As filed with the Securities and Exchange Commission on July 28, 2005
File No. 333-125016
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CHARDAN NORTH CHINA ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6770 20-2479743
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
625 Broadway, Suite 1111
San Diego, California 92101
(858) 847-9000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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Dr. Richard D. Propper, Chairman of the Board
625 Broadway, Suite 1111
San Diego, California 92101
(858) 847-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
David Alan Miller, Esq. Robert J. Mittman, Esq.
Graubard Miller Brad L. Shiffman, Esq.
600 Third Avenue Blank Rome L.L.P.
New York, New York 10016 The Chrysler Building
(212) 818-8800 405 Lexington Avenue
(212) 818-8881 - Facsimile New York, New York 10174
(212) 885-5000
(212) 885-5001 - Facsimile
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |X|
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of each Class of Amount being Offering Price Per Aggregate Offering Registration
Security being registered Registered Security(1) Price(1) Fee
- ------------------------------------ ---------------------- -------------------- --------------------- -------------------
Units, each consisting of one
share of Common Stock, $.0001 par 5,750,000 Units $6.00 $34,500,000 $4,060.65
value, and two Warrants (2)
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Shares of Common Stock included as
part of the Units(2) 5,750,000 Shares ------- ------- -------(3)
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Warrants included as part of the
Units(2) 11,500,000 Warrants ------- ------- -------(3)
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Shares of Common Stock underlying
the Warrants included in the 11,500,000 Shares $5.00 $57,500,000 $6,767.75
Units(4)
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Representative's Unit Purchase
Option 1 $ 100 $100 -------(3)
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Units underlying the
Representative's Unit Purchase
Option ("Underwriter's Units")(4) 250,000 Units $7.50 $1,875,000 $220.69
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Shares of Common Stock included as
part of the Underwriter's Units(4) 250,000 Shares ------- ------- -------(3)
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Warrants included as part of the
Representative's Units(4) 500,000 Warrants ------- ------- -------(3)
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Shares of Common Stock underlying
the Warrants included in the
Representative's Units(4) 500,000 Shares $6.65 $3,325,000 $391.35
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Total $97,200,100 $11,440.45(5)
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 750,000 Units and 750,000 shares of Common Stock and 1,500,000
Warrants underlying such Units which may be issued on exercise of a 45-day
option granted to the Underwriters to cover over-allotments, if any.
(3) No fee pursuant to Rule 457(g).
(4) Pursuant to Rule 416, there are also being registered such indeterminable
additional securities as may be issued as a result of the anti-dilution
provisions contained in the Warrants.
(5) $9,397.17 of this fee has been previously paid.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, JULY 28, 2005
PROSPECTUS
$30,000,000
CHARDAN NORTH CHINA ACQUISITION CORPORATION
5,000,000 UNITS
Chardan North China Acquisition Corporation is a newly organized Specified
Purpose Acquisition Company(TM), or SPAC(TM). A "Specified Purpose Acquisition
Company" or "SPAC" is a blank check company organized for the purpose of
effecting a merger, capital stock exchange, asset acquisition or other similar
business combination with an operating business in a specified industry. Our
objective is to acquire an operating business that has its primary operating
facilities located in the People's Republic of China in any city or province
north of the Yangtze River. 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 with us.
This is an initial public offering of our securities. Each unit consists
of:
o one share of our common stock; and
o two warrants.
Each warrant entitles the holder to purchase one share of our common stock
at a price of $5.00. Each warrant will become exercisable on the later of our
completion of a business combination and _______ __, 2006 [ONE YEAR FROM THE
DATE OF THIS PROSPECTUS], and will expire on ________ __, 2009 [FOUR YEARS FROM
THE DATE OF THIS PROSPECTUS], or earlier upon redemption.
We have granted EarlyBirdCapital, Inc., the representative of the
underwriters, a 45-day option to purchase up to 750,000 additional units solely
to cover over-allotments, if any (over and above the 5,000,000 units referred to
above). The over-allotment will be used only to cover the net syndicate short
position resulting from the initial distribution. We have also agreed to sell to
EarlyBirdCapital, for $100, as additional compensation, an option to purchase up
to a total of 250,000 units at $7.50 per unit. The units issuable upon exercise
of this option are identical to those offered by this prospectus, except that
the warrants included in the option have an exercise price of $6.65 (133% of the
exercise price of the warrants included in the units sold in the offering). The
purchase option and its underlying securities have been registered under the
registration statement of which this prospectus forms a part.
There is presently no public market for our units, common stock or
warrants. The units will be quoted on the OTC Bulletin Board under the symbol
_______ on or promptly after the date of this prospectus. Once the securities
comprising the units begin separate trading, the common stock and warrants will
be quoted on the OTC Bulletin Board under the symbols ______ and _____,
respectively. We cannot assure you that our securities will continue to be
quoted on the OTC Bulletin Board.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 10 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 Underwriting discount Proceeds, before
offering price and commissions(1) expenses, to us
-------------- ------------------ ---------------
Per unit........ $6.00 $0.54 $5.46
Total........... $30,000,000 $2,700,000 $27,300,000
(1) Includes a non-accountable expense allowance in the amount of 1% of the
gross proceeds, or $0.06 per unit ($300,000 in total) payable to
EarlyBirdCapital.
