Filed Pursuant to Rule 424(b)(1)
Registration No. 333-197515
$40,000,000
Sino Mercury Acquisition Corp.
4,000,000 Units
Sino Mercury Acquisition Corp. is a blank check company formed for the purpose of entering into a stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. Our efforts to identify a prospective target business will not be limited to a particular industry or geographic region of the world although we initially intend to focus on target businesses in the People’s Republic of China that operate in the non-traditional financial industry, including but not limited to microcredit companies, financial leasing companies and guarantors. We do not have any specific business combination under consideration and we have not (nor has anyone on our behalf), directly or indirectly, contacted any prospective target business or had any discussions, formal or otherwise, with respect to such a transaction.
This is an initial public offering of our units. Each unit that we are offering has a price of $10.00 and consists of one share of common stock and one right to receive one-tenth (1/10) of a share of common stock automatically on the consummation of an initial business combination. We refer to these rights as the “rights” or the “public rights.”
We have granted Cantor Fitzgerald & Co., the underwriter, a 45-day option to purchase up to 600,000 units (over and above the 4,000,000 units referred to above) solely to cover over-allotments, if any.
We have agreed to introduce the underwriter in this offering to investors that are interested in purchasing at least $30,000,000 of the units being offered hereby. It is a condition of this offering that at least $10,000,000 of the units being offered hereby are purchased by investors introduced by us who will agree to hold their shares through the consummation of our initial business combination, vote in favor of such proposed business combination and not seek redemption in connection therewith, as described in this prospectus. As a result, we will be assured to meet the $5,000,001 net tangible asset requirement in order to complete an initial business combination, as described in this prospectus.
Our initial stockholders have also committed to purchase from us an aggregate of 210,000 units, or “private units,” at $10.00 per unit (for a total purchase price of $2,100,000). Our initial stockholders have also agreed that if investors introduced by us to the underwriter do not purchase at least $30,000,000 of the units being offered hereby, they will purchase from us at a price of $10.00 per unit the number of private units, or “private commission units,” that will equal the increased commissions we will pay the underwriter, as described below. These purchases will take place on a private placement basis simultaneously with the consummation of this offering. All of the proceeds we receive from these purchases will be placed in the trust account, except that the proceeds from the sale of the private commission units will be paid to the underwriter at the closing of this offering.
There is presently no public market for our units, shares of common stock or rights. We have applied to have our units listed on the Nasdaq Capital Market, or Nasdaq, under the symbol “SMACU” on or promptly after the date of this prospectus. The common stock and rights comprising the units will begin separate trading ten business days following the earlier to occur of the expiration of the underwriter’s over-allotment option, its exercise in full or the announcement by the underwriter of its intention not to exercise all or any remaining portion of the over-allotment option, subject to our filing a Current Report on Form 8-K with the Securities and Exchange Commission, or SEC, containing an audited balance sheet reflecting our receipt of the gross proceeds of this offering and issuing a press release announcing when such separate trading will begin. Once the securities comprising the units begin separate trading, the common stock and rights will be traded on Nasdaq under the symbols “SMAC” and “SMACR,” respectively. We cannot assure you that our securities will continue to be listed on Nasdaq after this offering.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and have elected to comply with certain reduced public company reporting requirements.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Public Offering Price | Underwriting Discount and Commissions(1)(2)(3)(4) | Proceeds, Before Expenses, to Us(1) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Per unit | $ | 10.00 | $ | 0.5125 | $ | 9.4875 | ||||||||
Total | $ | 40,000,000 | $ | 2,050,000 | $ | 37,750,000 |
(1) | Per unit (i) underwriting discount and commissions, and (ii) Proceeds, before expenses, to us, in each case represents an average value as further described in footnotes (2) and (3). |
(2) | Includes additional underwriting commissions of $0.15 per unit, or an aggregate of $450,000 (1.125% of the $40 million offering amount, which does not include any over-allotment), on up to 3,000,000 units which may be paid to Cantor Fitzgerald & Co. if we do not introduce any investors to the underwriter that purchase units in this offering. To the extent we do introduce investors to Cantor Fitzgerald & Co. that purchase units being offered hereby, the underwriting commission paid to the underwriter will be reduced in the amount of $0.15 per unit purchased by such investor we introduce to Cantor Fitzgerald & Co. up to the full $450,000 fee if at least $30,000,000 is invested by investors introduced by us. |
(3) | Includes $0.10 per unit, or $400,000 (or approximately $640,000 if the underwriter’s over-allotment option is exercised in full), payable to Cantor Fitzgerald & Co. for a deferred underwriting fee to be placed in the trust account described below. These funds will be released to Cantor Fitzgerald only on completion of our initial business combination, as described in this prospectus. |
(4) | Please see the section titled “Underwriting” for further information relating to the underwriting arrangements agreed to between us and the underwriter in this offering. |
Upon consummation of the offering, $10.00 per unit sold to the public in this offering (regardless of whether the over-allotment option has been exercised) will be deposited into a United States-based account at Smith Barney, maintained by Continental Stock Transfer & Trust Company, acting as trustee. Except as described in this prospectus, these funds will not be released to us until the earlier of the completion of our initial business combination and our liquidation of the trust account upon our failure to consummate a business combination within the required time period.
We are offering the units for sale on a firm-commitment basis. Cantor Fitzgerald & Co. expects to deliver our securities to investors in the offering on or about September 2, 2014.
Cantor Fitzgerald & Co.
August 26, 2014
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F-1 |
i
This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus:
• | “we,” “us” or “our company” refers to Sino Mercury Acquisition Corp.; |
• | “initial stockholders” refer to all of our stockholders immediately prior to the date of this prospectus, including all of our officers and directors to the extent they hold such shares; |
• | “insider shares” refer to the 1,150,000 shares of common stock held by our initial stockholders prior to this offering (including up to an aggregate of 150,000 shares subject to forfeiture to the extent that the underwriter’s over-allotment option is not exercised in full or in part); |
• | “private units” refer to the units we are selling privately to our initial stockholders upon consummation of this offering and references to “private shares” and “private rights” refers to the shares of common stock and rights included within the private units; |
• | “private commission units” refer to the units that may be purchased by our initial stockholders if investors introduced by us to the underwriter do not purchase at least $30,000,000 of the units being offered hereby in an amount equal the increased commissions we will pay the underwriter, as described herein; |
• | “China” or the “PRC” refers to the People’s Republic of China as well as the Hong Kong Special Administrative Region and the Macau Special Administrative Region, but does not include Taiwan; |
• | “US Dollars” and “$” refer to the legal currency of the United States; |
• | “RMB” refers to Renminbi, the legal currency of the PRC; |
• | the term “public stockholders” means the holders of the shares of common stock which are being sold as part of the units in this public offering (whether they are purchased in the public offering or in the aftermarket), including any of our initial stockholders to the extent that they purchase such shares; |
• | the information in this prospectus assumes that investors introduced by us to the underwriter purchase at least $30,000,000 of the units being offered hereby and as a result, the commissions payable to the underwriter will not increase and the initial stockholders will not purchase any private commission units; and |
• | the information in this prospectus assumes that the underwriter will not exercise its over-allotment option. |
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any jurisdiction where the offer is not permitted.
We are a blank check company formed under the laws of the State of Delaware on March 28, 2014. We were formed for the purpose of entering into a merger, stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities, which we refer to as a “target business,” or entering into contractual arrangements that give us control over such a target business. While our efforts to identify a prospective target business will not necessarily be limited to a particular industry or geographic region of the world, we initially intend to focus our search on target businesses located in China that operate in the non-traditional financial industry, including but not limited to microcredit companies, financial leasing companies and guarantors.
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We believe that companies that operate in the non-traditional financial industry will perform favorably over the next decade due to the following reasons:
• | Chinese interest rates are significantly higher than those in the rest of the developed word. For instance, according to World Bank statistics, from 2009 to 2013, the average commercial bank lending rate in China was approximately 5.9% per annum, compared to 3.3% per annum in the United States. However, we do not believe these rates reflect the actual marketplace demand. We believe there is a significant lending market in China where interest rates can range from 20% to 30% per annum. We believe that target companies in the non-traditional financial industry have the capability of taking advantage of this interest rate differential between market demand and reported rates. Additionally, due to the interest rate differential between the US and China, we could use the relatively cheap cost of capital in the US to provide us with inexpensive sources to fund these non-traditional financial companies. |
• | Non-traditional financial companies are not regulated by the China Securities Regulation Committee (“CSRC”), the China Insurance Regulation Committee (“CIRC”) or the China Banking Regulatory Committee (“CBRC”), which impose strict standards for foreign investment and capital flows. Non-traditional financial companies should benefit from reduced governmental regulation imposed on these types of businesses. |
Although we believe the foregoing to be true, we do not have any specific business combination under consideration and we have not (nor has anyone on our behalf), directly or indirectly, contacted any prospective target business or had any discussions, formal or otherwise, with respect to such a transaction. Accordingly, our beliefs may be incorrect and we may not be able to locate a suitable or attractive target business to consummate an initial business combination with.
We will have until 21 months from the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period) to consummate our initial business combination. If we are unable to consummate our initial business combination within such time period, we will distribute the aggregate amount then on deposit in the trust account, pro rata to our public stockholders by way of redemption and cease all operations except for the purposes of winding up of our affairs.
Pursuant to the Nasdaq listing rules, our initial business combination must be with a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the trust account at the time of the execution of a definitive agreement for such business combination, although this may entail simultaneous acquisitions of several target businesses. The fair market value of the target will be determined by our board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or book value). The target business or businesses that we acquire may have a collective fair market value substantially in excess of 80% of the trust account balance.
We currently anticipate structuring our initial business combination to acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination where we merge directly with the target business or where we acquire less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or stockholders or for other reasons, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target (whether through outright ownership or through contractual arrangements) or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding
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capital shares of a target. In this case, we would acquire a 100% controlling interest in the target; however, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, only the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets test.
As more fully discussed in “Management — Conflicts of Interest,” if any of our officers or directors becomes aware of a business combination opportunity that falls within the line of business of any entity to which he has pre-existing fiduciary or contractual obligations, he may be required to present such business combination opportunity to such entity prior to presenting such business combination opportunity to us. All of our officers and directors currently have certain pre-existing fiduciary duties or contractual obligations.
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to herein as the JOBS Act) and will remain such for up to five years. However, if our non-convertible debt issued within a three-year period or our total revenues exceed $1 billion or the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we have elected, under Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.
Private Placements
Prior to this offering, our initial stockholders purchased an aggregate of 1,150,000 shares of common stock, which we refer to throughout this prospectus as the “insider shares,” for an aggregate purchase price of $25,000 (the same amount typically paid for initial securities of similarly structured blank check companies) , or approximately $0.02 per share. The insider shares held by our initial stockholders include an aggregate of up to 150,000 shares subject to forfeiture to the extent that the underwriter’s over-allotment option is not exercised in full or in part, so that the insider shares will comprise 20.0% of our issued and outstanding shares after this offering (excluding the private units and any private commission units). None of our initial stockholders has indicated any intention to purchase units in this offering.
The insider shares are identical to the shares of common stock included in the units being sold in this offering. However, our initial stockholders have agreed, pursuant to written agreements with us, (A) to vote their insider shares and any public shares acquired in or after this offering in favor of any proposed business combination, (B) not to propose, or vote in favor of, an amendment to our amended and restated certificate of incorporation with respect to our pre-business combination activities prior to the consummation of such a business combination, (C) not to convert any shares (including the insider shares) for cash from the trust account in connection with a stockholder vote to approve our proposed initial business combination or a vote to amend the provisions of our amended and restated certificate of incorporation relating to stockholders’ rights or pre-business combination activity and (D) that the insider shares shall not participate in any liquidating distribution upon winding up if a business combination is not consummated. Additionally, our initial stockholders have agreed not to transfer, assign or sell any of the insider shares (except to certain permitted transferees) until (1) with respect to 50% of the insider shares, the earlier of one year after the date of the consummation of our initial business combination and the date on which the closing price of our common stock equals or exceeds $13.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after our initial business combination and (2) with respect to the remaining 50% of the insider shares, one year after the date of the consummation of our initial business combination, or earlier, in either case, if, subsequent to our initial business combination, we consummate a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property.
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In addition, our initial stockholders have committed to purchase an aggregate of 210,000 private units at a price of $10.00 per unit ($2,100,000 in the aggregate). Our initial stockholders have also agreed that if investors introduced by us to the underwriter do not purchase at least $30,000,000 of the units being offered hereby, they will purchase from us at a price of $10.00 per unit an additional number of private commission units that will equal the increased commissions we will pay the underwriter, as described in detail in the section titled “Underwriting.” These purchases will take place on a private placement basis that will occur simultaneously with the closing of this offering. The proceeds from the private placement of the private units other than the private commission units will be added to the proceeds of this offering and placed in an account in the United States at Smith Barney, maintained by Continental Stock Transfer & Trust Company, as trustee.
The private units are identical to the units sold in this offering. However, the holders have agreed (A) to vote their private shares in favor of any proposed business combination, (B) not to propose, or vote in favor of, an amendment to our amended and restated certificate of incorporation with respect to our pre-business combination activities prior to the consummation of such a business combination, (C) not to convert any private shares for cash from the trust account in connection with a stockholder vote to approve our proposed initial business combination or a vote to amend the provisions of our amended and restated certificate of incorporation relating to stockholders’ rights or pre-business combination activity and (D) that the private shares shall not participate in any liquidating distribution upon winding up if a business combination is not consummated. The purchasers have also agreed not to transfer, assign or sell any of the private units or underlying securities (except to the same permitted transferees as the insider shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the insider shares must agree to, each as described above) until the completion of our initial business combination.
Our principal executive offices are located at 590 Madison Avenue, 21st Floor, New York, New York 10022 and our telephone number is (646) 387-1287. We also have offices located in Beijing, China.
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The Offering
In making your decision on whether to invest in our securities, you should take into account not only the backgrounds of the members of our management team, but also the special risks we face as a blank check company and the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act. You will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should carefully consider these and the other risks set forth in the section below entitled “Risk Factors” beginning on page 14 of this prospectus.
Securities offered | 4,000,000 units, at $10.00 per unit, each unit consisting of one common share and one right, each right entitling the holder to automatically receive one-tenth (1/10) of a common share upon consummation of our initial business combination. | |||||
This is different from other offerings similar to ours whose units include one share and one warrant. Our management believes that investors in similarly structured blank check offerings, and those likely to invest in this offering, have come to expect the units of such companies to include one share and another security which would allow the holders to acquire additional shares. Without the ability to acquire such additional shares, our management believes that the investors would not be willing to purchase units in such companies’ initial public offerings. In this offering, by offering rights as part of the units that automatically entitle the holder to receive only one-tenth of a share, as opposed to warrants included in units of similarly structured blank check offerings that most often entitle the holder to receive a full share, our management believes we have significantly (although not entirely) reduced the number of shares that we would be obligated to issue after the offering. Our management also believes this will make us a more attractive merger partner for target businesses as our capitalization structure will be simpler without the warrants present. However, our management may be incorrect in this belief. This unit structure may also cause our units to be worth less than if they included a warrant. | ||||||
Listing of our securities and proposed symbols | We anticipate the units, and the common stock and rights once they begin separate trading, will be listed on Nasdaq under the symbols “SMACU,” “SMAC” and “SMACR,” respectively. | |||||
We have agreed with Cantor Fitzgerald that each of the shares of common stock and rights may trade separately ten business days following the earlier to occur of the expiration of the underwriter’s over-allotment option, its exercise in full or the announcement by the underwriter of their intention not to exercise all or any remaining portion of the over-allotment option. In no event will Cantor Fitzgerald allow separate trading of the common stock and rights until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. |
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Once the common stock and rights commence separate trading, holders will have the option to continue to hold units or separate their units into the component pieces. Holders will need to have their brokers contact our transfer agent in order to separate the units into separately trading common stock and rights. | ||||||
We will file a Current Report on Form 8-K with the SEC, including an audited balance sheet, promptly after the consummation of this offering, which is anticipated to take place three business days from the date the units commence trading. The audited balance sheet will reflect our receipt of the proceeds from the exercise of the over-allotment option if the over-allotment option is exercised on the date of this prospectus. If the over-allotment option is exercised after the date of this prospectus, we will file an amendment to the Form 8-K or a new Form 8-K to provide updated financial information to reflect the exercise of the over-allotment option. We will also include in the Form 8-K, or amendment thereto, or in a subsequent Form 8-K, information relating to the separate trading of the common stock and rights. | ||||||
Common Stock: | ||||||
Number outstanding before this offering | 1,150,000 shares1 | |||||
Number to be outstanding after this offering and sale of private units | 5,210,000 shares2 | |||||
Rights: | ||||||
Number outstanding before this offering | 0 rights | |||||
Number to be outstanding after this offering and sale of private units | 4,210,000 rights | |||||
Terms of the Rights | Each holder of a right will automatically receive one-tenth (1/10) of a share upon consummation of our initial business combination. If we are unable to complete an initial business combination within the required time period and we liquidate the funds held in the trust account, holders of rights will not receive any of such funds for their rights and the rights will expire worthless. |
1 | This number includes an aggregate of up to 150,000 shares of common stock held by our initial stockholders that are subject to forfeiture if the over-allotment option is not exercised by the underwriter in full. |
2 | Assumes (i) the over-allotment option has not been exercised and an aggregate of 150,000 shares of common stock held by our initial stockholders have been forfeited and (ii) the initial stockholders will not purchase any private commission units. |
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Offering proceeds to be held in trust | $37,900,000 of the net proceeds of this offering (or $43,900,000 if the over-allotment option is exercised in full), plus the $2,100,000 we will receive from the sale of the private units but not the private commission units, for an aggregate of $40,000,000 (or an aggregate of $46,000,000 if the over-allotment option is exercised in full), or $10.00 per unit sold to the public in this offering will be placed in a trust account at Smith Barney in the United States, maintained by Continental Stock Transfer & Trust Company, acting as trustee pursuant to an agreement to be signed on the date of this prospectus. The remaining $490,000 of net proceeds of this offering will not be held in the trust account. | |||||
Except as set forth below, the proceeds in the trust account will not be released until the earlier of the completion of an initial business combination within the required time period or our entry into liquidation if we have not completed a business combination in the required time period. Therefore, unless and until an initial business combination is consummated, the proceeds held in the trust account will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. | ||||||
Notwithstanding the foregoing, there can be released to us from the trust account (i) any interest earned on the funds in the trust account that we need to pay our income or other tax obligations and (ii) any remaining interest earned on the funds in the trust account that we need for our working capital requirements. With these exceptions, expenses incurred by us may be paid prior to a business combination only from the net proceeds of this offering not held in the trust account (estimated to initially be $490,000); provided, however, that in order to meet our working capital needs following the consummation of this offering if the funds not held in the trust account and interest earned on the funds held in the trust account available to us are insufficient, our initial stockholders, officers and directors or their affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $500,000 of the notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit. Our initial stockholders have approved the issuance of the |
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units (and underlying securities) upon conversion of such notes, to the extent the holder wishes to so convert them at the time of the consummation of our initial business combination. If we do not complete a business combination, the loans would not be repaid. | ||||||
Limited payments to insiders | Prior to the consummation of a business combination, there will be no fees, reimbursements or other cash payments paid to our initial stockholders, officers, directors or their affiliates prior to, or for any services they render in order to effectuate, the consummation of a business combination (regardless of the type of transaction that it is) other than: | |||||
• repayment at the closing of this offering of a $117,000 non-interest loan made by Jianming Hao, our executive chairman and chief executive officer; and | ||||||
• reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on our behalf, such as identifying and investigating possible business targets and business combinations, traveling to and from the offices, plants or similar locations of prospective target businesses to examine their operations, reviewing corporate documents and material agreements of prospective target businesses and structuring, negotiating and consummating the business combination. To date, no such expenses have been incurred. | ||||||
There is no limit on the amount of out-of-pocket expenses reimbursable by us; provided, however, that to the extent such expenses exceed the available proceeds not deposited in the trust account and the interest income earned on the amounts held in the trust account available to us, such expenses would not be reimbursed by us unless we consummate an initial business combination. Our audit committee will review and approve all reimbursements and payments made to any initial stockholder or member of our management team, or our or their respective affiliates, and any reimbursements and payments made to members of our audit committee will be reviewed and approved by our Board of Directors, with any interested director abstaining from such review and approval. | ||||||
Stockholder approval of initial business combination | In connection with any proposed initial business combination, we will seek stockholder approval of such initial business combination at a meeting called for such purpose at which stockholders may seek to have their shares converted, regardless of whether they vote for or against the proposed business combination, for a pro rata share of the aggregate amount then on deposit in the trust |
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account, less any taxes then due but not yet paid (initially anticipated to be $10.00 per share). | ||||||
We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and a majority of the outstanding shares of common stock voted are voted in favor of the business combination. We have determined not to consummate any business combination unless we have net tangible assets of at least $5,000,001 upon such consummation in order to avoid being subject to Rule 419 promulgated under the Securities Act of 1933, as amended, or the Securities Act. | ||||||
We have agreed to introduce the underwriter in this offering to investors that are interested in purchasing at least $30,000,000 of the units being offered hereby. It is a condition of this offering that at least $10,000,000 of the units being offered hereby are purchased by investors introduced by us who will agree to hold their shares through the consummation of our initial business combination, vote in favor of such proposed business combination and not seek redemption in connection therewith, as described in this prospectus. Such investors will not be providing us with a proxy to vote their shares, however. We refer to these investors throughout this prospectus as the “non-tendering investors.” As a result, we expect to meet the $5,000,001 net tangible asset requirement in order to complete an initial business combination. | ||||||
Notwithstanding the foregoing, if we seek to consummate a business combination with a target business that imposes any type of working capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation of such business combination, the net tangible asset requirement may limit our ability to consummate such a business combination and may force us to seek third party financing which may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such business combination and we may not be able to locate another suitable target within the applicable time period, if at all. | ||||||
Our initial stockholders have agreed (i) to vote their insider shares, private shares and any public shares purchased in or after this offering in favor of any proposed business combination and (ii) not to convert any shares (including the insider shares) in connection with a stockholder vote to approve a proposed initial business combination. None of our officers, directors, initial stockholders or their affiliates has indicated any intention to purchase units in this offering or any units |
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or shares of common stock in the open market or in private transactions. However, if a significant number of stockholders vote, or indicate an intention to vote, against a proposed business combination, our officers, directors, initial stockholders or their affiliates could make such purchases in the open market or in private transactions in order to influence the vote. There is no limit on the amount of shares that may be purchased by the insiders. Any purchases would be made in compliance with federal securities laws, including the fact that all material information will be made public prior to such purchase, and no purchases would be made if such purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act, which are rules designed to stop potential manipulation of a company’s stock. | ||||||
If the business combination is not consummated, public stockholders will not be entitled to have their shares converted. Public stockholders who convert their shares will continue to have the right to receive shares upon automatic conversion of the rights they may hold if the business combination is consummated. | ||||||
Conversion rights | In connection with any stockholder meeting called to approve a proposed initial business combination, each public stockholder will have the right, regardless of whether he is voting for or against such proposed business combination, to have his shares converted into a pro rata share of the trust account upon consummation of the business combination. | |||||
Notwithstanding the foregoing, a public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking conversion rights with respect to 20% or more of the shares of common stock sold in this offering. Accordingly, all shares purchased by a holder in excess of 20% of the shares sold in this offering will not be converted for cash. We believe this restriction will prevent an individual stockholder or “group” from accumulating large blocks of shares before the vote held to approve a proposed business combination and attempt to use the redemption right as a means to force us or our management to purchase its shares at a significant premium to the then current market price. By limiting a stockholder’s ability to convert no more than 20% of the shares of common stock sold in this offering, we believe we have limited the ability of a small group of stockholders to unreasonably attempt to block a transaction which is favored by our other public stockholders. |
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We may also require public stockholders, whether they are a record holder or hold their shares in “street name,” to either tender their certificates to our transfer agent at any time through the vote on the business combination or to deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the tendering broker $45 and it would be up to the broker whether or not to pass this cost on to the converting holder. | ||||||
Liquidation if no business combination | If we are unable to complete our initial business combination within 21 months from the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period), we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining holders of common stock and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. | |||||
In connection with our redemption of 100% of our outstanding public shares for a portion of the funds held in the trust account, each holder will receive a full pro rata portion of the amount then in the trust account, plus any pro rata interest earned on the funds held in the trust account and not previously released to us for our working capital requirements or necessary to pay our taxes payable on such funds (subject in each case to our obligations under Delaware law to provide for claims of creditors). Holders of rights will receive no proceeds in connection with the liquidation with respect to such rights, which will expire worthless. | ||||||
We may not have funds sufficient to pay or provide for all creditors’ claims. Although we will seek to have all third parties (including any vendors or other entities we engage after this offering) and any prospective target |
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businesses enter into valid and enforceable agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account, there is no guarantee that they will execute such agreements. There is also no guarantee that the third parties would not challenge the enforceability of these waivers and bring claims against the trust account for monies owed them. | ||||||
The holders of the insider shares and private units will not participate in any redemption distribution with respect to their insider shares, private shares or private rights. | ||||||
If we are unable to conclude our initial business combination and we expend all of the net proceeds of this offering not deposited in the trust account, without taking into account any interest earned on the trust account, we expect that the initial per-share redemption price will be approximately $10.00. The proceeds deposited in the trust account could, however, become subject to claims of our creditors that are in preference to the claims of our stockholders. In addition, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. Therefore, the actual per-share redemption price may be less than $10.00. | ||||||
We will pay the costs of any subsequent liquidation from our remaining assets outside of the trust account. If such funds are insufficient, Jianming Hao, our Chairman and Chief Executive Officer, has agreed to pay the funds necessary to complete such liquidation (currently anticipated to be no more than approximately $15,000) and has agreed not to seek repayment for such expenses. |
Risks
In making your decision on whether to invest in our securities, you should take into account the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, or the Securities Act, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. For additional information concerning how Rule 419 blank check offerings differ from this offering, please see “Proposed Business — Comparison to offerings of blank check companies subject to Rule 419.” You should carefully consider these and the other risks set forth in the section entitled “Risk Factors” beginning on page 14 of this prospectus.
