic policies will be maintained during the Presidents second term or which tax, monetary, social security
and other policies will be adopted by the current or future governments, and whether these measures will have an
adverse effect on the economy as a whole and on us in particular.
Exchange rate instability may adversely affect the market price of our new notes.
As a result of inflationary pressures, the Brazilian currency has been devalued periodically in relation to the
U.S. dollar and other strong foreign currencies during the last four decades. Throughout this period, the Brazilian
government has implemented various economic plans and utilized a number of exchange rate policies, including
sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from
daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. From time
to time, there have been significant fluctuations in the exchange rate between the Brazilian real and the U.S.
dollar and other currencies.
The real depreciated against the U.S. dollar by 8.5% in 2000 and by 15.7% in 2001. In 2002, the real
depreciated 34.3% against the U.S. dollar, due in part to political uncertainty surrounding the Brazilian
presidential elections and the global economic slowdown. The real appreciated by 22.3%, 8.8%, 13.4% and 9.5%
against the U.S. dollar in 2003, 2004, 2005 and 2006, respectively, and 11.0% in the six-month period ended
June 30, 2007. No assurance can be given that the real will not depreciate or be devalued against the U.S. dollar
in the future. On December 31, 2006, the U.S. dollar/real exchange rate was R$2.138 per $1.00, and on June 29,
2007, it was R$1.926 per $1.00. See Exchange Rates.
Devaluations of the real relative to the U.S. dollar also create additional inflationary pressures in Brazil that
may negatively affect us. Depreciations generally curtail access to foreign financial markets and may prompt
government intervention, including recessionary governmental policies. Devaluations of the real relative to the
U.S. dollar also reduce the U.S. dollar value of the results of our subsidiaries in Brazil. In contrast, appreciation
of the real against the U.S. dollar may lead to a deterioration of Brazils current account and the balance of
payments, as well as to a dampening of export-driven growth. Any of the foregoing could adversely affect our
business, financial condition, and results of operations.
31
Increases in the interest rates may adversely affect the Brazilian economy and our business.
High interest rates have in the past had negative effects on the Brazilian economy and could affect our
business. Brazils base interest rate, as determined by the Central Bank, has been maintained at consistently high
levels in the past years. On December 31, 2004 , 2005 and 2006, the base interest rate was, respectively, 17.75%,
18.00% and 13.25%. The current base interest rate is 11.25%, which is generally considered inadequate for the
sustainability of growth and, consequently, to our business.
Exchange controls and restrictions on remittances abroad may adversely affect our ability to receive
distributions from our portfolio companies.
Brazilian law provides that, whenever there is a significant imbalance in Brazils balance of payments or a
significant possibility that such imbalance will exist, the Brazilian government may impose temporary
restrictions on the remittance to foreign investors of the proceeds of their investment in Brazil (as it did for
approximately six months in 1989 and early 1990) and on the conversion of Brazilian currency into foreign
currencies. Any such restrictions could hinder or prevent us from receiving distributions from our portfolio
companies or from converting such distributions into U.S. dollars and remitting such U.S. dollars abroad.
Changes in Brazilian tax laws may negatively affect the favorable tax treatment that we benefit from our
investments in Brazil.
The remuneration received by us for asset management services is, in broad terms, based on the profitability
of the funds in which we act as general partner. Such funds can hold, directly or indirectly, investments in
Brazilian publicly held companies through the foreign investment mechanism established by CMN Resolution
2,689.
In addition, we could be, directly or indirectly, the investor in these Brazilian publicly held companies by
means of the same foreign investment mechanism.
Our capital gains arising from the sale of such investments are currently exempted from withholding income
tax in Brazil, provided that the sale takes place in the BOVESPA and that the beneficiary is not located in a tax
haven jurisdiction.
We cannot assure you that such exemption will be maintained. If we have to pay withholding income tax
over the sale of our investments in Brazil, our profits will be affected.
In addition, the regulation of section 116 of the Brazilian Tax Code (Cdigo Tributrio Nacional), as
amended by Complementary Law (Lei Complementar) No. 104/2001, may have a material impact on the results
of our operations, including, but not limited to, the elimination of the exemption of taxation of our revenues by
Brazilian tax authorities.
We may be held liable for other companies obligations as a result of corporate reorganizations or if a
Brazilian court disregards the corporate entity of such other companies.
Some of our subsidiaries resulted, or received assets, from the spin-off of other companies not controlled by
us or were purchased from such other companies not controlled by us. In accordance with Brazilian law, a judge
may disregard the corporate entity in the case of abuse of the corporate entity or fraud. However, despite abuses
or fraud, Brazilian courts have found that a controlling shareholder, successor company or affiliate may, in
certain circumstance, be liable for civil, tax, labor, social security, environmental and consumer rights obligations
of other companies.
Therefore, there can be no assurance that we would not be required by a Brazilian court to honor the
obligation of any of our subsidiaries or affiliates (including those resulting from a corporate reorganization or
32
purchase of assets involving other companies not controlled by us) in the event of civil, tax, labor, social security,
environmental and consumer rights disputes. In the case of a subsidiary organized as a limited liability company
(sociedade limitada), all of its shareholders are jointly liable for social security obligations, in accordance with
Law 8620/93.
We are considered a foreign company under Brazilian law subject to foreign legislation and the CVM may
not be able to oversee our business or to enforce its decisions against us.
We are a Bermuda exempted company. Consequently, our corporate existence is governed by Bermuda law.
As such, our capital increases and shareholders rights and obligations, including voting rights, preemptive rights,
dividend distributions, attendance at general shareholders meetings and election of board members, as well as
the rights of noteholders, among other corporate acts, are governed by Bermuda law, especially the Companies
Act, which differs, in many aspects, from United States or Brazilian corporate law. For a summary of rights
attributed to the new notes, see Description of Notes.
Additionally, since we are not a Brazilian company, the CVM does not have full oversight of our activities,
which prevents enforcement of its rules and decisions against us. Any penalties determined by the CVM may
only be imposed on our Brazilian corporate agent.
Risks Relating to Bermuda
We are a Bermuda company and it may be difficult for you to enforce judgments against us or our
directors and executive officers.
We are a Bermuda exempted company, and the rights of holders of our shares will be governed by Bermuda
law and our memorandum of continuance and bye-laws. The rights of holders of our securities under Bermuda
law may differ from the rights of holders of securities of companies incorporated in other jurisdictions. All of our
directors and executive officers are not residents of the United States, and a substantial portion of our assets are
located outside the United States. As a result, it may be difficult for investors to effect service of process on those
persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or
those persons based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in
Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our
directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or
our directors or officers under the securities laws of other jurisdictions.
33
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately $40.7 million, after deducting
underwriting discounts and commissions and estimated offering expenses.
In accordance with our general cash investment policy (under our general guidelines and policies), as
amended on August 30, 2007, we intend to use the net proceeds from this offering to make acquisitions in
accordance with our investment strategy, including making follow-on investments in the businesses we may
acquire from time to time and any fees and expenses in connection with our acquisitions and investments, and for
other general corporate purposes.
At all times the Company will limit its investments in non-investment grade fixed income to the lesser of
10% of assets or US$50,000,000.00. Additionally, the Company cannot increase its non-investment grade fixed
income investments while the Companys current cash equivalents are not sufficient to meet the next 12 month
obligations, including but not limited to: private equity commitments, general and administrative expenses, debt
interest, projected dividends and bonus.
See Capitalization and Managements Discussion and Analysis of Financial Condition and Results of
Operations for information on the impact of the net proceeds from this offering on our financial condition.
34
TRACK RECORD
Since 1994, the GP Group has invested (indirectly through the funds it manages) over $3 billion of capital in
42 companies in Brazil as of August 2007.
Significance of the GP Groups Past Performance
In considering the performance information set forth in this section, you should bear in mind that past
performance is not necessarily indicative of future results, and that there can be no assurance that we will achieve
comparable results. See Risk FactorsRisks Relating to Our Business.
We may use the proceeds of this offering at a slower or faster rate than GPCP1, GPCP2, GPCP3 or GPCP4
has historically been able to deploy their capital, which may negatively affect our ability to create long-term
value. Such different rates of using funds is another reason we may not be able to achieve similar returns to this
track record.
Investments made by the GP Group
Investments with Partial or Total Exit
Date of
Initial
Investment Company Description of Business/Industry
3/94 Kuala (formerly Artex) Textiles
6/94 Shoptime Online Retailer/Shopping channel
6/94 Mcom Wireless Trunking Carrier
7/94 Mahler Brewery
11/94 Fratelli Vita Non-alcoholic beverages
7/95 SuperMar Food Retailer
1/96 Mandic ISP
7/96 Globo Cabo Cable TV
7/96 FCA Railroad
5/97 S Supermercados Food Retailer
12/97 Gafisa Real Estate Builder and Developer
3/98 ABC Supermercados Food Retailer
4/98 ALL Railroad and Logistics
6/99 Submarino B2C/Online Retailer
6/99 Patagon Financial Internet Portal
6/99 Webmotors Automobile Website
9/99 Lokau Online Auction Portal
12/99 Elefante Online Personal Schedule
12/99 iG Internet Portal/ Cost-Free ISP
12/99 iBest Award for Online Media
12/99 Mercado Eletronico B2B Portal
1/00 MaxLog Site B2B for Logistics
5/00 Pegasus Data Transmission
5/00 Despegar / Viajo Travel Portal
12/00 Officenet E-commerce site for office staples
6/03 Pointer Network Wi-Fi Technology
9/03 Lupatech Industrial Valves
6/05 Equatorial Energia Electric Utility
3/02 Pollux Robotic Vision Equipments
35
GPCP, GPCP2, GP Tecnologia Current Portfolio
Date of
Initial
Investment Company Description of Business/Industry
3/94 Kuala (formerly Artex) Textiles
7/95 Playcenter/Hopi Hari Amusement Park
12/97 Gafisa Real Estate Builder and Developer
4/98 ALL Railroad and Logistics
8/98 Telemar Telecom Carrier
4/00 IHH(1) Management Healthcare Plans
4/00 Total Express Delivery Service
10/00 Geodex Data Transmission
10/00 Automatos Consulting/ Software
GPCP3 Current Portfolio
Date of
Initial
Investment Company Description of Business/Industry
6/05 Equatorial Energia Electric Utility
8/06 Fogo de Cho Restaurants
11/06 BR Malls (formerly Ecisa) Shopping Malls
12/06 Tempo (formerly IHH/USS) Insurance
01/07 BR Properties Real Estate
08/07 Magnesita Industrial
(1) On December 11, 2006, a GPCP2 controlled company and two GPCP3 controlled companies entered into an
agreement for the purchase by GPCP3 of shares in the capital of IHH held by GPCP2. See Business
Investments in GP Investments-managed private equity fundsGPCP3IHH/USS and Related Party
Transactions.
GPCP4 Current Portfolio
Date of
Initial
Investment Company Description of Business/Industry
08/07 Pride Latam Oil Services
08/07 Magnesita Industrial
Gross Internal Rate of Return (IRR)
The following table sets forth the gross IRR (internal rates of return, or IRRs, are the discount rates that
make the net present value of an investment equal to zero) for both realized and unrealized investments in all the
private equity funds managed by the GP Group. The following methods were used in calculating IRRs:
Definition of Gross. Gross IRRs are presented before deducting management fees, taxes, fund expenses and
carried interest to be paid by investors in the funds.
36
Unrealized Investments. Unrealized investments are valued at their fair market value, and calculated
according to the European Venture Capital Association, or EVCA, rules, as of the date set forth below.
Summary of Investment Performance(1)(2)
From March 31, 1994 to June 30, 2007
(US$ in millions)
Realized Unrealized Total
(US$ in millions, except number of transactions and percentages)
Number of Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31(2) 12(2) 40
Capital Invested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 742.9 $744.7 $1,487.6
Realized or Unrealized Value . . . . . . . . . . . . . . . . . . . . . . . $2,054.1 $790.3 $2,844.4
Gross IRR(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.3% 0.3% 12.4%
Gross IRR Reais(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.4% 8.6% 19.5%
(1) The information contained in this table is a sum of the information for all of our investments. Results of
each particular investment vary significantly. In particular, past results are not necessarily indicative of
future performance.
(2) Includes a distribution that occurred on July 9, 2007 (ALL), in the amount of $118,573,229.55, another
distribution on July 24 (ALL) in the amount of $3,141,805.41 and a capital increase in BR Properties of
$15.0 million which is committed but had not been called at June 30, 2007. Includes three transactions that
have been partially realized (ALL, Kuala and Equatorial Energia).
(3) IRRs are calculated on a quarterly basis, accounting for cash flows as they arise (also known as the time line
method). IRRs for unrealized investments are based on fair market value.
37
CAPITALIZATION
The following table sets forth our consolidated capitalization as of June 30, 2007, on an actual basis and as
adjusted to give effect to this offering. You should read this table in conjunction with our financial statements
and the related notes and with the sections entitled Selected Financial and Other Information and
Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere
in this offering memorandum.
As of June 30, 2007
Actual As Adjusted
(in thousands of US$)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414,718 455,445
Loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,487 8,487
Perpetual notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 190,850
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,487 199,337
Shareholders equity
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 260
Share premium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321,912 321,912
Receivables from shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,954) (1,954)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,299 147,299
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622 622
Total shareholders equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,139 468,139
Total capitalization(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626,626 667,476
(1) Total capitalization corresponds to total long-term debt plus total shareholders equity.
38
EXCHANGE RATES
The regulations governing the Brazilian foreign exchange market were changed on March 14, 2005. Prior to
such date, there were two principal legal foreign exchange markets in Brazil:
the commercial rate exchange market; and
the floating rate exchange market.
On March 4, 2005, the CMN issued Resolution No. 3,265, which created a single foreign exchange market
for all transactions effective as of March 14, 2005.
Foreign currencies may be purchased only through a Brazilian bank authorized to operate in the foreign
exchange markets. Foreign exchange rates are freely negotiated, but may be strongly influenced by Central Bank
intervention. The recent changes to the foreign exchange regulation introduced by the Brazilian authorities intend
to make foreign exchange transactions simpler and more efficient. The markets expect the new regulation to
provide a more flexible environment and foster foreign investment in Brazil.
Additionally, on March 9, 2005, the Central Bank issued Circular No. 3,280, containing the regulations for
the foreign exchange market and for international investments, which governs the Brazilian foreign exchange
market, Brazilian investments abroad and foreign investment in Brazil.
From March 1995 until January 1999, the Central Bank allowed the gradual devaluation of the real against
the U.S. dollar. In January 1999, the Central Bank allowed the real/U.S. dollar exchange rate to float freely.
Since then, the real/U.S. dollar exchange rate has been established mainly by the Brazilian interbank market and
has fluctuated considerably. The Central Bank has intervened occasionally to control unstable movements in the
foreign exchange rate. However, the exchange market may continue to be volatile, and the real may depreciate or
appreciate substantially in value in relation to the U.S. dollar in the future. We cannot predict whether the Central
Bank or the Brazilian government will continue to let the real float freely or will intervene in the exchange rate
market through a currency band system or otherwise.
The following table sets forth the exchange rate (subject to rounding adjustments), expressed in reais per
U.S. dollar (R$/$), for the periods indicated, as reported by the Central Bank.
Period-end
Average for
Period Low High
Year Ended:
December 31, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$2.138 R$2.177(1) R$2.059 R$2.371
December 31, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.341 2.434(1) 2.163 2.762
December 31, 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.654 2.926(1) 2.654 3.205
December 31, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.889 3.072(1) 2.822 3.662
December 31, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.533 2.931(1) 2.271 3.955
December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.320 2.352(1) 1.936 2.801
Month Ended:
January 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.125 2.138 2.125 2.156
February 28, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.118 2.096 2.077 2.118
March 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.050 2.089 2.050 2.139
April 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.034 2.032 2.023 2.048
May 31, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.929 1.982 1.929 2.031
June 29, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.926 1.932 1.905 1.964
July 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.878 1.883 1.845 1.918
August 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.962 1.966 1.873 2.112
Source: Central Bank
On September 21, 2007, the exchange rate in reais per U.S. dollars was 1.868. Exchange rate fluctuation
will affect the U.S. dollar value of any distributions we receive, which may be made in reais. See Risk
FactorsRisks Relating to Brazil.
39
SELECTED FINANCIAL AND OTHER INFORMATION
The following selected financial data has been derived from our consolidated financial statements. The
selected financial data as of and for the years ended December 31, 2006, 2005 and 2004 have been derived from
our audited consolidated financial statements included in this offering memorandum. The selected financial data
as of June 30, 2007, and for the six-month periods ended June 30, 2007 and 2006 has been derived from our
unaudited condensed consolidated interim financial information. Such condensed consolidated interim financial
information includes all recurring ordinary adjustments that, in the opinion of our management, are required for
the proper disclosure of our consolidated financial position, our results of operations and the cash flows in such
interim periods. The accounting policies applied in the preparation of this unaudited condensed consolidated
interim financial information are consistent with the policies applied in the preparation of our audited financial
statements for the annual period ended on December 31, 2006. Our consolidated financial statements are
prepared in accordance with U.S. GAAP.
This financial information should be read in conjunction with our consolidated financial statements and the
related notes and the sections entitled Presentation of Financial and Other Information, Selected Financial and
Other Information and Managements Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this offering memorandum. The condensed consolidated interim financial
information should be read in conjunction with our consolidated financial statements prepared for the year ended
December 31, 2006. Our results for the six months ended June 30, 2007 are not necessarily indicative of the
results to be reported by us for the entire year ending December 31, 2007.
As of and for Six
Months ended As of and for the Year ended
June 30,
2007(3)
June 30,
2006
December 31,
2006
December 31,
2005
December 31,
2004
(in thousands of US$, except per share data)
Consolidated Statement of Income Data
Revenues
Management and performance fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,567 12,112 15,519 1,565 713
Advisory fees and other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 487 1,453 478
Appreciation in fair value of trading securities . . . . . . . . . . . . . . . . . . . . . . 6,314 6,314 13,808
Realized gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,806 3,464 4,385 12,908
Appreciation in fair value of investments of consolidated Limited
Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,411 5,198 17,424
Equity in results of affiliated company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 146 10,314
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,025
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,837 27,575 44,275 40,048 1,191
Expenses
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,480) (7,766) (18,999) (2,720) (104)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,051) (3,637) (5,175) (5,440) (617)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 (27) (181)
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,319) (11,430) (24,355) (8,160) (721)
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,526 12,303 23,732 858 189
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,340) (239) (456) (105)
Foreign exchange gain (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (1,316) (1,321) (2,280) (1,493)
Financial income (expenses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,217 10,748 21,955 (1,527) (1,304)
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,546 2,546
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,018) (7,332) (16,778)
Income (loss) from continuing operations before taxation. . . . . . . . . . . . . . . 94,717 22,107 27,643 30,361 (834)
Income tax and social contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (403) (203) (1,168)
Net income (loss) from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . 94,314 21,904 26,475 30,361 (834)
Net income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . (457) (457) 5,723 6,798
Total net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,314 21,447 26,018 36,084 5,964
Basic earnings (loss) per share
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 2.39 1.28 4.05 (0.08)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05) (0.02) 0.76 0.68
Total net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 2.34 1.26 4.81 0.60
40
As of and for Six
Months ended As of and for the Year ended
June 30,
2007(3)
June 30,
2006
December 31,
2006
December 31,
2005
December 31,
2004
(in thousands of US$, except per share data)
Diluted earnings (loss) per share
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 2.39 1.28 4.05 (0.08)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05) (0.02) 0.76 0.68
Total net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 2.34 1.26 4.81 0.60
Consolidated Balance Sheet Data(2)
Assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414,718 312,665 30,403 2,389
Financial investments trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . 17,740 13,765 27,171 13,081
Management and performance fees receivable . . . . . . . . . . . . . . . . . . . . . . 1,769 1,519
Deferred issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,025 1,366 450 8
Loans and receivables from related parties . . . . . . . . . . . . . . . . . . . . . . . . . 4,594
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424,338 173,884 17,193 3,846
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,984
Deferred issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,716
Investment property advances(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,025
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,802 579 562 41
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477 937 6 3
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875,346 504,715 81,810 23,962
Liabilities and shareholders equity
Accounts payable, payroll and tax accruals . . . . . . . . . . . . . . . . . . . . . . . . . 3,016 3,043 1,414 154
Accrued interest on perpetual notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,792
Accrued performance bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,057 2,234 6,501 307
Deferred management fee income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,062 3,199
Dividends declared and payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962 808 8,009 13
Payable to a related party for acquisition of investment . . . . . . . . . . . . . . 11,500
Loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,487 7,184 6,454 700
Perpetual notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Asset-backed securities(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,832
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 154
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,739 107,427 767
Total shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,139 372,365 33,771 18,909
Total liabilities and shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875,346 504,715 81,810 23,962
Consolidated Statement of Cash Flows:
Cash flow provided by (used in)
Continuing operations
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,211 15,741 17,641 7,736 22,117
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,169) 13,509 (88,006) 1,839 (3,703)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,137 299,834 356,428 16,973 (2,496)
Discontinued operations
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,325 15,325 2,213 6,675
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,520) (15,521)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867 867 (700) (20,765)
(1) GP was originally incorporated in the British Virgin Islands. On March 9, 2006, our board of directors approved our redomiciliation to
Bermuda and the change of our corporate name to GP Investments, Ltd.
(2) Year ended December 31, 2005 excludes assets and liabilities of GP1 and GP2 but includes the results of GP1 and GP2.
(3) GP Investments, Ltd. held a minority equity interest (directly and indirectly) of 46.86% in GPCP3 as of and for the period ended June 30,
2007. The application of EITF 04-5, which became effective January 1, 2006 caused us to consolidate the line items of GPCP3 in the
financial statements of GP3, which in turn are consolidated with our financial statements. The remaining 53.14% equity interest in
GPCP3, held by the limited partners of GP3, are classified as minority interests. Therefore, since January 1, 2006, all assets and
liabilities, as well as the revenues and expenses, of GPCP3 are reported on our consolidated balance sheet and income statement,
respectively, and the assets and liabilities not held by us, as well as the corresponding revenues and expenses, are presented as minority
interests in a single line item. See Managements Discussion and Analysis of Financial Condition and Results of Operations.
41
(4) On April 20, 2006, we completed the sale of our stake in GPRE. The following summarizes financial information for results of
discontinued operations related to real estate for the six-month period ended June 30, 2006.
Six Months Ended
June 30, 2006
(in thousands of US$)
Revenues
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Advisory fees and other services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Expenses
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (620)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182)
Financial income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457)
42
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction
with our audited consolidated financial statements as of and for the years ended December 31, 2006, 2005 and
2004 including the related notes and with our unaudited condensed consolidated interim financial information as
of June 30, 2007 and for the six-month periods ended June 30, 2007 and 2006, as well as with the financial
information presented under the section entitled Selected Financial and Other Information included elsewhere
in this offering memorandum. The following discussion contains estimates and forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from those discussed in these estimates
and forward-looking statements as a result of various factors, including, without limitation, those set forth in the
Forward-Looking Statements and Risk Factors sections of this offering memorandum.
Our consolidated financial statements as of and for the years ended December 31, 2006, 2005 and 2004
included in this offering memorandum, together with the report of our independent auditors, and our unaudited
condensed consolidated interim financial information as of June 30, 2007 and for the six-month periods ended
June 30, 2007 and 2006, have been prepared in accordance with U.S. GAAP.
Our unaudited condensed consolidated interim financial statements as of June 30, 2007 and our
consolidated financial statements for the six-month periods ended June 30, 2007 and 2006 have been prepared
on the same basis as those for the year ended December 31, 2006, and should be read in conjunction therewith.
The results and cash flows for the six-month period ended June 30, 2007 are not necessarily indicative of the
results and cash flows to be expected for the entire year ending December 31, 2007.
We have accomplished a series of reorganizations and we expect prospective operations will be different
than the operations reflected in the consolidated financial statements. Therefore, our historical consolidated
financial statements do not necessarily provide you with a basis to evaluate our future operations and
performance.
Unless otherwise specified, the financial information contained in this offering memorandum
regarding our company and our managements discussion and analysis of financial condition and results
of operations are presented on a consolidated basis.
Overview
Our current activities comprise our core private equity business and our asset management business. We
also had, until April 20, 2006, certain real estate-related business conducted by GPRE. Our private equity
business is conducted by GPPE either directly or by funds that we may form and manage.
Our principal sources of revenues are: (i) capital gains when we and private equity funds we invest in sell
investments, (ii) unrealized appreciation of companies in the portfolio of funds that we invest in, (iii) equity
income from our direct and indirect subsidiaries, including interest attributable to shareholders equity, and
(iv) management, performance and advisory fees relating to funds we manage or advise.
In preparation for our initial public offering, concluded on May 31, 2006, we effected a corporate
reorganization whereby we divested certain assets and liabilities related to our private equity funds that were
already in a divestiture period. We distributed $12.8 million as a dividend in kind to our controlling shareholder,
Partners Holdings, shares of the general partner of GPCP1, or GP1, the shares of the general partner of GPCP2,
or GP2. At the GP Tecnologia general members meeting held on April 27, 2006, the members of GP Tecnologia
approved our replacement as manager of the fund, and transferred all rights and duties related to the management
of such fund to GP Tecnologia Administradora de Ativos Ltda., a subsidiary of Partners Holdings. The transfer
was effective May 10, 2006. No gain or loss was recorded from that transaction.
43
See BusinessCorporate Reorganization. We will not be entitled in the future to the management and
performance fees arising from those activities as we were in the past, and therefore we have elected to record
them as discontinued operations. See Discontinued Operations PresentationGP1 and GP2. We do,
however, provide services to Partners Holdings in connection with the day-to-day management of such funds, in
exchange for which Partners Holdings pays us a portion of our costs, in accordance with the Services Agreement
described in Related Party Transactions.
Prior to this reorganization, the GP Group had a dual structure, through which the current shareholders of
Partners Holdings held interests both in us (which concentrated the offshore activities of the GP Group, such as
the general partners of GPCP1, GPCP2, GPCP3) and in GP Investimentos S.A. (which held GP Groups
Brazilian operations, which included being the entity that formally employed our private equity professionals).
As part of the December 2005 reorganization, we became owners of 99.99% of GP Investimentos S.A. This
resulted in the consolidation, in our financial statements, as of December 31, 2005 and 2006, of the financial
results of GP Investimentos S.A. (and will result in our consolidated statement of income reflecting the expenses
incurred by GP Investimentos S.A. in its capacity as ours, GPCP3s and GPCP4s local advisor, as well as of the
results of operations of GP Asset, going forward).
On April 20, 2006, we completed the sale of our 74% stake in GPRE to the other holders of equity interests
in GPRE. Because of this sale, we no longer benefit from revenues arising from these assets. GPRE was part of
the activities of the GP Group since 2003 and, as of the date of the sale, its product offerings included funds
investing in Brazil-based real estate receivables (certificados de recebveis imobilirios, or CRIs), equity for
residential developments, as well as the origination and securitization of built-to-suit/sale-leaseback financings.
On May 31, 2006, we concluded successfully our initial public offering, raising a net $307.2 million through
the offering of Brazilian depositary shares in Brazil (BOVESPA) and Class A shares on the Luxembourg Stock
Exchange.
On August 18, 2006, our board of directors approved and adopted, with the concurrence of the nomination
and the compensation committee, the Stock Purchase Option Plan, or the Plan, the 2006 Stock Purchase Program,
or the 2006 Program, and the form of agreements to be entered into between the Company and each beneficiary.
The 2006 Program comprises 7,416,037 options, in an amount equivalent to 20% of the Companys total capital
on a fully diluted basis after our initial public offering. The options were granted on October 16, 2006, when
costs started to be recognized, and will expire in a total period of 10 years with a vesting period of five years.
On December 7, 2006, our board of directors with the concurrence of the nomination and the compensation
committee approved and adopted the form of the stock option agreement to be signed by GP Investments Share
Option Trust, or the GP Trust, a trust formed for the benefit of our directors, officers, employees and consultants,
exclusively to acquire options under our Plan. The options to be granted to GP Trust will have the same terms
and conditions of the options granted to the other beneficiaries under the 2006 Program.
On September 6, 2007, our board of directors approved the issuance of an aggregate of 50,962 Class A
Shares (including 27,660 shares in the form of Brazilian Depositary Shares evidenced by Brazilian Depositary
Receipts) in connection with the partial exercise of options under the 2006 Stock Purchase Program.
On December 8, 2006, we incorporated a wholly-owned subsidiary, named GP Private Equity Ltd., or
GPPE. Following this reorganization, our private equity business investments have been made by us, through
GPPE either directly or by funds that we manage. At the closing of the offering of the initial notes, we had
entered into a share pledge agreement with HSBC Bank USA National Association, or HSBC Bank USA, acting
as collateral agent for the benefit of holders of the initial notes, pursuant to which our obligations under the initial
notes were secured by a first priority pledge on 100% of GPPEs issued and outstanding shares. The share pledge
agreement and the security interests granted thereby were terminated following the occurrence, on April 27,
2007, of the pledge release condition set forth in the indenture and the share pledge agreement.
44
GP Investments is the largest investor in GPCP3, holding 46.86% ($117 million) of the $250 million total
committed capital. Out of the $117 million committed capital held by GP Investments, $20 million belongs to
GP3, the general partner of GPCP3.
As of August 31 2007, GPCP3 was fully invested in six different companies (Equatorial Energia, Fogo de
Cho, BR Malls, Tempo, BR Properties and Magnesita).
On December 18, 2006, GP Cash Management, Ltd., or GPCM, became our wholly-owned subsidiary in
Bahamas. The company is responsible for managing our and our subsidiaries cash and cash equivalents,
following the objectives and guidelines approved by GPs board of directors. The main guidelines consider the
characteristics of these investments in order to achieve: (i) liquidity compatible with the needs of the Private
Equity business, (ii) a conservative approach with a strong focus on principal preservation and (iii) returns
compatible with the liquidity requirements with low volatility.
On July 6, 2007, GP Investments announced the closing of its new private equity fund, GPCP4. The new
fund has US$1.025 billion of committed capital, with GP Investments committing US$400 million and limited
partners committing US$625 million. As of August 31 2007, GPCP4 had 34% of its commitments invested in
two different companies (Pride Latam and Magnesita).
Brazilian Economic Environment
The year 2003 was marked by the transition of the government led by Fernando Henrique Cardoso to Luiz
Incio Lula da Silvas government. Due to adverse factors associated with the uncertainties surrounding the
Brazilian political and economical future before and immediately after the presidential elections in October 2002,
Brazilian GDP increased by only 0.5% in 2003.
In 2003, the U.S. dollar lost value versus other currencies, and the conservative monetary and fiscal policies
of the current government in Brazil led to the appreciation of the real against the U.S. dollar. During the same
year, the inflation rate, as measured by the Consumer Price Index (ndice de Preos ao Consumidor Amplo), or
IPCA, was 9.3%. In the same year, the real appreciated by 22.3% against the U.S. dollar, reaching a value of
R$2.89 per US$1.00 on December 31, 2003.
In light of increased exports in 2004, Brazils economic growth rate recovered, in particular in the sectors
most sensitive to credit expansion. Evidence of an internal market recovery had positive impacts on the labor
market, income levels for the general population and the recovery of the overall Brazilian economy. GDP grew
by 5.7% in 2004 and the real appreciated against the U.S. dollar by 8.8% between December 31, 2003 and
December 31, 2004.
During the same period, the formal labor market grew with the creation of approximately 1.9 million jobs,
resulting in an increase in the demand for goods and services in the market. The inflation rate, as measured by the
IPCA, was 7.6%. In 2004, exports and external investments resulted in an important surplus in the current
account of over US$10.0 billion (2.0% of the GDP), which made possible a reduction in the countrys external
indebtedness, measured in terms of a multiple of exports, from three to less than two, and significantly improved
the perceived risk level in the Brazilian economy.
In 2005, the real appreciated 13.4% against the dollar. Despite this appreciation, Brazil recorded a record
trade surplus of US$44.8 billion. Inflation, as measured by IPCA, was 5.7% in 2005, and the average
unemployment rate in the main metropolitan regions decreased from 11.5% in 2004 to 9.8% in 2005, according
to the unemployment estimates published by the IBGE. The growth in employment and general income increased
the consumption of durable goods and thus raised demand in the furniture industry. However, this positive
development slowed in the second half of the year as interest rates did not decline as quickly as expected.
45
Despite the fact that 2006 was a presidential election year in Brazil, the prevailing political and economic
conditions presented relative stability and an improvement in their fundamentals. According to the new
calculation method adopted by the IBGE, the GDP growth corresponded to 3.7%. The solid commercial balance
and significant capital flows to Brazil for investment in the interest and variable income markets resulted in of
appreciation of the real, with exchange rates ending 2006 at R$2.14 per US$1.00. A gradual, but steady decline
in the internal basic interest rate, in combination with the ongoing availability of credit, in particular consumer
credit, continued to drive the consumption of durables, including the demand for furniture, whose sales, since
2005, have also been boosted by a significant increase in the delivery of new real estate developments.
In the period ended June 30, 2007, the trends continued, with the real appreciating 11.0% against the U.S.
dollar and the recording of a positive current account balance of US$2.2 billion in the period. The average
unemployment rate in the main metropolitan regions of Brazil increased from 8.4% in 2006 to 9.7% on June 30,
2007, according to IBGE estimates. As measured by the IPCA, the average inflation rate in the first half of 2007
was 3.7% and the long-term interest rate, or TJLP, was 6.5%.
The following table shows data for inflation rate, real GDP and appreciation (devaluation) of the real
against the U.S. dollar for the periods presented:
Six-month
period ended
June 30. Year ended December 31,
2007 2006 2005 2004
(percentages, unless otherwise indicated)
GDP growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4(6) 3.7 2.9 5.7
Inflation (IPCA)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 3.1 5.7 7.6
Inflation (IGP-M)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 3.8 1.2 12.4
Long-term interest rateTJLP (closing)(3). . . . . . . . . . . . . . . . . . . . . 6.5 7.9 9.75 9.81
Interbank rateCDI(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9 13.25 18.0 17.5
Appreciationreal vs. U.S. dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0 9.4 13.4 8.9
Exchange rate (closing)US1.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$1.926 R$2.138 R$2.341 R$2.654
Exchange rate (average)US$1.00(5) . . . . . . . . . . . . . . . . . . . . . . . . . R$2.045 R$2.177 R$2.434 R$2.926
(1) Inflation (IPCA) refers to the consumer price index as measured by the IBGE
(2) Inflation (IGP-M) is the wholesale or general market price index measured by the Getulio Vargas
Foundation (Fundao Getlio Vargas), or FGV.
(3) Long-term interest rate set by the National Monetary Council (year-end).
(4) Average rate of one-day interbank deposits in Brazil (accumulated per month, annualized).
(5) Average exchange rate during the period.
(6) Represents GDP growth compared to the same period in 2006.
Effect of Fluctuations in Exchange Rates Between the U.S. Dollar and the Real
We use the U.S. dollar as our functional currency and our reporting currency for purposes of our financial
statements. We have significant exposure to risks from real fluctuations against other currencies. In addition,
although certain of our revenue flows, such as management fees and carried interests relating to GPCP3 and
GPCP4, are based in U.S. dollars amounts, these are determined on the underlying businesses, which are
predominantly based in reais. Certain of our revenues (such as fees obtained by GP Asset) and certain of our
expenses are based in the real. As our financial statements are prepared in U.S. dollars, our financial position and
results are affected by changes in the exchange rate of the real in relation to the U.S. dollar. If we have not taken
measures to mitigate our exposure to foreign currency volatility, when the real depreciates against the U.S.
dollar, our revenues and expenses from our real-based businesses generally decrease when expressed in U.S.
dollars. Conversely, when the real appreciates against the U.S. dollar, our revenues and expenses in real-based
businesses generally increase when expressed in U.S. dollars.
46
In order to reduce our risks from our foreign currency exposure, particularly the effect of real fluctuations
on our results of operations, we routinely invest our excess cash in funds, mostly managed by us, which carry
foreign currency-denominated assets in their portfolio. See Quantitative and Qualitative Disclosures About
Market Risks.
Change in Basis of Accounting
EITF 04-5: Determining Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights
On June 29, 2005, the Emerging Issues Task Force of the Financial Accounting Standards BoardFASB
published EITF 04-5: Determining Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights. The EITF states that the
general partners in a limited partnership are presumed to control that limited partnership regardless of the extent
of the general partners ownership interest in the limited partnership. The assessment of whether the rights of the
limited partners should overcome the presumption of control by the general partners is a matter of judgment that
depends on facts and circumstances. If the limited partners have either (a) the substantive ability to dissolve
(liquidate) the limited partnership or otherwise remove the general partners without cause or (b) substantive
participating rights, the general partners do not control the limited partnership. The rights underlying the limited
partners ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners are
collectively referred to as kick-out rights. Kick-out rights are considered to be substantive when they can be
exercised by a single limited partner or a vote of a simple majority (e.g., 66.67% or a lower percentage) of the
limited partners voting interests held by parties other than the general partners. In the case of GPCP3, the
Partnership Agreement provides that the General Partner may be removed without cause by the affirmative vote
of not less than 75% of the limited partners, which is a supermajority voting requirement above the requirement
provided for in EITF 04-5; therefore, the limited partners do not have substantial rights of dissolution in GPCP3.
We determined that the limited partners do not have any other substantial participation rights and, consequently,
that the General Partner controls GPCP3.
In the case of the Company, the application of EITF 04-5 became effective January 1, 2006. Although we
held a minority equity interest of 46.86% (directly and indirectly) in GPCP3 as of and for the period ended
June 30, 2007, the application of EITF 04-5 (see Managements Discussion and Analysis of Financial Condition
and Results of Operations) caused us to consolidate the line items of GPCP3 in the financial statements of GP3,
which in turn are consolidated with our financial statements. The remaining 53.14% equity interest in GPCP3,
held by the limited partners of GP3, are classified as minority interest. Therefore, since January 1, 2006, all
assets and liabilities, as well as the revenues and expenses, of GPCP3 are reported on our consolidated balance
sheet and income statement, respectively, and the assets and liabilities not held by us, as well as the
corresponding revenues and expenses, are presented as minority interest in a single line item. In principle, the
same account treatment will be given regarding GPCP4.
Explanation of Certain Statement of Income Items
Management fees
Our management and performance fees have been generated through agreements that certain of our current
and former subsidiaries have with funds that they manage. GP1 receives, in advance, a semi-annual management
fee equal to 1.0% (2.0% per year) of the cost basis of investments made by New GP Capital Partners B, L.P., one
of the successor funds to GPCP1. GP2 receives, also in advance, a semi-annual management fee from GPCP2
equal to 0.75% (1.5% per year) of the cost basis of all investments made by GPCP2.
The general partner of GPCP3, GP3, receives in advance a semi-annual management fee from GPCP3, based on a
rate of 1.0% (2.0% per year) of commitments in GPCP3 until the last day of the commitment period and thereafter, of
1.0% of total funded commitments (2.0% per year) applied to investments (less the amount of funded commitments in
respect of portfolio investments that were sold or otherwise disposed of or permanently written-off).
47
The general partner of GPCP4, GP4, receives a quarterly management fee from GPCP4 during the
commitment period on an amount equal to 0.5% (2.0% per year) of the difference between each partners
committed amount and such partners pro rata share (based on invested funds) of the cost basis to GPCP4 of all
investments and temporary holdings that have been subject to a disposition or permanently written-off on or
before the first day of the relevant quarter. After the end of the commitment period, GP4 shall receive a quarterly
management fee from GPCP4 on an amount equal to 0.5% (2.0% per year) of each partners pro rata share (based
on invested funds) of the cost basis to GPCP4 of all investments and temporary holdings existing on the first day
of the relevant quarter, and which have not been permanently written-off.
GP Asset Management Inc., formerly Utor, receives an annual management fee from certain offshore funds
it manages (Alchemy Fund and Latin America Income Strategies Fund) of 2.00% of their respective net asset
values.
Since January 1, 2006, management fees include fees from our asset management business, which was not
consolidated prior to December 31, 2005.
Performance Fees
The general partners of GPCP3 and GPCP4 (GP3 and GP4) are also entitled to a performance fee for their
roles in managing GPCP3 and GPCP4, as applicable, corresponding to 20.0% of the amount that exceeds an
annual compounded 8.0% return on the partners funded commitments applied to investments, organizational
expenses, partnership expenses and management fees. The performance fees are recognized upon the irrevocable
payment to GP3 or GP4, as applicable, or are recorded on an accruals basis, when payment is guaranteed. See
BusinessGPCP3/GPCP4.
Appreciation (Depreciation) in Fair Value of Trading Securities
In addition to our indirect investments in portfolio companies carried through our funds, we have directly
acquired shares in certain companies where funds under our management made investments. These shares are
generally accounted for in our records at their historical cost until such time as a public market for these shares
becomes available, when we generally reclassify them to trading securities and revalue them to reflect their
market price, giving rise to gains (or losses) due to appreciation (depreciation) in fair value.
Appreciation (Depreciation) in Fair Value of Investments of Consolidated Limited Partnership GPCP3
The interests held by the GP3 (General Partner) in GPCP3 portfolio companies are accounted for at fair
value, which value is determined by our board. Until December 31, 2005, changes in the fair value of such
investments were accounted for as equity revenues. Since January 1, 2006, as the general partner GP3
consolidates GPCP3, such changes in fair value are treated as unrealized appreciation or depreciation in fair
value.
Appreciation (Depreciation) in Fair Value of Investments of Consolidated Limited Partnership GPCP4
The interests held by the general partner of GPCP4 in GPCP4s portfolio companies are accounted for at fair
value, which value is determined by our board. The general partner GP4 consolidates GPCP4 and changes in fair
value are treated as unrealized appreciation or depreciation in fair value.
General and Administrative Expenses
General and administrative expenses consist mostly of compensation, which has been paid to the officers of
the GP Group usually in the form of quarterly payments by our 99%-owned subsidiary GP Investimentos Ltda.
Payroll expenses related to our employees were previously not consolidated in our results, but have been since
the consolidation upon the acquisition of the totality of shares of GP Investimentos S.A. on December 30, 2005.
These expenses also include services such as consulting used by us and our subsidiaries, placement agents,
lawyers and information services; duties levied on the special purpose entities we own for use in future deals; and
48
provisions for contingencies. Since January 1, 2006, general and administrative expenses include travel,
accommodation, rent, overhead and other disbursements related to our local advisor, which were not consolidated
prior to December 30, 2005.
Bonuses
Bonus expenses refer to variable compensation for which every partner, officer or employee is eligible.
Bonuses have historically been paid semi-annually, with an aggregate amount distributed corresponding to
approximately 25% of our operational profits. Bonuses are provisioned as expenses against results during their
corresponding period of reference, and paid subsequently to that period. After our initial public offering, the
responsibility for setting the bonuses policy was delegated to the nomination and compensation committee of
GP Investments, which is composed by the three independent board members. For the second half of 2007, a
bonus pool in the total amount of $1.5 million was defined and provisioned.
Stock Options
On August 18, 2006, our board of directors approved and adopted, with the concurrence of the nomination
and the compensation committee, the Stock Purchase Option Plan, or the Plan, the 2006 Stock Purchase Program,
or the 2006 Program, and the form of agreements to be entered into between the Company and each beneficiary.
The 2006 Program comprises 7,416,037 options, in an amount equivalent to 20% of the Companys total capital
on a fully diluted basis after our initial public offering. The options were granted on October 16, 2006, when
costs started to be recognized, and will expire in 10 years with a vesting period of five years. Under the terms of
the Plan, employees can purchase shares of GP Investments at an exercise price of US$ 14.75 per share.
On December 7, 2006, our board of directors with the concurrence of the nomination and the compensation
committee approved and adopted the form of the stock option agreement to be signed by GP Investments Share
Option Trust, or the GP Trust, a trust formed for the benefit of our directors, officers, employees and consultants,
exclusively to acquire options under our Plan. The options to be granted to GP Trust will have the same terms
and conditions of the options granted to the other beneficiaries under the 2006 Program. The options were
granted on October 16, 2006 and will expire in 10 years with a vesting period of 5 years.
On September 6, 2007, our board of directors approved the issuance of an aggregate of 50,962 Class A
Shares (including 27,660 shares in the form of Brazilian Depositary Shares evidenced by Brazilian Depositary
Receipts) in connection with the partial exercise of options under the 2006 Stock Purchase Program.
Discontinued Operations PresentationGP1 and GP2
On December 30, 2005, as approved by our board of directors, we distributed, in the form of a dividend,
shares of two of our wholly-owned subsidiaries to our shareholders at their agreed fair values and, therefore, no
gain or loss was recognized as a result of this transaction. The net assets distributed included those of GP1 (net
book value of $4.0 million) and GP2 (net book value of $8.8 million).
GP1 and GP2 comprise operations and cash flows that can be clearly distinguished from the rest of the
company, operationally and for financial reporting purposes. As a result, and consistent with Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, we have presented the results of operations
and cash flows of these subsidiaries separately as discontinued operations.
In implementing such separation, we have adopted certain rules based on SFAS No. 144:
revenues were segregated into their clearly distinguishable sources;
costs and expenses that were expected to continue subsequent to the disposal date were not allocated to
discontinued operations but were included in results of continuing operations;
49
other consolidated interests that could be attributed to other operations of the company were allocated
based on the ratio of net assets to be discontinued to total consolidated net assets; and
except as described in the bullet above, general corporate overhead was not allocated to discontinued
operations, except for such periods when the discontinued operations represented the totality of our
operations, as in the period ended December 31, 2003.
The results of the application of such criteria to present GP1 and GP2 as discontinued operations in our
financials were the following:
Revenues: management and performance fees from GPCP1 and GPCP2 were allocated to discontinued
operations as sources of revenues directly identifiable to GP1 and GP2 which we do not expect to be
part of our future operations;
General and Administrative Expenses, Bonuses and Financial Expenses, net: except where these
expense items were directly identifiable as connected to GP1 and GP2, they were allocated based on
GP1s and GP2s net assets as of each year end, in relation to our shareholders equity as of each year
end; and
Equity in results of affiliated companies: results from affiliated companies not owned by us in 2005
were also included in discontinued operations.
The following summarizes financial information for discontinued operations related to GP1 and GP2, as
detailed in the explanatory notes to our consolidated financial statements included in this offering memorandum:
Year ended
December 31,
2005
Year ended
December 31,
2004
(US$ in thousands)
Revenues
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,603 9,264
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,603 9,264
Expenses
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,058) (926)
Bonuses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,115) (2,321)
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,173) (3,247)
Financial income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 713
Equity in results of affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Net income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,723 6,798
50
The following is a summary of the assets and liabilities which were contributed as part of the distribution in
kind at December 30, 2005 and the corresponding balances as of December 31, 2004 of the operations which
were discontinued in connection with the distribution of GP1 and GP2:
As of
December 31, 2004
(US$ in thousands)
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,927
Loans and receivables from related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,222
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,307
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Deferred management fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,199
Accrued performance bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,209
The following is a summary of financial information relating to our statement of cash flows for discontinued
operations for the years ended December 31, 2005 and 2004:
Year ended
December 31,
2005
Year ended
December 31,
2004
(US$ in thousands)
Cash flows provided by (used in) discontinued operations:
Cash flows provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,213 6,675
Cash flows used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (700) (20,765)
Cash provided by (used in) discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513 (14,090)
Discontinued Operations PresentationGPRE
On April 20, 2006, our subsidiary GPRE, which comprised our real estate business, was sold to our former
joint venture partners, generating a gain of $2.5 million.
The following summarizes financial information for results of discontinued operations related to real estate
for the six-month period ended June 30, 2006:
Six Months ended
June 30, 2006
(US$ in thousands)
Revenues
Management and performance fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Advisory fees and other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
186
Expenses
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (620)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182)
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (802)
Financial income, trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Net loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457)
There were no results of discontinued operations related to real estate for the six-month period ended
June 30, 2007.
51
Results of Operations
Summary Financial Data
The following discussion of our results of operations is based on our consolidated financial statements
prepared in accordance with U.S. GAAP.
In the following discussion, references to increases or decreases in any year are made by comparison with
the corresponding prior year or period, except as the context otherwise indicates.
Six Months ended
June 30,
Year ended
December 31,
2007 2006 2006 2005 2004
(US$ in thousands)
Revenues
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . 8,567 12,112 15,519 1,565 713
Advisory fees and other services. . . . . . . . . . . . . . . . . . . . . . . . . . . 487 487 1,453 478
Appreciation in fair value of trading securities . . . . . . . . . . . . . . 6,314 6,314 13,808
Realized gain on sale of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,806 3,464 4,385 12,908
Appreciation in fair value of investments of consolidated
limited partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,411 5,198 17,424
Equity in results of affiliate company . . . . . . . . . . . . . . . . . . . . . . 28 146 10,314
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,025
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,837 27,575 44,275 40,048 1,191
Expenses
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,480) (7,766) (18,999) (2,720) (104)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,051) (3,637) (5,175) (5,440) (617)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 (27) (181)
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,319) (11,430) (24,355) (8,160) (721)
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,526 12,303 23,732 858 189
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,340) (239) (456) (105)
Foreign exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (1,316) (1,321) (2,280) (1,493)
Financial income (expenses), net . . . . . . . . . . . . . . . . . . . . . . . . . . 8,217 10,748 21,955 (1,527) (1,304)
Gain on sale of real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,546 2,546
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,018) (7,332) (16,778)
Income (loss) from continuing operations before taxation. . . . . 94,717 22,107 27,643 30,361 (834)
Income tax and social contribution. . . . . . . . . . . . . . . . . . . . . . . . . (403) (203) (1,168)
Net income (loss) from continuing operations . . . . . . . . . . . . . 94,314 21,904 26,475 30,361 (834)
Net income (loss) from discontinued operations . . . . . . . . . . . (457) (457) 5,723 6,798
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,314 21,447 26,018 36,084 5,964
52
Year Ended December 31, 2006 Compared with Year Ended December 31, 2005
Combined and Continuing Operations
Management and performance fees
Management and performance fees from combined operations totaled $15.6 million in 2006, as compared to
$10.2 million in 2005, an increase of 54%.
Total management and performance fees from continuing operations increased 869% to $15.5 million in
2006 from $1.6 million in 2005. This increase was mainly due to GPCP3 performance fees relating to Equatorial
in the amount of US$ 9.5 million, which did not exist in 2005. GP Asset aggregate management and performance
fees contributed 4.7 million in 2006, a significant increase from $694 thousand in 2005.
Advisory fees and other services
Advisory fees and other services, which are a non-recurring but continuing part of our business decreased to
$487 thousand in 2006 from $1.5 million in 2005. This decrease is due to a reduction in occasional consulting
and research services.
Appreciation in Fair Value of Trading Securities
In 2006, we recorded a $6.3 million gain from appreciation in the fair value of trading securities, compared
to $13.8 million in 2005. The decrease in the value recorded is explained by the number of shares owned during
the year ended December 31, 2006, which was different from the year ended December 31, 2005.
Appreciation in Fair Value of Investments by Limited Partnership GPCP3
The application of the EITF 04-05 on January 1, 2006 resulted in the consolidation of the accounts of
GPCP3 by GP3, which in turn is consolidated by the Company. Consequently, the Company recorded an
appreciation in the fair value of Equatorial of $17.4 million in 2006. Prior to January 1, 2006, the appreciation in
the fair value of investments was recorded as a component of the line Equity in results of affiliated company.
The amount of $10.3 million presented as equity in results of affiliated company as of December 31, 2005
represents primarily the appreciation in fair value of GPCP3s investments in Equatorial.
Realized Gain on Sale of Shares
In 2006 we realized part of our investment in Equatorial resulting in a gain of $ 3.5 million recorded in the
first quarter of 2006. In 2005, a non-recurring gain on sale of shares of $12.9 million was recorded upon the sale
of shares held in our portfolio during the course of 2005.
Total Revenues
As a result of the above, our total revenues from continuing operations increased 10.5% to $44.2 million in
2006 from $40 million in 2005. Total revenues from combined operations decreased 8.6% to $44.4 million in
2006 from $48.7 million in 2005.
General and administrative expenses
Total general and administrative expenses, including the discontinued part of our operations, increased
419% to $19.6 million in 2006, from $3.8 million in 2005. This increase in expenses is primarily the result of the
corporate reorganization which took place on December 30, 2005 and the consolidation of the expenses of
GP Investimentos S.A., GP Asset and GPRE as from January 1, 2006. The statement of income for the year
ended December 31, 2006 includes these entities.
53
General and administrative expenses relating only to our ongoing activities increased 598% from
$2.7 million in 2005 to $19 million in 2006. This increase is mainly explained by the above mentioned
reorganization.
Bonuses
Total bonus expense in 2006 of $ 5.2 million was in line with the $5.4 million recorded in 2005. These
expenses refer to performance-based bonuses.
Total Expenses
Total expenses in 2006 were $24.3 million compared to $8.1 million in 2005. This increase is primarily due
to the increase in general and administrative expenditures in 2006 ($19.0 million) resulting from the
consolidation of the expenses of GP Investimentos S.A., GP Asset and GPRE as from January 1, 2006.
Financial income (expense), net
Our total net financial income was $21.9 million in 2006 and is principally explained by the interest on the
cash raised in the IPO in May 2006. In 2005 financial expense amounted to $ 1.5 million.
Net income from continuing operations
Our net income from continuing operations in the year ended December 31, 2006 decreased to $26.5 million
in 2006 compared to net income of $30.4 million in the year ended December 31, 2005 (owing to the items
above).
Discontinued Operations
Management and performance fees
Management and performance fees allocated to our discontinued operations decreased 98% to
$125 thousand in 2006 from $8.6 million in 2005. This decrease is explained by the fact that the results of GP1
and GP2 are not included in the results for the year ended December 31, 2006 due to the corporate reorganization
of December 30, 2005.
General and administrative
General and administrative expenses allocated to our discontinued operations decreased 38% in 2006 to
$620 thousand from $1.0 million in 2005.
Bonuses
Bonuses allocated to our discontinued operations decreased 91% to $182 thousand in 2006 from
$2.1 million in 2005.
Financial income, net
We allocated to our discontinued operations net financial income of $159 thousand in 2006, as compared to
a net financial income of $293 thousand in 2005, representing a 46% decrease.
Net income (loss) from discontinued operations
Our loss from discontinued operations was $457 thousand in 2006 compared to $5.7 million of net income
in 2005. This decrease is explained by the fact that the results of GP1 and GP2 are not included in the results for
the year ended December 31, 2006 due to the corporate reorganization of December 30, 2005.
54
Year Ended December 31, 2005 Compared with Year Ended December 31, 2004
Combined and Continuing Operations
Management and performance fees
Management and performance fees from the combined operations totaled $10.2 million in 2005, as
compared to $10.0 million in 2004, a slight increase of 2%.
Total management and performance fees from continuing operations increased 124% to $1.6 million in 2005
from $713 thousand in 2004. Such increase was mainly due to GPCP3 management fees ($871 thousand in
2005), which did not exist in 2004. GP Asset aggregate management and performance fees contributed
$694 thousand in 2005, a slight decrease from $713 thousand in 2004.
Advisory fees and other services
Advisory fees and other services, which are a non-recurring but a continuing part of our business, increased
214% to $1.5 million in 2005, from $478 thousand in 2004. This increase was mainly due to $1.2 million in fees
from occasional consulting and research services provided by our asset management business during 2005, which
were not provided in 2004, offset in part by brokerage fees of $372 thousand for our asset management business
in 2004 which were not owed in 2005.
Appreciation in Fair Value of Trading Securities
In 2005, we recorded a $13.8 million gain from appreciation in the fair value of trading securities resulting
from reclassification of certain shares held in our portfolio (which prior to 2005 were held at cost) to trading
securities (recorded at market value less a liquidity discount at December 31, 2005). No such gain occurred in
2004, as these shares were then carried at cost.
Equity in results of Limited PartnershipGPCP3
The equity in the earnings of GPCP3 recorded in our consolidated subsidiary GP3 reflects primarily the
adjustment in the fair value of GPCP3s investment in Equatorial which in the last quarter of 2005 generated a
gain of $10.3 million.
Realized Gain on Sale of Shares
In 2005, we realized a non-recurring gain on sale of shares of $12.9 million due to the sale of shares held in
our portfolio during the course of 2005. We had no realized gain or loss on sale of investments in 2004.
Total Revenues
As a result of the above, our total revenues from continuing operations increased 3,233% to $40.0 million in
2005 from $1.2 million in 2004. Total revenues from the combined operations increased 368% to $48.7 million
in 2005 from $10.4 million in 2004.
General and administrative expenses
Total general and administrative expenses, including the discontinued part of our operations, increased
280% to $3.8 million in 2005, from $1.0 million in 2004. This increase is principally due to an overall increase in
investing activity, active fundraising and incorporation costs and other general corporate expenses incurred by
wholly-owned entities. In addition, compensation expense increased in 2005, due primarily to our addition of two
new partners in 2005 to our executive payroll.
55
General and administrative expenses relating only to our ongoing activities increased 2,496% from
$104 thousand in 2004 to $2.7 million in 2005. This increase reflects that in 2005 we were not able to clearly
identify general and administrative expenses items related to ongoing activities, resulting in our having to
allocate our general and administrative expenses based on a percentage of our total assets, as explained in
Discontinued Operations Presentation. In 2004, we were able to identify our general and administrative
expenses related to continuing activity.
Bonuses
Total bonuses in 2005, including the discontinued part of our operations, increased 162% to $7.6 million in
2005 from $2.9 million in 2004. The majority of such expenses, or $6.5 million, was non-cash during 2005, and
was recorded as accrued performance bonuses on the December 31, 2005 balance sheet. These expenses refer to
performance-based bonuses. The part of the bonus relative to unrealized gains will be paid only upon realization
of such gains.
Bonuses relating only to our ongoing activities increased 775% from $617 thousand in 2004 to $5.4 million
in 2005.
Total Expenses
Total expenses, including the discontinued part of our operations, increased 190% in 2005 to $11.3 million,
from $3.9 million in 2004, due to the increase in general and administrative expenses and in bonuses.