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The following table summarizes the relevant financial data for our business and should be read with our financial statements, which are included in this prospectus. We have not had any significant operations to date, so only balance sheet data is presented.
April 15, 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Actual | As Adjusted(1) | ||||||||||
Balance Sheet Data: | |||||||||||
Working capital (deficiency) | $ | (10,449 | ) | $ | 40,114,551 | (2) | |||||
Total assets | 142,000 | 40,114,551 | (2) | ||||||||
Total liabilities | 117,449 | 400,000 | |||||||||
Value of common stock subject to possible conversion | — | 35,114,540 | (3) | ||||||||
Stockholders’ equity | 24,551 | 5,000,011 |
(1) | Includes the $2,100,000 we will receive from the sale of the private units. |
(2) | The “as adjusted” working capital and total assets is derived by adding total stockholders’ equity and the value of the common stock subject to possible conversion. |
(3) | The “as adjusted” value of common stock subject to possible conversion is derived by taking 3,511,454 shares of common stock which may be converted, representing the maximum number of shares that may be converted while maintaining at least $5,000,001 in net tangible assets after the offering, multiplied by a conversion price of $10.00. |
If a business combination is not so consummated, the trust account, less amounts we are permitted to withdraw as described in this prospectus, will be distributed solely to our public stockholders (subject to our obligations under Delaware law to provide for claims of creditors).
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An investment in our securities involves a high degree of risk. You should consider carefully the material risks described below, which we believe represent the material risks related to the offering, together with the other information contained in this prospectus, before making a decision to invest in our units. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below.
Risks Associated with Our Business
We are a development stage company with no operating history and, accordingly, you will not have any basis on which to evaluate our ability to achieve our business objective.
We are a development stage company with no operating results to date. Therefore, our ability to commence operations is dependent upon obtaining financing through the public offering of our securities. Since we do not have an operating history, you will have no basis upon which to evaluate our ability to achieve our business objective, which is to acquire an operating business. We have not conducted any discussions and we have no plans, arrangements or understandings with any prospective acquisition candidates. We will not generate any revenues until, at the earliest, after the consummation of a business combination.
If we are unable to consummate a business combination, our public stockholders may be forced to wait more than 24 months before receiving liquidation distributions.
We have 21 months from the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period) in which to complete a business combination. We have no obligation to return funds to investors prior to such date unless we consummate a business combination prior thereto and only then in cases where investors have sought to have their shares converted. Only after the expiration of this full time period will public stockholders be entitled to liquidation distributions if we are unable to complete a business combination. Accordingly, investors’ funds may be unavailable to them until after such date and to liquidate your investment, you may be forced to sell your securities potentially at a loss.
You will not be entitled to protections normally afforded to investors of blank check companies.
Since the net proceeds of this offering are intended to be used to complete a business combination with a target business that has not been identified, we may be deemed to be a “blank check” company under the United States securities laws. However, since we will have net tangible assets in excess of $5,000,000 upon the successful consummation of this offering and will file a Current Report on Form 8-K, including an audited balance sheet demonstrating this fact, we are exempt from rules promulgated by the SEC to protect investors of blank check companies such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules which would, for example, completely restrict the transferability of our securities, require us to complete a business combination within 18 months of the effective date of the initial registration statement and restrict the use of interest earned on the funds held in the trust account. Because we are not subject to Rule 419, our units will be immediately tradable, we will be entitled to withdraw amounts from the funds held in the trust account prior to the completion of a business combination and we will have a longer period of time to complete such a business combination than we would if we were subject to such rule.
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We may issue common or preferred shares or debt securities to complete a business combination, which would reduce the equity interest of our stockholders and likely cause a change in control of our ownership.
Our certificate of incorporation authorizes the issuance of up to 25,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. Immediately after this offering and the purchase of the private units (assuming no exercise of the underwriter’s over-allotment option), there will be 19,369,000 authorized but unissued shares of common stock available for issuance (after appropriate reservation for the issuance of the shares underlying the rights issuable upon consummation of our initial business combination). Although we have no commitment to do so as of the date of this offering, we may issue a substantial number of additional shares of common stock or shares of preferred stock, or a combination of common stock and preferred stock, to complete our initial business combination. The issuance of additional shares of common stock or preferred stock:
• | may significantly reduce the equity interest of investors in this offering; |
• | may subordinate the rights of holders of common stock if we issue preferred stock with rights senior to those afforded to our common stock; |
• | may cause a change in control if a substantial number of shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and |
• | may adversely affect prevailing market prices for our shares of common stock. |
Similarly, if we issue debt securities, it could result in:
• | default and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations; |
• | acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
• | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and |
• | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding. |
The funds held in the trust account may not earn significant interest and, as a result, we may be limited to the funds held outside of the trust account to fund our search for target businesses, to pay our tax obligations and to complete our initial business combination.
Of the net proceeds of this offering, approximately $490,000 will be available to us initially outside the trust account to fund our working capital requirements. We will depend on sufficient interest being earned on the proceeds held in the trust account to provide us with additional working capital we will need to identify one or more target businesses and to complete our initial business combination, as well as to pay any tax obligations that we may owe. Interest rates on permissible investments for us have been less than 1% over the last several years. Accordingly, if we do not earn a sufficient amount of interest on the funds held in the trust account and use all of the funds held outside of the trust account, we may not have sufficient funds available with which to structure, negotiate or close an initial business combination. In such event, we would need to borrow funds from our initial stockholders or their affiliates to operate or may be forced to cease searching for a target business. If our initial stockholders or their affiliates agreed to loan us funds, such loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $500,000 of the notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit. Our initial stockholders are under no obligation to loan us any funds.
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If third parties bring claims against us, the proceeds held in trust could be reduced and the per-share liquidation price received by stockholders may be less than $10.00.
Our placing of funds in trust may not protect those funds from third party claims against us. Although we will seek to have all vendors and service providers we engage and prospective target businesses we negotiate with execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, they may not execute such agreements. Furthermore, even if such entities execute such agreements with us, they may seek recourse against the monies held in the trust account. A court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of our public stockholders and any such claims could delay the timing of our distribution of the funds held in the trust account. If we liquidate the trust account before the completion of a business combination, Jianming Hao has agreed that he will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us and which have not executed a waiver agreement. However, he may not be able to meet such obligation. Therefore, the per-share distribution from the trust account in such a situation may be less than $10.00, plus interest, due to such claims.
Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, or if we otherwise enter compulsory or court supervised liquidation, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we may not be able to return to our public stockholders at least $10.00.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.
If we have not completed our initial business combination within 21 months from the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period), we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. We may not properly assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of the date of distribution. Accordingly, third parties may seek to recover from our stockholders amounts owed to them by us.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders promptly after expiration of the 21-month deadline, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public holders of common stock from the trust account prior to addressing the claims of creditors. Claims may be brought against us for these reasons.
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Unlike other blank check companies, our units are comprised of shares of common stock and rights rather than units comprised of shares of common stock and warrants and therefore investors will not be issued warrants as part of their investment.
Unlike other blank check companies that sell units comprised of shares of common stock and warrants in their initial public offerings, we are selling units comprised of shares of common stock and rights. The rights will not have any voting rights, will automatically entitle the holder to receive one-tenth of a share upon consummation of our initial business combination and will expire and be worthless if we do not consummate an initial business combination. Accordingly, investors in this offering will not be issued any warrants as part of their investment which may have the effect of limiting the potential upside value of your investment in our company. Additionally, no additional consideration will be required to be paid by holders of the rights to receive the additional shares upon consummation of our business combination and, as a result, the rights may result in greater dilution than would result from the issuance of warrants (which would require the payment of additional consideration to receive the shares underlying such warrants).
Holders of rights will not participate in liquidating distributions if we are unable to complete an initial business combination within the required time period.
If we are unable to complete an initial business combination within the required time period and we liquidate the funds held in the trust account, the rights will expire and holders will not receive any of such proceeds with respect to the rights. The foregoing may provide a financial incentive to public stockholders to vote in favor of any proposed initial business combination as their rights would automatically entitle the holder to receive one-tenth of a share upon consummation of such business combination, resulting in an increase in their overall economic stake in our company. If a business combination is not approved, the rights will expire and will be worthless.
We have no obligation to net cash settle the rights.
In no event will we have any obligation to net cash settle the rights. Furthermore, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of an initial business combination. Accordingly, the rights may expire worthless.
Since we have not yet selected a particular industry or target business with which to complete a business combination, we are unable to currently ascertain the merits or risks of the industry or business in which we may ultimately operate.
While we intend to focus our search for target businesses in the People’s Republic of China that operate in the non-traditional financial industry, we are not limited in this respect and may consummate a business combination with a company in any location or industry we choose. Accordingly, there is no current basis for you to evaluate the possible merits or risks of the particular industry in which we may ultimately operate or the target business which we may ultimately acquire. To the extent we complete a business combination with a financially unstable company or an entity in its development stage, we may be affected by numerous risks inherent in the business operations of those entities. If we complete a business combination with an entity in an industry characterized by a high level of risk, we may be affected by the currently unascertainable risks of that industry. Although our management will endeavor to evaluate the risks inherent in a particular industry or target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable to investors in this offering than a direct investment, if an opportunity were available, in a target business.
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The requirement that the target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for our initial business combination may limit the type and number of companies that we may complete such a business combination with.
Pursuant to the Nasdaq listing rules, the target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for our initial business combination. This restriction may limit the type and number of companies that with which may complete a business combination. If we are unable to locate a target business or businesses that satisfy this fair market value test, we may be forced to liquidate and you will only be entitled to receive your pro rata portion of the funds in the trust account.
Our ability to successfully effect a business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following a business combination. While we intend to closely scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct.
Our ability to successfully effect a business combination is dependent upon the efforts of our key personnel. We believe that our success depends on the continued service of our key personnel, at least until we have consummated our initial business combination. We cannot assure you that any of our key personnel will remain with us for the immediate or foreseeable future. In addition, none of our officers are required to commit any specified amount of time to our affairs and, accordingly, they will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have employment agreements with, or key-man insurance on the life of, any of our officers. The unexpected loss of the services of our key personnel could have a detrimental effect on us.
The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or advisory positions following a business combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could cause us to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
Our officers and directors may not have significant experience or knowledge regarding the jurisdiction or industry of the target business we may seek to acquire.
While we intend to focus our search for target businesses in the People’s Republic of China that operate in the non-traditional financial industry, we may consummate a business combination with a target business in any geographic location or industry we choose. We cannot assure you that our officers and directors will have enough experience or have sufficient knowledge relating to the jurisdiction of the target or its industry to make an informed decision regarding a business combination. If we become aware of a potential business combination outside of the geographic location or industry where our officers and directors have their most experience, our management may determine to retain consultants and advisors with experience in such industries to assist in the evaluation of such business combination and in our determination of whether or not to proceed with such a business combination. However, our management is not required to engage such consultants and advisors in any situation. If they do not engage any consultants or advisors to assist them in the evaluation of a particular target business or business combination, our management may not properly analyze the risks attendant with such target business or business combination. As a result, we may enter into a business combination that is not in our stockholders’ best interests.
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Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following a business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our key personnel will be able to remain with the company after the consummation of a business combination only if they are able to negotiate employment or consulting agreements or other appropriate arrangements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to the company after the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business.
Our officers and directors will allocate their time to other businesses thereby potentially limiting the amount of time they devote to our affairs. This conflict of interest could have a negative impact on our ability to consummate our initial business combination.
Our officers and directors are not required to commit their full time to our affairs, which could create a conflict of interest when allocating their time between our operations and their other commitments. We presently expect each of our employees to devote such amount of time as they reasonably believe is necessary to our business. We do not intend to have any full time employees prior to the consummation of our initial business combination. All of our officers and directors are engaged in several other business endeavors and are not obligated to devote any specific number of hours to our affairs. If our officers’ and directors’ other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to consummate our initial business combination. We cannot assure you these conflicts will be resolved in our favor.
Our officers and directors have pre-existing fiduciary and contractual obligations and accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our officers and directors have pre-existing fiduciary and contractual obligations to other companies, including companies that are engaged in business activities similar to those intended to be conducted by us. Accordingly, they may participate in transactions and have obligations that may be in conflict or competition with our consummation of our initial business combination. As a result, a potential target business may be presented by our management team to another entity prior to its presentation to us and we may not be afforded the opportunity to engage in a transaction with such target business. For a more detailed description of the pre-existing fiduciary and contractual obligations of our management team, and the potential conflicts of interest that such obligations may present, see the section titled “Management — Conflicts of Interest.”
Our officers’ and directors’ personal and financial interests may influence their motivation in determining whether a particular target business is appropriate for a business combination.
Our officers and directors have waived their right to have their insider shares, private shares or any other shares of common stock acquired in this offering or thereafter converted, or to receive distributions with respect to their insider shares or private shares upon our liquidation if we are unable to consummate our initial business combination. Accordingly, these securities will be worthless if we do not consummate our initial business combination. Any rights they hold, like those held by the public, will also be worthless if we do not consummate an initial business combination. In addition, our officers and directors may loan funds to us after this offering and may be owed reimbursement for expenses incurred in connection with certain activities on our behalf which would only be repaid if we complete an initial business combination. The personal and financial interests of our directors and officers may influence their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict
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of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders’ best interest.
Nasdaq may delist our securities from quotation on its exchange which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
We anticipate that our securities will be listed on Nasdaq, a national securities exchange, upon consummation of this offering. Although, after giving effect to this offering, we meet on a pro forma basis the minimum initial listing standards of Nasdaq, which generally only requires that we meet certain requirements relating to stockholders’ equity, market capitalization, aggregate market value of publicly held shares and distribution requirements, we cannot assure you that our securities will continue to be listed on Nasdaq in the future prior to an initial business combination. Additionally, in connection with our initial business combination, it is likely that Nasdaq will require us to file a new initial listing application and meet its initial listing requirements as opposed to its more lenient continued listing requirements. We cannot assure you that we will be able to meet those initial listing requirements at that time.
If Nasdaq delists our securities from trading on its exchange, we could face significant material adverse consequences, including:
• | a limited availability of market quotations for our securities; |
• | reduced liquidity with respect to our securities; |
• | a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock; |
• | a limited amount of news and analyst coverage for our company; and |
• | a decreased ability to issue additional securities or obtain additional financing in the future. |
We may only be able to complete one business combination with the proceeds of this offering, which will cause us to be solely dependent on a single business which may have a limited number of products or services.
We may only be able to complete one business combination with the proceeds of this offering. By consummating a business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:
• | solely dependent upon the performance of a single business, or |
• | dependent upon the development or market acceptance of a single or limited number of products, processes or services. |
This lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination.
Alternatively, if we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a
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single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.
The ability of our stockholders to exercise their conversion rights may not allow us to effectuate the most desirable business combination or optimize our capital structure.
If our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know how many stockholders may exercise conversion rights, we may either need to reserve part of the trust account for possible payment upon such conversion, or we may need to arrange third party financing to help fund our business transaction. In the event that the business combination involves the issuance of our shares as consideration, we may be required to issue a higher percentage of our shares to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive business combination available to us.
We may be unable to consummate a business combination if a target business requires that we have cash in excess of the minimum amount we are required to have at closing and public stockholders may have to remain stockholders of our company and wait until our liquidation to receive a pro rata share of the trust account or attempt to sell their shares in the open market.
A potential target may make it a closing condition to our business combination that we have a certain amount of cash in excess of the $5,000,001 of net tangible assets we are required to have pursuant to our organizational documents (or $10,000,000 from the non-tendering investors) available at the time of closing. If the number of our stockholders electing to exercise their conversion rights has the effect of reducing the amount of money available to us to consummate a business combination below such minimum amount required by the target business and we are not able to locate an alternative source of funding, we will not be able to consummate such business combination and we may not be able to locate another suitable target within the applicable time period, if at all. In that case, public stockholders may have to remain stockholders of our company and wait the full 24 months in order to be able to receive a pro rata portion of the trust account, or attempt to sell their shares in the open market prior to such time, in which case they may receive less than a pro rata share of the trust account for their shares.
We will offer each public stockholder the option to vote in favor of a proposed business combination and still seek conversion of his, her or its shares, which may make it more likely that we will consummate a business combination.
In connection with any meeting held to approve an initial business combination, we will offer each public stockholder (but not our initial stockholders or the non-tendering investors) the right to have his, her or its shares of common stock converted for cash (subject to the limitations described elsewhere in this prospectus) regardless of whether such stockholder votes for or against such proposed business combination. This is different than other similarly structured blank check companies where stockholders are offered the right to have their shares converted only when they vote against a proposed business combination. Accordingly, public stockholders owning shares sold in this offering may exercise their conversion rights and we could still consummate a proposed business combination so long as a majority of shares voted at the meeting are voted in favor of the proposed business combination. The ability to seek conversion while voting in favor of a proposed business combination may make it more likely that we will consummate our initial business combination.
Public stockholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group,” will be restricted from seeking conversion rights with respect to more than 20% of the shares sold in this offering.
In connection with any meeting held to approve an initial business combination, we will offer each public stockholder (but not holders of our insider shares or the non-tendering investors) the right to have his, her, or its shares of common stock converted for cash. Notwithstanding the foregoing, a public stockholder,
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together with any of its affiliates or any other person with whom it is acting in concert or as a “group” will be restricted from seeking conversion rights with respect to more than 20% of the shares sold in this offering. Accordingly, if you hold more than 20% of the shares sold in this offering and a proposed business combination is approved, you will not be able to seek conversion rights with respect to the full amount of your shares and may be forced to hold such shares following the business combination over 20% or sell them in the open market. We cannot assure you that the value of such shares will appreciate over time following a business combination or that the market price of our shares of common stock will exceed the per-share conversion price.
We may require stockholders who wish to convert their shares in connection with a proposed business combination to comply with specific requirements for conversion that may make it more difficult for them to exercise their conversion rights prior to the deadline for exercising their rights.
In connection with any stockholder meeting called to approve a proposed initial business combination, each public stockholder (but not our initial stockholders or the non-tendering investors) will have the right, regardless of whether it is voting for or against such proposed business combination, to demand that we convert its shares for a share of the trust account. We may require public stockholders who wish to have their shares converted in connection with a proposed business combination to either tender their certificates to our transfer agent at any time prior to the vote taken at the stockholder meeting relating to such business combination or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System. In order to obtain a physical share certificate, a stockholder’s broker and/or clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical share certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, this may not be the case. Accordingly, if it takes longer than we anticipate for stockholders to deliver their shares, stockholders who wish to convert may be unable to meet the deadline for exercising their conversion rights and thus may be unable to convert their shares.
If we require public stockholders who wish to convert their shares of common stock to comply with the delivery requirements for conversion, such converting stockholders may be unable to sell their securities when they wish to in the event that the proposed business combination is not approved.
If we require public stockholders who wish to convert their shares of common stock to comply with specific delivery requirements for conversion described above and such proposed business combination is not consummated, we will promptly return such certificates to the tendering public stockholders. Accordingly, investors who attempted to convert their shares in such a circumstance will be unable to sell their securities after the failed acquisition until we have returned their securities to them. The market price for our shares may decline during this time and you may not be able to sell your securities when you wish to, even while other stockholders that did not seek conversion may be able to sell their securities.
Because of our limited resources and structure, other companies may have a competitive advantage and we may not be able to consummate an attractive business combination.
We expect to encounter intense competition from entities other than blank check companies having a business objective similar to ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses that we could acquire with the net proceeds of this offering, our ability to compete in acquiring certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target
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businesses. Furthermore, seeking stockholder approval of a business combination may delay the consummation of a transaction. Additionally, our outstanding rights, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of the foregoing may place us at a competitive disadvantage in successfully negotiating a business combination.
We may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth of the target business, which could compel us to restructure or abandon a particular business combination.
Although we believe that the net proceeds of this offering will be sufficient to allow us to consummate a business combination, because we have not yet identified any prospective target business, we cannot ascertain the capital requirements for any particular transaction. If the net proceeds of this offering prove to be insufficient, either because of the size of the business combination, the depletion of the available net proceeds in search of a target business, or the obligation to convert for cash a significant number of shares from dissenting stockholders, we will be required to seek additional financing. Such financing may not be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or stockholders is required to provide any financing to us in connection with or after a business combination.
Our initial stockholders control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
Upon consummation of our offering, our initial stockholders will collectively own approximately 23.2% of our issued and outstanding shares of common stock (assuming they do not purchase any units in this offering and do not purchase any private commission units). None of our officers, directors, initial stockholders or their affiliates has indicated any intention to purchase units in this offering or any units or shares of common stock from persons in the open market or in private transactions. However, our officers, directors, initial stockholders or their affiliates could determine in the future to make such purchases in the open market or in private transactions, to the extent permitted by law, in order to assist us in consummating our initial business combination. In connection with any vote for a proposed business combination, all of our initial stockholders, as well as all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before this offering as well as any shares of common stock acquired in this offering or in the aftermarket in favor of such proposed business combination. Additionally, the non-tendering investors have agreed to vote in favor of a proposed business combination and not seek conversion of their shares.
Our board of directors is and will be divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. As a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election in any annual meeting and our initial stockholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our initial stockholders may continue to exert control at least until the consummation of a business combination.
If we do not hold an annual meeting of stockholders until after the consummation of our initial business combination, stockholders will not be afforded an opportunity to elect directors and to discuss company affairs with management until such time.
In accordance with Nasdaq corporate governance requirements, we are not required to hold an annual meeting until one year after our first fiscal year end following our listing on Nasdaq. Under Section 211(b) of the Delaware General Corporation Law, we are, however, required to hold an annual meeting of stockholders for the purposes of electing directors in accordance with our bylaws unless such election is made by written
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consent in lieu of such a meeting. It is unlikely that there will be an annual meeting of stockholders to elect new directors prior to the consummation of our initial business combination, and thus we may not be in compliance with Section 211(b) of the Delaware General Corporation Law, which requires an annual meeting. Therefore, if our stockholders want us to hold an annual meeting prior to the consummation of our initial business combination, they may attempt to force us to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the Delaware General Corporation Law.
Our initial stockholders paid an aggregate of $25,000, or approximately $0.02 per share, for the insider shares and our initial stockholders will pay $10.00 per unit for the private units, resulting in an aggregate average price of approximately $1.73 per share, and, accordingly, you will experience immediate and substantial dilution from the purchase of our shares of common stock.