Total expenses relating only to our ongoing activities increased 1,037% from $721 thousand in 2004 to
$8.2 million in 2005.
Financial income (expense), net
Our total net financial expense, including the portion assigned to our discontinued operations, was
$1.2 million in 2005, a 103% increase as compared with an expense of $591 thousand in 2004. The increase was
principally due to the appreciation of the real as compared to the U.S. dollar, which caused a $2.3 million loss on
a fund that we invested in to mitigate the effects of foreign currency volatility on shareholders equity. In 2004,
also due to the appreciation of the real as compared to the U.S. dollar, we had a similar $1.5 million loss on these
foreign exchange funds.
Our ongoing operations generated $1.5 million in net financial expenses in 2005, a 15% increase as
compared to $1.3 million in 2004.
Net income from continuing operations
Our net income from continuing operations in the year ended December 31, 2005 increased to $30.3 million
in 2005, from a loss of $834 thousand in the year ended December 31, 2004.
Discontinued Operations
Explanations for variations in results of our discontinued operations are generally discussed in the
Combined and Continuing Operations section above.
Management and performance fees
Management and performance fees allocated to our discontinued operations decreased 7.5% to $8.6 million
in 2005 from $9.3 million in 2004, primarily due to the divestiture of assets in GPCP1 and GPCP2s portfolio
(consisting mainly of shares held in ALL and Submarino), and the subsequent reduction in the cost base of
investments upon which management fees are charged.
56
General and administrative
General and administrative expenses allocated to our discontinued operations increased 19% in 2005 to
$1.1 million, from $926 thousand in 2004.
Bonuses
Bonuses allocated to our discontinued operations, decreased 9% to $2.1 million in 2005, from $2.3 million
in 2004.
Financial income (expense), net
We allocated to our discontinued operations net financial income of $293 thousand in 2005, as compared to
a net financial income of $713 thousand in 2004, resulting in a 59% decrease.
Equity results of affiliated companies, net
We had net earnings in the equity of affiliated companies of $68 thousand in 2004 from a minority stake.
This investment had been disposed of by 2005.
Net income from discontinued operations
Our net income from discontinued operations decreased 16% to $5.7 million in 2005, from $6.8 million in
2004.
Total net income
Our net income increased 502% to $36.1 million in 2005, from $6.0 million in 2004.
Six-Month Period Ended June 30, 2007 Compared with Six-Month Period Ended June 30, 2006
Combined and Continuing Operations
Management and performance fees
Total management and performance fees from continuing operations decreased 29% to $8.5 million during
the six months ended on June 30, 2007, from $12.1 million in the same period in 2006. Taking into consideration
the discontinued operations (in 2006), the combined management and performances fees amounted to
$12.2 million in the first half of 2006. There were no discontinued operations in 2007.
This decrease in management and performance fees for the six months ended June 30, 2007 was mainly due
to performance fees to which we are entitled to pursuant to co-investment agreements in connection with our
investment in Equatorial (see BusinessEquatorial Energia). These performance fees amounted to
$9.5 million for the first six months of 2006, compared to $ 3.0 million for the first six months of 2007, because
there were fewer investments sold in that period (as the payment of performance fees is triggered by the selling
of investments).
GP Assets aggregate management and performance fees contributed $4.5 million in the six-month period
ended in June 30, 2007, compared to $2.5 million in the six-month period ended in June 30, 2006.
Advisory fees and other services
Advisory fees and other services, which are a non-recurring but a continuing part of our business, were
$487 thousand in the six-month period ended June 30, 2006. No advisory fees were recorded in the six-month
period ended June 30, 2007.
57
Appreciation of Fair Value of Trading Securities
During the six-month period ended June 30, 2006, our ongoing activities recorded a $6.3 million gain from
appreciation of the fair value of trading securities. There was no appreciation of fair value of trading securities of
similar nature in the six months ended June 30, 2007.
Realized Gain on Sale of Shares
During the six months ended June 30, 2007, we recorded gains of $11.8 million, mainly due to the sale of
shares of Equatorial at the beginning of the year. During the six months ended June 30, 2006, we recorded a total
gain of $3.4 million, due to the sale of shares held in our portfolio.
Appreciation in Fair Value of Consolidated Limited Partnerships Investment
The equity in the earnings of GPCP3 recorded in our consolidated subsidiary GP3, reflects primarily the
adjustment in the fair value of GPCP3s investment in Equatorial and BR Malls (to reflect the market price of the
companies shares after their initial public offering) which generated a gain of $190.4 million in the first six
months of 2007 compared to a $5.2 million gain in the first six months of 2006. Since BR Malls initial public
offering on March 2007, the share price increased by over 70% through June 30, 2007.
Equity results of affiliated company
Equity in results of affiliated company for the six-month period ended June 30, 2007 recorded an amount of
$28 thousand compared to zero for the same period in the previous year.
Dividends
Equatorial distributed dividends in the second quarter of 2007 and as a result the Company recorded a gain
of $4.0 million during the period.
Total Revenues
As a result of the above, our total revenues increased 679% to $214.8 million over the six-month period
ended June 30, 2007, from $27.5 million in the same period of 2006.
General and administrative expenses
Total general and administrative expenses increased 99% to $15.5 million over the six months ended
June 30, 2007, from $7.8 million over the six-month period ended June 30, 2006. This increase is principally
explained by the stock option expense in the amount of $6 million recognized during the six-month period ended
June 30, 2007. As the stock option plan was launched in August 2006 and the options granted in October 2006
there were no expenses recognized in the six-month period ended June 30, 2006.
Bonuses
Bonus expenses in the six months ended June 30, 2007 totaled $3 million compared to $3.6 million for the
same period ended June 30, 2006. The nomination and compensation committee is responsible for determining
future bonus distribution policy.
Total Expenses
Total expenses increased 60% during the six months ended June 30, 2007 to $18.3 million, from
$11.4 million during the six months ended June 30, 2006, due to the increase in general and administrative
expenses, mainly related to the stock options.
58
Financial income (expense), net
Our total net financial income was $8.2 million during the six months ended June 30, 2007, compared to
$10.7 million during the six months ended June 30, 2006. The decrease was mainly due to the interest earned on
cash raised in the initial public offering accrued interest on the perpetual notes issued in January 2007.
Minority interest
This line item registers the interest of 53.14% in GPCP3 held by limited partners of GPCP3 upon the
consolidation of GP3 in our financial statements and the 33% equity interest in the GP Asset Management Inc.
business.
Net income from continuing operations
Our net income from continuing operations increased to $94.3 million during the six months ended June 30,
2007, compared to $21.9 million during the same period in 2006.
Discontinued Operations
The results referring to discontinued operations recorded during the six-month period ended on June 30,
2006 are related the real estate businessGPRE, comprising management, performance and advisory fees of
$186 thousand and $802 thousand of expenses, out of which $620 thousand correspond to general and
administrative expenses and $182 thousand correspond to bonuses. The financial income was $159 thousand
resulting in a loss from discontinued operations of $457 thousand. There were no discontinued operations in the
six-month period ended June 30, 2007.
Liquidity and Capital Resources
Our principal cash requirements consist of the following:
paying operating costs, including compensation and bonuses;
making additional investments;
servicing our indebtedness; and
paying dividends to our shareholders.
Our principal sources of liquidity consist of the following:
management and performance fees from the funds that we manage;
proceeds from sales of our equity investments;
loans and financing;
dividends received from our equity investments; and
sales of equity and debt securities in the capital markets.
Traditionally, our liquidity has experienced seasonal patterns of cash flow. While employee salaries are paid
throughout the year, semi-annual discretionary bonuses have historically been paid to employees at the beginning
of each semester, relating to the prior period. Partners on our executive payroll are paid compensation during the
year, but a majority of the partners semi-annual bonuses and other cash distributions have also historically been
paid at the beginning of each semester, relating to the prior period. As a consequence, our level of cash on hand
decreases significantly during parts of the first and third quarters and gradually builds up over the second and
fourth quarters. We expect this seasonal pattern of cash flow to continue.
59
We discuss below the factors that have affected our cash flows in the periods indicated, and elaborate
further on the most relevant items in our balance sheet not explained elsewhere in this analysis.
Cash Flows
Historically, our cash flows have been influenced primarily by the timing of receipt of management and
performance fees, the timing of sale of investments, and the timing of distribution of compensation and payment
of bonuses to partners and employees.
Cash and cash equivalents were $312.7 million at December 31, 2006, an increase of $282.3 million
(928%) over cash and cash equivalents of $30.4 million at December 31, 2005. Between 2004 and 2005, cash and
cash equivalents increased $28 million (1,173%) from $2.4 million.
Cash Flows from Operating Activities
In 2006, our continuing operations generated $17.6 million in cash, an increase of 128% from 2005, when
we had operational cash flow of $7.7 million. Operational cash flow in 2005 represented a decrease of 65% from
$ 22.1 million in 2004, a difference explained by the sale of financial investments made to fund payments we
made to our Founders in connection with the corporate reorganization through which they left the GP Group.
Discontinued operations generated $2.2 million and $6.7 million in cash in 2005 and 2004, respectively, a
decrease of 67%.
Total cash flows from operations were $32.9 million, $9.9 million and $28.8 million in 2006, 2005, and
2004, respectively.
During the six-month period ended June 30, 2007, our continuing operations generated $7.2 million,
compared to $15.7 million during the same period in 2006. Non-cash adjustments of net income for the
six-month period ended June 30, 2007 contributed $11.7 million to the cash flow from operating activities, which
were partially offset by a net negative change in assets/liabilities of $4.5 million. The $15.7 million generated in
the six-month period ended June 30, 2006 is due to non-cash adjustments of net income in the amount of
$14.2 million and $1.5 million of net positive changes in assets/liabilities.
Discontinued operations generated $ 15.3 million in the first six months of 2006. This is mainly explained
by the sale of trading securities for an amount of $15.9 million. There were no discontinued operations in the
six-month period ended June 30, 2007.
Total cash flows provided by our operating activities were $7.2 million and $31 million during the
six-month periods ended June 30, 2007 and June 30, 2006, respectively.
Cash Flows Generated by and Used in Investing Activities
Cash used in investing activities of our continuing operations amounted to $66.2 million during the period
ended June 30, 2007, compared to $13.5 million generated during the same period in the previous year. Cash
used during the period ended June 30, 2007 resulted principally from additional investments made in Tempo
($28.0 million), BR Properties ($7.9 million) and in other securities ($15.3 million).
Cash Flows from Financing Activities
Financing activities from our ongoing operations provided $356.4 million in cash in 2006, principally from
cash raised in the initial public offering concluded on May 31, 2006. In 2005, these activities provided
$17 million in cash, principally as a result of the corporate reorganization of GP Investments (which incorporated
our Brazilian subsidiary GP Investimentos S.A.).
60
Financing activities from our discontinued operations generated $867 thousand in cash in 2006 compared to
$700 thousand in cash used in 2005. In 2004, such activities used $20.8 million in cash, mainly proceeds related
to payment of dividends ($19.6 million) to our Founders in connection with the corporate reorganization through
which they left the GP Group.
Total cash flows provided by (used in) financing activities were $357.3 million, $16.3 million and
($23.3 million) in 2006, 2005, and 2004, respectively.
During the six-month period ended on June 30, 2007, financing activities from our ongoing operations
generated $161.1 million in cash, principally due to proceeds from the issuance of the initial notes
($146.7 million). During the same period in 2006, these activities provided $299.8 million in cash, mainly due to
our initial public equity offering ($307.2 million).
Financing activities from our discontinued operations generated $867 thousand in cash during the first six
months ended June 30, 2006, due to loans and financing raised. There were no discontinued operations in the
six-month period ended June 30, 2007.
Total cash flows provided by financing activities were $161.1 million and $300.7 million during the periods
ended June 30, 2007 and 2006, respectively.
Long-Term Investment in Funds
As of December 31, 2006, we had invested $10.4 million in long-term funds managed by us (compared to
$4.8 million as of December 31, 2005). Among the $4.8 million invested in 2005, $1.8 million was an investment
in GP Tecnologia, a Brazilian private equity fund focused on the technology sector. Our investment in this fund
was sold for $2.0 million on February 10, 2006, and the rights relating to its management were segregated from
us on May 10, 2006. Therefore, GP Tecnologia will not have any impact on our results from that date. As of
June 30, 2007, our investment in long-term funds managed by us stood at $11.9 million.
Indebtedness
As of June 30, 2007, there was no outstanding indebtedness to non-related financial institutions. The
following table sets forth information with respect to our outstanding loans at the dates indicated.
Currency
Annual interest
rate
June 30,
2007
December 31,
2006 2005 2004
(US$ and R$ in thousands)
Secured Loan
Banco Ita BBA S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ CDI + 0.85% 8,487 7,184
Banco Ita BBA S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 6.9% 5,371
Banco ABC Brasil S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 6.9% 1,003
Banco Ita BBA S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 4.5% 700
Sub-Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,487 7,184 6,374 700
Perpetual Notes
Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 10% 150,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,487 7,184 6,374 700
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
61
Critical Accounting Policies
Our consolidated financial statements included elsewhere in this offering memorandum were prepared in
accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires
management to make judgments and estimates that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Estimates are used for, among other things, determination of
fair values, provisions necessary for contingent liabilities, allocation of revenues and costs to discontinued
operations, taxes and other similar charges. Although we believe that our judgments and estimates are based on
reasonable assumptions that are subject to several risks and uncertainties and are made in light of information
available to us, our actual results may differ from these judgments and estimates.
We set forth below summarized information related to our critical accounting policies. See the notes to our
consolidated financial statements for further information on these and other accounting policies we adopt.
Consolidation
The consolidated financial statements as of December 31, 2006 include the accounts of GP Investments and
its wholly owned subsidiaries GP3, GP Holdings, GPPE, GPCM and GP Asset Management Inc.
The corporate reorganization effected on December 30, 2005 resulted in the consolidation of the assets and
liabilities of GP Investimentos S.A., GP Asset and GPRE. Because the contribution to GP Investimentos S.A.
occurred on December 30, 2005, the statement of income for the years ended December 31, 2005 and 2004 does
not include the revenues and expenses of GP Investimentos S.A., GP Asset and GPRE. The statements of income
for the years ended December 31, 2005 and 2004 include the revenues and expenses of GP1 and GP2 as net
income from discontinued operations. The balance sheets as of December 31, 2006 and 2005 exclude the assets
and liabilities of GP1 and GP2, which were distributed to shareholders on December 30, 2005.
On June 29, 2005, the Emerging Issues Task Force (EITF) reached consensus and published EITF 04-5:
Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights. The EITF states that the general partners in a
limited partnership are presumed to control that limited partnership regardless of the extent of the general
partners ownership interest in the limited partnership. The assessment of whether the rights of the limited
partners should overcome the presumption of control by the general partners is a matter of judgment that depends
on facts and circumstances. If the limited partners have either (i) the substantive ability to dissolve (liquidate) the
limited partnership or otherwise remove the general partners without cause or (ii) substantive participating rights,
the general partners do not control the limited partnership.
In accordance with the GPCP3 Partnership Agreement, GP3 may be removed without cause with the
consent of 75% of the partners, which is above the simple majority required by the EITF 04-5; therefore the
Limited Partners of GPCP3 do not have substantive dissolution rights. The Company has determined that the
Limited Partners had no other substantive participating rights and that GP3 controls GPCP3.
The EITF 04-5 came into effect January 1, 2006 in the case of the Company. As at December 31, 2006 and
for the year then ended, the EITF 04-5 has resulted in the consolidation of the accounts of GPCP3 by GP3, which
in turn is consolidated by the Company. The 53.14% interest owned by the Limited Partners is classified as
Minority interest. Accordingly, all assets and liabilities and revenues and expenses of GPCP3 are reflected on the
consolidated balance sheet and statement of income of the Company and the proportion of assets and liabilities
not owned by the Company and the corresponding revenues and expenses are presented as Minority interest in a
single line item. In principle, the same account treatment will be given regarding GPCP4.
62
Recognition of asset management, performance and other fees
Management fees from our private equity business are generally received semi-annually in advance
(quarterly in the case of GPCP4) and are deferred and recognized as income over the period in which the related
services are performed.
Management fees from our asset management business are determined over the net asset values of the funds
under management. Such management fees are recorded on an accrual basis as services are performed.
Performance fees are recorded as revenues upon their irrevocable payment or are recorded on an accruals
basis when payment is guaranteed. Other fees, principally advisory fees are recorded on an accrual basis as
services are performed.
Trading securities and investments available for sale
Trading securities that are bought and held principally for the purpose of resale in the near term are
classified as trading assets and are stated at fair value. Fair value is generally based on quoted market prices. If
quoted market prices are not available, fair values are estimated based on dealer quotes, pricing models or quoted
pricing models or quoted prices for instruments with similar characteristics. Realized and unrealized gains and
losses are recognized in revenues when such securities are held for trading as part of our private equity business
and in financial income when securities are held for trading as part of our treasury operations.
Securities are classified at the date of purchase as available for sale when, in managements judgment, they
may be sold in response to or in anticipation of changes in market conditions, being carried at fair value with net
unrealized gains and losses included in shareholders equity. Securities are classified based on managements
intention. Upon sale or maturity, the gain or loss is transferred to the revenues in the statement of income.
Investments carried at cost and at the equity method of accounting
Interests of less than 20% in companies with no readily determinable market value are recorded at cost
(unless we have the ability to exercise significant influence over the operations of the investee, in which case we
use the equity method). Dividends are recognized in income when received. Significant influence over the
operating and financial policies of affiliated companies is achieved by the Company taking into account the
common interest of related parties participating jointly in the affiliated companies.
Equity investees and other investments, where we own between 20% and 50% of voting capital, are
accounted for using the equity method of accounting. Under this method our share of results of the investee, as
reported under U.S. GAAP, is recognized in the statement of income as Equity in results of affiliated company
and dividends are credited when declared to Investments in the balance sheet.
Quantitative and Qualitative Disclosures About Market Risks
We are exposed to market risks arising from the normal course of our business. We have established
policies, procedures and internal processes governing our management of market risks and the use of financial
instruments to manage our exposure to such risks.
Foreign Exchange Risk
The majority of our assets are either located in or have significant exposure to Brazil. In addition, we expect
to make a majority of our private equity investments in companies either located in or with a substantial majority
of their operations in Brazil and, to a lesser extent, other Latin American countries. Therefore, our business
exposes us to changes in foreign currency rates (principally the real). In order to reduce our shareholders equity
exposure to foreign currency fluctuations, particularly their effects on our net results of operations, we invest
with funds which carry U.S. dollar-denominated investments. We may also hedge other foreign currency
exposures as deemed appropriate.
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Equity Risk
We may be exposed to changes in stock prices if we obtain significant holdings in publicly traded securities.
In such case, we will continually monitor changes in stock markets in general, and changes in the stock prices of
these holdings, specifically. We believe that changes in stock prices can vary as a result of general market
conditions, technological changes, specific industry changes and other factors. With respect to noncontrolled
public securities that we may hold, we will evaluate various derivative financial instruments for the purpose of
hedging risk or reducing our cost basis in the security. We will use derivative financial instruments as a risk
management tool and not for speculative purposes.
Interest Rate Risk
We may be exposed to changes in interest rates primarily as a result of our borrowing activities and that of
our businesses, which may include borrowings used to maintain liquidity and to fund business operations. These
borrowings may consist of both fixed rate and variable rate debt. The nature and amount of any such debt is
expected to vary as a result of future requirements, market conditions and other factors. We may manage our
exposure to interest rates through swaps.
64
INDUSTRY OVERVIEW
Business Description
In general terms, investment companies are entities that are primarily engaged in the business of investing in
the financial instruments of other entities. An investment company invests money it receives from investors on a
collective basis, and each investor shares in the profits and losses in proportion to the investors interest in the
investment company. The performance of the investment company will generally be based on (but it will not be
identical to) the performance of the securities and other assets that the investment company owns. Individual
investors in an investment company can achieve a high level of diversification with minimal effort and cost,
since the funds from all investors are pooled together for the investment company to make investments.
A private equity fund, a type of investment company, is generally organized as a limited partnership which
is controlled by the private equity firm that acts as the general partner. The fund obtains commitments from
certain qualified investors such as pension funds, financial institutions and wealthy individuals to invest a
specified amount in certain assets. These investors become passive limited partners in the fund partnership and at
such time as the general partner identifies an appropriate investment opportunity, it is entitled to call the
required equity capital, at which time each limited partner funds the pro rata portion of its commitment.
Generally, investment decisions are made by the general partner, which also manages the funds investments
(commonly referred to as the portfolio). The life of a fund generally extends up to ten years.
Private Equity in Brazil
Overview
We believe that Brazils private equity and venture capital industry is the most important and active in Latin
America. According to the Emerging Markets Private Equity Association, there are approximately 70 private
equity firms presently operating in Brazil, with a selected group of mostly local firms that are the markets
strongest players. The country experienced a wave of exits in 2004 and 2005, and is currently experiencing a
recycling phase in private equity investments. Brazil went from receiving the third largest amount of equity in the
region in 2004, behind Argentina and Mexico, to receiving more equity than Argentina and Mexico combined in
2005 ($474 million in 2005, a 300% increase from the previous year). In 2006, private equity investments in
Brazil further increased to the amount of $1.34 billion, nearly tripling 2005s private equity investments.
While, according to the VE-LA, only three Brazil-focused funds held closings in 2005, a wave of new
fundraising activity resulted in a record level of capital raised in 2006. For 2006, Brazil represented 82% of all
funds raised in Latin America for private equity, reaching approximately $2.6 billion. In 2007, fundraising is
once again expected to increase. Most of the capital raised by local firms comes from foreign investors and
domestic pension funds. Participation by international firms in the Brazilian market, while becoming increasingly
more important, has historically been less significant.
Similar to the rest of Latin America, Brazil is in its second cycle of private equity activity. The first wave
took place between 1995 and 1999, when local firms and international players began making investments in
Brazil. Both groups invested in a wide range of sectors and stages, from large privatizations to Internet start-ups.
There were over 60 private equity funds in Brazil during this period and, according to the Emerging Markets
Private Equity Association, approximately $4.7 billion was raised by 20 private equity firms in 1997 and 1998.
With a few notable exceptions, most of these funds were negatively affected by the currency devaluation of 1999,
the overall instability of the region, and a general lack of experience in private equity investing among the early
firms with respect to how to invest private equity in Brazil. Many fund managers that failed during the first wave
have exited the market or have not been able to raise follow-on funds. We believe that this has strengthened the
successful remaining fund managers in the country.
65
In Latin America, Brazil was the leader in terms of new equity investments in 2006, followed by Chile and
Mexico. Total private equity invested in Latin America in 2006 reached $4.3 billion, representing an increase of
320% from 2005.
Latin American Private Equity Investments 20052006
($ in millions)
$55.0
$15.0
$76.0
$154.0
$474.0
$261.0
$1,401.0
$199.0
$141.0
$512.0
$388.0
$1,342.0
$236.0
2005 2006
Argentina
$14.0
U.S. Regional Andean Central America Chile Mexico Brazil
Note: Andean region includes Bolivia, Colombia, Ecuador, and Peru.
Brazil was also the leader in 2006 in terms of exits in the region. Latin American private equity exits in
2006 increased approximately 113% compared to the previous year, to a total of $3.2 billion. The increasing
volume of exits observed in 2004, 2005 and 2006 is one of the most important recent developments for the
regions private equity industry, as increasing confidence by investors in their ability to exit investments aids the
capital recycling process and drives new investments.
Fundraising
Fundraising for Brazil-related private equity in 2006 increased to approximately $2.6 billion. Brazil
represented approximately 13% and 82% of the total funds raised in Latin America in 2005 and 2006,
respectively. One important reason is the growing role of Brazilian pension funds in private equity fundraising.
For example, pension funds Previ and Petros, which are among the largest pension funds in Brazil in terms of
assets, have both allotted sizeable sums for investment in private equity funds, and several other pension funds
have plans to invest in private equity and venture capital as well. A number of foreign investors and other
institutional investors in Brazil are also looking to commit to new private equity funds.
Exit Markets Opening
Since 2004, a number of equity offerings took place in Brazils local market. There were 132 equity
offerings on the BOVESPA since 2004, compared to 32 equity offerings that took place between 1996 and 2003.
Of the 132 equity offerings that took place since 2004, 23 represented private equity exits.
66
The following table depicts significant private equity exits that took place since 2004 through the equity
markets:
Brazilian Recent and Proposed Equity Offerings Exits
COMPANY SECTOR YEAR PRIVATE EQUITY INVESTOR
ALL Railroad 2004 GP Investments, Global Environment Fund, Pactual Electra, Credit
Suisse
GOL Airline 2004 AIG Capital Partners
DASA Healthcare 2004 JP Morgan Capital Partners, Banco Patria, Latin Health Care Fund,
GE Capital
Submarino Internet 2005 GP Investments, T.H. Lee Putnam Internet Partners, Banco
Santander, JP Morgan Partners, Flatiron
Localiza Rental Car 2005 DLJ (Credit Suisse)
TAM Airline 2005 Credit Suisse, Bassini Playfair & Wright
GOL Airline 2005 AIG Capital Partners
ALL Railroad 2005 GP Investments, Global Environment Fund, Pactual Electra, Credit
Suisse
Vivax Media 2006 Great Hill Partners, Wachovia Capital Partners, Spire Capital
Partners
Gafisa Real Estate 2006 GP Investments
TAM Airline 2006 Credit Suisse, Bassini Playfair & Wright
DASA Healthcare 2006 JP Morgan Capital Partners, Banco Patria, Latin Health Care Fund,
GE Capital
Equatorial Energia Power 2006 GP Investments, Pactual
Submarino Internet 2006 GP Investments, T.H. Lee Putnam Internet Partners, Banco
Santander, JP Morgan Partners, Flatiron
CSU Cardsystem Technology 2006 Advent International Corporation
Lupatech Oil & gas 2006 GP Investments, Natexis Private Equity International
Odontoprev Healthcare 2006 TMG
So Carlos Real Estate 2006 Lombard, Odier, Darier Hentsch & Cie.
Dufry Retail 2006 Advent International
Bematech Software 2007 Brasil 21
Metalfrio Capital
Goods
2007 Artsia Srie Azul FIP
Anhanguera Education 2007 Banco Patria
Cremer Healthcare 2007 Merrill Lynch Private Equity Group
BR Malls Real Estate
/ Shopping
Centers
2007 GP Investments
Regulatory Reforms & Emergence of Local Investors
Conditions in Brazil are improving for investors generally and for minority shareholders in particular.
Several legal and regulatory reforms that have been implemented in the country have improved the investment
climate for private equity. In 2005, Brazils Congress enacted a new bankruptcy code with provisions that are
likely to foster merger and acquisition activities generally and in particular as carried out by private equity firms.
In 2001, the Supreme Court ruled that, where arbitration is provided for in a contract, arbitration shall have
precedence over the courts. These reforms markedly reduced the expected time for resolution of investment-
related disputes. Also, a number of market-led initiatives have focused on improving corporate governance. Most
of Brazils new equity offerings were conducted by companies that are subject to the rules of the Novo Mercado,
67
which requires all shares to have equal voting rights and tag-along rights in case of changes in control.
Companies listed on the Novo Mercado are also subject to arbitration for the resolution of investor disputes,
increased disclosure and other investor-friendly measures.
Brazil private equity is particularly benefiting from the local pension fund laws amended in 2002 to allow
for allocations to alternative assets. According to VE-LA, there are 360 pension funds in the country, with
approximately $110 billion in assets. Local pension funds have already begun making investments in alternative
assets including private equity.
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BUSINESS
Overview
GP Investments
We are a Bermuda exempted company that consolidates certain of the activities of the GP Group, which is
generally considered a leader in private equity in Latin America. Our activities consist of our core private equity
business and our asset management business, and our mission is to generate higher than average returns for our
shareholders.
Our private equity business is conducted by us, either directly or by funds that we manage. In either case,
we will continue to seek to acquire privately negotiated control or joint-control equity positions in a number of
companies conducting businesses principally either located, or with significant business activities, in Brazil and,
to a lesser extent, in other Latin American countries.
We will continue to target investment opportunities that allow for enhancement of shareholder value
through improved management and operations, leveraging proven international business models adapted to the
Latin American marketplace.
Certain private equity activities that were formerly conducted by the GP Group, including the ownership of
certain assets and liabilities, have been spun-off from us prior to our initial public offering, concluded on
May 31, 2006. These include the general partner of GP Capital Partners, L.P., or GPCP1, and GP Capital
Partners II, L.P. or GPCP2, and the interests in a Brazilian technology private equity fund, or GP Tecnologia,
each of which is already in its divestiture period. We will not benefit from revenues arising from these assets. At
the GP Tecnologia general members meeting held on April 27, 2006, the members of GP Tecnologia approved
our replacement as manager of the fund, and transferred all rights and duties related to the management of such
fund to GP Tecnologia Administradora de Ativos Ltda., a subsidiary of Partners Holdings. The transfer was
effective May 10, 2006. In addition, on April 20, 2006, we completed the sale of our stake in GPRE, which
contained our real estate business.
We are led by experienced professionals, including Antonio Bonchristiano, Fersen Lamas Lambranho,
Carlos Medeiros, Octavio Lopes, Eduardo Alcalay, Marcio Trigueiro, and Danilo Gamboa, or the GP Partners,
and Allan Hadid, our CFO. The GP Partners have been with the GP Group for a combined period of
approximately 45 years and have more than 100 years of experience in private equity, operations and corporate
finance. The GP Partners possess a common, disciplined investment philosophy, a complementary set of skills
and a deep understanding of the Brazilian marketplace.
We seek to invest at attractive valuations in established companies with one or more of the following
characteristics: (i) products with strong market positions, (ii) primarily dependent upon private sector orders,
(iii) potential for significant productivity or growth increases, (iv) global competitive advantage, (v) customer-
driven, (vi) low technological risk, (vii) high proportion of export revenues, (viii) high barriers to entry and
(ix) replicable buyout model.
In addition to our core private equity business, we also conduct asset management activities, focusing on the
local Brazilian market, through our majority-owned subsidiary, GP Administrao de Recursos S.A., or
GP Asset. GP Asset is led by Nelson Rozental, who has more than 30 years of investment experience in the
private and public sectors in Brazil and has been a partner of the GP Group since 1999, Marcus Martino, who has
been with the GP Group since 1997, Mariano Figueiredo, who has been with the GP Group since 2004, and
Marcos Falco, who joined GP Group in 2007.
GP Assets current product offerings include fixed income funds, equity funds and hedge funds, all of which
focus on different risk profiles and investor bases. We expect our asset management business to benefit from
growth in demand for alternative asset management products in the wake of decreasing interest rates in Brazil.
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History of the GP Group
Jorge Paulo Lemann, Carlos Alberto Sicupira, Marcel Hermann Telles and Roberto Thompson Motta, or the
Founders, started the GP Group in 1993 with the goal of conducting private equity activities in Latin America. At
its foundation, the GP Group was conceived as a partnership, in which employees had the opportunity to become
partners. As a result, the Founders gradually transferred the management and control of the GP Group to some of
the GP Partners, as part of a natural succession plan. Since 2001, the GP Partners have managed the GP Group
and, since 2003, the GP Partners have held voting control of the GP Group.
The GP Group has since its inception raised more than $2.6 billion from Brazilian and international
investors. The GP Group has raised five private equity funds:
GPCP1, which was closed in 1994 with $500 million of committed capital;
GPCP2, which was closed in 1997 with $800 million of committed capital;
GP Tecnologia, which was closed in 2000 with R$122 million (equivalent to $63.3 million as of
June 29, 2007) of committed capital;
GPCP3, which was closed in June 2006, with $250 million of committed capital. GP Investments is the
largest investor in GPCP3, representing 46.86% of the committed capital; and
GPCP4, which was closed in July 2007, with $1.03 billion of committed capital. GP Investments is the
largest investor in GPCP4, representing 39.02% of the committed capital. Under the GPCP4 Partnership
Agreement, GP4 may hold additional closings at any time until the earlier of (i) the date when the
aggregate capital commitments of all the partners, together with the entire capital commitments of any
parallel funds, reach $1.3 billion and (ii) November 15, 2007.
In addition, the GP Group has also raised, through its subsidiaries, a number of local public equity, debt and
real estate funds.
From 1994, the GP Group has made investments, through the above mentioned private equity funds, in 42
companies, with 31 of these investments realized for total proceeds of approximately $2.05 billion, producing a
realized annual internal rate of return of 22.3% in U.S. dollar terms and of 32.4% in reais terms as of August 31,
2007.
Our History and Ownership Structure
In 2003, GP Investments was created under the name GP Global, Inc. as part of a corporate reorganization,
which culminated in 2004 when certain of the GP Partners acquired substantially all of our capital. The GP
Partners have reorganized their ownership in GP Investments prior to its initial public offering, contributing all of
their shares to an intermediary holding company, Partners Holdings Inc., or Partners Holdings. Currently,
Partners Holdings is our controlling shareholder. In 2006, we were redomiciled to Bermuda from the British
Virgin Islands. See BusinessCorporate Reorganization.
70
As a result of the various corporate reorganizations that we have conducted, our corporate structure includes
the following entities:
GP Capital Partners IV,
LP (Cayman)
GP Investments,
Ltd. (Bermuda)
Partners
Holdings
25.4%
Free Float
74.6%
38.86%
0.001%
GP Cash Management
(Bahamas)
100%
GP Capital Partners III,
LP (Cayman)
GP Investments III
Ltd. (Cayman)
GP Investimentos S.A.
99.97%
64.5%
8%
100%
39.03%
GP Investments IV
Ltd. (Cayman)
GP Private Equity
(Bermuda)
GP Holdings, Inc
(Cayman)
GP Participaes S.A.
GP Investimentos Ltda.
Offshore
Brazil
GP Asset
Management Inc
(Panama)
100%
99.99%
60% (indirectly)
GP Administrao de
Recursos S.A.
99.99%
100% 100%
Note: The participation in GP Participaes S.A. is held indirectly.
Our Competitive Strengths
We believe that our competitive strengths include the following:
Experienced Professionals. We have a group of highly talented professionals, with a strong reputation in
the private equity industry. Our investment team has solid academic credentials and significant expertise in the
private equity and financial industries, having successfully completed private equity investments and exits in
many industries throughout various economic cycles in Brazil. Many of our executive officers also have direct
experience in operations. The GP Group has meaningful transaction experience, having completed 42
investments and 31 exits. In the past two years alone, we have been involved in investments in Equatorial
Energia S.A. (or Equatorial Energia), Cemars holding company, Lupatech S.A. (or Lupatech), Fogo de Cho
Churrascaria (Holding), LLC (or Fogo de Cho), BR Malls S.A. (formerly Ecisa Participaes S.A. and Ecisa
Engenharia S.A.) (or BR Malls), Tempo Participaes S.A. (formerly IHH/USS) (or Tempo), BR Properties S.A.
(or BR Properties), Magnesita and Pride Latam, and the IPOs of Amrica Latina Logstica S.A. (or ALL),
Submarino S.A. (or Submarino), Gafisa S.A. (or Gafisa), Equatorial Energia and Lupatech, and six block trades.
Our group of 14 professionals (including the GP Partners) is the largest private equity-dedicated team in Brazil.
Unique Investment and Management Philosophies. Our value and control-oriented investment philosophy
is well-suited to the potentially volatile environment of most Latin American countries, by reducing valuation
risk and the uncertainty relating to investment exits. In addition, our clearly defined management philosophy,
based on strict cost control, lean organizational structures, talent development, meritocracy and business ethics,
implemented through a set of management tools mastered by the GP Group, allows us to achieve maximum
impact on acquired companies in a very short timeframe. The key element in our management philosophy is the
alignment of interests with our shareholders, attained by motivating our operating executives through the use of
share option plans and variable results-based compensation.
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Reputation and Credibility. We believe GP is the premier brand for control-oriented investment firms in
Latin America, and that it is synonymous in Brazil with integrity, entrepreneurship, meritocracy and
professionalism. These qualities have helped the GP Group attract and retain top talent, source transactions,
successfully complete deals and find co-investors for larger deals, which we believe will continue to help us in
the future.
Ability to Source Transactions. The network of contacts and corporate relationships that the GP Partners
have developed over the past years are essential to us in identifying and developing investment opportunities.
Our deal sourcing network includes portfolio company managers, corporate executives, entrepreneurs, private
equity firms, financial intermediaries and professional advisors. In addition, our local presence in Brazil, coupled
with our strong brand and reputation, enables us to source transactions that may not be available to a majority of
our competitors.
Attractive Publicly Traded Model. Unlike traditional private equity funds, we are not subject to standard
periodic capital return requirements that typically stipulate that funds can only be invested once and must be
returned to investors after a previously agreed time period. These provisions often force private equity funds to
seek liquidity on their investments more quickly than they otherwise would, potentially resulting in both a lower
overall return to investors and an adverse impact on their portfolio companies. The flexibility to make
investments with a long-term view and without the capital return requirements of traditional private investment
vehicles should provide us with the opportunity to generate higher returns on invested capital and should enable
us to be a better long-term partner for our portfolio companies. Furthermore, GP Investments is the first public
private equity company in Latin America.
Synergies from Our Asset Management Business. GP Asset has developed asset origination capabilities by
leveraging the GP Groups reputation, network of contacts and portfolio companies to invest in assets unique to
the Brazilian financial markets. Moreover, it benefits from the GP Groups institutional and personal
relationships in its ongoing fundraising efforts. The success of this venture should strengthen our image with the
financial community as well as with prospective portfolio companies.
The Initial Public Offering
GP Investments is the first publicly traded private equity company in Latin America. The decision to
become a public company was based on the Partners firm conviction that as a public company we significantly
increase our ability to perpetuate our position as a leading private equity firm. The capital raised with our initial
public offering represents an important competitive advantage for GP Investments, as it increases our ability to
pursue new deals independently of the availability of funds for private equity investments in Brazil and provides
us with the ability to use such leverage to increase our investment capacity. As a public company we also benefit
from a broader and more diverse investor base and gain flexibility in the timing of investments in, and exits from,
our portfolio companies.
Brazilian Private Equity Environment
We believe that the Brazilian private equity environment is attractive for the following reasons:
Macroeconomic Conditions. We believe the Brazilian economy, and more importantly, the private equity
investment environment, is in a period of sustained growth. In particular, the prudent fiscal and monetary policies
undertaken by successive Brazilian governments over the last decade, together with the implementation of
political reforms, have improved Brazils economic fundamentals and should contribute to higher growth. The
control over inflation, substantial current account surpluses along with an appreciation of the real, falling interest
rates and unemployment, and an increase in purchasing power should reduce long-term investment risk and
create opportunities for us.
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Capital Scarcity. High short-term interest rates in Brazil have historically kept local investors (such as
pension funds and large financial institutions) out of the private equity market due to its longer-term, less liquid
features. In addition, very few local firms have the capacity to raise funds internationally, while international
firms have in the past shown low commitment to the region. In this context, the GP Group has alone raised
approximately 25% of all private equity capital invested in Brazil, from 1993 to 2004, according to data included
in Modelo Brasileiro de PE-VC, a FEA-USP (Faculdade de Economia e Administrao da Universidade de So
Paulo) academic thesis. This lack of competition for deals has so far reduced entry valuations in private
investmentsprofitable, growing companies are available in Brazil at much lower valuation multiples when
compared to deals seen in India and China, although there is no assurance that this will continue to be the case.
Increased Openness of the Brazilian Economy. Increased involvement of the Brazilian economy in the
global trade, which has resulted from the export boom over the past few years, is a powerful incentive for local
companies to increase their competitiveness. Private equity groups are likely to benefit from this trend, as it
should increase demand for equity capital and professional management.
Vibrant Financial Markets. The recent liquidity in the Brazilian public equity markets, if sustained, will
substantially reduce the uncertainty associated with exits from private equity investments. As an illustration, the
GP Group has taken public six (ALL, Submarino, Gafisa, Equatorial Energia, Lupatech and BR Malls) of its
portfolio companies in the last 3 years, having subsequently divested a significant portion of its interests in those
companies. In addition, the strength of the credit markets should also benefit the private equity industry, by
creating the possibility of leveraged buy-outs and enhanced returns for equity investors.
Our Strategy
Private Equity Business
We seek attractive returns by acquiring and actively managing established assets in a wide range of
industries either located, or with significant business activities, in Brazil and, to a lesser extent, in other Latin
American countries.
We target investment opportunities that allow for enhancement of shareholder value through improved
management and operating techniques, leveraging proven international business models adapted to the Latin
American marketplace. The GP Group has historically created value by: (i) recruiting outstanding management
teams; (ii) taking an active role in formulating the strategy of portfolio companies; (iii) identifying and
facilitating relationships with strategic and financial partners; (iv) negotiating and arranging financings;
(v) timing and executing opportunistic exits; and (vi) where necessary or desirable, actively managing companies
on a day-to-day basis.
We operate under an operations-oriented strategy. This strategy includes:
Pursuing Opportunistic Deal Types. We focus on leveraged acquisitions, recapitalizations and growth
financings of established businesses in a variety of industries. These types of transactions may arise as a result of
an opportunity for: (i) consolidation in fragmented industries; (ii) divestitures by larger companies of non-core
assets; (iii) acquisitions of family-owned businesses in need of growth capital or a highly skilled management
team; and (iv) restructurings of fundamentally sound but poorly managed companies or the recapitalization of
under-capitalized companies. We believe that these situations may generate opportunities to make interesting
investments at attractive entry valuations.
Focusing on Varied Sectors. Many companies in Brazil lack the financial resources and professional
management required to position them for the next stage of growth. Many of these target companies can experience
a rapid increase in value from the professional oversight, strategic guidance and capital resources that we offer,
regardless of their sector of activity. We believe it is important to be flexible so that we may capitalize on
opportunities as they arise. At the same time, our rigorous industry analyses and the adherence to our philosophy of
focusing on businesses in which we can improve operating performance will reduce risks to our investors.
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Focusing on Mature Companies and Business Models. We invest in companies of a certain size (typically
over R$100 million in revenues, which corresponded, on June 30, 2007, to $52 million) because they tend to
have a series of advantages over smaller businesses, including: (i) need for a larger equity investment, resulting
in a smaller number of companies in the portfolio, consistent with our operations-oriented strategy, (ii) smaller
competition for deals, given the capital scarcity observed in Brazil, (iii) easier attraction of management talent,
and (iv) broader exit prospects due to higher interest from strategic acquirers and access to the capital markets.
Reducing Risk Through a Disciplined Investment Process. We focus on the risk/reward profile of each
prospective portfolio company. We seek to reduce risks by: (i) focusing on companies with leading market
positions and strong cash flow, (ii) engaging in extensive due diligence from the perspective of a long-term
investor, (iii) investing at low price to cash flow multiples, (iv) acquiring control or joint control positions,
(v) adopting low-leverage capital structures, and (vi) devising likely exit alternatives still in the investment
phase.
Implementing Management Philosophy in Portfolio Companies. We maintain and replicate at our portfolio
companies the successful management philosophy that the GP Group has refined in its over 30 years of investing.
This philosophy, based on the principles of strict cost control, lean organizational structures, talent development,
meritocracy, and business ethics, is a powerful framework that helps us maximize the operating performance of
each acquired asset, and reduce risks.
Seeking Return over Invested Capital on Exits. As a public company with an indefinite life rather than a
private equity fund, we are able to manage our businesses without the requirement to sell within a specified time
period. We retain, however, the flexibility to pursue refinancings and dispositions when we believe such actions
will maximize shareholder returns.
Despite our broad sector focus, we follow a very disciplined investment approach, initially abiding by the
investment guidelines below. These investment guidelines were approved by our board of directors and any changes
to them must be approved by the affirmative vote of not less than 80% of our board of directors then in office.
We do not invest in situations without control or shared control of target companies;
We do not enter into any projects which have been determined in good faith by a majority of our board
of directors to be start-up or greenfield projects, nor do we enter into the technology and biotech sectors,
industries where we cannot fully leverage our management expertise;
We decline any investment opportunity which has been determined in good faith by a majority of our
board of directors to be related to weapons, tobacco or other industries that have negative social and
environmental implications;
We follow certain diversification limits, ensuring that a single company or sector will not represent
more than 25% or 35% of our assets, respectively; and
We do not contract leverage in our balance sheet higher than 50% of our assets.
Our investments are made either directly by GPPE or through private equity funds that we manage.
We are subject to certain investing restrictions because of GPCP4s existing arrangements.
The GPCP4 Partnership Agreement, prohibits us from investing in any opportunity presented to the general
partner of GPCP4 (GP Investments IV Ltd., or GP4) or to the sponsor (as defined in the GPCP 4 Partnership
Agreement), that is suitable for GPCP4 without first offering such opportunity to GPCP4, subject to certain
specific exceptions. This prohibition is effective until the earlier of the end of the commitment period or the date
at which 90% of the committed amounts have been invested or committed to investment. During this period, we
would only be able to invest in transactions that are suitable for GPCP4, indirectly as a holder of partnership
interests in GPCP4 to the pro-rata extent of our commitment in GPCP4, or if the advisory committee of GPCP4
refuses such transactions. See BusinessGPCP4.
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In addition, the GPCP4 Partnership Agreement prohibits us from co-investing in a transaction unless the
co-investment has been first offered to the partners of GPCP4 (which may include us or any of our affiliates) on a
pro-rata basis.
Similar investing restrictions used to apply to GPCP3 but have become inapplicable considering that, as of
August 31 2007, GPCP3 was fully invested in six different companies (Equatorial Energia, Fogo de Cho,
BR Malls, Tempo, BR Properties and Magnesita).
We also maintain the flexibility of raising and managing other private equity funds with investors. As is
typical for managers of such funds, we may commit to acquire a portion of the interest in any such funds through
GPPE. GP Investments, Ltd., directly or through one of its subsidiaries, will be the general partner of any other
fund that we may raise in the future and will benefit from management fees and performance fees that we will
charge those other funds.
Asset Management Businesses
Our asset management business provides investment management and advisory services to institutional
clients, financial intermediaries, private clients and investment vehicles. Our goal in this business is to produce
superior risk-adjusted investment returns and provide diverse investment solutions for our clients.
We expect our asset management business to benefit from expected growth in demand in the wake of
decreasing interest rates in Brazil. In addition, we expect this business to leverage our brand and network of
contacts to quickly grow its assets under management and to develop superior asset origination capabilities.
Our Markets
We seek to acquire privately negotiated control or joint-control equity positions in a number of businesses
either located, or with significant business activities in, Brazil, and to a lesser extent, in other Latin American
countries. Our asset management business focuses on investment solutions directed to the Brazilian clientele.
Our Operations
Private Equity
We continue to make private equity investments through GPPE, either directly or through private equity
funds that we manage, such as GPCP3 and GPC4. In both cases, our team benefits from the expertise and
know-how that the GP Group has refined over the past 13 years. These include a disciplined approach in sourcing
and evaluating investments, conducting due diligence and, once an acquisition has been made, monitoring,
managing, valuing and exiting the investmentan approach that we believe is unique among private equity firms
focusing in Brazil, and that we call the GP Method.
The GP MethodSourcing
The GP Group has historically sourced transactions through a variety of methods:
Internally Generated IdeasThe GP Partners have found that the single most productive source of
transactions is internally generated ideas, which allow them to identify and pursue opportunities
proactively. The GP Partners have developed a keen awareness of how to identify opportunities to create
shareholder value as a result of their continuous involvement in portfolio companies as active financial
and operating investors. For example, in the case of Submarino, the GP Group identified an opportunity
to launch a business-to-commerce retail operation in Brazil modeled after successful operations such as
Amazon.com. The GP Group leveraged this first mover advantage and its own retail experience into
Brazils largest independent online retailer.
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Reputation and Relationships of GP PartnersThe GP Partners receive a substantial number of
transaction referrals due to the reputation we believe we have established as a dominant private equity
investment firm in Brazil, with a substantial source of available capital and known for integrity and
responsiveness. An example of this method of transaction sourcing is Gafisa. One of our Founders was a
personal friend of Gafisas founder, which led to a solid relationship between Gafisas management and
us. This relationship led to an investment when, in 1997, Gafisas then chief executive officer sought us
to sell a portion of Gafisa.
The GP MethodInvestment Criteria
We perform a thorough investigation of each investment opportunity, including, among other things, a
review of a prospective portfolio companys market and industry, an assessment of its competitive advantages,
an evaluation of the current management along with potential sources of new leadership, a review of historical
financial statements, the development of detailed pro forma projections, an in-depth legal due diligence review,
an accounting acquisition review and a technical review of the activities of the prospective portfolio company
and its assets when appropriate. We also analyze the acquisition candidates potential performance compared to
local companies and world-class players in its industry.
The GP Partners believe that disciplined acquisition pricing has been an important ingredient in the GP
Groups success. The GP Group has generally been able to invest in companies in negotiated transactions, rather
than in competitive bidding processes, based on its reputation. The GP Partners believe that we will be able to
continue to predominantly invest on this basis in the foreseeable future.
We look for a number of characteristics in prospective portfolio companies, including:
Products with Strong Market Positions. We focus our efforts on investing in companies that are either
leaders in their markets in manufacturing or distributing branded products with high consumer
awareness. Traditionally, such companies have benefited the most from increased economic activity in
Brazil and are more recession-resistant.
Private Sector. We avoid investments in companies whose sales are primarily dependent upon
government orders.
Potential for Real Growth. We believe that most companies in Brazil have not fully penetrated their
respective markets, a factor that provides opportunities for internally generated growth.
Global Competitive Advantage. We believe that Brazilian companies with world-class competitive
advantages will continue to benefit from globalization. These companies are especially attractive due to
their independence from the Brazilian market and their high share of foreign-currency denominated
revenue.
Potential for Significant Increases in Productivity. We look for companies that enjoy a competitive
cost structure, or companies that could rapidly achieve that position with better and more focused
management.
Consumer Driven. We seek companies whose products are driven by consumer demand, which should
benefit from the improved Brazilian economic environment.
Low Technological Risk. We generally do not invest in companies that manufacture or distribute
products that are subject to rapid technological changes, or that require substantial investments in
research and development.
High Proportion of Export Revenues. We look for companies that take advantage of Brazils
competitive strengths (including abundant natural resources and low cost of labor) to export its products
or services globally, and which cost base in local currency acts as a hedge in the case of a devaluation.
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High Entry Barriers. We generally prefer companies that operate in markets that provide certain
conditions that make the entrance of outside firms particularly difficult and costly.
Replicable Buyout Model. We seek companies within industries that have matured successfully in
countries with more developed buyout industries. Using the development of these industries as a model
reduces risk and creates a business plan influenced by historic successes in more developed markets.
Within our investment strategy, we believe there are five main areas of opportunity:
Corporate RestructuringsThere is an opportunity in restructuring companies with excessive leverage and
poor management, which may have difficulties refinancing debt. We could acquire controlling or joint
controlling stakes in these companies with relatively small equity infusions, negotiate feasible payment schedules
with creditors, and thus multiply the value of our equity stake through deleveraging. Assets in the energy, media
and telecom sectors, with strong market share and solid economic fundamentals, are especially attractive.
Sector ConsolidationWe expect to pursue a successful strategy of consolidating small regional and/or
family-owned companies into players of scale in different sectors. This consolidation would leverage existing
products and brands nationally or regionally with increased scale improving cost of capital and reducing working
capital requirements.
Export Based CompaniesWe seek acquisition opportunities involving companies with substantial
exports. We also believe that there are opportunities involving service providers or manufacturers that serve the
export sector. Targets in the agribusiness and logistics sectors are especially attractive.
Exit of Strategic PlayersWe evaluate selected opportunities involving multinationals that may seek to
exit Brazil in a bid to reduce their exposure to Brazils volatility and other distressed sellers. These strategic
players may want to generate liquidity quickly by selling subsidiaries in the country, potentially at attractive
valuations for opportunistic buyers.
Family-Owned CompaniesWe expect to continue to invest in family-owned companies. We believe there
are significant investment opportunities for acquiring controlling stakes in companies with potential for value
creation and to become publicly traded. This strategy frequently involves the strengthening of the existing
management team and capital structure.
The GP MethodDue Diligence
After a specific transaction is initially sourced, or a new opportunity is identified, we typically allocate two
team members, a partner and an associate, to assess the market and the opportunity. The team focuses on the size
of the market, its growth rate, its competitive landscape and regulatory framework, and works to quantify the
financial opportunity of the specific company under analysis. In some cases, we outsource part of this research to
consulting firms.
The deal team then generally prepares an information memorandum describing the opportunity, and presents
it to the investment team for informal discussion. If there is consensus among investment team members on the
attractiveness of the opportunity, the deal team proceeds with a presentation to the board of directors, which
votes on the transaction. While transactions may be approved by simple majority vote, in the GP Groups past
investing experience, only investments that have obtained unanimous approval from the relevant investment
committees were pursued. We intend to continue to make investment decisions by consensus.
Upon approval, the deal team proceeds to negotiate final terms for a transaction. Parallel to this approval
process, the deal team conducts on-site visits and management interviews, followed by formal legal and
accounting due diligence before the closing of any transaction. Typically, acquisition negotiations and structuring
have been conducted by the GP Group without the support of an outside investment bank.
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The GP MethodAppropriate Capital Structure
We seek to fund each acquisition in the manner most appropriate to the particular industry in which the
company operates. An overall environment of high, volatile real interest rates, and limited available long-term
financing has caused most transactions in Brazil to be completed with significantly less leverage than those used
in similar situations in the United States and Europe. Additionally, we seek to avoid mismatches in each of our
portfolio companies among the currency of debt and the currency of revenues. This ensures that companies will
not face leverage problems in the case of a currency devaluation.
Implementing the GP Management Philosophy
Upon acquiring a portfolio company, we typically have already identified the ideal management team to run
that company. We believe one of our key strengths is the ability to attract talented executives from several
industries, and match them with opportunities which enable them to achieve better operational performance. In
selecting a group of executives, it is fundamental that they share our core of beliefs: (i) focus on results and a
constant search for excellence, (ii) investment in the attraction, retention and development of the best talent,
(iii) alignment of interest and meritocracy, and (iv) transparency and ethics in the conduct of business.
After the management team is in place, we will generally work with them in implementing a set of
management tools successfully applied in other portfolio companies, including:
Flat hierarchical structures: reduced middle-management layers, open communication between
levels;
Constant cost control focus: very efficient operational teams and lean overhead;
Use of performance measurement techniques: EVA, Six Sigma, Goal Oriented Management, Zero
Base Budgeting are examples of tools used; and
Performance-based compensation: aggressive profit-sharing and stock-option programs to foster
meritocracy and align management and shareholders.
This set of tools and values constitute a common culture in the companies managed by the GP Group, a
culture with its roots in the personal philosophy of the Founders, and which we call today the GP Management
Philosophy.
The GP MethodPortfolio Monitoring
We will generally utilize a two-member team, one partner and one associate, to monitor our portfolio
companies. As often as possible, the monitoring team will initially be made up of professionals who worked on
the acquisition deal. Company teams will be in constant dialogue with management and will prepare a weekly
update for all of the GP Partners on each portfolio company, highlighting financial performance. The GP Partners
usually gather for a weekly meeting every Monday, where the company team presents strategic decisions for
each company, with the investment team offering perspectives to guide these decisions. Company teams will also
be responsible for preparing quarterly performance reports and valuation assessments.
The GP MethodExit Strategy
Divestment negotiations and implementation, whether initiated by a third party or by us, will usually be led
by the same team that monitors the portfolio company. We will usually not propose an investment without first
determining a likely exit strategy. Exit strategies may include a recapitalization of the company, the distribution
of dividends, a public equity offering, or the sale of the portfolio company to a financial or strategic buyer.
Historically, most of the exits conducted by the GP Group were made by the sale of the company to a
strategic buyer. However, as of recently the use of the Brazilian capital markets has become more common.
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Since 2004, a total of 65 companies accessed the equity capital markets, raising a total of $22.3 billion of which
43 issuances were IPOs ($11.7 billion), out of which 14 were sponsored by private equity firms. The GP Group
has benefited from this resurgence by partially realizing important investments as a selling shareholder in the
following transactions: ALL (IPO of $190 million in 2004, follow-on offering of $244 million in 2005 and block-
trades of $220 million in 2005), Submarino (IPO of $175 million, block-trades of $114 million in 2005 and a
follow-on offering of $435 million in 2006), Gafisa (IPO of $438 million in 2006), Equatorial Energia (Cemars
parent company, IPO of $249 million in 2006) and Lupatech (IPO of $210 million and block-trades of
$51 million in 2006).
The GP MethodValuation Process
We are generally required to consolidate our interests in directly invested portfolio companies because of
the control or joint-control nature of our investments. Nevertheless, we issue quarterly valuation reports with our
board of directors good faith estimate of the fair value of each investment. Moreover, investments made through
GPCP3 and GPCP4 are accounted for at fair value. The methodology we use for the estimation of the fair value
complies in all material aspects with the international private equity and venture capital valuation guidelines
issued by the EVCA and is summarized below:
Basis of valuation: Investments are reported at the board of directors estimate of fair value, or Fair
Value, at the reporting date. Fair Value represents the amount for which an asset could be exchanged
between knowledgeable, willing parties in an arms-length transaction.
General: In estimating Fair Value, we seek to use a methodology that is appropriate in light of the
nature, facts and circumstances of the investment and its materiality in the context of the total portfolio.
Methodologies are applied consistently from period to period, except where a change would result in a
more accurate estimation of Fair Value. Given the uncertainties inherent in estimating Fair Value, a
degree of caution is applied in exercising judgments and making the necessary estimates.
Quoted investments: Quoted investments are valued at the closing market price at the reporting date.
This value is reduced by a marketability discount dependent on the size of our holding relative to normal
trading volumes in that stock. Where there are formal restrictions on dealing in a particular security, a
discount is applied, reducing over the term of the restriction.
Unquoted investments: Most unquoted investments are valued using one of the following
methodologies: (i) cost, less any required provision, (ii) earnings before interest, taxes, depreciation and
amortization, or EBITDA, multiple, (iii) price of recent investment, (iv) expected proceeds from sale of
the investment, and (v) net assets.