The difference between the public offering price per share and the pro forma net tangible book value per share after this offering constitutes the dilution to the investors in this offering. Our initial stockholders acquired their insider shares at a nominal price, significantly contributing to this dilution. Upon consummation of this offering, you and the other new investors will incur an immediate and substantial dilution of approximately 74.1% or $6.73 per share (the difference between the pro forma net tangible book value per share $2.36, and the assumed initial offering price of $9.09 per unit). This is because investors in this offering will be contributing approximately 95% of the total amount paid to us for our outstanding securities after this offering but will only own approximately 78% of our outstanding securities. Accordingly, the per-share purchase price you will be paying substantially exceeds our per share net tangible book value.
If our stockholders exercise their registration rights with respect to their securities, it may have an adverse effect on the market price of our shares of common stock and the existence of these rights may make it more difficult to effect a business combination.
Our initial stockholders are entitled to make a demand that we register the resale of their insider shares at any time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the purchasers of the private units and our initial stockholders, officers and directors are entitled to demand that we register the resale of the private units (and the underlying shares of common stock and rights) and any securities our initial stockholders, officers, directors or their affiliates may be issued in payment of working capital loans made to us at any time after we consummate a business combination. The presence of these additional securities trading in the public market may have an adverse effect on the market price of our securities. In addition, the existence of these rights may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business, as the stockholders of the target business may be discouraged from entering into a business combination with us or will request a higher price for their securities because of the potential effect the exercise of such rights may have on the trading market for our shares of common stock.
If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination.
A company that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under the Investment Company Act of 1940. Since we will invest the proceeds held in the trust account, it is possible that we could be deemed an investment company. Notwithstanding the foregoing, we do not believe that our anticipated principal activities will subject us to the Investment Company Act of 1940. To this end, the proceeds held in trust may be invested by the trustee only in United States government treasury bills, notes or bonds having a maturity of 180 days or less or in money market funds meeting the applicable conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 and that invest solely in United States treasuries. By restricting the investment of the proceeds to these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act of 1940.
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If we are nevertheless deemed to be an investment company under the Investment Company Act of 1940, we may be subject to certain restrictions that may make it more difficult for us to complete a business combination, including:
• | restrictions on the nature of our investments; and |
• | restrictions on the issuance of securities. |
In addition, we may have imposed upon us certain burdensome requirements, including:
• | registration as an investment company; |
• | adoption of a specific form of corporate structure; and |
• | reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations. |
Compliance with these additional regulatory burdens would require additional expense for which we have not allotted.
We may not seek an opinion from an unaffiliated third party as to the fair market value of the target business we acquire or that the price we are paying for the business is fair to our stockholders from a financial point of view.
We are not required to obtain an opinion from an unaffiliated third party that the target business we select has a fair market value in excess of at least 80% of the balance of the trust account unless our board of directors cannot make such determination on its own. We are also not required to obtain an opinion from an unaffiliated third party indicating that the price we are paying is fair to our stockholders from a financial point of view unless the target is affiliated with our officers, directors, initial stockholders or their affiliates. If no opinions are obtained, our stockholders will be relying on the judgment of our board of directors, whose collective experience in business evaluations for blank check companies like ours is not significant. Furthermore, our directors may have a conflict of interest in analyzing the transaction due to their personal and financial interests.
The determination for the offering price of our units is more arbitrary compared with the pricing of securities for an operating company in a particular industry.
Prior to this offering there has been no public market for any of our securities. The public offering price of the units was negotiated between us and the underwriter. Factors considered in determining the prices and terms of the units, including the shares of common stock and rights underlying the units, include:
• | the history and prospects of companies whose principal business is the acquisition of other companies; |
• | prior offerings of those companies; |
• | our prospects for acquiring an operating business at attractive values; |
• | our capital structure; |
• | the per share amount of net proceeds being placed in the trust account; |
• | an assessment of our management and their experience in identifying operating companies; and |
• | general conditions of the securities markets at the time of the offering. |
However, although these factors were considered, the determination of our offering price is more arbitrary than the pricing of securities for an operating company in a particular industry since we have no historical operations or financial results to compare them to.
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Foreign currency fluctuations could adversely affect our business and financial results.
A target business with which we may combine may do business and generate sales within other countries. Foreign currency fluctuations may affect the costs that we incur in such international operations. It is also possible that some or all of our operating expenses may be incurred in non-U.S. dollar currencies. The appreciation of non-U.S. dollar currencies in those countries where we have operations against the U.S. dollar would increase our costs and could harm our results of operations and financial condition.
If we effect a business combination with a company located outside of the United States, we would be subject to a variety of additional risks that may negatively impact our business operations and financial results.
Our efforts to identify a prospective target business will not be limited to a particular geographic region of the world although we initially intend to focus on target businesses located in China. If we consummate a business combination with a target business in China, or another location outside of the United States, we would be subject to any special considerations or risks associated with companies operating in the target business’ governing jurisdiction, including any of the following:
• | rules and regulations or currency redemption or corporate withholding taxes on individuals; |
• | tariffs and trade barriers; |
• | regulations related to customs and import/export matters; |
• | longer payment cycles; |
• | inflation; |
• | economic policies and market conditions; |
• | unexpected changes in regulatory requirements; |
• | challenges in managing and staffing international operations; |
• | tax issues, such as tax law changes and variations in tax laws as compared to the United States; |
• | currency fluctuations; |
• | challenges in collecting accounts receivable; |
• | cultural and language differences; |
• | protection of intellectual property; and |
• | employment regulations. |
We cannot assure you that we would be able to adequately address these additional risks. If we were unable to do so, our operations might suffer.
If we effect a business combination with a company located outside of the United States, the laws applicable to such company will likely govern all of our material agreements and we may not be able to enforce our legal rights.
If we effect a business combination with a company located outside of the United States, the laws of the country in which such company operates will govern almost all of the material agreements relating to its operations. We cannot assure you that the target business will be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital. Additionally, if we acquire a company located outside of the United States, it is likely that substantially all of our assets would be located outside of the United States and some of our officers and directors might reside outside of the United States. As a result,
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it may not be possible for investors in the United States to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws.
If we effect a business combination with a company located outside of the United States, it could result in adverse tax consequences to us.
If we effect a business combination with a company located outside of the United States, we may determine it is necessary to change our jurisdictional domicile from Delaware to a foreign jurisdiction such as the Cayman Islands or the British Virgin Islands. Changing our domicile could result in adverse tax consequences to us at that time. Alternatively, we could determine to remain a Delaware company and subject our operations to United States taxation even though our operations might be wholly foreign. Either of the foregoing could have a negative impact on our results of operations.
If we acquire control of a target business through contractual arrangements with one or more operating businesses in the PRC, such contracts may not be as effective in providing operational control as direct ownership of such business and may be difficult to enforce.
We will only acquire a business or businesses that, upon the consummation of our initial business combination, will be our majority-owned subsidiaries and will be neither investment companies nor companies excluded from the definition of an investment company by Section 3(c)(1) or 3(c)(7) of the Investment Company Act. However, the PRC has restricted or limited foreign ownership of certain kinds of assets and companies operating in certain industries. The industry groups that are restricted are wide ranging, including, for example, certain aspects of telecommunications, food production, and heavy equipment manufacturers. In addition there can be restrictions on the foreign ownership of businesses that are determined from time to time to be in “important industries” that may affect the national economic security or having “famous brand names” or “well-established brand names.” Subject to the review and approval requirements of the relevant agencies for acquisitions of assets and companies in the relevant jurisdictions and subject to the various percentage ownership limitations that exist from time to time, acquisitions involving foreign investors and parties in the various restricted categories of assets and industries may nonetheless sometimes be consummated using contractual arrangements with permitted local parties. To the extent that such agreements are employed, they may be for control of specific assets such as intellectual property or control of blocks of the equity ownership interests of a company which may provide exceptions to the merger and acquisition regulations mentioned above since these types of arrangements typically do not involve a change of equity ownership in the operating company. The agreements would be designed to provide our company with the economic benefits of and control over the subject assets or equity interests similar to the rights of full ownership, while leaving the technical ownership in the hands of local parties who would be our nominees and, therefore, may exempt the transaction from certain regulations, including the application process required thereunder.
However, since there has been limited implementation guidance provided with respect to such regulations, the relevant government agency might apply them to a business combination effected through contractual arrangements. If such an agency determines that such an application should have been made or that our potential future target businesses are otherwise in violation of local laws or regulations, consequences may include confiscating relevant income and levying fines and other penalties, revoking business and other licenses, requiring restructure of ownership or operations, requiring discontinuation or restriction of the operations of any portion or all of the acquired business, restricting or prohibiting our use of the proceeds of this offering to finance our businesses and operations and imposing conditions or requirements with which we or potential future target businesses may not be able to comply. These agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted under local laws and regulations. If we choose to effect a business combination that employs the use of these types of control arrangements, we may have difficulty in enforcing our rights. Therefore, these contractual arrangements may not be as effective in providing us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership. For example, if the target business or any other entity fails to
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perform its obligations under these contractual arrangements, we may have to incur substantial costs and expend substantial resources to enforce such arrangements, and rely on legal remedies under local law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will be sufficient to off-set the cost of enforcement and may adversely affect the benefits we expect to receive from the business combination.
Contractual arrangements we enter into with potential future subsidiaries and affiliated entities or acquisitions of offshore entities that conduct operations through affiliates in the PRC may be subject to a high level of scrutiny by the relevant tax authorities.
Under the laws of the PRC, arrangements and transactions among related parties may be subject to audit or challenge by the relevant tax authorities. If any of the transactions we enter into with potential future subsidiaries and affiliated entities are found not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under local law, the relevant tax authorities may have the authority to disallow any tax savings, adjust the profits and losses of such potential future local entities and assess late payment interest and penalties. A finding by the relevant tax authorities that we are ineligible for any such tax savings, or that any of our possible future affiliated entities are not eligible for tax exemptions, would substantially increase our possible future taxes and thus reduce our net income and the value of a shareholder’s investment. In addition, in the event that in connection with an acquisition of an offshore entity that conducted its operations through affiliates in the PRC, the sellers of such entities failed to pay any taxes required under local law, the relevant tax authorities could require us to withhold and pay the tax, together with late-payment interest and penalties. The occurrence of any of the foregoing could have a negative impact on our operating results and financial condition.
If we effect our initial business combination with a business located in the PRC, the laws applicable to such business will likely govern all of our material agreements and we may not be able to enforce our legal rights.
If we effect our initial business combination with a business located in the PRC, the laws of the country in which such business operates will govern almost all of the material agreements relating to its operations, including any contractual arrangements through which we acquire control of target business as described above. We cannot assure you that we or the target business will be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. In addition, the judiciary in the PRC is relatively inexperienced in enforcing corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. In addition, to the extent that our target business’ material agreements are with governmental agencies in the PRC, we may not be able to enforce or obtain a remedy from such agencies due to sovereign immunity, in which the government is deemed to be immune from civil lawsuit or criminal prosecution. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital.
If the government of the PRC finds that the agreements we entered into to acquire control of a target business through contractual arrangements with one or more operating businesses do not comply with local governmental restrictions on foreign investment, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to significant penalties or be forced to relinquish our interests in those operations.
The PRC currently prohibits and/or restricts foreign ownership in certain “important industries,” including telecommunications, food production and heavy equipment. There are uncertainties under certain regulations whether obtaining a majority interest through contractual arrangements will comply with regulations prohibiting or restricting foreign ownership in certain industries. For example, the PRC may apply restrictions in other industries in the future. In addition, there can be restrictions on the foreign ownership of businesses
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that are determined from time to time to be in “important industries” that may affect the national economic security or those having “famous brand names” or “well-established brand names.”
If we or any of our potential future target businesses are found to be in violation of any existing or future local laws or regulations (for example, if we are deemed to be holding equity interests in certain of our affiliated entities in which direct foreign ownership is prohibited), the relevant regulatory authorities might have the discretion to:
• | revoke the business and operating licenses of the potential future target business; |
• | confiscate relevant income and impose fines and other penalties; |
• | discontinue or restrict the operations of the potential future target business; |
• | require us or potential future target business to restructure the relevant ownership structure or operations; |
• | restrict or prohibit our use of the proceeds of this offering to finance our businesses and operations in the relevant jurisdiction; or |
• | impose conditions or requirements with which we or potential future target business may not be able to comply. |
The requirement that we complete an initial business combination within 21 (or 24) months from the consummation of this offering may give potential target businesses leverage over us in negotiating a business transaction.
We have 21 months from the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period) to complete an initial business combination. Any potential target business with which we enter into negotiations concerning a business combination will be aware of this requirement. Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing that if we do not complete a business combination with that particular target business, we may be unable to complete a business combination with any other target business. This risk will increase as we get closer to the time limits referenced above.
Because we must furnish our stockholders with financial statements of the target business prepared in accordance with U.S. GAAP or IFRS or reconciled to U.S. GAAP, we may not be able to complete an initial business combination with some prospective target businesses.
The federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America, or GAAP, or international financial reporting standards, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. These financial statement requirements may limit the pool of potential target businesses we may acquire.
Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls and may require us to have such system audited by an independent registered public accounting firm. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. A target may also not be in compliance with the provisions of the Sarbanes-
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Oxley Act regarding the adequacy of internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our securities less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. We will remain an “emerging growth company” for up to five years. However, if our non-convertible debt issued within a three-year period or revenues exceeds $1 billion, or the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we are not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, we have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates. We cannot predict if investors will find our shares less attractive because we may rely on these provisions. If some investors find our shares less attractive as a result, there may be a less active trading market for our shares and our share price may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, will not adopt the new or revised standard until the time private companies are required to adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
An investment in this offering may involve adverse U.S. federal income tax consequences.
There is a risk that an investor’s entitlement to receive payments in excess of the investor’s initial tax basis in our shares of common stock upon exercise of the investor’s conversion right or upon our liquidation of the trust account will result in constructive income to the investor, which could affect the timing and character of income recognition and result in U.S. federal income tax liability to the investor without the investor’s receipt of cash from us. Prospective investors are urged to consult their own tax advisors with respect to these and other tax consequences when purchasing, holding or disposing of our securities.
We have also not sought a ruling from the Internal Revenue Service, or IRS, as to any U.S. federal income tax consequences described in this prospectus. The IRS may disagree with the descriptions of U.S. federal income tax consequences described herein, and its determination may be upheld by a court. Any such determination could subject an investor or our company to adverse U.S. federal income tax consequences that would be different than those described in this prospectus. Accordingly, each prospective investor is urged
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to consult a tax advisor with respect to the specific tax consequences of the acquisition, ownership and disposition of our securities, including the applicability and effect of state, local, or foreign tax laws, as well as U.S. federal tax laws.
Target businesses in the non-traditional financial industry are subject to special considerations and risks.
Business combinations with companies with operations in the non-traditional financial industry in China entail special considerations and risks. If we are successful in completing a business combination with a target business with operations in this location and these industries, we will be subject to, and possibly adversely affected by, the following risks:
• | credit risk of the target business’ customers; |
• | competition and consolidation of the specific sector of the non-traditional financial industry within which the target business operates; |
• | changes in demands for non-traditional financial products; |
• | increased government regulations in the non-traditional financial industry and the costs of compliance with such regulations; |
• | the negative impacts of catastrophic events; and |
• | any changes in China’s economic, political and social conditions. |
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The statements contained in this prospectus that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about our:
• | ability to complete our initial business combination; |
• | limited operating history; |
• | success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination; |
• | potential ability to obtain additional financing to complete a business combination; |
• | pool of prospective target businesses; |
• | the ability of our officers and directors to generate a number of potential investment opportunities; |
• | potential change in control if we acquire one or more target businesses for shares; |
• | our public securities’ potential liquidity and trading; |
• | regulatory or operational risks associated with acquiring a target business; |
• | use of proceeds not held in the trust account or available to us from interest income on the trust account balance; |
• | financial performance following this offering; or |
• | listing or delisting of our securities from Nasdaq or the ability to have our securities listed on Nasdaq following our initial business combination. |
The forward-looking statements contained in this prospectus are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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We estimate that the net proceeds of this offering, in addition to the funds we will receive from the sale of the private units (all of which will be deposited into the trust account), will be as set forth in the following table:
Without Over-Allotment Option | Over-Allotment Option Exercised | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Gross proceeds | ||||||||||
From offering | $ | 40,000,000 | $ | 46,000,000 | ||||||
From private placement | 2,100,000 | 2,100,000 | ||||||||
Total gross proceeds | 42,100,000 | 48,100,000 | ||||||||
Offering expenses(1) | ||||||||||
Underwriting discount (3.0% of gross proceeds from offering, excluding deferred fee of 1.0% of gross proceeds from offering) | 1,200,000 | (2) | 1,200,000 | (2) | ||||||
Legal fees and expenses | 250,000 | 250,000 | ||||||||
Nasdaq listing fee | 50,000 | 50,000 | ||||||||
Printing and engraving expenses | 45,000 | 45,000 | ||||||||
Accounting fees and expenses | 40,000 | 40,000 | ||||||||
FINRA filing fee | 7,400 | 7,400 | ||||||||
SEC registration fee | 6,000 | 6,000 | ||||||||
Miscellaneous expenses | 11,600 | 11,600 | ||||||||
Total offering expenses | 1,610,000 | 1,610,000 | ||||||||
Net proceeds | ||||||||||
Held in trust | 40,000,000 | 46,000,000 | ||||||||
Not held in trust | 490,000 | 490,000 | ||||||||
Total net proceeds | $ | 40,490,000 | $ | 46,490,000 | ||||||
Use of net proceeds not held in trust and amounts available from interest income earned on the trust account(3)(4) | ||||||||||
Legal, accounting and other third party expenses attendant to the search for target businesses and to the due diligence investigation, structuring and negotiation of a business combination | $ | 155,000 | (29.5 | )% | ||||||
Due diligence of prospective target businesses by officers, directors and initial stockholders | 75,000 | (14.3 | )% | |||||||
Legal and accounting fees relating to SEC reporting obligations | 100,000 | (19.0 | )% | |||||||
Working capital to cover miscellaneous expenses, D&O insurance, general corporate purposes, liquidation obligations and reserves | 195,000 | (37.2 | )% | |||||||
Total | $ | 525,000 | (100.0%) |
(1) | A portion of the offering expenses, including the SEC registration fee, the FINRA filing fee, the non-refundable portion of the Nasdaq listing fee and a portion of the legal and audit fees, have been paid from the funds we received from Jianming Hao described below. These funds will be repaid out of the proceeds of this offering available to us. |
(2) | The underwriting discount of 3.0% is payable at the closing of the offering and the deferred underwriting fee of 1.0% (and 4.0% on gross proceeds received from the over-allotment option) payable to Cantor Fitzgerald is payable upon consummation of our initial business combination and will be held in the trust account until consummation of such business combination. Additionally, in the event that investors introduced by us to the underwriter do not purchase at least $30,000,000 of the units being offered hereby, there will be an additional underwriting commission paid to the underwriter in the amount of $0.15 per unit (1.5%) on the amount below $30,000,000 invested by investors introduced by us, which will not affect the amount in trust due to the obligation of our initial stockholders to purchase private |
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commission units. No discounts or commissions will be paid with respect to the purchase of the private units. |
(3) | The amount of proceeds not held in trust will remain constant at $490,000 even if the over-allotment is exercised. In addition, interest income earned on the amounts held in the trust account (after payment of taxes owed on such interest income) will be available to us to pay for our working capital requirements. We estimate the interest earned on the trust account will be approximately $35,000 over a 21-month period assuming an interest rate of approximately 0.05% per year. |
(4) | These are estimates only. Our actual expenditures for some or all of these items may differ from the estimates set forth herein. For example, we may incur greater legal and accounting expenses than our current estimates in connection with negotiating and structuring our initial business combination based upon the level of complexity of that business combination. We do not anticipate any change in our intended use of proceeds, other than fluctuations among the current categories of allocated expenses, which fluctuations, to the extent they exceed current estimates for any specific category of expenses, would be deducted from our excess working capital. |
Our initial stockholders have committed to purchase an aggregate of 210,000 private units at a price of $10.00 per unit ($2,100,000 in the aggregate). Our initial stockholders have also agreed that if investors introduced by us to the underwriter do not purchase at least $30,000,000 of the units being offered hereby, they will purchase from us at a price of $10.00 per unit the number of private units that will equal the increased commissions we will pay the underwriter, as described above. The purchases will take place on a private placement basis that will occur simultaneously with the closing of this offering. All of the proceeds we receive from these purchases will be placed in the trust account described below, except that the proceeds from the sale of the private commission units will be paid to the underwriter at the closing of this offering.
$40,000,000, or $46,000,000 if the over-allotment option is exercised in full, of net proceeds of this offering and the sale of the private units will be placed in an account at Smith Barney in the United States, maintained by Continental Stock Transfer & Trust Company, New York, New York, as trustee. The funds held in trust will be invested only in United States government treasury bills, bonds or notes having a maturity of 180 days or less, or in money market funds meeting the applicable conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 and that invest solely in United States government treasuries, so that we are not deemed to be an investment company under the Investment Company Act. Except with respect to (i) interest earned on the funds held in the trust account that may be released to us to pay our income or other tax obligations and (ii) any remaining interest earned on the funds held in the trust account that may be released to us for our working capital requirements, the proceeds will not be released from the trust account until the earlier of the completion of a business combination or our liquidation. The proceeds held in the trust account may be used as consideration to pay the sellers of a target business with which we complete a business combination. Any amounts not paid as consideration to the sellers of the target business may be used to finance operations of the target business.
No compensation of any kind (including finder’s, consulting or other similar fees) will be paid to any of our existing officers, directors, stockholders, or any of their affiliates, prior to, or for any services they render in order to effectuate, the consummation of the business combination (regardless of the type of transaction that it is). However, such individuals will receive reimbursement for any out-of-pocket expenses incurred by them in connection with activities on our behalf, such as identifying potential target businesses, performing business due diligence on suitable target businesses and business combinations as well as traveling to and from the offices, plants or similar locations of prospective target businesses to examine their operations. Since the role of present management after a business combination is uncertain, we have no ability to determine what remuneration, if any, will be paid to those persons after a business combination.
Regardless of whether the over-allotment option is exercised in full, the net proceeds from this offering available to us out of trust for our working capital requirements in searching for a business combination will be approximately $490,000. In addition, interest earned on the funds held in the trust account (after payment of taxes owed on such interest income) may be released to us to fund our working capital requirements in searching for a business combination. We intend to use the excess working capital available for miscellaneous
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expenses such as paying fees to consultants to assist us with our search for a target business and for director and officer liability insurance premiums, with the balance being held in reserve in the event due diligence, legal, accounting and other expenses of structuring and negotiating business combinations exceed our estimates, as well as for reimbursement of any out-of-pocket expenses incurred by our initial stockholders, officers and directors in connection with activities on our behalf as described above. We will also be entitled to have interest earned on the funds held in the trust account released to us to pay any tax obligations that we may owe. We intend to use the after-tax interest earned for miscellaneous expenses such as paying fees to consultants to assist us with our search for a target business and for director and officer liability insurance premiums, with the balance being held in reserve in the event due diligence, legal, accounting and other expenses of structuring and negotiating business combinations exceed our estimates, as well as for reimbursement of any out-of-pocket expenses incurred by our initial stockholders, officers and directors in connection with activities on our behalf as described below.
The allocation of the net proceeds available to us outside of the trust account, along with the available interest earned on the funds held in the trust account, represents our best estimate of the intended uses of these funds. In the event that our assumptions prove to be inaccurate, we may reallocate some of such proceeds within the above described categories. If our estimate of the costs of undertaking in-depth due diligence and negotiating our initial business combination is less than the actual amount necessary to do so, or the amount of interest available from the trust account is insufficient as a result of the current low interest rate environment, we may be required to raise additional capital, the amount, availability and cost of which is currently unascertainable. In this event, we could seek such additional capital through loans or additional investments from members of our management team, but such members of our management team are not under any obligation to advance funds to, or invest in, us.
We will likely use a substantial portion of the net proceeds of this offering, including the funds held in the trust account, to acquire a target business and to pay our expenses relating thereto. To the extent that our share capital is used in whole or in part as consideration to effect a business combination, the proceeds held in the trust account which are not used to consummate a business combination will be disbursed to the combined company and will, along with any other net proceeds not expended, be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products.
To the extent we are unable to consummate a business combination, we will pay the costs of liquidating our trust account from our remaining assets outside of the trust account. If such funds are insufficient, Jianming Hao has agreed to advance us the funds necessary to complete such liquidation (currently anticipated to be no more than $15,000) and has agreed not to seek repayment of such expenses.