Process: Quarterly, our board of directors examines the valuation estimate from the investment
professionals responsible for the portfolio company, discusses internally any questions or concerns, and
determines in good faith the Fair Value of each investment.
Selected Successful Stories
Summarized below are selected successful stories of investments made by the GP Group (or funds managed
by the Group) in Amrica Latina Logstica S.A., Gafisa S.A. and Equatorial Energia, each describing the GP
Groups ongoing relationship with these portfolio companies and impact on value creation. These case studies
represent select investments that demonstrate the success of our investment strategy and are not representative of
the results of the GP Groups portfolio as a whole.
Amrica Latina Logstica S.A. (ALL)
Date of Initial Investment: July 1996
Valuation Date: June 30, 2007
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Investment Amount: $140.9 million
Realized and Unrealized Value: $523.8 million
Investment Type: Privatization, Consolidation
Gross Internal Rate of Return ($): 16.8%
Multiple of Capital Invested: 3.7x
Business. ALL is an intermodal logistics company that was formed by the combination of (i) Ferrovia Sul
Atlntico and Brasil Ferrovias, which hold the concessions to operate rail services in the southern and
southwestern regions of Brazil; (ii) two Argentine railroads connecting Mendoza and Buenos Aires with Brazil,
and (iii) a truck-based cargo company operating in both countries. ALL has currently more than 20,000 km of
railways, 1,400 highway vehicles, 960 locomotive engines and 27,000 railroad cars.
Transaction. GP purchased 51.2% of Ferrovia Sul Atlntico as part of the privatization of Brazils federal
railway system in 1996, with an initial investment of $46 million, followed by additional payments throughout
the duration of the concession. The GP Group made three significant add-on transactions: in July 1999, it
acquired two railroads in Argentina (BAP and Meso), in July 2001, it purchased Delara, a truck-based cargo
company, and in May 2006, it acquired Brasil Ferrovias and Novoeste Brasil. These acquisitions enabled the
company to expand its operations to a total 40% of the Brazilian rail network. A turnaround plan is currently
being implemented in order to reduce costs and improve profitability.
Investment Thesis. Rail transport has a disproportionately small share of the transportation market in Brazil
when compared to world averages, indicating potential for above average growth. ALLs strategic railway
network links key agricultural production areas with several important cities, such as Curitiba, Porto Alegre,
Buenos Aires and Mendoza and with four key export ports. These factors afforded ALL a sustainable competitive
advantage, putting it in a position to capitalize not only on the growth of the general economy, but specifically on
the growth of the agricultural business sector, in which Brazil and Argentina enjoy strong global competitive
advantages and are seen as leading export countries. Additionally, the pre-privatization inefficiency of the
operations afforded an excellent opportunity to apply proven management techniques and incentive structures.
Value Added. GP installed one of its own partners as the CEO of the company, with the mission of
instituting a strong culture of meritocracy and efficiency. GP supported the utilization of aggressive variable
compensation, and proven management tools such as EVA, TQM and Six Sigma. GP was instrumental in
defining a strategic vision for ALL as an intermodal logistics company with door-to-door capability, negotiating
the acquisitions of the railroads in Argentina, the truck-based operations, and Brasil Ferrovias. GP also led the
successful IPO which raised R$500 million for the company in 2004.
Performance. Prior to the privatization, Ferrovia Sul Atlntico had revenues of approximately
R$174 million, EBITDA of R$9 million and EBITDA margin of 5.2%. In 2005, nine years after the privatization,
the company recorded net revenues of R$1.1 billion, EBITDA of $458 million and EBITDA margin of 44.3%,
growing organically and through key acquisitions. The companys headcount has been reduced from
approximately 12,000 employees before the privatization to 4,869 company-wide employees, including the
existing three railroads and the truck-based operations. ALLs stock price increased more than 558% since the
IPO and the company is worth more than $8 billion as of June 2007.
Gafisa S.A.
Date of Initial Investment: December 1997
Realization Date: June 21, 2007
Investment Amount: $77.8 million
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Realized and Unrealized Value: $490.9 million
Investment Type: Restructuring
Gross Internal Rate of Return ($): 23.5%
Multiple of Capital Invested: 6.3x
Business. Gafisa is one of Brazils leading homebuilding companies, focusing on premium residential
markets. The company is also engaged in the development of land subdivisions and affordable entry-level
housing. In addition, it provides construction services to third parties.
Transaction. CIMOB Companhia Imobiliria, the predecessor to Gafisa, was in a liquidity crisis due to
mismatched interest rates for its debt and its revenues. The investment in Gafisa was consummated in December
1997 through a newly-formed company, to which the GP contributed cash and the troubled company contributed
assets. In October 2006, Gafisa announced its intention to acquire a controlling interest in Alphaville Urbanismo
(AUSA), the largest and only nationwide community development company in Brazil. AUSA develops
residential lots to upper and upper-middle class families. Transaction upsides include AUSAs outstanding past
returns, its sizeable land bank and cross-selling opportunities of Gafisas vertical developments in AUSAs lots.
Investment Thesis. Gafisa presented an opportunity to participate in the high growth potential of the
Brazilian real estate market with a company that was one of the leading players, had a strong image of reliability
and brought a non-replicable land bank in Rio de Janeiro and So Paulo.
Value Added. GP instituted professional management techniques, such as zero base budgeting and EVA.
It created the companys share option plan, and instituted an aggressive variable compensation model. In
addition, GP brought in Sam Zells Equity International Group (one of the largest real estate investors in the
United States) as a partner, strengthening the companys balance sheet, opening doors for future strategic
partnerships and enhancing its image in the market. Finally, GP led the IPO process for Gafisa in February 2006,
raising approximately R$479 million for the company and selling approximately R$400 million of its shares
owned by funds it managed.
Performance. Revenues grew more than 19 times since GP made its initial investment, supporting a
significant increase in profitability. The IPO valued GPs stake at almost 5x its initial investment cost.
Equatorial Energia
Date of Initial Investment: April 2004
Valuation Date: June 30, 2007
Investment Amount: $3.2 million
Realized and Unrealized Value: $103.3 million
Investment Type: Restructuring
Gross Internal Rate of Return ($): 1,403%
Multiple of Capital Invested: 32.8x
Business. Equatorial Energia is the holding company that owns 65% of Cemar. Cemar is the electricity
distribution company for the State of Maranho in Brazil, serving more than one million customers in a
geographic area of 333,369 km2, which represents 3.9% of Brazils territory, and has a total population of more
than 5.9 million inhabitants.
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Transaction. Cemar was facing severe financial difficulties due to an indebtedness of over R$800 million
(20003 EBITDA of R$93 million). Commercial losses were rapidly increasing due to lack of investments, and
management was under the responsibility of ANEEL (Brazilian electricity regulatory agency). PPL, the US
utility who purchased the company in a privatization auction in June 2000, relinquished control of the company
two years later as it was unable to control the financial situation and unwilling to inject more equity. GP
coordinated the negotiations with creditors, including the capitalization of R$55 million by Eletrobras (the major
creditor), the haircut of 70% on private debt and the injection of R$30 million in exchange for 65% of the equity.
As a result, the companys total debt was reduced from R$820 million to R$465 million, with a much more
favorable payment schedule.
Investment Thesis. Operationally, Cemar is a cash generator, and with a cleaned up capital structure will be
able to serve its debts easily, multiplying the value of its equity. Additionally, there is an opportunity to improve
profitability by installing a professional management team, able to commit the appropriate capital resources. GP
has sent one of its own partners to Cemar to serve as CEO.
Value Added. GP has been involved in this deal since mid 2002. In this period, GP studied all possibilities
of financial engineering and was involved in negotiations with all creditors and with PPL, enabling the debt
restructuring described above. Actions taken by GP to date include institution of a new management team,
organizational restructuring reducing hierarchical levels, implementation of zero base budgeting and variable
compensation plans for directors and managers, increase in collections rate, and achievement of favorable tariff
reviews. Additionally, GP has led the successful IPO of the company, in March 2006.
Performance. Cemars EBITDA increased 160% between 2004 and 2006, from R$131 million to
R$341 million, with EBITDA margin improving from 24% to 40% of net revenues.
Investments in GP Investments-managed private equity funds
GP Investments is the largest investor in GPCP3, holding 46.86% ($117 million) of the $250 million total
committed capital. Out of the $117 million committed capital held by GP Investments, $20 million belongs to
GP3, the general partner of GPCP3.
As of August 31 2007, GPCP3 was fully invested in six different companies (Equatorial Energia, Fogo de
Cho, BR Malls, Tempo, BR Properties and Magnesita).
On July 6, 2007, GP Investments announced the closing of its new private equity fund, GPCP4. The new
fund has US$1.025 billion of committed capital, with GP Investments committing US$400 million and limited
partners committing US$625 million. As of August 31 2007, GPCP4 had 34% of its commitments invested in
two different companies (Pride Latam and Magnesita). Under the GPCP4 Partnership Agreement, GP4 may hold
additional closings at any time until the earlier of (i) the date when the aggregate capital commitments of all the
partners, together with the entire capital commitments of any parallel funds, reach $1.3 billion and
(ii) November 15, 2007.
GPCP3
GPCP3 is a Cayman Islands exempted limited partnership established primarily to make privately
negotiated equity or equity-related investments in companies either located in, or with significant business
activity in Brazil, and to a lesser extent, in other Latin American countries, seeking either control (independently
or in association with other investors) or an influential minority interest in target companies. The general partner
of GPCP3, or GP3, is a Cayman Islands exempted limited liability company. On March 31, 2006, Equatorial
Energia priced the initial public offering of its shares, effectively valuing the company at $341 million. We, as an
indirect investor in GPCP3, will pay our pro rata share of the fees and carried interests that GP3 will receive for
its role in managing GPCP3. We will also benefit from fees and carried interests paid by the other investors in
GPCP3 because we wholly-own GP3.
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The rights and obligations of limited partners in GPCP3 are set forth in the GPCP3 Partnership Agreement,
entered into among GP3 and the limited partners. GP3 and GPCP3 also entered into an advisory agreement, or
GPCP3 Advisory Agreement, with GP Investimentos S.A. and certain sponsors named therein. The main terms
of GPCP3 are as follows:
Diversification. GPCP3 may not make investments in a single company that exceeds 25%, or in a single
industry that exceeds 35%, of the commitments, without advisory committee approval.
Commitment Period. Limited partner commitments may be drawn until June 7, 2010 (unless extended by the
limited partners in accordance with the GPCP3 Partnership Agreement). After that date, their unfunded commitments
may only be used to cover fees and expenses of GPCP3 or committed investments that have not yet been funded.
Term. GPCP3 will terminate on June 7, 2015, but may be extended at the discretion of GP3 for up to two
consecutive additional one-year periods, with the approval of the advisory committee.
Key Person Event. If, during the commitment period, either Antonio Bonchristiano or Fersen Lamas
Lambranho cease to be members of the investment committee of GP3 or GP Investimentos S.A., or cease to
devote a substantial amount of their time to GPCP3, in each case for any reason, including among others, due to
death, physical or mental incapacity, bankruptcy or insolvency, the commitment period will terminate unless
two-thirds in interest of the limited partners not related to GP3 agree otherwise. Because we are related to GP3,
we would not be able to vote on this matter.
Leverage. GPCP3 may enter into financings from time-to-time in order to make short-term borrowings (not
in excess of 90 days) in advance of capital drawdowns up to the lower of 25% of the total commitments or the
aggregate amount of unfunded commitments at the time of any borrowing.
Temporary Holdings. GPCP3 may temporarily hold debt or equity securities issued by a portfolio company in
which GPCP3 has committed to make an investment in an amount up to 25% of GPCP3s aggregate commitments.
Hedging. GP3 and its affiliates may engage in currency and interest rate hedging transactions on behalf of
GPCP3 in certain circumstances, after consultation with the advisory committee. The notional amount of such
hedging shall be limited to the total funded commitments at any given time, and the duration of any single
hedging agreement shall not exceed one year.
Co-Investment Policy. GP3 may offer co-investment opportunities to limited partners pro-rata in its sole
discretion. Amounts held by entities affiliated with GP3, including us, will be disregarded for determining the
pro-rata amount of the limited partners. Also given that we are affiliated with GP3, we may not co-invest in any
transaction unless and to the extent of any remaining amounts not accepted by the limited partners of GPCP3.
The terms and conditions of any co-investments made by GPCP3s limited partners will be substantially the same
as those applicable to the related investment by GPCP3, except that no management fee will be required, and
GP3s carried interest applicable to co-investments will be 10% (instead of 20%).
GP3 also has the power to permit co-investments made by unaffiliated strategic investors that brings a
specific opportunity to GPCP3 or additional non-monetary value or know-how in any target. In those cases, the
co-investment for such investor may be made on terms and subject to allocations different from those applicable
to GPCP3 with respect to such target.
Distributions and Carried Interests. Proceeds available for distribution by GPCP3 prior to termination will
generally consist of ordinary cash dividends or interest realized on GPCP3s investments and amounts realized
on the disposition of GPCP3s investments, net of expenses and reserves related to such disposition. Proceeds
available for distribution will be distributed as follows:
(a) First, to each partner until such partner has received an amount equal to its funded commitments;
(b) Second, to each partner an amount equal to such partners accrued and unpaid cumulative,
compounded preferred return at the rate of 8% per annum on its funded commitments;
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(c) Third, 50% to the partners and 50% to GP3 until GP3 has received 20% of the total amounts
distributed pursuant to the preceding clause (b) and this clause (c); and
(d) Fourth, any remaining amounts 80% to the partners and 20% to GP3.
Until the funded commitments are fully drawn, distributions to GP3 of its carried interest will be deposited
in an escrow account. If upon the final distribution the partners of GPCP3 have not received aggregate
distributions equal to their funded commitments plus all accrued and unpaid preferred return and at least 80% of
all profits from GPCP3s investments, then the amounts on deposit in the escrow account will be released to the
partners to the extent necessary to cover the shortfall and any remaining balance will be released to GP3. Any
shortfall remaining after application of the amounts on deposit in the escrow account will be covered first by GP3
and then on a joint and several basis by the principals, limited to the aggregate amounts actually allocated and
distributed to GP3 as the carried interest.
Distributions of proceeds available for distribution by GPCP3 will be made as soon as practicable, but in
any event within 30 days after the date such proceeds are received by GPCP3. Partners of GPCP3 will not
participate in distributions related to investments made prior to their admission in the partnership.
Distributions prior to the termination of GPCP3 may only take the form of cash or marketable securities.
Upon termination of GPCP3, if GP3 determines that distributions in kind are in the best interest of GPCP3,
distributions may also include unlisted or illiquid securities or other assets of GPCP3 that will be distributed at
their fair market value as determined reasonably and in good faith by any two of a group of five internationally
recognized investment banking firms, one of which will be chosen by GP3 and the other by the advisory
committee. If the two appraisals vary by less than 15%, the average of the two appraisals will be controlling. If
the appraised values vary by more than 15%, the appraisers will appoint a third appraiser from among the group
of five investment banking firms, and the third appraisal will be controlling.
Management Fee. GP3 will receive a management fee, payable semi-annually in advance, at the annual rate
of: (i) 2% based on commitments until the last day of the commitment period; and (ii) thereafter, 2% of total
funded commitments applied to investments less the amount of funded commitments in respect of portfolio
investments that were sold or otherwise disposed of or permanently written off on or prior to the last day of the
immediately preceding semi-annual period.
Limited partners participating in subsequent closings will not contribute (from their unfunded commitments)
their respective share of management fees charged or accrued in respect of any period prior to their admittance to
GPCP3.
GP3 will be responsible for all expenses incurred for its own activities in connection with locating and
consummating investments, and all other day-to-day expenses of GP3, including compensation of its employees.
Monitoring Fees. GP3 may charge normal and customary monitoring and transaction fees to the portfolio
companies. Such fees will be credited 100% against the management fee. Monitoring and transaction fees in
excess of 2% of the Commitments per annum will require the prior approval of the advisory committee.
Directors Compensation. Directors appointed by GPCP3 may receive and retain normal and customary
compensation from portfolio companies. Compensation paid to directors affiliated with GP Investimentos S.A.
will be approved by the advisory committee.
Advisory Committee. GP3 shall appoint an advisory committee of GPCP3, consisting of at least five
representatives, one representing each of the five limited partners (excluding any limited partners affiliated with
GP3 or that were a founder of GP Investimentos S.A., which includes us) with the largest committed amounts
who are willing to serve on the advisory committee.
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The matters on which GP3 will consult with the advisory committee include: (i) potential conflicts of
interest between GP3, GP Investimentos S.A. and their respective affiliates, on the one hand, and the limited
partners or GPCP3, on the other hand; (ii) valuation of investments and temporary holdings; (iii) transactions to
be made without the utilization of Resolution 2,689/00; (iv) valuation for purposes of in-kind allocations and
distributions; (v) extension of the term of GPCP3; (vi) transactions resulting in GPCP3 exceeding the 25%
temporary holdings limit; (vii) transactions resulting in GPCP3 exceeding the 25% investment diversification
limit; (viii) transactions resulting in GPCP3 exceeding the 35% industry diversification limit; (ix) aggregate
monitoring and transaction fees per annum exceeding an amount equal to 2% of the committed amounts;
(x) compensation paid to directors affiliated with GP Investimentos S.A. or its affiliates; (xi) certain issues of
corporate governance; and (xii) write-offs of investments that have lost substantially all their value.
The consent of a majority of the representatives of the advisory committee is required for (1) any transaction
to be entered into with GPCP3 involving a conflict of interest and (2) before causing GPCP3 to undertake any of
the actions referred to in clauses (iv) through (x) above.
Other Investments. GP Investimentos S.A., the sponsors and entities controlled by any of them may not act
as managers or the primary source of transaction on behalf of a pooled investment fund with objectives
substantially similar to, or with substantial overlap with those of GPCP3, other than certain existing funds until
the earlier of (i) the end of the commitment period or (ii) such time as 75% of the committed amounts are
invested in investments or temporary holdings. This restriction may be waived if approved by limited partners
representing two-thirds of the interests not related to GP3.
During the commitment period, any investment opportunity that is presented to GP3 or any of the sponsors,
and that GP3 believes is suitable for GPCP3, other than those investment opportunities related to existing
investments made prior to the formation of GPCP3 by GPCP1, GPCP2 and GP Tecnologia and which are still
outstanding, will be offered to GPCP3, unless prior approval has been obtained from the advisory committee that
such investment is not required to be offered to GPCP3.
The sponsors (and therefore, us) may make investments that have been rejected by the advisory committee,
provided that such investments are made on substantially the same terms and conditions than those presented to
the advisory committee.
Reports. GPCP3 will furnish to all limited partners both quarterly and annual reports including relevant
information regarding GPCP3, the investments and each limited partners statement of accounts. GP3 will hold
an annual partner meeting. Partners will have the right to visit portfolio companies, receive their audited financial
statements and audit the fund at their expense. Additionally, capital call notices and distribution notices will
include relevant corporate governance issues relating to the respective investment or divestment. Our
shareholders will not receive copies of the reports that we receive from GP3.
Indemnification. GP3, certain representatives, GP Investimentos S.A., the sponsors and their respective
officers, directors, agents, shareholders, partners, members and other affiliates, or persons who serve at the
request of GP3 on behalf of GPCP3 as an officer, director, shareholder, partner, member, employee or agent of
any other entity and each member (or alternative member), whether nominated by GP Investimentos S.A. or by a
limited partner, of the advisory committee and the investment committee, and the heirs, executors and
administrators of each such person (in each case, an Indemnitee) are indemnified to the fullest extent permitted
by law by GPCP3 against all claims, costs and expenses incurred by such Indemnitee by reason of serving in
such capacity or by reason of any action or omission by the Indemnitee in any such capacity, except for losses
arising from such Indemnitees own bad faith, fraud, willful misconduct, or gross negligence. Limited partners
will not be individually obligated with respect to such indemnification beyond their respective unfunded
commitments. GP3 may require GPCP3 to purchase, at GPCP3s expense, insurance to insure GP3 or any other
Indemnitee against liability for any loss, damage or expense covered by the indemnification; any such insurance
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will not, however, relieve GPCP3 from the indemnity obligations due hereunder (but any amount recovered
pursuant to such insurance shall reduce the amount the Indemnitee is entitled to recover pursuant to the
indemnity).
In accordance with a letter agreement entered into by GP3 and one of the limited partners of GPCP3, GP3
agreed that no advances for indemnification expenses for GP3 or any affiliate will be due in connection with
proceedings brought by a majority of the unaffiliated limited partners (including such limited partner). Unless it
is finally determined that GP3 or an affiliate is not entitled to such indemnity, GP3 or the affiliate will be entitled
to reimbursement of its expenses. This commitment will cease to be effective upon the completion of this
offering and the purchase by us of the interests of such limited partner.
In accordance with a letter agreement entered into by GP3 and another of the limited partners of GPCP3,
GP3 and the sponsors will not permit us to seek indemnification under the indemnification provisions of the
GPCP3 Partnership Agreement for any losses to which we may become subject or be threatened in connection
with any claims brought by or on behalf of our shareholders, nor may we seek indemnification for an amount
greater than GPCP3s proportionate share of any losses to which we may become subject or threatened as a result
of any investment in a portfolio company.
Removal of GP3. GP3 may be removed without cause with the consent of 75% in interest of the limited
partners not related to GP3, subject to certain notice provisions and/or payment of fees to GP3. In the case of any
removal of GP3, the removed general partner will have no further obligation to make contributions from its
unfunded commitments as general partner except to fund the management fee and partnership expenses and to
complete investments by GPCP3 in transactions that were already committed but not yet disbursed in whole or in
part as of the date of removal. After the removal date, the management fee payable by GPCP3 to the removed
general partner will be calculated only on the basis of the removed general partners funded commitments
applied to investments less certain amounts. The removed general partner will continue to be entitled to receive
distributions from GPCP3 with respect to each investment in which the removed general partner participated to
the extent the removed general partner actually funded such investments.
In the case of removal of GP3 without cause, all distributions of the carried interest shall continue to be
deposited into the escrow account described in the Distributions and Carried Interests section above and shall
not be released until after the termination of GPCP3 and the determination of the respective allocations of the
carried interest to the removed general partner and any replacement general partner. Upon the termination of
GPCP3, the carried interest payable to the removed general partner shall be calculated in accordance with the
provisions outlined in the GPCP3 Partnership Agreement.
Of our investment in GPCP3, approximately $195 thousand was used to fund our pro rata share of the
organizational and offering expenses of GPCP3. We did not have to contribute to GPCP3 any share of
commitments made prior to our admittance, nor are we entitled to any distributions made in respect of
investments made prior to our admittance. Specifically, we do not participate in the investment that GPCP3 made
in Equatorial Energia and the gains thereon.
GPCP4
GPCP4 is a Cayman Islands exempted limited partnership established primarily to make privately
negotiated equity or equity-related investments in companies either located in, or with significant business
activity in Brazil, and to a lesser extent, in other Latin American countries, seeking either control (independently
or in association with other investors) or an influential minority interest in target companies. The general partner
of GPCP4, or GP4, is a Cayman Islands exempted limited liability company. We, as an indirect investor in
GPCP4, will pay our pro rata share of the fees and carried interests that GP4 will receive for its role in managing
GPCP4. We will also benefit from fees and carried interests paid by the other investors in GPCP4 because we
wholly-own GP4.
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The rights and obligations of limited partners in GPCP4 are set forth in the GPCP4 Partnership Agreement,
entered into among GP4 and the limited partners. GP4 and GPCP4 also entered into an advisory agreement, or
GPCP4 Advisory Agreement, with GP Investimentos S.A. and certain sponsors named therein. GP4 intends to
propose to the limited partners an amendment to the GPCP4 Partnership Agreement that would amend the Key
Person Event, as described below, and add the right to appoint an additional general partner prior to removal of
GP4, with the consent of 75% in interest of the limited partners not related to GP4 and subject to certain
conditions therein.
The main terms of GPCP4 are as follows:
Diversification. GPCP4 may not make investments in a single company that exceeds 20%, or in a single
industry that exceeds 35%, of the commitments, without advisory committee approval. GPCP4 will not invest at
any time more than 25% of the its aggregate committed amounts in securities of or interests in any company of
which more than 50% of such companys revenues are originated outside Brazil, except as previously approved
by the advisory committee.
Commitment Period. Limited partner commitments may be drawn until July 1, 2012 (unless extended by
the limited partners in accordance with the GPCP4 Partnership Agreement). After that date, their unfunded
commitments may only be used to cover fees and expenses of GPCP4 or committed investments that have not yet
been funded.
Term. GPCP4 will terminate on July 1, 2017, but may be extended at the discretion of GP4 for up to two
consecutive additional one-year periods, with the approval of the advisory committee.
Key Person Event. If, during the commitment period, both Antonio Bonchristiano and Fersen Lamas
Lambranho, or a majority among six Partners identified in the GPCP4 Partnership Agreement, cease to devote a
substantial amount of their time to GPCP4, the commitment period will terminate unless two-thirds in interest of
the limited partners not related to GP4 agree otherwise. Because we are related to GP4, we would not be able to
vote on this matter.
GP4 intends to propose to the limited partners an amendment to the GPCP4 Partnership Agreement that
would amend the Key Person Event, in order to terminate the commitment period (unless two-thirds in interest of
the limited partners not related to GP4 agree otherwise) if (i) both Antonio Bonchristiano and Fersen Lamas
Lambranho shall cease to devote a substantial amount of their time to GPCP4, (ii) half or more among the six
Partners identified in the GPCP4 Partnership Agreement shall cease to devote a substantial amount of their time
to GPCP4, or (iii) Antonio Carlos Augusto Ribeiro Bonchristiano, Fersen Lamas Lambranho, Octavio Cortes
Pereira Lopes, Carlos Medeiros, Marcio Trigueiro, Eduardo Alcalay, Danilo Gamboa, Nelson Rozental and
Marcus Marques Martino shall cease to indirectly control GP Investments.
Leverage. GPCP4 may enter into financings from time-to-time in order to make short-term borrowings (not
in excess of 90 days) in advance of capital drawdowns up to the lower of 25% of the total commitments or the
aggregate amount of unfunded commitments at the time of any borrowing.
Temporary Holdings. GPCP4 may temporarily hold debt or equity securities issued by a portfolio company
in which GPCP4 has committed to make an investment in an amount up to 20% of GPCP4s aggregate
commitments.
Hedging. GP4 and its affiliates may engage in currency and interest rate hedging transactions on behalf of
GPCP4 in certain circumstances, after consultation with the advisory committee. The notional amount of such
hedging shall be limited to the total funded commitments at any given time, and the duration of any single
hedging agreement shall not exceed one year.
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Co-Investment Policy. GP4 may offer co-investment opportunities to us and to partners pro-rata in its sole
discretion. We may not co-invest in any transaction unless the co-investment has been first offered to the partners
of GPCP4 (which may include us or any of our affiliates). The terms and conditions of any co-investments made
by GPCP4s partners will be substantially the same as those applicable to the related investment by GPCP4,
except that no management fee will be required, and GP4s carried interest applicable to co-investments will be
12.5% (instead of 20%).
GP4 also has the power to permit co-investments made by unaffiliated strategic investors that brings a
specific opportunity to GPCP4 or additional non-monetary value or know-how in any target. In those cases, the
co-investment for such investor may be made on terms and subject to allocations different from those applicable
to GPCP4 with respect to such target.
Distributions and Carried Interests. Proceeds available for distribution by GPCP4 prior to termination will
generally consist of ordinary cash dividends or interest realized on GPCP4s investments and amounts realized
on the disposition of GPCP4s investments, net of expenses and reserves related to such disposition. Proceeds
available for distribution will be distributed as follows:
(a) First, to each partner until such partner has received an amount equal to its funded commitments;
(b) Second, to each partner an amount equal to such partners accrued and unpaid cumulative,
compounded preferred return at the rate of 8% per annum on its funded commitments;
(c) Third, 50% to the partners and 50% to GP4 until GP4 has received 20% of the total amounts
distributed pursuant to the preceding clause (b) and this clause (c); and
(d) Fourth, any remaining amounts 80% to the partners and 20% to GP4.
Until the earlier when funded commitments are fully drawn or the GP4 waives its right to demand any
additional basic contributions, a certain portion of the distribution to GP4 of its carried interest (determined by
multiplying the amount of such distribution by a fraction the numerator of which is the aggregate committed
amounts of the limited Partners who are not affiliates of GP4 and the denominator of which is the aggregate
committed amounts of all the partners) will be deposited in an escrow account. If upon the final distribution the
partners of GPCP4 who are not affiliates of GP4 have not received aggregate distributions equal to the aggregate
amount that would have been allocated to such partners pursuant to clauses (a) through (d) above, assuming
hypothetically for this purpose only that the allocation of the aggregate amount of all proceeds received at any
time during the term of GPCP4 is not made until the date of termination of GPCP4 and after giving effect to the
final distribution, but using, for purposes of allocations pursuant to clause (b) above, only the amounts of
preferred return actually accrued during the term of GPCP4, then the amounts on deposit in the escrow account
will be released to the partners of GPCP4 who are not affiliates of GP4 to the extent necessary to cover the
shortfall and any remaining balance will be released to GP4. Any shortfall remaining after application of the
amounts on deposit in the escrow account will be covered by GP4 (and, should GP4 fail to cover such shortfall,
by us), limited to the aggregate amounts actually allocated and distributed to GP4 as the carried interest.
Distributions of proceeds available for distribution by GPCP4 will be made as soon as practicable, but in
any event within 30 days after the date such proceeds are received by GPCP4.
Distributions prior to the termination of GPCP4 may only take the form of cash or, if GP4 so considers
feasible and in the best interests of GPCP4, the form of marketable securities or other distributions in kind of
other property (including restricted securities). Upon termination of GPCP4, if GP4 determines that distributions
in kind are in the best interest of GPCP4, distributions may also include unlisted or illiquid securities or other
property of GPCP4 that will be distributed at their fair market value as determined (except for securities or other
property that are liquid assets, with readily available market quotations) reasonably and in good faith by any two
of a group of eight internationally recognized investment banking firms, one of which will be chosen by GP4 and
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the other by the advisory committee. If the two appraisals vary by less than 15%, the average of the two
appraisals will be controlling. If the appraised values vary by more than 15%, the appraisers will appoint a third
appraiser from among the group of five investment banking firms, and the third appraisal will be controlling.
Management Fee. GP4 will receive a quarterly management fee from GPCP4 during the commitment
period on an amount equal to 0.5% (2.0% per year) of the difference between each partners committed amount
and such partners pro rata share (based on invested funds) of the cost basis to GPCP4 of all investments and
temporary holdings that have been subject to a disposition or permanently written-off on or before the first day of
the relevant quarter. After the end of the commitment period, GP4 shall receive a quarterly management fee from
GPCP4 on an amount equal to 0.5% (2.0% per year) of each partners pro rata share (based on invested funds) of
the cost basis to GPCP4 of all investments and temporary holdings existing on the first day of the relevant
quarter, and which have not been permanently written-off.
GP4 will be responsible for all expenses incurred for its own activities in connection with locating and
consummating investments, and all other day-to-day expenses of GP4, including compensation of its employees.
Monitoring Fees. GP4 may charge normal and customary monitoring and transaction fees to the portfolio
companies. Such fees will be credited 80% against the management fee. Monitoring and transaction fees in
excess of 2% of the Commitments per annum will require the prior approval of the advisory committee.
Directors Compensation. Directors appointed by GPCP4 may receive and retain normal and customary
compensation from portfolio companies. Compensation paid to directors affiliated with GP Investments or its
affiliates will be approved by the advisory committee unless, in the case of listed portfolio companies, such
compensation has been approved in accordance with applicable law.
Advisory Committee. GP4 shall appoint an advisory committee of GPCP4, consisting of at least five
representatives, one representing each of the five limited partners (excluding any limited partners affiliated with
GP4 or that were a founder of GP Investimentos S.A., which includes us) with the largest committed amounts
who are willing to serve on the advisory committee; provided that any limited partner with a committed amount
of $25 million or more will be invited to serve on the advisory committee.
The matters on which GP4 will consult with the advisory committee include: (i) potential conflicts of
interest between GP4, local advisors and their respective affiliates, on the one hand, and the limited partners or
GPCP4, on the other hand; (ii) valuation of investments and temporary holdings; (iii) valuation for purposes of
in-kind allocations and distributions; (iv) extension of the term of GPCP4; (v) transactions resulting in GPCP4
exceeding the 20% temporary holdings limit; (vi) transactions resulting in GPCP4 exceeding the 20% investment
diversification limit; (vii) transactions resulting in GPCP4 exceeding the 35% industry diversification limit;
(viii) transactions resulting in the GPCP4 exceeding the 25% non-Brazilian business investment diversification
limit described above; (ix) investments in other investment companies; (x) aggregate monitoring and transaction
fees per annum exceeding an amount equal to 2% of the committed amounts; (xi) compensation paid to directors
affiliated with GP Investimentos S.A. or its affiliates; and (xii) write-offs of investments that have lost
substantially all their value.
The consent of a majority of the representatives of the advisory committee is required for (1) any transaction
to be entered into with GPCP4 involving a conflict of interest, including any transaction with a related entity and
(2) before causing GPCP4 to undertake any of the actions referred to in clauses (iii) through (xii) above.
Other Investments. GP Investments and any entities controlled by it (except for GP Asset) may not act as
managers or the primary source of transaction on behalf of a pooled investment fund with objectives substantially
similar to, or with substantial overlap with those of GPCP4, other than certain existing funds (such as GPCP1,
GPCP2, GP Tecnologia and GPCP3) until the earlier of (i) the end of the commitment period or (ii) such time as
75% of the committed amounts are invested or committed to investment in investments or temporary holdings.
This restriction may be waived if approved by limited partners representing two-thirds of the interests not related
to GP4.
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During the commitment period, any investment opportunity that is presented to GP4 or any of the sponsors,
and that GP4 believes is suitable for GPCP4, other than those investment opportunities related to existing
investments or commitments made prior to the formation of GPCP4 and which are still outstanding, will be
offered to GPCP4, unless prior approval has been obtained from the advisory committee that such investment is
not required to be offered to GPCP4.
We may make investments that have been rejected by the advisory committee, provided that such
investments are made on substantially the same terms and conditions than those presented to the advisory
committee.
Reports. GPCP4 will furnish to all limited partners both quarterly and annual reports including relevant
information regarding GPCP4, the investments and each limited partners statement of accounts. GP4 will hold
an annual partner meeting. Partners will have the right to visit portfolio companies, receive their audited financial
statements and audit the fund at their expense. Additionally, capital call notices and distribution notices will
include relevant corporate governance issues relating to the respective investment or divestment. Our
shareholders will not receive copies of the reports that we receive from GP4.
Indemnification. GP4, GP Investments, certain shareholders of Partners Holdings, certain representatives,
local advisors and their respective officers, directors, agents, shareholders, partners, members and other affiliates,
or persons who serve at the request of GP4 on behalf of GPCP4 as an officer, director, shareholder, partner,
member, employee or agent of any other entity and each member (or alternative member), whether nominated by
GP Investments or by a limited partner, of the advisory committee and the investment committee, and the heirs,
executors and administrators of each such person (in each case, an Indemnitee) are indemnified to the fullest
extent permitted by law by GPCP4 against all claims, costs and expenses incurred by such Indemnitee by reason
of serving in such capacity or by reason of any action or omission by the Indemnitee in any such capacity, except
for losses arising from such Indemnitees own bad faith, fraud, willful misconduct, or gross negligence. Limited
partners will not be individually obligated with respect to such indemnification beyond their respective unfunded
commitments. GP4 may require GPCP4 to purchase, at GPCP4s expense, insurance to insure GP4 or any other
Indemnitee against liability for any loss, damage or expense covered by the indemnification; any such insurance
will not, however, relieve GPCP4 from the indemnity obligations due hereunder (but any amount recovered
pursuant to such insurance shall reduce the amount the Indemnitee is entitled to recover pursuant to the
indemnity).
Removal of GP4. GP4 may be removed without cause with the consent of 75% in interest of the limited
partners not related to GP4, subject to certain notice provisions and/or payment of fees to GP4. In the case of any
removal of GP4, the removed general partner (any limited partners who are its affiliates) will have no further
obligation to make contributions from its unfunded commitments as general partner except to fund the
management fee and partnership expenses and to complete investments by GPCP4 in transactions that were
already committed but not yet disbursed in whole or in part as of the date of removal. After the removal date, the
management fee payable by GPCP4 to the removed general partner will be calculated only on the basis of the
removed general partners funded commitments applied to investments less certain amounts. The removed
general partner will continue to be entitled to receive distributions from GPCP4 with respect to each investment
in which the removed general partner participated to the extent the removed general partner actually funded such
investments.
In the case of removal of GP4 without cause, all distributions of the carried interest shall continue to be
deposited into the escrow account described in the Distributions and Carried Interests section above and shall
not be released until after the termination of GPCP4 and the determination of the respective allocations of the
carried interest to the removed general partner and any replacement general partner. Upon the termination of
GPCP4, the carried interest payable to the removed general partner shall be calculated in accordance with the
provisions outlined in the GPCP4 Partnership Agreement.
90
Of our investment in GPCP4, approximately $281.5 thousand was used to fund our pro rata share of the
organizational and offering expenses of GPCP4. We did not have to contribute to GPCP4 any share of
commitments made prior to our admittance, nor are we entitled to any distributions made in respect of
investments made prior to our admittance.
GP4 intends to propose to the limited partners an amendment to the GPCP4 Partnership Agreement that
would add the right to appoint an additional general partner prior to removal of GP4, with the consent of 75% in
interest of the limited partners not related to GP4 and subject to certain conditions therein.
Equatorial Energia
Equatorial Energia S.A. or Equatorial is a holding company which owns 65% of Cemar, the electricity
distribution company for the Brazilian state of Maranho. On April 2004, we, along with certain co-investors,
acquired 100% of Equatorial. The terms for such co-investment agreements granted us, in exchange for
originating and executing the transaction, carried interests over the future value of the co-investments. Such
carried interests were defined as a certain percentage over gains above a preferred (minimum) return, and are
only paid upon the effective return of capital and gains to co-investors.
On March 31, 2006, Equatorial Energia priced the initial public offering of its shares, effectively valuing the
company at $341 million. The secondary portion of the IPO consisted of shares valued at $152 million, which
represented approximately 47% of the original investment in Equatorial Energia. Pursuant to the co-investments
we sponsored in Equatorial Energia, we recorded at the date of the IPO performance fee revenues of $9.5 million.
The table below sets forth the value of carried interests owed to us in connection with the balance of the
co-investments we sponsored in Equatorial Energia, valuing the company at its market price as of June 30, 2007
Carried Interest Calculation for Co-investments
Co-investor Group A Co-investor Group B Total
(US$ in thousands, except % and dates)
Preferred Return (per year). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% 15%
Carried Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% 7%
Original Investment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,900 $6,500 $8,400
Investment Date(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 19, 2004 March 19, 2004
Remaining Units (in 1000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,136 10,729 13,866
Market Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,238 $96,605 $124,844
Total Outstanding Carried Interest . . . . . . . . . . . . . . . . . . . . . . . . $4,236 $6,762 $10,998
(1) Disregards transfers between investors.
In June 2005, we transferred our direct investment in Equatorial Energia to GPCP3. As the owners of GP3,
we have retained an indirect stake in the company due to GP3s commitment in GPCP3. In the IPO of Equatorial
Energia, a portion of the shares owned by GPCP3 was sold and cash was received subsequent to March 31, 2006.
As a result of this transaction, an account receivable for $42.5 million was recorded as of March 31, 2006. As a
limited partner in GPCP3, GP3s share was $4.8 million (net of performance fee), which corresponds to its stake
of 13.96% in GPCP3. The fair value of the remaining GP3s investments in Equatorial Energia is $44.6 million
as of June 30, 2007.
In addition to an indirect equity stake in Equatorial Energia through GPCP3, GP3 is also entitled to a carried
interest relating to that investment. Pursuant to GPCP3s Partnership Agreement, any carried interests GP3 is
entitled to receive pursuant to the divestiture of a portfolio company should be deposited in an escrow account,
until such time that both all committed amounts to the fund have been drawn, and all the capital invested by
GPCP3, plus preferred returns, management fees and expenses, are returned to its partners. As such, in
91
connection with the realized capital gains in the Equatorial Energia IPO, $7.5 million was deposited in a
segregated account on April 13, 2006 and will be deposited in escrowsuch amount will not be recorded as
revenues until we are entitled to such amount. The carried interest is distributed on an aggregate basis (and not a
deal-by-deal basis), which means that, taking into consideration all investments made and realized, if GPCP3
distributes to its partners less than their investment plus a certain preferred return, the amounts available to us as
carried interests could be less than the amount set forth in the preceding sentence or even zero.
See GPCP3Distributions and Carried Interests.
The table below sets forth the estimated value of carried interests relative to the balance of GPCP3s
Equatorial Energia investment, calculated at market prices as of June 30, 2007:
Carried Interest Calculation for GPCP3
GPCP3
(US$ in thousands, except % and dates)
Remaining Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,279,221
Adjusted Remaining Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,495,233
Remaining Units (in 1000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,952
Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,586,990
Capital Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,088,513
Total Outstanding Carried Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,617,703
Carried interests are paid on an aggregated basis, and not per transaction. In view of that, considering all
investments made and related exits, if GPCP3 distributes to its investors less than the amount applied in GPCP3,
in addition to a preferred return, the amount that we would receive as carried interest could be less than the
amount described above, or even zero. See GPCP3Distributions and Carried Interests.
Recent Developments
On January 18, 2007, a portion of GPCP3s remaining investment in Equatorial Energia was sold and, as a
result, GPCP3s investment was reduced from 9.89% to 7.55% of Equatorial Energias capital.
Invepar
On July 19, 2006, GP Investments Ltd. executed an agreement through which we committed to subscribe for
up to an amount equivalent to US$97 million in Investimentos e Participaes em Infra-Estrutura S.A.Invepar,
a holding company. If this capital injection occurs, GP Investments will hold one-third of the total and voting
capital of Invepar through GPPE or funds managed by us. No capital investment has been made so far and we
cannot give assurances that this investment will occur in the future. If this investment occurs, it will be funded
with resources from private equity funds managed by GP Investments or directly by GPPE, in case there is no
active fund at that time.
Invepar has a mandate to invest in the infrastructure sector, and owns toll road concessions. Its shareholders
are BB Carteira Livre I Fundo de Investimentos em Aes (a pension fund of the employees of Banco do
BrasilPREVI) and Construtora OAS Ltda. Currently, Invepar holds 100% of Linha Amarela S/A-LAMSA, in
the city of Rio de Janeiro, and 91.5% of Concessionria Litoral Norte S/A-CLN, in the State of Bahia. Both
companies were granted government concessions to explore toll roads.
The possible future investment in Invepar has the strategic goal of strengthening INVEPAR so that it will be
able to expand its reach in the market of toll road concessions. This is especially relevant at this point in time,
given expectations of new auctions to be carried out by the federal, state and municipal governments.
92
Fogo de Cho
Fogo de Cho is a traditional upscale churrascaria (Brazilian steakhouse), that operates in both the
Brazilian and the American market. Founded in 1979, Fogo de Cho currently operates a total of fourteen
restaurants, five restaurants in Brazil (three in So Paulo, one in Belo Horizonte and one in Braslia) and nine in
the United Sates. In 1997 Fogo de Cho made its debut in the North American market, opening its first American
restaurant in the city of Dallas, Texas and later another eight in Houston, Chicago, Atlanta, Beverly Hills,
Washington. D.C, Philadelphia, Minneapolis and Austin. Fogo de Cho has started to refurbish a new store in
Baltimore which is expected to be opened by December 2007.
On August 22, 2006, GP Investments, Ltd., through GPCP3, acting together with co-investors, acquired for
US$64 million (equivalent to 7.2x EV/EBITDA 2005), 40% of the total capital and 49% of the voting capital of
Fogo de Cho Churrascarias (Holdings), LLC, a holding company that owns the operations of the Fogo de Cho
restaurants in Brazil and in the United States. Out of the total investment, GPCP3 contributed US$32 million and
the co-investors the remaining part. Following the announced acquisition, our strategic objective has been to
strengthen Fogo de Cho, helping the company to increase its market share in both the Brazilian and the
American markets.
BR Malls
GP Investments, Ltd., through GPCP3, and Equity International, the US-based real estate private equity firm
affiliated with Sam Zells Equity Group Investments, LLC, acquired a total of 55% of the total capital of the
ECISA Group through a capital increase of US$171 million (27.5% each) in the ECISA Group. This transaction
was announced on November 7, 2006 and concluded on December 20, 2006. The US$85.5 million invested by us
was funded as follows: US$61.9 million from GPCP3, US$12.5 million from co-investors, and US$11.1 million
from bank financing.
On December 20, 2006, Private Equity Partners A, LLC, or PEPA, and Private Equity Partners B, LLC, or
PEPB, subsidiaries of GPCP3, entered in loan agreements with Banco Itau BBA S.A.Nassau Branch (as
amended on June 15, 2007) in order to acquire an equity interest in BR Malls. The obligations to Banco Itau
BBA S.A.Nassau Branch were secured through charges over shares, fixed charges over accounts and pledges
over shares pursuant to agreements dated as of June 15, 2007.
The ECISA Group is one of the most traditional Brazilian shopping center entrepreneurial businesses and
has been operating in this sector since 1971. On April 4, 2007, BR Malls went public through a primary offering
of approximately US$ 300million.
During the second quarter of 2007, BR Malls concluded 12 transactions, acquiring 15 new stakes in 9 new
shopping malls, increasing owned Gross Leasable Area (GLA) by 76,000 square meters. Following the second
quarter of 2007, BR Malls concluded another 3 transactions, acquiring ownership interest in 7 new malls and
adding 70,000 square meters of owned GLA to its portfolio.
On July 16, 2007 BR Malls concluded the largest transaction in 2007 to date in the industry with the
acquisition of a portfolio of four shopping malls located in the State of Rio de Janeiro (In Mont Acquisition).
With this acquisition, BR Malls consolidates its position as the leading shopping mall company in the state of
Rio de Janeiro, with a total of 6 malls and 168,100 m of total GLA. The transaction added 72,900 m in total
GLA and 66,859 m in owned GLA.
Today BR Malls is currently one of the largest shopping mall companies in Brazil and its current portfolio
comprises 27 malls: Amazonas Shopping (ManausAM), Shopping Iguatemi Belm (BelmPA), Pantanal
Shopping (CuiabMT), Shopping Campo Grande ( Campo GrandeMS), Araguaia Shopping (GoiniaGO),
Goinia Shopping (GoiniaGO), Natal Shopping (NatalRN), Shopping Iguatemi Macei (MaceiAL),
Shopping Recife (RecifePE), Shopping Estao (CuritibaPR), Shopping Curitiba (CuritibaPR), Shopping
93
Iguatemi Caxias do Sul (Caxias do SulRS), Top Shopping (Nova IguauRJ), Norte Shopping (Rio de
JaneiroRJ), Fashion Mall (Rio de JaneiroRJ), Rio Plaza (Rio de JaneiroRJ), Ilha Plaza (Rio de
Janeiro RJ), Niteri Plaza Shopping (NiteriRJ), Esplanada Shopping (SorocabaSP), Shopping Vila
Lobos (So PauloSP), Shopping ABC (Santo AndrSP), Shopping Piracicaba (So PauloSP), Shopping
Tambor (BarueriSP), Minas Shopping (Belo HorizonteMG), Shopping Del Rey (Belo HorizonteMG),
Big Shopping (ContagemMG) and Shopping Independncia (Juiz de ForaMG), the latter still under
construction. Furthermore, BR Malls is a fully integrated organization, through its ownership, management and
leasing of shopping centers. In addition to managing its own malls, BR Malls manages an additional 38 malls
nationwide.
Tempo
On December 11, 2006, GP Investments Ltd. entered into certain agreements with the shareholders of
Integrated Health Holdings Incorporated, or IHH, and USS Solues Gerenciadas Ltda., or USS, to acquire
approximately 32% of the total and voting capital of a new corporation, or IHH/USS, in a transaction concluded
on January 15, 2007. On June 15, 2007, the company adopted as its new name Tempo Participaes S.A., and a
new logo was defined.
Pursuant to these agreements, Tempo holds over 99% of the total capital of USS and each of the operating
companies: Connectmed-CRC Consultoria, Administrao e Tecnologia em Sade Ltda. (Connectmed), and
Gama Sade Ltda., or Gama Sade, which holds over 99% of the total capital of Gama Odonto S/A, or Gama
Odonto. USS is a provider of auto and roadside assistance and towing services and assistance services in home
emergency situations (plumbing, gas, electricity and locksmith services), Connectmed and Gama Sade are
healthcare administrators and Gama Odonto offers dental insurance. See Related Party Transactions.
Together, Connectmed and Gama Sade are among the leaders in the Brazilian healthcare administration
industry. Both companies clients are insurers and medium and large employers that offer health plans to their
clients/employees, taking on the underwriting risk, but outsourcing to Connectmed and Gama Sade the
management of the physician and hospital network, as well as key back office processes, such as the
authorization of medical procedures and claims processing and adjudication. USS is among the leaders in the
Brazilian assistance services industry, with offerings for the auto, home and personal segments. The companys
clients are mostly insurers, which sell assistance services attached to insurance policies, as well as automakers
and credit card operators.
Tempo is one of the leading players in its segments and is uniquely positioned to offer a complete range of
healthcare and assistance services, catering to the needs of insurers, credit and affinity card operators,
automakers, car rentals, and others. Tempo seeks to enhance margins by capturing synergies and increasing scale
of operations. In addition, it continues to pursue accelerated growth based on the promising perspectives of the
insurance and healthcare sectors and potentially through acquisitions.
The 32% stake in Tempo was purchased by GPCP3 via (i) the acquisition of the interests in IHH held by
GPCP2, equivalent to 8.8% of Tempos capital, for the price of US$11.5 million, and (ii) an additional
investment in Tempo of US$27.8 million for the remaining 22.8% of Tempos capital. The acquisition of the
stake of GPCP2 in IHH was subject to the approval of Class A shareholders of GP Investments in a special
general meeting held on January 8, 2007, in Bermuda, when such investment was approved by a 99.9966%
affirmative vote. This transaction was completed on January 15, 2007.
BR Properties
On January 2, 2007 GP Investments, Ltd., through GPCP3, announced the signing of agreements with
co-investors Lehman Brothers Real Estate Partners, Sandell Asset Management, Tudor Group, Banco Safra,
Talisman Special Purpose Fund Ltd., The Peter Malkin Family and Belfer Management LLC to create BR
Properties. At the time, the investors committed to subscribe to up to US$100 million, 30% of which was to be
provided by GPCP3.
94
Under the terms of the agreements signed with the co-investors, we have the right to subscribe to warrants
that entitle us to subscribe to up to 10% of the outstanding shares of BR Properties.
BR Properties has been established with the purpose of investing in commercial real estate assets in Brazil,
with a primary focus on existing office buildings, warehouses and retail stores excluding shopping malls.
On June 27, 2007, GP Investments and all the other shareholders of BR Properties agreed to increase the
aggregate amount of their investment commitment in BR Properties from US$102 million to US$153 million.
Magnesita
On August 12, 2007, GP Investments entered into definitive agreements to acquire 71% of the voting capital
and 39% of the total capital of Magnesita (for $651 million as of September 10, 2007, including transaction
expenses). Of this total investment, $285 million will be financed through debt taken by the acquisition vehicle.
The equity portion (including expenses) will be contributed by GPCP3 ($53 million), GPCP4 and a parallel fund
(GPCP4 Fundo de Investimento em Participaes) ($207 million) and strategic co-investors ($106 million).
Magnesita is the largest producer of refractory material in Latin America, supplying its products and
services to the steelmaking, cement and glass industries, from six plants in Brazil and one in Argentina. The
company owns and extracts magnesite reserves in Bahia, Cear and Minas Gerais. In 2006, Magnesita reported
net revenues of $507 million.
Pride Latam
On August 10, 2007, GP Investments entered into definitive agreements to acquire 100% of the Latin
American Land Drilling and E&P Services subsidiaries of Pride International Inc. for US$1 billion, in cash.
Closing of the transaction took place on August 31, 2007. Of the total investment, $600 million have been
financed through debt taken at the acquisition vehicle. The equity portion, as above, and transaction expenses
have been contributed by GPCP4 ($140 million), strategic co-investors ($165 million), and limited partners of
GPC4 ($135 million), to whom GP Investments has offered a pro-rata co-investment opportunity.
Given the strong demand for energy in the region, the growing E&P activity and the industry-wide positive
dynamics, the oil and gas services business is expected to post strong growth over the coming years. Strong
growth in drilling activity is expected to continue as long as oil prices remain above the $30-40 range.
GP Investments objective is to strengthen the business, expanding its operations organically and through
acquisitions. A talented and motivated management team, with the guidance and experience of GP, will be able
to drive organic growth, implement an aggressive commercial strategy, expand the product offering, and pursue
consolidation opportunities.
The business extends across eight countries in Latin America and is comprised of 73 land drilling rigs,
135 workover rigs and two lake drilling barges. The E&P Services business provides a wide range of services to
complete, maintain and enhance production from oil and gas wells, including pressure pumping, integrated,
directional drilling and other well services. The business achieved combined 2006 revenues of $824 million and
EBITDA margin of approximately 26%.
GP Asset
Our asset management business provides investment management and advisory services to institutional
clients, financial intermediaries, private clients and investment vehicles. Our goal in our asset management
business is to produce superior risk-adjusted investment returns and provide diverse investment solutions for our
clients.
95
This business is conducted through GP Asset, a 60.0%-owned Brazilian subsidiary focused on creating and
managing alternative fixed-income, equity and multi-asset funds. Previously a business segment inside GP
Investimentos S.A., GP Asset was spun-off to us in December 2005. As of June 30, 2007, GP Asset has
34 employees, led by Nelson Rozental, which has over 30 years of investment experience in the GP Group and in
the BNDES. Mr. Rozental holds 27.44% of GP Asset through his indirect equity in GP Participaes S.A., a
non-operational holding company. Marcus Martino, Marcos Falco and Mariano Figueiredo also hold, respectively
and indirectly, 3.72%, 6.98% and 1.86% of GP Asset. GP Asset utilizes GP Asset Management Inc., a Panamanian
company, as the general partner for the offshore funds it manages, and hence this subsidiary presents a mirror
ownership structure to GP Asset. The table below summarizes GP Assets main product offering and assets under
management or advisory as of June 30, 2007. GP Assets funds are offered only to qualified investors, as defined in
Brazilian regulations. Management fees are generally paid to GP Asset on a monthly basis.
Fund
NAV
(in R$ million) Focus
Bench
Mark
Actual
Performance
in 2007(1)
Management
Fee
(per year)(5)
Performance
Fee
Araras. . . . . . . . . . . . . . . . . . . . . . . . . . 138.3 Macro hedge fund with low risk,
that invests primarily in sovereign
and investment grade corporate
bonds. No leverage nor day trade
transactions are permitted.
100%
of
CDI(2)
115.3%
of CDI
1.00%
over
NAV
20% of
returns in
excess of the
benchmark
Petrpolis Plus . . . . . . . . . . . . . . . . . . 135.7 Macro hedge fund with moderate
leverage that seeks high returns
through directional and relative
value positions on sovereign
bonds, interest rates, structured
products, foreign currencies and
equities. Can also invest in other
funds.
100%
of CDI
117.5%
of CDI
1.20%
over
NAV
20% of
returns in
excess of the
benchmark
Crdito Sabesprev . . . . . . . . . . . . . . . 28.1 Fixed income fund with focus on
investment grade corporate
bonds, such as debentures,
structured products (CDOs, asset-
backed securities) and
commercial papers. Leverage and
day trade transactions are not
allowed, rating from independent
agencies are required.
100%
of CDI
106.2%
of CDI
0.80%
over
NAV
20% of
returns in
excess of the
benchmark
GP FIA. . . . . . . . . . . . . . . . . . . . . . . . . 8.9 Value-investing long equity fund
that seeks to invest in
approximately 10-15 companies
selected based on fundamental
analysis.
100%
of IBX
152.3%
of IBX
2.00%
over
NAV
20% of
returns in
excess of the
benchmark
GP FIDC FCVS . . . . . . . . . . . . . . . . . 38.5 Structured product fund that
invests in credit rights against the
National Treasury which will be
converted in sovereign bonds.
100%
of CDI
276%
of CDI
1.00%
over
NAV
20% of
returns in
excess of the
benchmark
GP FIDC FCVS 2 . . . . . . . . . . . . . . . 92.3 Structured product fund that
invests in credit rights against the
National Treasury which will be
converted in sovereign bonds.
100%
of CDI
319.6%
of CDI
1.50%
over
NAV
20% of
returns in
excess of the
benchmark
Marup. . . . . . . . . . . . . . . . . . . . . . . . . 109.1 Fixed income exclusive fund with
focus on long term investment
grade corporate bonds, such as
debentures, structured products
(CDOs, asset-backed securities)
and commercial papers.
119.3%
of CDI
0.48%
over
NAV

M11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 Fund of funds fully dedicated to

invest in the FIDC FCVS funds.
Leverage and day trade
transactions are not allowed in
this fund.
100%
of CDI
276%
of CDI
0.10%
over
NAV
96
Fund
NAV
(in R$ million) Focus
Bench
Mark
Actual
Performance
in 2007(1)
Management
Fee
(per year)(5)
Performance
Fee
M12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 188.1 Fund of Funds with focus on
investment grade fixed income
funds. Leverage and day
trade transactions are not
allowed in this fund.
139.5% of
CDI
0.10%
over
NAV

M20 . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Fund of funds, that invests in

structured product and special
situation funds such as FIDC
FCVS and FIDC INSS
subordinated shares. Leverage
and day trade transactions
are not allowed in this fund.
299% of
CDI
0.10%
over
NAV

FI Sergipe Desenvolvimento e
Consolidao(4) . . . . . . . . . . . . . . .
346.9 Invests in corporate debt,
including debentures,
commercial papers, and asset
backed securities. Only
acquires investment grade
assets.
Higher of
92% of
CDI and
INPC(3)
+ 9%
207.7% of
CDI
0.97%
over
corporate
debt in the
portfolio,
plus
0.03%
over NAV
10% of
returns in
excess of the
benchmark
Logstica Brasil. . . . . . . . . . . . . . . . . . 462 Logstica Brasil FIP is a
investment fund seeking to
invest in logistic assets in
Brazil such as: warehouses,
ducts, railcars, locomotives,
ports, cargo terminals.
IPCA +
9.5%
-182% of
Benchmark
1.5% over
Commited
capital in
the first 3
years and
1.5% over
NAV for
the next 7
years
15% of
returns in
excess of the
benchmark
Iporanga 30 FI Multimercado . . . . . 95.6 Aggressive Hedge Fund
trading fixed income and
equities. It may assumes short
positions and leverage.
100% of
CDI
176.3% of
CDI
1.5%
over
NAV
20% of
returns in
excess of the
benchmark
Petros Azul FI Multimercado. . . . . . 157.0 Exclusive hedge fund for
Petros Institute. This funds
assume moderated risks
104%
Selic
134.1% of
CDI
0,13%
over
NAV
20% of
returns in
excess of the
benchmark
GP Long Short Advanced. . . . . . . . . 4.6 Aggressive, high volatility
fund, fundamental on equities,
may incur in day trades.
100%CDI 212.9% of
CDI
2%
over
NAV
20% of
returns in
excess of the
benchmark
GP Long-Short . . . . . . . . . . . . . . . . . . 206.2 Compared to the advanced it
has lower volatility, based on
equity statistics.
100%CDI 121% of
CDI
2%
over
NAV
20% of
returns in
excess of the
benchmark
High Yield Crdito. . . . . . . . . . . . . . . 3.7 Invests in more risky corporate
debts, seeking higher returns, it
is a vehicle for other FoF
n/a 114.5% of
CDI
0,1%
over
NAV
n/a
Total . . . . . . . . . . . . . . . . . . . . . . 2056.6
(1) Past performance is not indicative of future returns. See Risk FactorsPast performance may not be indicative of our future results.
(2) CDI means the average of inter-bank overnight rates in Brazil.
(3) INPC means Brazilian inflation as measured by Fundao Instituto de Pesquisas EconmicasFIPE.
(4) GP Asset acts only as an advisor to this fund.
(5) These fees correspond to the total management fees charged from investors in such funds and include fees
97
Offshore Funds
Fund
NAV
(in US$ million) Focus
Bench
Mark
Actual
Performance in
2007(1)
Management
Fee
(per year)(2)
Performance
Fee
Alchemy F . . . . . 28.7 Multistrategy
moderate off-
shore hedge
fund which
invests only in
Brazilian
markets.
Libor 6M 377.2% of
Libor
2% over NAV 20% of
returns in
excess of the
benchmark
Alchemy L . . . . . 0.35 Equity fund
that invests in
the Brazilian
equity market
100% of
IBX-100
409.2% of IBX 2% over NAV 20% of
returns in
excess of the
benchmark
Total . . . . . . 29.1
(1) Past performance is not indicative of future returns. See Risk FactorsPast performance may not be
indicative of our future results.
(2) These fees correspond to the total management fees charged from investors in such funds and include fees
GP Assets main sources of revenues, as evidenced in the table above, are management and performance
fees it receives from the various funds in its portfolio. In 2006, liquid asset funds managed by the GP Group, and
currently related to GP Asset generated R$5.9 million in revenues. Assets under management have grown
significantly since 2004, when the GP Partners, Nelson Rozental and Marcus Martino took control of GP Asset:
Assets Under Management(1)
Evolution of Assets Under Management(1)
2007(2) 2006 2005 2004
(R$ in millions)
Fixed Income Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835 792 623 308
Hedge Funds (Multimercados) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585 293 171 139
Equity Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 483 16 NA
Total 2102 1568 810 447
(1) Includes funds in which GP Asset acts as an advisor only.
(2) As of June 30
th
On June 26, 2007, GP Investments announced the signing of certain agreements through which GP
Investments subscribed for a ultimate capital increase in GP Asset in the aggregate amount of US$12.9 million.
In addition to the capital increase, GP Investments agreed to make additional investments in funds managed by
GP Investments in the aggregate amount of US$20 million.
The GP Group, from time to time, employs its excess liquidity investing in the funds it creates, as seed
capital to foster their development. As of July 31, 2007, we had $28.5 million of our own capital invested in GP
Assets funds.
98
Competition
We compete with a number of strategic buyers, wealthy individuals, private equity funds and other financial
services companies such as hedge funds that seek acquisition opportunities in Brazil. The strategic buyers we
expect to compete with will vary based on the industry in which the potential acquisition target operates. The
private equity funds we expect to compete with in Brazil include (but are not limited to) Darby Overseas, Advent
International, ABN Capital Brazil, Capital International, AIG Capital, Angra Partners, Pactual and Merrill Lynch.
We believe that we primarily compete based on our access to capital, reputation, relationships with potential
acquisition targets and management talent, industry expertise, and track record. We believe that our strengths
described above under Our Competitive Strengths are all positive factors in helping us achieve our mission
of generating outsized returns to our shareholders. In addition, in contrast to most of our competitors, our strategy
is to operate our businesses to create long-term value rather than implementing strategies that primarily focus on
short-term returns. As a result, we may be able to consider acquisition opportunities that are not available to such
competitors.
In addition, in recent years in Brazil the equity capital markets have been a significant competition to our
business by providing equity funds to companies in need of financing.
In our asset management business, we compete with a larger number of financial institutions and asset
managers which, in some cases, have much larger amounts of assets under management or offer a more diverse
variety of financial products.
Facilities
Our registered office is located at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda. We also
have an office located at Suite 411, fourth floor of the International Centre Building, in the City of Hamilton,
Bermuda. Our Brazilian operations are conducted by our Brazilian subsidiaries from their offices at Avenida
Brigadeiro Faria Lima, 3,900, 7
th
floor, in the City and State of So Paulo, Brazil.
99
Corporate Structure and Subsidiaries
We have subsidiaries in Brazil, Panama, Bermuda, Bahamas and the Cayman Islands, whose functions are
related with the conduct of our activities. As a result of the various corporate reorganizations that we have
conducted, our corporate structure includes the following entities:
GP Capital Partners IV,
LP (Cayman)
GP Investments,
Ltd. (Bermuda)
Partners
Holdings
25.4%
Free Float
74.6%
38.86%
0.001%
GP Cash Management
(Bahamas)
100%
GP Capital Partners III,
LP (Cayman)
GP Investments III
Ltd. (Cayman)
GP Investimentos S.A.
99.97%
64.5%
8%
100%
39.03%
GP Investments IV
Ltd. (Cayman)
GP Private Equity
(Bermuda)
GP Holdings, Inc
(Cayman)
GP Participaes S.A.
GP Investimentos Ltda.
Offshore
Brazil
GP Asset
Management Inc
(Panama)
100%
99.99%
60% (indirectly)
GP Administrao de
Recursos S.A.
99.99%
100% 100%
Note: The participation in GP Participaes S.A. is held indirectly.
GP Investimentos S.A.
This Brazilian subsidiary is the local advisor of GP Investments, GPCP3 and GPCP4 with respect to the
acquisition, management and disposition of investments, in accordance with the Advisory Agreement, the
GPCP3 Advisory Agreement and the GPCP4 Advisory Agreement. See Material Agreements.
GP Investments III (Cayman) Ltd.
GP Investments III (Cayman) Ltd., or GP3, is the general partner of GPCP3. As general partner, it is entitled
to management and performance fees from the administration of GPCP3. See Material Agreements.
GP Investments IV Ltd.
GP Investments IV Ltd., or GP4, is the general partner of GPCP4, our most recent private equity fund. As
general partner, it is entitled to management and performance fees from the administration of GPCP4. See
Material Agreements.
GP Administrao de Recursos S.A. (or GP Asset)
This subsidiary is 60.0% owned by us. See Asset Management Businesses.
100
Principal governance terms relating to our ownership interests in GP Asset are summarized below:
We hold a majority of the voting rights in GP Asset, and the right to appoint a majority of board
members;
We, the other beneficial shareholders in GP Asset, and GP Asset have a mutual right of first refusal in
the purchase of GP Assets shares from one another;
The other beneficial shareholders of GP Asset have a tag-along right in the event of a direct or indirect
sale of control of GP Asset;
The other beneficial shareholders of GP Asset have a put right against us in the event we decide to
liquidate GP Asset;
We and Nelson Rozental have a call option to purchase, at any time and at our discretion, all of GP
Assets non-voting shares from its holders;
Certain matters require unanimous consent of the voting shareholders. In the event of a deadlock, a buy/
sell clause applies.
Intellectual Property
We have requested the filing of certain of our trademarks before the Brazilian Institute of Industrial
Property, or INPI, including GP Investimentos, GP Capital Partners, GP Administradora de Ativos, GP
Internet, and GP Asset. The INPI denied registration of GP Investimentos, GP Capital Partners and GP
Internet because a third party holds a similar trademark named GP. As we believe that we render a different
service from the existing trademark holder and that the existing trademark holder is not using the GP
trademark, we have filed a motion to cancel its registration and also filed appeals against each of INPIs
decisions denying the requests of registration of trademarks GP Investimentos and GP Capital Partners. If we
are unsuccessful, we will have to stop using these trademarks; however, we do not believe this would be
detrimental to our business.
We have also registered certain domain names, including gp.com.br, gp-investimentos.com.br,
gpcapitalpartners.com.br, gpcp.com.br, gpholdings.com.br, gpinvest.com.br and
gpinvestimentos.com.br and gp-investments.com.
Environmental Issues
Our operating subsidiaries in Brazil do not have any pending issue that, separately or in the aggregate,
would in the opinion of management have a material adverse effect on our results of operations or financial
condition.
We invest in portfolio companies, some of which may have environmental issues. In accordance with
Brazilian law, a controlling shareholder may, in certain circumstances, be liable for environmental obligations of
its subsidiaries. Therefore, there can be no assurance that we would not be required by a Brazilian court to honor
the obligation of any of our operational subsidiaries in the event of an environmental dispute. See Risk
FactorsWe may be held liable for other companies obligations as a result of corporate reorganizations or if a
Brazilian court disregards the corporate entity of such other companies. We are currently not party to any
environmental lawsuits.
Insurance
We maintain insurance coverage in amounts and type that our management deems sufficient to cover
possible losses, taking into account the nature of our activities, the risks involved in our operations and the
guidance provided by our insurance consultants.
101
Additionally, members of our board of directors and our executive officers are currently covered by
directors and officers insurance policies, which were obtained by us prior to the consummation of our initial
public offering.
We do not maintain key man life insurance for any of our partners, members of our senior management or
other employees.
Employees
We have one employee based in Bermuda. We hire certain services, including consulting and back-office
services, from some of our subsidiaries. See Material Agreements. In addition, some of our operational
subsidiaries, including GP Asset, have their own staff.
The employees of the operational subsidiaries in Brazil receive a profit sharing plan and meal voucher.
Approximately 34% of the employees also receive health care assistance.
All of our employees and the employees of our affiliates are required to sign confidentiality agreements with
us that survive termination of the employment relationship for a period of two years.
As of June 30, 2007, the GP Group had 85 employees. The table below shows the number of full-time
employees that the GP Group had for the periods presented excluding employees of any of its portfolio
companies:
Date
Private
Equity GPRE(1)
GP
Asset Total
June 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 0 34 85
December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 0 28 67
December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8 6 48
December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 2 8 46
December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 0 5 42
(1) As of April 20, 2006, we sold our interests in GPRE to our partners and the number of our employees in
GPRE was reduced to zero.
Material Agreements
Material agreements, or copies thereof, are available for review at our registered office, upon request, during
normal business hours on any day except Saturdays, Sundays and public holidays.
Advisory Agreement
Under the terms of the Advisory Agreement, GP Investimentos S.A. will provide certain investment
management services to us in accordance with our objectives and policies. Specifically, GP Investimentos S.A.
will obtain and provide us with investment advice and will assist us in managing our affairs, including acquiring,
managing and disposing of portfolio companies. GP Investimentos S.A. will monitor our investments in portfolio
companies, including by appointing our representatives to the boards of such companies, and assist us in
periodically determining the fair value of our portfolio companies and other assets. GP Investimentos S.A. is
authorized to charge such portfolio companies monitoring and transaction fees in line with those fees customary
in the market and limited to the expenses it incurred and to the aggregate value of its monitoring services. In
addition, GP Investimentos S.A. will also provide us with other services, such as assisting in the preparation of
reports to our Brazilian shareholders and reports to and filings with any applicable Brazilian listing exchanges
and regulatory commissions.
102
We will pay GP Investimentos S.A. an advisory fee, in an amount to be agreed among us and GP
Investimentos S.A., that will be payable on a quarterly basis.
The Advisory Agreement has an initial term of five years and may be extended.
GPCP3 Advisory Agreement
Under the terms of the GPCP3 Advisory Agreement, GP Investimentos S.A. provides certain investment
management services to GPCP3 in accordance with GPCP3s objectives and policies. Specifically, GP
Investimentos S.A. will obtain and provide GPCP3 investment advice and will assist GPCP3 in managing its
affairs, including acquiring, managing and disposing of portfolio companies. GP Investimentos S.A. will monitor
GPCP3s investments in portfolio companies, including by appointing GPCP3s representatives to the boards of
such companies, and assist GPCP3 in periodically determining the fair value of GPCP3 portfolio companies and
other assets. GP Investimentos S.A. is authorized to charge such portfolio companies normal and customary
monitoring and transaction fees in line with those fees customary in the market and limited to the expenses it
incurred and to the aggregate value of its monitoring services. The charged amount will be used to reduce the
management fees payable by the limited partners of GPCP3. Approval of the advisory committee is required if
those monitoring and transaction fees are to exceed 2% of the committed amounts per year.
GPCP3 will pay GP Investimentos S.A. an advisory fee, in an amount to be agreed among GPCP3 and GP
Investimentos S.A. See GPCP3. The GPCP3 Advisory Agreement will continue to be in effect until the
liquidation of GPCP3 and distribution of its assets.
GPCP3 Partnership Agreement
See GPCP3 for a description of the key terms of the Partnership Agreement.
GPCP4 Advisory Agreement
Under the terms of the GPCP4 Advisory Agreement, GP Investimentos S.A. provides certain investment
management services to GPCP4 in accordance with GPCP4s objectives and policies. Specifically, GP
Investimentos S.A. will obtain and provide GPCP4 investment advice and will assist GPCP4 in managing its
affairs, including acquiring, managing and disposing of portfolio companies. GP Investimentos S.A. will monitor
GPCP4s investments in portfolio companies, including by appointing GPCP4s representatives to the boards of
such companies, and assist GPCP4 in periodically determining the fair value of GPCP4 portfolio companies and
other assets. GP Investimentos S.A. is authorized to charge such portfolio companies normal and customary
monitoring and transaction fees in line with those fees customary in the market and limited to the expenses it
incurred and to the aggregate value of its monitoring services. A portion (80%) of the charged amount will be
used to reduce the management fees payable by the limited partners of GPCP4. Approval of the advisory
committee is required if those monitoring and transaction fees are to exceed 2% of the committed amounts per
year.
GPCP4 will pay GP Investimentos S.A. an advisory fee, in an amount to be agreed among GPC4 and GP
Investimentos S.A. GP Investimentos S.A. has committed to obligations to offer investment opportunities and not
to act on behalf of another pooled investment fund similar to those agreed by GP4 (except for GPCP1, GPCP2,
GP Tecnologia and GPCP3). See GPCP4. The GPCP4 Advisory Agreement will continue to be in effect
until the liquidation of GPC4 and distribution of its assets.
GPCP4 Partnership Agreement
See GPCP4 for a description of the key terms of the Partnership Agreement.
103
Other Agreements
We are also party to certain agreements with other parties that are related to us. See Related Party
Transactions.
Legal Proceedings
We are not currently subject to any material legal proceedings, but from time to time, we are party to
litigation and administrative proceedings that arise in the ordinary course of our business.
A former subsidiary of ours, Mauriti Administradora de Ativos Ltda., or Mauriti, is involved in certain
tax-related legal proceedings in Brazil. Mauriti is disputing the increase of the calculation bases of social
contributions on gross revenues (PIS and COFINS), imposed by Law No. 9,718/98, in the total amount of up to
R$1.7 million as of December 29, 2005 (amount to be updated in due course of legal proceeding).
The attorneys responsible for these judicial proceedings, which are pending decision by the Brazilian
Supreme Court, estimate that the likelihood of loss by Mauriti is remote, based on a favorable leading case
judged by the same court.
In addition, in December 2005, Mauriti was notified by the Brazilian tax authorities that some of its
liabilities relating to certain loan agreements entered into from 1999 to 2003 were deemed by the tax authorities
to be fictitious and should be treated as unreported income. This resulted in a charge for corporate income tax
(IRPJ), social contribution on net income (CSLL) and social contributions on gross revenues (PIS and COFINS)
in the amount of R$58 million as of December 29, 2005 (amount to be updated in due course of legal
proceeding). Those tax authorities also determined that Mauriti should collect the tax on financial transactions
(IOF) due in connection with certain foreign exchange transactions, in the amount of R$9 million as of
December 29, 2005. The attorneys responsible for those proceedings estimate that the likelihood of loss on the
IRPJ, PIS and COFINS issues is remote and that the loss on the IOF issue is possible. Mauriti filed an
administrative defense for such tax assessments, which awaits judgment at the first administrative level. In the
case Mauriti receives an unfavorable administrative decision, it still may appeal to the judicial level.
Since a substantial part of Mauritis assets was spun-off and transferred to an entity named Saint Patrick,
Inc., or Saint Patrick, in October 2004, under Brazilian law, Saint Patrick may be held jointly responsible for the
liabilities above, should they become due, however, in the event Sain Patrick is held responsible for such
liabilities, it may reclaim indemnification from Mauriti for any losses incurred.
Corporate Reorganization
On October 16, 2003, we were incorporated in the British Virgin Islands as an exempted company under the
name GP Global, Inc., with Jorge Paulo Lemann, Carlos Alberto Sicupira, Marcel Hermann Telles and Roberto
Thompson Motta, or the Founders, and some of the GP Partners as our indirect shareholders. Following our
incorporation, the Founders sold a portion of their shares to some of the GP Partners, and our share capital was
divided into shares with voting rights, held by some of the GP Partners, and shares with restricted voting rights,
held by the Founders. Fersen Lamas Lambranho and Antonio Bonchristiano became our controlling shareholders.
One year later, in October 2004, the Founders sold the entirety of their shares to some of the GP Partners. In
addition, Fersen Lamas Lambranho and Antonio Bonchristiano, our controlling shareholders, became the sole
owners of all voting shares, with the remaining partners owning shares with restricted voting rights.
On December 30, 2005, the GP Partners, Nelson Rozental and Marcus Martino entered into a reorganization
agreement, whereby they agreed to reorganize the capital structure of GP Global and Partners Holdings.
Reorganization steps included separating the management companies of GPCP1 and GPCP2 from GP
104
Global, Inc., the GP Partners, Nelson Rozental and Marcus Martino contributing their shares in GP Global, Inc.
to Partners Holdings, and redomiciling GP Global, Inc. from the British Virgin Islands to Bermuda. Upon
completion of the reorganization, we were renamed GP Investments, Ltd., and Partners Holdings became the sole
owner of our issued and outstanding shares.
On December 8, 2006, we incorporated a wholly-owned subsidiary, named GP Private Equity Ltd., or
GPPE. Following this reorganization, our private equity business investments have been made by us, through
GPPE either directly or by funds that we manage.
On December 18, 2006, GPCM, became our wholly-owned subsidiary in Bahamas. The company is
responsible for managing our and our subsidiaries cash and cash equivalents, following the objectives and
guidelines approved by GPs board of directors. The main guidelines consider the characteristics of these
investments in order to achieve: (i) liquidity compatible with the needs of the Private Equity business, (ii) a
conservative approach with a strong focus on principal preservation and (iii) returns compatible with the liquidity
requirements with low volatility.
On January 18, 2007, we transferred part of our interests in GPCP3, acquired through the commitment of a
significant portion of the proceeds from our initial public offering, to our wholly-owned subsidiary GPPE.
Antonio Bonchristiano and Fersen Lambranho currently own all of the voting shares of Partners Holdings,
and therefore hold indirect control of us. The remaining GP Partners, Nelson Rozental and Marcus Martino own
non-voting shares in Partners Holdings. See Principal Shareholders for a complete list of all our shareholders.
We have amended our bye-laws in order to reflect the public company status that we acquired upon
completion of our initial public offering. Our bye-laws as described herein came into force on April 23, 2007.
The following table sets forth certain important dates and events in our corporate history with respect to
formation, shareholdings and our share capital. Each of the individuals listed below as shareholders held such
shares indirectly, through one or more corporate entities controlled by such shareholder.
Date Action Result
October 16, 2003 GP Global was incorporated in the British
Virgin Islands under the name GP
Global, Inc., issuing 5,000,000 Class A
shares.
A portion of the Class A shares were
acquired by the Founders* in exchange for
the shares each held in GP1, GP2 and GP
Asset; by the Buyers* in exchange for the
shares each held in GP1 and GP2; and by
Marcelo Peano* in exchange for the shares
he held in GP Asset.
October 29, 2003 The Founders* sold a portion of their
shares to the Buyers*, Marcelo Peano*
and Rodrigo Campos* pursuant to a share
purchase agreement, after which GP
Global converted a portion of the Class A
and Class B shares.
Authorized share capital consists of
2,550,000 Class A shares, with voting
rights, held by the Buyers*, Marcelo
Peano* and Rodrigo Campos*, and
2,450,000 Class B shares, with restricted
voting rights, held by the Founders*.
October 29, 2003 Marcelo Peano*, Fersen Lambranho* and
Antonio Bonchristiano*, holders of
approximately 76.96% of the Class A
shares, enter into a shareholders
agreement governing how the shareholders
will vote and dispose of their shares.
All holders of Class A shares and Class B
shares enter into a shareholders
agreement, governing the rights of first
refusal and tag-along rights among them.
All shareholders are subject to at least one
shareholders agreement.
105
Date Action Result
October 20, 2004 GP Global repurchases 218,750 Class A
shares from Rodrigo Campos*.
The Founders* sell all of their Class B
shares to the Buyers*, Marcio Trigueiro*
and the Company.
Authorized share capital consists of
3,393,000 Class A shares, held by Marcelo
Peano*, Fersen Lambranho* and Antonio
Bonchristiano*, and 1,596,800 Class B
shares, held by Nelson Rozental*, Octavio
A portion of the Class B shares is
converted into Class A shares and 10,000
Class B shares held in treasury are
canceled.
Lopes*, Carlos Medeiros* and Marcio
Trigueiro*. The shares acquired by the
Company, comprising 7% of the
companys share capital, are held in
treasury. The shareholders agreements
described above are amended and restated
to reflect the new ownership structure.
January 7, 2005 GP Global repurchases 1,047,900 Class A
shares from Marcelo Peano* and assumes
the liabilities owed by Marcelo Peano* to
the Founders* as a result of the sale and
purchase on October 20, 2004.
Marcelo Peano leaves GP Global and the
repurchased shares are held in treasury.
February 1, 2005 Marcus Martino* acquires 24,950 Class B
shares out of treasury from GP Global.
December 20, 2005 Eduardo Alcalay* acquires 149,700
Class B shares out of treasury from GP
Global.
December 30, 2005 GP Global, each shareholder of GP
Global, including Partners Holdings and
the Partners, and Partners Holdings enter
into a reorganization agreement.
The board of directors of GP Global
declares and pays a dividend to the
Partners* on a pro rata basis, in the form
of all of the shares of GP1 and GP2 held
by GP Global.
GP Global cancels the 1,222,550 Class A
and B shares held in treasury and the
remaining share capital of GP Global is
redesignated as a single class.
Partners Holdings owns all of the issued
and outstanding shares of GP Global and
the Partners* own shares in GP Global
through their ownership of shares in
Partners Holdings. Antonio
Bonchristiano* and Fersen Lambranho*
own all of the voting shares of Partners
Holdings and therefore control Partners
Holdings. The remaining Partners* own
non-voting shares in Partners Holdings.
GP1 and GP2 are separated from GP
Global.
Authorized share capital consists of
3,767,450 shares.
December 31, 2005 Partners Holdings assumes the liabilities
owed by GP Global to the Founders* as a
result of the sale and purchase on
October 20, 2004. GP Global pays
Partners Holding an amount equal to the
liabilities so assumed.
No outstanding debt exists between GP
Global and Partners Holdings.
March 15, 2006 GP Global is redomiciled in Bermuda,
renamed GP Investments, Ltd. and is
assigned Registration No. 38120 by the
Bermuda Registrar of Companies.
106
Date Action Result
March 31, 2006 3,767,450 shares are designated as Class B
shares.
The Class B shares are subdivided into
7,534,900 Class B shares.
May 30, 2006 3,050,847 Class A shares of GP
Investments, Ltd. are issued to Green Shoe
Ltd., a wholly-owned subsidiary of GP
Investments, Ltd., for the purpose of
stabilization activities.
May 31, 2006 Publication of the announcement in Brazil
of the commencement of the offering.
July 17, 2006 Publication of the announcement in Brazil
of the closing of the offering.
October 16, 2006 GP Investments purchases 3,050,847 Class
A shares from Green Shoe Ltd. for
cancellation.
December 8, 2006 GP Investments incorporates GPPE.
January 18, 2007 Limited partnership interests held by GP
Investments in GPCP3 are transferred to
GPPE.
September 6, 2007 Issuance of 50,962 Class A Shares in
connection with the partial exercise of
options granted under the 2006 Stock
Purchase Program.
* as final beneficiary.
For purposes of the description above:
GP Global is GP Global, Inc.
The Founders are Jorge Paulo Lemann, Carlos Alberto Sicupira, Marcel Hermmann Telles, Roberto
Moses Thompson Motta, Alexandre Behring Costa and Fred Arthur Rank Packard.
The Partners are Antonio Bonchristiano, Fersen Lamas Lambranho, Carlos Medeiros, Octavio Lopes,
Eduardo Alcalay, Marcio Trigueiro and Danilo Gamboa.
The Buyers are the Partners excluding Marcus Marques Martino, Marcio Trigueiro, Danilo Gamboa and
Eduardo Alcalay.
107
Memorandum of Continuance
We have been assigned Registration No. 38120 by the Bermuda Registrar of Companies. Pursuant to
Section 6 of our memorandum of continuance, the objects of our company from the date of continuance are as
follows:
(i) To acquire by purchase or otherwise, buy, own, hold, create, market, design, assemble, manufacture,
repair, lease, hire, let, sell, dispose of (with or without consideration or benefit), maintain, improve,
develop, manage, invent, build, construct, operate, package and otherwise trade, invest or deal in and
with products, financial instruments, goods, and real and personal property of all kinds whatsoever
and wheresoever situated, and enter into arrangements for or with respect to any of the foregoing;
(ii) To perform, provide, procure, market and deal in services and undertakings of all kinds;
(iii) To advise and act as consultants and managers of all kinds and, without limiting the generality of the
foregoing, to provide investment and financial advice, consultation and management services;
(iv) To research, create, develop, invent, improve, discover, design, collate and draft original works,
software, inventions, designs, concepts, formulas, processes, strategies, methodologies and the like,
and acquire, build, own, hold, sell, lease, license, dispose of (with or without consideration or
benefit), market, franchise, and otherwise exploit and deal in or with all intellectual and intangible
property rights pertaining thereto whether registered or not, including but not limited to trade and
service marks, trade names, copyrights, computer software, inventions, designs, patents, provisional
patents, utility models, trade secrets, confidential information, know how, get-up and any other
rights and privileges vesting in or attaching thereto;
(v) To explore for, drill for, mine for, quarry for, move, transport, and refine metals, minerals, fossil
fuel, petroleum, hydrocarbon products including, without limiting the generality of the foregoing, oil
and oil products, and precious stones of all kinds and to prepare the same for sale or use;
(vi) To enter into any guarantee, contract of indemnity or suretyship and to assure, support or secure with
or without consideration or benefit the performance of any obligations of any person or persons and
to guarantee the fidelity of individuals filling or about to fill situations of trust or confidence;
(vii) To own, manage, operate, act as agents with respect to, build, repair, acquire, own, sell, charter, or
deal in ships and aircraft;
(viii) To lend to or deposit with any person funds, property or assets and to provide collateral or credit
enhancement for loans, leasing or other forms of financing, with or without consideration or benefit;
(ix) To create, enter into, undertake, procure, arrange for, acquire by purchase or otherwise, buy, own,
hold, sell or otherwise dispose of (with or without consideration or benefit), trade, invest and or
otherwise deal in, whether on a speculative basis or otherwise, all and or any kind of (including
without limitation all and or any combinations of and all and or any rights or interests under)
instrument, agreement, contract, covenant and undertaking, including without limiting the generality
of the foregoing, derivative instrument, agreement or contract, option, swap option contract, bond,
warrant, debenture, equity, forward exchange contract, forward rate contract, future, hedge, security,
note, certificate of deposit, unit, guarantee and or financial instrument; and
(x) To carry on any trade or business which can, in the opinion of the board of directors, be
advantageously carried on by the Company.
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MANAGEMENT
We are managed by our board of directors consisting of seven directors and by our executive officers, which
include the GP Partners. Our directors are elected for two-year terms, except for the current directors, which were
elected for a three-year term. Our executive officers are appointed for three-year terms. Reelection of directors
and officers is permitted. We also have an audit and compliance committee and a nomination and compensation
committee, which is formed among the members of the board, and an informal advisory committee.
Board of Directors
Our board of directors is our decisionmaking body responsible for formulating general guidelines and
policies for our business, including our long-term investment guidelines. Among other things, our board of
directors is responsible for appointing one or more directors for the position of CEO, who is responsible for
supervising and administering all of our general business and affairs, under supervision of the board of directors.
Our board of directors meets at least once every two months. The President, the Vice-President or any two
directors may, at any time, call a meeting of the board of directors. A resolution put to the vote at a meeting of
the board of directors shall be carried by the affirmative vote of a majority of the votes cast and, in the case of a
tie, the resolution will fail. Certain of the decisions of our board of directors require a qualified majority. For
example, the establishment of our long-term investment guidelines, any changes or amendments to such
guidelines or any new long-term investment strategies must be approved by the affirmative vote of not less than
80% of the directors then in office. See BusinessOur Strategy. In addition, any change or amendments to our
cash investment policy must be approved by the affirmative vote of not less than 70% of the directors then in
office. See Use of Proceeds.
Directors of a Bermuda company have a duty to avoid conflicts of interest. However, our bye-laws provide
that if a director discloses a direct or indirect interest in any contract or arrangement with us as required by
Bermuda law, such director is entitled to vote in respect of any such contract or arrangement in which he or she is
interested unless he or she is disqualified from voting by the chairman of the relevant board meeting.
Our bye-laws provide that our board of directors will consist of seven members, four of whom will be
nominated and elected by the holders of our Class B shares voting as a single class, currently Partners Holdings,
and three of whom will be independent directors (as defined in our bye-laws) and will be proposed by the
nomination and compensation committee of the board of directors for election, subject to the following sentence,
by our Class A and Class B shareholders voting as a single class. Class B shareholders will not participate in the
vote for election of independent board members if there are at least two individuals present in person at the start
of any meeting convened to elect the independent directors representing in person or by proxy at least 30% of the
total issued Class A shares. Only natural persons can be members of our board of directors.
An independent director is an individual who is duly appointed or elected as a member of our board and
who is not and has never been for any part of the last three years or in the case of (iv) below, for any part of the
past two years, and will not while serving as a director, be any of the following:
(i) a manager, director, officer or employee of us or any of our affiliates (other than as an independent
director of us or of any of our affiliates);
(ii) a person who has received any money, compensation or other payment from us or any of our
affiliates (including, without limitation, any of our or our affiliates creditors, suppliers or service
providers), except for (A) any person who has received any fees or compensation by virtue of being one of
our independent directors, (B) any person that has received any dividends or other distributions as a
registered holder of Class A shares, Class B shares or a holder of Brazilian Depositary Shares or (C) any
person who has been appointed one of our independent directors prior to the date of consummation of our
initial public offering and who has received fees or compensation from us;
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(iii) a controlling shareholder or a person that holds more than 10% of the issued and outstanding Class
B shares or any member, partner, equityholder, manager, director, officer or employee of such person. For
the purposes of this paragraph, controlling shareholders means Partners Holdings or any person holding
voting interests in Partners Holdings;
(iv) a member, partner, equityholder, manager, director, officer or employee of our current or former
auditor;
(v) a person that (A) has a conflicting interest with us as determined by the nomination and
compensation committee in good faith, (B) is a manager, director, officer or employee of any of our
competitors or (C) is a controlling shareholder of any of our competitors or a manager, director, officer or
employee thereof; or
(vi) the spouse, sibling, child, stepchild, grandchild, niece, nephew or parent of any person described in
(i) through (v) above or the spouse thereof.
Currently, our board of directors is comprised of seven directors. The table below sets forth the names,
positions, and terms of office of the current members of our board of directors.
Name Position Election Date Term of Office
Antonio Carlos A. Ribeiro Bonchristiano . . . . . . . . . . . . Co-Chairman April 30, 2006 April 30, 2009
Fersen Lamas Lambranho . . . . . . . . . . . . . . . . . . . . . . . . . . Co-Chairman April 30, 2006 April 30, 2009
Carlos Medeiros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Member April 30, 2006 April 30, 2009
Octavio Pereira Lopes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Member April 30, 2006 April 30, 2009
Alfred M. Vinton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Independent Director April 30, 2006 April 30, 2009
Roberto Thompson Motta . . . . . . . . . . . . . . . . . . . . . . . . . . Independent Director April 30, 2006 April 30, 2009
Jos Roberto Mendona de Barros . . . . . . . . . . . . . . . . . . Independent Director April 30, 2006 April 30, 2009
None of our directors is entitled to any severance compensation in the event of dismissal from office, except
for unpaid portions related to prior years. Our directors are not subject to mandatory retirement due to age.
The following is a summary of the business experience and principal outside business interests of the
current members of our board of directors. The address for each director is Av. Brigadeiro Faria Lima, 3900,
7 andar, 04538-132, So Paulo, SP, Brazil.
Antonio Bonchristiano. Mr. Bonchristiano holds a bachelors degree in politics, philosophy and economics
from the University of Oxford. He joined GP Investimentos S.A. in 1993 and has been a partner thereof since
1995. He is a co-chairman and co-chief executive officer of GP Investments. He serves a member of the board of
directors of BR Properties S.A.. He previously served as a member of the board of directors of ALL, Gafisa,
Hopi Hari, Submarino, S Supermercados, ABC Supermercados and Playcenter. He was also previously a chief
financial officer of SuperMar Supermercados and founder and chief executive officer of Submarino. Prior to
joining the GP Group, he was a partner at Johnston Associates Inc., a finance consultancy based in London, and
worked for Salomon Brothers in London and New York.
Fersen Lamas Lambranho. Mr. Lambranho holds a bachelors degree in civil engineering from the
Universidade Federal do Rio de Janeiro and a masters degree in business administration from COPPEAD-UFRJ.
He also completed the Owner President Management Program at the Harvard Business School. He joined the GP
Group in 1998 and became a partner thereof in 1999. He is a president and co-chief executive officer of GP
Investments. Also, he serves as a member of the board of directors of BR Malls and BR Properties, He
previously served as a member of the board of directors of Tele Norte Leste Participaes S.A., So Carlos
Empreendimentos e Participaes S.A., ABC Supermercados S.A., Playcenter S.A., Shoptime S.A. and
Americanas.com S.A. He was previously chief executive officer of Lojas Americanas S.A., where he worked for
12 years and where he served as a director from 1998 to 2003.
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Carlos Medeiros. Mr. Medeiros holds a bachelors degree in finance and foreign trade from New York
University, and has completed the TGPM Program at Harvard Business School. He joined the GP Group in 1998,
and has been a partner thereof since 2002. He is chief executive officer of BR Malls. He serves as a member of
the board of directors of BR Malls Participaes S.A. and BR Properties S.A.. He previously served as a member
of the board of directors of Pegasus Telecom S.A., Tele Norte Leste Participaes S.A., Contax Participaes
S.A., Gafisa S.A., Lupatech S.A., Kuala S.A and Internet Group (iG) Inc. He was an associate at Salomon
Brothers Inc. in New York from 1994 to 1998. He is also a member of the investment committee of GP
Tecnologia.
Octavio Pereira Lopes. Mr. Lopes holds a bachelors degree in economics from the University of So Paulo
and a MBA from The Wharton School of the University of Pennsylvania. He joined GP Investimentos S.A. in
1997 and has been a partner thereof since 2000. He served as a member of the board of directors of Gafisa S.A.,
Submarino S.A., IBest, Integrated Health Holding, Fratelli Vita, Shoptime, Webmotors, Mercado Eletrnico,
Hopi Hari and Playcenter. Mr. Lopes is a member of the board of directors of Equatorial and chief executive
officer since 2006. He was previously a member of ING Barings Corporate Finance Group.
Alfred M. Vinton. Mr. Vinton holds a bachelors degree from Harvard University. Since 1995, he has been
the chairman of Electra Partners Limited, an international fund management company specializing in private
equity. He serves as a member of the board of directors of several private companies, as well as Dinamia, a
Spanish quoted investment company. He previously worked for JPMorgan in the United States, South America
and London and was senior vice president responsible for bank operations in the United Kingdom, Ireland and
Scandinavia.
Roberto Thompson Motta. Mr. Motta holds a bachelors degree in engineering from Pontifcia
Universidade Catlica do Rio de Janeiro and an MBA from The Wharton School of the University of
Pennsylvania. He is a Founder and currently serves as a member of the board of directors of InBev S.A./N.V.,
Companhia de Bebidas das AmricasAmbev, Quilmes, Lojas Americanas and So Carlos Emprendimentos e
Participaes. He was previously a member of Banco de Investimentos Garantias investment banking division.
Jos Roberto Mendona de BarrosGraduated in Economics from the University of So Paulo (1973) and
Pos-Doctoral Fellow at Economic Growth Center, Economic Department, Yale University, USA (1973-1974).
He was a visiting Professor at Agricultural Economics and Rural Sociology Department, Ohio State University
(1980). He was an Assistant Doctor and Professor of the University of Economics of So Paulo from 1967 to
2001. He was Partner and Manager of the Association Mendona de Barros S/C Ltda. (1978-1994); Secretary of
Economic Policy of the Ministry of Finance (1995-1998) and Executive Secretary of Foreign Trade Board of the
President of the Republic (04/9811/98). He is working as a Consultant since January/99. He takes part in
Bunge Foundation, GP Investments, Tecnisa, Frigorfico Minerva and BOVESPA Board of Directors and in Po
de Acar Advisory Council. He took part at Vale do Rio Doce Strategic Committee from February/2002 to
March/2006.
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Executive Officers
Our executive officers are primarily responsible for managing our day-to-day operations and implementing
the general policies and guidelines set forth by our board of directors. Currently, we have seven executive
officers, elected by unanimous written resolutions of our board of directors. Our executive officers are appointed
by our board of directors for three-year terms, except for the position of President and Vice-President, which will
be held by Antonio Carlos Bonchristiano and Fersen Lamas Lambranho, alternately for a one-year period each.
Our executive officers may be reelected or removed by our board of directors at any time and for any reason. Our
board of directors is responsible for determining the role of our executive officers. Currently our executive
officers are the GP Partners and our Chief Financial Officer.
The chief executive officers are responsible for submitting to the board of directors for their approval certain
key decisions regarding the business plan, annual budget, and investment and disinvestment projects. The
co-chief executive officers enact these plans and develop our strategy and operational plan, including the manner
in which we will execute resolutions passed by our board of directors. Together with the other officers, they are
also responsible for supervising and coordinating our activities. The officer in charge of investor relations
supplies our financial information to investors, the Euro MTF market, the CVM and the BOVESPA and is also
responsible for keeping an updated register based on the applicable regulations.
The table below sets forth the names, positions, and terms of office of our current executive officers and
other principal officer of our subsidiary, GP Asset.
Name Position Election Date Term of Office
Fersen Lamas Lambranho . . . . . . . . . . . . . . . . . President and Co-
Chief Executive
Officer
May 23, 2007
(as President)
May 8, 2006
(as Co-CEO)
May 23, 2008
(as President)
May 8, 2009
(as Co-CEO)
Antonio Carlos A. Ribeiro Bonchristiano . . . . Vice President and
Co-Chief Executive
Officer
May 23, 2007
(as Vice President)
May 8, 2006
(as Co-CEO)
May 23, 2008
(as Vice President)
May 8, 2009
(as Co-CEO)
Carlos Medeiros . . . . . . . . . . . . . . . . . . . . . . . . . . Officer May 8, 2006 May 8, 2009
Marcio Trigueiro . . . . . . . . . . . . . . . . . . . . . . . . . Officer May 8, 2006 May 8, 2009
Eduardo Alcalay. . . . . . . . . . . . . . . . . . . . . . . . . . Officer May 8, 2006 May 8, 2009
Allan Hadid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial
Officer
May 3, 2007 May 8, 2009
Danilo Gamboa . . . . . . . . . . . . . . . . . . . . . . . . . . Officer December 7, 2006 May 8, 2009
Octavio Cortes Pereira Lopes . . . . . . . . . . . . . . Officer August 30, 2007 May 8, 2009
Nelson Rozental . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive
Officer of GP Asset
November 9, 2006 November 9, 2009
None of our executive officers is entitled to any severance compensation in the event of dismissal from
office, except the unpaid portions related to prior years.
The following is a summary of the business experience and principal outside business interests of our
current executive officers (except those already described under Board of Directors) and other principal
officers of our subsidiaries. The address for each officer is Av. Brigadeiro Faria Lima, 3900, 7 andar, 04538-
132, So Paulo, SP, Brazil.
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Marcio Tabatchnik Trigueiro. Mr. Trigueiro holds a bachelor of science degree in mechanical-aeronautical
engineering from the Instituto Tecnolgico de Aeronutica and an MBA from Harvard Business School, where
he was awarded both first and second-year honors, graduating with distinction. Mr. Trigueiro joined the GP
Group in 2001 and has been a partner of the company since 2004. Mr. Trigueiro serves as a member of the board
of directors of Lupatech, Integrated Health Holdings and Automatos. Prior to joining GP Investimentos S.A.,
Mr. Trigueiro was an associate at McKinsey in So Paulo.
Eduardo Alcalay. Mr. Alcalay holds a bachelors degree in business administration from Fundao Getlio
Vargas and a BA in Law from University of So Paulo. Mr. Alcalay joined the GP Group in 2005 as a partner.
Mr. Alcalay serves as a member of the board of directors of Equatorial Energia. Prior to joining GP
Investimentos S.A., Mr. Alcalay acquired more than 15 years of investment banking experience as a partner at
Singular, a mergers and acquisitions advisory boutique, and as head of mergers and acquisitions at DLJ-Brazil
and Banco Garantia. Mr. Alcalay has previously served as senior vice president for business development at
UOL, Brazils leading internet service provider.
Allan Hadid. Mr. Hadid holds a bachelors degree in economics from the Catholic University of Rio de
Janeiro and is a CFA charterholder. He joined GP Investments in 2006 as Treasurer and, since May 3, 2007, is
GP Investments CFO and IR Officer. Prior to joining GP, Mr. Hadid was the Investment Officer of a Family
Office from 2002 to 2006. He also worked in Banco Matrix from 2000 to 2002 as Hedge Fund analyst and from
1998 to 2000 as the portfolio manager of Matola Participaes Ltda.Nelson Rozental. Mr. Rozental holds a
bachelors degree in engineering from Universidade Federal do Rio de Janeiro and an MSc in business
administration from Universidade Federal do Rio de Janeiro. He joined the GP Group in 1999 as a partner.
Mr. Rozental has served in the past as a member of the boards of directors of Hopi Hari and Gafisa S.A. Prior to
joining GP Investimentos S.A., Mr. Rozental served as managing director of BNDES Participaes, a member of
the board of directors of Fundao Tupy, Bahia Sul Celulose, Rio de Janeiro Stock Exchange, Iochpe Maxion
and IBMEC, a member of the advisory board of the Brazilian Equity Partners Fund and Brazil Private Equity
Mutual Fund, and an alternate member of the board of directors of Light S.A. and Tele Norte Leste Participaes
S.A.
Danilo Gamboa. Mr. Gamboa joined the group in 2004 and is a Managing Partner of GP Investments since
2006. Mr. Gamboa is a Board Member of ALL and served as a Board Member of Submarino from 2005 to 2006.
Prior to joining GP Investments, Mr. Gamboa worked for Submarino and Gradus Management Consultants.
Mr. Gamboa has a BA in Industrial Engineering from the University of So Paulo and a MBA from the MIT
Sloan School of Management.
Committees of the Board of Directors
Nomination and Compensation Committee
The nomination and compensation committee is responsible for (a) after the expiration of the term of office
of our current board of directors, recommending to the shareholders independent director candidates for
membership to the board of directors and its committees, (b) overseeing our compensation plans, policies and
programs and (c) approving the compensation and share option grants of our directors, officers and management.
The nomination and compensation committee is composed of our three independent directors. The initial
members of this committee are Alfred M. Vinton, Roberto Thompson Motta and Jos Roberto Mendona de
Barros.
The compensation committee meets at least twice annually. One of our chief executive officers may
participate in any meetings of this committee, except that any member of such committee may require that a
meeting be held without any executive officers.
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Audit and Compliance Committee
The audit and compliance committee assists our board of directors in monitoring the integrity of the
financial statements, the independent auditors qualification, independence and performance, the performance of
our companys internal audit function and compliance by our company with certain legal and regulatory
requirements.
This committee consists of three members, all of whom are our independent directors, initially Alfred
M. Vinton, Roberto Thompson Motta and Jos Roberto Mendona de Barros.
One of our chief executive officers may be requested to participate in any meetings of the audit and
compliance committees, except that the committee may exclude from its meetings any person it deems
appropriate.
The audit and compliance committee meets at least twice annually.
Advisory Committee
Following our initial public offering, the board of directors appointed an informal advisory committee that
consists of five to ten shareholder members, which advises the board of directors on the companys long-term
and short-term investment strategy, as well as global trends in our business. Advisory committee members
generally have experience in corporate finance, investment banking or private equity investment and will each
serve two-year terms. The advisory committee meets twice per year.
Family Relationships Among Directors, Executive Officers, Audit and Compliance Committee Members
and Any of Those and Our Controlling Shareholders
There are no family relationships among our directors, executive officers, audit and compliance committee
members and/or any of those and our controlling shareholders.
Executive Officer and Director Compensation
The nomination and compensation committee establishes the aggregate amounts to be paid to members of
the board of directors and to our executive officers. The nomination and compensation committee establishes the
salary, bonus and share option grants to be made to the chief executive officers (as long as the chief executive
officers are board members of the company) and recommends to the board of directors, which approves, the
salary, bonus and share option grants to be made to the remaining officers of the company. Part of the total
compensation received by our executive officers may be in the form of dividend distributions from GP
Investimentos Ltda., pursuant to the Advisory Agreement. For the year ended December 31, 2006, the aggregate
compensation paid to our executive officers totaled $8.7 million and the aggregate compensation paid to the
members of our board of directors totaled $62.5 thousand.
Our Relationship with the GP Partners, our Executive Officers and Directors
Each of the GP Partners, our chief executive officers and any other person who from time to time holds
0.5% or more of the equity interests in Partners Holdings, are required to execute a non-compete agreement for
our benefit, which establishes that such persons may not engage in an activity that is substantially in competition
with our activities (or have an interest, or act as a director, officer, consultant, advisor or employee, in any entity
that engages in an activity that is substantially in competition with our activities).
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The restrictions described in the paragraph above will continue to be in effect (a) for a period of one year if
any of our chief executive officers discontinues its relationship with us at any time within five years from the
date of consummation of this offering; or (b) for a period of six months after discontinuation, if any of the GP
Partners, our chief executive officers or any other person who from time to time holds 0.5% or more of the equity
interests in Partners Holdings discontinues its relationship with us or Partners Holdings, as the case may be. Such
persons will be entitled to their base salaries from us during this non-compete period.
Our executive officers and any persons who from time to time hold 0.5% or more of the equity interests in
Partners Holdings may not engage in any activity (other than our activities), subject to certain exceptions,
including (a) the reasonable management of such persons own financial and other interests, (b) reasonable
charity or other social, political or other not-for-profit work, (c) the management of any entities in which GPCP1,
GPCP2 or GP Tecnologia have invested, and (d) Octvio Cortes Pereira Lopes may continue to serve as a
director and/or an executive officer of Equatorial Energia and its subsidiaries.
Share Option Plan
On August 18, 2006, our board of directors approved and adopted, with the concurrence of the nomination
and the compensation committee, the Stock Purchase Option Plan, or the Plan, the 2006 Stock Purchase Program,
or the 2006 Program, and the form of agreements to be entered into between the company and each beneficiary.
The 2006 Program comprises 7,416,037 options, in an amount equivalent to 20% of the companys total capital
on a fully diluted basis after our initial public offering. The options were granted on October 16, 2006, when
costs started to be recognized, and will expire in a total period of 10 years with a vesting period of five years.
On December 7, 2006, our board of directors with the concurrence of the nomination and the compensation
committee approved and adopted the form of the stock option agreement to be signed by GP Investments Share
Option Trust, or the GP Trust, a trust formed for the benefit of our directors, officers, employees and consultants,
exclusively to acquire options under our Plan. The options to be granted to GP Trust will have the same terms
and conditions of the options granted to the other beneficiaries under the 2006 Program.
On September 6, 2007, our board of directors has approved the issuance of an aggregate of 50,962 Class A
Shares (including 27,660 shares in the form of Brazilian Depositary Shares evidenced by Brazilian Depositary
Receipts) in connection with the partial exercise of options under the 2006 Stock Purchase Program.
Through our Plan, we seek to retain and motivate our executive officers and employees and align their
interests with the interests of our shareholders.
The GP Partners, Nelson Rozental and Marcus Martino have the obligation to contribute to Partners
Holdings, at market value, in exchange for non-voting shares of Partners Holdings, at least 50% of the shares
they receive from the exercise of the share options of us that were initially granted.
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PRINCIPAL SHAREHOLDERS
Principal Shareholders
The following table sets forth information relating to the ownership of our shares as of the date of this
offering memorandum, by each shareholder, including each GP Partner and each holder of 5.0% or more of our
Class A shares or Class B shares and all of our directors and officers as a group, as well as shares held by our
wholly-owned subsidiary.
The table below sets forth our ownership structure as of August 31, 2007 (not including shares acquired
pursuant to stock options).
Shareholders
Class A Shares
Beneficially
Owned Shares (%)
Class B Shares
Beneficially
Owned Shares (%)
Antonio Bonchristiano(1)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,164 30.89 2,327,530 30.89
Fersen Lamas Lambranho(1)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,164 30.89 2,327,530 30.89
Nelson Rozental(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,849 8,24 620,872 8,24
Carlos Medeiros(2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,394 11,44 862,000 11,44
Octavio Pereira Lopes(2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,061 10,30 776,094 10,30
Marcio Tabatchnik Trigueiro(2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,318 3,09 232,828 3,09
Eduardo Alcalay(2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,106 3,09 232,828 3,09
Marcus Marques Martino(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,318 1.03 77,609 1.03
Danilo Gamboa(2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,106 1.03 77,609 1.03
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,480 100 7,534,900 100
(1) Beneficially owns shares by virtue of being a holder of voting shares of Partners Holdings.
(2) Beneficially owns shares by virtue of being a holder of non-voting shares of Partners Holdings.
(3) Denotes a GP Partner.
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RELATED PARTY TRANSACTIONS
Services Agreement with Partners Holdings
We have transferred to Partners Holdings, prior to the consummation of our initial public offering, the
interests, management, rights and obligations that we had in GPCP1, GPCP2 and GP Tecnologia, or the
Transferred Assets. At the GP Tecnologia general members meeting held on April 27, 2006, the members of
GP Tecnologia approved our replacement as manager of the fund, and transferred all rights and duties related to
the management of such fund to GP Tecnologia Administradora de Ativos Ltda., a subsidiary of Partners
Holdings. The transfer was effective May 10, 2006. However, we have retained the human and other resources
necessary to manage the Transferred Assets. Therefore, we have entered into a Services Agreement with Partners
Holdings to provide certain day-to-day management support and back-office activities such as bookkeeping,
investor relations and hiring of auditors, relating to the portfolio companies held by the Transferred Assets. In
exchange for these services, Partners Holdings has agreed to pay us a portion of the management fees it receives
from the Transferred Assets in an amount sufficient to cover our costs to provide such services. Our costs are
calculated by sharing our personnel and overhead expenses based on the time our investment professionals spend
in the affairs of the Transferred Assets, measured monthly through the use of individualized time sheets, plus
disbursements such as travel and accommodation, consulting, auditing and legal fees. The costs will be
calculated and billed to Partners Holdings each quarter.
Shareholders Agreements of Partners Holdings
Voting Shareholders Agreement
On May 29, 2006, the voting shareholders of Partners Holdings, currently Antonio Bonchristiano and Fersen
Lamas Lambranho, who hold each 50% of the voting shares in Partners Holdings, entered into a shareholders
agreement, and have agreed to the following:
No person may hold more than 50% of the voting shares of Partners Holdings. In the event Antonio
Bonchristiano or Fersen Lamas Lambranho acquire more than 50% of the voting shares of Partners
Holdings due to the exercise of rights of first refusal or buy/sell rights, the acquiror will have 60 days as
of the acquisition to sell shares in excess of 50% of the voting shares of Partners Holdings to other
persons who are holding shares (voting or non-voting) of Partners Holdings for more than 12 months.
For sales of exceeding shares resulting from the exercise of rights of first refusal, the same price and
conditions of the original acquisition shall apply. For sales of exceeding shares resulting from a buy/sell
process, the price per share to be offered to the other remaining holders of shares in Partners Holdings
shall be equivalent to the weighted average between the market price of the shares previously owned by
the acquiror and the price achieved in the buy/sell process. If such sale does not occur within 60 days,
all shares of Partners Holdings will be converted into voting shares (except if the sale did not take place
due to lack of any offers by the eligible persons, in which case the capital structure of Partners Holdings
will remain unchanged).
In the event both Antonio Bonchristiano and Fersen Lamas Lambranho die and there is no other person
holding voting shares of Partners Holdings, all shares of Partners Holdings will be converted into voting
shares.
Antonio Bonchristiano and Fersen Lamas Lambranho will have a revolving casting vote for certain
matters, will meet before any decisions concerning the invested companies (including us), and will
decide certain matters by unanimous vote.
In the event of a deadlock involving matters that require unanimous vote, a buy/sell provision applies,
which requires the person wishing to buy the applicable shares must pay 20% of the price upon transfer
and the remaining price in four equal annual installments, guaranteed by a letter of credit.
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General Shareholders Agreement
On May 29, 2006, followed by an amendment and restatement as of April 16, 2007, the shareholders of
Partners Holdings, currently the GP Partners, Nelson Rozental and Marcus Martino, through their respective
legal entities, have agreed to certain provisions that require, in the event of the death of any such person, the
successor to sell within a 3-year period the applicable shares to either the other members of Partners Holdings
pro rata in the case of voting shares, or to Partners Holdings, in the case of non-voting shares. During the period
that the shares are not sold, voting rights of voting shares will be exercised by the other holders of voting shares,
pro rata. If, by virtue of the mechanism described in the prior sentence, any person is assigned voting rights that,
together with existing voting rights, would represent more than 50% of the total voting rights of Partners
Holdings, such person shall assign its right to acquire its pro rata portion of the shares held by the successors, to
any transferee as such shareholder may determine, as long as such transferee has been holding shares (voting or
non-voting) of Partners Holdings for more than 12 months, provided that, in any case, no shareholder may end up
holding shares that represent more than 50% of Partners Holdings voting shares. Such persons have also agreed
for certain payment conditions in case of transfer of shares among themselves or their successors.
In addition, such persons have agreed that Partners Holdings may admit new shareholders by issuing or
selling shares. Payment will be made with our shares, at market prices, or in installments, through the use of 50%
of bonus and dividend amounts received by the acquiror.
In accordance with the General Shareholders Agreement, Partners Holdings will have a call option over the
non-voting shares and holders of voting and non-voting shares will have a put option against Partners Holdings
exercisable at any time, payable 20% upon transfer and the remaining price in four equal annual installments or
in a longer period, depending on Partners Holdings payment capacity. If a put option over voting shares is
exercised, the shareholders holding voting shares have a pro rata right of first refusal to acquire such shares.
Tempo Share Purchase Agreement (formerly IHH/USS)
On December 11, 2006, Global Internet Investments, controlled by GPCP2, entered into a share purchase
agreement with Private Equity Partners A, LLC, or PEPA, and Private Equity Partners B, LLC, or PEPB, both
controlled by GPCP3, for the sale by Global Internet Investments to PEPA and PEPB of all 356,229 shares in the
capital of IHH held by Global Internet Investments. GPCP2 is a limited partnership whose general partner is
GP2, a wholly-owned subsidiary of Partners Holdings. PEPA and PEPB are controlled by GPCP3, a limited
partnership whose general partner is GP3, a wholly-owned subsidiary of GP Investments. Partners Holdings is
the controlling shareholder of GP Investments. The transfer of shares from Global Internet Investments to PEPA
and PEPB was approved by Class A shareholders of GP Investments in a special general meeting held on
January 8, 2007.
Other Related Party Transactions
Nelson Rozental and Marcus Martino owe us certain deferred purchase price payments due to their indirect
acquisition of shares in our subsidiary GP Asset. The balance due, as of June 30, 2007, was $2.0 million.
The GP Partners, our chief executive officers and our other executive officers are subject to certain
non-compete arrangements with us. See ManagementOur Relationship with the GP Partners, our Executive
Officers and Directors.