As of April 15, 2014, Jianming Hao loaned to us an aggregate of $117,000 to be used to pay a portion of the expenses of this offering referenced in the line items above for SEC registration fee, FINRA filing fee, the non-refundable portion of the Nasdaq listing fee and a portion of the legal and audit fees and expenses. The loan is payable without interest on the earlier of (i) April 30, 2015, (ii) the date on which we consummate our initial public offering or (iii) the date on which we determine to not proceed with our initial public offering. The loan will be repaid out of the proceeds of this offering available to us for payment of offering expenses.
We believe that, upon consummation of this offering, we will have sufficient available funds (which includes amounts that may be released to us from the trust account) to operate for the next 24 months, assuming that a business combination is not consummated during that time. However, if necessary, in order to meet our working capital needs following the consummation of this offering, our initial stockholders, officers and directors or their affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $500,000 of the notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit. Our stockholders have approved the issuance of the units and underlying securities upon conversion of such
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notes, to the extent the holder wishes to so convert them at the time of the consummation of our initial business combination. If we do not complete our initial business combination, the loans would not be repaid.
A public stockholder will be entitled to receive funds from the trust account (including interest earned on his, her or its portion of the trust account to the extent not previously released to us) only in the event of (i) our liquidation if we have not completed a business combination within the required time period or (ii) if that public stockholder converts such shares in connection with a business combination which we consummate. In no other circumstances will a public stockholder have any right or interest of any kind to or in the trust account.
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We have not paid any cash dividends on our shares of common stock to date and do not intend to pay cash dividends prior to the completion of an initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our board of directors at such time. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board of directors does not anticipate declaring any dividends in the foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring any share dividends in the foreseeable future, except if we increase the size of the offering pursuant to Rule 462(b) under the Securities Act, in which case we will effect a share dividend immediately prior to the consummation of the offering in such amount as to maintain our initial stockholders’ ownership at 20% of our issued and outstanding shares of common stock upon the consummation of this offering (excluding ownership of the private units and private commission units). Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
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The difference between the public offering price per share and the pro forma net tangible book value per share after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities (including the value of shares of common stock which may be converted for cash), by the number of outstanding shares of common stock. For the purposes of the dilution calculation, in order to present the maximum estimated dilution as a result of this offering, we have assumed the issuance of 0.1 of a share for each right outstanding, as such issuance will occur automatically upon a business combination without the payment of additional consideration. Accordingly, for the purposes of the dilution calculation, the number of shares included in the units offered hereby will be deemed to be 4,400,000, the price per share in this offering will be deemed to be $9.09 and the number of shares included in the private units will be deemed to be 231,000. The below presentation assumes that no private commission units are issued.
At April 15, 2014, our net tangible book value was $(10,449), or approximately $(0.01) per share. After giving effect to the sale of 4,000,000 shares of common stock included in the units we are offering by this prospectus, and the deduction of underwriting discounts and estimated expenses of this offering, and the sale of the private units, and assuming the issuance of 421,000 shares for the outstanding rights, our pro forma net tangible book value at April 15, 2014 would have been $5,000,011 or $2.36 per share, representing an immediate increase in net tangible book value of $2.35 per share to the initial stockholders and an immediate dilution of 74.1% per share or $6.73 to new investors not exercising their conversion rights. For purposes of presentation, our pro forma net tangible book value after this offering is $35,114,540 less than it otherwise would have been because if we effect a business combination, the ability of public stockholders (but not our initial stockholders or the non-tendering investors) to exercise conversion rights may result in the conversion of up to 3,511,454 shares sold in this offering.
The following table illustrates the dilution to the new investors on a per-share basis:
Public offering price | $ | 9.09 | (1) | |||||||
Net tangible book value before this offering | $ | (0.01 | ) | |||||||
Increase attributable to new investors and private sales | 2.35 | |||||||||
Pro forma net tangible book value after this offering | 2.36 | |||||||||
Dilution to new investors | $ | 6.73 | ||||||||
Percentage of dilution to new investors | 74.1 | % |
(1) | Derived from $40,000,000 net proceeds from the public offering divided by 4,400,000 shares, which assumes that the over-allotment option has not been exercised and the issuance of an additional 400,000 public shares underlying the public rights. |
(2) | If the over-allotment option is exercised in full, dilution to new investors increases to $6.97 per share. |
The following table sets forth information with respect to our initial stockholders and the new investors:
Shares Purchased | Total Consideration | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number | Percentage | Amount | Percentage | Average Price per Share | ||||||||||||||||||
Initial stockholders — Initial Shares | 1,000,000 | (1) | 17.8 | % | $ | 25,000 | 0.1 | % | $ | 0.02 | ||||||||||||
Initial Stockholders — Private Units | 231,000 | (2) | 4.1 | % | 2,100,000 | 4.9 | % | $ | 9.09 | |||||||||||||
New investors (2) | 4,400,000 | (3) | 78.1 | % | 40,000,000 | 95.0 | % | $ | 9.09 | |||||||||||||
5,631,000 | 100.0 | % | $ | 42,125,000 | 100.0 | % |
(1) | Assumes the over-allotment option has not been exercised and an aggregate of 150,000 shares of common stock held by our initial stockholders have been forfeited as a result thereof. |
(2) | If the over-allotment is exercised in full, shares purchased by and total consideration from new investors increase to 5,060,000 and $46,000,000, respectively. |
(3) | Assumes the issuance of an additional 400,000 public shares underlying the public rights. |
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The pro forma net tangible book value after the offering is calculated as follows:
Numerator: | ||||||
Net tangible book value before the offering | $ | (10,499 | ) | |||
Net proceeds from this offering and private placement of private units | 40,490,000 | |||||
Plus: Offering costs and paid in advance, excluded from tangible book value before this offering | 35,000 | |||||
Less: deferred underwriting fee | (400,000 | ) | ||||
Less: Proceeds held in trust subject to possible conversion | (35,114,540 | ) | ||||
$ | 5,000,011 | |||||
Denominator: | ||||||
Shares of common stock outstanding prior to this offering | 1,000,000 | (1) | ||||
Shares of common stock included in the units offered | 4,000,000 | |||||
Shares of common stock to be sold in private placement | 210,000 | |||||
Shares of common stock underlying the rights to be sold in this offering | 400,000 | |||||
Shares of common stock underlying the rights to be sold in private placement | 21,000 | |||||
Less: Shares subject to possible conversion | (3,511,454 | ) | ||||
2,119,546 |
(1) | Assumes the over-allotment option has not been exercised and an aggregate of 150,000 shares of common stock held by our initial stockholders have been forfeited as a result thereof. |
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The following table sets forth our capitalization at April 15, 2014 and as adjusted to give effect to the sale of our units and the private units and the application of the estimated net proceeds derived from the sale of such securities.
April 15, 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Actual | As Adjusted(1) | ||||||||||
Note payable to related party(2) | $ | 117,000 | $ | — | |||||||
Underwriter fee payable | 400,000 | ||||||||||
Shares of common stock, par value $0.0001 per share, -0- and 3,511,454 shares which are subject to possible conversion | — | 35,114,540 | (4) | ||||||||
Stockholders’ equity: | |||||||||||
Preferred shares, par value $0.0001 per share, 1,000,000 shares authorized; none issued or outstanding | — | — | |||||||||
Shares of common stock, par value $0.0001 per share, 25,000,000 shares authorized; 1,150,000 shares issued and outstanding, actual; 2,119,546 shares issued and outstanding(3) (excluding 3,511,454 shares subject to possible conversion), as adjusted | 115 | 212 | |||||||||
Additional paid-in capital | 24,885 | 5,000,248 | |||||||||
Deficit accumulated during the development stage | (449 | ) | (449 | ) | |||||||
Total stockholders’ equity: | $ | 24,551 | $ | 5,000,011 | |||||||
Total capitalization | $ | 141,551 | $ | 40,514,551 | (5) |
(1) | Includes the $2,100,000 we will receive from the sale of the private units. |
(2) | Note payable to related party is a promissory note issued in the aggregate amount of $117,000 to Jianming Hao. The note is non-interest bearing and is payable on the earliest to occur of (i) April 30, 2015, (ii) the consummation of this offering or (iii) the date on which we determine not to proceed with this offering. |
(3) | Assumes the over-allotment option has not been exercised and an aggregate of 150,000 shares of common stock held by our initial stockholders have been forfeited as a result thereof. Assumes shares underlying the rights to be sold in this offering as issued and outstanding. |
(4) | Derived by taking 3,511,454 shares of common stock which may be converted, representing the maximum number of shares that may be converted while maintaining at least $5,000,001 in net tangible assets after the offering, multiplied by a conversion price of approximately $10.00. |
(5) | Derived by adding total stockholders’ equity and the value of the common stock subject to possible conversion. |
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We were formed on March 28, 2014 for the purpose of completing an initial business combination with one or more target businesses. We have not identified a target business and we have not, nor has anyone on our behalf, initiated any discussions, directly or indirectly, with respect to identifying any target business. We intend to effectuate our initial business combination using cash from the proceeds of this offering and the private placement of the private units, our shares, debt or a combination of cash, shares and debt. The issuance of additional shares of common stock or preferred shares:
• | may significantly reduce the equity interest of our stockholders; |
• | may subordinate the rights of holders of shares of common stock if we issue preferred shares with rights senior to those afforded to our shares of common stock; |
• | will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely will also result in the resignation or removal of our present officers and directors; and |
• | may adversely affect prevailing market prices for our securities. |
Similarly, if we issue debt securities, it could result in:
• | default and foreclosure on our assets if our operating revenues after a business combination are insufficient to pay our debt obligations; |
• | acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that required the maintenance of certain financial ratios or reserves and we breach any such covenant without a waiver or renegotiation of that covenant; |
• | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and |
• | our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding. |
We have neither engaged in any operations nor generated any revenues to date. Our entire activity since inception has been to prepare for our proposed fundraising through an offering of our equity securities.
Liquidity and Capital Resources
As indicated in the accompanying financial statements, at April 15, 2014, we had $107,000 in cash and cash equivalents and a working capital deficiency of $10,499. Further, we have incurred and expect to continue to incur significant costs in pursuit of our financing and acquisition plans.
Our liquidity needs have been satisfied to date through receipt of $25,000 from the sale of the insider shares and a loan from Jianming Hao in an aggregate amount of $117,000 that is more fully described below. We estimate that the net proceeds from (1) the sale of the units in this offering, after deducting offering expenses of approximately $410,000 and underwriting discounts and commissions of $1,200,000 and (2) the sale of the private units for a purchase price of $2,100,000, will be $40,490,000 (or $46,490,000 if the over-allotment option is exercised in full). $40,000,000 (or $46,000,000 if the over-allotment option is exercised in full), which includes the deferred underwriting fee of $400,000 (or $640,000 if the over-allotment option is exercised in full) which will be payable to Cantor Fitzgerald only upon consummation of our initial business combination, will be held in the trust account. The remaining $490,000 (whether or not the over-allotment option is exercised in full) will not be held in the trust account.
We intend to use substantially all of the net proceeds of this offering, including the funds held in the trust account, to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that
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our capital stock is used in whole or in part as consideration to effect our initial business combination, the remaining proceeds held in the trust account as well as any other net proceeds not expended will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses.
We believe that, upon consummation of this offering, the $490,000 of net proceeds not held in the trust account plus the interest earned on the trust account balance that may be released to us to fund our working capital requirements (which we anticipate will be approximately $35,000 assuming an interest rate of approximately 0.05% per year) will be sufficient to allow us to operate for at least the next 24 months, assuming that a business combination is not consummated during that time. Over this time period, we will be using these funds for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination. We anticipate that we will incur approximately:
• | $155,000 of expenses for the search for target businesses and for the legal, accounting and other third-party expenses attendant to the due diligence investigations, structuring and negotiating of a business combination; |
• | $75,000 of expenses for the due diligence and investigation of a target business by our officers, directors and initial stockholders; |
• | $100,000 of expenses in legal and accounting fees relating to our SEC reporting obligations; and |
• | $195,000 for general working capital that will be used for miscellaneous expenses, liquidation obligations and reserves, including director and officer liability insurance premiums. |
If our estimates of the costs of undertaking in-depth due diligence and negotiating our initial business combination is less than the actual amount necessary to do so, or the amount of interest available to us from the trust account is less than we expect as a result of the current interest rate environment, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to consummate our initial business combination or because we become obligated to convert a significant number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial business combination. Following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Related Party Transactions
As of April 15, 2014, Jianming Hao loaned an aggregate of $117,000 to us, on a non-interest bearing basis, for payment of offering expenses on our behalf. The loan is payable without interest on the earlier of (i) April 30, 2015, (ii) the date on which we consummate our initial public offering or (iii) the date on which we determine to not proceed with our initial public offering. The loan will be repaid out of the proceeds of this offering not being placed in the trust account.
Jianming Hao has also agreed to make available to us, at no cost to us, office space in Beijing, China.
Our initial stockholders have committed to purchase an aggregate of 210,000 private units at a price of $10.00 per unit ($2,100,000 in the aggregate). Our initial stockholders have also agreed that if investors introduced by us to the underwriter do not purchase at least $30,000,000 of the units being offered hereby,
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they will purchase from us at a price of $10.00 per unit the number of private units that will equal the increased commissions we will pay the underwriter, as described elsewhere in this prospectus. The purchases will take place on a private placement basis that will occur simultaneously with the closing of this offering.
We do not believe we will need to raise additional funds following this offering in order to meet the expenditures required for operating our business. However, in order to finance transaction costs in connection with an intended initial business combination, our initial stockholders, officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment. Such loans would be evidenced by promissory notes. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $500,000 of the notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit. We believe the purchase price of these units will approximate the fair value of such units when issued. However, if it is determined, at the time of issuance, that the fair value of such units exceeds the purchase price, we would record compensation expense for the excess of the fair value of the units on the day of issuance over the purchase price in accordance with ASC 718 — Compensation — Stock Compensation.
Controls and Procedures
We are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. We will be required to comply with the internal control requirements of the Sarbanes-Oxley Act for the fiscal year ending December 31, 2015. As of the date of this prospectus, we have not completed an assessment, nor have our auditors tested our systems, of internal controls. We expect to assess the internal controls of our target business or businesses prior to the completion of our initial business combination and, if necessary, to implement and test additional controls as we may determine are necessary in order to state that we maintain an effective system of internal controls. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls. Target businesses we may consider for our initial business combination may have internal controls that need improvement in areas such as:
• | staffing for financial, accounting and external reporting areas, including segregation of duties; |
• | reconciliation of accounts; |
• | proper recording of expenses and liabilities in the period to which they relate; |
• | evidence of internal review and approval of accounting transactions; |
• | documentation of processes, assumptions and conclusions underlying significant estimates; and |
• | documentation of accounting policies and procedures. |
Because it will take time, management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business, we may incur significant expense in meeting our public reporting responsibilities, particularly in the areas of designing, enhancing, or remediating internal and disclosure controls. Doing so effectively may also take longer than we expect, thus increasing our exposure to financial fraud or erroneous financing reporting.
Once our management’s report on internal controls is complete, we will retain our independent auditors to audit and render an opinion on such report when required by Section 404. The independent auditors may identify additional issues concerning a target business’s internal controls while performing their audit of internal control over financial reporting.
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Quantitative and Qualitative Disclosures about Market Risk
The net proceeds of this offering, including amounts in the trust account, will be invested in United States government treasury bills, bonds or notes having a maturity of 180 days or less, or in money market funds meeting the applicable conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 and that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results
As of the date of this prospectus, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. No unaudited quarterly operating data is included in this prospectus as we have conducted no operations to date.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On June 30, 2014, KPMG LLP, or KPMG, acquired certain assets of Rothstein Kass & Company, P.C. and certain of its affiliates, or Rothstein Kass, our independent registered public accounting firm. As a result of this transaction, on June 30, 2014, Rothstein Kass resigned as our independent registered public accounting firm. Concurrent with such resignation, we consented to the engagement of KPMG as our new independent registered public accounting firm. The decision to change accountants was approved by our board of directors.
During the period from March 28, 2014 (inception) to April 15, 2014, Rothstein Kass’ audit report on our financial statements did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. During the period from March 28, 2014 (inception) to April 15, 2014 and the subsequent period through the resignation of Rothstein Kass on June 30, 2014, there were no disagreements between us and Rothstein Kass on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to Rothstein Kass’ satisfaction, would have caused Rothstein Kass to make reference in connection with Rothstein Kass’ opinion to the subject matter of the disagreement; and there were no “reportable events” as the term is described in Item 304(a)(1)(v) of Regulation S-K.
During our most recent financial statement for the period of March 28, 2014 (inception) to April 15, 2014 and through the period preceding KPMG’s engagement, we did not consult with KPMG on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on our financial statements, and KPMG did not provide either a written report or oral advise to us that KPMG concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates.
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Introduction
We are a Delaware blank check company incorporated on March 28, 2014 formed for the purpose of entering into a merger, stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more target businesses, or entering into contractual arrangements that give us control over such a target business.
Business Strategy
We intend to focus our search on businesses in China that operate in the non-traditional financial industry, including but not limited to microcredit companies, financial leasing companies and guarantors. However, we are not limited to this geographic region or to these types of companies. We have not established specific criteria that would trigger our consideration of businesses outside of these areas. We have not determined a time frame, monetary amount or any other factor that would trigger our search of a target business outside of these areas. We may focus on other areas or geographic regions if we believe that those areas or regions are better able to provide attractive financial returns or if an opportunity outside of China was brought to our attention at any time we are in search of a target business.
Our management team believes that companies that operate in the non-traditional financial industry will perform favorably over the next decade due to the following reasons:
• | Chinese interest rates are significantly higher than those in the rest of the developed word. For instance, according to World Bank statistics, from 2009 to 2013, the average commercial bank lending rate in China was approximately 5.9% per annum, compared to 3.3% per annum in the United States. However, we do not believe these rates reflect the actual marketplace demand. We believe there is a significant lending market in China where interest rates can range from 20% to 30% per annum. Our management team believes that target companies in the non-traditional financial industry have the capability of taking advantage of this interest rate differential between market demand and reported rates. Additionally, due to the interest rate differential between the US and China, we could use the relatively cheap cost of capital in the US to provide us with inexpensive sources to fund these non-traditional financial companies. |
• | Non-traditional financial companies are not regulated by the CSRC, the CIRC or the CBRC, which impose strict standards for foreign investment and capital flows. Non-traditional financial companies should benefit from reduced governmental regulation imposed on these types of businesses. |
The following is a summary of the landscape in China that we believe makes these types of non-traditional financial companies attractive targets:
China’s Lending Market
State-owned banks and local commercial banks make the majority of loans in the PRC. These large banks tend to provide financing to state-owned enterprises and large private firms. While large companies continue to obtain bank loans, small and medium sized enterprises (“SMEs”) must seek alternative sources of financing. While state-owned enterprises still play a major role in the PRC economy, SMEs are becoming increasingly important in boosting China’s economy. The number of SMEs has grown from 100,000 in 1978 to approximately 4.3 million registered SMEs in 2010. According to data compiled by the Development and Research Center of the State Council, SMEs account for nearly 60% of the PRC’s GDP, 80% of overall employment and more than half of economic output of China in 2012. As a result, SME financing demands are on the rise.
Concerned about potential dangers to the PRC financial system caused by inflation, beginning in 2010, the People’s Bank of China (“PBOC”) began withdrawing a significant amount of liquidity from the market, making it even harder for SMEs to gain access to capital. Often unable to obtain bank loans, many SMEs were forced to borrow from so-called “underground” lenders. “Underground” lenders, or shadow banks, took
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on various forms and included informal neighborhood lenders, wealthy individual lenders, non-depository banks, other financial institutions and businesses that made loans from their own surplus cash. Such underground lending was unregulated. These lenders often charged interest rates many times higher than the PBOC Benchmark Rate.
As a result, the PRC government stated that private, informal financing channels would be encouraged only within the boundaries of the law and began attempting to limit such activities. This resulted in the creation and approval of microcredit companies in 2008 in order to assist SME’s find alternative funding sources. These microcredit companies are subject to less governmental regulation than other lenders in China.
China’s Asset Management Segment
According to a recent Deloitte report, wealth management has become increasingly important to banks in China as a key point of differentiation. The total volume of asset management financial products sold to retail investors increased 45% in 2012 to $4.05 trillion (RBM 24.71 trillion) compared to 2011. China recently expanded its fund management market to allow securities firms, insurance companies and private fund managers to launch retail funds via asset management arms. The change was part of China’s evolution into a broader asset management market seen in other markets in Asia, such as Hong Kong and Singapore. As such, management believes the demand for companies that provide new, innovative lending products in the asset management industry is enormous.
Interest Rate Differential
We believe China keeps its interest rates artificially low to ensure sufficient low-cost financing for the public sector, while avoiding large fiscal deficits and high inflation. But, in the long run, such low interest rates may also discourage households from saving, lead to insufficient private-sector investment, and eventually result in economy-wide underinvestment, as occurred in many Latin American countries in the past.
According to Mr. Pingfan Hong, the Chief of the Global Economic Monitoring Unit of the United National Department of Economic and Social Affairs, who wrote in China’s Interest-Rate Challenge at May 21, 2013, the degree of financial repression in a country can be estimated by calculating the gap between the average nominal GDP growth rate and the average long-term interest rate, with a larger gap indicating more severe repression. In the last 20 years, this gap has been eight percentage points for China, compared to roughly four percentage points on average for emerging economies and nearly zero for most developed economies, where interest rates are fully liberalized.
China’s “shadow” banking system takes advantage of this differential and can exploit the approximately 8% difference between the government-imposed market rate and the commercial loan rate. In some cases, such as risky or illiquid customers, this rate differential is much higher.
Target business focus
With this landscape in mind, our management believes the non-traditional financial industry has many attractive target businesses. As indicated above, we intend to focus our search for companies in this industry, including but not limited to the following types of companies:
Microcredit Companies
The number of microcredit companies has increased dramatically in China since the government initially permitted them to operate in 2008. According to the statistics provided by the PBOC, as of the end of 2013, there were 7,839 microcredit companies in China as compared to 2,614 at the end of 2010. As of the end of 2013, the total loan balance from microcredit companies stood at approximately $135.3 billion (RMB 819.1 billion) as compared to approximately $29.2 billion (RMB 197.5 billion) at the end of 2010. According to Xiaoling Wu, the vice chairman of the National People’s Congress Financial and Economic Committee, who spoke at the Microcredit Innovation Forum held on January 16, 2010, overall, microcredit companies’ return on capital was 7.76% per annum during 2009 with several generating returns on capital in excess of 10%.
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Financial Leasing Companies
Financial leasing companies purchase and lease back capital equipment or assets such as construction equipment, aviation equipment and real estate. According to a market research report, in 2012, the financial leasing industry of China presented remarkably rapid development, with transactions in the industry reaching approximately $256 billion (RMB1.55 trillion), an increase of approximately $103 billion (RMB620 billion) (66.7%) from approximately $154 billion (RMB930 billion) at the end of 2011.
Guarantors
We believe China’s guarantors provide guarantees on loans to risky borrowers, making it more palatable for traditional banks to lend to those who are less creditworthy than the average client. Guarantors are needed due to the undeveloped credit scoring system in China.
Regulatory Environment
Companies that operate in the non-traditional financial industry are not regulated by the China Securities Regulation Committee, the China Insurance Regulation Committee or the China Banking Regulatory. These bureaus set the strictest standards for foreign investments and capital flows in China. Accordingly, non-traditional financial companies should enjoy lighter regulation from the Chinese government. For example, the Chinese government allows financial leasing companies to have up to ten times the amount of registered capital exempt from Chinese foreign exchange controls.
Currently, a consistent regulatory framework does not exist in the non-traditional financial industry. The Chinese government has undertaken or begun to undertake various reform efforts such as balance-sheet transparency requirements and improved risk management. However, these efforts are still in progress and are subject to change.
Additionally, China’s current financial system is highly leveraged. Microcredit lenders make most of their money by borrowing from regular banks at low interest rates and lending out at higher interest rates to riskier borrowers. No deposits at these institutions means they are highly leveraged and are able to generate superior returns, as long as economic growth continues at a moderate pace. Since 2010, some microcredit companies, such as trust companies, have been subject to restrictions on their leverage ratios and net capital requirements. However, restrictions on their operations are still much looser than those for commercial banks. The ability to have higher leverage ratios provide a huge competitive advantage to microcredit lenders over traditional banks.