Except as described in this section, no director or officer has affected any other transaction with us that is
unusual in nature or conditions during the current and preceding fiscal year.
Except as described in this section, there are no outstanding loans granted by us to our directors and officers
and we have not provided any guarantees for the benefit of our directors and officers.
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DESCRIPTION OF NEW NOTES
We will issue the new notes under an indenture dated as of January 23, 2007 (the Indenture), among us,
HSBC Bank USA, National Association, as Trustee, HSBC Bank plc, as registrar, principal paying and transfer
agent, and HSBC Institutional Trust Services (Ireland) Limited, as Irish paying agent, pursuant to which the
Issuer previously issued $150,000,000 of 10% Secured Perpetual Notes. The initial notes and the new notes are
fully fungible and will constitute a single series of debt securities under the indenture.
Under the Indenture, we appoint a registrar, paying agents and transfer agents, which are identified on the
inside back cover page of this offering memorandum. A copy of the Indenture, including the form of the notes,
will be available for inspection during normal business hours at the offices of the Trustee and the paying agents.
The Trustee will also act as a transfer agent.
This description of new notes is a summary of certain provisions of the new notes and the Indenture.
Provisions which equally apply to the initial notes and the new notes may be described collectively as regarding
the notes. You should refer to the Indenture for a complete description of the terms and conditions of the notes
and the Indenture, including our obligations and your rights.
You will find the definitions of capitalized terms used in this section under Certain Definitions. For
purposes of this section of this offering memorandum, references to GP refer only to GP Investments, Ltd. and
not to its subsidiaries.
General
The notes will have the following basic terms:
The notes will be our senior obligations.
The notes will be perpetual notes with no fixed final maturity date and no sinking fund provisions.
The notes will be issued in denominations of US$100,000 and integral multiples of US$1,000 in excess
thereof.
The notes will be issued in the form of one or more global notes in fully registered form, without
interest coupons, registered in the name of a common nominee for, and deposited with a common
depositary (the Common Depositary) for, Euroclear and Clearstream, Luxembourg.
Interest on the notes:
will accrue at the rate of 10% per annum;
will accrue from the most recent interest payment date;
will be payable in cash quarterly in arrears on January 23, April 23, July 23 and October 23 of each
year, commencing on October 23, 2007;
will be payable to the holders of record on the January 8, April 8, July 8 and October 8 immediately
preceding the related interest payment date; and
will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, and interest and any additional amounts on, the notes will be payable, and the transfer of notes
will be registrable, at the office of the Trustee, and at the offices of the paying agents and transfer agents,
respectively. For so long as the notes are listed on the Irish Stock Exchange, and the guidelines of that stock
exchange will so require, we will maintain a paying agent in Ireland.
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We may from time to time without notice to or consent of the holders of notes issue an unlimited principal
amount of additional notes of the same series as the initial notes and the new notes offered by this offering
memorandum.
Ranking
The notes will be our unsubordinated obligations, ranking equal in right of payment with all of our
unsubordinated obligations. The notes will be structurally subordinated to all debt and other liabilities of our
subsidiaries. As of June 30, 2007, our subsidiaries had no outstanding debt.
Collateral
The initial notes were secured by a first priority pledge on 100% of GPPEs issued and outstanding shares.
The share pledge agreement and the security interests granted thereby were terminated following the occurrence,
on April 27, 2007, of the pledge release condition set forth in the Indenture and the share pledge agreement.
Paying Agent and Registrar
We will maintain a paying agent for the notes in (i) the City of London and (ii) for so long as the notes are
admitted to trading on the Official List of the Irish Stock Exchange and its guidelines so require, Dublin, Ireland.
We will also undertake under the Indenture that we will ensure, to the extent practicable, that we maintain a
paying agent in a European Union member state that will not be obliged to withhold or deduct tax pursuant to the
European Union Directive 2003/48/EC regarding the taxation of savings income (the Directive). The initial
principal paying agent will be HSBC Bank plc in the City of London and HSBC Institutional Trust Services
(Ireland) Limited will be the initial Irish paying agent in Dublin (each, a Paying Agent).
We will also maintain one or more registrars (each a Registrar) and will maintain a transfer agent in the
City of London. The initial Registrar will be HSBC Bank plc. The initial transfer agent will be HSBC Bank plc,
in the City of London.
We may change any Paying Agent, Registrar or transfer agent for the notes without prior notice to the
holders. However, for so long as the notes are admitted to trading on the Official List of the Irish Stock Exchange
and the guidelines of the Irish Stock Exchange so require, we will deliver notice of the change in a Paying Agent,
Registrar or transfer agent to the Companies Announcement Office in Dublin. We or any of our subsidiaries may
act as Paying Agent or Registrar.
Redemption
Optional Redemption
The notes will be redeemable, at our option, in whole but not in part, on any interest payment date on or
after January 23, 2012, upon giving not less than 30 nor more than 60 days notice to the holders (which notice
will be irrevocable), at 100% of the principal amount thereof, plus accrued and unpaid interest and any additional
amounts payable with respect thereto. We may provide in such notice that payment of the redemption price and
the performance of our obligations with respect to such redemption may be performed by another Person (which
may include, at our option, procuring another Person designated by us to purchase notes being redeemed on the
redemption date at the redemption price).
If we effect an optional redemption of notes, we will, for so long as the notes are admitted to trading on the
Official List of the Irish Stock Exchange, inform the Irish Stock Exchange of such optional redemption and shall
deliver notice of redemption to the Companies Announcement Office in Dublin.
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Tax Redemption
If as a result of any change in or amendment to the laws (or any rules or regulations thereunder) of Bermuda
or any political subdivision or taxing authority thereof or therein affecting taxation, or any amendment to or
change in an official interpretation, administration or application of such laws, treaties, rules, or regulations
(including a holding by a court of competent jurisdiction), which change or amendment becomes effective or, in
the case of a change in official position, is announced on or after the date of pricing of the notes, we have or will
become obligated to pay additional amounts as described below under Additional Amounts in excess of the
additional amounts we would have been obligated to pay on the date of pricing of the notes if the notes were
outstanding on such date (such excess additional amounts, Excess Additional Amounts), then we may, at our
option, redeem all, but not less than all, of the notes, at a redemption price equal to 100% of their principal
amount, together with accrued and unpaid interest to the date fixed for redemption, upon publication of
irrevocable notice not less than 30 days nor more than 90 days prior to the date fixed for redemption. No notice
of such redemption may be given earlier than 90 days prior to the earliest date on which we would, but for such
redemption, be obligated to pay Excess Additional Amounts. Notwithstanding the foregoing, we shall have the
right to so redeem the notes only if we have taken reasonable measures to avoid the obligation to pay Excess
Additional Amounts.
In the event that we elect to so redeem the notes, we will deliver to the Trustee: (1) an Officers Certificate
stating that we are entitled to redeem the notes pursuant to their terms and setting forth a statement of facts
showing that the condition or conditions precedent to the right of us to so redeem have occurred or been satisfied;
and (2) an Opinion of Counsel to the effect that we have or will become obligated to pay Excess Additional
Amounts as a result of the change or amendment, that we cannot avoid payment of such Excess Additional
Amounts by taking reasonable measures available to us and that all governmental requirements necessary for us
to effect the redemption have been complied with.
Notwithstanding the preceding two paragraphs, if a Successor assumes all of our obligations (including the
obligation to pay additional amounts) under the notes as described in Limitation on Amalgamation,
Consolidation, Merger or Transfer of Assets below, then all existing references in this section Tax
Redemption: (i) to Bermuda shall be replaced with references to the Successor Jurisdiction; (ii) to the date
of pricing of the notes shall be replaced with references to the date the Successor agreed to enter the
transactions under which it assumed all of our obligations under the notes; and (iii) to if the notes were
outstanding on such date shall be replaced with references to if the Successor assumed all of our obligations
under the notes on such date.
Open Market Purchases
We or any of our Affiliates may at any time purchase notes in the open market or otherwise at any price.
Any such purchased notes will not be resold, except in offshore transactions in accordance with Regulation S
under the Securities Act and in compliance with such other requirements or exemptions under relevant securities
laws as may be applicable.
Debt Service Reserve Account
Pursuant to the Indenture, the Trustee maintains in the United States a U.S. dollar-denominated account (the
Debt Service Reserve Account) over which the Trustee has sole and exclusive control and exclusive right of
withdrawal. The Debt Service Reserve Account shall be required to be Fully Funded on or prior to the closing
date. The Debt Service Reserve Account shall be deemed to be Fully Funded so long as, at any time, the funds
on deposit therein are in an amount sufficient to provide for the payment in full of the amounts due on the notes
on the following six interest payment dates. The term Fully Fund when used as a verb has a correlative
meaning.
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Amounts on deposit in the Debt Service Reserve Account may be invested by the Trustee in specified Cash
Equivalents upon the prior written direction by GP to the Trustee; provided that the aggregate amount of United
States dollars and Cash Equivalents maturing not later than the business day immediately preceding the next
interest payment date shall at all times be at least equal to the amount required to provide for the payment in full
of interest (including any related additional amounts) due on the notes on such interest payment date. If the
aggregate amount of United States dollars and Cash Equivalents maturing not later than the next interest payment
date is at any time less than the amount required to provide for the payment in full of interest (including any
related additional amounts) due on the notes on the next interest payment date, the Debt Service Reserve Account
will be deemed not to be Fully Funded at such time. We may, by giving notice to the Trustee no later than three
business days prior to a given interest payment date, apply any interest income or other income generated by
permitted investments of funds in the Debt Service Reserve Account to payments of interest and additional
amounts, if any, due and payable on the notes on such interest payment date.
We may, by giving written notice to the Trustee no later than three business days prior to a given interest
payment date in the manner described under Notices below, make payments of interest and additional
amounts, if any, due and payable on the notes on such interest payment date with funds held in the Debt Service
Reserve Account (a Debt Service Reserve Account Payment). In such an event, the Trustee shall withdraw
from the Debt Service Reserve Account by no later than 10:00 a.m. (New York City time) on any payment date
money sufficient to pay such interest and additional amounts, if any.
We shall have no obligation to Fully Fund the Debt Service Reserve Account following a Debt Service
Reserve Account Payment unless the funds on deposit therein following such payment (the date on which such
payment is referred to as the Trigger Date) are not sufficient to provide for the payment in full of the amounts
due on the notes on the following five interest payment dates, in which case we shall be required to Fully Fund
the Debt Service Reserve Account not later than the business day preceding the interest payment date following
the Trigger Date. If we are required to Fully Fund the Debt Service Reserve Account, as described in the
preceding sentence, we shall not have the right to make a Debt Service Reserve Account Payment until the
second interest payment date following the Trigger Date.
We will be entitled to make deposits directly to the Debt Service Reserve Account at any time. All right,
title and interest in and to all amounts on deposit from time to time in the Debt Service Reserve Account will be
held by the Trustee for the benefit of the holders of the notes. The Trustee shall, as soon as practicable following
the full and final payment and performance of all of our Obligations under the notes and the Indenture, release to
us all amounts in the Debt Service Reserve Account.
We will be entitled to substitute a letter of credit, financial guarantee insurance policy or other form of
liquidity support (collectively, a Reserve Policy) issued by an Eligible Provider for the Debt Service Reserve
Account. The terms of any such Reserve Policy must provide for drawings or payments, upon our or the
Trustees instructions, to make payments of interest, and for reinstatement, in a manner which is substantially
similar, in the reasonable judgment of the Trustee, to those applicable to the Debt Service Reserve Account. In
addition, any such Reserve Policy must provide for the drawing of the entire undrawn amount by the Trustee at
the expiration thereof for deposit into the Debt Service Reserve Account, if not replaced by another Reserve
Policy. If at any time the long-term unsecured credit rating, certificate of deposit rating or claims paying rating of
the provider of the Reserve Policy falls below the Rating Threshold, we must replace the Reserve Policy with a
Reserve Policy issued by an Eligible Provider or Fully Fund the Debt Service Reserve Account within 60 days of
the date of notice to us of such rating falling below the Rating Threshold. For purposes hereof, Eligible
Provider means any Person (i) which is organized under the laws of the United States of America, any State
thereof or the District of Columbia, or any other country that is a member country of the European Union or of
the Organization for Economic Co-operation and Development and (ii) the long-term credit rating, deposit rating
or claims paying rating of which is one of the four highest ratings attainable from Duff & Phelps, Moodys or
Standard & Poors (the Rating Threshold).
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Payments
We will make all payments on the notes exclusively in such coin or currency of the United States as at the
time of payment will be legal tender for the payment of public and private debts.
We will make payments of interest and additional amounts, if any, on the notes and any principal that
becomes due and payable and will deposit with the Trustee or the principal paying agent no later than 10:00 a.m.
(New York City time) one business day prior to any payment date money sufficient to pay such interest and
principal (except in the case of a Debt Service Reserve Account Payment, as described above under Debt
Service Reserve Account).
We will make payments of any principal that becomes due and payable upon surrender of the relevant notes
at the specified office of the Trustee or any of the paying agents. We will pay principal and interest on the notes
to the Persons in whose name the notes are registered at the close of business on the 15th day before the relevant
payment date.
Under the terms of the Indenture, each payment in full of principal, redemption amount, additional amounts,
interest and/or any other amount payable under the Indenture in respect of any note made by or on behalf of us to
or to the order of the Trustee or principal paying agent in the manner specified in the Indenture on the date due
shall be valid and effective to satisfy and discharge our obligation to make the payment of principal, redemption
amount, additional amounts, interest and/or any other amount payable under the Indenture, provided, however,
that the liability of the Trustee or principal paying agent under the Indenture shall not exceed any amounts paid
to it by us, or held by it, on behalf of the holders under the Indenture; and provided further that, in the event that
there is a default by the Trustee or principal paying agent in payment of principal, redemption amount, additional
amounts, interest and/or any other amount payable in respect of any note in accordance with the Indenture, we
shall pay on demand such further amounts as will result in receipt by the holder of such amounts as would have
been received by it had no such default occurred.
All payments will be subject in all cases to any applicable tax or other laws and regulations, but without
prejudice to the provisions of Additional Amounts. No commissions or expenses will be charged to the
holders in respect of such payments.
Subject to applicable law, the Trustee and the paying agents will pay to us upon request any monies held by
them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, holders
entitled to such monies must look to us for payment as general creditors. After the return of such monies by the
Trustee and the paying agents to us, neither the Trustee nor the paying agents shall be liable to the holders in
respect of such monies.
Additional Amounts
All payments by us in respect of the notes will be made without withholding or deduction for or on account of
any present or future taxes, duties, assessments, or other governmental charges of whatever nature imposed or
levied by or on behalf of Bermuda, unless we are compelled by law to deduct or withhold such taxes, duties,
assessments, or governmental charges. In such event, we will make such deduction or withholding, make payment
of the amount so withheld to the appropriate governmental authority and pay such additional amounts as may be
necessary to ensure that the net amounts receivable by holders of notes after such withholding or deduction shall
equal the respective amounts of principal and interest which would have been receivable in respect of the notes in
the absence of such withholding or deduction. No such additional amounts shall be payable:
(1) to, or to a third party on behalf of, a holder who is liable for such taxes, duties, assessments or
governmental charges in respect of such note by reason of the existence of any present or former connection
between such holder (or between a fiduciary, settlor, beneficiary, member or shareholder of such holder, if
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such holder is an estate, a trust, a partnership, or a corporation) and Bermuda, including, without limitation,
such holder (or such fiduciary, settlor, beneficiary, member or shareholder) being or having been a citizen or
resident thereof or being or having been engaged in a trade or business or present therein or having, or
having had, a permanent establishment therein, other than the mere holding of the note or enforcement of
rights and the receipt of payments with respect to the note;
(2) in respect of notes surrendered (if surrender is required) more than 30 days after the Relevant Date
(as defined below) except to the extent that payments under such note would have been subject to
withholdings and the holder of such note would have been entitled to such additional amounts, on surrender
of such note for payment on the last day of such period of 30 days;
(3) where such additional amount is imposed on a payment to an individual and is required to be made
pursuant to any law implementing or complying with, or introduced in order to conform to, any European
Union Directive on the taxation of savings;
(4) to, or to a third party on behalf of, a holder who is liable for such taxes, duties, assessments or other
governmental charges by reason of such holders failure to comply with any certification, identification or
other reporting requirement concerning the nationality, residence, identity or connection with Bermuda, or a
successor jurisdiction or applicable political subdivision or authority thereof or therein having power to tax,
of such holder, if (a) compliance is required by Bermuda, such successor jurisdiction or any political
subdivision or authority thereof or therein having power to tax, as a precondition to, exemption from, or
reduction in the rate of, the tax, assessment or other governmental charge and (b) we have given the holders,
Euroclear and Clearstream at least 30 days notice that holders will be required to provide such certification,
identification or other requirement;
(5) in respect of any estate, inheritance, gift, sales, transfer, capital gains, excise or personal property or
similar tax, assessment or governmental charge;
(6) in respect of any tax, assessment or other governmental charge which is payable other than by
deduction or withholding from payments of principal of or interest on the note or by direct payment by us in
respect of claims made against us; or
(7) in respect of any combination of the above.
In addition, no additional amounts shall be paid with respect to any payment on a note to a holder that is a
fiduciary, a partnership, a limited liability company or other than the sole beneficial owner of that payment to the
extent that payment would be required by the laws of Bermuda or any political subdivision thereof to be included
in the income, for tax purposes, of a beneficiary or settler with respect to the fiduciary, a member of that
partnership, an interest holder in a limited liability company or a beneficial owner that would not have been
entitled to the additional amounts had that beneficiary, settlor, member or beneficial owner been the holder.
Relevant Date means, with respect to any payment on a note, whichever is the later of: (i) the date on
which such payment first becomes due; and (ii) if the full amount payable has not been received by the Trustee
on or prior to such due date, the date on which notice is given to the holders that the full amount has been
received by the Trustee.
The notes are subject in all cases to any tax, fiscal or other law or regulation or administrative or judicial
interpretation. Except as specifically provided above, we shall not be required to make a payment with respect to
any tax, assessment or governmental charge imposed by any government or a political subdivision or taxing
authority thereof or therein.
In the event that additional amounts actually paid with respect to the notes described above are based on rates
of deduction or withholding of withholding taxes in excess of the appropriate rate applicable to the holder of such
notes, and, as a result thereof such holder is entitled to make claim for a refund or credit of such excess from the
authority imposing such withholding tax, then such holder shall, by accepting such notes, be deemed to have
assigned and transferred all right, title, and interest to any such claim for a refund or credit of such excess to us.
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Any reference in this offering memorandum, the Indenture or the new notes to principal, interest or any
other amount payable in respect of the new notes by us will be deemed also to refer to any additional amount,
unless the context requires otherwise, that may be payable with respect to that amount under the obligations
referred to in this subsection.
The foregoing obligation will survive termination or discharge of the Indenture until payment of any
additional amounts that are due and payable under the Indenture will have been made.
Covenants
The Indenture will contain the following covenants:
Limitation on Liens
We will not create or cause or permit to be created any Lien (other than Permitted Liens) on any of our
property or assets now owned or hereafter acquired by us (including any Capital Stock owned by us), securing
any Debt unless prior thereto or contemporaneously therewith effective provision is made to secure the notes and
all other amounts due under the Indenture, equally and ratably with such Debt or other Obligation (or, in the
event that such Debt is subordinated in right of payment to the notes, prior to such Debt or other Obligation) with
a Lien on the same properties and assets securing such Debt or other Obligation for so long as such Debt or other
Obligation is secured by such Lien. The preceding sentence will not require the notes to be equally and ratably
secured if the Lien consists of the following (each, a Permitted Lien):
(1) any Lien existing on the date of the Indenture; and any extension, renewal or replacement of any
such Lien or any other Permitted Lien; provided, however, that the principal amount of any Debt secured by
any such Lien is not increased as a result thereof;
(2) any Lien on any property or assets (including Capital Stock of any Person) securing Debt Incurred
solely for purposes of financing the acquisition, construction or improvement of such property or assets after
the date of the Indenture, provided that (a) the aggregate principal amount of Debt secured by such Lien will
not exceed (but may be less than) the cost of the property or assets so acquired, leased, constructed or
improved, and (b) the Lien is Incurred before, or within 180 days after the completion of, such acquisition,
construction or improvement and does not encumber any other property or assets (plus improvements,
accessions, proceeds or dividends or distributions in respect thereof) of us or any of our Subsidiaries;
(3) any Lien existing on any property or assets of any Person before that Persons acquisition by,
merger into, amalgamation or consolidation with GP or a Subsidiary of GP after the date of the Indenture;
provided that (a) such Lien is not created in contemplation of or in connection with such acquisition,
merger, amalgamation or consolidation, (b) the Debt secured by such Lien may not exceed the Debt secured
on the date of such acquisition, merger, amalgamation or consolidation, (c) such Lien will not apply to any
other property or assets of GP or a Subsidiary of GP and (d) such Lien will secure only the Debt that it
secures on the date of such acquisition, merger, amalgamation or consolidation;
(4) Liens created for the benefit of (or to secure) the notes issued pursuant to the Indenture;
(5) any Lien created or arising by operation of law;
(6) any pledge, Guarantee or deposit made in connection with any tax, civil or labor contingency or any
administrative proceedings, any pledge, Guarantee or deposit to secure appeal bonds in proceedings being
contested in good faith to which GP or any Subsidiary of GP is a party, good faith deposits, Guarantees or
pledges in connection with bids, tenders, contracts (other than for the payment of Debt) or leases to which
GP or any Subsidiary of GP is a party or deposits for the payment of rent, in each case made in the ordinary
course of business;
(7) any Lien in favor of issuers of surety judgment, performance or similar bonds or letters of credit issued
pursuant to the request of and for the account of us or any of our Subsidiaries in the ordinary course of business;
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(8) any Lien securing taxes, assessments or other governmental charges, the payment of which are not
yet due or are being contested in good faith by appropriate proceedings and for which such reserves or other
appropriate provisions, if any, have been established as required by U.S. GAAP;
(9) minor defects, easements, rights-of-way, restrictions and other similar encumbrances Incurred in
the ordinary course of business and encumbrances consisting of zoning restrictions, licenses, restrictions on
the use of property or assets or minor imperfections in title that do not materially impair the value or use of
the property or assets affected thereby, and any leases and subleases of real property that do not interfere
with the ordinary conduct of our business, and which are made on customary and usual terms applicable to
similar properties;
(10) any rights of set-off or netting of any Person with respect to any deposit account (or similar
arrangement) arising in the ordinary course of business;
(11) any Lien securing Hedging Agreements so long as such Hedging Agreements are entered into for
bona fide, non-speculative purposes; and
(12) Liens securing Debt that does not exceed US$5 million at any one time outstanding.
Limitation on Amalgamation, Consolidation, Merger or Transfer of Assets
We will not amalgamate or consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of our assets to, any Person, unless:
(1) the continuing, resulting, surviving or transferee Person (the Successor) will be a Person
organized and existing under the laws of Bermuda, Brazil, the United States of America (including any State
thereof or the District of Columbia) or any other country that is a member country of the European Union or
of the Organization for Economic Co-operation and Development on the date of the Indenture (such
country, including any political subdivision or taxing authority thereof or therein, under the laws of which
the Successor is organized and existing, the Successor Jurisdiction), and the Successor (if not us) will
expressly assume, by a supplemental Indenture to the Indenture, executed and delivered to the Trustee, all of
our obligations under the notes and the Indenture;
(2) the Successor (if not us), if not organized and existing under the laws of Bermuda, undertakes, in
such supplemental Indenture, to pay such additional amounts in respect of principal (and premium, if any)
and interest as may be necessary in order that every net payment receivable in respect of the notes after
deduction or withholding for or on account of any present or future tax, duty, assessment or other
governmental charge imposed by the Successor Jurisdiction will not be less than the amount of principal
(and premium, if any) and interest then due and payable on the notes, subject to the same exceptions set
forth under Additional Amounts but replacing existing references in such clause to Bermuda with
references to the Successor Jurisdiction;
(3) immediately after giving effect to such transaction, no Default or Event of Default will have
occurred and be continuing; and
(4) we will have delivered to the Trustee an Officers Certificate and an opinion of independent legal
counsel, each stating that such amalgamation, consolidation, merger or transfer and such supplemental
Indenture, if any, comply with the Indenture.
The Trustee will accept such certificate and opinion as sufficient evidence of the satisfaction of the
conditions precedent set forth in this covenant, in which event it will be conclusive and binding on the holders.
The Successor will succeed to, and be substituted for, and may exercise every right and power of, us under
the Indenture, and thereafter the predecessor company shall be relieved of all obligations and covenants under the
Indenture, except that the predecessor company in the case of a lease of all or substantially all of its assets will
not be released from the obligation to pay the principal of and interest on the notes.
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Limitation on Transactions with Affiliates
Neither we nor any of our Restricted Subsidiaries will enter into any transaction (or series of related
transactions) with any Affiliates, including any Investment, either directly or indirectly, unless such transaction
or series of related transactions are on terms no less favorable to us, or such Restricted Subsidiary, as the case
may be, than those that could have been obtained in a comparable arms-length transaction with an unrelated
third party. Notwithstanding the foregoing, this covenant does not apply to (i) any loan, advance or similar
financial transaction (or series of related transactions) entered into for the purpose of performing cash
management or other financial management functions by us or any of our Subsidiaries with us or any of our other
Subsidiaries (ii) transactions between or among GP and its Subsidiaries, (iii) any dividends or other distributions
in respect of the Capital Stock or equity interests of GP or any of its Subsidiaries, (iv) reasonable fees, benefits
and compensation paid or provided to, and indemnity provided on behalf of, officers, directors, employees or
consultants of GP or any of its Subsidiaries in the ordinary course of business, (v) loans and advances to officers,
directors and employees of GP or any Subsidiary thereof made in the ordinary course of business in an amount
not to exceed $2 million per officer, director or employee and in aggregate amount not to exceed $10 million
outstanding at any one time, (vi) transactions pursuant to any contract or agreement in effect on the date of the
Indenture as the same may be amended, modified or replaced from time to time so long as any such amendment,
modification or replacement, taken as a whole, is no less favorable in any material respect to GP or such
Subsidiary than the contract or agreement as in effect on such date, (vii) transactions with a Person that is an
Affiliate of GP solely because GP owns, directly or through a Subsidiary of GP, an equity interest in, or controls,
such Person, and (viii) the issuance or sale of Capital Stock of GP (or any security convertible into or
exchangeable for or otherwise representing the right to acquire any such Capital Stock).
Reporting Requirements
We will provide the Trustee with the following reports (and will also provide the Trustee with sufficient
copies, as required, of the following reports referred to in clauses (1) through (4) below for distribution, upon
their written request to the Trustee and at our expense, to all holders of notes):
(1) an English language version of our annual audited consolidated financial statements prepared in
accordance with U.S. GAAP promptly upon such financial statements becoming available but not later than
120 days after the close of our fiscal year;
(2) an English language version of our unaudited consolidated quarterly financial statements prepared in
accordance with U.S. GAAP promptly upon such consolidated financial statements becoming available but not
later than 75 days after the close of each fiscal quarter (other than the last fiscal quarter of our fiscal year);
(3) simultaneously with the delivery of each set of financial statements referred to in clauses (1) and
(2) above, an Officers Certificate stating whether a Default or Event of Default exists on the date of such
certificate and, if a Default or Event of Default exists, setting forth the details thereof and the action which
we are taking or propose to take with respect thereto;
(4) without duplication, English language versions or summaries of such other reports or notices as
may be filed or submitted by (and promptly after filing or submission by) us with the Irish Stock Exchange
or any other stock exchange on which the notes may be listed (in each case, to the extent that any such
report or notice is generally available to its security holders or the public in Brazil); and
(5) as soon as practicable and in any event within 30 calendar days after any of our executive officers
becomes aware of the existence of a Default or Event of Default, an Officers Certificate setting forth the
details thereof and the action which we are taking or propose to take with respect thereto.
Delivery of the above reports to the Trustee is for informational purposes only and the Trustees receipt of
such reports will not constitute constructive notice of any information contained therein or determinable from
information contained therein, including our compliance with any of our covenants in the Indenture (as to which
the Trustee is entitled to rely exclusively on Officers Certificates).
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Change of Control
Upon the occurrence of a Change of Control, each holder of notes will have the right to require us to
purchase all or a portion (in integral multiples of $1,000) of the holders notes at a purchase price (the Change
of Control Payment) equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon
through the date of purchase (subject to the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date).
Within 30 days following the date upon which the Change of Control occurred, we must send, by first-class
mail, a notice to each holder of notes, with a copy to the Trustee, offering to purchase the notes as described
above (a Change of Control Offer). The Change of Control Offer will state, among other things, the purchase
date, which must be no earlier than 30 days nor later than 60 days from the date the notice is mailed, other than
as may be required by law (the Change of Control Payment Date).
One day prior to the Change of Control Payment Date, we will, to the extent lawful, deposit with the
principal paying agent funds in an amount equal to the Change of Control Payment in respect of all notes or
portions thereof so tendered.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered and not withdrawn pursuant to
the Change of Control Offer; and
(2) deliver or cause to be delivered to the Registrar the notes so accepted together with an Officers
Certificate stating the aggregate principal amount of notes or portions thereof being purchased by us.
If only a portion of a note is purchased pursuant to a Change of Control Offer, a new note in a principal
amount equal to the portion thereof not purchased will be issued in the name of the holder thereof upon
cancellation of the original note (or appropriate adjustments to the amount and beneficial interests in a global
note will be made, as appropriate). Notes (or portions thereof) purchased pursuant to a Change of Control Offer
will be delivered or caused to be delivered by us to the Registrar for cancellation and cannot be reissued.
Our other Debt may contain prohibitions on the occurrence of events that would constitute a Change of
Control or require that Debt to be repurchased upon a Change of Control. Moreover, the exercise by holders of
their right to require us to repurchase the notes upon a Change of Control could cause a default under other Debt
even if the Change of Control itself does not.
If a Change of Control Offer occurs, there can be no assurance that we will have available funds sufficient
to make the Change of Control Payment for all the notes that might be delivered by holders seeking to accept the
Change of Control Offer. In the event we are required to purchase outstanding notes pursuant to a Change of
Control Offer, we expect that we would seek third-party financing to the extent we do not have available funds to
meet our purchase obligations and any other obligations in respect of Debt. However, there can be no assurance
that we would be able to obtain necessary financing. See Risk FactorsRisk Factors Relating to the NotesWe
may not have sufficient funds to meet our obligations under the indenture to repurchase the notes upon a change
of control.
This Change of Control repurchase provision is a result of negotiations between us and the initial
purchasers. We have no present intention to engage in a transaction involving a Change of Control, although it is
possible that we could decide to do so in the future.
We could, in the future, enter into certain transactions, including a takeover, recapitalization, leveraged
buyout or similar transaction that would not constitute a Change of Control under the Indenture, but that could
increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit
rating.
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We will comply with the requirements of Section 14(e) of the Exchange Act and any other applicable
securities laws and regulations in connection with a Change of Control Offer. To the extent that the provisions of
any securities laws or regulations conflict with the Change of Control provisions of the Indenture, we will
comply with the applicable securities laws and regulations and will not be deemed to have breached our
obligations under the Indenture by doing so.
For so long as the notes are admitted to trading on the Official List of the Irish Stock Exchange and the
guidelines of such exchange so require, we will give notice with respect to the results of the Change of Control
Offer to the Companies Announcement Office in Dublin.
Events of Default
The following are Events of Default:
(1) Default in the payment of interest (including any related additional amounts) on any note when the
same becomes due and payable, and such default continues for a period of 30 days;
(2) Default in the payment of the principal (including any related additional amounts) of any note when
the same becomes due and payable upon acceleration or redemption or otherwise or failure to maintain the
Debt Service Reserve Account Fully Funded in accordance with the provisions of the Indenture;
(3) Failure to perform or comply with any covenants or agreements in the notes, the Indenture or the
Pledge Agreement (the latter having been terminated following the occurrence, on April 27, 2007, of the
pledge release condition) (other than those referred to in (1) and (2) above), and such failure continues for
60 days after the notice specified below;
(4) Default by us or any of our Restricted Subsidiaries under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced any Debt for money
borrowed by us or any of our Restricted Subsidiaries (or the payment of which is Guaranteed by us or any of
our Restricted Subsidiaries) whether such Debt or Guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by failure to pay the principal of or premium, if any, or interest on
such Debt after giving effect to any grace period provided in such Debt on the date of such default
(Payment Default) or (b) results in the acceleration of such Debt prior to its express maturity and, in each
case, the principal amount of any such Debt, together with the principal amount of any other such Debt
under which there has been a Payment Default or the maturity of which has been so accelerated, totals
U.S.$2.5 million (or its equivalent in any other currency or currencies at the time of determination) or more
in the aggregate;
(5) a final, non-appealable, judgment or order for the payment of any amount equal to, or in excess of,
U.S.$2.5 million (or its equivalent in any other currency or currencies at the time of determination) is
rendered against us or any of our Restricted Subsidiaries and continues unsatisfied or unstayed for a period
of 60 days after the date thereof or, if later, the date therein specified for payment;
(6) an involuntary case or other proceeding is commenced against us or any of our Significant
Subsidiaries with respect to our or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect seeking the appointment of a trustee, receiver, sndico, liquidator, custodian or other
similar official of us or it or any substantial part of our or its property, and such involuntary case or other
proceeding remains undismissed and unstayed for a period of 60 days; or an order for relief is entered
against us or any of our Significant Subsidiaries under the bankruptcy laws as now or hereafter in effect and
such order is not being contested by us or any of our Significant Subsidiaries, as the case may be, in good
faith or has not been dismissed, discharged or otherwise stayed, in each case within 60 days of being made;
(7) we or any of our Significant Subsidiaries (i) commences a voluntary case or other proceeding
seeking liquidation, reorganization, concordata, recuperao judicial/extra-judicial or other relief with
respect to itself or its debts under any applicable bankruptcy, insolvency or other similar law now or
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hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law,
(ii) consents to the appointment of or taking possession by a receiver, sndico, liquidator, assignee,
custodian, trustee, sequestrator or similar official of us or any of our Significant Subsidiaries for all or
substantially all of the property of us or any of our Significant Subsidiaries or (iii) effects any general
assignment for the benefit of creditors; or
(8) any event occurs that under the laws of Bermuda, the United States of America or any other
applicable jurisdiction or any political subdivision thereof has substantially the same effect as any of the
events referred to in any of clause (6) or (7) above.
A Default under clause (3) above will not constitute an Event of Default until the Trustee or the holders of at
least 25% in principal amount of the notes outstanding notify us of the Default and we do not cure such Default
within the time specified after receipt of such notice.
The Trustee is not to be charged with knowledge of any Default or Event of Default or knowledge of any
cure of any Default or Event of Default unless either (i) an authorized officer of the Trustee with direct
responsibility for the Indenture has actual knowledge of such Default or Event of Default or (ii) written notice of
such Default or Event of Default has been given to the Trustee by us or any holder.
If an Event of Default (other than an Event of Default specified in clause (6), (7) or (8) above) occurs and is
continuing, the Trustee or the holders of not less than 25% in principal amount of the notes then outstanding may
declare all unpaid principal of and accrued interest on all notes to be due and payable immediately, by a notice in
writing to us, and upon any such declaration such amounts will become due and payable immediately. If an
Event of Default specified in clause (6), (7) or (8) above occurs and is continuing, then the principal of and
accrued interest on all notes will become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any holder.
Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default
will occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under
the Indenture at the request or direction of any of the holders, unless such holders will have offered to the Trustee
indemnity satisfactory to the Trustee. Subject to such provision for the indemnification of the Trustee, the holders
of a majority in aggregate principal amount of the outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee.
Defeasance
We may at any time terminate all of our obligations with respect to the notes and the Indenture
(defeasance), except for certain obligations, including those regarding any trust established for a defeasance
and obligations to register the transfer or exchange of the notes, to replace mutilated, destroyed, lost or stolen
notes and to maintain agencies in respect of notes. We may at any time terminate our obligations under the
covenants described under CovenantsLimitation on Liens and CovenantsReporting Requirements. In
order to exercise either defeasance or covenant defeasance, we must irrevocably deposit in trust, for the benefit
of the holders of the notes, with the Trustee, money or U.S. government obligations, or a combination thereof, in
such amounts as will be sufficient, in the opinion of an internationally recognized firm of independent public
accountants expressed in a written certificate delivered to the Trustee, without consideration of any reinvestment,
to pay the principal of, and interest on the notes to any redemption date or maturity and comply with certain other
conditions, including the delivery of an Opinion of Counsel as to certain tax matters.
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Amendment, Supplement, Waiver
Subject to the exceptions described below, the Indenture may be amended or supplemented with the consent
of the holders of at least a majority in aggregate principal amount of the notes then outstanding, and any past
Default or compliance with any provision may be waived with the consent of the holders of at least a majority in
principal amount of the notes then outstanding. However, without the consent of each holder of an outstanding
note affected thereby, no amendment may:
(1) reduce the rate of or extend the time for payment of interest on any note;
(2) reduce the principal of any note;
(3) reduce the amount payable upon redemption of any note or change the time at which any note may
be redeemed;
(4) change the currency for payment of principal of, or interest on, any note;
(5) impair the right to institute suit for the enforcement of any payment on or with respect to any note;
(6) waive a default in the payment of principal or interest on the notes;
(7) reduce the principal amount of notes whose holders must consent to any amendment or waiver;
(8) make any change in the amendment or waiver provisions which require each holders consent;
(9) modify or change any provision of the Indenture affecting the ranking of the notes in a manner
adverse to the holders of the notes.
The holders of the notes will receive prior notice as described under Notices of any proposed
amendment to the notes or the Indenture described in this paragraph. After an amendment described in the
preceding paragraph becomes effective, we are required to mail to the holders a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the notes, or any defect therein, will not
impair or affect the validity of the amendment.
The consent of the holders of the notes is not necessary to approve the particular form of any proposed
amendment. It is sufficient if such consent approves the substance of the proposed amendment.
We and the Trustee may, without the consent or vote of any holder of the notes, amend or supplement the
Indenture or the notes for the following purposes:
(1) cure any ambiguity, omission, defect or inconsistency or make any other change to the Indenture or
the notes; provided that such amendment or supplement does not materially and adversely affect the rights
of any holder;
(2) comply with the covenant described under Limitation on Amalgamation, Consolidation, Merger
or Transfer of Assets;
(3) provide additional collateral with respect to the notes;
(4) add to our covenants for the benefit of holders of the notes;
(5) surrender any right conferred upon us;
(6) evidence and provide for the acceptance of an appointment by a successor Trustee;
(7) provide for the issuance of additional notes;
(8) provide for any Guarantee of the notes, to secure the notes or to confirm and evidence the release,
termination or discharge of any Guarantee of or Lien securing the notes when such release, termination or
discharge is permitted by the Indenture; or
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(9) make any other change that does not materially and adversely affect the rights of any holder of the
notes or to conform the Indenture to this Description of New Notes; provided that, in the case of clause
(1) or (2) above, we have delivered to the Trustee an Opinion of Counsel and an Officers Certificate, each
stating that such amendment or supplement complies with the provision in the Indenture entitled
Without Consent of Holders.
We will, for so long as the notes are admitted to trading on the Official List of the Irish Stock Exchange, to
the extent required by the guidelines of the Irish Stock Exchange, (i) inform the Irish Stock Exchange of any of
the foregoing amendments, supplements and waivers and provide, if necessary, a supplement to this offering
memorandum setting forth reasonable details in connection with any such amendments, supplements or waivers
and (ii) deliver notice of any amendment, supplement and waiver to the Companies Announcement Office in
Dublin.
Notices
For so long as notes in global form are outstanding, notices to be given to holders will be delivered via the
common depositary, in accordance with its applicable policies as in effect from time to time. If notes are issued
in certificated form, notices to be given to holders will be deemed to have been given upon the mailing by first
class mail, postage prepaid, of such notices to holders of the notes at their registered addresses as they appear in
the records of the registrar. For so long as the notes are listed on the Irish Stock Exchange and it is required by
the guidelines of such exchange, publication of such notice to the holders of the notes in English in a leading
newspaper having general circulation in Ireland.
Validity of Claims
Claims filed in the courts of Bermuda for payment in respect of the notes will be subject to the applicable
statute of limitations for such claims, which is currently six years. Claims filed in the courts of the State of
New York will be subject to the applicable statute of limitations for such claims, which currently is six years.
Trustee
HSBC Bank USA, National Association is the Trustee under the Indenture.
The Indenture contains provisions for the indemnification of the Trustee and for its relief from
responsibility. The obligations of the Trustee to any holder are subject to such immunities and rights as are set
forth in the Indenture.
Except during the continuance of an Event of Default, the Trustee needs to perform only those duties that
are specifically set forth in the Indenture and no others, and no implied covenants or obligations will be read into
the Indenture against the Trustee. In case an Event of Default has occurred and is continuing, the Trustee shall
exercise those rights and powers vested in it by the Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No
provision of the Indenture will require the Trustee to expend or risk its own funds or otherwise Incur any
financial liability in the performance of its duties thereunder, or in the exercise of its rights or powers, unless it
receives indemnity satisfactory to it against any loss, liability or expense.
We and our Affiliates may from time to time enter into normal banking and trustee relationships with the
Trustee and its Affiliates.
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Governing Law and Submission to Jurisdiction
The notes and the Indenture will be governed by the laws of the State of New York. Each of the parties to
the Indenture will submit to the jurisdiction of the U.S. federal and New York State courts located in the Borough
of Manhattan, City and State of New York for purposes of legal actions and proceedings instituted in connection
with the notes and the Indenture. We have appointed Corporation Service Company, as our authorized agent
upon which process may be served in any such action.
Currency Indemnity
U.S. dollars are the sole currency of account and payment for all sums payable by us under or in connection
with the notes, including damages. Any amount received or recovered in a currency other than dollars (whether
as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or
dissolution of us or otherwise) by any holder of a note in respect of any sum expressed to be due to it from us
will only constitute a discharge to us to the extent of the dollar amount which the recipient is able to purchase
with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is
not practicable to make that purchase on that date, on the first date on which it is practicable to do so). If that
dollar amount is less than the dollar amount expressed to be due to the recipient under any note, we will
indemnify such holder against any loss sustained by it as a result; and if the amount of United States dollars so
purchased is greater than the sum originally due to such holder, such holder will, by accepting a note, be deemed
to have agreed to repay such excess. In any event, we will indemnify the recipient against the cost of making any
such purchase.
For the purposes of the preceding paragraph, it will be sufficient for the holder of a note to certify in a
satisfactory manner (indicating the sources of information used) that it would have suffered a loss had an actual
purchase of dollars been made with the amount so received in that other currency on the date of receipt or
recovery (or, if a purchase of dollars on such date had not been practicable, on the first date on which it would
have been practicable, it being required that the need for a change of date be certified in the manner mentioned
above). These indemnities constitute a separate and independent obligation from the other obligations of us, will
give rise to a separate and independent cause of action, will apply irrespective of any indulgence granted by any
holder of a note and will continue in full force and effect despite any other judgment, order, claim or proof for a
liquidated amount in respect of any sum due under any note.
Certain Definitions
The following is a summary of certain defined terms used in the Indenture. Reference is made to the
Indenture for the full definition of all such terms as well as other capitalized terms used herein for which no
definition is provided.
Affiliate means, with respect to any specified Person, (a) any other Person which, directly or indirectly, is
in control of, is controlled by or is under common control with such specified Person or (b) any other Person who
is a director or officer (i) of such specified Person, (ii) of any Subsidiary of such specified Person or (iii) of any
Person described in clause (a) above. For purposes of this definition, control of a Person means the power, direct
or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or
otherwise and the terms controlling and controlled have meanings correlative to the foregoing.
BOVESPA means the So Paulo Stock Exchange (Bolsa de Valores de So Paulo).
Brazil means the Federative Republic of Brazil.
Capital Lease Obligation means, with respect to any Person, any obligation which is required to be
classified and accounted for as a capital lease on the face of a balance sheet of such Person prepared in
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accordance with U.S. GAAP; the amount of such obligation will be the capitalized amount thereof, determined in
accordance with U.S. GAAP; and the stated maturity thereof will be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
Capital Stock means, with respect to any Person, any and all shares, interests, rights to purchase, warrants,
options, participations or other equivalents of or interests in (however designated, whether voting or non-voting),
such Persons equity including any Preferred Stock, but excluding any debt securities convertible into or
exchangeable for such equity.
Cash Equivalents means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the United States government or any
agency or instrumentality of the United States government (provided that the full faith and credit of the
United States is pledged in support of those securities) having maturities not more than one year from the
date of acquisition;
(3) certificates of deposit, demand and time deposits, eurodollar time deposits, overnight bank deposits
or bankers acceptances having maturities not more than one year from the date of acquisition, in each case,
with the Trustee or any commercial bank having capital and surplus in excess of US$50.0 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated A (or such similar equivalent
rating) or higher by at least one nationally recognized ratings organization;
(4) repurchase obligations with a term of not more than ten days for underlying securities of the types
described in clauses (2) and (3) above and clause (6) below entered into with any financial institution
meeting the qualifications specified in clause (3) above;
(5) commercial paper, at the time of acquisition, having one of the two highest ratings obtainable from
Moodys or Standard & Poors in each case having maturities not more than one year from the date of
acquisition;
(6) marketable general obligations issued by any State of the United States of America or any political
subdivision of any such State or any public instrumentality thereof and, at the time of acquisition, having
one of the two highest ratings obtainable from Moodys or Standard & Poors and in each case maturing
within one year after the date of acquisition; and
(7) interests in any investment company or money market fund at least 95% of the assets of which
constitute instruments of the kinds described in clauses (1) through (6) above.
Change of Control means the occurrence of one or more of the following events:
(1) Partners Holding Inc. (or any successor thereof) ceases for any reason to beneficially own Voting
Stock of GP representing at least a majority of the total voting power of the Voting Stock of GP; or
(2) the approval by the holders of Capital Stock of GP of any plan or proposal for the liquidation or
dissolution of GP, whether or not otherwise in compliance with the provisions of the Indenture, other than a
liquidation or dissolution in connection with a transaction or series of transactions permitted by the covenant
described under Limitation on Amalgamation, Consolidation, Merger or Transfer of Assets.
For purposes of this definition, (a) beneficial owner will have the meaning specified in Rules 13d-3 and
13d-5 under the Exchange Act, except that any Person or Group will be deemed to have beneficial ownership
of all securities that such Person or Group has the right to acquire, whether such right is exercisable immediately,
only after the passage of time or upon the occurrence of a subsequent condition; and (b) Person and Group,
shall have the meanings for Person and Group as used in Sections 13(d) and 14(d) of the Exchange Act.
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Debt means (without double-counting), with respect to any Person, whether recourse is to all or a portion
of the assets of any Person and whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments
representing financial indebtedness, including obligations of such nature Incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers acceptances or similar facilities issued for the account of such Person, (iv) every
obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of business) as a means of primarily
obtaining finance, (v) every Capital Lease Obligation of such Person, (vi) every obligation under interest rate
swap or similar agreements or foreign currency hedge, exchange or similar agreements of such Person (the
amount of any such obligation to be calculated at its marked to market value at the relevant time of calculation),
and (vii) every Guarantee or indemnity to pay the obligations referred to in (i) to (vi) (inclusive) above of such
Person; provided that the following shall not be considered to be Debt:
(a) Intercompany Debt; or
(b) any obligation under interest rate swap or similar arrangements or foreign currency hedge,
exchange or similar arrangements in the ordinary course of business and not for speculation that are
designed to protect any Member of the GP Consolidated Group against fluctuations in interest rates or
currency exchange rates with respect to the underlying obligations or assets being hedged and which shall
have a notional amount no greater than the payments due with respect to such underlying obligations or
assets.
Default means any event which is, or after notice or passage of time or both would be, an Event of
Default.
Duff & Phelps means Duff & Phelps Credit Rating Co.
Fund means any Person, fund or collective pool engaged in the business of investing, reinvesting, owning,
holding or trading in securities or properties, or the investment or reinvestment of moneys.
GP means GP Investments, Ltd., a company continued under the laws of Bermuda.
GP Consolidated Group means GP and its Subsidiaries, as per consolidation accounting rules, as
determined by our most recently available quarterly, semi-annual or annual audited, or with limited auditing
review, as the case may be, consolidated financial statements, determined in accordance with U.S. GAAP, and
Member of the GP Consolidated Group means any one of the GP Consolidated Group.
Guarantee means any obligation, contingent or otherwise, of any Person directly or indirectly
guaranteeing any Debt of any other Person:
(1) to purchase or pay, or advance or supply funds for the purchase or payment of, such Debt of such
other Person, whether arising by virtue of partnership agreements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or
otherwise, or
(2) entered into for purposes of assuring in any other manner the obligee of such Debt of the payment
thereof or to protect such obligee against loss in respect thereof, in whole or in part; provided, that
Guarantee will not include endorsements for collection or deposit in the ordinary course of business.
Guarantee used as a verb has a corresponding meaning.
Hedging Agreements means (a) any interest rate swap agreement, interest rate cap agreement or other
agreement designed to protect against fluctuations in interest rates, (b) any foreign exchange forward contract,
currency swap agreement or other agreement designed to protect against fluctuations in foreign exchange rates or
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(c) any commodity or raw material futures contract or any other agreement designed to protect against
fluctuations in raw material prices.
holder means the Person in whose name a note is registered in the register of notes.
Incur means, with respect to any Debt or other obligation of any Person, to create, issue, Incur (including
by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Debt or
other obligation on the balance sheet of such Person (and Incurrence, Incurred and Incurring will have
meanings correlative to the preceding).
Intercompany Debt means any obligation owed by one Member of the GP Consolidated Group to another
Member of the GP Consolidated Group.
Investment means, with respect to any Person, any loan or advance to, any acquisition of Capital Stock,
equity interest, obligation or other security of, or capital contribution or other investment in, such Person.
Lien means any mortgage, charge, pledge, security interest, conditional sale or other title retention
agreement or other similar lien.
Market Capitalization means, as of any date of determination, an amount in U.S. Dollars (using, if
necessary, the official U.S. Dollar/Brazilan reais exchange rate published by the Central Bank of Brazil
(PTAX 800) or, if such rate is no longer published or is not available, a published rate selected by GP that is
generally used in the international financial community to determine the U.S. Dollar/Brazilian reais exchange
rate) equal to (i) (x) the sum of the daily closing prices for GPs shares on the Principal Exchange Market for
such securities during the 30 Trading Days ending on the Trading Day immediately preceding such date of
determination, divided by (y) 30, multiplied by (ii) the average number of issued and outstanding shares of GP
(including shares underlying any Brazilian depositary receipts then outstanding) during such 30-Trading Day
period. For purposes of the Indenture, the initial Principal Exchange Market for GPs shares will be the
BOVESPA.
Moodys means Moodys Investors Service, Inc.
Obligations means, with respect to any Debt, any principal, interest, penalties, fees, indemnifications,
reimbursements, damages, and other liabilities payable under the documentation governing such Debt, including
in the case of the notes the Indenture.
Officer means, when used in connection with any action to be taken by us, our Chairman, Chief Executive
Officer, Chief Financial Officer, Treasurer, Controller, Secretary or any of our Vice Presidents, or any other
individual appointed as an officer by our board of directors.
Officers Certificate means, when used in connection with any action to be taken by us, a certificate
signed by two of our Officers and delivered to the Trustee.
Opinion of Counsel means a written opinion of legal counsel of recognized standing (who may be an
employee of or counsel for us), and who shall be reasonably acceptable to the Trustee or the Collateral Agent,
which opinion is reasonably acceptable to the Trustee or the Collateral Agent.
Person means an individual, partnership, limited partnership, corporation, company, limited liability
company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision
thereof.
Preferred Stock of any Person means any Capital Stock of such Person that has preferential rights over
any other Capital Stock of such Person with respect to dividends, distributions or redemptions or upon
liquidation.
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Principal Exchange Market means, in respect of any security at any time, the securities exchange on
which more than 50% of worldwide trading volume in such security took place during the immediately preceding
calendar year, or if more than 50% of such worldwide trading volume did not take place on one securities
exchange, the securities exchange on which the highest trading volume in such security took place during the
immediately preceding calendar year.
Qualified Investment means a qualifying or de minimis Investment in, or an Investment required to be
made pursuant to any applicable laws, rules or regulations in amounts which, in the aggregate, are not material to
GP and its Subsidiaries taken as a whole in, any Person which is the general partner or managing member of, or
holds similar management, advisers or consultants interest in, another Person or Fund.
Restricted Subsidiary means any Subsidiary of GP, other than (i) GP Capital Partners III, L.P. and any
other Fund sponsored, advised or managed directly or indirectly by GP, and any Subsidiary of any such fund,
(ii) GP Holdings Inc. and any Subsidiary thereof, (iii) GP Asset Management, Inc. and any Subsidiary thereof,
(iv) any Subsidiary of GP Private Equity Ltd., and (v) GP Cash Management Ltd. or any other Subsidiary
primarily engaged in providing cash management services to GP and its Subsidiaries.
Significant Subsidiary means any Subsidiary of GP that would be a Significant Subsidiary of GP within
the meaning of Rule 1-02 under Regulation S-X promulgated by the U.S. Securities and Exchange Commission.
Standard & Poors means Standard & Poors Ratings Services.
Subsidiary of any Person means any other Person whose affairs and policies the first Person controls or
has the power to control directly or indirectly (whether by ownership of share capital, contract, the power to
appoint or remove members of the governing body of that second Person or otherwise).
Successor has the meaning set forth under CovenantsLimitation on Amalgamation, Consolidation,
Merger or Transfer of Assets.
Trading Day means any day on which the Principal Exchange Market is open for business and trading in
securities on such Principal Exchange Market is permitted.
Trustee means HSBC Bank USA, National Association until a successor replaces it and, thereafter, means
the successor.
U.S. GAAP means, at any given time, the accounting principles generally accepted by the accounting
profession in the United States at such time.
Voting Stock with respect to any Person, means securities of the class of capital stock of such Person
entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of a majority of the members of the board of directors (or
equivalent governing body) of such Person.
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SETTLEMENT AND CLEARANCE
The new notes will be issued in the form of one or more global notes in fully registered form, without
interest coupons, registered in the name of a common nominee for, and deposited with a common depositary (the
Common Depositary) for, Euroclear and Clearstream, Luxembourg (each, a Global Note). The new notes
will not be issued in bearer form. Euroclear and Clearstream, Luxembourg will record interests in the Global
Notes on behalf of their respective account holders. The new notes will be issued only in denominations of
US$100,000 and integral multiples of US$1,000 in excess thereof.
Payments of the principal of, and interest on, the Global Notes registered in the name of the common
nominee for Euroclear and Clearstream, Luxembourg will be made to or to the order of the principal paying
agent. We expect that the principal paying agent, upon receipt of any such payment and under instruction from
the Common Depositary, will immediately credit Euroclear or Clearstream, Luxembourg, as the case may be,
with payments in amounts proportionate to their respective interests in the principal amount of each Global Note
as shown on the records of Euroclear or Clearstream, Luxembourg, as the case may be, and that Euroclear or
Clearstream, Luxembourg, as the case may be, will further immediately credit such payments to the relevant
accounts of their participants. We also expect that payments by Euroclear or Clearstream, Luxembourg
participants, as the case may be, to owners of beneficial interests in the Global Notes held through such Euroclear
or Clearstream, Luxembourg participants will be governed by standing instructions and customary practices, as is
now the case with securities held for the accounts of customers registered in the names of nominees for such
customers. These payments will be the responsibility of such Euroclear or Clearstream, Luxembourg participants,
as the case may be. None of us, the Trustee or any paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of ownership interests in the Global Notes or for
maintaining, supervising or reviewing any records relating to such ownership interests.
So long as the Common Depositary or a common nominee for Euroclear and Clearstream, Luxembourg is
the registered owner or holder of a Global Note, the Common Depositary or such common nominee or any
successor depositary or common nominee, as the case may be, will be considered the sole owner or holder of
such Global Note. Except as set forth below, owners of beneficial interests in the Global Notes will not be
entitled to have new notes represented by the Global Notes registered in their names, will not receive and will not
be entitled to receive physical delivery of definitive new notes and will not be considered to be the owners or
holders of new notes for purposes of the new notes or the indenture. Accordingly, each person owning a
beneficial interest in a Global Note must rely on the procedures of Euroclear or Clearstream, Luxembourg and if
such person is not a direct participant in the relevant clearing system, on the procedures of the participant through
which such beneficial owner holds its interest, to exercise any rights of a noteholder under the new notes or the
indenture.
Registration of title to new notes in a name other than a depositary or a common nominee for Euroclear or
Clearstream, Luxembourg will not be permitted unless:
(i) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days
(other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease
business or does in fact do so;
(ii) the Trustee has instituted or has been directed to institute any judicial proceeding in a court to
enforce the rights of the noteholders under the new notes and the Trustee has been advised by counsel that in
connection with such proceeding it is necessary or appropriate for the Trustee to obtain possession of the
new notes; or
(iii) we, at our option, elect to terminate the book-entry system through the Common Depositary with
respect to a Global Note and cause issuance of such new notes.
In such circumstances, we will cause sufficient individual definitive new notes to be executed and delivered
to the registrar for completion, authentication and dispatch to the relevant noteholder(s).
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A person having an interest in a Global Note must provide the registrar with a written order containing
instructions and such other information as we and the registrar may require to complete, execute and deliver such
individual definitive new notes.
Transfers between participants in Euroclear and Clearstream, Luxembourg will be effected in the ordinary
way in accordance with their respective rules and operating procedures. The laws of some jurisdictions require
that certain persons take physical delivery of certificates evidencing securities they own. Consequently, the
ability to transfer beneficial interests in a global note to such persons will be limited to that extent.
Transfers of beneficial interests within a Global Note may be made without delivery of any written
certification or other documentation from the transferor or transferee.
If a new note becomes mutilated, destroyed, lost or stolen, we may issue, and the Trustee will authenticate
and deliver, a substitute new note in replacement. In each case, the affected noteholder will be required to furnish
to us, the Trustee and certain other specified parties an indemnity under which it will agree to pay us, the Trustee
and certain other specified parties for any losses they may suffer relating to the new note that was mutilated,
destroyed, lost or stolen. We and the Trustee may also require that the affected noteholder present other
documents or proof of interest in the new note. The affected noteholder will be required to pay all expenses and
reasonable charges associated with the replacement of the mutilated, destroyed, lost or stolen new note.
We will not charge noteholders for the costs and expenses associated with the exchange, transfer or
registration of transfer of the new notes. We may, however, charge noteholders for any related tax or other
governmental charges. We may reject any request for an exchange or registration of transfer of any new note
(i) made within 15 calendar days of the mailing of a notice of redemption of new notes or (ii) made between any
regular record date and the next interest payment date.
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DESCRIPTION OF SHARE CAPITAL
The following description of our share capital summarizes certain provisions of our memorandum of
continuance and our bye-laws. Such summaries do not purport to be a complete overview of our memorandum of
continuance and bye-laws or all applicable provisions of Bermuda law and are subject to, and are qualified in
their entirety by reference to, all of the provisions of our memorandum of continuance and bye-laws, copies of
which are available upon request. This summary should not be considered as legal advice regarding these
matters. Prospective investors are urged to carefully review our memorandum of continuance and bye-laws in
their entirety.
General
Our authorized share capital consists of (a) 40,019,319 Class A shares, par value $0.01 per share, of which
22,180,208 Class A shares are issued and outstanding, and (b) 7,534,900 Class B shares, par value $0.005 per
share, all of which are issued and outstanding.
Pursuant to our memorandum of continuance and applicable law, we have an indefinite duration.
Class A and Class B Shares
Voting
Each Class B share will entitle its holder to one vote per share on all matters submitted to a vote of holders
of Class B shares. Unless a different majority is required by law or by our bye-laws, resolutions to be approved
by holders of Class B shares require approval by a simple majority of votes cast at a meeting at which a quorum
is present.
Holders of our Class A shares shall also be entitled to one vote per share on all of the following matters, and
the following actions may not be taken and the following transactions may not be consummated by us without
the affirmative vote of a majority of the votes cast by the holders of the Class A shares voting at a general
meeting as a single class: (a) the entering into, amending, terminating or waiving of any right with respect to any
contract or agreement with a controlling shareholder (which means Partners Holdings and any person holding
voting interests in Partners Holdings) either directly or through an affiliate of a controlling shareholder, except
for any agreements existing prior to this offering and any stock option agreements, employment agreements or
non-competition agreements with any of our officers or directors that have been approved by the nomination and
compensation committee or by the board of directors; (b) the rescission, alteration or amendment of bye-laws
4.2, 12.8, 16, 37, 39, 40, 74 or 76 of our bye-laws or the creation of any new bye-laws which may affect, alter or
change the rights of our Class A shareholders; or (c) an acquisition of us by another person by means of an
amalgamation, except for an amalgamation in respect of which, pursuant to the Companies Act, no vote of our
shareholders is required. Holders of Class A shares do not have the right to vote in the event of a sale of all or
substantially all of our assets.
Except as otherwise required by our bye-laws or the Companies Act, holders of our Class A shares shall not
be entitled to attend and vote at any general meeting of shareholders, except that holders of Class A shares shall
be entitled to one vote per share and, subject to the following sentence, shall vote together with the holders of the
Class B Shares as a single class at any general meeting called for the purpose of electing our independent
directors. If at any general meeting called for the purpose of electing our independent directors there are two or
more individuals present in person at the start of the meeting and representing in person or by proxy at least 30%
of the total issued Class A shares, the holders of the Class B shares shall not vote for the election of any
independent directors and the independent directors shall instead only be elected by the affirmative vote of a
majority of the votes cast by the holders of the Class A shares voting as a single class at any such general
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meeting. Subject to the terms of the deposit agreement entered into in connection with the IPO, a holder of BDSs
will have the right to direct the depositary to vote the Class A shares represented by the BDSs held by such
holder.
Unless a different majority is required by law or by our bye-laws, resolutions to be approved by holders of
Class A shares require approval by a simple majority of votes cast at a meeting at which a quorum is present.
In the event of our winding-up or dissolution, whether voluntary or involuntary or for the purpose of a
reorganization or otherwise or upon any distribution of capital, the holders of our Class A shares are entitled to
the surplus assets of GP Investments pari passu with the holders of our Class B shares.
Dividends
Under Bermuda law, a companys board of directors may declare and pay dividends from time to time
unless there are reasonable grounds for believing that the company is, or would after the payment be, unable to
pay its liabilities as they become due or that the realizable value of its assets would thereby be less than the
aggregate of its liabilities and issued share capital and share premium accounts. Our bye-laws require us to
distribute on an annual basis at least 25% of our annual consolidated net income, as calculated under U.S. GAAP
to holders of Class A shares and Class B shares in proportion to the number of shares held by them unless our
board of directors has determined in its sole discretion that such distribution would be incompatible with our
financial condition or we are unable to meet requirements under Bermuda law. If a shareholder does not claim a
dividend within two years from the relevant payment date for such dividend, then the funds corresponding to
such shareholders shares deposited with the paying agent for payment of dividends shall be returned to us
pursuant to the Paying Agency Agreement dated as of May 30, 2006 (as amended by a notice of resignation of
April 23, 2007) by and between The Bank of New York (Luxembourg) S.A. (as successor to J.P. Morgan Bank
Luxembourg S.A.) and us, and pursuant to our bye-laws, if such shareholder does not claim a dividend within
seven years from the relevant payment date for such dividend, then, if our board of directors so resolves, such
payment shall be forfeited and cease to remain owing by us.
Tag-Along Right
Pursuant to our bye-laws, no person with a direct or indirect interest in Class B shares may, in any
transaction or series of related transactions, dispose of or sell more than 50% of our issued and outstanding Class
B shares to any person unless the terms and conditions of such disposition or sale include an offer by the
acquiring person to the holders of all other Class B shares and the holders of the Class A shares to acquire, at the
option of each applicable Class A and Class B shareholder, all or any part of the respective shares owned by it.
This tag-along right will not apply to dispositions of interests in Class B shares (a) that are required by any
governmental entity, (b) by any beneficial owner of shares in Partners Holdings to any other beneficial owner of
shares in Partners Holdings (provided that, in relation to persons that started beneficially owning shares in
Partners Holdings after May 8, 2006, this exception shall apply only if such person has beneficially owned shares
in Partners Holdings for at least twelve months) and (c) resulting from the death of any beneficial owner of
shares in Partners Holdings. The shareholders that exercised their tag-along rights will be entitled to the same
terms and conditions as the disposition giving rise to such right, including the same price per share and payment
terms.
Transfer
Our board of directors may in its absolute discretion and without assigning any reason refuse to register the
transfer of a share that it is not fully paid. Our board of directors shall not register a transfer unless the transfer is
permitted by and complies with our bye-laws and all applicable consents of any governmental or regulatory body
required to be obtained has been obtained. Our board of directors may also refuse to recognize an instrument of
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transfer of a share unless it is accompanied by the relevant share certificate and such other evidence of the
transferors right to make the transfer as our board of directors shall reasonably require. Subject to these
restrictions, a holder of shares may transfer the title to all or any of his or her shares by completing a form of
transfer in the form set out in our bye-laws (or as near thereto as circumstances admit) or in such other common
form as the board may accept. The instrument of transfer must be signed by the transferor and transferee,
although in the case of a fully paid share our board of directors may accept the instrument signed only by the
transferor. The shares will be subject to restrictions on transfer that are described under Transfer Restrictions
and ERISA Considerations.
Variation of Rights
If at any time we have more than one class of shares, the rights attaching to any class, unless otherwise
provided for by the terms of issue of the relevant class, may be varied either: (i) with the consent in writing of the
holders of 75% of the issued shares of that class; or (ii) with the sanction of a resolution passed by a majority of
the votes cast at a general meeting of the relevant class of shareholders at which a quorum consisting of at least
two persons holding or representing one-third of the issued shares of the relevant class is present. Our bye-laws
specify that the creation or issue of shares ranking equally with existing shares will not, unless expressly
provided by the terms of issue of existing shares, vary the rights attached to existing shares. In addition, the
creation or issue of preference shares ranking prior to Class A or Class B shares will not be deemed to vary the
rights attached to Class A or Class B shares or, subject to the terms of any other series of preference shares, to
vary the rights attached to any other series of preference shares.
Amendment of Memorandum of Continuance and Bye-laws
Bermuda law provides that the memorandum of association or continuance of a company may be amended
by a resolution passed at a general meeting of shareholders. Our bye-laws provide that no bye-law shall be
rescinded, altered or amended, and no new bye-law shall be made, unless it shall have been approved by a
resolution of our board of directors and by a resolution of the holders of our Class B shares. The rescission,
alteration or amendment of certain bye-laws or the creation of new bye-laws which may affect, alter or change
the rights of the holders of the Class A shares also requires the affirmative vote of a majority of votes cast by the
holders of the Class A shares voting as a single class.
Under Bermuda law, the holders of an aggregate of not less than 20% in par value of a companys issued
share capital or any class thereof have the right to apply to the Supreme Court of Bermuda for an annulment of
any amendment of the memorandum of association or continuance adopted by shareholders at any general
meeting, other than an amendment which alters or reduces a companys share capital as provided in the
Companies Act. Where such an application is made, the amendment becomes effective only to the extent that it is
confirmed by the Supreme Court. An application for the annulment of an amendment of the memorandum of
association or continuance must be made within 21 days after the date on which the resolution altering the
companys memorandum of association or continuance is passed and may be made on behalf of persons entitled
to make the application by one or more of their number as they may appoint in writing for the purpose. No such
application may be made by persons voting in favor of the amendment.
Appraisal Rights and Shareholder Suits
Under Bermuda law, in the event of an amalgamation of a Bermuda company with another company or
corporation, a shareholder of the Bermuda company who is not satisfied that fair value has been offered for his or
her shares may, within one month of notice of the shareholders meeting to consider the amalgamation, apply to
the Supreme Court of Bermuda to appraise the fair value of his or her shares.
Class actions and derivative actions are generally not available to shareholders under Bermuda law. The
Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the
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name of a company to remedy a wrong done to the company where the act complained of is alleged to be beyond
the corporate power of the company or is illegal or would result in violation of the companys memorandum of
association or continuance or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts
that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the
approval of a greater percentage of the companys shareholders than that which actually approved it.
When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the
interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda
for an order regulating the companys conduct of affairs in the future or ordering the purchase of the shares of
any shareholder by other shareholders or by the company.
Brazilian Law Reporting and Disclosure Requirements and other Corporate Matters
Set forth below is a brief summary of certain significant provisions of the rules and regulations of the CVM
regarding the reporting and disclosure requirements, and other corporate matters to which we are subject.
Reporting Requirements
Brazilian securities regulations require us to provide CVM and the relevant stock exchanges with the
following periodic information:
on the date in which it is made public in our jurisdiction of incorporation or in any other market:
(a) our financial statements and consolidated financial statements:
i. and related management and auditors reports, as presented in our jurisdiction;
ii. adjusted to the Brazilian GAAP together with a limited review report issued by independent
auditors duly registered as such with the CVM, and the Demonstraes Financeiras Padronizadas (a
report on standard form containing relevant financial information derived from our financial statements
required to be filled out by us and filed with CVM), in reais in each such case, accompanied by
additional notes describing (i) the accounting environment in our jurisdiction and the differences
between the accounting principles in our jurisdiction and the Brazilian GAAP; (ii) any accounting
information disclosed in jurisdictions other than the jurisdiction in which we are incorporated;
(iii) reconciliation of shareholders equity and results of operations to Brazilian GAAP; and (iv) limited
review report issued by independent auditors duly registered as such with the CVM on the sufficiency
and adequacy of such notes to the financial statements.
(b) quarterly financial information in accordance with Brazilian GAAP, together with a limited review
report issued by independent auditors duly registered as such with the CVM.
Demonstraes Financeiras Padronizadas, a report on standard form containing relevant financial
information derived from the financial statements referred to above, on the day such financial
information is disclosed in our jurisdiction of incorporation or in any other market.
Informaes AnuaisIAN (a report on standard form containing our relevant corporate, business, and
selected financial information), on the day such financial information is disclosed in our jurisdiction of
incorporation or in any other market.
summary of the decisions taken in the annual general shareholders meeting, on the next following day.
copy of the minutes of the annual shareholders meeting, on the day it is disclosed in our jurisdiction of
incorporation or in any other market.
Informaes TrimestraisITR (a report on standard form containing our relevant quarterly corporate,
business and financial information), together with a limited review report issued by independent
auditors duly registered as such with the CVM, within 45 days from the end of each quarter (except for
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the last quarter of each year) or upon disclosure of such information in our jurisdiction of incorporation
or in any other market.
In addition to the foregoing, we must also file with the CVM and BOVESPA the following information:
notice of our extraordinary or special shareholders meetings, on the same date in which it is disclosed
in our jurisdiction of incorporation or in any other market.
summary of the decisions taken at our extraordinary or special shareholders meetings, on the next
following day.
minutes of our extraordinary or special shareholders meetings, on the same date in which it is disclosed
in our jurisdiction of incorporation or in any other market.
copy of shareholders agreement on the date in which it is disclosed in our jurisdiction of incorporation
or in any other market or on the next following day after it is filed with us.
any press release giving notice of material facts, on the same date in which it is disclosed in our
jurisdiction of incorporation or in any other market.
any information regarding alteration in our legal status, its justifications, financial statements prepared
in connection therewith and, should it be the case, the changes in the rights of the holders of our
securities, on the same date in which it is made public in our jurisdiction of incorporation or in any other
market.
disclose simultaneously in each market in which our securities are traded, material information on our
businesses, amendments to our bye-laws, projections, sales, costs and expenses, which reported by any
means of communication or in meetings with analysts.
other information requested by CVM within the term determined by it.
Restriction on Certain Transactions by Controlling Shareholders, Directors and Officers
We, our controlling shareholders, members of our board of directors, executive officers and members of any
technical or advisory body or any other person that by virtue of its title, duty or position in us, or in our
controlling shareholders, controlled companies or affiliates, has knowledge of a material fact, and any other
person who has knowledge of material information and knows it has not been disclosed to the market (including
auditors, analysts, underwriters and advisers), are considered insiders, and must abstain from trading our
securities, including derivatives based on our securities, prior to the disclosure of such material information to the
market.
Such restriction will also apply:
to any of our former officers, directors or members of the fiscal council for a six-month period, if any
such officer, director or member of the fiscal council left office prior to disclosure of a material
information that such person became aware of while in office;
if we intend to merge or combine with another company, consolidate, spin off part or all of our assets or
reorganize;
to us, if an agreement for the transfer of our control has been executed, or if an option or mandate for
such effect has been granted, or if we intend to merge or combine with another company, consolidate,
spin off part or all of our assets or reorganize, until such information is disclosed to the market;
during the 15-day period before the disclosure of the quarterly and annual financial statements required
by CVM; or
to our controlling shareholders, members of our board of directors, executive officers, whenever we, or
any of our controlling companies, affiliates or companies subject to the same control, are in process of
purchasing or selling shares issued by us.
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Disclosure of Trading by Controlling Shareholders, Directors, Officers or Members of the Fiscal Council
Our directors, officers, members of our fiscal council, when installed, or of any technical or advising body
are required to disclose to us, to the CVM and to the BOVESPA, the total amount, the characteristics and form of
acquisition (including price and dates of purchase) of securities issued by us, listed companies under our control
or by our listed controlling shareholders, including derivatives referenced in such securities, that are held by each
of them as well as any change in such investment. In case of individuals, such information shall also include
securities held by the spouse, companion or dependents of such persons, included in the annual income tax
statement and companies controlled directly or indirectly by such person.
Information regarding the acquisition of our securities must be provided to CVM and BOVESPA
immediately upon taking office and within 10 days following the end of the month in which they were traded.
In addition, our controlling shareholder, any shareholders who caused the election of members of our board
of directors or fiscal council, as well as any individuals, legal entity, group of persons acting jointly, that holds,
directly or indirectly, 5% or more of our shares, must issue a press release and provide to CVM and the
BOVESPA, the following information:
the name and qualification of the person providing the information;
amount, price, type, and/or class, in the case of acquired shares, or characteristics, in the case of
securities;
form of acquisition (private placement, purchase through a stock exchange, among others);
reason and purpose of the acquisition; and
information on any agreement regarding the exercise of voting rights or the purchase and sale of our
securities.
The disclosure requirement referred to above will also apply to any person, or group of persons acting
jointly, holding participation equal to or in excess of 5%, each time such person increases or decreases its
participation in our shares by an amount equal to 5% of our shares.
Disclosure of Material Developments
According to Law No. 6,385, of December 7, 1976 and subsequent amendments, and the rules published by
the CVM, we must disclose any material development related to our business to the CVM and to the BOVESPA
and must publish a notice of the material development. A development is deemed to be material if it impacts the
price of our securities, the decision of investors to trade in our securities or the decision of investors to exercise
any rights as holders of any of our securities.
Under special circumstances, we may request confidential treatment of certain material developments from
the CVM, when our management believes that public disclosure could result in adverse consequences to us.
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DIVIDENDS AND DIVIDEND POLICY
Under Bermuda law, a companys board of directors may declare and pay dividends from time to time
unless there are reasonable grounds for believing that the company is, or would after the payment be, unable to
pay its liabilities as they become due or that the realizable value of its assets would thereby be less than the
aggregate of its liabilities and issued share capital and share premium accounts. Our bye-laws require us to
distribute on an annual basis at least 25% of our annual consolidated net income, as calculated under U.S. GAAP,
to holders of Class A shares and Class B shares in proportion to the number of shares held by them unless our
board of directors has determined in its sole discretion that such distribution would be incompatible with our
financial condition or we are unable to meet requirements under Bermuda law. The holders of the BDSs are
entitled to receive through the depositary dividends to the same extent as the owners of our shares, subject to
deduction of the fees of the depositary and the costs of foreign exchange conversion. Dividends, if paid, will be
paid annually only after our year-end consolidated financial statements have been prepared and after approval of
such dividend by our board of directors.
We distributed cash dividends to all shareholders in the amount of $21.9 million
(1)
(or $4.44 per share,
calculated using the weighted average number of shares for the year) and $1.7 million (or $0.47 per share,
calculated using the weighted average number of shares for the year) in 2004 and 2005, respectively. We may not
continually distribute cash dividends corresponding to the same amount in the future.
Pursuant to unanimous written resolutions passed by our board of directors on May 8, 2006, an amount
equal to the remaining portion of the dividends declared and reserved for on December 31, 2005 to our sole
member on February 28, 2006 in the amount of $3.5 million was transferred to the retained earnings line item.
Our board of directors, pursuant to a meeting held on March 9, 2007, approved the declaration and payment
of a dividend of approximately US$0.21928 per share on its Class A and Class B shares pro rata according to the
amount paid up on such shares, totaling approximately US$6.5 million, payable out of distributable profits.
(1) Amount includes a dividend payable included in the net assets received at the date of the incorporation on October 16, 2003.
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TAX CONSIDERATIONS
Bermuda
Currently, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax,
estate duty or inheritance tax payable by us. We have obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is
enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or
appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 28, 2016, be
applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as
such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned
or leased by us in Bermuda.
Certain Material U.S. Federal Income Tax Considerations
The following is a description of principal U.S. federal income tax consequences of acquiring, owning and
disposing of the new notes. This description addresses only the U.S. federal income tax considerations of holders
that acquire the new notes pursuant to this offering and that will hold the new notes as capital assets (generally,
for investment). This description does not address alternative minimum tax or tax considerations applicable to
holders that may be subject to special tax rules, including:
financial institutions or insurance companies;
real estate investment trusts, regulated investment companies or grantor trusts;
dealers or traders in securities or currencies;
tax-exempt entities and retirement plans;
persons that will hold the new notes as part of a hedging or conversion transaction or as a position
in a straddle for U.S. federal income tax purposes;
persons that have a functional currency other than the U.S. dollar;
holders that own or are deemed to own ten percent or more of our voting shares; or
partnerships or other entities classified as partnerships for U.S. federal income tax purposes.
This description is based on the Internal Revenue Code of 1986, as amended, or the Code, existing,
proposed and temporary U.S. Treasury Regulations and judicial and administrative interpretations thereof, in
each case as in effect and available on the date hereof. U.S. tax laws and the interpretation thereof are subject to
change, which change could apply retroactively and could affect the tax consequences described below.
For purposes of this description, a U.S. Holder is a beneficial owner of the new notes that, for U.S. federal
income tax purposes, is:
a citizen or resident of the United States;
a corporation, or any entity classified as a corporation for U.S. federal income tax purposes, created or
organized in or under the laws of the United States or any state thereof, including the District of
Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust if (i) a court within the United States is able to exercise primary supervision over its
administration and (ii) one or more U.S. persons has the authority to control all of the substantial
decisions of such trust.
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A Non-U.S. Holder is a beneficial owner of the new notes that is not a U.S. Holder. If a partnership, or
any entity classified as a partnership for U.S. federal income tax purposes, is a beneficial owner of the new notes,
the U.S. tax treatment of a partner in a partnership generally will depend on the status of the partners and the
activities of the partnership. A holder of the new notes that is a partnership and partners in such partnership
should consult their own tax advisors about the U.S. federal income tax consequences of holding and disposing
of the new notes.
IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform
you that: (i) any U.S. federal tax advice contained in this document (including any attachment) is not
intended or written by us to be used, and cannot be used, by any U.S. taxpayer for the purpose of avoiding
tax penalties under the Internal Revenue Code; (ii) such advice was written in connection with the
promotion or marketing of the transactions or matters addressed herein; and (iii) U.S. taxpayers should
seek advice based on their particular circumstances from an independent tax advisor.
Please consult your own tax advisor with respect to the U.S. federal, state, local and foreign tax
consequences of acquiring, owning or disposing of the new notes, in your particular circumstances.
Potential Tax Characterization of the New Notes
Under current law and interpretations thereof, the new notes should be classified and treated as equity for
U.S. federal income tax purposes although the matter is not free from doubt. The IRS, could assert, however, that
the new notes should be classified and treated as indebtedness for U.S. federal income tax purposes. If the IRS
were to assert successfully that the new notes should be treated as indebtedness for U.S. federal income tax
purposes, the timing, amount and character of income, gain or loss recognized by a U.S. Holder could be
different, and the value of the new notes could be adversely affected. For example, a U.S. Holder would
generally include interest payments (including any additional amounts) in income as ordinary income as they
accrue or are received in accordance with the holders method of accounting. The remainder of this discussion
assumes that the new notes will be classified as equity for U.S. federal income tax purposes.
U.S. Holders
Our Status as a Passive Foreign Investment Company, or PFIC
A non-U.S. corporation will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in
which either (i) at least 75% of its gross income is passive income or (ii) on average at least 50% of the value
of its assets is attributable to assets that produce passive income or are held for the production of passive income.
Passive income for this purpose generally includes, among other things, dividends, interest, certain royalties and
gains from commodities and securities transactions. In determining whether a foreign corporation is a PFIC, a
pro rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least a
25% interest (by value) is taken into account.
We believe that it is likely that we will be a PFIC in 2007 and in future years. The following discussion
assumes that we qualify as a PFIC.
A U.S. Holder must file IRS Form 8621 every year in which it holds the new notes.
A U.S. Holder will be subject to either the regular PFIC rules (the Regular PFIC Rules), the qualifying
electing fund rules (the QEF Rules) or, if a mark-to-market election is available, the special mark-to-market
PFIC rules (the Mark-to-Market Rules), each of which is described below.
148
Regular PFIC Rules
Under the Regular PFIC Rules (i) any gain realized from a disposition of the new notes and any excess
distribution of interest on the new notes would be allocated ratably to each taxable year (or portion of a taxable
year) in your holding period for the new notes, (ii) the amount so allocated to the current taxable year will be
taxed as ordinary income earned in the current taxable year, (iii) the amount so allocated to earlier taxable years
will be taxed at the highest marginal rates applicable to ordinary income for those earlier taxable years and
(iv) an interest charge for the deemed benefit of the deferral of U.S. federal income tax will be imposed with
respect to the tax attributable to each such earlier taxable year. An excess distribution is defined as a
distribution greater than 125% of the annual average distributions received during the shorter of the three
preceding taxable years or your holding period for the new notes.
Regular U.S. federal income tax rules, not the Regular PFIC Rules, apply to any non-excess distribution
of interest on the new notes. Under these general rules, you must include in your gross income the gross amount
of any interest on the new notes, which will be treated as a dividend to the extent of our current or accumulated
earnings and profits (as determined for U.S. federal income tax purposes). The interest is ordinary income that
you must include in your income when you receive it, actually or constructively. The interest will not be eligible
for the dividends received deduction generally allowed to U.S. corporations in respect of dividends received from
other U.S. corporations. In addition, the interest will not be eligible for the 15% preferential tax rate applicable to
certain dividends received by individuals. Any payments of interest in excess of our current and accumulated
earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return
of capital to the extent of your basis in the new notes and thereafter as capital gain.
If you sell or dispose of the new notes and your tax basis in the new notes exceeds your amount realized you
generally will recognize a capital loss. The deductibility of capital losses against ordinary income is subject to
limitations.
QEF Rules
The Regular PFIC Rules do not apply if you make a valid qualifying election fund, or QEF, election for
U.S. federal income tax purposes. In order to make a QEF election, you must attach IRS Form 8621 to your U.S.
federal income tax return. Once made, such election cannot be revoked without the consent of the IRS.
If you are a U.S. Holder and make a QEF election, the exact rules for your tax treatment are not completely
clear. However, we believe that you will be required for each taxable year to include in income, as ordinary
income, interest that is accrued on the new notes for the year, assuming our taxable income, before deducting
interest on the new notes, is at least equal to the interest on the new notes. You would not be taxed when we
distribute to you the income that you already included in income for tax purposes. Your tax basis in the new
notes would be adjusted to reflect any income inclusion and decreased to reflect the receipt of previously taxed
interest. If you are a U.S. Holder and make a QEF election in a year subsequent to the year in which you acquired
the new notes, you must agree in the year of such election to recognize gain equal to your unrealized appreciation
in the new notes, subject to the tax considerations discussed above under the Regular PFIC Rules, so that
thereafter the Regular PFIC Rules will not apply.
We will, at the request of a U.S. Holder who elects to make a QEF election, provide the information
necessary for such holder to report its share of our income.
Mark-to-Market Rules
Instead of making a QEF election, you may be permitted to make a mark-to-market election. The Regular
PFIC Rules do not apply if a mark-to-market election is available and you validly make such an election by
filing a properly completed IRS Form 8621. You must attach IRS Form 8621 to your U.S. federal income tax
return. Once made, such election cannot be revoked without the consent of the IRS. Your election, however, will
be terminated by operation of law if the new notes cease to be marketable stock (as described below).
149
If a mark-to-market election is made, you generally will be required to recognize as taxable income or
loss the difference, if any, between the fair market value of and your adjusted tax basis in the new notes at the
end of each taxable year. Your tax basis in the new notes would be adjusted to reflect any such income or loss
amount. Your mark-to-market gains (if any) will be treated as ordinary income; your mark-to-market losses will
be treated as ordinary loss to the extent of any net mark-to-market gains previously included in income, and
generally as capital loss to the extent of any remaining loss. Similarly, any gain from a sale, exchange or other
disposition of the new notes will be treated as ordinary income, and any loss from such a sale, exchange or other
disposition will be treated as ordinary loss to the extent of any net mark-to-market gains previously included in
income, and generally as capital loss to the extent of any remaining loss.
Under the Mark-to-Market Rules, all interest received will be subject to the U.S. federal income tax rules
described above applicable to non-excess distributions, and will not be subject to the Regular PFIC Rules.
It is not clear whether the new notes will be eligible for the Mark-to-Market Rules. A mark-to-market
election is available to you only if the new notes are considered marketable stock for these purposes.
Generally, shares of a PFIC will be considered marketable stock if they are regularly traded on a qualified
exchange within the meaning of applicable Treasury regulations. A class of shares is regularly traded during any
calendar year during which such class of shares is traded, other than in de minimis quantities, on at least 15 days
during each calendar quarter. With respect to 2007, the new notes will be considered regularly traded only if
they are traded (other than in de minimus quantities) on one-sixth of the days remaining in the quarter in which
this offering occurs and on at least 15 days during each remaining quarter of 2007. As of the date of this offering,
it is not expected that the new notes will be regularly traded within the meaning of applicable U.S. Treasury
regulations. A qualified exchange includes a non-U.S. securities exchange that has the following
characteristics: (i) the exchange is regulated by a governmental authority in which the exchange is located;
(ii) the volume, listing, financial disclosure, surveillance and other requirements designed to prevent fraudulent
and manipulative acts and practices, to remove impediments to and perfect the mechanism of a free and open,
fair and orderly, market and to protect investors; and the laws of the country in which the exchange is located and
the rules of the exchange ensure that such requirements are actually enforced and (iii) the rules of the exchange
effectively promote active trading of listed stocks. There can be no assurance that the mark-to-market election
will be available.
Application of PFIC Rules to Our Subsidiaries and Portfolio Companies
Certain of our subsidiaries are expected to be PFICs, and certain of our portfolio companies may be PFICs.
It is not clear how the Regular PFIC Rules, QEF Rules or the Mark-to-Market Rules apply to any of our
subsidiaries or portfolio companies that is a PFIC. For example, if any of our subsidiaries or portfolio companies
is a PFIC, a distribution from that subsidiary or portfolio company to us, a disposition of that subsidiary or
portfolio company by us, or a transaction through which your indirect ownership of such subsidiary or portfolio
company is decreased (such as by your sale of our stock or shares or by our additional offerings of our shares)
may be treated as a distribution or disposition subject to the PFIC regime. You would be entitled, however, to
increase your basis in the new notes you directly own to reflect the gain realized upon such distributions or
dispositions. Moreover, you would not be taxed when you receive interest that you already included in income
for tax purposes.
If you make a QEF election with respect to the new notes, such election shall not apply to any of our
subsidiaries or portfolio companies that is a PFIC. You may make a separate QEF election with respect to any of
our subsidiaries or portfolio companies that is a PFIC. At the request of a U.S. Holder, we will inform the U.S.
Holder as to which of our subsidiaries we expect to be PFICs. In addition, we will provide the U.S. Holder who
makes a QEF election with respect to such subsidiaries the information necessary for such holder to report its
share of the income of such subsidiaries.
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You are strongly encouraged to consult your tax advisors regarding our classification as a PFIC, the
potential tax consequences arising from the ownership and disposition (directly or indirectly) of shares in a
PFIC as well as the availability, advisability, timeliness and effectiveness of making a QEF,
mark-to-market or any other election.
Non-U.S. Holders
Subject to the discussion below of Backup Withholding Tax and Information Reporting Requirements, if
you are a non-U.S. Holder you will not be subject to U.S. federal income or withholding tax on the gain
recognized on the sale of the new notes generally or on interest paid by us unless (i) the interest and/or the gains
are effectively connected with your conduct of a trade or business within the U.S. and the interest and/or gains
are attributable to a permanent establishment that you maintain in the U.S. if that is required by an applicable
income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis, or (ii) in the case of a
gain realized, you are an individual non-U.S. Holder and you have been present in the United States for 183 or
more days in the taxable year of the sale or disposition and certain other conditions apply. If clauses (i) or (ii) of
the preceding sentence apply to you, you will be taxed, generally, in the same manner as a U.S. Holder. If you are
a corporate non-U.S. Holder, effectively connected interest may, under certain circumstances, be subject to an
additional branch profits tax at a 30% rate (or a lower rate if you are eligible for the benefits of an income tax
treaty that provides for a lower rate).
Backup Withholding Tax and Information Reporting Requirements
U.S. backup withholding tax and information reporting requirements generally apply to certain payments to
certain holders of shares. Information reporting generally will apply to payments of interest on, and to proceeds
from the sale or redemption of, the new notes made within the United States, or by a U.S. payor or U.S.
middleman, to a holder of the new notes, other than an exempt recipient, a corporation, or any entity classified as
a corporation for U.S. federal income tax purposes, such as a payee that is not a U.S. person that provides an
appropriate certification and certain other persons. A payor will be required to withhold backup withholding tax
from any payments of interest on, or the proceeds from the sale or redemption of, the new notes within the
United States, or by a U.S. payor or U.S. middleman, to a holder, other than an exempt recipient, if such holder
fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an
exemption from, such backup withholding tax requirements. The backup withholding tax rate is 28% for years
through 2010.
European Union Directive on the Taxation of Savings Income
Under European Council Directive 2003/48/EC on the taxation of savings income, each EU member state is
required to provide to the tax authorities of another member state details of payments of interest or other similar
income paid by a person within its jurisdiction to an individual resident in that other member state, however, for
a transitional period, Austria, Belgium and Luxembourg may instead apply a withholding system in relation to
such payments, deducting tax at rates rising over time to 35 percent, unless during such period they elect
otherwise.
The transitional period is to terminate at the end of the first fiscal year following agreement by certain
non-EU countries to the exchange of information relating to such payments.
A number of non-EU countries, and certain dependent or associated territories of certain member states,
have agreed to adopt similar measures (either provision of information or transitional withholding) in relation to
payments made by a person within its jurisdiction to an individual resident in another member state. In addition,
the member states have entered into reciprocal provision of information or transitional withholding arrangements
with certain of those dependent or associated territories in relation to payments made by a person in a member
state to an individual resident in one of those territories.
151
As indicated above under Description of New NotesAdditional Amounts, no additional amounts will be
payable with respect to a note where such withholding or deduction is imposed or levied on a payment to an
individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other Directive
implementing the conclusions of the ECOFIN Council meeting of 26-27 November, 2000 on the taxation of
savings income or to any law implementing or complying with, or introduced in order to conform to such
Directive. Holders should consult their tax advisers regarding the implications of the Directive in their particular
circumstances.
THE ABOVE DESCRIPTION IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS
OF ALL TAX CONSEQUENCES RELATING TO ACQUISITION, OWNERSHIP AND DISPOSITION
OF THE NEW NOTES. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE
TAX CONSEQUENCES OF YOUR PARTICULAR SITUATION.
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PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in a purchase agreement dated September 27, 2007,
we have agreed to sell to the initial purchasers named below, for whom Credit Suisse Securities (USA) LLC is
acting as representative, the following principal amount of the new notes.
Principal Amount
U.S. Initial Purchaser
Credit Suisse Securities (USA) LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. $35,000,000
International Initial Purchaser
Credit Suisse Securities (Europe) Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. $ 5,000,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. $40,000,000
The purchase agreement provides that the initial purchasers are obligated to purchase all of the new notes, if
any are purchased.
The initial purchasers propose to offer the new notes at the price indicated on the cover page of this offering
memorandum and may also offer the new notes to selling group members at the offering price less a selling
concession. In addition, selling group members may offer the new notes to private banks in certain jurisdictions,
and these private banks may receive compensation in the form of discounts, concessions or commissions from
selling group members, in each case in compliance with all applicable laws and regulations. After the initial
offering, the offering price and other selling terms may be changed.
The new notes have not been and will not be registered under the Securities Act or the securities laws of any
state thereof, and we have not registered and do not intend to register as an investment company under the
Investment Company Act, in reliance on the exemption provided by Section 3(c)(7) under the Investment
Company Act. Accordingly, the new notes may be offered or sold only to (i) a person which is both a qualified
institutional buyer (as defined in Rule 144A under the Securities Act) and a qualified purchaser (as defined in the
Investment Company Act) and that otherwise meets the requirements set forth under Transfer Restrictions and
ERISA Considerations in this offering memorandum (a U.S. Purchaser), acting for its own account or for the
account of another person that meets the requirements of a U.S. Purchaser as described above, in transactions
exempt from the registration requirements of the Securities Act meeting the requirements of Rule 144A under the
Securities Act, or (ii) non-U.S. persons outside the United States in offshore transactions in reliance on
Regulation S under the Securities Act. Each U.S. Purchaser will be required to sign and deliver a U.S.
Purchasers Letter in the form set forth in Appendix A to this offering memorandum pursuant to which such
person will make certain acknowledgments, representations, warranties and agreements, including the agreement
that any resales or transfers of new notes may be effected only (i) to us or the initial purchasers or (ii) in offshore
transactions in reliance on Regulation S under the Securities Act. See Transfer Restrictions and ERISA
Considerations.
In addition, until 40 days after the commencement of the offering of the new notes, an offer or sale of notes
within the United States by a broker-dealer (whether or not it is participating in the offering) may violate the
registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with
Rule 144A under the Securities Act.
Each initial purchaser has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by it in connection
with the issue or sale of any new notes which are the subject of the offering contemplated by this
153
offering memorandum in circumstances in which Section 21(1) of the FSMA does not apply to us and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to the new notes in, from or otherwise involving the United Kingdom;
the new notes have not been and will not be registered with the CVM and may not be offered or sold in
Brazil, except under circumstances that do not constitute a public offering or distribution under
Brazilian laws and regulations;
it has not (i) offered or sold, and will not offer or sell, in Hong Kong, by means of any document, the
new notes other than (a) to professional investors as defined in the Securities and Futures Ordinance
(Cap.571) of Hong Kong (the Securities and Futures Ordinance) and any rules made under that
Ordinance or (b) in other circumstances which do not result in the document being a prospectus as
defined in the Companies Ordinance (Cap.32 of Hong Kong ) or which do not constitute an offer to the
public within the meaning of that ordinance or (ii) issued or had in its possession for the purposes of
issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or
elsewhere, any advertisement, invitation or document relating to the new notes which is directed at, or
the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted
to do so under the securities laws of Hong Kong) other than with respect to the new notes which are or
are intended to be disposed of only to persons outside Hong Kong or only to professional investors as
defined in the Securities and Futures Ordinance or any rules made under that ordinance;
this offering memorandum has not been registered as a prospectus with the Monetary Authority of
Singapore under the Securities and Futures Act, Chapter 289 of Singapore, as amended (the Securities
and Futures Act) and, accordingly, the new notes may not be offered or sold or made the subject of an
invitation for subscription or purchase, nor may this offering memorandum, nor any other document or
material in connection with the offer or sale or invitation for subscription or purchase of any notes, be
circulated or distributed, whether directly or indirectly, to any person in Singapore other than (a) to an
institutional investor pursuant to Section 274 of the Securities and Futures Act, (b) to a relevant person,
or any person pursuant to Section 275 (1A) of the Securities and Futures Act, and in accordance with the
conditions specified in Section 275 of the Securities and Futures Act, or (c) pursuant to, and in
accordance with the conditions of, any other applicable provision of the Securities and Futures Act.
Each of the following relevant persons specified in Section 275 of the Securities and Futures Act which
has subscribed or purchased new notes, namely a person who is: (a) a corporation (which is not an
accredited investor) the sole business of which is to hold investments and the entire share capital of
which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust
(where the Trustee is not an accredited investor) whose sole purpose is to hold investments and each
beneficiary is an accredited investor, should note that shares, debentures and units of shares and
debentures of that corporation or the beneficiaries rights and interest in that trust, as the case may be,
shall not be transferable for 6 months after such corporation or such trust, as the case may be, has
acquired the new notes under Section 275 of the Securities and Futures Act except: (i) to an institutional
investor under Section 274 of the Securities and Futures Act, to a relevant person or to any person
pursuant to Section 275 (1A) of the Securities and Futures Act, and in accordance with the conditions
specified in Section 275 of the Securities and Futures Act; (ii) where no consideration is given for the
transfer; or (iii) by operation of law;
the new notes have not been and will not be registered under the Securities and Exchange Law of Japan
(the Securities and Exchange Law) and each initial purchaser has agreed that it will not offer or sell
any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which
term as used herein means any person resident in Japan, including any corporation or other entity
organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan
or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and
otherwise in compliance with, the Securities and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan;
154
in relation to each Relevant Member State, other than Ireland, of the European Economic Area (EEA),
an offer to the public of any new notes which are the subject of the offering contemplated by this
offering memorandum may not be made in that Relevant Member State, except that an offer to the
public in that Relevant Member State of any new notes may be made at any time under the following
exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member
State:
(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last
financial year; (2) a total balance sheet of more than EUR43,000,000 and (3) an annual net turnover of more
than EUR50,000,000, as shown in its last annual or consolidated accounts;
(c) by the initial purchasers to fewer than 100 natural or legal persons (other than qualified investors as
defined in the Prospectus Directive); or
(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided, that no
such offer of the new notes shall result in a requirement for the publication by us or the initial purchasers of
a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an offer to the public in relation to any new notes in any
Relevant Member State means the communication in any form and by any means of sufficient information on the
terms of the offer and any new notes to be offered so as to enable an investor to decide to purchase any new
notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in
that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any
relevant implementing measure in each Relevant Member State; and
the new notes may not be offered or sold in Bermuda contrary to the Investment Business Act 2003.
No action has been or will be taken in the United States, the United Kingdom or any country or jurisdiction
by us or the initial purchasers that would permit a public offering of the new notes, or possession or distribution
of any offering material in relation thereto, in any country or jurisdiction where action for that purpose is
required. Accordingly, the new notes may not be offered or sold, directly or indirectly, and neither this offering
memorandum nor any other offering material or advertisements in connection with the new notes may be
distributed, published, in or from any country or jurisdiction, except in compliance with any applicable rules and
regulations of any such country or jurisdiction. This offering memorandum does not constitute an offer to sell or
a solicitation of an offer to purchase in any jurisdiction where such offer or solicitation would be unlawful.
Persons in possession of this offering memorandum are advised to inform themselves about and to observe any
restrictions relating to the offering of the new notes, the distribution of this offering memorandum and resale of
the new notes. See Transfer Restrictions and ERISA Considerations.
We have agreed to indemnify the initial purchasers against liabilities or to contribute to payments which
they may be required to make in that respect.
The new notes and the initial notes are fully fungible and will constitute a single series of debt securities
under the indenture. We intend to apply to list the new notes on the Official List of the Irish Stock Exchange. The
initial purchasers have advised us that they intend to make a market in the notes as permitted by applicable law.
They are, however, not obligated to make a market in the notes and any market-making may be discontinued at
any time at their sole discretion. Accordingly, no assurance can be given as to the development or liquidity of
any market for the notes.
In connection with the issue of the new notes, Credit Suisse Securities (USA) LLC (or persons acting on its
behalf) may over-allot new notes or effect transactions with a view to supporting the market price of the new
155
notes at a level higher than that which might otherwise prevail. However, there is no assurance that Credit Suisse
Securities (USA) LLC (or persons acting on its behalf) will undertake stabilization action. Any stabilization
action may begin on or after the closing date of this offering and, if begun, may be ended at any time. Such
stabilizing shall be conducted in accordance with all applicable laws, rules and regulations.
Credit Suisse Securities (USA) LLC and other companies of its group, including Banco de Investimentos
Credit Suisse (Brasil) S.A and Credit Suisse Securities (Europe) Limited, maintain a commercial relationship
with us, including the rendering of investment banking, financial advisory, and other financial services to us, for
which they receive customary fees. Banco de Investimentos Credit Suisse (Brasil) S.A. has acted as the lead
underwriter in the public offering of shares of ALL Logstica S.A., Submarino S.A. and Equatorial Energia (a
portfolio company of the GP Group). We may retain Banco de Investimentos Credit Suisse (Brasil) S.A. to
render additional investment banking, financial advisory and other services in the future.
We expect that delivery of the new notes will be made against payment therefor on or about the closing date
specified on the cover page of this offering memorandum, which will be the sixth business day following the date
of pricing of the new notes.
156
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the new notes is being made only in the Canadian provinces of British Columbia,
Alberta, Manitoba and Quebec and is being made on a private placement basis exempt from the requirement that
we prepare and file a prospectus with the securities regulatory authorities in each province where trades of new
notes are made. Any resale of the new notes in Canada must be made under applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory
exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of the new notes.
Representation of Purchasers
By purchasing the new notes in Canada and accepting a purchase confirmation a purchaser is representing to
us and the dealer from whom the purchase confirmation is received that:
the purchaser is entitled under applicable provincial securities laws to purchase the new notes without
the benefit of a prospectus qualified under those securities laws,
where required by law, that the purchaser is purchasing as principal and not as agent,
the purchaser has reviewed the text below under Transfer Restrictions, and
the purchaser acknowledges and consents to the provision of specified information concerning its
purchase of the new notes to the regulatory authority that by law is entitled to collect the information.
Further details concerning the legal authority for this information is available on request.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein may be located outside of Canada and,
as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or
those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to
enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
Taxation and Eligibility for Investment
Canadian purchasers of new notes should consult their own legal and tax advisors with respect to the tax
consequences of an investment in the new notes in their particular circumstances and about the eligibility of the
new notes for investment by the purchaser under relevant Canadian legislation.
157
TRANSFER RESTRICTIONS
Lack of U.S Registration, Investment Company Act and Other Restrictions
Our new notes have not been and will not be registered under the Securities Act and we have not registered
and will not register under the Investment Company Act. Pursuant to the offering, our new notes may not be
offered or sold within the United States to, or for the account or benefit of, U.S. persons, except to persons who
are both qualified institutional buyers (as defined in Rule 144A under the Securities Act) and qualified
purchasers (as defined in the Investment Company Act), pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act. Notes sold within the United States or to U.S.
persons will be subject to important restrictions on transfer, which are described further below.
Legend
All new notes will bear the legend substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE U.S. SECURITIES ACT), OR ANY STATE
SECURITIES LAWS IN THE UNITED STATES, AND HAVE BEEN PLACED INITIALLY PURSUANT
TO EXEMPTIONS FROM THE U.S. SECURITIES ACT AND THE U.S. INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE U.S. INVESTMENT COMPANY ACT) AND MAY NOT BE
REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (I) IN AN
OFFSHORE TRANSACTION PURSUANT TO RULE 903 OR 904 OF REGULATION S UNDER THE
U.S. SECURITIES ACT TO OR FOR THE ACCOUNT OF OR BENEFIT OF A PERSON NOT KNOWN
BY THE TRANSFEROR TO BE A U.S. PERSON, BY PRE-ARRANGEMENT OR OTHERWISE, OR (II)
OTHERWISE IN TRANSACTIONS NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF
THE U.S. SECURITIES ACT; PROVIDED THAT (A) NO PORTION OF THE ASSETS USED BY ANY
TRANSFEREE TO PURCHASE, AND NO PORTION OF THE ASSETS USED BY ANY TRANSFEREE
TO HOLD, THE SECURITIES EVIDENCED HEREBY OR ANY BENEFICIAL INTEREST THEREIN
CONSTITUTES OR WILL CONSTITUTE THE ASSETS OF (i) AN EMPLOYEE BENEFIT PLAN
(WITHIN THE MEANING OF SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED (ERISA)) THAT IS SUBJECT TO TITLE I OF ERISA,
(ii) A PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER ARRANGEMENT THAT IS
SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE U.S. INTERNAL REVENUE CODE), (iii) A PLAN OR OTHER ARRANGEMENT THAT IS
SUBJECT TO ANY OTHER STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS
THAT WOULD HAVE THE SAME EFFECT AS REGULATIONS PROMULGATED UNDER ERISA
BY THE U.S. DEPARTMENT OF LABOR AND CODIFIED AT 29 C.F.R. SECTION 2510.3-101 TO
CAUSE THE UNDERLYING ASSETS OF GP INVESTMENTS, LTD. TO BE TREATED AS ASSETS
OF THAT INVESTING ENTITY BY VIRTUE OF ITS INVESTMENT (OR ANY BENEFICIAL
INTEREST) IN GP INVESTMENTS, LTD. AND THEREBY SUBJECT GP INVESTMENTS, LTD. (OR
OTHER PERSONS RESPONSIBLE FOR THE INVESTMENT AND OPERATION OF GP
INVESTMENTS, LTD.S ASSETS) TO LAWS OR REGULATIONS THAT ARE SIMILAR TO THE
FIDUCIARY RESPONSIBILITY OR PROHIBITED TRANSACTION PROVISIONS CONTAINED IN
TITLE I OF ERISA OR SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OR (iv) AN
ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED TO INCLUDE PLAN ASSETS OF
ANY SUCH PLAN, ACCOUNT OR ARRANGEMENT PURSUANT TO ERISA, THE U.S. INTERNAL
REVENUE CODE, ANY APPLICABLE STATE, LOCAL, NON-U.S. OR OTHER LAWS OR
REGULATIONS THAT WOULD HAVE THE SAME EFFECT AS THE PLAN ASSET REGULATIONS
SO AS TO CAUSE THE UNDERLYING ASSETS OF GP INVESTMENTS, LTD. TO BE TREATED AS
ASSETS OF AN INVESTING ENTITY BY VIRTUE OF ITS INVESTMENT (OR ANY BENEFICIAL
INTEREST) IN GP INVESTMENTS, LTD. AND THEREBY SUBJECT GP INVESTMENTS, LTD. (OR
OTHER PERSONS RESPONSIBLE FOR THE INVESTMENT AND OPERATION OF GP
INVESTMENTS, LTD.S ASSETS) TO LAWS OR REGULATIONS THAT ARE SIMILAR TO THE
158
FIDUCIARY RESPONSIBILITY OR PROHIBITED TRANSACTION PROVISIONS CONTAINED IN
TITLE I OF ERISA OR SECTION 4975 OF THE CODE OR OTHERWISE (EACH OF (i), (ii), (iii) AND
(iv), A PLAN); AND (B) EACH U.S. PERSON THAT HAS SIGNED A U.S. PURCHASERS LETTER
MAY ONLY REOFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER THE SECURITIES IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE APPLICABLE U.S. PURCHASERS
LETTER. HOLDERS OF SECURITIES WILL NOTIFY ANY PURCHASERS THEREOF OF THE
RESALE RESTRICTIONS REFERRED TO ABOVE.
Transfers and Resales
Each purchaser of new notes in this offering who purchases within the United States or is, or purchases for
the account or benefit of, a U.S. person (a U.S. Purchaser), will be required to sign a U.S. Purchasers Letter in
the form set forth in Appendix A to this offering memorandum. New notes sold to a U.S. Purchaser or any
interest therein may be transferred only to (i) us or the initial purchasers or any of our or the initial purchasers
affiliates or (ii) a non-U.S. person in an offshore transaction (as defined under Regulation S) in accordance with
Rule 903 or 904 of Regulation S. The initial purchasers have agreed to resell or transfer any new notes acquired
from a U.S. Purchaser only to non-U.S. persons in offshore transactions (as defined under Regulation S) in
accordance with Rule 903 or 904 of Regulation S. By executing and delivering a U.S. Purchasers Letter, each
U.S. Purchaser acknowledges and agrees that neither we nor the initial purchasers, nor any of our or their
affiliates, shall be under any obligation to purchase, enter into an agreement to purchase or arrange the purchase
of new notes or any interest therein.
The new notes and any beneficial interest therein may not be acquired or held by investors using assets of
any Plan (as defined in ERISA Considerations). Each U.S. Purchaser, by executing and delivering a U.S.
Purchasers Letter, represents, agrees and acknowledges that no portion of the assets used to acquire or hold its
interest in the new notes constitutes or will constitute the assets of any Plan.
Upon receipt by any of our officers or directors of a notice in writing from the registrar and transfer agent
that any person which is, or is acting on behalf of, a Plan (an ERISA Person) is the registered holder of our
new notes, any of our officers or directors shall be authorized and empowered and shall be appointed the ERISA
Persons true and lawful agent and attorney-in-fact, with full power of substitution and full power and authority
in its name, place and stead, to make, execute, sign, acknowledge, swear to, record and file a transfer form and
any other documentation on such ERISA Persons behalf transferring the new notes to an unaffiliated person of
the company determined in the good faith discretion of our board of directors for aggregate consideration equal
to US$1.00 and enter such person as the registered holder of such new notes in the register of members.
We, the trustee and any transfer agent shall not be obligated to recognize any resale or other transfer of new
notes made other than in compliance with the above-stated restrictions. We have agreed to deliver a written
notice to each U.S. Purchaser on each anniversary of the closing date of this offering requiring each such U.S.
Purchaser to inform us of any resales or transfers of new notes made in the preceding 12-month period. By
executing and delivering a U.S. Purchasers Letter, each U.S. Purchaser agrees to provide us, upon request, with
any information regarding resales or transfers by each such person that is reasonably required for us to determine
compliance with the above restrictions. We, the trustee and any transfer agent may require any U.S. person or
any person within the United States who is required under these transfer restrictions to be both a qualified
institutional buyer and a qualified purchaser, but is not a qualified institutional buyer and/or a qualified purchaser
at the time it acquires a beneficial interest in our new notes, either directly or indirectly, to transfer those new
notes immediately to a non-U.S. person in an offshore transaction pursuant to Regulation S or, if applicable,
transfer those new notes to a person or entity that is a U.S. person and who is both a qualified institutional buyer
and a qualified purchaser and delivers a U.S. Purchasers Letter. If the obligation to transfer is not met, we are
irrevocably authorized, without any obligation, to sell the new notes on an offshore securities exchange and, if
such new notes are sold, are obligated to distribute the net proceeds to the entitled party.
The transfer restrictions will remain in effect until we determine, in our sole discretion, to remove them.
159
ERISA CONSIDERATIONS
General
The following is a summary of certain considerations associated with the purchase of the new notes by (i) an
employee benefit plan (within the meaning of Section 3(3) of ERISA) that is subject to Title I of ERISA, (ii) a
plan, individual retirement account or other arrangement that is subject to Section 4975 of the U.S. Internal
Revenue Code, (iii) Governmental plans, certain church plans and non-U.S. plans, which, while not subject to
Title I of ERISA or Section 4975 of the U.S. Internal Revenue Code, may nevertheless be subject to other state,
local, non-U.S. or other laws or regulations that would have the same effect as U.S. Department of Labor
Regulation Section 2510.3-101 (as modified by Section 3(42) of ERISA) (the Plan Asset Regulations) so as to
cause our underlying assets to be treated as assets of an investing entity by virtue of its investment (or any
beneficial interest) in us and thereby subject us (or other persons responsible for the investment and operation of
our assets) to laws or regulations that are similar to the fiduciary responsibility or prohibited transaction
provisions contained in Title I of ERISA or Section 4975 of the U.S. Internal Revenue Code (Similar Laws),
and (iv) entities whose underlying assets are considered to include plan assets of any such plan, account or
arrangement pursuant to ERISA, the U.S. Internal Revenue Code, any applicable Similar Law or otherwise (each
of (i), (ii), (iii) and (iv), a Plan). This summary is general in nature and is not intended to be all-inclusive. Due
to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt
prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing the
new notes on behalf of, or with the assets of, any employee benefit plan, consult with their counsel to determine
whether such employee benefit plan is subject to Title I of ERISA, Section 4975 of the U.S. Internal Revenue
Code or any Similar Laws, in which case you are prohibited from purchasing the new notes.
ERISA and the U.S. Internal Revenue Code do not define plan assets. However, the Plan Asset
Regulations generally provide that when a Plan subject to Title I of ERISA or Section 4975 of the U.S. Internal
Revenue Code (an ERISA Plan) acquires an equity interest (including debt with substantial equity features) in
an entity that is neither a publicly-offered security (as defined in the Plan Asset Regulations) nor a security
issued by an investment company registered under the Investment Company Act, the ERISA Plans assets
include both the equity interest and an undivided interest in each of the underlying assets of the entity unless it is
established either that equity participation in the entity by benefit plan investors is not significant or that the
entity is an operating company, in each case as defined in the Plan Asset Regulations. It is not clear whether
the new notes would constitute equity interests for these purposes. For purposes of the Plan Asset Regulations,
equity participation in an entity by benefit plan investors will not be significant if they hold, in the aggregate, less
than 25% of the value of any class of equity interests of such entity, excluding equity interests held by any person
(other than a benefit plan investor) who has discretionary authority or control with respect to the assets of the
entity or who provides investment advice for a fee (direct or indirect) with respect to such assets, and any
affiliates of such person. For purposes of this 25% test, benefit plan investors (as defined in Section 3(42) of
ERISA) include employee benefit plans subject to Title I of ERISA, plans subject to Section 4975 of the U.S.
Internal Revenue Code, as well as any entity whose underlying assets are deemed to include plan assets by
reason of a plans investment in such entity under the Plan Asset Regulations (for example, an entity 25% or
more of the value of any class of equity interests of which is held by benefit plan investors and which does not
satisfy another exception under the Plan Asset Regulations).
It is anticipated that (i) the new notes will not constitute publicly offered securities for purposes of the
Plan Asset Regulations, (ii) we will not be an investment company registered under the Investment Company Act
and (iii) we will not qualify as an operating company within the meaning of the Plan Asset Regulations. In
addition, we will not monitor whether investment in the new notes by benefit plan investors will be significant
for purposes of the Plan Asset Regulations.
160
Plan Asset Consequences
If our assets were deemed to be plan assets of an ERISA Plan whose assets were invested in us, this would
result, among other things, in (i) the application of the prudence and other fiduciary responsibility standards of
ERISA to investments made by us, and (ii) the possibility that certain transactions that we or our subsidiaries
might enter into, or may have entered into, in the ordinary course of business might constitute or result in
non-exempt prohibited transactions under Section 406 of ERISA and/or Section 4975 of the U.S. Internal
Revenue Code and might have to be rescinded. A non-exempt prohibited transaction, in addition to imposing
potential liability upon fiduciaries of the ERISA Plan, may also result in the imposition of an excise tax under the
U.S. Internal Revenue Code upon a party in interest (as defined in ERISA), or disqualified person (as
defined in the U.S. Internal Revenue Code), with whom the ERISA Plan engages in the transaction.
Governmental plans, certain church plans and non-U.S. plans, while not subject to Title I of ERISA or
Section 4975 of the U.S. Internal Revenue Code, may nevertheless be subject to Similar Laws. Fiduciaries of
such plans should consult with their counsel before purchasing or holding any of the new notes.
Because of the foregoing, the new notes may not be purchased or held by any Plan or any person acting on
behalf of any Plan.