Contractual Arrangements
The government of the PRC has restricted or limited foreign ownership of certain kinds of assets and companies operating in a wide variety of industries, including certain aspects of telecommunications, food production, and heavy equipment manufacturers. The PRC may apply these restrictions in other industries in the future. In addition, there can be restrictions on the foreign ownership of businesses that are determined from time to time to be in “important industries” that may affect the national economic security or having “famous Chinese brand names” or “well established Chinese brand names.” Subject to the review requirements of the Ministry of Commerce and other relevant agencies as discussed elsewhere for acquisitions of assets and companies in the PRC and subject to the various percentage ownership limitations that exist from time to time, acquisitions involving foreign investors and parties in the various restricted categories of assets and industries may nonetheless sometimes be consummated using contractual arrangements with permitted Chinese parties. To the extent that such agreements are employed, they may be for control of specific assets such as intellectual property or control of blocks of the equity ownership interests of a company. The agreements would be designed to provide our company with the economic benefits of and control over the subject assets or equity interests similar to the rights of full ownership, while leaving the technical ownership in the hands of Chinese parties who would likely be designated by our company.
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For example, these contracts could result in a structure where, in exchange for our payment of the acquisition consideration, (i) the target company would be majority owned by Chinese residents whom we designate and the target company would continue to hold the requisite licenses for the target business, and (ii) we would establish a new subsidiary in China which would provide technology, technical support, consulting and related services to the target company in exchange for fees, which would transfer to us substantially all of the economic benefits of ownership of the target company.
These contractual arrangements would be designed to provide the following:
• | Our exercise of effective control over the target company; |
• | A substantial portion of the economic benefits of the target company would be transferred to us; and |
• | We, or our designee, would have an exclusive option to purchase all or part of the equity interests in the target company owned by the Chinese residents whom we designate, or all or part of the assets of the target company, in each case when and to the extent permitted by Chinese regulations. |
While we cannot predict the terms of any such contract that we will be able to negotiate, at a minimum, any contractual arrangement would need to provide us with (i) effective control over the target’s operations and management either directly through board control or through affirmative and/or negative covenants and veto rights with respect to matters such as entry into material agreements, management changes and issuance of debt or equity securities, among other potential control provisions and (ii) a sufficient level of economic interest to ensure that we satisfy the 80% net asset test required for our initial business combination. We have not, however, established specific provisions which must be in an agreement in order to meet the definition of business combination. We would obtain an independent appraisal from an investment bank or industry expert for the purpose of determining the fair value of any contractual arrangement.
These agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted under PRC law and regulation. If we choose to effect a business combination that employs the use of these types of control arrangements, we may have difficulty in enforcing our rights. Therefore these contractual arrangements may not be as effective in providing us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership through a merger or stock exchange. For example, if the target business or any other entity fails to perform its obligations under these contractual arrangements, we may have to incur substantial costs and expend substantial resources to enforce such arrangements, and rely on legal remedies under Chinese law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will be sufficient to off-set the cost of enforcement and may adversely affect the benefits we expect to receive from the business combination.
Moreover, we expect that the contractual arrangements upon which we would be relying would be governed by Chinese law and would be the only basis of providing resolution of disputes which may arise through either arbitration or litigation in China. Accordingly, these contracts would be interpreted in accordance with Chinese law and any disputes would be resolved in accordance with Chinese legal procedures. Uncertainties in the Chinese legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert the effective level of control over the target business.
We have not selected any target business or target industry on which to concentrate our search for a business combination and we are, therefore, unable to determine at this time what form an acquisition of a target business will take.
Competitive Strengths
We believe our competitive strengths to be the following:
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Management team
Our management team is comprised of Jianming Hao, our Executive Chairman of the Board and Chief Executive Officer, Richard Xu, our President, and Amy He, our Chief Financial Officer. Since 2012, Mr. Hao has served as a Partner of Beijing CAC Capital, a private equity firm with approximately $330 million (RMB 2 billion) under management, and the Chief Executive Officer of Huafu Tiancheng Investment Management Company, a $15 million (RMB 100 million) Beijing government fund with three completed investments. Since 2010, Mr. Xu has served as the President of CIFCO International Group, a financial advisory firm focused on overseas investments in Chinese enterprises. Since 2012, Ms. He has served as Chief Financial Officer of Deyu Agriculture Corp., a vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains operating in Shanxi Province in the People’s Republic of China. We believe that the network of contacts, investment track record and relationships of our management team will provide us with an important source of investment opportunities and deal-flow. However, our management team has not previously been associated with any other similarly structured blank check company seeking to consummate a business combination and therefore there is no assurance that we will be able to consummate such a transaction.
Status as a public company
We believe our structure will make us an attractive business combination partner to target businesses. As an existing public company, we offer a target business an alternative to the traditional initial public offering through a merger or other business combination. In this situation, the owners of the target business would exchange their shares of stock in the target business for shares of our stock or for a combination of shares of our stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. We believe target businesses might find this method a more certain and cost effective method to becoming a public company than the typical initial public offering. In a typical initial public offering, there are additional expenses incurred in marketing, roadshow and public reporting efforts that will likely not be present to the same extent in connection with a business combination with us. Furthermore, once the business combination is consummated, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriter’s ability to complete the offering, as well as general market conditions, that could prevent the offering from occurring. Once public, we believe the target business would then have greater access to capital and an additional means of providing management incentives consistent with stockholders’ interests than it would have as a privately-held company. It can offer further benefits by augmenting a company’s profile among potential new customers and vendors and aid in attracting talented employees.
While we believe that our status as a public company will make us an attractive business partner, some potential target businesses may view the inherent limitations in our status as a blank check company as a deterrent and may prefer to effect a business combination with a more established entity or with a private company.
Financial position
With $40,000,000 (or $46,000,000 if the over-allotment option is exercised in full) in our trust account available for our initial business combination, we offer a target business a variety of options such as providing the owners of a target business with shares in a public company and a public means to sell such shares, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to consummate our initial business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, since we have no specific business combination under consideration, we have not taken any steps to secure third party financing and it may not be available to us.
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Offering Structure
Unlike other blank check companies that sell units comprised of shares and warrants in their initial public offerings, we are selling units comprised of shares and rights. Our management believes that investors in similarly structured blank check offerings, and those likely to invest in this offering, have come to expect the units of such companies to include one share and another security which would allow the holders to acquire additional shares. Without the ability to acquire such additional shares, our management believes the investors would not be willing to purchase units in such companies’ initial public offerings. Upon consummation of our initial business combination, each right included in our units shall automatically entitle the holder to receive one-tenth of a share, leaving us with only one class of shares. Accordingly, because the number of shares ordinarily issuable upon exercise of the warrants found in the typical structure of other blank check initial public offerings is lessened in our case (since such warrants most often entitle the holder to receive a full share as opposed to the one-tenth of a share the rights entitle a holder to receive) although not completely eliminated, our management believes we will be viewed more favorably by potential target companies when determining which company to engage in a business combination with. Our management also believes this will make us a more attractive merger partner for target businesses as our capitalization structure will be simpler without the warrants present. However, our management may be incorrect in these beliefs.
Effecting a Business Combination
General
We are not presently engaged in, and we will not engage in, any substantive commercial business for an indefinite period of time following this offering. We intend to utilize cash derived from the proceeds of this offering and the private placement of private units, our share capital, debt or a combination of these in effecting a business combination. Although substantially all of the net proceeds of this offering and the private placement of private units are intended to be applied generally toward effecting a business combination as described in this prospectus, the proceeds are not otherwise being designated for any more specific purposes. Accordingly, investors in this offering are investing without first having an opportunity to evaluate the specific merits or risks of any one or more business combinations. A business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking a public offering itself. These include time delays, significant expense, loss of voting control and compliance with various Federal and state securities laws. In the alternative, we may seek to consummate a business combination with a company that may be financially unstable or in its early stages of development or growth. While we may seek to effect simultaneous business combinations with more than one target business, we will probably have the ability, as a result of our limited resources, to effect only a single business combination.
We Have Not Identified a Target Business
To date, we have not selected any target business on which to concentrate our search for a business combination. None of our officers, directors, initial stockholders and other affiliates has engaged in discussions on our behalf with representatives of other companies regarding the possibility of a potential merger, share exchange, asset acquisition or other similar business combination with us, nor have we, nor any of our agents or affiliates, been approached by any candidates (or representatives of any candidates) with respect to a possible business combination with our company. Additionally, we have not, nor has anyone on our behalf, taken any measure, directly or indirectly, to identify or locate any suitable acquisition candidate, nor have we engaged or retained any agent or other representative to identify or locate such an acquisition candidate. We have also not conducted any research with respect to identifying the number and characteristics of the potential acquisition candidates. As a result, we cannot assure you that we will be able to locate a target business or that we will be able to engage in a business combination with a target business on favorable terms or at all.
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Subject to the limitations that a target business have a fair market value of at least 80% of the balance in the trust account at the time of the execution of a definitive agreement for our initial business combination, as described below in more detail, we will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate. We have not established any other specific attributes or criteria (financial or otherwise) for prospective target businesses. Accordingly, there is no basis for investors in this offering to evaluate the possible merits or risks of the target business with which we may ultimately complete a business combination. To the extent we effect a business combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Sources of Target Businesses
While we have not yet identified any acquisition candidates, we believe based on our management’s business knowledge and past experience that there are numerous acquisition candidates available. We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members of the financial community. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings which will not commence until after the completion of this offering. These sources may also introduce us to target businesses they think we may be interested in on an unsolicited basis, since many of these sources will have read this prospectus and know what types of businesses we are targeting. Our officers and directors, as well as their respective affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. In no event, however, will any of our existing officers, directors, special advisor or initial stockholders, or any entity with which they are affiliated, be paid any finder’s fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of a business combination (regardless of the type of transaction). If we decide to enter into a business combination with a target business that is affiliated with our officers, directors or initial stockholders, we will do so only if we have obtained an opinion from an independent investment banking firm that the business combination is fair to our unaffiliated stockholders from a financial point of view. However, as of the date of this prospectus, there is no affiliated entity that we consider a business combination target.
Selection of a Target Business and Structuring of a Business Combination
Subject to the limitations that a target business have a fair market value of at least 80% of the balance in the trust account at the time of the execution of a definitive agreement for our initial business combination, our management will have virtually unrestricted flexibility in identifying and selecting a prospective target business. We have not established any other specific attributes or criteria (financial or otherwise) for prospective target businesses. In evaluating a prospective target business, our management may consider a variety of factors, including one or more of the following:
• | financial condition and results of operation; |
• | growth potential; |
• | experience and skill of management and availability of additional personnel; |
• | capital requirements; |
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• | competitive position; |
• | barriers to entry; |
• | stage of development of its products, processes or services; |
• | degree of current or potential market acceptance of the products, processes or services; |
• | proprietary features and degree of intellectual property or other protection for its products, processes or services; |
• | regulatory environment of the industry; and |
• | costs associated with effecting the business combination. |
We believe such factors will be important in evaluating prospective target businesses, regardless of the location or industry in which such target business operates. However, this list is not intended to be exhaustive. Furthermore, we may decide to enter into a business combination with a target business that does not meet these criteria and guidelines.
Any evaluation relating to the merits of a particular business combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management in effecting a business combination consistent with our business objective. In evaluating a prospective target business, we will conduct an extensive due diligence review which will encompass, among other things, meetings with incumbent management and inspection of facilities, as well as review of financial and other information which is made available to us. This due diligence review will be conducted either by our management or by unaffiliated third parties we may engage, although we have no current intention to engage any such third parties.
The time and costs required to select and evaluate a target business and to structure and complete the business combination cannot presently be ascertained with any degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which a business combination is not ultimately completed will result in a loss to us and reduce the amount of capital available to otherwise complete a business combination.
Fair Market Value of Target Business
Pursuant to Nasdaq listing rules, the target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for our initial business combination, although we may acquire a target business whose fair market value significantly exceeds 80% of the trust account balance. We currently anticipate structuring a business combination to acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure a business combination where we merge directly with the target business or where we acquire less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or stockholders or for other reasons, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target (whether through outright ownership or through contractual arrangements) or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, only the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets test. In order to consummate
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such an acquisition, we may issue a significant amount of our debt or equity securities to the sellers of such businesses and/or seek to raise additional funds through a private offering of debt or equity securities. Since we have no specific business combination under consideration, we have not entered into any such fund raising arrangement and have no current intention of doing so. The fair market value of the target will be determined by our board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or book value). If our board is not able to independently determine that the target business has a sufficient fair market value, we will obtain an opinion from an unaffiliated, independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, with respect to the satisfaction of such criteria. We will not be required to obtain an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, as to the fair market value if our board of directors independently determines that the target business complies with the 80% threshold.
Lack of Business Diversification
Our business combination must be with a target business or businesses that collectively satisfy the minimum valuation standard at the time of such acquisition, as discussed above, although this process may entail the simultaneous acquisitions of several operating businesses at the same time. Therefore, at least initially, the prospects for our success may be entirely dependent upon the future performance of a single business. Unlike other entities which may have the resources to complete several business combinations of entities operating in multiple industries or multiple areas of a single industry, it is probable that we will not have the resources to diversify our operations or benefit from the possible spreading of risks or offsetting of losses. By consummating a business combination with only a single entity, our lack of diversification may:
• | subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination, and |
• | result in our dependency upon the performance of a single operating business or the development or market acceptance of a single or limited number of products, processes or services. |
If we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other acquisitions, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple acquisitions, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business.
Limited Ability to Evaluate the Target Business’ Management
Although we intend to scrutinize the management of a prospective target business when evaluating the desirability of effecting a business combination, we cannot assure you that our assessment of the target business’ management will prove to be correct. In addition, we cannot assure you that the future management will have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of our officers and directors, if any, in the target business following a business combination cannot presently be stated with any certainty. While it is possible that some of our key personnel will remain associated in senior management or advisory positions with us following a business combination, it is unlikely that they will devote their full time efforts to our affairs subsequent to a business combination. Moreover, they would only be able to remain with the company after the consummation of a business combination if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for them to receive compensation in the form of cash payments and/or our securities for services they would render to the company after the consummation of the business combination. While the personal and
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financial interests of our key personnel may influence their motivation in identifying and selecting a target business, their ability to remain with the company after the consummation of a business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination. Additionally, our officers and directors may not have significant experience or knowledge relating to the operations of the particular target business.
Following a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that any such additional managers we do recruit will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Stockholder Approval of Business Combination
In connection with any proposed business combination, we will seek stockholder approval of an initial business combination at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination, for a pro rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid. The amount in the trust account is initially anticipated to be $10.00 per share.
We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and a majority of the outstanding shares of common stock voted are voted in favor of the business combination. We chose our net tangible asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under the Securities Act of 1933, as amended. We have agreed to introduce the underwriter in this offering to investors that are interested in purchasing at least $30,000,000 of the units being offered hereby. It is a condition of this offering that at least $10,000,000 of the units being offered hereby are purchased by investors introduced by us who will agree to hold their shares through the consummation of our initial business combination, vote in favor of such proposed business combination and not seek conversion in connection therewith. Such investors will not be providing us with a proxy to vote their shares, however. As a result, we expect to meet the $5,000,001 net tangible asset requirement in order to complete an initial business combination.
Notwithstanding the foregoing, if we seek to consummate an initial business combination with a target business that imposes any type of working capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation of such initial business combination, our net tangible asset threshold may limit our ability to consummate such initial business combination (as we may be required to have a lesser number of shares converted) and may force us to seek third party financing which may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such initial business combination and we may not be able to locate another suitable target within the applicable time period, if at all. Public stockholders may therefore have to wait 24 months from the consummation of this offering in order to be able to receive a pro rata share of the trust account.
Our initial stockholders and our officers and directors have agreed (1) to vote any shares of common stock owned by them in favor of any proposed business combination and (2) not to convert any shares of common stock in connection with a stockholder vote to approve a proposed initial business combination or a vote to amend the provisions of our amended and restated certificate of incorporation relating to stockholders’ rights or pre-business combination activity.
None of our officers, directors, initial stockholders or their affiliates has indicated any intention to purchase units or shares of common stock in this offering or from persons in the open market or in private transactions. However, if we hold a meeting to approve a proposed business combination and a significant number of stockholders vote, or indicate an intention to vote, against such proposed business combination, our officers, directors, initial stockholders or their affiliates could make such purchases in the open market or in private transactions in order to influence the vote. Notwithstanding the foregoing, our officers, directors, initial stockholders and their affiliates will not make purchases of shares of common stock if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act, which are rules designed to stop potential manipulation of a company’s stock.
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Conversion rights
At any meeting called to approve an initial business combination, public stockholders (but not our initial stockholders or the non-tendering investors) may seek to convert their shares, regardless of whether they vote for or against the proposed business combination, for a pro rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid. A holder will always have the ability to vote against a proposed business combination and not seek conversion of his shares.
Notwithstanding the foregoing, a public stockholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking conversion rights with respect to 20% or more of the shares of common stock sold in this offering. Accordingly, all shares in excess of 20% of the shares sold in this offering held by a holder will not be converted for cash. We believe this restriction will prevent stockholders from accumulating large blocks of shares before the vote held to approve a proposed business combination and attempt to use the conversion right as a means to force us or our management to purchase their shares at a significant premium to the then current market price. By limiting a stockholder’s ability to convert no more than 20% of the shares of common stock sold in this offering, we believe we have limited the ability of a small group of stockholders to unreasonably attempt to block a transaction which is favored by our other public stockholders.
Our initial stockholders will not have conversion rights with respect to any shares of common stock owned by them, directly or indirectly, whether acquired prior to this offering or purchased by them in this offering or in the aftermarket. Additionally, the non-tendering investors will not have conversion rights with respect to any shares of common stock purchased by them in this offering.
We may also require public stockholders, whether they are a record holder or hold their shares in “street name,” to either tender their certificates to our transfer agent at any time through the vote on the business combination or to deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option.
There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the tendering broker $45 and it would be up to the broker whether or not to pass this cost on to the converting holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise conversion rights. The need to deliver shares is a requirement of exercising conversion rights regardless of the timing of when such delivery must be effectuated. However, in the event we require stockholders seeking to exercise conversion rights prior to the consummation of the proposed business combination and the proposed business combination is not consummated this may result in an increased cost to stockholders.
Any request to convert such shares once made, may be withdrawn at any time up to the vote on the proposed business combination. Furthermore, if a holder of a public share delivered his certificate in connection with an election of their conversion and subsequently decides prior to the applicable date not to elect to exercise such rights, he may simply request that the transfer agent return the certificate (physically or electronically).
If the initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise their conversion rights would not be entitled to convert their shares for the applicable pro rata share of the trust account. In such case, we will promptly return any shares delivered by public holders.
Liquidation if No Business Combination
If we do not complete a business combination within 21 months from the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period), we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares and (iii) as promptly as reasonably
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possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. In connection with our redemption of 100% of our outstanding public shares for a portion of the funds held in the trust account, any holder that voted against the last proposed business combination prior to such redemption will only receive $10.00 per share, while any holder that voted in favor of the last proposed business combination prior to such redemption will receive a full pro rata portion of the amount then in the trust account, plus any pro rata interest earned on the funds held in the trust account and not previously released to us for our working capital requirements or necessary to pay our taxes payable on such funds (subject in each case to our obligations under Delaware law to provide for claims of creditors). At such time, the rights will expire, holder of rights will receive nothing upon a liquidation with respect to such rights and the rights will be worthless.
Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our outstanding public shares in the event we do not complete our initial business combination within the required time period may be considered a liquidation distribution under Delaware law. If the corporation complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution.
Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our public shares in the event we do not complete our initial business combination within the required time period is not considered a liquidation distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the Delaware General Corporation Law, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution. If we are unable to complete a business combination within the prescribed time frame, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Accordingly, it is our intention to redeem our public shares as soon as reasonably possible following our 21st month and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of such date.
Because we will not be complying with Section 280 of the Delaware General Corporation Law, Section 281(b) of the Delaware General Corporation Law requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent 10 years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses.
We will seek to have all third parties (including any vendors or other entities we engage after this offering) and any prospective target businesses enter into valid and enforceable agreements with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account. The
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underwriter in this offering has already executed such a waiver agreement. As a result, the claims that could be made against us will be limited, thereby lessening the likelihood that any claim would result in any liability extending to the trust. We therefore believe that any necessary provision for creditors will be reduced and should not have a significant impact on our ability to distribute the funds in the trust account to our public stockholders. Nevertheless, there is no guarantee that vendors, service providers and prospective target businesses will execute such agreements. In the event that a potential contracted party was to refuse to execute such a waiver, we will execute an agreement with that entity only if our management first determines that we would be unable to obtain, on a reasonable basis, substantially similar services or opportunities from another entity willing to execute such a waiver. Examples of instances where we may engage a third party that refused to execute a waiver would be the engagement of a third party consultant who cannot sign such an agreement due to regulatory restrictions, such as our auditors who are unable to sign due to independence requirements, or whose particular expertise or skills are believed by management to be superior to those of other consultants that would agree to execute a waiver or a situation in which management does not believe it would be able to find a provider of required services willing to provide the waiver. There is also no guarantee that, even if they execute such agreements with us, they will not seek recourse against the trust account. Jianming Hao has agreed that he will be liable to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us. Our board of directors has questioned Mr. Hao on his financial net worth and believes he will be able to satisfy any indemnification obligations that may arise. However, he may not be able to satisfy his indemnification obligations if he is required to so as we have not required Mr. Hao to retain any assets to provide for his indemnification obligations, nor have we taken any further steps to ensure that he will be able to satisfy any indemnification obligations that arise. Additionally the agreement entered into by Mr. Hao specifically provides that he will have no personal liability as to any claimed amounts owed to a target business or vendor or other entity who has executed a valid and enforceable agreement with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account. Moreover, he will not be personally liable to our public stockholders and instead will only have liability to us. As a result, if we liquidate, the per-share distribution from the trust account could be less than approximately $10.00 due to claims or potential claims of creditors. We will distribute to all of our public stockholders, in proportion to their respective equity interests, an aggregate sum equal to the amount then held in the trust account, inclusive of any interest not previously released to us, plus any remaining net assets (subject to our obligations under Delaware law to provide for claims of creditors as described below).
We anticipate notifying the trustee of the trust account to begin liquidating such assets promptly after such date and anticipate it will take no more than 10 business days to effectuate such distribution. Our initial stockholders have waived their rights to participate in any liquidation distribution with respect to their insider shares. We will pay the costs of any subsequent liquidation from our remaining assets outside of the trust account and from the interest income on the balance of the trust account (net income and other tax obligations) that may be released to us to fund our working capital requirements. If such funds are insufficient, Jianming Hao has agreed to pay the funds necessary to complete such liquidation (currently anticipated to be no more than approximately $15,000) and has agreed not to seek repayment of such expenses.
If we are unable to consummate an initial business combination and are forced to redeem 100% of our outstanding public shares for a portion of the funds held in the trust account, each holder will receive a full pro rata portion of the amount then in the trust account, plus any pro rata interest earned on the funds held in the trust account and not previously released to us or necessary to pay our taxes. The proceeds deposited in the trust account could, however, become subject to claims of our creditors that are in preference to the claims of public stockholders.
Our public stockholders shall be entitled to receive funds from the trust account only in the event of our failure to complete our initial business combination in the required time period or if the stockholders seek to have us convert their respective shares of common stock upon a business combination which is actually completed by us. In no other circumstances shall a stockholder have any right or interest of any kind to or in the trust account.
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If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we may not be able to return to our public stockholders at least approximately $10.00 per share.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders promptly after 21 (or 24) months from the closing of this offering, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. Claims may be brought against us for these reasons.