Representation and Warranty
In light of the foregoing, by accepting an interest in a note, each holder of a note will be deemed to have
represented and warranted, or will be required to represent and warrant in writing, that no portion of the assets
used to purchase or hold its interest in the note constitutes or will constitute the assets of any Plan. Upon receipt
by any of our officers or directors of a notice in writing from the registrar and transfer agent or Branch Registrar
and Transfer Agent that an ERISA Person is the registered holder of our new notes, any of our officers or
directors shall be authorized and empowered and shall be appointed the ERISA Persons true and lawful agent
and attorney-in-fact, with full power of substitution and full power and authority in its name, place and stead, to
make, execute, sign, acknowledge, swear to, record and file a transfer form and any other documentation on such
ERISA Persons behalf transferring the new notes to an unaffiliated person of the company determined in the
good faith discretion of our board of directors for aggregate consideration equal to US$1.00 and enter such
person as the registered holder of such new notes in the register of members.
161
LISTING AND GENERAL INFORMATION
We were incorporated on October 16, 2003 in the British Virgin Islands as GP Global, Inc. On March 15,
2006, we were redomiciled in Bermuda, under which law we now operate, renamed GP Investments, Ltd. and
assigned Registration No. 38120 by the Bermuda Registrar of Companies. We also have a Legal Representative
in Brazil, located at Av. Brigadeiro Faria Lima, 3900, 7 andar, 04538-132, So Paulo, SP, Brazil, and our
general telephone number is +55 11 3556-5505. The telephone number of our investor relations department is
+55 11 3556-5505.
Application has been made to the Irish Financial Services Regulatory Authority, as competent authority
under Directive 2003/71/EC for the Offering Memorandum to be approved. Application has been made to the
Irish Stock Exchange for the new notes to be admitted to the Official List and trading on its regulated market.
Such approval relates only to the new notes which are to be admitted to trading on the regulated market of Irish
Stock Exchange or other regulated markets for the purposes of Directive 93/22/EEC or which are to be offered to
the public in any Member State of the European Economic Area. We estimate that we will incur expenses
relating to the listing of the new notes and the admission to trading of the new notes on the regulated market of
the Irish Stock Exchange in the amount of approximately $9,000, inclusive of fees.
Pursuant to the guidelines of the Irish Stock Exchange, the Issuer accepts responsibility for the information
contained in this document and to the best of its knowledge the information is in accordance with the facts and
does not omit anything likely to affect the import of such information.
As long as the notes are listed on the Irish Stock Exchange and the guidelines of the exchange require, we
will maintain a paying agent in Ireland. We reserve the right to vary such appointment and will deliver notice of
such change of appointment to the Companies Announcement Office in Dublin.
We have appointed HSBC Institutional Trust Services (Ireland) Limited as the Irish paying agent in Ireland,
HSBC Bank plc as principal agent, transfer agent and registrar, HSBC Bank USA National Association as
trustee, escrow agent and collateral agent and NCB Stockbrokers Limited as the Irish Listing Agent.
For the life of the offering memorandum (by the phrase for the life of the offering memorandum, we mean
as long as the new notes are listed on the Irish Stock Exchange), copies of the following documents will be
available, in physical format, for inspection at one of our offices, which is located at Suite 411, fourth floor of the
International Centre Building, in the City of Hamilton, Bermuda, upon request during normal business hours on
any day except Saturdays, Sundays and public holidays:
our memorandum of continuance and bye-laws;
our historical financial information for the two financial years preceding the publication of this offering
memorandum; and
the indenture, including the form of the notes, and other contracts entered into with the Trustee.
Except as otherwise disclosed in this offering memorandum, there has been no material adverse change in
our prospects since December 31, 2006 and there has been no significant change in our financial position or
trading position since June 30, 2007.
Except as otherwise disclosed in this offering memorandum, we are not, and have not been in the previous
12 months, involved in, and has no knowledge of any threat of, any governmental, legal or arbitration
proceedings which may have, or have had in the recent past, significant effects on the Issuer and/or GP Groups
financial position or profitability.
Except as otherwise disclosed in this offering memorandum and for conflicts of interest that may arise out
of their tenure as directors and officers of other companies (see Management), there are no facts known to us
that would subject our directors and officers to conflicts of interest.
162
The indenture, the new notes and all other transaction documents will be governed by, and construed in
accordance with, the laws of the State of New York. The issue date of the new notes is expected to be October 5,
2007. We expect the new notes to be rated B+ by Standard & Poors Ratings Services and B by Fitch Ratings.
The new notes have been authorized pursuant to unanimous written resolutions of the board of directors of the
Issuer adopted on September 25, 2007.
Claims filed in the courts of Bermuda for payment in respect of the new notes will be subject to the
applicable statute of limitations for such claims, which is currently six years. Claims filed in the courts of the
State of New York will be subject to the applicable statute of limitations of such claims, which currently is six
years.
Our independent auditor, PricewaterhouseCoopers Auditores Independentes, Brazil, is registered with the
following professional organizations: the So Paulo Regional Accounting Board (Conselho Regional de
Contabilidade de So Paulo), the Brazilian Institute of Independent Accountants (Instituto dos Auditores
Independentes do Brasil), the CVM and the Public Company Accounting Oversight Board.
Clearing Information
The new notes will be issued in book-entry form through the facilities of Euroclear and Clearstream. The
international securities identification number (ISIN) for the notes is XS0282340230, and the Common Code is
028234023.
LEGAL MATTERS
Cravath, Swaine & Moore LLP will pass on certain U.S. legal matters for us, Maples and Calder will pass
on certain Cayman Islands legal matters for us and Conyers Dill & Pearman will pass on certain Bermuda legal
matters for us. Cleary Gottlieb Steen & Hamilton LLP will pass on certain U.S. legal matters for the initial
purchasers.
INDEPENDENT AUDITORS
The consolidated financial statements as of and for the years ended December 31, 2006, 2005 and 2004
included in this offering memorandum have been audited by PricewaterhouseCoopers Auditores Independentes,
Brazil, as stated in their report appearing in this offering memorandum.
163
FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of December 31, 2006, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004 . . . . . . . . . . . . F-5
Statements of Changes in Shareholders Equity for the Years Ended December 31, 2006, 2005 and
2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004 . . . . . . . . F-7
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Condensed Consolidated Interim Financial Information for the Six Month Periods Ended June 30, 2007
and 2006 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Condensed Consolidated Interim Balance Sheets as of June 30, 2007 and December 31, 2006
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-34
Condensed Consolidated Interim Statements of Income for the Six-Month Periods Ended June 30, 2007
and 2006 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
Condensed Statements of Changes in Shareholders Equity for the Periods Ended June 30, 2007 and
March 31, 2007 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36
Condensed Consolidated Interim Statements of Cash Flows for the Six-Month Periods Ended June 30,
2007 and 2006 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-37
Notes to the Condensed Consolidated Interim Financial Information (unaudited) . . . . . . . . . . . . . . . . . . . . . . . F-39
F-1
GP Investments, Ltd.
Consolidated Financial Statements as of
December 31, 2006, 2005 and 2004
and Report of Independent Auditors
F-2
Report of Independent Auditors
To the Board of Directors and Shareholders
GP Investments, Ltd.
1 In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
income, of cash flows and of changes in shareholders equity present fairly, in all material respects, the
financial position of GP Investments, Ltd. and its subsidiaries as of December 31, 2006, 2005 and 2004, and
the results of their operations and their cash flows for each of the three years then ended, in conformity with
accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
2 As discussed in Note 2 (b) to the consolidated financial statements, in the year ended December 31, 2006,
GP Investments III (Cayman), Ltd., a subsidiary of the Company, changed the manner in which it accounts
for its investments in GP Capital Partners III, LP.
So Paulo, March 9, 2007
PricewaterhouseCoopers Eduardo Rogatto Luque
Auditores Independentes Contador CRC 1SP166259/O-4
CRC 2SP000160/O-5
F-3
GP Investments, Ltd.
Consolidated Balance Sheets as of December 31
In thousands of U.S. dollars
2006 2005 2004
Assets
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,665 30,403 2,389
Financial investmentstrading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,765 27,171 13,081
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,519
Loans and receivables from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,594
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,366 450 8
329,315 58,024 20,072
Non-current assets
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,884 17,193 3,846
Investment in properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,025
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579 563 41
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937 5 3
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504,715 81,810 23,962
Liabilities and shareholders equity
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,986 328 6
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455 302 140
Payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602 784 8
Accrued performance bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,234 6,501 307
Loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,454 700
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,588
Deferred management fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,062 3,199
Dividends declared and payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 808 8,009 13
Payable to a related party for acquisition of investment . . . . . . . . . . . . . . . . . . . . . 11,500
Payable for acquisition of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
17,739 25,028 5,053
Non-current liabilities
Loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,184
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,244
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,427 767
Shareholders equity
Share capital (200622,129,246 shares of Class A and 7,534,900 shares of
Class B)
(2005 (*)7,534,900 shares of a Single Class) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 38 50
(2004 (*)6,786,400 shares of Class A and 3,193,600 shares of Class B)
Treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,030)
Share premium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,194 6,248 15,178
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,914 29,015 6,101
Receivables from shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,857) (1,758) (1,493)
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (146) 228 103
372,365 33,771 18,909
Total liabilities and shareholders equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504,715 81,810 23,962
(*) Adjusted retrospectively to conform to the split of Class B shares on March 31, 2006.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GP Investments, Ltd.
Consolidated Statements of Income
Years Ended December 31
In thousands of U.S. dollars, except number of shares and per share information
2006 2005(* ) 2004(* )
Revenues
Management and performance fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,519 1,565 713
Advisory fees and other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 1,453 478
Appreciation in fair value of trading securities . . . . . . . . . . . . . . . . . . . . . 6,314 13,808
Appreciation in fair value of investments of consolidated limited
partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,424
Equity in results of affiliated company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 10,314
Realized gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,385 12,908
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,275 40,048 1,191
Expenses
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,999) (2,720) (104)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,175) (5,440) (617)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (181)
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,355) (8,160) (721)
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,732 858 189
Financial expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (456) (105)
Foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,321) (2,280) (1,493)
Financial income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,955 (1,527) (1,304)
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,546
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,778)
Income (loss) from continuing operations before taxation . . . . . . . . . . . . 27,643 30,361 (834)
Income tax and contribution social . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,168)
Net income (loss) from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . 26,475 30,361 (834)
Net income (loss) from discontinued operations (Notes 2(t) and (u)) . . . (457) 5,723 6,798
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,018 36,084 5,964
Weighted average number of sharesbasic and diluted. . . . . . . . . . . . . . 20,625,523 7,494,076 9,848,712
Basic earnings (loss) per sharesbasic and diluted
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.28 4.05 (0.08)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02) 0.76 0.68
Total net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26 4.81 0.60
(*) Adjusted retrospectively to conform to the split of Class B shares on March 31, 2006.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GP Investments, Ltd.
Statements of Changes in Shareholders Equity
In thousands of U.S. dollars
Share
capital
Treasury
shares
Share
premium
Retained
earnings
Receivables
from
shareholders
Accumulated
other
comprehensive
income Total
At December 31, 2003 . . . . . . . . . . . . . . . . 50 28,663 137 (434) 26 28,442
Distribution of cash dividends. . . . . . (8,832) (8,832)
Changes in receivables from
shareholders . . . . . . . . . . . . . . . . . . . (1,059) (1,059)
Dividends distributed in kind . . . . . . (7,818) (7,818)
Acquisition of treasury shares . . . . . . (1,030) (1,030)
Loans forgiven . . . . . . . . . . . . . . . . . . . 3,165 3,165
Net income of the year . . . . . . . . . . . . 5,964 5,964
Cumulative translation
adjustment. . . . . . . . . . . . . . . . . . . . . 77 77
Comprehensive income . . . . . . . . . . . 6,401
At December 31, 2004 . . . . . . . . . . . . . . . . 50 (1,030) 15,178 6,101 (1,493) 103 18,909
Distribution of cash dividends. . . . . . (1,755) (1,755)
Changes in receivables from
shareholders . . . . . . . . . . . . . . . . . . . (265) (265)
Dividends distributed . . . . . . . . . . . . . (10,154) (11,415) (21,569)
Contributions of net assets from GP
Holdings in GP . . . . . . . . . . . . . . . . 1,593 1,593
Acquisition of shares for treasury
offsetting loans receivables . . . . . . (3,297) (3,297)
Sale of treasury shares offsetting
loans receivables . . . . . . . . . . . . . . . 1,036 1,036
Contributions of GPAM and GPRE
net assets . . . . . . . . . . . . . . . . . . . . . . 2,910 2,910
Cancellation of treasury shares . . . . . (12) 3,291 (3,279)
Net income for the year . . . . . . . . . . . 36,084 36,084
Cumulative translation
adjustment. . . . . . . . . . . . . . . . . . . . . 125 125
Comprehensive income . . . . . . . . . . . 36,209
At December 31, 2005 . . . . . . . . . . . . . . . . 38 6,248 29,015 (1,758) 228 33,771
Reversal of distribution of cash
dividends. . . . . . . . . . . . . . . . . . . . . . 3,470 3,470
Capital subscriptionIPO. . . . . . . . . 222 327,572 327,794
IPO expenses . . . . . . . . . . . . . . . . . . . . (20,563) (20,563)
Changes in receivables from
shareholders . . . . . . . . . . . . . . . . . . . (99) (99)
Share based compensation
recognized during the period. . . . . 1,937 1,937
Net income for the year . . . . . . . . . . . 26,018 26,018
Cumulative translation
adjustment. . . . . . . . . . . . . . . . . . . . . (374) (374)
Unrealized gain on
available-for-sale securities. . . . . . 411 411
Comprehensive income . . . . . . . . . . . 26,055
At December 31, 2006 . . . . . . . . . . . . . . . . 260 315,194 58,914 (1,857) (146) 372,365
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GP Investments, Ltd.
Consolidated Statements of Cash Flows
Years Ended December 31
In thousands of U.S. dollars
2006 2005 2004
Cash flows from operating activities
Continuing operations
Net income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,475 30,361 (834)
Reconciliation of net income to cash from operating activities
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,778
Appreciation in fair value of the investments of a consolidated limited
partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,424)
Equity in the results of affiliated companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . (146) (10,314)
Appreciation in fair value of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . (6,314) (13,808)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Loss on sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319
Deferred interest and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (138)
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,937
Changes in assets/liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,491 (9,610) 23,448
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,297)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,941)
Accrued performance bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,614) 6,500 (537)
Accounts payable, accruals and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,302 736 40
Deferred management fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,062) 3,871
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Net operating cash provided by continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . 17,641 7,736 22,117
Discontinued operations
Net income (loss) from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457) 5,723 6,798
Reconciliation of net income (loss) to cash from operating activities . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Equity in the results of affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . (67)
Changes in assets/liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,894
Accrued performance bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (308)
Accounts payable, accruals and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (261) (3)
Receivable from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (3,199) (111)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net operating cash provided by discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . 15,325 2,213 6,675
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,966 9,949 28,792
Cash flows from investing activities
Continuing operations
Acquisition of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (106,422) (693)
Proceeds from (acquisition of) sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . 7,283 2,240 (2,000)
Proceeds on placement of debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Capital contribution in investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (130) (1,703)
Investments in properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73)
Proceeds from sale of investment by limited partnerships . . . . . . . . . . . . . . . . . . . . 6,959
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,546)
Gain on investment in Bexia Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (921)
Redemption of capital in investment at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417
Cash acquired from an investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,061
Dividends received. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,971 422
Net cash provided by (used in) continuing investing activities . . . . . . . . . . . . . . . . . . (88,006) 1,839 (3,703)
F-7
GP Investments, Ltd.
Consolidated Statements of Cash Flows(Continued)
Years Ended December 31
In thousands of U.S. dollars
2006 2005 2004
Discontinued operations
Investments in properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,914)
Investments in other companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (346)
Initial balance of cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (261)
Net cash used in discontinued investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,521)
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (103,527) 1,839 (3,703)
Cash flows from financing activities
Continuing operations
Capital subscription, net of expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,231
Proceeds from loans raised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,440 5,965
Repayments of loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,062) (361)
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,755) (1,755) (2,278)
Acquisition of treasury shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (680) (218)
Payment of loans with related party, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,057)
Capital contribution in GPCP III by limited partners . . . . . . . . . . . . . . . . . . . . . . . . 50,245
Cash acquired as a result of the corporate reorganization . . . . . . . . . . . . . . . . . . . . 16,861
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,329
Net cash provided by (used in) continuing operations from financing activities . . . 356,428 16,973 (2,496)
Discontinued operations
Payments of loans with related party, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (700) (1,825)
Proceeds from loans and financing raised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867 1,700
Repayments of loans and financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,030)
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,610)
Net cash provided by (used in) discontinued operations from financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867 (700) (20,765)
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 357,295 16,273 (23,261)
Effects of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . (4,472) (47) (11)
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,262 28,014 1,817
Cash and cash equivalents at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,403 2,389 572
Cash and cash equivalents at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,665 30,403 2,389
Supplemental information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 127 27
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,119
Non-cash transactions
Payable to a related party for acquisition of investment . . . . . . . . . . . . . . . . . . . . . 11,500
Dividends distributed in kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,847) (7,819)
Contributions in kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165
Acquisition of shares for treasury offsetting loans receivable . . . . . . . . . . . . . . . . (3,298) (132)
Sale of treasury shares offsetting loans receivables . . . . . . . . . . . . . . . . . . . . . . . . . 1,036
Contribution of GPAM and GPRE net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,911
Net assets contributed from GP Holdings to increase participation in GP . . . . . . 1,593
The accompanying notes are an integral part of these consolidated financial statements.
F-8
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004
In thousands of U.S. dollars, unless otherwise indicated
1 Business
(a) Operations and structure
The operations of GP Investments, Ltd. (Company, or we or GP) comprise our private equity
business, including the management of Limited Partnerships, and our asset management activities, which are
conducted directly or indirectly through our subsidiaries GP Investments III (Cayman), Ltd. (GP3),
GP Holdings, Inc. (GP Holdings), GP Investimentos S.A. (GP Inv), GP Asset Management, Inc. (GPAM),
GP Administrao de Recursos S.A. (GP Asset), GP Private Equity Ltd. (GPPE) and GP Cash Management,
Ltd. (GPCM).
On March 23, 2004, we repurchased 10,000 Class B shares of the Company in the amount of US$ 100 from
one of our shareholders, who left the Company. Such shares were held in treasury and cancelled on October 20,
2004, when we also repurchased additional shares for treasury in the amount of US$ 1,030,321 from several of
our shareholders, being 218,750 Class A shares and 130,550 Class B shares. Also on October 20, 2004, a number
of conversions of shares were effected, and, as a result, our share capital was divided into 3,393,200 Class A
shares and 1,596,800 Class B shares.
On January 7, 2005, we repurchased for treasury 1,047,900 Class A shares in the amount of US$ 3,297,574
from one of our shareholder, who left the Company. This repurchase was made in conformity with the provisions
of a certain share purchase agreement entered into between and among the Company, the shareholder and other
parties, named therein.
On December 30, 2005, the Company entered into a corporate reorganization and as part of the various
transactions contemplated therein, the Board of Directors consented to and adopted the following resolutions:
(i) the declaration of a dividend in kind of all the shares of GP Investments I, Ltd. (GP1) and GP Investments
II, Ltd. (GP2) held by the Company, in the total amount of US$ 12,847, separating, in consequence, the
management of GP Capital Partners, L.P. which was succeeded by New GP Capital Partners A, L.P. (GPCP A)
and New GP Capital Partners B, L.P. (GPCP B), International Textile Capital Partners, L.P. (ITCP) and
International Rail Capital Partners, L.P. (IRCP) (being collectively GPCP1) and GP Capital Partners II L.P.
(GPCP2) from us; (ii) the cancellation of 1,222,550 shares held in treasury in the amount of US$ 3,280; (iii) the
re-designation of the share capital of the Company as 3,767,450 shares consisting of a single class; (iv) the
contribution of the entire issued capital of the Company to Partners Holdings, Inc. (Partners Holdings), which
became the sole shareholder of the Company; and (v) the declaration of a dividend in the amount of US$ 8,722 to
Partners Holdings.
On December 30, 2005, the Company received net assets of US$ 2,911 which comprised the asset
management and real estate businesses of GP Administrao de Recursos S.A. and GP Investimentos
Imobilirios S.A. recorded at fair value.
On March 9, 2006, the Board of Directors agreed to change the Companys domicile from British Virgin
Islands (BVI) to the Islands of Bermuda (Bermuda), which was effected on March 15, 2006, upon
registration of the Company with the Registrar of Companies (Bermuda Islands) under the name GP Investments,
Ltd.
On May 30, 2006, the Company concluded its Initial Public OfferingIPO process by issuing 20,338,983
Class A Shares. The shares are listed on The Luxembourg Stock Exchange and traded on the Euro MTF market.
In addition, the shares in the form of Brazilian Depositary Shares are listed and traded on the So Paulo Stock
F-9
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
Exchange (Bovespa). On June 30, 2006, Banco de Investimento Credit Suisse (Brasil) S.A. partly exercised the
option to place up to 3,050,847 shares (the Green Shoe Option), subscribing 1,790,263 Class A Shares, in the
form of BDS. The net proceeds of the offer, including the Green Shoe Option, amounted to US$307,231.
On December 8, 2006, we incorporated a wholly-owned subsidiary, GPPE, with the sole purpose of
concentrating the investments made by our private equity business. The shares of GPPE were offered as
collateral pursuant to our obligations under the perpetual notes issued on January 18, 2007 (Note 15).
On December 18, 2006, GPCM was incorporated to be the entity responsible for managing our subsidiaries
cash and cash equivalents.
(b) Private equity business
We conduct private equity primarily in the Brazilian market, through GPPE, either directly or through
private equity funds that we manage such as GPCP3.
GP3 is the General Partner responsible for investment and divesture decisions of the GP Capital Partners III,
LP (GPCP3). The rights and obligations of the General Partner and the Limited Partners of GPCP3 are
described in its Partnership Agreement. On June 19, 2006, GPCP3 closed with US$ 250,000 of committed
capital. The investment period will end on June 7, 2010 and the fund will terminate on June 7, 2015, but may be
extended at the discretion of GP3s Advisory Committee.
(c) Asset management business
We conduct asset management primarily in the Brazilian market, through our majority-owned subsidiaries
and GP Asset. The current products offered by GP Assets include fixed income funds, equity funds and hedge
funds, all of which focus on different risk profiles and investor bases.
(d) Subsidiaries as of December 31
At December 31, 2006, the Company was the owner of 100% of GP Holdings, a Cayman Islands entity,
which, in turn, held 99.99% of the share capital of GP Inv, a Brazilian corporation. GP Inv is the local advisor of
the Company and GPCP3 with respect to the acquisition, management and disposition of investments, in
accordance with certain advisory agreements entered into by GP Inv, GP3 and GPCP3.
At December 31, 2006, the Company was the owner of 100% of GP3, the General Partner of GPCP3. On
June 9, 2006, we increased our committed capital contribution in GPCP3 from US$ 45,000 to US$ 117,150 and
at December 31, 2006 hold 46.86% of GPCP3s committed capital.
At December 31, 2006, GP Inv is the owner of 64.5% (200568%) of both GP Asset and GPAM, a
company regulated by Panamanian laws which serves as investment adviser and portfolio manager of a Cayman
Islands based third party mutual fund.
At December 31, 2006, the Company was the owner of 100% of GPPE and GPCM.
2 Summary of Significant Accounting Policies
(a) Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (US GAAP).
F-10
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
The preparation of financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue and expenses and related disclosures in the financial
statements. Actual results could differ from those estimates.
(b) Consolidation
The consolidated financial statements as of December 31, 2006 include the accounts of the Company and its
wholly-owned subsidiaries GP3, GP Holdings, GPPE and GPCM and its subsidiary GPAM.
The corporate reorganization which effected on December 30, 2005 resulted in the consolidation of the
assets and liabilities of GP Inv, GP Asset and GP Investimentos Imobilirios S.A. (GPRE). Because the
contribution to GP occurred on December 30, 2005, the statements of income for the years ended December 31,
2005 and 2004 do not include the revenues and expenses of GP Inv, GP Asset and GPRE. The statements of
income for the years ended December 31, 2005 and 2004 include the revenues and expenses of GP1 and GP2 as
net income from discontinued operations. The balance sheets as of December 31, 2006 and 2005 exclude the
assets and liabilities of GP1 and GP2, which were distributed to shareholders on December 30, 2005.
All intercompany accounts and transactions are eliminated on consolidation.
The Company applies the consolidation principles determined by AICPA Accounting Research Bulletin
no. 51, Consolidated Financial Statements and Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) no. 94, Consolidation of All Majority-owned Subsidiaries.
On June 29, 2005, the Emerging Issues Task Force (EITF) reached consensus and published EITF 04-5:
Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights. The EITF states that the general partners in a
limited partnership are presumed to control that limited partnership regardless of the extent of the general
partners ownership interest in the limited partnership. The assessment of whether the rights of the limited
partners should overcome the presumption of control by the general partners is a matter of judgment that depends
on facts and circumstances. If the limited partners have either (i) the substantive ability to dissolve (liquidate) the
limited partnership or otherwise remove the general partners without cause or (ii) substantive participating rights,
the general partners do not control the limited partnership.
In accordance with the Partnership Agreement of the GPCP3, the General Partner may be removed without
cause with the consent of 75% of the partners, which is above the simple majority required by the EITF 04-5;
therefore the Limited Partners of GPCP3 do not have substantive dissolution rights. The Company has
determined that the Limited Partners had no other substantive participating rights and that the General Partner
controls GPCP3.
The EITF 04-5 came into effect January 1, 2006 in the case of the Company. As at December 31, 2006 and
for the year then ended, the EITF 04-5 has resulted in the consolidation of the accounts of GPCP3 by GP3, which
in turn is consolidated by the Company. The 53.14% interest owned by the Limited Partners is classified as
minority interest. Accordingly, all assets and liabilities and revenues and expenses of GPCP3 are reflected on the
consolidated balance sheet and statement of income of the Company and the proportion of assets and liabilities
not owned by the Company and the corresponding revenues and expenses are presented as minority interest in a
single line item.
F-11
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
The following table summarizes the financial information related to GPCP3 as of December 31.
2006 2005
Balance sheet
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,051 44
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,156 78,777
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,874) (10)
Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,333 78,813
Statement of income
Realized and unrealized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,369 75,626
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,118) (2,431)
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,251 73,195
GPCP3 started its operations on June 8, 2005.
Upon consolidation of GPCP3 by GP3 pursuant to EITF 04-5, the Company records the investment portfolio
of GPCP3 on a fair value basis. Previously, GP3 accounted for GPCP3 using the equity method; the underlying
assets of GPCP3 are recorded on a fair value basis.
During the year ended December 31, 2006, the Limited Partners of GPCP3, excluding GP3, paid
management fees to GP3 in the amount of US$ 1,656. In the consolidated statement of income for the year ended
December 31, 2006, this amount is presented as a reduction of minority interest.
(c) Basis of translation of foreign subsidiaries
The U.S. dollar is the functional and the reporting currency of the Company, since the Company transacts
the majority of its business in U.S. dollars. The Brazilian entities use the Real as their functional currency. The
financial statements of foreign subsidiaries are remeasured in accordance with SFAS no. 52 Foreign Currency
Translation.
Accordingly, all assets and liabilities of the subsidiaries which do not use the U.S. dollar as their functional
currency are translated into U.S. dollars at balance sheet exchange rates and statements of income and of cash
flow accounts at the average rates of exchange in effect during the periods. The related translation adjustments
are recorded directly to the cumulative translation adjustment account in shareholders equity.
(d) Recognition of asset management, performance and other fees
Management fees from our private equity business are generally received semi-annually in advance and are
deferred and recognized as income over the period in which the related services are performed.
Management fees from our asset management business are determined over the net asset values of the funds
under management. Such management fees are recorded on an accrual basis as services are performed.
Performance fees are recorded as revenues upon their irrevocable payment or are recorded on an accrual
basis when payment is guaranteed. Other fees, principally advisory fees are recorded on an accrual basis as
services are performed.
F-12
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
(e) Cash and cash equivalents
Cash and cash equivalents are stated at fair value. The Company considers all highly liquid and temporary
cash investments, including money market funds, having a ready market and an original maturity of 90 days or
less, to be cash equivalents.
(f) Financial investmenttrading securities
Securities that are bought and held principally for the purpose of resale in the near term are classified as
trading assets and are stated at fair value.
Fair value is generally based on quoted market prices. If quoted market prices are not available, fair values
are estimated based on dealer quotes, pricing models or quoted pricing models or quoted prices for instruments
with similar characteristics. Realized and unrealized gains and losses are recognized in revenues when such
securities are held for trading as part of our private equity business and in financial income when securities are
held for trading as part of our treasury operations.
(g) Financial investmentsavailable for sale
Securities are classified at the date of purchase as available for sale when, in managements judgment, they
may be sold in response to or in anticipation of changes in market conditions, being carried at fair value with net
unrealized gains and losses included in shareholders equity. Securities are classified based on managements
intention. Upon sale or maturity, the gain or loss is transferred to the revenues in the statement of income.
(h) Investments
Equity investees and other investments, where we own between 20% and 50% of voting capital, are
accounted for using the equity method of accounting. Under this method our share of results of the investee, as
reported under US GAAP, is recognized in the statement of income as Equity in results of affiliated company
and dividends are credited when declared to Investments in the balance sheet.
Interests of less than 20% in companies with no readily determinable market value are recorded at cost
(unless we have the ability to exercise significant influence over the operations of the investee, in which case we
use the equity method). Dividends are recognized in income when received. Significant influence over the
operating and financial policies of affiliated companies is achieved by the Company taking into account the
common interest of related parties participating jointly in the affiliated companies.
None of our investments in unconsolidated companies, analyzed on an individual or aggregated basis, are
considered significant for additional disclosures in our consolidated financial statements.
In January 2003, the FASB issued Interpretation no. 46 Consolidation of Variable Interest Entities,
revised in December 2003 (FIN 46R). The Company has no Special Purpose Financing Entities (SPEs) or
Variable Interest Entities (VIEs) which would have required consolidation in the periods presented according
to FIN 46R.
(i) Other than temporary impairment
Since November 2003, we have followed the policies issued by EITF 03-01, The Meaning of Other Than
Temporary Impairment and Its Application to Certain Investments, as it relates to disclosures for SFAS no.115
F-13
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
securities. In addition to the disclosures already required by SFAS no. 115, EITF 03-01 requires complementary
quantitative and qualitative disclosures of marketable equity and debt securities for fiscal years ending after
December 15, 2003. Management concluded that no impairments were needed for the periods presented.
(j) Furniture and equipment
Furniture and equipment are stated at cost and are depreciated using the straight-line method over their
estimated useful lives.
(k) Current and non-current liabilities
These are stated at known or estimated amounts including accrued charges, when applicable. The liability
for future compensation for employee vacations is fully accrued as earned. Accrued performance bonuses relate
to performance-based payments and are accrued as earned. Bonus expenses refer to the variable compensation
that every partner, officer or employee is eligible. General and administrative expenses include compensation
expense paid to certain of our executives who render services to the Company and who are also ultimate
shareholders of the Company. Such amounts are paid to the individuals in their capacity as executives rather than
as shareholders of the Company.
(l) Comprehensive income
Comprehensive income is presented in the Statement of Changes in Shareholders Equity and consists of net
income, unrealized gains and losses from available for sale investments and translation adjustments of foreign
subsidiaries.
(m) Earnings per share
The Company computes the basic earnings per share by dividing the net income by the weighted-average
number of shares outstanding during the period. The Company computes the diluted earning per share by
dividing the net income by the weighted-average of shares outstanding inclusive of the impacts of the options
granted under SFAS no. 123R revised 2004, Shared-Based Payment. The 2005 and 2004 earnings per share
were adjusted retrospectively to conform to the split of Class B shares on March 31, 2006.
(n) Income taxes
BVI and Bermuda currently levy no income, corporation or capital gains taxes. Accordingly, no provision
for income taxes is included in the financial statements with respect to the Company, GPPE and GPCM.
GP1, GP2 and GP3 and GP Holdings are entities registered in the Cayman Islands and are tax-exempt.
GPAM, a Panamanian registered company, does not have any income from Panamanian sources and therefore,
no provision for current income taxes is required.
GP Inv, GP Asset and GPRE as Brazilian entities are subject to Brazilian income tax. Brazilian income
taxes consist of federal income and social contribution taxes.
For the purposes of these consolidated financial statements, the Company has applied SFAS no. 109
Accounting for Income Taxes, for all periods presented.
F-14
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
In the event deferred tax assets are not considered more-likely-than-not to be recovered, a valuation
allowance is recorded. Brazilian deferred tax assets arising from net operating losses have no expiration dates,
though offset is restricted to 30% of annual income before tax.
(o) Fair value of financial instruments
Management estimates in good faith the fair value of each investment.
The carrying value of the Companys financial instruments, at each balance sheet date, approximates fair
value, reflecting the short-term maturity or frequent repricing of these instruments.
Fair value estimates are made at a specific date, based on relevant market information about the financial
instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment
and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the
estimates.
(p) Segment reporting
The Company has adopted SFAS no. 131, Disclosure about Segments of an Enterprise and Related
Information. We operate principally in two segments, our private equity business, including the management of
Limited Partnerships and our asset management business.
(q) Treasury shares
We acquire our own shares to be held in treasury and record them using the cost method, as a deduction
from shareholders equity. Treasury shares are cancelled against share capital or the share premium account.
(r) Stock options
The Company has adopted SFAS no. 123R revised 2004, Shared-Based Payment. SFAS no. 123R
requires all share-based payments to employees, including grants of employee stock option, to be recognized in
the financial statements based on their fair value.
(s) Presentation of interest earning assets and interest bearing liabilities
Interest earning assets and interest bearing liabilities are presented in the consolidated balance sheet at the
principal amount outstanding plus accrued interest and contractual monetary indexation and foreign exchange
variations.
(t) Discontinued operationsGP1 and GP2
On December 30, 2005, the Company distributed to its shareholders, in the form of a dividend, its holdings
in GP1 and GP2 at their agreed fair values. No gain or loss was recognized as a result of this transaction.
As GP1 and GP2 were components of the Company which comprised operations and cash flows that could
be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company, we
have separately presented the revenues and expenses and cash flows of these subsidiaries as discontinued
operations. Costs and expenses that are expected to continue subsequent to the disposal date are not allocated to
discontinued operations but included in results of continuing operations.
F-15
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
The following table summarizes financial information for results of discontinued operations related to GP1
and GP2:
2005 2004
Revenues
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,603 9,264
Expenses
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,058) (926)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,115) (2,321)
(3,173) (3,247)
Financial income, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 713
Equity in the results of affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Net income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,723 6,798
The following is a summary of the assets and liabilities as of December 31, 2004, after the consolidation
eliminations included in the consolidated financial statements of the Company, related to the operations which
were discontinued upon the distribution of GP1 and GP2:
2004
Assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,927
Loans and receivables from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,222
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,307
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Accrued performance bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700
Deferred management fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,199
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,209
The following table summarizes financial information for discontinued cash flows related to GP1 and GP2:
2005 2004
Cash flows provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,213 6,675
Cash flows used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (700) (20,765)
Cash flows provided by (used in) discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513 (14,090)
F-16
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
(u) Discontinued operationsGPRE
On April 20, 2006, our subsidiary GPRE, which comprised our real estate business, was sold to our former
joint venture partners generating a gain of US$ 2,546.
As GPRE was a component of the Company which comprised operations and cash flows that could be
clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company, we have
separately presented the revenues and expenses and cash flows of GPRE as discontinued operations. Costs and
expenses that are expected to continue subsequent to the disposal date are not allocated to discontinued
operations but included in results of continuing operations.
The following summarizes financial information for results of discontinued operations related to GPRE:
2006
Revenues
Management and performance fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Advisory fees and others services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
186
Expenses
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (620)
Bonuses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182)
(802)
Financial income, trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457)
The following is a summary of the assets and liabilities of GPRE as of December 31, 2005:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,928
Investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,025
Asset-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,832
The following table summarizes financial information for discontinued cash flows related to GPRE:
2006
Cash flows provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,325
Cash flows used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,521)
Cash flows provided by from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867
Cash flows provided by discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
Asset-backed securities
In August 2005, Calaari, a subsidiary of GPRE, signed an asset-backed securitization agreement through
which its anticipated cash flows from the property rental generating proceeds of US$ 24,331. Annual interest
accrues at a fixed rate of 9.0% and the loan falls due in equal annual installments of US$ 1,589 between
F-17
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
July 2006 and July 2021. As of December 31, 2005, Calaari owes US$ 23,833 to Altere Securitizadora S.A., a
related party real estate securitization company, which in turn had issued CRI asset-backed securities in the
market which are secured by the market value of the property. The timing of the rental receipts are matched to
the payments to the Certificados de Recebveis ImobiliriosCRI holders who will receive the first installment
on July 12, 2006. These asset-backed securities were also transferred to our former joint venture partners together
with the investment properties.
(v) Recently issued accounting pronouncements
The Financial Accounting Standards Board (FASB) recently issued a number of Statements of Financial
Accounting Standards and interpretations; neither of the standards or interpretations described below had or are
expected to have a material impact on the financial position and results of operations of the Company.
(i) In February 2006, the FASB issued SFAS no. 155, Accounting for Certain Hybrid Financial
Instruments. SFAS no. 155 amends FASB Statements no. 133, Accounting for Derivative Instruments and
Hedging Activities, and no. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS no. 155 resolves issues addressed in Statement 133 Implementation
Issue no. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. The
main topics are described below:
Permits fair value remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation.
Clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS
no. 133.
Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative
requiring bifurcation.
Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives.
Amends SFAS no. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a
derivative financial instrument that pertains to a beneficial interest other than another derivative
financial instrument.
This Statement is effective for all financial instruments acquired or issued after the beginning of an
entitys first fiscal year that begins after September 15, 2006. The Company believes that such
pronouncement will not have effects on its consolidated financials statements.
(ii) In March 2006, the FASB issued SFAS no. 156, Accounting for Servicing of Financial Assets.
SFAS no. 156 amends SFAS no. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which establishes, among other things, the accounting for all separately
recognized servicing assets and servicing liabilities. SFAS no. 156 amends Statement 140 to require that all
separately recognized servicing assets and servicing liabilities be initially measured at fair value, if
practicable. SFAS no. 156 permits, but does not require, the subsequent measurement of separately
recognized servicing assets and servicing liabilities at fair value. An entity that uses derivative instruments
to mitigate the risks inherent in servicing assets and servicing liabilities is required to account for those
derivative instruments at fair value. Under this Statement, an entity can elect subsequent fair value
measurement to account for its separately recognized servicing assets and servicing liabilities.
F-18
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
An entity shall adopt this Statement as of the beginning of its first fiscal year that begins after
September 15, 2006. Earlier adoption is permitted in certain cases.
The impact of adopting this new rule is dependent on events that could occur in future periods, and as
such, an estimate of the impact cannot be determined until the event occurs in future periods.
(iii) In September 2006, the FASB issued SFAS no. 157, Fair Value Measurements. SFAS no. 157
defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value measurements.
This Statement applies under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting pronouncements that fair value
is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value
measurements. According to the Board, a single definition of fair value, together with a framework for
measuring fair value, should result in increased consistency and comparability in fair value measurements.
This Statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007.
(iv) In September 2006, the FASB issued SFAS no. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements no. 87, 88, 106, and 132(R).
SFAS no. 158 requires an employer to recognize the overfunded or underfunded status of a defined
benefit postretirement plan (other than a multi-employer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in which the changes occur
through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also requires an employer to measure the funded status of a plan as of the date
of its year-end statement of financial position, with limited exceptions.
This Statement requires an employer that is a business entity and sponsors one or more single-
employer defined benefit plans to:
Recognize the funded status of a benefit planmeasured as the difference between plan assets at fair
value (with limited exceptions) and the benefit obligationin its statement of financial position. For a
pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement
benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement
benefit obligation. .
Recognize as a component of other comprehensive income, net of tax, the gains or losses and prior
service costs or credits that arise during the period but are not recognized as components of net periodic
benefit cost pursuant.
Measure defined benefit plan assets and obligations as of the date of the employers fiscal year-end
statement of financial position (with limited exceptions).
Disclose in the notes to financial statements additional information about certain effects on net periodic
benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior
service costs or credits, and transition asset or obligation.
An employer with publicly traded equity securities is required to initially recognize the funded status of
a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year
ending after December 15, 2006. This Statement does not have impacts on the financial statements of the
Company.
F-19
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
(v) In June 2006, the FASB issued FASB Interpretation no. 48 (FIN 48), Accounting for
Uncertainty in Income Taxesan interpretation of FAS 109. This Interpretation clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB
Statement no. 109, Accounting for Income Taxes.
This Interpretation prescribes a (more-likely-than-not) recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.
This Interpretation does not change the classification requirements for deferred taxes. Previously
recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be
derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
Also, following this Interpretation, the use of a valuation allowance as described in Statement 109 is not an
appropriate substitute for the derecognition of a tax position. However, the requirement to assess the need
for a valuation allowance for deferred tax assets based on the sufficiency of future taxable income is
unchanged by this Interpretation.
The Interpretation is effective for fiscal years beginning after December 15, 2006. Earlier application is
encouraged if the enterprise has not yet issued financial statements, including interim financial statements,
in the period this Interpretation is adopted. The Company has completed an assessment and believes that the
adoption of such Interpretation will not have a significant impact on its financial statements.
3 Cash and Cash Equivalents
Currency Domicile 2006 2005 2004
Cash
Cash at bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ Brazil 1,055 1,880 417
Cash at bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ USA 8,561 539 54
9,616 2,419 471
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ Various 303,049 27,984 1,918
312,665 30,403 2,389
The Company holds practically all of its cash position in high grade liquid U.S. dollar assets.
F-20
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
4 Financial InvestmentsTrading Securities
Currency Domicile 2006 2005 2004
Investment funds (at fair value)
Alchemy Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ Cayman
Islands
8,061 8,930 15
GP FIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ Brazil 1,893 2,087
Fundo M20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ Brazil 1,188 942
Fundo Long Short . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ Brazil 1,134 129
Fundo Iporanga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ Brazil 555
Fundo Petropolis Plus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ Brazil 536
Fundo Araras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ Brazil 398
Quimifar Investment Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . US$ Belize 1,250 6,564
Synergy Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ Cayman
Islands
5,947
Latin America Income Strategies Fund. . . . . . . . . . . . . . . . . . US$ Cayman
Islands
555
13,765 13,338 13,081
Marketable securities (at fair value) shares. . . . . . . . . . . . . . . . . . . R$ Brazil 13,833
13,765 27,171 13,081
Our cash management strategy is mainly focused on the preservation of capital and on providing the level of
liquidity compatible with the needs of the private equity business. The investments funds denominated in Reais
as described above refer to investments held by GP Asset.
The funds, Alchemy Fund, GP FIA, M20, Long Short, Petropolis Plus, Iporanga and Araras are managed by
the Company or by its subsidiaries GPAM and GP Asset.
5 Receivables from (Payable to) Related Parties
(a) Management and performance fees receivablecurrent assets
As of December 31, 2006 the Company had US$ 1,519 (2005nil; 2004nil) of management and
performance fees receivable from funds under the management of our asset management activities and related to
GP Asset.
(b) Current assets
Currency
Annual
interest rate 2004
Related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ None 1,708
Related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ CDI and SELIC 749
GP Inv . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ None 1,492
GP Inv . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ None 644
Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ Various 1
4,594
F-21
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
Index: CDIInterbank Deposit Certificate; SELICInterest rate as determined by the Brazilian Central
Bank for securities issued by governmental entities.
There are no specific maturity dates.
(c) Amounts deducted from shareholders equity
EITF 85-1 Classifying Notes Received for Capital Stock requires that when a company receives a note,
rather than cash, as a contribution to its equity, the company should report the note receivable as a reduction of
shareholders equity or as an asset. In accordance with this EITF, the changes in the loans and receivables from
related parties resulting from capital transactions have been presented as a reduction to shareholders equity.
Currency Annual interest rate 2006 2005 2004
Shareholders of GP Investments, Ltd. . . . . . . . . . . . . . . . . . . US$ LIBOR + 3% and
IGP-M + 12%
1,857 1,595
Shareholders of GP Investments, Ltd. . . . . . . . . . . . . . . . . . . US$ 3.5% to LIBOR
6 months + 3%
163 1,493
1,857 1,758 1,493
LIBORLondon Interbank Offered Rate
IGP-MIndice Geral dos Precos de Mercado
The receivables from related parties refer to a deferred purchase price agreement, in which shareholders of
the Company owe payments relating to their acquisition of shares in our subsidiary GPAM. There are no
specified maturity dates.
(d) Accrued performance bonuses
The accrued performance bonuses as of December 31, 2006 amounted to US$ 2,234 (2005US$ 6,501;
2004US$ 307). This amount includes US$ 1,078 (2005US$ 3,980; 2004307) payable to related parties.
F-22
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
6 Investments
Interest% 2006 2005 2004
Investments in Limited Partnership (2005: at equity method
GPCP3: 13.96%)(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,998
Investments in Fundsavailable for sale (at fair value)(ii)
Fundo IGP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.30 7,061
Fundo GP Aetatis II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.88 1,447 1,143
Fundo Monte Verde. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.91 1,434 1,182
Fundo Logstica Brasil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.60 261
Fundo Brascan Petroleo/Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.50 106 611
Fundo GP Desenvolvimento FIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.26 101
Fundo GP Tecnologia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11 1,849
GP Energia L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10,422 4,785 2,000
Investments of consolidated Limited PartnershipGPCP3
Ecisa(iii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.5 62,500
Equatorial Energia S.A.(iv) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.89 57,152
Fogo de Cho Churrascarias (Holdings), LLC(v) . . . . . . . . . . . . . . . . 20.00 32,004
IHH/USS(vi) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 11,500
163,156
Investments at cost
Timissoara Participaes Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.98 306 1,410 1,702
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
306 1,410 1,846
173,884 17,193 3,846
(i) EITF 04-5 came into effect on January 1, 2006 and resulted in the consolidation of the accounts of GPCP3
by GP3, which in turn is consolidated by the Company.
(ii) Investments in Funds available-for-sale represent primarily closed funds invested in various assets.
(iii) On December 20, 2006, the Company concluded a transaction whereby GPCP3 through an investment
vehicle, together with a co-investor acquired 55% of the total capital of ECISA Group Ecisa), a Brazilian
corporation, for US$ 171,000. The shares of Ecisa owned by the investment vehicle and future dividends,
interest on capital, profits, and premiums to be paid by Ecisa to the investment vehicle are used as collateral
of a loan agreement signed by the investment vehicle.
(iv) At December 31, 2006, GPCP3s held 10,148,505 common and 9,298,611 preferred shares in Equatorial
Energia S.A., a Brazilian corporation.
(v) August 23, 2006, the Company signed an agreement through which the Company jointly with co-investors
acquired 40% of Fogo de Cho Churrascarias (Holdings), LLC, a US corporation, for US$ 64,000. GPCP3
provided 50% of the investment through Fogo de Cho Holdings, Inc. and co-investors the remainder.
(vi) The Company, through an investment vehicle of GPCP3, entered into certain agreements with the
shareholders of Integrated Health Holdings Incorporated (IHH) and USS Solues Gerenciadas Ltda.
(USS) to acquire approximately 32% of the total and voting capital of a corporation denominated
Igaratinga Participaes S.A. which owns IHH and USS. In December 2006, GPCP3 purchased from
F-23
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
GPCP2 356,229 shares (participation of 8.8%) in the capital of IHH and in January 2007, GPCP3 completed
a second acquisition of an additional interest of 23.2% (for a consideration of US$ 28,052). GPCP2 is a
limited partnership whose general partner is GP2, which is a related party of the Company. The transfer of
the shares from GPCP2 to GPCP3 was approved by Class A shareholders of the Company in an
extraordinary general meeting held on January 8, 2007. As a result of this transaction, the Company owed
an amount of US$ 11,500 payable to GPCP2 as of December 31, 2006.
On July 19, 2006, the Company consumated an agreement with the two owners of Investimentos e
Participaes em Infra-Estrutura S.A.INVEPAR (Invepar), Brazilian Corporation, whereby GPCP3 and
the Company will have the right but not the obligation to acquire one-third of the total and voting capital of
Invepar. The Company is committed to subscribe for up to an amount of US$ 97,000 in Invepar. No capital
investment has been made as of December 31, 2006. The agreement is subject to certain conditions to be
met by Invepar and its owners. As of December 31, 2006, the Company had not exercised its right.
7 Taxes
As of December 31, 2006, the Company has an interest in Brazilian tax losses available for offset against
future taxable income of US$ 7,068 (2005US$ 6,438; 2004US$***). Accordingly, the tax effect of net
operating loss carryforwards totaled US$ 2,403 as of December 31, 2006 (2005US$ 2,189; 2004US$***). A
full allowance has been provided for by the Company.
Income tax and social contribution amounts for the years ended December 31, 2006, 2005 and 2004,
presented in the statement of income were reconciled as follows to their nominal rates:
2006 2005 2004
Net income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 27,643 30,361
Income tax and social contribution at nominal rates34%. . . . . . . . . . . . . . . . . . . . . . . . . . (9,399) (10,323)
Adjustments to obtain the effective rate
Non taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,894 10,323
Net effect of the presumed profits tax regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (818)
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,168)
8 Loans and Financings
Currency
Annual interest
rate% 2006 2005 2004
Third parties
Banco Ita BBA S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R$ CDI + 0.85 7,184
Banco Ita BBA S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 6.9 5,371
Banco ABC Brasil S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 6.9 1,003
Banco Ita BBA S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 4.5 700
7,184 6,374 700
Related parties
Shareholders of GP Investments, Ltd. . . . . . . . . . . . . . . . . . . . US$ LIBOR + 3% 80
80
7,184 6,454 700
F-24
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
CDIInterbank Deposit Rate.
As of December 31, 2006, the Company, through a subsidiary, GP Asset, had a five year loan due in 2011 to
Banco Ita BBA S.A. The loan was consummated on December 15, 2006 and is guaranteed by the investments
owned by the Company. The amount recorded as of December 31, 2006 includes accrued interests.
The amounts due to Banco Ita BBA S.A. at December 31, 2005 relate to revolving lines of credit which
fell due on March 27, 2006 (principal amount of US$ 4,665) and June 14, 2006 (principal amount of US$ 700).
The ABC Banking Corporation loan was raised on December 13, 2005 and was settled on June 12, 2006.
9 Commitments and Contingencies
Our subsidiaries are party to certain legal proceedings arising in the normal course of business, and have
made provisions when they believe that they can reasonably estimate probable losses.
Certain lawsuits, claims and proceedings have been or may be instituted or asserted against our subsidiaries.
While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the
considerable uncertainties that exist. Therefore, it is possible that revenues and expenses or liquidity in a
particular period could be materially affected by certain contingencies. However, based on currently available
facts, management believes that the disposition of matters that are pending or asserted will not have a materially
adverse effect on the financial position of the Company.
The Company also has other insignificant claims which are considered possible losses against which no
provisions were made.
As of December 31, 2006, the Company has an existing US$ 70,501 (2005US$ 33,957; 2004nil)
outstanding commitment to fund GPCP3.
10 Fair Value of Financial Instruments
SFAS no. 107 Disclosures About Fair Value of Financial Instruments requires disclosure of the estimated
fair values of financial instruments. The fair value of a financial instrument is the amount at which instrument
could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale.
Quoted market prices, if available, are utilized as estimates of the fair value of financial instruments.
The market values of financial instruments approximated their book values and were substantially
represented by financial investments, loans and financings. For the years presented, the Company did not operate
with derivative financial instruments.
(a) Cash and cash equivalentscash and cash equivalents approximate their fair values. Cash
equivalents include: interestearning deposits with banks and money market.
(b) Trading securities and available for salethese assets are reported in the consolidated balance sheet
at fair value estimated principally based on quoted market prices, when available, or quoted market prices
for similar instruments.
(c) Loans and financingsthe carrying amounts of our loans and financings approximate fair value as
determined by discounting estimated cash flows using interest rates approximating our current origination
rates for similar loans.
F-25
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
11 Risks and Risk Management
The main risks related to financial instruments, are: credit risk; market risk, liquidity risk and currency risk.
Management of these risks is a process that involves different levels of the Company and covers several policies
and strategies. Other than our investment in shares and our interest in GPCP3, at December 31, 2006, there was
no significant concentration of credit or market risks related to banks and financial investment funds.
(a) Credit riskcredit risk is the risk arising from the possibility of loss resulting from the non-receipt
from counterparties or creditors of the amounts they have contracted with us to pay. The Company mitigates
credit risks related to banks and financial investment funds by investing in short-term securities with highly-
rated financial institutions and funds managed by investment managers
(b) Market riskmarket risk is linked to the possibility of loss due to rate fluctuations relating to
unhedged terms, currencies and indices in the Companys portfolio. The Company acquires interests in non
public entities; the sale of these entities may require a lead time and the values realized may be unfavorable
in relation to the valuation. The Company has only a limited number of investments and, as a consequence,
the revenues may be affected by unfavorable performance.
(c) Liquidity riskliquidity risk management is designed to control risk relating to mis-matched
settlement terms of the Companys rights and obligations. Knowledge and monitoring of this risk are crucial
to enable the Company to settle transactions in a timely and secure manner. Liquidity risk management
involves a set of controls, principally relating to the establishment of technical limits, and the positions
assumed are constantly evaluated.
(d) Currency riskas a significant portion of our underlying assets and the basis for our management
fees, performance fees are denominated in reais, we are exposed to foreign exchange risks. Although part of
our cash, cash equivalents and trading securities are denominated in U.S. dollars we generally do not hedge
against such risks.
12 Shareholders Equity
(a) Capital
On March 31, 2006, the authorized capital was increased by US$ 271 to US$ 321 represented by 28,345,576
Class A shares with a nominal value of US$ 0.01 each. Concurrently, the 7,534,900 Single Class shares (number
of shares retrospectively adjusted to reflect the split of Class B shares on March 31, 2006) with a nominal value
of US$ 0.01 which had been in issue through March 30,2005 were designated Class B shares with a nominal
value of US$ 0.005 each. A stock split of the Class B shares was completed on March 31, 2006 based on a ratio
of one existing share for two new shares increasing the number of shares from 3,767,450 Class B shares to
7,534,900 Class B shares.
On May 26, 2006 the authorized capital was increased by US$ 116 to US$ 437 with the issuance of
11,673,743 new Class A shares with a nominal value of US$ 0.01 each.
At December 31, 2006, capital comprises 40,019,319 Class A shares and 7,534,900 Class B shares. At
December 31, 2005 capital comprised 7,534,900 shares of a Single Class (number of shares retrospectively
adjusted to reflect the split of Class B shares on March 31, 2006). All Class A shares have a par value of
US$ 0.01 each and all Class B shares have a par value of US$ 0.005 each.
F-26
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
Class A shareholders have limited participative and voting rights as defined in the By-laws and Class B
shareholders will have one vote on all matters brought before the shareholder meetings. Class A shareholders and
Class B shareholders are entitled receive a 25% dividend on the annual net income of the Company when
approved by the Board of Directors of the Company.
The changes in the number of our shares for the years presented are summarized as follows:
2006 2005(*) 2004(*)
Class Aat the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,786,400 5,100,000
Issuance of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,129,246
Conversion Class A to Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,175,000)
Conversion Class B to Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,861,400
Cancellation of shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,095,800)
Conversion to Single Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,690,600)
Class Aat the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,129,246 6,786,400
Class Bat the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,193,600 4,900,000
Conversion Class A to Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,175,000
Conversion Class B to Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,861,400)
Conversion Single Class to Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,534,900
Cancellation of shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (349,300) (20,000)
Conversion to Single Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,844,300)
Class Bat the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,534,900 3,193,600
Single Classat the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,534,900
Issuance of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,534,900
Conversion Single Class to Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,534,900)
Single Classat the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,534,900
Totalat the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,664,146 7,534,900 9,980,000
(*) Adjusted retrospectively to conform to the split of Class B shares on March 31, 2006.
(b) Dividends
The dividends declared and payable as of December 31, 2006 amount to US$ 808 which refers to the
dividends declared by GP Participaes S.A. which are due to the minority shareholders.
The dividends declared and payable as of December 31, 2005 amounted to US$ 8,009. Of this sum
US$ 3,470 was cancelled and reversed to retained earnings as approved by the shareholders in a meeting on
May 8, 2006.
F-27
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
Distributions of cash dividends, dividends declared and distributions in kind through asset dispositions to
shareholders withdrawing from the Company are summarized below:
2005 2004
Share
premium
Retained
earnings Total
Share
premium
Distribution of dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,755 1,755 8,832
Dividends declared upon corporate reorganization . . . . . . . . . . . . . . . . . . . . 8,722 8,722
Dividends in kind
Divestment of GP1 and GP2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,824 2,693 10,517
Loans and receivables from related parties, net. . . . . . . . . . . . . . . 2,330 2,330
Loans receivable, forgiven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
Transfer of participation in GP Energia L.P. . . . . . . . . . . . . . . . . . 1,000
Transfer of participation in GP Asset Management, Ltd. . . . . . . 6,467
Dividends distributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,154 11,415 21,569 7,818
(c) Additional paid-in capital (share premium) reserve
Additional paid-in capital reserve arose from allocation of subscriptions to the share premium reserve.
Contributions in kind made by the shareholders to the Company are summarized below:
2005 2004
Loans payable forgiven. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165
Net assets contributed from GP Holdings to increase participation in GP . . . . . . . . . . . . . . . . . . . . 1,593
Net assets from GPAM and GPRE transactions
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,861
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,157
Available-for-sale investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,784
Investment propertyadvances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,025
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386
Asset-backed securities/deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,832)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,998)
Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,910
Total contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,503 3,165
F-28
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
(d) Treasury shares
The changes in the number of our treasury shares for the years presented are summarized as follows:
Number of shares
2005(*) 2004(*)
Class Aat the beginning of the year
Acquisition of shares for treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,095,800 437,500
Conversion Class A to Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (437,500)
Conversion Class A to Single Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,095,800)
Class Aat the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class Bat the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698,600
Acquisition of shares for treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,100
Sale of shares from treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (349,300) (20,000)
Conversion to Single Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (349,300)
Conversion to Class A to Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437,500
Class Bat the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698,600
Totalat the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698,600
(*) Adjusted retrospectively to conform to the split of Class B shares on March 31, 2006.