Amended and Restated Certificate of Incorporation
Our amended and restated certificate of incorporation contains certain requirements and restrictions relating to this offering that will apply to us until the consummation of our initial business combination. If we seek to amend any provisions of our amended and restated certificate of incorporation relating to stockholder’s rights or pre-business combination activity (including the time within which we have to complete a business combination), we will provide dissenting public stockholders with the opportunity to convert their public shares in connection with any such vote. Our initial stockholders have agreed to waive any conversion rights with respect to any insider shares, private units and any public shares they may hold in connection with any vote to amend our amended and restated certificate of incorporation. Specifically, our amended and restated certificate of incorporation provides, among other things, that:
• | prior to the consummation of our initial business combination, we shall seek stockholder approval of our initial business combination at a meeting called for such purpose at which public stockholders may seek to convert their shares of common stock, regardless of whether they vote for or against the proposed business combination, into a portion of the aggregate amount then on deposit in the trust account, subject to the limitations described herein; |
• | we will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and a majority of the outstanding shares of common stock voted are voted in favor of the business combination; |
• | if our initial business combination is not consummated within 21 months of the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period), then our existence will terminate and we will distribute all amounts in the trust account and any net assets remaining outside the trust account to all of our public holders of shares of common stock; |
• | we may not consummate any other business combination, merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar transaction prior to our initial business combination; and |
• | prior to our initial business combination, we may not issue (i) any shares of common stock or any securities convertible into common stock, or (ii) any securities that participate in any manner in the proceeds of the trust account, or that vote as a class with the common stock sold in this offering on our initial business combination. |
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Competition
In identifying, evaluating and selecting a target business, we may encounter intense competition from other entities having a business objective similar to ours. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than us and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there may be numerous potential target businesses that we could acquire with the net proceeds of this offering, our ability to compete in acquiring certain sizable target businesses may be limited by our available financial resources.
The following also may not be viewed favorably by certain target businesses:
• | our obligation to seek stockholder approval of a business combination may delay the completion of a transaction; |
• | our obligation to convert shares of common stock held by our public stockholders (but not our initial stockholders or non-tendering investors) may reduce the resources available to us for a business combination; |
• | Nasdaq may require us to file a new listing application and meet its initial listing requirements to maintain the listing of our securities following a business combination; |
• | our outstanding rights and the potential future dilution they represent; |
• | our obligation to either repay or issue private units upon conversion of up to $500,000 of working capital loans that may be made to us by our initial stockholders, officers, directors or their affiliates; |
• | our obligation to register the resale of the insider shares, as well as the private units (and underlying securities) and any securities issued to our initial stockholders, officers, directors or their affiliates upon conversion of working capital loans; and |
• | the impact on the target business’ assets as a result of unknown liabilities under the securities laws or otherwise depending on developments involving us prior to the consummation of a business combination. |
Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management believes, however, that our status as a public entity and potential access to the United States public equity markets may give us a competitive advantage over privately-held entities having a similar business objective as ours in acquiring a target business with significant growth potential on favorable terms.
If we succeed in effecting a business combination, there will be, in all likelihood, intense competition from competitors of the target business. We cannot assure you that, subsequent to a business combination, we will have the resources or ability to compete effectively.
Facilities
We maintain our principal executive offices at 590 Madison Avenue, 21st Floor, New York, New York 10022. This space is being provided to us by an unaffiliated third party for approximately $2,000 per year, which fee was agreed upon based on an arms’ length negotiation. We also have offices in Beijing, China that is being provided to us by Jianming Hao, our Executive Chairman and Chief Executive Officer, at no cost to us. We consider our current office space, combined with the other office space otherwise available to our executive officers, adequate for our current operations.
Employees
We have three executive officers. These individuals are not obligated to devote any specific number of hours to our matters and intend to devote only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will vary based on whether a target business has been selected for the business combination and the stage of the business combination process the company is in. Accordingly, once management locates a suitable target business to acquire, they will spend more time investigating such target business and negotiating and processing the business combination (and consequently spend more time to our affairs) than they would prior to locating a suitable target business. We presently expect each of our
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executive officers to devote an average of approximately 10 hours per week to our business. We do not intend to have any full time employees prior to the consummation of a business combination.
Periodic Reporting and Audited Financial Statements
We have registered our units, shares of common stock and rights under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual report will contain financial statements audited and reported on by our independent registered public accountants.
We will provide stockholders with audited financial statements of the prospective target business as part of any proxy solicitation materials sent to stockholders to assist them in assessing the target business. In all likelihood, the financial statements included in the proxy solicitation materials will need to be prepared in accordance with U.S. GAAP and/or IFRS, or reconciled to U.S. GAAP. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have the necessary financial statements. To the extent that this requirement cannot be met, we may not be able to acquire the proposed target business.
We may be required to have our internal control procedures audited for the fiscal year ending December 31, 2015 as required by the Sarbanes-Oxley Act. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.
We are an emerging growth company as defined in the JOBS Act and will remain such for up to five years. However, if our non-convertible debt issued within a three-year period or our total revenues exceed $1 billion or the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we have elected, under Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
Legal Proceedings
There is no material litigation, arbitration or governmental proceeding currently pending against us or any of our officers or directors in their capacity as such, and we and our officers and directors have not been subject to any such proceeding in the 12 months preceding the date of this prospectus.
Comparison to Offerings of Blank Check Companies Subject to Rule 419
The following table compares and contrasts the terms of our offering and the terms of an offering of blank check companies under Rule 419 promulgated by the SEC assuming that the gross proceeds, underwriting discounts and underwriting expenses for the Rule 419 offering are the same as this offering and that the underwriter will not exercise their over-allotment option. None of the terms of a Rule 419 offering will apply to this offering because we will be listed on a national securities exchange, we will have net tangible assets in excess of $5,000,001 upon the successful consummation of this offering and will file a Current Report on Form 8-K, including an audited balance sheet demonstrating this fact.
Terms of the Offering | Terms Under a Rule 419 Offering | |||||||||
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Escrow of offering proceeds | $40,000,000 of the net offering proceeds and proceeds from the sale of the private units will be deposited into a trust account at Smith Barney in the United States, maintained by Continental Stock Transfer & Trust Company, acting as trustee | $34,560,000 of the offering proceeds would be required to be deposited into either an escrow account with an insured depositary institution or in a separate bank account established by a broker-dealer in which the broker-dealer acts as trustee for persons having the beneficial interests in the account. |
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Terms of the Offering | Terms Under a Rule 419 Offering | |||||||||
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Investment of net proceeds | The $40,000,000 of the net offering proceeds and proceeds from the sale of the private units held in trust will only be invested in United States government treasury bills, bonds or notes with a maturity of 180 days or less or in money market funds meeting the applicable conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 and that invest solely in United States government treasuries. | Proceeds could be invested only in specified securities such as a money market fund meeting conditions of the Investment Company Act of 1940 or in securities that are direct obligations of, or obligations guaranteed as to principal or interest by, the United States. | ||||||||
Limitation on fair value or net assets of target business | The initial target business that we acquire must have a fair market value equal to at least 80% of the balance in our trust account at the time of the execution of a definitive agreement for our initial business combination. | We would be restricted from acquiring a target business unless the fair value of such business or net assets to be acquired represent at least 80% of the maximum offering proceeds. | ||||||||
Trading of securities issued | The units may commence trading on or promptly after the date of this prospectus. The shares of common stock and rights comprising the units will begin to trade separately ten business days following the earlier to occur of the expiration of the underwriter’s over-allotment option, its exercise in full or the announcement by the underwriter of its intention not to exercise all or any remaining portion of the over-allotment option, provided we have filed with the SEC a Current Report on Form 8-K, which includes an audited balance sheet reflecting our receipt of the proceeds of this offering. | No trading of the units or the underlying securities would be permitted until the completion of a business combination. During this period, the securities would be held in the escrow or trust account. | ||||||||
Election to remain an investor | We will give our stockholders the opportunity to vote on the business combination. We will send each stockholder a proxy statement containing information required by the SEC. | A prospectus containing information required by the SEC would be sent to each investor. Each investor would be given the opportunity to notify the company, in writing, within a period of no less than 20 business days and no more than 45 business days from the effective date of the post-effective amendment, to decide whether he or she elects to remain a stockholder of the company or require the return of his or her investment. If the company has not received the notification by the end of the 45th business day, funds and interest or dividends, if any, held in the trust or escrow account would automatically be |
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Terms of the Offering | Terms Under a Rule 419 Offering | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
returned to the stockholder. Unless a sufficient number of investors elect to remain investors, all of the deposited funds in the escrow account must be returned to all investors and none of the securities will be issued. | ||||||||||
Business combination deadline | Pursuant to our amended and restated certificate of incorporation, if we do not complete an initial business combination within 21 months from the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period), it will trigger our automatic winding up, dissolution and liquidation. | If an acquisition has not been consummated within 18 months after the effective date of the initial registration statement, funds held in the trust or escrow account would be returned to investors. | ||||||||
Interest earned on the funds in the trust account | There can be released to us, from time to time, (i) any interest earned on the funds in the trust account that we may need to pay our tax obligations and (ii) any remaining interest earned on the funds in the trust account that we need for our working capital requirements. The remaining interest earned on the funds in the trust account will not be released until the earlier of the completion of a business combination and our entry into liquidation upon failure to effect a business combination within the allotted time. | All interest earned on the funds in the trust account will be held in trust for the benefit of public stockholders until the earlier of the completion of a business combination and our liquidation upon failure to effect a business combination within the allotted time. | ||||||||
Release of funds | Except for (i) any amounts that we may need to pay our tax obligations and (ii) any remaining interest that we may need for our working capital requirements that may be released to us from the interest earned on the trust account balance described above, the proceeds held in the trust account will not be released until the earlier of the completion of a business combination and the liquidation of our trust account upon failure to effect a business combination within the allotted time. | The proceeds held in the escrow account would not be released until the earlier of the completion of a business combination or the failure to effect a business combination within the allotted time. |
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Directors and Executive Officers
Our current directors and executive officers are as follows:
Name | Age | Position | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Jianming Hao | 39 | Executive Chairman of the Board and Chief Executive Officer | ||||||||
Richard Xu | 37 | President and Director | ||||||||
Amy He | 34 | Chief Financial Officer | ||||||||
Aimin Song | 51 | Director | ||||||||
Bradley Reifler | 54 | Director | ||||||||
Qing Zhu | 57 | Director |
Jianming Hao has served as our Executive Chairman of the Board and Chief Executive Officer since April 2014. Since March 2012, Mr. Hao has served as a Partner of Beijing CAC Capital, a private equity firm, and the Chief Executive Officer of Huafu Tiancheng Investment Management Company, an RMB 100 million Beijing government fund with three completed investments. From April 2010 to April 2013, Mr. Hao served as the Chief Executive Officer of Deyu Agriculture Corp. (formerly, Eco Building International Inc.), a vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains operating in Shanxi Province in the People’s Republic of China, where he helped complete three acquisitions of agricultural companies. From September 2007 to April 2010, Mr. Hao served as the Chief Executive Officer of Detianyu Biotechnology (Beijing) Co., Ltd., which became a subsidiary of Deyu Agriculture Corp. in April 2010. From April 2004 to September 2007, Mr. Hao served as a Director and Vice President of Shenzhen Leton Holdings, an investment firm founded in 2003. Under Mr. Hao’s leadership, Shenzhen Leton closed four investments including an insurance assessment firm, a fashion chain, an insurance agency and a real estate firm. From January 2001 to April 2004, Mr. Hao served as the Financial Controller of China Merchants Dichain (Asia), a portfolio company of China Merchants Group. During his tenure there, Mr. Hao led and participated in the acquisition of Dransfield Group, and led two acquisitions in the high-tech and manufacturing industries.
Mr. Hao is a Certified Public Accountant at the Chinese Institute of Certified Public Accountants. He received his Master’s degree and Bachelor’s degree in Finance from Nankai University.
We believe Mr. Hao is well-qualified to serve as a member of the board due to his business leadership and operational experience, as well as his contacts in China.
Richard Xu has served as our President and member of our board of directors since our inception. Mr. Xu has served as the President of CIFCO International Group, a financial advisory firm focused on overseas investments in Chinese enterprises, since 2010. From May 2009 to 2010, Mr. Xu was a Director of the Investment Banking Division of Maxim Group, an investment banking and securities broker-dealer based in New York City, where he was responsible for the firm’s Chinese investments. From September 2005 to May 2009, Mr. Xu was the co-founder of Viking Investment Co., an investment banking firm with responsibility for overseas restructuring, mergers and acquisitions, and financing of Chinese private companies. From 2004 to 2006, Mr. Xu served as a trader at Suisse American Securities, a subsidiary of Credit Suisse Group. Prior to that, Mr. Xu served as a Vice President at Asiapower Investment PTE Ltd., a public company in Singapore.
Mr. Xu obtained his Bachelor Degree from Tsinghua University in Beijing, and a Master’s Degree in Computer Science from the Courant Institute of New York University.
Amy He has served as our Chief Financial Officer since April 2014. Since May 2012, Ms. He has served as Chief Financial Officer of Deyu Agriculture Corp. She also served as Deyu Agriculture Corp.’s Acting Chief Financial Officer from February 2012 to May 2012 and its Financial Controller from October 2011 to February 2012. Ms. He served as an audit manager for Deloitte Touche Tohmatsu CPA Ltd. in China from July 2005 through September 2011, where she served multinational corporations and Chinese corporate clients, including private companies and public listed companies in the United States. Ms. He earned a
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Master’s Degree in Management from the Chinese Academy of Sciences and a Bachelor’s Degree in Accounting from Tsinghua University in China. Ms. He is also a Certified Public Accountant of China and Certified General Accountant of Canada.
Aimin Song has served as a member of our board of directors since April 2014. Since August 2013, Mr. Song has served as Chairman of Beijing Hantang Asset Management, an investment company focusing on investments in the financial and hotel management industries, with approximately 500 million RMB under management in China. From September 2008 to August 2013, Mr. Song served as Chairman of Zhongsheng International Insurance Brokers, a company founded by People’s Insurance Company of China, the biggest insurance company in China, and Tokio Marine Fire Insurance, an international insurance company. From June 2007 to September 2008, Mr. Song served as General Manager at the Bank Insurance Division of the Chinese People’s Health Insurance Company, which was the first insurance company in China dedicated to health insurance. From May 2005 to June 2007, he worked as a Vice-General Manager at the Bank Insurance Division of China Life Insurance, the top insurance company in China dedicated to life insurance, with total assets under management of approximately 250 billion RMB. From May 2000 to May 2005, Mr. Song served as President of the Shanxi Branch of People’s Bank of China, the central bank of the People’s Republic of China with the power to control monetary policy and regulate financial institutions in mainland China. The People’s Bank of China has the most financial assets of any single public finance institution in the world.
Mr. Song obtained his Master’s of Business Administration from Wuhan University, a Master Degree of Investment Management from Chinese Academy of Sciences and studied for Junior College of Finance Management from Henan Finance Management College.
We believe Mr. Song is well-qualified to serve as a member of the board due to his business leadership and operational experience, as well as his contacts in China.
Bradley Reifler has served as a member of our board of directors since April 2014. Since May 2009, Mr. Reifler has served as the Chief Executive Officer of Forefront Capital, a global financial services firm that he founded. Mr. Reifler was the founder and Chief Executive Officer of Pali Capital Inc., a registered investment banking firm, from 1995 to October 2008. Pali was acquired by the Euram Group in 2001, but repurchased six years later at which time Mr. Reifler was made Chairman. In 1982, Mr. Reifler founded Reifler Trading Corporation, a firm engaged in the execution of global derivatives, which was sold to Refco, Inc. in 2000. In 1992, Mr. Reifler founded Reifler Capital Management, a commodity pool advisor focused on commodity-based and foreign exchange trading strategies. From 1995 until 2000, he managed Refco, Inc.’s Institutional Sales Desk, where he was responsible for sales and execution of global derivatives, foreign exchange and creating custom investment programs for institutional and high-net-worth clients. Mr. Reifler is a Trustee of the Millbrook School and Chairman of the Finance Committee.
Mr. Reifler received a bachelor’s degree from Bowdoin College.
We believe Mr. Reifler is well-qualified to serve as a member of the board due to his investing experience and contacts in China.
Dr. Qing Zhu has served as a member of our board of directors since April 2014. Since July 1987, Dr. Zhu has served as a professor of finance and a doctoral supervisor at the Financial and Monetary Institute of Renmin University in China. He is also a Director of The Chinese Tax Society. Dr. Zhu focuses on China’s tax laws, tax planning, international tax, taxation theory and policy, and social security. He has written two books including “International Taxation” and “Taxation Management” that were awarded as National Planning Textbooks for the “11th Five Years Plan” by the Ministry of Education in China. From August 2005 to October 2005, Dr. Zhu was a senior visiting scholar in the economics department at the University of California (Berkeley). Previously, he was a visiting scholar at the Management School of the State University of New York (Buffalo).
Dr. Zhu obtained his Doctor’s Degree and Master’s Degree from Renmin University, and his Bachelor’s Degree from Beijing Economic Institute.
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We believe Dr. Zhu is well-qualified to serve as a member of the board due to his expertise in taxation and his contacts in China.
Our board of directors is divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the first class of directors, consisting of Dr. Qing Zhu, will expire at our first annual meeting of stockholders. The term of office of the second class of directors, consisting of Bradley Reifler and Aimin Song, will expire at the second annual meeting. The term of office of the third class of directors, consisting of Jianming Hao and Richard Xu, will expire at the third annual meeting.
Executive Compensation
No executive officer has received any cash compensation for services rendered to us. No compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our existing stockholders, including our directors, or any of their respective affiliates, prior to, or for any services they render in order to effectuate, the consummation of a business combination. However, such individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. There is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of the expenses by anyone other than our board of directors and audit committee, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged.
Director Independence
Currently Aimin Song, Bradley Reifler and Dr. Qing Zhu would each be considered an “independent director” under the Nasdaq listing rules, which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
We will only enter into a business combination if it is approved by a majority of our independent directors. Additionally, we will only enter into transactions with our officers and directors and their respective affiliates that are on terms no less favorable to us than could be obtained from independent parties. Any related-party transactions must be approved by our audit committee and a majority of independent disinterested directors.
Audit Committee
Effective upon the date of this prospectus, we will establish an audit committee of the board of directors, which will consist of Aimin Song, Bradley Reifler and Dr. Qing Zhu, each of whom is an independent director under Nasdaq’s listing standards. The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:
• | reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our Form 10-K; |
• | discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements; |
• | discussing with management major risk assessment and risk management policies; |
• | monitoring the independence of the independent auditor; |
• | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; |
• | Reviewing and approving all related-party transactions; |
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• | inquiring and discussing with management our compliance with applicable laws and regulations; |
• | pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed; |
• | appointing or replacing the independent auditor; |
• | determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; |
• | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and |
• | approving reimbursement of expenses incurred by our management team in identifying potential target businesses. |
Financial Experts on Audit Committee
The audit committee will at all times be composed exclusively of “independent directors” who are “financially literate” as defined under Nasdaq listing standards. Nasdaq listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
In addition, we must certify to Nasdaq that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. The board of directors has determined that Dr. Qing Zhu qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC.
Nominating Committee
Effective upon the date of this prospectus, we will establish a nominating committee of the board of directors, which will consist of Aimin Song, Bradley Reifler and Dr. Qing Zhu, each of whom is an independent director under Nasdaq’s listing standards. The nominating committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The nominating committee considers persons identified by its members, management, stockholders, investment bankers and others.
Guidelines for Selecting Director Nominees
The guidelines for selecting nominees, which are specified in the Nominating Committee Charter, generally provide that persons to be nominated:
• | should have demonstrated notable or significant achievements in business, education or public service; |
• | should possess the requisite intelligence, education and experience to make a significant contribution to the board of directors and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and |
• | should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of the stockholders. |
The Nominating Committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The nominating committee does not distinguish among nominees recommended by stockholders and other persons.
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Compensation Committee
Effective upon the date of this prospectus, we will establish a compensation committee of the board of directors, which will consist of Aimin Song, Bradley Reifler and Dr. Qing Zhu, each of whom is an independent director under Nasdaq’s listing standards. The compensation committee’s duties, which are specified in our Compensation Committee Charter, include, but are not limited to:
• | reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer’s based on such evaluation; |
• | reviewing and approving the compensation of all of our other executive officers; |
• | reviewing our executive compensation policies and plans; |
• | implementing and administering our incentive compensation equity-based remuneration plans; |
• | assisting management in complying with our proxy statement and annual report disclosure requirements; |
• | approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees; |
• | if required, producing a report on executive compensation to be included in our annual proxy statement; and |
• | reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. |
Notwithstanding the foregoing, as indicated above, no compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our existing stockholders, including our directors, or any of their respective affiliates, prior to, or for any services they render in order to effectuate, the consummation of a business combination. Accordingly, it is likely that prior to the consummation of an initial business combination, the compensation committee will only be responsible for the review and recommendation of any compensation arrangements to be entered into in connection with such initial business combination.
Code of Ethics
Upon the date of this prospectus, we will adopt a code of ethics that applies to all of our executive officers, directors and employees. The code of ethics codifies the business and ethical principles that govern all aspects of our business.
Conflicts of Interest
Potential investors should be aware of the following potential conflicts of interest:
• | None of our officers and directors is required to commit their full time to our affairs and, accordingly, they may have conflicts of interest in allocating their time among various business activities. |
• | In the course of their other business activities, our officers and directors may become aware of investment and business opportunities which may be appropriate for presentation to our company as well as the other entities with which they are affiliated. Our management has pre-existing fiduciary duties and contractual obligations and may have conflicts of interest in determining to which entity a particular business opportunity should be presented. |
• | Our officers and directors may in the future become affiliated with entities, including other blank check companies, engaged in business activities similar to those intended to be conducted by our company. Accordingly, they may participate in transactions and have obligations that may be in conflict or competition with our consummation of our initial business combination. As a result, a potential target business may be presented by our management team to another entity prior to its presentation to us and we may not be afforded the opportunity to engage in a transaction with such target business. |
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• | The insider shares owned by our officers and directors will be released from escrow only if a business combination is successfully completed and subject to certain other limitations. Additionally, our officers and directors will not receive distributions from the trust account with respect to any of their insider shares if we do not complete a business combination. Furthermore, the initial stockholders have agreed that the private units (and underlying securities) will not be sold or transferred by them until after we have completed our initial business combination. In addition, our officers and directors may loan funds to us after this offering and may be owed reimbursement for expenses incurred in connection with certain activities on our behalf which would only be repaid if we complete an initial business combination. For the foregoing reasons, the personal and financial interests of our directors and executive officers may influence their motivation in identifying and selecting a target business, completing a business combination in a timely manner and securing the release of their shares. |
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
• | the corporation could financially undertake the opportunity; |
• | the opportunity is within the corporation’s line of business; and |
• | it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. |
Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business opportunity with respect to the above-listed criteria. The above mentioned conflicts may not be resolved in our favor.
In order to minimize potential conflicts of interest which may arise from multiple corporate affiliations, each of our officers and directors has contractually agreed, pursuant to a written agreement with us, until the earliest of a business combination, our liquidation or such time as he ceases to be an officer or director, to present to our company for our consideration, prior to presentation to any other entity, any suitable business opportunity which may reasonably be required to be presented to us, subject to any pre-existing fiduciary or contractual obligations he might have.
The following table summarizes the other relevant pre-existing fiduciary or contractual obligations of our officers and directors:
Name of Affiliated Company | Name of Individual | Priority/Preference relative to Sino Mercury Acquisition Corp. | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Beijing CAC Capital | Jianming Hao | Mr. Hao will be required to present all business opportunities which are suitable for Beijing CAC Capital to Beijing CAC Capital prior to presenting them to us. Beijing CAC Capital is a private equity firm. | ||||||||
Huafu Tiancheng Investment Management Company | Jianming Hao | Mr. Hao will be required to present all business opportunities which are suitable for Huafu Tiancheng Investment Management Company to Huafu Tiancheng Investment Management Company prior to presenting them to us. Huafu Tiancheng Investment Management Company is a Beijing government fund with three completed investments. |
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Name of Affiliated Company | Name of Individual | Priority/Preference relative to Sino Mercury Acquisition Corp. | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
CIFCO International Group | Richard Xu | Mr. Xu will be required to present all business opportunities which are suitable for CIFCO International Group to CIFCO International Group prior to presenting them to us. CIFCO International Group is a financial advisory firm focused on overseas investments in Chinese enterprises. | ||||||||
Deyu Agriculture Corp. | Amy He | Ms. He will be required to present all business opportunities which are suitable for Deyu Agriculture Corp. to Deyu Agriculture Corp. prior to presenting them to us. Deyu Agriculture Corp. is a vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains operating in Shanxi Province in China. | ||||||||
Beijing Hantang Asset Management | Aimin Song | Mr. Song will be required to present all business opportunities which are suitable for Beijing Hantang Asset Management to Beijing Hantang Asset Management prior to presenting them to us. Beijing Hantang Asset Management is an investment company focusing on investments in the financial and hotel management industries. | ||||||||
Forefront Capital | Bradley Reifler | Mr. Reifler will be required to present all business opportunities which are suitable for Forefront Capital to Forefront Capital prior to presenting them to us. Forefront Capital is a global financial services firm. |
In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote their respective insider shares and private shares in favor of any proposed business combination. In addition, they have agreed to waive their respective rights to participate in any liquidation distribution with respect to those shares of common stock acquired by them prior to this offering. If they purchase shares of common stock in this offering or in the open market, however, they would be entitled to participate in any liquidation distribution in respect of such shares but have agreed not to convert such shares in connection with the consummation of our initial business combination.
All ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions will require prior approval by our audit committee and a majority of our disinterested “independent” directors, or the members of our board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our audit committee and a majority of our disinterested “independent” directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties.
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To further minimize conflicts of interest, we have agreed not to consummate our initial business combination with an entity that is affiliated with any of our officers, directors or initial stockholders, unless we have obtained (i) an opinion from an independent investment banking firm that the business combination is fair to our unaffiliated stockholders from a financial point of view and (ii) the approval of a majority of our disinterested and independent directors (if we have any at that time). Furthermore, in no event will any of our initial stockholders, officers, directors, special advisor or their respective affiliates be paid any finder’s fee, consulting fee or other similar compensation prior to, or for any services they render in order to effectuate, the consummation of our initial business combination.
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The following table sets forth information regarding the beneficial ownership of our shares of common stock as of the date of this prospectus and as adjusted to reflect the sale of our shares of common stock included in the units offered by this prospectus (assuming none of the individuals listed purchase units in this offering), by:
• | each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; |
• | each of our officers and directors; and |
• | all of our officers and directors as a group. |
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The following table does not reflect record of beneficial ownership of any shares of common stock issuable upon exercise of rights as these rights are not exercisable within 60 days of the date of this prospectus.
Prior to Offering | After Offering(2) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and Address of Beneficial Owner(1) | Amount and Nature of Beneficial Ownership | Approximate Percentage of Outstanding Shares of common stock | Amount and Nature of Beneficial Ownership | Approximate Percentage of Outstanding Shares of common stock | |||||||||||||||
Jianming Hao | 793,500 | (3) | 69 | % | 900,000 | (3) | 17.3 | % | |||||||||||
Richard Xu | 230,000 | (4) | 20 | % | 200,000 | (4) | 3.8 | % | |||||||||||
Amy He | 115,000 | (5) | 10 | % | 100,000 | (5) | 1.9 | % | |||||||||||
Aimin Song | 5,750 | * | 5,000 | * | |||||||||||||||
Bradley Reifler | 5,750 | * | 5,000 | * | |||||||||||||||
Qing Zhu | 0 | 0 | % | 0 | 0 | % | |||||||||||||
Best Apex Limited | 793,500 | 69 | % | 900,000 | 17.3 | % | |||||||||||||
Lodestar Investment Holdings Corporation | 230,000 | 20 | % | 200,000 | 3.8 | % | |||||||||||||
True Precision Investments Limited | 115,000 | 10 | % | 100,000 | 1.9 | % | |||||||||||||
All directors and executive officers as a group (six individuals) | 1,150,000 | 100 | % | 1,210,000 | 23.2 | % |
* | Less than 1%. |
(1) | Unless otherwise indicated, the business address of each of the individuals is c/o Sino Mercury Acquisition Corp., at 590 Madison Avenue, 21st Floor, New York, New York 10022. |
(2) | Assumes (i) no exercise of the over-allotment option and, therefore, the forfeiture of an aggregate of 150,000 shares of common stock held by our initial stockholders and (ii) that no private commission units were purchased. |
(3) | Represents shares held by Best Apex Limited, of which Mr. Hao is the sole officer and director and as such, controls the voting and disposition of such shares. |
(4) | Represent shares held by Lodestar Investment Holdings Corporation, of which Mr. Xu controls and therefore has voting and disposition power over such shares. |
(5) | Represents shares held by True Precision Investments Limited, of which Ms. He controls and therefore has voting and disposition power over such shares. |
Immediately after this offering, our initial stockholders will beneficially own approximately 23.2% of the then issued and outstanding shares of common stock (assuming none of them purchase any units offered by this prospectus). None of our initial stockholders, officers and directors has indicated to us that he intends to purchase our securities in the offering. Because of the ownership block held by our initial stockholders, such individuals may be able to effectively exercise control over all matters requiring approval by our stockholders,
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including the election of directors and approval of significant corporate transactions other than approval of our initial business combination.
If the underwriter does not exercise all or a portion of the over-allotment option, our initial stockholders will have up to an aggregate of 150,000 shares of common stock forfeited to us. Our initial stockholders will be required to have forfeited only a number of shares necessary to maintain their collective 20% ownership interest in our shares of common stock (excluding the private units and any private commission units) after giving effect to the offering and the exercise, if any, of the underwriter’s over-allotment option.
All of the insider shares outstanding prior to the date of this prospectus will be placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent, until (1) with respect to 50% of the insider shares, the earlier of one year after the date of the consummation of our initial business combination and the date on which the closing price of our shares of common stock equals or exceeds $13.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after our initial business combination and (2) with respect to the remaining 50% of the insider shares, one year after the date of the consummation of our initial business combination, or earlier, in either case, if, subsequent to our initial business combination, we consummate a liquidation, merger, share exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares for cash, securities or other property. Up to 150,000 of the insider shares may also be released from escrow earlier than this date for cancellation if the over-allotment option is not exercised in full as described above.
During the escrow period, the holders of these shares will not be able to sell or transfer their securities except (i) for transfers to an entity’s members upon its liquidation, (ii) to relatives and trusts for estate planning purposes, (iii) by virtue of the laws of descent and distribution upon death, (iv) pursuant to a qualified domestic relations order, (v) by certain pledges to secure obligations incurred in connection with purchases of our securities, (vi) by private sales made at or prior to the consummation of a business combination at prices no greater than the price at which the shares were originally purchased or (vii) to us for no value for cancellation in connection with the consummation of our initial business combination, in each case (except for clause (vii)) where the transferee agrees to the terms of the escrow agreement, but will retain all other rights as our stockholders, including, without limitation, the right to vote their shares of common stock and the right to receive cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow. If we are unable to effect a business combination and liquidate the trust account, none of our initial stockholders will receive any portion of the liquidation proceeds with respect to their insider shares.
Our initial stockholders have committed to purchase an aggregate of 210,000 private units at a price of $10.00 per unit ($2,100,000 in the aggregate). Our initial stockholders have also agreed that if investors introduced by us to the underwriter do not purchase at least $30,000,000 of the units being offered hereby, they will purchase from us at a price of $10.00 per unit the number of private units that will equal the increased commissions we will pay the underwriter, as described in detail in the section titled “Underwriting.” These purchases will take place on a private placement basis that will occur simultaneously with the closing of this offering. The private units are identical to the units sold in this offering. However, the holders have agreed (A) to vote their private shares in favor of any proposed business combination, (B) not to propose, or vote in favor of, an amendment to our amended and restated certificate of incorporation with respect to our pre-business combination activities prior to the consummation of such a business combination, (C) not to convert any private shares into the right to receive cash from the trust account in connection with a stockholder vote to approve our proposed initial business combination or a vote to amend the provisions of our amended and restated certificate of incorporation relating to stockholders’ rights or pre-business combination activity and (D) that the private shares shall not participate in any liquidating distribution upon winding up if a business combination is not consummated. The purchasers have also agreed not to transfer, assign or sell any of the private units or underlying securities (except to the same permitted transferees as the insider shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the insider shares must agree to, each as described above) until the completion of our initial business combination.
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In order to meet our working capital needs following the consummation of this offering, our initial stockholders, officers and directors or their affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $500,000 of the notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit. Our stockholders have approved the issuance of the units and underlying securities upon conversion of such notes, to the extent the holder wishes to so convert them at the time of the consummation of our initial business combination. If we do not complete a business combination, the loans will not be repaid.
Jianming Hao and Best Apex Limited are our “promoters,” as that term is defined under the Federal securities laws.
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In March 2014, we issued an aggregate of 1,150,000 shares of common stock for a total of $25,000 in cash, at a purchase price of approximately $0.02 share.
Name | Number of Shares | Relationship to Us | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Best Apex Limited | 1,150,000 | Affiliate of CEO |
In June 2014, Best Apex Limited transferred (i) 230,000 shares to Lodestar Investment Holdings Corporation, an entity controlled by Richard Xu, our President, (ii) 115,000 shares to True Precision Investments Limited, an entity controlled by Amy He, our Chief Financial Officer, (iii) 5,750 shares to Aimin Song, a member of our Board, and (iv) 5,750 shares to Bradley Reifler, another member of our Board, all for the same price originally paid by Best Apex Limited for such shares.
If the underwriter does not exercise all or a portion of their over-allotment option, our initial stockholders have agreed to forfeit up to an aggregate of 150,000 shares of common stock in proportion to the portion of the over-allotment option that was not exercised.
If the underwriter determines the size of the offering should be increased (including pursuant to Rule 462(b) under the Securities Act) or decreased, a share dividend or a contribution back to capital, as applicable, would be effectuated in order to maintain our initial stockholder’s ownership at a percentage of the number of shares to be sold in this offering (not including the private shares). An increase in offering size of up to 20% could result in the per-share conversion or liquidation price decreasing by as much as $0.05.
Our initial stockholders have committed to purchase an aggregate of 210,000 private units at a price of $10.00 per unit ($2,100,000 in the aggregate). Our initial stockholders have also agreed that if investors introduced by us to the underwriter do not purchase at least $30,000,000 of the units being offered hereby, they will purchase from us at a price of $10.00 per unit the number of private units that will equal the increased commissions we will pay the underwriter, as described in the section titled “Underwriting.” These purchases will take place on a private placement basis that will occur simultaneously with the closing of this offering. The purchase price for the private units and the private commission units will be delivered to Graubard Miller, our counsel in connection with this offering, who will also be acting solely as escrow agent in connection with the private sale of such units, at least 48 hours prior to the date of this prospectus to hold in a non-interest bearing account until we consummate this offering. Graubard Miller will deposit the purchase price into the trust account simultaneously with the consummation of the offering. The private units and the private commission units are identical to the units sold in this offering. However, the holders have agreed (A) to vote their private shares in favor of any proposed business combination, (B) not to propose, or vote in favor of, an amendment to our amended and restated certificate of incorporation with respect to our pre-business combination activities prior to the consummation of such a business combination, (C) not to convert any private shares into the right to receive cash from the trust account in connection with a stockholder vote to approve our proposed initial business combination or a vote to amend the provisions of our amended and restated certificate of incorporation relating to stockholders’ rights or pre-business combination activity and (D) that the private shares shall not participate in any liquidating distribution upon winding up if a business combination is not consummated. The purchasers have also agreed not to transfer, assign or sell any of the private units or the private commission units or underlying securities (except to the same permitted transferees as the insider shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the insider shares must agree to, each as described above) until the completion of our initial business combination.
In order to meet our working capital needs following the consummation of this offering, our initial stockholders, officers and directors and their respective affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $500,000 of the notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit. Our stockholders have approved the issuance of the units and underlying securities upon conversion
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of such notes, to the extent the holder wishes to so convert them at the time of the consummation of our initial business combination. If we do not complete a business combination, the loans would not be repaid.
The holders of our insider shares issued and outstanding on the date of this prospectus, as well as the holders of the private units and private commission units (and all underlying securities) and any securities our initial stockholders, officers, directors or their affiliates may be issued in payment of working capital loans made to us, will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securities are entitled to make up to two demands that we register such securities. The holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the private units and private commission units or securities issued in payment of working capital loans made to us can elect to exercise these registration rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
As of April 15, 2014, Jianming Hao loaned to us an aggregate of $117,000 to cover expenses related to this offering. The loan is payable without interest on the earlier of (i) April 30, 2015, (ii) the date on which we consummate our initial public offering or (iii) the date on which we determine to not proceed with our initial public offering. We intend to repay this loan from the proceeds of this offering not being placed in the trust account.
Jianming Hao has also agreed to make available to us, at no cost to us, office space in Beijing, China.
We will reimburse our officers and directors for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business combinations. There is no limit on the amount of out-of-pocket expenses reimbursable by us; provided, however, that to the extent such expenses exceed the available proceeds not deposited in the trust account and the interest income earned on the amounts held in the trust account, such expenses would not be reimbursed by us unless we consummate an initial business combination. Our audit committee will review and approve all reimbursements and payments made to any initial stockholder or member of our management team, or our or their respective affiliates, and any reimbursements and payments made to members of our audit committee will be reviewed and approved by our Board of Directors, with any interested director abstaining from such review and approval.
Other than reimbursable out-of-pocket expenses payable to our officers and directors, no compensation or fees of any kind, including finder’s fees, consulting fees or other similar compensation, will be paid to any of our initial stockholders, officers or directors who owned our shares of common stock prior to this offering, or to any of their respective affiliates, prior to or with respect to the business combination (regardless of the type of transaction that it is).
All ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions, including the payment of any compensation, will require prior approval by a majority of our uninterested “independent” directors (to the extent we have any) or the members of our board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our disinterested “independent” directors (or, if there are no “independent” directors, our disinterested directors) determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties.
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Related Party Policy
Our Code of Ethics, which we will adopt upon consummation of this offering, will require us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the board of directors (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our shares of common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
We also require each of our directors and executive officers to annually complete a directors’ and officers’ questionnaire that elicits information about related party transactions.
Our audit committee, pursuant to its written charter, will be responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. The audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, but that director is required to provide the audit committee with all material information concerning the transaction. Additionally, we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.
To further minimize potential conflicts of interest, we have agreed not to consummate a business combination with an entity which is affiliated with any of our initial stockholders unless we obtain an opinion from an independent investment banking firm that the business combination is fair to our unaffiliated stockholders from a financial point of view. Furthermore, in no event will any of our existing officers, directors, special advisor or initial stockholders, or any entity with which they are affiliated, be paid any finder’s fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of a business combination.
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General
We are authorized to issue 25,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. As of the date of this prospectus, 1,150,000 shares of common stock are outstanding, held by five stockholders of record. No shares of preferred stock are currently outstanding.
Units
Each unit consists of one common share and one right. The shares of common stock and rights will begin to trade separately ten business days following the earlier to occur of the expiration of the underwriter’s over-allotment option, its exercise in full or the announcement by the underwriter of its intention not to exercise all or any remaining portion of the over-allotment option. In no event will separate trading of the shares of common stock and rights commence until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering.
We will file a Current Report on Form 8-K which includes an audited balance sheet promptly upon the consummation of this offering. The audited balance sheet will reflect proceeds we receive from the exercise of the over-allotment option, if the over-allotment option is exercised on the date of this prospectus. If the over-allotment option is exercised after the date of this prospectus, we will file an amendment to the Form 8-K, or a new Form 8-K, to provide updated financial information to reflect the exercise of the over-allotment option. We will also include in this Form 8-K, an amendment thereto, or in a subsequent Form 8-K information indicating when separate trading of the shares of common stock and rights has commenced.
Shares of common stock
Our stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. In connection with any vote held to approve our initial business combination, all of our initial stockholders, as well as all of our officers and directors, have agreed to vote their respective shares of common stock owned by them immediately prior to this offering and any shares purchased in this offering or following this offering in the open market in favor of the proposed business combination.
We will proceed with the business combination only if we have net tangible assets of at least $5,000,001 upon consummation of such business combination and a majority of the shares of common stock voted are voted in favor of the business combination.
Our board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares eligible to vote for the election of directors can elect all of the directors.
Pursuant to our amended and restated certificate of incorporation, if we do not consummate a business combination by 21 months from the consummation of this offering (or 24 months from the consummation of this offering if we have entered into a definitive agreement with a target business for a business combination within 21 months from the consummation of this offering and such business combination has not yet been consummated within such 21-month period), it will trigger our automatic winding up, dissolution and liquidation. Our initial stockholders have agreed to waive their rights to share in any distribution from the trust account with respect to their insider shares upon our winding up, dissolution and liquidation.
Our stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the shares of common stock, except that public stockholders have the right to have their shares of common stock converted to cash equal to their pro rata share of the trust account if they vote on the proposed business combination and the business combination is completed.
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Preferred Stock
Our amended and restated certificate of incorporation authorizes the issuance of 1,000,000 shares of preferred stock with such designation, rights and preferences as may be determined from time to time by our board of directors. No shares of preferred stock are being issued or registered in this offering. Accordingly, our board of directors is empowered, without stockholder approval, to issue shares of preferred stock with dividend, liquidation, redemption, voting or other rights which could adversely affect the voting power or other rights of the holders of shares of common stock. However, the underwriting agreement prohibits us, prior to a business combination, from issuing shares of preferred stock which participate in any manner in the proceeds of the trust account, or which votes as a class with the shares of common stock on a business combination. We may issue some or all of the shares of preferred stock to effect a business combination. In addition, the shares of preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Rights
Each holder of a right will automatically receive one-tenth (1/10) of an common share upon consummation of our initial business combination, even if the holder of such right converted all shares of common stock held by him, her or it in connection with the initial business combination or an amendment to our amended and restated certificate of incorporation with respect to our pre-business combination activities. No additional consideration will be required to be paid by a holder of rights in order to receive his, her or its additional shares upon consummation of an initial business combination as the consideration related thereto has been included in the unit purchase price paid for by investors in this offering. The shares issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of ours). If we enter into a definitive agreement for a business combination in which we will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the shares of common stock will receive in the transaction on an as-converted into common share basis. If we are unable to complete an initial business combination within the required time period and we liquidate the funds held in the trust account, holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from our assets held outside of the trust account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of an initial business combination. Additionally, in no event will we be required to net cash settle the rights. Accordingly, the rights may expire worthless.
Dividends
We have not paid any cash dividends on our shares of common stock to date and do not intend to pay cash dividends prior to the completion of a business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
Our Transfer Agent
The transfer agent for our securities is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004.
Listing of our Securities
There is presently no public market for our units, shares of common stock or rights. We have applied to have the units, and the shares of common stock and rights once they begin separate trading, listed on Nasdaq under the symbols “SMACU,” “SMAC” and “SMACR,” respectively. Although, after giving effect to this
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offering, we meet on a pro forma basis the minimum initial listing standards of Nasdaq, which generally only requires that we meet certain requirements relating to stockholders’ equity, market capitalization, aggregate market value of publicly held shares and distribution requirements, we cannot assure you that our securities will continue to be listed on Nasdaq as we might not meet certain continued listing standards.
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Immediately after this offering, we will have 5,210,000 shares of common stock outstanding, or 5,960,000 shares if the over-allotment option is exercised in full excluding shares underlying rights to be sold in the offering and without consideration to the reclassification of shares subject to possible conversion. Of these shares, the 4,000,000 shares sold in this offering, or 4,600,000 shares if the over-allotment option is exercised in full, will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by one of our affiliates within the meaning of Rule 144 under the Securities Act. All of the remaining shares are restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering. All of those shares will not be transferable except in limited circumstances described elsewhere in this prospectus.
Rule 144
A person who has beneficially owned restricted shares of common stock or rights for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale. Persons who have beneficially owned restricted shares of common stock for at least six months but who are our affiliates at the time of, or any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period a number of shares that does not exceed the greater of either of the following:
• | 1% of the number of shares of common stock then outstanding, which will equal 52,100 shares immediately after this offering (or 59,600 if the over-allotment option is exercised in full); and |
• | the average weekly trading volume of the shares of common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
Sales under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Historically, the SEC staff had taken the position that Rule 144 is not available for the resale of securities initially issued by companies that are, or previously were, blank check companies, like us. The SEC has codified and expanded this position in the amendments discussed above by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:
• | the issuer of the securities that was formerly a shell company has ceased to be a shell company; |
• | the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; |
• | the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and |
• | at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company. |
As a result, it is likely that pursuant to Rule 144, our initial stockholders will be able to sell their insider shares freely without registration one year after we have completed our initial business combination assuming they are not an affiliate of ours at that time.
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Registration Rights
The holders of our insider shares issued and outstanding on the date of this prospectus, as well as the holders of the private units and private commission units (and all underlying securities) and any securities issued to our initial stockholders, officers, directors or their affiliates in payment of working capital loans made to us, will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securities are entitled to make up to two demands that we register such securities. The holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the private units, private commission units and securities issued in payment of working capital loans (or underlying securities) can elect to exercise these registration rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
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We intend to offer our securities described in this prospectus through the underwriter named below. We have entered into an underwriting agreement with the underwriter. Subject to the terms and conditions of the underwriting agreement, underwriter has agreed to purchase from us the number of units listed in the following table:
Underwriter | Number of Units | |||||
---|---|---|---|---|---|---|
Cantor Fitzgerald & Co. | 4,000,000 |
A copy of the underwriting agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part.
The underwriting agreement provides that the underwriter must purchase all of the units if it purchases any of them. However, the underwriter is not required to take or pay for the units covered by the over-allotment option described below.
Our units are offered subject to a number of conditions, including:
• | receipt and acceptance of the units by the underwriter; and |
• | the underwriter’s right to reject orders in whole or in part. |
In connection with this offering, the underwriter or securities dealers may distribute prospectuses electronically.
Upon the execution of the underwriting agreement, the underwriter will be obligated to purchase the units at the prices and upon the terms stated therein, and, as a result, will thereafter bear any risk associated with changing the offering price to the public or other selling terms.
Over-allotment Option
We have granted the underwriter an option to buy up to 600,000 additional units. The underwriter may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. The underwriter has 45 days from the date of this prospectus to exercise this option.
Commissions and Discounts
Units sold by the underwriter to the public will initially be offered at the offering price set forth on the cover of this prospectus. Any units sold by the underwriter to securities dealers may be sold at a discount of up to $0.15 per unit from the public offering price. Any of these securities dealers may resell any units purchased from the underwriter to other brokers or dealers at a discount of up to $0.10 per unit from the public offering price. If all of the units are not sold at the initial public offering price, the underwriter may change the offering price and the other selling terms. Upon execution of the underwriting agreement, the underwriter will be obligated to purchase the units at the prices and upon the terms stated therein, and, as a result, will thereafter bear any risk associated with changing the offering price to the public or other selling terms. No offer or invitation to subscribe for units may be made to the public in the Cayman Islands.
The following table shows the per unit and total underwriting discounts and commissions we will pay to the underwriter assuming both no exercise and full exercise of the underwriter’s over-allotment option to purchase up to an additional 600,000 units.
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Per Unit | Without Over-allotment | With Over-allotment | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Public offering price | $ | 10.00 | $ | 40,000,000 | $ | 46,000,000 | ||||||||
Discount(1)(2)(3) | $ | 0.5125 | $ | 2,050,000 | $ | 2,290,000 | ||||||||
($0.40 on overallotment units) | ||||||||||||||
Proceeds before expenses(1)(4) | $ | 9.47875 | $ | 37,950,000 | $ | 43,710,000 | ||||||||
($9.60 on overallotment units) | ||||||||||||||
(1) | Per unit (i) underwriting discount, and (ii) Proceeds before expenses, in each case represents an average value as further described in footnotes (2) and (3). |
(2) | Includes additional underwriting commissions of $0.15 per unit, or an aggregate of $450,000 (1.125% of the $40 million offering amount, which does not include any over-allotment), on up to 3,000,000 units which may be paid to Cantor Fitzgerald & Co. if we do not introduce any investors to the underwriter that purchase units in this offering. To the extent we do introduce investors to Cantor Fitzgerald & Co. that purchase units being offered hereby, the underwriting commission paid to the underwriter will be reduced in the amount of $0.15 per unit purchased by such investor we introduce to Cantor Fitzgerald & Co. up to the full $450,000 fee if at least $30,000,000 is invested by investors introduced by us. |
(3) | Includes $0.10 per unit, or $400,000 (approximately $640,000 if the underwriter’s over-allotment option is exercised in full, which includes $0.40 per unit sold pursuant to the over-allotment option), payable to Cantor Fitzgerald & Co. for a deferred underwriting fee to be placed in the trust account. These funds will be released to Cantor Fitzgerald only on completion of our initial business combination. |
(4) | The offering expenses are estimated at $410,000. |
No discounts or commissions will be paid on the sale of the private units.