We acquire our own shares to be held in treasury and record them using the cost method, as a deduction
from shareholders equity. Treasury shares are cancelled against share capital or the share premium account.
(e) Earnings per shares
Net income (loss) per share for the years ended December 31, 2006, 2005 and 2004 have been computed in
the following table based upon the weighted average of shares (in thousands, except shares amounts):
2006 2005 2004
Net income (loss) from continuing operations available to shareholders . . . 26,475 30,361 (834)
Net income (loss) from discontinuing operations available to
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457) 5,723 6,798
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,018 36,084 5,964
Weighted average common shares outstanding
basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,625,523 7,494,076 9,848,712
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding
diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,625,523 7,494,076 9,848,712
Net earnings (loss) per shares
Basic and dilutedcontinuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.28 4.05 (0.08)
Basic and diluteddiscontinuing operations . . . . . . . . . . . . . . . . . . . . . . (0.02) 0.76 0.68
Basic and dilutednet income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26 4,81 0.60
F-29
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
The amount of the net diluted earnings per shares is not presented as of December 31, 2006 due to its
antidilutive effect as of December 31, 2006 (diluted number of shares 20,609,467 shares).
13 Stock Options
On August 18, 2006, the Board of Directors approved and adopted with the concurrence of the Nomination
and Compensation Committee the Stock Purchase Option Plan (the Plan) and the form of agreements to be
entered into between the Company and each beneficiary. An aggregate of 7,416,037 shares of the Companys
Class A shares may be granted under the Plan.
The 7,416,037 options were granted on October 16, 2006 and will expire in a total period of 10 years with a
vesting period of five years. No option will be exercisable before the first vesting date which is June 1, 2007.
Under the terms of the Plan employees can purchase shares of the Company at an exercise price of US$ 14.75.
Period from date of grant
Percentage
of options
vested
June 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
June 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
June 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
June 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
June 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
We present below the change in stock options for the period:
Options
available
for
granting
(number of
options)
Options
outstanding
(number of
options)
Average
weighted
exercise
priceUS$
At December 31, 2005
Options granted during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,416,037 7,416,037
Options forfeited during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,416,037 7,416,037 14.75
As of December 31, 2006, none of the options granted were exercisable and none of the options granted
were expired.
Pursuant to the Black & Scholes options pricing method, the fair value of the options granted under this plan
is US$ 8.05. For calculation purposes, the following assumptions were used: dividend yield of 1.15%; expected
average annual volatility of 22.59%; free risk rate of 4.76% and expected term of 6.5 years. The interest rate is
based on the U.S. Treasury Bills rate for a period similar to the expected term of the options. The expected stock
price volatility assumption was determined using the volatility of the Companys common stock.
For the year ended December 31, 2006, an expense of US$ 1,937 related to the Plan of the Company has
been recorded and is included in general and administrative expenses. As of December 31, 2006, there was
US$ 57,739 of total unrecognized compensation expense related to non-vested options which is expected to be
recognized over a weighted-average of 5 years.
F-30
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
14 Segment Reporting
The Companys operations are managed through two operating segments: the private equity business and
the asset management business (Note 1).
The segment information is presented using the same accounting policies as those used in preparing the
internal financial reports used by management. The accounting policies for management purposes are the same as
those described in the summary of significant accounting policies.
The financial details of these segments as at and for the year ended December 31, 2006 are as follows:
Private
equity
business
Asset
management
business Total
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489,393 15,322 504,715
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,393 5,882 44,275
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,282) (5,073) (24,355)
Financial income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,107 848 21,955
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,546 2,546
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,527) (251) (16,778)
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457) (457)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,168) (1,168)
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,612 1,406 26,018
The financial details of these segments as at and for the year ended December 31, 2005 are as follows:
Private
equity
business
Asset
management
business
Real asset
business(*) Total
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,892 9,965 21,953 81,810
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,106 1,942 40,048
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,779) (381) (8,160)
Financial income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,508) (19) (1,527)
Gain from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,723 5,723
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,542 1,542 36,084
(*) On April 20, 2006, the Company sold GPRE, which comprised the real estate business (Note 2(u)).
The financial details of these segments as at and for the year ended December 31, 2004 are as follows:
Private equity
business
Asset management
business
Discontinued
operations Total
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,576 79 14.307 23,962
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 819 1,191
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (443) (278) 721
Financial income, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (407) (897) 1,304
Gain from discontinued operations . . . . . . . . . . . . . . . . . . . . 6,798
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (478) (356) 6.798 5,964
F-31
GP Investments, Ltd.
Notes to the Consolidated Financial Statements
as of December 31, 2006, 2005 and 2004(Continued)
In thousands of U.S. dollars, unless otherwise indicated
(*) On December 30, 2005, the Company distributed to its shareholders, in the form of a dividend, its holdings
in GP1 and GP2. (Note 2(t)).
The Company changed its structure of its internal organization in a manner that causes the composition of
its reportable segments to change, and pursuant to SFAS no. 131 Disclosures about Segments of an Enterprise
and Related Information, has restated its prior year segment information to adopt the current year presentation.
Previously the Company considered that it operated in a single segment. Management does not believe the
presentation of the information is comparable between 2006, 2005 and 2004 and may not be meaningful.
Differences between the segment information arise from (i) the consolidated statement of income for the years
ended December 31, 2005 and 2004 does not include the revenues and expenses of GP Inv and GP Asset; (ii) the
consolidated financial statements as of and for the years ended December 31, 2005 and 2004 include the
revenues and expenses of GP1 and GP2 but the assets and liabilities of GP1 and GP2 are excluded from the
balance sheet as of December 31, 2006 and 2005; and (iii) the consolidated financial statements as of and for the
year ended December 31, 2006 include the revenues, expenses, assets and liabilities of GPCP3.
15 Subsequent Events
On January 2, 2007, GP Investments, Ltd., through GPCP3, entered into certain agreements with some
co-investors to create BR Properties S.A. with the purpose of investing in commercial real estate assets in Brazil.
The investors have committed to subscribe to up to US$ 100,000, 30% of which will be provided by GPCP3.
On January 18, 2007, a portion of GPCP3s investment in Equatorial Energia S.A. was sold and, as a result,
GPCP3s investment in Equatorial Energia S.A. was reduced from 9.89% to 7.55%.
On January 18, 2007 the Company issued a US$ 150,000 Secured Perpetual Notes with no fixed final
maturity date, non-callable for five years and with an interest rate of 10% per year, payable quarterly, beginning
on April 23, 2007. The intention is to use the net proceeds, after deducting underwriting discounts and
commissions, to make acquisitions for our private equity business in accordance with our investment strategy.
The Perpetual Notes are secured by a first priority pledge by the Company of the shares representing 100% of
GPPEs issued and outstanding shares.
In January 16, 2007, GP Investments, Ltd. through GPCP3, purchased an additional interest of 22.8% in
IHH/USS for an amount of US$ 27.8M.
On March 9, 2007, the Board of Directors declared and approved a dividend of US$ 6,505 which refers to a
25% dividend on the annual net income of the Company due to the shareholders according to the by-laws of the
Company. As the dividend was subject to approval by the shareholders, no dividend had been provided in the
December 31, 2006 consolidated financial statements.
* * *
F-32
GP Investments, Ltd.
Condensed Consolidated Interim
Financial Information as of
June 30, 2007
F-33
GP Investments, Ltd.
Condensed Consolidated Interim Balance Sheets
In thousands of U.S. dollars
June 30,
2007
December 31,
2006
(Unaudited)
Assets
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414,718 312,665
Financial investmentstrading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,740 13,765
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,769 1,519
Deferred issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,025 1,366
438,029 329,315
Non-current assets
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424,338 173,884
Other invested assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,984
Deferred issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,716
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,802 579
Deferred assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477 937
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875,346 504,715
Liabilities and shareholders equity
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,417 1,986
Taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627 455
Payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 972 602
Accrued interest on perpetual notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,792
Accrued performance bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,057 2,234
Payable to a related party for acquisition of investment . . . . . . . . . . . . . . . . . . . . . . . . . 11,500
Dividends declared and payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962 808
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 154
9,981 17,739
Non-current liabilities
Loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,487 7,184
Perpetual notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
158,487 7,184
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,739 107,427
Shareholders equity
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 260
Share premium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321,912 315,194
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,299 58,503
Receivables from shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,954) (1,857)
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622 265)
Total shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,139 372,365
Total liabilities and shareholders equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875,346 504,715
The accompanying notes are an integral part of this condensed consolidated interim financial information.
F-34
GP Investments, Ltd.
Condensed Consolidated Interim Statements of Income
In thousands of U.S. dollars, except number of shares and per share information
Six-month period ended June 30
2007 2006
(Unaudited) (Unaudited)
Revenues
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,590 2,202
Performance fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,977 9,910
Advisory fees and other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487
Appreciation in fair value of investments of consolidated Limited
Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,411 5,198
Realized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,806 3,464
Equity in results of affiliated company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,025
Appreciation in fair value of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . 6,314
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,837 27,575
Expenses
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,480) (7,766)
Bonuses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,051) (3,637)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 (27)
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,319) (11,430)
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,526 12,303
Financial expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,340) (239)
Foreign exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (1,316)
Financial income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,217 10,748
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,546
Income from continuing operations before minority interest and taxation . . 204,735 29,439
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,018) (7,332)
Income from continuing operations before taxation . . . . . . . . . . . . . . . . . . . . . . . 94,717 22,107
Income tax and social contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (403) (203)
Net income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,314 21,904
Net loss from discontinued operations (Note 2(r)) . . . . . . . . . . . . . . . . . . . . . . . . . (457)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,314 21,447
Weighted average number of sharesbasic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,664,146 9,147,870
Basic earnings (loss) per shares
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 2.39
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05)
Basic earnings per sharestotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 2.34
Weighted average number of sharesdiluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,331,395 9,147,870
Diluted earnings (loss) per shares
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 2.39
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05)
Diluted earnings per shares total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 2.34
The accompanying notes are an integral part of this condensed consolidated interim financial information.
F-35
GP Investments, Ltd.
Condensed Interim Statements of Changes in Shareholders Equity
In thousands of U.S. dollars
Share
capital
Share
premium
Retained
earnings
Receivables
from
shareholders
Accumulated
other
comprehensive
income Total
At December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 260 315,194 58,914 (1,857) (146) 372,365
Changes in receivables from shareholders. . . . . 9 9
Dividends declared. . . . . . . . . . . . . . . . . . . . . . . . . (6,505) (6,505)
Contribution in kind. . . . . . . . . . . . . . . . . . . . . . . . 750 750
Share based compensation recognized during
the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,984 2,984
Net income for the period . . . . . . . . . . . . . . 36,535 36,535
Cumulative translation adjustment . . . . . . . 92 92
Unrealized gain on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 296
Comprehensive income. . . . . . . . . . . . . . . . . . . . . 36,923
At March 31, 2007 (unaudited) . . . . . . . . . . . . . . . . . 260 318,928 89,240 (1,848) (54) 406,526
Changes in receivables from shareholders. . . . . (106) (106)
Share based compensation recognized during
the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,984 2,984
Net income for the period . . . . . . . . . . . . . . 57,779 57,779
Cumulative translation adjustment . . . . . . . 676 676
Unrealized gain on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 280
Comprehensive income. . . . . . . . . . . . . . . . . . . . . 58,735
At June 30, 2007 (unaudited) . . . . . . . . . . . . . . . . . . . 260 321,912 147,299 (1,954) 622 468,139
The accompanying notes are an integral part of this condensed consolidated interim financial information.
F-36
GP Investments, Ltd.
Condensed Consolidated Interim Statements of Cash Flows
In thousands of U.S. dollars
Six-month period ended June 30
2007 2006
(Unaudited) (Unaudited)
Cash flows from operating activities
Continuing operations
Net income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,314 21,904
Reconciliation of net income to cash from operating activities. . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,018 7,332
Appreciation in fair value of the investments of a consolidated Limited
Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (190,411) (5,198)
Realized gain on sale of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,806) (3,464)
Stock based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,968
Accrued interest on perpetual notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,792
Interest on secured loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
Amortization of deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
Equity in the results of affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . (28)
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 59
Appreciation in fair value of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . (6,314)
Deferred interest and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (119)
Changes in assets/liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,986) 991
Management and performance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (208) (220)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 (1,876)
Accrued performance bonuses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735 3,535
Accounts payable, accruals and others. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,245) 442
Deferred management fee income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,062)
Receivable from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (269)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Net operating cash provided by continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,211 15,741
Discontinued operations
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457)
Reconciliation of loss to cash from operating activities . . . . . . . . . . . . . . . . . . . . . .
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Changes in assets/liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,894
Accounts payable, accruals and others. . . . . . . . . . . . . . . . . . . . . . . . . . . . (261)
Receivable from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22)
Net operating cash provided by discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,325
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,211 31,066
F-37
GP Investments, Ltd.
Condensed Consolidated Interim Statements of Cash Flows(Continued)
In thousands of U.S. dollars
Six-month period ended
June 30
2007 2006
(Unaudited) (Unaudited)
Cash flows from investing activities
Continuing operations
Acquisition of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59,126)
Acquisition of financial investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,038)
Acquisition of other invested assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,869)
Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 957 7,267
Proceeds from sale of investment by Limited Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,202 6,959
Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,478)
Payable to a related party for acquisition of investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,500)
Acquisition of furniture, properties and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (833) (17)
Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,679
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,137
Net cash provided by (used in) continuing investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,169) 13,509
Discontinued operations
Investments in properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,914)
Investments in other companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (346)
Initial balance of cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (260)
Net cash used in discontinued investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,520)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,169) (2,011)
Cash flows from financing activities
Continuing operations
Capital subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308,043
Proceeds from issuance of the perpetual notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Perpetual notes, debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,256)
Capital contribution in GPCP III by Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,153
Capital contribution of minority of GP Participaes S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,833
Distribution to limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,961)
Redemption of capital contribution by GPCP to limited partners . . . . . . . . . . . . . . . . . . . . . . . . . (253)
Proceeds from loans and financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,443
Repayments of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,062)
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,505) (3,755)
Cash acquired as a result of the corporate reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Receivables from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 1,106
Net cash provided by continuing operations from financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . 161,137 299,834
Discontinued operations
Proceeds from loans and financing raised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867
Net cash provided by discontinued operations from financing activities. . . . . . . . . . . . . . . . . . . . . . . . 867
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,137 300,701
Effects of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (126) (1,037)
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,053 328,719
Cash and cash equivalents at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,665 30,403
Cash and cash equivalents at end of the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414,718 359,122
Supplemental information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750 167
Income taxes and social contributions paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349 201
The accompanying notes are an integral part of this condensed consolidated interim financial information.
F-38
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)
In thousands of U.S. dollars, unless otherwise indicated
1 Business
(a) Operations and structure
GP Investments, Ltd. (Company, or we or GP) is a company domiciled in the Islands of Bermuda
(Bermuda). The operations of the Company comprise our private equity business, including the management of
Limited Partnerships, and our asset management activities, which are conducted directly by the Company or
indirectly through our subsidiaries GP Investments III (Cayman), Ltd. (GP3), GP Holdings, Inc. (GP
Holdings), GP Investimentos S.A. (GP Inv), GP Asset Management, Inc. (GPAM), GP Administrao de
Recursos S.A. (GP Asset), GP Participaes SA (GP Part) and GP Private Equity Ltd. (GPPE) and GP
Cash Management, Ltd. (GPCM).
At June 30, 2007, the Company was the owner of 100% of GP Holdings, a Cayman Islands entity, which, in
turn, held 100% of the share capital of GP Inv, a Brazilian corporation and is also, indirectly, the owner of 64.5%
of GP Asset.
At June 30, 2007, the Company was the owner of 100% of GPCM, GPPE and GP3.
(b) Private equity business
We conduct private equity business primarily in the Brazilian market, through GPPE, either directly or
through private equity funds that we manage such as GP Capital Partners III, LP (GPCP3 or the Fund).
GP3 is the General Partner responsible for investment and divesture decisions of the GPCP3. The rights and
obligations of the General Partner and the Limited Partners of GPCP3 are described in its Partnership Agreement.
The investment period will end on June 7, 2010 and the Fund will terminate on June 7, 2015, but may be
extended at the discretion of GP3s Advisory Committee.
In June 2006, GPCP3 closed with US$ 250,000 of committed capital. During the same period, we increased
our committed capital contribution in GPCP3 from US$ 45,000 to US$ 117,150. Accordingly, at June 30, 2007,
we had an interest of 46.86% in GPCP3.
GP Inv is the local advisor of the Company and GPCP3 with respect to the acquisition, management and
disposition of investments, in accordance with certain advisory agreements entered into by GP Inv, GP3 and
GPCP3.
(c) Asset management business
We conduct asset management primarily in the Brazilian market, through our majority-owned subsidiaries
and GP Asset.
The current products offered by GP Assets include fixed income funds, equity funds and hedge funds, all of
which focus on different risk profiles and investor bases.
The Company entered into a corporate reorganization of its asset management business in 2007. As a result
of the reorganization, the 64.5% capital of GP Participaes SA (GP Part) previously owned by GP Inv was
transferred to GP Holdings. The Company, as a consequence of such transfer of shares, recorded an adjustment
to the share premium account in the amount of US$ 750.
F-39
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
At June 30, 2007, GP Inv. is the owner of 64.5% of GPAM, a company regulated by Panamanian laws
which serves as investment adviser and portfolio manager of a Cayman Islands based third party mutual fund.
2 Summary of Significant Accounting Policies
(a) Basis of presentation
The condensed consolidated interim financial information has been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).
The preparation of financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue and expenses and related disclosures in the financial
statements. Actual results could differ from those estimates.
This condensed consolidated interim financial information includes all adjustments consisting of normal
recurring adjustments which, in the opinion of our management, are necessary for a fair presentation of our
condensed consolidated financial position, results of operations and cash flows for the interim periods presented.
The condensed consolidated interim financial information should be read in conjunction with our audited
consolidated financial statements prepared for the year ended December 31, 2006. Our results for six-month
period ended June 30, 2007 are not necessarily indicative of the results to be reported by us for the entire year
ending December 31, 2007.
The accounting policies adopted in preparing this condensed consolidated interim financial information are
consistent with those used by us in the preparation of our audited consolidated financial statements for the year
ended December 31, 2006.
Our consolidated balance sheet at December 31, 2006 has been derived from the audited financial
statements at that date, but does not include all of the information and footnotes required by accounting
principles generally accepted for presentation of complete financial statements.
(b) Consolidation
The condensed consolidated interim financial information as of June 30, 2007 includes the accounts of the
Company and its wholly-owned subsidiaries GP3, GP Holdings, GPPE, GP Inv, GPCM and its subsidiary
GPAM.
The Company applies the consolidation principles determined by AICPA Accounting Research Bulletin
no. 51, Consolidated Financial Statements and Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) no. 94, Consolidation of All Majority-owned Subsidiaries.
The Company applies the Emerging Issues Task ForceEITF04-5 Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights. The EITF 04-5 has resulted in the consolidation of the accounts of GPCP3 by
GP3, which in turn is consolidated by the Company. The 53.14% (December 31, 200653.14%) interest owned
by the Limited Partners is classified as minority interest. Accordingly, all assets and liabilities and revenues and
expenses of GPCP3 are reflected on the consolidated balance sheet and statement of income of the Company, and
the proportion of assets and liabilities not owned by the Company and the corresponding revenues and expenses
are presented as minority interest in a single line item.
F-40
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
During the six-month period ended June 30, 2007, the Limited Partners of GPCP3, excluding the Company
and GP3, paid management fees to GP3 of US$ 1,320 (2006US$ 819). In the condensed consolidated interim
statement of income, this amount is presented as a reduction of minority interest.
All intercompany accounts and transactions are eliminated on consolidation.
(c) Basis of translation of foreign subsidiaries
The U.S. dollar is the functional and the reporting currency of the Company, since the Company transacts
the majority of its business in U.S. dollars.
The Brazilian entities use the real as their functional currency. The financial statements of foreign
subsidiaries are remeasured in accordance with SFAS no. 52 Foreign Currency Translation. Accordingly, all
assets and liabilities of the subsidiaries which do not use the U.S. dollar as their functional currency are translated
into U.S. dollars at balance sheet exchange rates.
The statements of income and of cash flow accounts are translated at the average rates of exchange in effect
during the periods. The related translation adjustments are recorded directly to the cumulative translation
adjustment account in shareholders equity.
(d) Recognition of asset management, performance and other fees
Management fees from our private equity business are generally received semi-annually in advance and are
deferred and recognized as income over the period in which the related services are performed.
Management fees from our asset management business are determined over the net asset values of the funds
under management. Such management fees are recorded on an accrual basis as services are performed.
Performance fees are recorded as revenues upon their irrevocable payment or are recorded on an accruals
basis when payment is guaranteed. Other fees, principally advisory fees, are recorded on an accrual basis as
services are performed.
(e) Cash and cash equivalents
Cash and cash equivalents are stated at fair value. The Company considers all highly liquid and temporary
cash investments, including money market funds, having a ready market and an original maturity of 90 days or
less, to be cash equivalents.
(f) Financial investmentstrading securities
Securities that are bought and held principally for the purpose of resale in the near term are classified as
financial investments (trading securities) and are stated at fair value.
Fair value is generally based on quoted market prices. If quoted market prices are not available, fair values
are estimated based on dealer quotes, pricing models or quoted pricing models or quoted prices for instruments
with similar characteristics.
Realized and unrealized gains and losses are recognized in revenues when such securities are held for
trading as part of our private equity business and in financial income when securities are held for trading as part
of our treasury operations.
F-41
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
(g) Financial investmentsavailable for sale
Securities are classified at the date of purchase as financial investments (available for sale) when, in
managements judgment, they may be sold in response to or in anticipation of changes in market conditions,
being carried at fair value with net unrealized gains and losses included in shareholders equity. Securities are
classified based on managements intention. Upon sale or maturity, the gain or loss is recorded in the revenues in
the statement of income.
(h) Investments
Equity investees and other investments, where we own between 20% and 50% of voting capital, are
accounted for using the equity method of accounting. Under this method our share of results of the investee, as
reported under US GAAP, is recognized in the statement of income as Equity in results of affiliated company
and dividends are credited when declared to Investments in the balance sheet.
Interests of less than 20% in companies with no readily determinable market value are recorded at cost
(unless we have the ability to exercise significant influence over the operations of the investee, in which case we
use the equity method). Dividends are recognized in income when received. Significant influence over the
operating and financial policies of affiliated companies is achieved by the Company taking into account the
common interest of related parties participating jointly in the affiliated companies.
None of our investments in unconsolidated companies, analyzed on an individual or aggregated basis, are
considered significant for additional disclosures in our consolidated financial statements.
The Company has no Special Purpose Financing Entities or Variable Interest Entities which would have
required consolidation in the periods presented.
(i) Current and non-current liabilities
These are stated at known or estimated amounts including accrued charges, when applicable. The liability
for future compensation for employee vacations is fully accrued as earned. Accrued performance bonuses relate
to performance-based payments are accrued as earned. Bonus expenses are recorded only once approved by
Nomination and the Compensation Committee management and refer to the variable compensation that every
partner, officer or employee is eligible. General and administrative expenses include compensation expense paid
to certain of our executives who render services to the Company and who are also ultimate shareholders of the
Company. Such amounts are paid to the individuals in their capacity as executives rather than as shareholders of
the Company.
(j) Comprehensive income
Comprehensive income is presented in the Statement of Changes in Shareholders Equity and consists of net
income, unrealized gains and losses from available for sale investments and translation adjustments of foreign
subsidiaries.
(k) Earnings per share
The Company computes the basic earnings per share by dividing the net income by the weighted-average
number of shares outstanding during the period. The Company computes the diluted earning per share by
dividing the net income by the weighted-average of shares outstanding inclusive of the impacts of the options
granted under SFAS no. 123R revised 2004, Shared-Based Payment.
F-42
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
(l) Income taxes
British Virgin Islands (BVI) and Bermuda currently levy no income, corporation or capital gains taxes.
Accordingly, no provision for income taxes is included in the financial statements with respect to the Company,
GPPE and GPCM.
GP3 and GP Holdings are entities registered in the Cayman Islands and are tax-exempt. GPAM, a
Panamanian registered company, does not have any income from Panamanian sources and therefore, no
provision for current income taxes is required.
GP Inv and GP Asset, as Brazilian entities, are subject to Brazilian income tax. Brazilian income taxes
consist of federal income and social contribution taxes.
For the purposes of the preparation of this financial information, the Company has applied SFAS no. 109
Accounting for Income Taxes, for all periods presented.
In the event deferred tax assets are not considered more-likely-than-not to be recovered, a valuation
allowance is recorded. Brazilian deferred tax assets arising from net operating losses have no expiration dates,
though offset is restricted to 30% of annual income before tax.
(m) Fair value of financial instruments
Management estimates in good faith the fair value of each investment.
The carrying value of the Companys financial instruments, at each balance sheet date, approximates fair
value, reflecting the short-term maturity or frequent repricing of these instruments.
Fair value estimates are made at a specific date, based on relevant market information about the financial
instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment
and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the
estimates.
(n) Segment reporting
The Company has adopted SFAS no. 131, Disclosure about Segments of an Enterprise and Related
Information. We operate principally in two segments, our private equity business, including the management of
Limited Partnerships and our asset management business.
(o) Stock options
The Company has adopted SFAS no. 123R revised 2004, Shared-Based Payment. SFAS123R requires all
share-based payments to employees, including grants of employee stock option, to be recognized in the financial
statements based on their fair value.
(p) Presentation of interest earning assets and interest bearing liabilities
Interest earning assets and interest bearing liabilities are presented in the consolidated balance sheet at the
principal amount outstanding plus accrued interest and contractual monetary indexation and foreign exchange
variations.
F-43
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
(q) Debt issuance costs
Debt issuance costs represent costs incurred for the issuance of debts and are recorded at cost less
accumulated amortization. Amortization is calculated using the straight-line method over the debts minimum
estimated lives (five years for the perpetual notes).
(r) Discontinued operationsGPRE
On April 20, 2006, our subsidiary GPRE, which comprised our real estate business, was sold to our former
joint venture partners.
As GPRE was a component of the Company which comprised operations and cash flows that could be
clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company, we have
separately presented the revenues and expenses and cash flows of GPRE as discontinued operations. Costs and
expenses that are expected to continue subsequent to the disposal date are not allocated to discontinued
operations but included in results of continuing operations.
The following summarizes financial information for results of discontinued operations for the six-months
period ended June 30, 2006 related to GPRE:
Amount
(Unaudited)
Revenues
Management and performance fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Advisory fees and others services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
186
Expenses
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (620)
Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182)
(802)
Financial income, trading securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457)
The following table summarizes financial information for discontinued cash flows for the six-months period
ended June 30, 2006 related to GPRE:
Amount
(Unaudited)
Cash flows provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,325
Cash flows used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,520)
Cash flows provided by financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867
Cash provided by discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672
(s) Recently issued accounting pronouncements
The Financial Accounting Standards Board (FASB) recently issued a number of Statements of Financial
Accounting Standards and interpretations; neither of the standards or interpretations described below had or are
expected to have a material impact on the financial position and results of operations of the Company.
F-44
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
In February 2007, the FASB released SFAS no. 159, The Fair Value Option for Financial Assets and
Financial Liabilitiesincluding an amendment of FAS 115. The new Statement allows entities to choose, at
specified election dates, to measure eligible financial assets and liabilities at fair value in situations in which they
are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible
item, changes in that items fair value in subsequent reporting periods must be recognized in current earnings.
FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to
specific requirements. The Company is currently assessing the impact of this statement on its consolidated
financial statements.
In June 2007, the American Institute of Certified Public Accountants (AICPA) issued Statement of
Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies,
(SOP 07-1). The new guidance clarifies which entities are within the scope of the AICPA Audit and
Accounting Guide, Investment Companies (the Guide). Prior to the release of SOP 07-1, the definition of an
investment company was unclear, which led to inconsistent application of the Guide. SOP 07-1 also addresses
whether companies that own or have significant stakes in an investment company should retain the specialized
financial-statement accounting that the Guide prescribes for the investment company industry. The provisions of
the SOP are effective for fiscal years beginning on or after December 15, 2007, although earlier application is
encouraged. The Company is currently assessing the impact of this SOP on its consolidated financial statements.
3 Cash and Cash Equivalents
Currency Domicile
June 30,
2007
December 31,
2006
(Unaudited)
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reais Brazil 1,101 1,055
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. dollars USA 413,617 311,610
414,718 312,665
The Company holds practically all of its cash position in high grade liquid U.S. dollar assets.
4 Financial InvestmentsTrading Securities (at Fair Value)
Currency Domicile
June 30,
2007
December 31,
2006
(Unaudited)
Alchemy Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. dollars Cayman Islands 8,817 8,061
GP FIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reais Brazil 2,743 1,893
DebenturesBanco Ita BBA S.A. . . . . . . . . . . . . . . . . Reais Brazil 1,857
Fundo Long Short . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reais Brazil 1,656 1,134
Fundo Iporanga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reais Brazil 1,502 555
Fundo Petropolis Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reais Brazil 790 536
Fundo Araras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reais Brazil 375 398
Fundo M20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reais Brazil 1,188
17,740 13,765
F-45
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
Our cash management strategy is mainly focused on the preservation of capital and on providing the level of
liquidity compatible with the needs of the private equity business. The investment funds denominated in reais as
described above refer to investments held by GP Asset.
The funds, Alchemy Fund, GP FIA, M20, Long Short, Petropolis Plus, Iporanga and Araras are managed by
GPAM and GP Asset.
5 Receivables from (Payable to) Related Parties
(a) Management and performance fees receivablecurrent assets
As of June 30, 2007 the Company had US$ 1,769 (December 31, 2006US$ 1,519) of management and
performance fees receivable from funds under the management of our asset management activities and related to
GP Asset.
(b) Amounts deducted from shareholders equity
EITF 85-1 Classifying Notes Received for Capital Stock requires that when a company receives a note,
rather than cash, as a contribution to its equity, the company should report the note receivable as a reduction of
shareholders equity or as an asset. In accordance with this EITF, the changes in the loans and receivable from
related parties resulting from capital transactions have been presented as a reduction to shareholders equity.
Currency
Annual
interest rate
June 30,
2007
December 31,
2006
(Unaudited)
Shareholders of GP Investments, Ltd. . . . . . . . . . . . U.S. dollars LIBOR (i) + 3%
and IGP-M (ii) +
12% 1,954 1,857
(i) LIBORLondon Interbank Offered Rate
(ii) IGP-Mndice Geral de Preos de Mercado
There are no specified maturity dates for the loans mentioned above.
(c) Accrued performance bonuses
As of June 30, 2007, the accrued performance bonuses are US$ 3,057 (December 31, 2006 amounted to
US$ 2,234), including amounts payable to related parties.
F-46
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
6 Investments
June 30, 2007 December 31, 2006
Interest% U.S. dollars Interest% U.S. dollars
(Unaudited)
Available for sale (at fair value)(i)
Investment funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,978 10,422
Investments of consolidated Limited PartnershipGPCP3
BR Malls Participaoes S.A.(ii) . . . . . . . . . . . . . . . . . . . . . 15.9 265,089 27.5 62,500
Equatorial Energia S.A.(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 44,587 9.9 57,152
Tempo Participaes S.A.(iv) . . . . . . . . . . . . . . . . . . . . . . . . 31.9 39,552 8.8 11,500
Fogo de Cho Churrascarias (Holdings), LLC(v) . . . . . . . 20.0 32,000 20.0 32,004
BR Properties S.A.(vi) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.4 15,485
396,713 163,156
Investments at cost
Other securities(vii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,312
Timissoara Participaes Ltda. . . . . . . . . . . . . . . . . . . . . . . . 99.9 335 99.9 306
424,338 173,884
(i) Investments in Funds available-for-sale represent primarily closed funds invested in various assets, mainly
in Brazil.
(ii) On December 20, 2006, the Company concluded a transaction whereby GPCP3 through an investment
vehicle, together with a co-investor acquired 55% of the total capital of BR Malls Participaes S.A.
(BR Malls), a Brazilian corporation, for US$ 171,000. The shares of BR Malls owned by the investment
vehicle and future dividends, interest on capital, profits, and premiums to be paid by BR Malls to the
investment vehicle are used as collateral of a loan agreement signed by the investment vehicle. On April 4,
2007, BR Malls completed its Initial Pubic OfferingIPO. As of June 30, 2007, the investment in BR Malls
is presented at fair value. As of December 31, 2006, the investment in BR Malls is presented at cost.
(iii) At June 30, 2007, GPCP3 held 14,856,160 (December 31, 200619,447,116) shares in Equatorial
Energia S.A., a Brazilian corporation.
(iv) The Company, through an investment vehicle of GPCP3, entered into certain agreements with the
shareholders of Integrated Health Holdings Incorporated (IHH) and USS Solues Gerenciadas Ltda.
(USS) to acquire approximately 32% of the total and voting capital of a corporation denominated Tempo
Participaes S.A. which owns IHH and USS. In December 2006, GPCP3 purchased from GPCP2 356,229
shares of IHH and in January 2007, GPCP3 completed a second acquisition of an additional interest of
23.2% in the new company (for a consideration of US$ 28,052). GPCP2 is a limited partnership whose
general partner is GP2, which is a related party of the Company. The transfer of the shares from GPCP2 to
GPCP3 was approved by Class A shareholders of the Company in an extraordinary general meeting held on
January 8, 2007. As a result of this transaction, the Company owed US$ 11,500 payable to GPCP2 as of
December 31, 2006 which was paid in January 2007.
(v) On August 23, 2006, the Company signed an agreement through which the Company jointly with
co-investors acquired 40% of Fogo de Cho Churrascarias (Holdings), LLC (Fogo de Cho), a US
corporation, for US$ 64,000. GPCP3 provided 50% of the investment and co-investors the remainder.
(vi) On January 2, 2007, GP Investments, Ltd., through GPCP3, entered into certain agreements with
co-investors to create BR Properties S.A. (BR Properties) for the purpose of investing in commercial real
F-47
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
estate assets in Brazil. The investors have committed to subscribe to up to US$ 100,000, 30% of which to be
provided by GPCP3. On January 8, 2007, GPCP3 made an investments of US$ 7,593 in BR Properties S.A.
and a second contribution of US$ 7,892 on June 6, 2007. On June 29, 2007, GPCP3 increased its
commitment in BR Properties to US$ 45,000 and in July there was a capital call of approximately
US$ 15,000.
(vii) Other securities are represented by interest owned by the Company in Brazilian private owned companies.
On July 19, 2006, the Company consumated an agreement with the two owners of Investimentos e
Participaes em Infra-Estrutura S.A.INVEPAR (Invepar), Brazilian Corporation, whereby GPCP3 and
the Company will have the right but not the obligation to acquire one-third of the total and voting capital of
Invepar. The Company is committed to subscribe for up to an amount of US$ 97,000 in Invepar. No capital
investment has been made as of June 30, 2007. The agreement is subject to certain conditions to be met by
Invepar and its owners. As of June 30, 2007, the Company had not exercised its right and the agreement was
extended for one additional year.
7 Other Invested Assets
In accordance with the terms of the Partnerships agreement of GPCP3, an amount of US$ 7,984 is place into
an escrow account as of June 30, 2007, which will be distributed and recorded as performance fees when
payment will be guaranteed and irrevocable.
8 Taxes
As of June 30, 2007, the Company has an interest in Brazilian tax losses available for offset against future
taxable income of US$ US$ 12,791 for income taxes and US$ 17,209 for social contribution (December 31,
2006US$ 12,007 and US$16,425 respectively). Accordingly, the tax effect of net operating loss carryforward
totaled US$ 4,747 as of June 30, 2007 (December 31, 2006US$ 4,480). A full allowance has been provided for
by the Company.
Income tax and social contribution amounts for the six-month periods ended June 30, 2007 and 2006
presented in the statement of income were reconciled as follows to their nominal rates:
2007 2006
(Unaudited) (Unaudited)
Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,717 22,107
Income tax and social contribution at nominal rates34% . . . . . . . . . . . . . . . . . . . . . . . . . . (32,204) (7,516)
Adjustments to obtain the effective rate
Non taxable income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,627 7,196
Net effect of the presumed profits tax regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 117
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Income tax and social contribution expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (403) (203)
F-48
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
9 Secured Loan, Including Accrued Interest
Currency
Annual
interest rate%
June 30,
2007
December 31,
2006
(Unaudited)
Third parties
Banco Ita BBA S.A. . . . . . . . . . . . . . . . . . . . . . . . . . Reais CDI (*) + 0.85 8,487 7,184
(*) CDIInterbank Deposit Rate
As of June 30, 2007, the Company, through a subsidiary, GP Asset, had a five year loan due in 2011 to
Banco Ita BBA S.A. The loan was consummated on December 15, 2006 and is guaranteed by the investments
owned by the Company. Interest on the loan is payable in 2011. The amount recorded as of June 30, 2007
includes accrued interests.
10 Perpetual Notes
Currency
Annual
interest rate%
June 30,
2007
December 31,
2006
(Unaudited)
Third parties
Perpetual notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. dollars 10 150,000
On January 18, 2007 the Company issued US$ 150,000 Secured Perpetual Notes with no fixed final
maturity date, non-callable for five years and with an interest rate of 10% per year, payable quarterly, beginning
on April 23, 2007. The Perpetual Notes were secured by a first priority pledge of the shares representing 100% of
GPPEs issued and outstanding shares. In accordance with the agreements which regulate the offering of the
Perpetual Notes, the pledge was released on June 21, 2007.
11 Commitments and Contingencies
Our subsidiaries are party to certain legal proceedings arising in the normal course of business, and have
made provisions when they believe that they can reasonably estimate probable losses.
Certain lawsuits, claims and proceedings have been or may be instituted or asserted against our subsidiaries.
While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the
considerable uncertainties that exist. Therefore, it is possible that revenues and expenses or liquidity in a
particular period could be materially affected by certain contingencies. However, based on currently available
facts, management believes that the disposition of matters that are pending or asserted will not have a material
adverse effect on the financial position of the Company.
As of June 30, 2007, the Company has an existing US$ 42,371 (December 31, 2006US$ 70,501)
outstanding commitment to fund GPCP3.
12 Shareholders Equity
(a) Capital
At June 30, 2007 and December 31, 2006, authorized capital comprises 40,019,319 Class A shares with a
nominal value of US$ 0.01 each and 7,534,900 Class B shares with a nominal value of US$ 0.005 each.
F-49
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
Class A shareholders have limited participative and voting rights as defined in the By-laws and Class B
shareholders will have one vote on all matters brought before the shareholder meetings. Class A shareholders and
Class B shareholders are entitled receive a 25% dividend on the annual net income of the Company when
approved by the Board of Directors of the Company.
(b) Dividends
The dividends declared and payable as of June 30, 2007 amount to US$ 962 (December 31, 2006
US$ 808). This amount of US$ 962 (December 31, 2006US$ 808) refers to the dividends due to the minority
shareholders of GP Participaes S.A.
The dividend paid of US$ 6,505 (December 31, 2006nihil) refers to a 25% dividend on the annual net
income of the Company for the year ended December 31, 2006 due to the shareholders according to its by-laws.
(c) Earnings per share
Net income (loss) per share for the six-month periods ended June 30, 2007 and 2006 have been computed in
the following table based upon the weighted average of shares (in thousands, except shares amounts):
2007 2006
(Unaudited ) (Unaudited)
Net income from continuing operations available to shareholders . . . . . . . . . . . . . . . . . . . 94,314 21,904
Net loss from discontinuing operations available to shareholders . . . . . . . . . . . . . . . . . . . . (457)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,314 21,447
Weighted average common shares outstandingbasic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,664,146 9,147,870
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,667,249
Weighted average common shares outstandingdiluted . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,331,395 9,147,870
Net earnings (loss) per shares
Basiccontinuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 2.39
Basicdiscontinuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05)
Basicnet income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 2.34
Dilutedcontinuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 2.39
Diluteddiscontinuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05)
Dilutednet income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 2.34
13 Stock Options
On August 18, 2006, the Board of Directors approved and adopted with the concurrence of the Nomination
and Compensation Committee the Stock Purchase Option Plan (the Plan) and the form of agreements to be
entered into between the Company and each beneficiary. An aggregate of 7,416,037 shares of the Companys
Class A shares may be granted under the Plan.
F-50
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
The 7,416,037 options granted on October 16, 2006 will expire in ten years with a vesting period of five
years. No option will be exercisable before the first vesting date on June 1, 2007. Under the terms of the Plan
employees can purchase shares of the Company at an exercise price of US$ 14.75.
Period from date of grant
Percentage
of options
vested
June 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
June 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
June 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
June 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
June 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
We present below the changes in stock options for the period:
Options
available for
granting
(number
of options)
Options
outstanding
(number
of options)
Average
weighted
exercise
priceUS$
At December 31, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,416,037 7,416,037 14.75
Options granted during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised during the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At June 30, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,416,037 7,416,037 14.75
Pursuant to the Black & Scholes options pricing method, the fair value of the options granted under this plan
is US$ 8.05. For calculation purposes, the following assumptions were used: dividend yield of 1.15%; expected
average annual volatility of 22.59%; free risk rate of 4.76% and expected term of 6.5 years. The interest rate is
based on the U.S. Treasury Bill rate for a period similar to the expected term of the options. The expected stock
price volatility assumption was determined using the volatility of the Companys common stock.
For the six-months period ended June 30, 2007, an expense of US$ 5,968 related to the Plan of the Company
was recorded and presented as General and administrative expense. As of June 30, 2007, there was US$ 51,771
of total unrecognized compensation expense related to non-vested options which is expected to be recognized
over a weighted-average of five years.
14 Segment Reporting
The Companys operations are managed through two operating segments: the private equity business and
the asset management business (Note 1).
The segment information is presented using the same accounting policies as those used in preparing the
internal financial reports used by management. The accounting policies for management purposes are the same as
those described in the summary of significant accounting policies.
F-51
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
The financial details of these segments as of and for the six-month period ended June 30, 2007 are as
follows:
Private
equity
business
Asset
management
business Total
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846,351 28,995 875,346
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,274 4,563 214,837
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,497) (4,822) (18,319)
Financial income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,032 1,185 8,217
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (109,664) (354) (110,018)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (354) (49) (403)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,791 523 94,314
The financial details of these segments as of December 31, 2006 and for the six-month period ended
June 30, 2006 are as follows:
Private
equity
business
Asset
management
business
Real asset
business (*) Total
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489,393 15,322 504,715
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,100 2,475 27,575
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,766) (1,664) (11,430)
Financial income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,595 153 10,748
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,208) (124) (7,332)
Non-operational gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,546 2,546
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . (457) (457)
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (203) (203)
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,064 840 (457) 21,447
(*) On April 20, 2006, the Company sold GPRE, which comprised the real estate business (Note 2(r)).
The Company changed the structure of its internal organization in a manner that caused the composition of
its reportable segments to change. Pursuant SFAS no. 131 Disclosures about Segments of an Enterprise and
Related Information, we have restated prior year segment information to adopt the current year presentation.
Previously the Company considered that it operated in a single segment.
15 Derivative Instruments
The Company, as part of its cash management activities, entered into two swap agreements through its
subsidiary GPCM. These agreements expose the Company to variability in the market value of certain specific
investments (notional amount of US$ 26,443) versus the variability in certain market interest rates.
F-52
GP Investments, Ltd.
Notes to the Condensed Consolidated Interim Financial Information
as of June 30, 2007 (Unaudited)(Continued)
In thousands of U.S. dollars, unless otherwise indicated
These derivatives are held for purposes of trading activities and have not being designated as hedges by
the Company and accordingly gains and losses are recorded through the statement of income. As a result, a gain
of US$ 839 has been recorded in the results of the Company as of June 30, 2007.
16 Subsequent Events
On July 6, 2007, the Company announced a new private equity fund, GP Capital Partners IV, LP with a
US$ 1,025,000 of committed capital of which US$ 400,000 of commitment from GP Investments, Ltd. and
US$ 625,000 from the Limited Partners.
On August 10, 2007, GP Investments, Ltd. entered into a definitive agreement to acquire 100% of the Latin
American Land Drilling and E&P Services businesses from Pride International Inc. for US$ 1 billion in cash. Of
the total investment, 60% will be financed through new debt taken on by a special purpose vehicle. Out of the
total equity investment of US$ 400 million, GP Capital Partners IV will contribute up to US$ 150 million, GP
Investments, Ltd. will contribute up to US$ 100 million (which may be syndicated with co-investors) and
US$ 150 million will be contributed by co-investors.
On August 12, 2007 GP Investments, Ltd. entered into a definitive agreement to acquire the control of
Magnesita S.A. (Magnesita) for R$ 1.24 billion, involving 70.7% of the voting capital and 38.6% of
Magnesitas total capital. Out of the total investment, R$ 680 million (R$ 98 million from GP Capital Partners
III, R$ 386 million from GP Capital Partners IV, R$ 53 million from GP Investments and R$ 143 million from
co-investors) will be contributed in equity capital in RPAR Holding S.A. (RPar), a special purposed vehicle
that will consummate the transaction. The remaining R$ 560 million will be financed by RPar through debt,
which has been already contracted for this purpose.
* * *
F-53
Appendix A
U.S. PURCHASERS LETTER
To: GP Investments, Ltd.
Credit Suisse Securities (USA) LLC
Ladies and Gentlemen:
This letter (a U.S. Purchasers Letter) relates to the issuance of 10% new Perpetual Notes (the new
notes) of GP Investments, Ltd. (the Company), offered as additional debt securities under the Indenture dated
as of January 23, 2007, between the Company and HSBC Bank USA National Association, as Trustee (the
Indenture), pursuant to which the Company previously issued $150,000,000 of 10% Secured Perpetual Notes
(the initial notes). The initial notes and the new notes are fully fungible and will constitute a single series of
debt securities under the Indenture and are called collectively the notes. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture, as applicable. In any case, this letter is to be
delivered by or on behalf of the person acquiring beneficial ownership of the new notes.
We make the representations set forth below on behalf of ourselves, and if applicable, on behalf of each
account for which we are acting.
1. We hereby confirm that:
(i) we are a qualified institutional buyer (QIB) as defined in Rule 144A (Rule 144A) under the
U.S. Securities Act of 1933, as amended (the U.S. Securities Act), and a qualified purchaser (QP) as
defined in Section 2(a)(51) and related rules of the U.S. Investment Company Act of 1940, as amended, and
related rules (the U.S. Investment Company Act);
(ii) we are not a broker-dealer which owns and invests on a discretionary basis less than
U.S.$25 million in securities of unaffiliated issuers; and
(iii) we are not a participant-directed employee plan, such as a plan described in subsections
(a)(1)(i)(D), (E) or (F) of Rule 144A.
2. We hereby confirm that: (i) we were not formed for the purpose of investing in the Company; (ii) no
portion of the assets used by us to purchase, and no portion of the assets used by us to hold, the new notes or any
beneficial interest therein constitutes or will constitute the assets of (w) an employee benefit plan (within the
meaning of Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended (ERISA))
that is subject to Title I of ERISA, (x) a plan, individual retirement account or other arrangement that is subject to
Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the U.S. Internal Revenue Code),
(y) any plan or arrangement subject to any other state, local, non-U.S. or other laws or regulations that would
have the same effect as regulations promulgated under ERISA by the U.S. Department of Labor and codified at
29 C.F.R. Section 2510.3-101 to cause the underlying assets of the Company to be treated as assets of that
investing entity by virtue of its investment (or any beneficial interest) in the Company and thereby subject the
Company or other persons responsible for the investment and operation of the Companys assets to laws or
regulations that are similar to the fiduciary responsibility or prohibited transaction provisions contained in Title I
of ERISA or Section 4975 of the U.S. Internal Revenue Code (Similar Laws) or (z) an entity whose underlying
assets are considered to include plan assets of any such plan, account or arrangement pursuant to ERISA, the
U.S. Internal Revenue Code, any applicable Similar Law or otherwise (each of (w), (x), (y) and (z), a Plan);
and (iii) we are acquiring an interest in the new notes for our own account as principal, or for the account of
another person who is able to and who shall be deemed to make all of the representations and agreements in this
U.S. Purchasers Letter.
A-1
3. We understand and acknowledge that the new notes have not been and will not be registered under the
U.S. Securities Act and accordingly may not be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons (as defined below) except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the U.S. Securities Act.
4. We understand and acknowledge that the Company has not registered, and does not intend to register, as
an investment company (as such term is defined under the U.S. Investment Company Act and related rules)
and that the Company has elected to impose the transfer and offering restrictions with respect to persons in the
United States and U.S. persons (as defined below) described herein so that the Company will qualify for the
exemption provided under Section 3(c)(7) of the U.S. Investment Company Act and will have no obligation to
register as an investment company even if it were otherwise determined to be an investment company.
5. We agree that our new notes or any interest therein may be transferred or resold only (i) to the Company or
Credit Suisse Securities (USA) LLC or any of their respective affiliates, or (ii) in an offshore transaction pursuant to
Rule 904 of Regulation S under the U.S. Securities Act, to a person outside the United States and not known to us to
be a U.S. person, by pre-arrangement or otherwise. The terms U.S. person, and offshore transaction have the
meanings set forth in Regulation S under the U.S. Securities Act. We understand that the transfer restrictions will
remain in effect until the Company determines, in its sole discretion, to remove them. We acknowledge and agree
that none of the Company, Credit Suisse Securities (USA) LLC or any of their respective affiliates shall be under
any obligation, and nothing herein shall be construed to impose on such parties any obligation, to purchase, enter
into an agreement to purchase or arrange the purchase of our new notes or any interest therein.
6. We understand and acknowledge that (i) the Company, the Trustee and their respective agents shall not be
obligated to recognize any resale or other transfer of the new notes made other than in compliance with the
restrictions set forth in this U.S. Purchasers Letter; (ii) the Company, the Trustee and their respective agents may
require any U.S. person or any person within the United States who acquires new notes or any interest therein in
breach of any representation, covenant or warranty set forth in this U.S. Purchasers Letter to transfer the new
notes or such interest immediately to a non-U.S. person in an offshore transaction pursuant to Regulation S; and
(iii) if the obligation to transfer is not met, the Company is irrevocably authorized, without any obligation, to sell
the new notes on an offshore stock exchange and, if such new notes are sold, shall be obliged to distribute the net
proceeds to the entitled party.
7. We agree that, upon request of the Company, we shall provide the Company, in writing, any and all
information regarding any resales or transfers of our new notes or any interest therein reasonably necessary for the
Company or its agents to determine compliance with the representations, covenants and warranties set forth herein.
8. We understand and acknowledge that any and all new notes issued to us will bear a legend to the
following effect. In addition, we understand that the legend shall not be removed from the new notes unless the
Company, in its sole discretion, removes the legend.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE U.S. SECURITIES ACT), OR ANY STATE
SECURITIES LAWS IN THE UNITED STATES, AND HAVE BEEN PLACED INITIALLY PURSUANT
TO EXEMPTIONS FROM THE U.S. SECURITIES ACT AND THE U.S. INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE U.S. INVESTMENT COMPANY ACT) AND MAY NOT BE
REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (I) IN AN
OFFSHORE TRANSACTION PURSUANT TO RULE 903 OR 904 OF REGULATION S UNDER THE
U.S. SECURITIES ACT TO OR FOR THE ACCOUNT OF OR BENEFIT OF A PERSON NOT KNOWN
BY THE TRANSFEROR TO BE A U.S. PERSON, BY PRE-ARRANGEMENT OR OTHERWISE, OR
(II) OTHERWISE IN TRANSACTIONS NOT SUBJECT TO THE REGISTRATION REQUIREMENTS
OF THE U.S. SECURITIES ACT; PROVIDED THAT (A) NO PORTION OF THE ASSETS USED BY
ANY TRANSFEREE TO PURCHASE, AND NO PORTION OF THE ASSETS USED BY ANY
TRANSFEREE TO HOLD, THE SECURITIES EVIDENCED HEREBY OR ANY BENEFICIAL
A-2
INTEREST THEREIN CONSTITUTES OR WILL CONSTITUTE THE ASSETS OF (i) AN EMPLOYEE
BENEFIT PLAN (WITHIN THE MEANING OF SECTION 3(3) OF THE U.S. EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA)) THAT IS SUBJECT
TO TITLE I OF ERISA, (ii) A PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER
ARRANGEMENT THAT IS SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE U.S. INTERNAL REVENUE CODE); (iii) A PLAN OR OTHER
ARRANGEMENT THAT IS SUBJECT TO ANY OTHER STATE, LOCAL, NON-U.S. OR OTHER
LAWS OR REGULATIONS THAT WOULD HAVE THE SAME EFFECT AS REGULATIONS
PROMULGATED UNDER ERISA BY THE U.S. DEPARTMENT OF LABOR AND CODIFIED AT
29 C.F.R. SECTION 2510.3-101 TO CAUSE THE UNDERLYING ASSETS OF GP INVESTMENTS,
LTD. TO BE TREATED AS ASSETS OF THAT INVESTING ENTITY BY VIRTUE OF ITS
INVESTMENT (OR ANY BENEFICIAL INTEREST) IN GP INVESTMENTS, LTD. AND THEREBY
SUBJECT GP INVESTMENTS, LTD. (OR OTHER PERSONS RESPONSIBLE FOR THE
INVESTMENT AND OPERATION OF GP INVESTMENTS, LTD.S ASSETS) TO LAWS OR
REGULATIONS THAT ARE SIMILAR TO THE FIDUCIARY RESPONSIBILITY OR PROHIBITED
TRANSACTION PROVISIONS CONTAINED IN TITLE I OF ERISA OR SECTION 4975 OF THE U.S.
INTERNAL REVENUE CODE OR (iv) AN ENTITY WHOSE UNDERLYING ASSETS ARE
CONSIDERED TO INCLUDE PLAN ASSETS OF ANY SUCH PLAN, ACCOUNT OR
ARRANGEMENT PURSUANT TO ERISA, THE U.S. INTERNAL REVENUE CODE, ANY
APPLICABLE STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT WOULD
HAVE THE SAME EFFECT AS THE PLAN ASSET REGULATIONS SO AS TO CAUSE THE
UNDERLYING ASSETS OF GP INVESTMENTS, LTD. TO BE TREATED AS ASSETS OF AN
INVESTING ENTITY BY VIRTUE OF ITS INVESTMENT (OR ANY BENEFICIAL INTEREST) IN GP
INVESTMENTS, LTD. AND THEREBY SUBJECT GP INVESTMENTS, LTD. (OR OTHER PERSONS
RESPONSIBLE FOR THE INVESTMENT AND OPERATION OF GP INVESTMENTS, LTD.S
ASSETS) TO LAWS OR REGULATIONS THAT ARE SIMILAR TO THE FIDUCIARY
RESPONSIBILITY OR PROHIBITED TRANSACTION PROVISIONS CONTAINED IN TITLE I OF
ERISA OR SECTION 4975 OF THE CODE OR OTHERWISE (EACH OF (i), (ii), (iii) AND (iv), A
PLAN); AND (B) EACH U.S. PERSON THAT HAS SIGNED A U.S. PURCHASERS LETTER MAY
ONLY REOFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER THE SECURITIES IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE APPLICABLE U.S. PURCHASERS
LETTER. HOLDERS OF SECURITIES WILL NOTIFY ANY PURCHASERS THEREOF OF THE
RESALE RESTRICTIONS REFERRED TO ABOVE.
9. We agree that the Company, the Trustee and the Initial Purchasers identified in the offering memorandum
for the new notes and their respective affiliates and others may rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements.
Where there are joint applicants, each must sign this U.S. Purchasers Letter. Applications from a
corporation must be signed by an authorized officer or be completed otherwise in accordance with such
corporations constitution (evidence of such authority may be required).
Very truly yours,
[NAME OF PURCHASER]
By:
Name:
Title:
Address:
Date:
A-3
REGISTERED OFFICE OF THE COMPANY LEGAL REPRESENTATIVE IN BRAZIL
GP Investments, Ltd.
Clarendon House
2 Church Street
Hamilton, HM 11
Bermuda
Antonio Bonchristiano
Av. Brigadeiro Faria Lima, 3900 7 andar
04538-132
So Paulo, SP
Brazil
PRINCIPAL PAYING
AGENT, TRANSFER
AGENT, REGISTRAR
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
COMMON DEPOSITARY
HSBC Issuer Services
Common Depositary
Nominee (UK) Limited
8 Canada Square
London E14 5RT
United Kingdom
IRISH PAYING AGENT
HSBC Institutional
Trust Services
(Ireland) Limited
HSBC House
Harcourt Centre
Harcourt Street
Dublin 2
Ireland
IRISH LISTING AGENT
NCB Stockbrokers
Limited
3 Georges Dock,
IFSC,
Dublin 1
Ireland
TRUSTEE, PAYING
AGENT, ESCROW
AGENT AND
COLLATERAL AGENT
HSBC Bank USA,
National Association
Corporate Trust & Loan
Agency
452 Fifth Avenue
New York, New York
10018
LEGAL ADVISORS
To the Company
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, New York 10019
Maples and Calder
PO Box 309GT, Ugland House
South Church Street
George Town, Grand Cayman
Cayman Islands
Conyers Dill & Pearman
Clarendon House
2 Church Street
PO Box HM 666
Hamilton HM CX
Bermuda
To the initial purchasers
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
INDEPENDENT AUDITORS
PricewaterhouseCoopers Auditores Independentes, Brazil
Av. Francisco Matarazzo, 1400
05001-903
So Paulo, SP
Brazil
GP Investments, Ltd.
US$40,000,000
10% Perpetual Notes
OFFERING MEMORANDUM