Listing of our Securities
There is presently no public market for our units, shares of common stock or rights. We have applied to have the units, and the shares of common stock and rights once they begin separate trading, listed on Nasdaq under the symbols “SMACU”, “SMAC” and “SMACR”, respectively. Although, after giving effect to this offering, we meet on a pro forma basis the minimum initial listing standards of Nasdaq, which generally only requires that we meet certain requirements relating to stockholders’ equity, market capitalization, aggregate market value of publicly held shares and distribution requirements, we cannot assure you that our securities will continue to be listed on Nasdaq as we might not meet certain continued listing standards.
Pricing of Securities
We have been advised by the underwriter that it proposes to offer the units to the public at the offering price set forth on the cover page of this prospectus.
Prior to this offering there has been no public market for any of our securities. The public offering price of the units and the terms of the rights were negotiated between us and the underwriter. Factors considered in determining the prices and terms of the units, including the shares of common stock and rights underlying the units, include:
• | the history and prospects of companies whose principal business is the acquisition of other companies; |
• | prior offerings of those companies; |
• | our prospects for acquiring an operating business at attractive values; |
• | our capital structure; |
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• | the per share amount of net proceeds being placed into the trust account; |
• | an assessment of our management and their experience in identifying operating companies; |
• | general conditions of the securities markets at the time of the offering; and |
• | other factors as were deemed relevant. |
However, although these factors were considered, the determination of our offering price is more arbitrary than the pricing of securities for an operating company in a particular industry since the underwriter is unable to compare our financial results and prospects with those of public companies operating in the same industry.
Regulatory Restrictions on Purchase of Securities
Rules of the SEC may limit the ability of the underwriter to bid for or purchase our units before the distribution of the units is completed. However, the underwriter may engage in the following activities in accordance with the rules:
• | Stabilizing Transactions. The underwriter may make bids or purchases for the purpose of preventing or retarding a decline in the price of our units, as long as stabilizing bids do not exceed the offering price of $10.00 and the underwriter complies with all other applicable rules. |
• | Over-Allotments and Syndicate Coverage Transactions. The underwriter may create a short position in our units by selling more of our units than are set forth on the cover page of this prospectus up to the amount of the over-allotment option. This is known as a covered short position. The underwriter may also create a short position in our units by selling more of our units than are set forth on the cover page of this prospectus and the units allowed by the over-allotment option. This is known as a naked short position. If the underwriter creates a short position during the offering, the underwriter may engage in syndicate covering transactions by purchasing our units in the open market. The underwriter may also elect to reduce any short position by exercising all or part of the over-allotment option. Determining what method to use in reducing the short position depends on how the units trade in the aftermarket following the offering. If the unit price drops following the offering, the short position is usually covered with shares purchased by the underwriter in the aftermarket. However, the underwriter may cover a short position by exercising the over-allotment option even if the unit price drops following the offering. If the unit price rises after the offering, then the over-allotment option is used to cover the short position. If the short position is more than the over-allotment option, the naked short must be covered by purchases in the aftermarket, which could be at prices above the offering price. |
• | Penalty Bids. The underwriter may reclaim a selling concession from a syndicate member when the units originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
Stabilization and syndicate covering transactions may cause the price of our securities to be higher than they would be in the absence of these transactions. The imposition of a penalty bid might also have an effect on the prices of our securities if it discourages resales of our securities.
Neither we nor the underwriter make any representation or prediction as to the effect that the transactions described above may have on the price of our securities. These transactions may occur on Nasdaq, in the over-the-counter market or on any trading market. If any of these transactions are commenced, they may be discontinued without notice at any time.
Other Terms
We have agreed to reimburse the underwriter for certain out-of-pocket actual expenses related to the offering, including legal fees incurred to clear the offering with FINRA (up to $15,000), background searches of our officers and directors (up to $25,000) and certain other expenses, including roadshow expenses (up to
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$10,000), for a maximum aggregate reimbursable amount of $50,000. Pursuant to the engagement letter we entered into with the underwriter, we could be obligated to reimburse up to $25,000 of expenses and attorney’s fees to the underwriter incurred in order to enforce our obligation under the engagement letter.
Except as set forth above, we are not under any contractual obligation to engage the underwriter to provide any services for us after this offering, and have no present intent to do so. However, the underwriter may, among other things, introduce us to potential target businesses or assist us in raising additional capital, as needs may arise in the future. If the underwriter provides services to us after this offering, we may pay the underwriter fair and reasonable fees that would be determined at that time in an arm’s length negotiation; provided that no agreement will be entered into with the underwriter and no fees for such services will be paid to the underwriter prior to the date which is 90 days after the date of this prospectus, unless FINRA determines that such payment would not be deemed underwriter’s compensation in connection with this offering.
Indemnification
We have agreed to indemnify the underwriter against some liabilities, including civil liabilities under the Securities Act, or to contribute to payments the underwriter may be required to make in this respect.
Notices to Chinese Investors
China. THIS PROSPECTUS HAS NOT BEEN AND WILL NOT BE CIRCULATED OR DISTRIBUTED IN THE PRC, AND THE SECURITIES OFFERED HEREIN MAY NOT BE OFFERED OR SOLD, AND WILL NOT BE OFFERED OR SOLD TO ANY PERSON FOR RE-OFFERING OR RESALE, DIRECTLY OR INDIRECTLY, TO ANY RESIDENT OF THE PRC EXCEPT PURSUANT TO APPLICABLE LAWS AND REGULATIONS OF THE PRC.
Graubard Miller, New York, New York, is acting as counsel in connection with the registration of our securities under the Securities Act and will pass on the validity of the rights offered in the prospectus. Loeb & Loeb LLP, New York, New York, is acting as counsel for the underwriter in this offering.
The financial statements of Sino Mercury Acquisition Corp. (a development stage company) as of April l5, 2014, and for the period from March 28, 2014 (inception) through April 15, 2014, have been included herein in reliance upon the report of Rothstein Kass, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of Rothstein Kass as experts in accounting and auditing.
We have filed with the SEC a registration statement on Form S-1, which includes exhibits, schedules and amendments, under the Securities Act, with respect to this offering of our securities. Although this prospectus, which forms a part of the registration statement, contains all material information included in the registration statement, parts of the registration statement have been omitted as permitted by rules and regulations of the SEC. We refer you to the registration statement and its exhibits for further information about us, our securities and this offering. The registration statement and its exhibits, as well as our other reports filed with the SEC, can be inspected and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site athttp://www.sec.gov which contains the Form S-1 and other reports, proxy and information statements and information regarding issuers that file electronically with the SEC.
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F-1
To the Board of Directors and Stockholder of
Sino Mercury Acquisition Corp.
Sino Mercury Acquisition Corp.
We have audited the accompanying balance sheet of Sino Mercury Acquisition Corp. (a corporation in the development stage) (the “Company”) as of April 15, 2014, and the related statements of operations, changes in stockholder’s equity and cash flows for the period from March 28, 2014 (inception) to April 15, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sino Mercury Acquisition Corp. (a corporation in the development stage) as of April 15, 2014, and the results of its operations and its cash flows for the period from March 28, 2014 (inception) to April 15, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Rothstein Kass
New York, New York
May 16, 2014
May 16, 2014
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ASSETS | ||||||
Current asset — Cash | $ | 107,000 | ||||
Deferred offering costs | 35,000 | |||||
Total assets | $ | 142,000 | ||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||
Current liabilities | ||||||
Accounts payable | $ | 449 | ||||
Note payable to stockholder | 117,000 | |||||
Total liabilities | 117,449 | |||||
Commitments | ||||||
Stockholder’s equity | ||||||
Preferred stock, $.0001 par value, Authorized 1,000,000 shares; none issued | — | |||||
Common stock, $.0001 par value, Authorized 25,000,000 shares, 1,150,000 shares issued and outstanding | 115 | |||||
Additional paid-in capital | 24,885 | |||||
Deficit accumulated during the development stage | (449 | ) | ||||
Total stockholder’s equity | 24,551 | |||||
Total liabilities and stockholder’s equity | $ | 142,000 |
The Accompanying Notes are an Integral Part of these Financial Statements.
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Statement of Operations
For the period March 28, 2014 (Inception) to April 15, 2014
For the period March 28, 2014 (Inception) to April 15, 2014
Formation, general and administrative expenses | $ | 449 | ||||
Net loss | $ | (449 | ) | |||
Weighted average common shares outstanding | 1,150,000 | |||||
Basic and diluted net loss per common share | $ | (0.00 | ) |
The Accompanying Notes are an Integral Part of these Financial Statements.
F-4
Statement of Changes in Stockholder’s Equity
For the period March 28, 2014 (Inception) to April 15, 2014
For the period March 28, 2014 (Inception) to April 15, 2014
Common Stock | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares | Amount | Additional Paid-in Capital | Deficit Accumulated During the Development Stage | Total Stockholders’ Equity | |||||||||||||||||||
Common shares issued to initial stockholder on April 15, 2014, at approximately $0.02 per share | 1,150,000 | $ | 115 | $ | 24,885 | $ | — | $ | 25,000 | ||||||||||||||
Net loss | — | — | — | (449 | ) | (449 | ) | ||||||||||||||||
Balances at April 15, 2014 | 1,150,000 | $ | 115 | $ | 24,885 | $ | (449 | ) | $ | 24,551 |
The Accompanying Notes are an Integral Part of these Financial Statements.
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Statement of Cash Flows
For the period Mar 28, 2014 (Inception) to Aprl 15, 2014
For the period Mar 28, 2014 (Inception) to Aprl 15, 2014
Cash flow from operating activities | ||||||
Net loss | $ | (449 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Change in operating assets and liabilities: | ||||||
Increase in accounts payable | 449 | |||||
Net cash used in operating activities | — | |||||
Cash flows from financing activities | ||||||
Advances from stockholder | 35,000 | |||||
Proceeds from sale of shares of common stock to founding stockholder | 25,000 | |||||
Proceeds from note payable, stockholder | 82,000 | |||||
Payment of deferred offering costs | (35,000 | ) | ||||
Net cash provided by financing activities | 107,000 | |||||
Net increase in cash | 107,000 | |||||
Cash at beginning of period | — | |||||
Cash at end of period | $ | 107,000 | ||||
Supplemental Disclosure of Non-cash Financing Activities | ||||||
Advances from stockholder capitalized (reclassified) to note payable | $ | 35,000 |
The Accompanying Notes are an Integral Part of these Financial Statements.
F-6
Sino Mercury Acquisition Corp. (the “Company”) was incorporated in Delaware on March 28, 2014 as a blank check company whose objective is to enter into a merger, stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (a “Business Combination”).
At April 15, 2014, the Company had not yet commenced any operations. All activity through April 15, 2014 relates to the Company’s formation and the proposed public offering described below. The Company has selected December 31 as its fiscal year end.
The Company is considered to be a development stage company and, as such, the Company’s financial statements are prepared in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) topic 915 “Development Stage Entities.” The Company is subject to all of the risks associated with development stage companies.
The Company’s ability to commence operations is contingent upon obtaining adequate financial resources through a proposed public offering of up to 4,000,000 units (or 4,600,000 units if the underwriter’s over- allotment option is exercised in full) (“Units”) which is discussed in Note 3 (“Proposed Public Offering”). The Company’s initial shareholder has also committed to purchase from the Company an aggregate of 210,000 units (“Private Units”) at $10.00 per unit (for a total purchase price of $2,100,000). These Private Units will be purchased in a private placement (“Private Placement”) that will occur simultaneously with the consummation of the Proposed Public Offering. All of the proceeds the Company receives from these purchases will be placed in the trust account described below. The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Proposed Public Offering and the Private Placement, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company intends to apply to have its securities listed on the Nasdaq Capital Market (“NASDAQ”). Pursuant to the NASDAQ listing rules, the Company’s initial Business Combination must be with a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the trust account at the time of the execution of a definitive agreement for such Business Combination, although this may entail simultaneous acquisitions of several target businesses. There is no assurance that the Company will be able to effectuate a Business Combination successfully.
Upon the closing of the Proposed Public Offering, management has agreed that $10.00 per Unit sold in the Proposed Public Offering, including the proceeds from the sale of the Private Units, will be held in a United States-based trust account (“Trust Account”) and invested in United States government treasury bills, bonds or notes, having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act until the earlier of (i) the consummation of the Company’s initial Business Combination and (ii) the Company’s failure to consummate a Business Combination within the prescribed time. Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Additionally, the interest earned on the Trust Account balance may be released to the Company to fund working capital requirements as well as to pay the Company’s tax obligations.
The Company, after signing a definitive agreement for an initial Business Combination, is required to provide stockholders (“Public Stockholders”) who acquired common stock (“Public Shares”) in the Proposed Public Offering with the opportunity to convert their Public Shares for a pro rata share of the Trust Account. The Company will only consummate such Business Combination if it has at least $5,000,001 of net tangible assets upon close of such Business Combination. However, it is a condition of the Proposed Public Offering that at least $10,000,000 of the Units being offered are purchased by investors who will agree to hold their Public Shares through the consummation of an initial Business Combination, vote in favor of such proposed
F-7
initial Business Combination and not seek conversion in connection therewith. As a result, the Company expects to meet the $5,000,001 net tangible asset requirement in order to complete an initial Business Combination. The holder of the 1,150,000 shares of common stock purchased prior to the Company’s Proposed Public Offering (“Initial Stockholder”) will vote any shares it then holds in favor of any proposed initial Business Combination and will waive any conversion rights with respect to these shares and the shares underlying the Private Units pursuant to a letter agreement to be executed prior to the Proposed Public Offering.
In connection with any proposed Business Combination, the Company will seek stockholder approval of an initial Business Combination at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed Business Combination. Any Public Stockholder voting either for or against such proposed Business Combination will be entitled to demand that his Public Shares be converted into a full pro rata portion of the amount then in the Trust Account (initially approximately $10.00 per share), including any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company or necessary to pay its taxes. Rights sold as part of the Units (“Rights”) will not be entitled to vote on the Proposed Business Combination and will have no conversion or liquidation rights.
Notwithstanding the foregoing, the Amended and Restated Certificate of Incorporation of the Company to be in effect upon consummation of the Proposed Public Offering will provide that a Public Stockholder, together with any affiliate or other person with whom such Public Stockholder is acting in concert or as a “group” (within the meaning of Section 13 of the Securities Act of 1934, as amended), will be restricted from seeking conversion rights with respect to an aggregate of more than 20% of the shares of common stock sold in the Proposed Public Offering (but only with respect to the amount over 20% of the shares of common stock sold in the Proposed Public Offering). A “group” will be deemed to exist if Public Stockholders (i) file a Schedule 13D or 13G indicated the presence of a group or (ii) acknowledge to the Company that they are acting, or intend to act, as a group.
Pursuant to the Company’s Amended and Restated Certificate of Incorporation to be in effect upon consummation of the Proposed Public Offering, if the Company is unable to complete its initial Business Combination within 21 months from the date of the Proposed Public Offering (or 24 months from the date of the Proposed Public Offering if the Company has executed a definitive agreement for a Business Combination within 21 months from the date of the Proposed Public Offering but has not completed such Business Combination within the 21- month period), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding Public Shares and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining holders of common stock and the Company’s board of directors, dissolve and liquidate. If the Company is unable to consummate an initial Business Combination and is forced to redeem 100% of the outstanding Public Shares for a pro rata portion of the funds held in the Trust Account, each holder will receive a full pro rata portion of the amount then in the Trust Account, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company or necessary to pay any of its taxes. Holders of Rights will receive no proceeds in connection with the liquidation with respect to such rights. The Initial Stockholders and the holders of Private Units will not participate in any redemption distribution with respect to their initial shares and Private Units, including the common stock included in the Private Units.
If the Company is unable to conclude its initial Business Combination and expends all of the net proceeds of the Proposed Public Offering not deposited in the Trust Account, without taking into account any interest earned on the Trust Account, the Company expects that the initial per-share redemption price for common stock will be $10.00. The proceeds deposited in the Trust Account could, however, become subject to claims of the Company’s creditors that are in preference to the claims of the Company’s stockholders. In addition, if the Company is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in its bankruptcy estate and subject to the claims of third parties with priority over the
F-8
claims of the Company’s common stockholders. Therefore, the actual per-share redemption price may be less than approximately $10.00.
Emerging Growth Company
Further, Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits emerging growth companies to delay complying with new or revised financial accounting standards that do not yet apply to private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act). The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Development Stage Company
The Company complies with the reporting requirements of FASB ASC Topic 915, “Development Stage Entities”. At April 15, 2014, the Company has not commenced any operations nor generated revenue to date. All activity through April 15, 2014 relates to the Company’s formation and the Proposed Public Offering. Following such offering, the Company will not generate operating revenues until after completion of a Business Combination, at earliest. The Company will generate non-operating income in the form of interest income on the designated Trust Account after the Proposed Public Offering.
Income Taxes
The Company accounts for income taxes under ASC Topic 740 Income Taxes. ASC Topic 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC Topic 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC Topic 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more- likely- than- not to be sustained upon examination by taxing authorities. ASC Topic 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file income tax returns in the United States (federal) and in various state and local jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.
Since the Company was incorporated on March 28, 2014, the evaluation was performed for the upcoming 2014 tax year, which will be the only period subject to examination. The Company believes that its income
F-9
tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.
The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the period from March 28, 2014 (inception) through April 15, 2014. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
Loss Per Common Share
Basic loss per common share is computed by dividing net loss by the weighted- average number of shares of common stock outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus to the extent dilutive, the incremental number of shares of common stock to settle warrants and other common stock equivalents (currently none outstanding), as calculated using the treasury stock method. Since there are no common stock equivalents outstanding and also because of the Company’s loss position, diluted loss per common share is the same as basic loss per common share for the period.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
Subsequent Events
Management has evaluated subsequent events to determine if events or transactions occurring through May 16, 2014, the date these financial statements were available to be issued, require potential adjustment to or disclosure in the financial statements and has concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements.
Note 3 — Proposed Public Offering
The Proposed Public Offering calls for the Company to offer for public sale up to 4,000,000 Units at a proposed offering price of $10.00 per Unit. In addition, the Company has granted Cantor Fitzgerald & Co., the underwriter, a 45-day option to purchase up to 600,000 units solely to cover over-allotments, if any. Each Unit consists of one share of common stock and one Right. Each Right will automatically entitle the holder to receive one- tenth (1/10) of a share of common stock on the consummation of an initial Business Combination. If the Company is unable to consummate a Business Combination, the Company will redeem 100% of the Public Shares issued in the Proposed Public Offering using the funds in the Trust Account as described in Note 1. There are no contractual penalties for failure to deliver securities to the holders of the Rights upon consummation of the Company’s initial Business Combination. Additionally, in no event will the Company be required to net cash settle the Rights. In such events, the Rights will expire and will be worthless.
F-10
Note 4 — Deferred Offering Costs
Deferred offering costs consist principally of legal and accounting costs incurred through the balance sheet date that are directly related to the Proposed Public Offering and that will be charged to stockholder’s equity upon the receipt of the capital raised. Should the Proposed Public Offering prove to be unsuccessful, these deferred offering costs, as well as additional costs to be incurred will be charged to operations.
Note 5 — Note Payable to Stockholder
The Company issued a $117,000 principal amount unsecured promissory note to Jianming Hao, the Company’s Chief Executive Officer and an affiliate of the Initial Stockholder, on April 14, 2014. Capitalized as part of the promissory note was $35,000 advances made prior to the execution of the promissory note. The note is non-interest bearing and payable on the earlier of (i) April 30, 2015, (ii) the consummation of the Proposed Public Offering or (iii) the date on which the Company determines not to proceed with the Proposed Public Offering. Due to the short- term nature of the note, the fair value of the note approximates the carrying amount.
Note 6 — Related Party Transactions
The Initial Stockholder of the Company has committed to purchase 210,000 Private Units at $10.00 per unit (for an aggregate purchase price of $2,100,000) from the Company. The Initial Stockholder has also agreed that if investors introduced by the Company to the underwriter do not purchase at least $30,000,000 of the units being offered in the Proposed Public Offering, it will purchase from the Company at a price of $10.00 per unit the number of Private Units (“Private Commission Units”) that will equal the increased commissions the Company will pay the underwriter (see Note 7). These purchases will take place simultaneously with the consummation of the Proposed Public Offering. All of the proceeds received from the sale of the Private Units will be placed in the Trust Account except that the proceeds from the sale of the Private Commission Units will be paid to the underwriter at the closing of the Proposed Public Offering. The Private Units and Private Commission Units will be identical to the Units being offered in the Proposed Public Offering, except that the holders have agreed (i) to vote the shares of common stock included therein in favor of any proposed Business Combination, (ii) not to propose, or vote in favor of, an amendment to the Company’s amended and restated certificate of incorporation with respect to pre-Business Combination activities prior to the consummation of such a Business Combination, (iii) not to convert any shares of common stock included therein into the right to receive cash for the Trust Account in connection with a stockholder vote to approve the proposed initial Business Combination and (iv) that the shares of common stock included therein shall not participate in any liquidating distribution upon winding up if a Business Combination is not consummated. Additionally, the holders have agreed not to transfer, assign or sell any of the Private Units, Private Commission Units or underlying securities (except to certain permitted transferees) until the completion of the initial Business Combination.
Note 7 — Commitments
The Company will pay the underwriter in the Proposed Public Offering an underwriting discount of 3% of the gross proceeds of the Proposed Public Offering. In addition, the underwriter will be entitled to a deferred fee of one percent (1.0%) of the Proposed Public Offering (or 4.0% of the proceeds from the units sold in the over-allotment option), payable in cash upon the closing of a Business Combination.
In the event that investors introduced by the Company to the underwriter do not purchase at least $30,000,000 of the Units being offered in the Proposed Public Offering, there will be an additional underwriting commission paid to the underwriter in the amount of $0.15 per unit (1.5%) on the amount below $30,000,000 invested by investors introduced by the Company, which will not affect the amount in the Trust Account due to the obligation of the Initial Stockholder to purchase the Private Commission Units.
The Initial Stockholder and the holder of the Private Units and Private Commission Units (or underlying shares of common stock) will be entitled to registration rights with respect to the initial shares and the Private Units (or underlying shares of common stock) pursuant to an agreement to be signed prior to or on the
F-11
effective date of the Proposed Public Offering. The holders of the majority of the initial shares are entitled to demand that the Company register these shares at any time commencing three months prior to the first anniversary of the consummation of a Business Combination. The holders of the Private Units and Private Commission Units (or underlying shares of common stock) are entitled to demand that the Company register these securities at any time after the Company consummates a Business Combination. In addition, the Initial Stockholder and holders of the Insider Units and Private Commission Units (or underlying shares of common stock) have certain “piggy- back” registration rights on registration statements filed after the Company’s consummation of a Business Combination.
Note 8 — Stockholder Equity
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s board of directors. As of April 15, 2014, there are no shares of preferred stock issued or outstanding.
Common Stock
The Company is authorized to issue 25,000,000 shares of common stock with a par value of $0.0001 per share. In connection with the organization of the Company, a total of 1,150,000 shares of the Company’s common stock were sold to the Initial Stockholder at a price of approximately $0.02 per share for an aggregate of $25,000.
As of April 15, 2014, 1,150,000 shares of common stock were issued and outstanding, of which 150,000 shares are subject to forfeiture to the extent that the underwriter’s over-allotment option is not exercised in full so that the Company’s Initial Stockholder will own 20% of the issued and outstanding common shares after the Proposed Public Offering, excluding shares of common stock included in the Private Units. All of these shares will be placed into an escrow account on the Effective Date. Subject to certain limited exceptions, these shares will not be released from escrow until with respect to 50% of the shares, the earlier of one year after the date of the consummation of an initial Business Combination and the date on which the closing price of the common stock exceeds $13.00 per share for any 20 trading days within a 30- trading day period following the consummation of an initial Business Combination and, with respect to the remaining 50% of the shares, one year after the date of the consummation of an initial Business Combination, or earlier if, subsequent to the Company’s initial Business Combination, the Company consummates a subsequent liquidation, merger, share exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
F-12
Until September 20, 2014, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
No dealer, salesperson or any other person is authorized to give any information or make any representations in connection with this offering other than those contained in this prospectus and, if given or made, the information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the offer or solicitation is not authorized or is unlawful.
$40,000,000
Sino Mercury Acquisition Corp.
4,000,000 Units
PROSPECTUS
Cantor Fitzgerald & Co.
August 26, 2014