Of the net proceeds we receive from this offering, $25,835,000 ($5.167 per
unit) will be deposited into a trust account at Lehman Brothers Inc. maintained
by Continental Stock Transfer & Trust Company, acting as trustee.
We are offering the units for sale on a firm-commitment basis.
EarlyBirdCapital, acting as representative of the underwriters, expects to
deliver our securities to investors in the offering on or about __________ ____,
2005.
EARLYBIRDCAPITAL, INC.
___________ ____, 2005
TABLE OF CONTENTS
Page
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Prospectus Summary............................................................1
Summary Financial Data........................................................9
Risk Factors.................................................................10
Use of Proceeds..............................................................25
Dilution ....................................................................27
Capitalization...............................................................29
Management's Discussion and Analysis
of Financial Condition and Results of Operations....................30
Proposed Business............................................................32
Management...................................................................44
Principal Stockholders.......................................................51
Certain Transactions.........................................................53
Description of Securities....................................................54
Underwriting.................................................................59
Legal Matters................................................................64
Experts .....................................................................65
Where You Can Find Additional Information....................................65
Index to Financial Statements...............................................F-1
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"SPECIFIED PURPOSE ACQUISITION COMPANY(TM)" AND "SPAC(TM)" ARE SERVICE
MARKS OF EARLYBIRDCAPITAL, INC.
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PROSPECTUS SUMMARY
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, references to "we," "us"
or "our company" refer to Chardan North China Acquisition Corporation. Unless
otherwise specified, references to "China" or the "PRC" refer to the People's
Republic of China as well as the Hong Kong Special Administrative Region and the
Macau Special Administrative Region, but do not include Taiwan. Additionally,
when we use the term "public stockholders," we mean the holders of the shares of
common stock which are being sold as part of the units in this offering,
including any of our existing stockholders to the extent that they purchase such
shares. Unless we tell you otherwise, the information in this prospectus assumes
that the representative of the underwriters will not exercise its over-allotment
option. Additionally, unless we tell you otherwise, the information in this
prospectus has been adjusted to give retroactive effect to a stock dividend of
0.25 shares of common stock for each outstanding share of common stock on July
22, 2005.
We are a blank check company known as a Specified Purpose Acquisition
Company(TM), or SPAC(TM). We were organized under the laws of the State of
Delaware on March 10, 2005. We were formed with the purpose of effecting a
merger, capital stock exchange, asset acquisition or other similar business
combination with an operating business that has its primary operating facilities
located in the People's Republic of China in any city or province north of the
Yangtze River, including but not limited to the Jiangshu and Hubei provinces and
Chongging. To date, our efforts have been limited to organizational activities.
Opportunities for market expansion have emerged for businesses with
operations in China due to certain changes in the PRC's political, economic and
social policies as well as certain fundamental changes affecting the PRC and its
neighboring countries. We believe that China represents both a favorable
environment for making acquisitions and an attractive operating environment for
a target business for several reasons, including, among other things, attractive
valuations for target businesses and increased government focus within China on
privatizing assets, improving foreign trade and encouraging business and
economic activity. Notwithstanding these facts, there are various risks of
business acquisitions in China including, among others, the risk that we may be
unable to enforce our rights in China, that China may revert back to former
policies regarding privatization of business and that relations between China
and other countries, including the United States, may deteriorate leading to
reduced trade.
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 with us. We have not (nor have any of our
agents or affiliates) been approached by any candidates (or representative of
any candidates) with respect to a possible acquisition transaction with our
company. Additionally, we have not engaged or retained any agent or other
representative to identify or locate any suitable acquisition candidate for us.
While we may seek to effect business combinations with more than one
target business, our initial business combination must be with a target business
whose fair market value is at least equal to 80% of our net assets (all of our
assets, including the funds held in the trust account, less our liabilities) at
the time of such acquisition. Consequently, it is likely that we will have the
ability to effect a business combination with only a single operating business.
The target business that we acquire may have a fair market value substantially
in excess of 80% of our net assets. In order to consummate 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.
Simultaneously with our formation, our principals formed Chardan South
China Acquisition Corporation ("Chardan China III"), formed for the purpose of
effecting a merger, capital stock exchange, asset acquisition or other similar
business combination with an operating business that has its primary operating
facilities located in the People's Republic of China in any city or province
south of the Yangtze River. It is anticipated that our initial public offering
will coincide with that of Chardan China III. Because we have a different
geographic focus than Chardan China III, we believe that our principals will not
have any conflict of interest in determining to which entity to present a
particular opportunity for a business combination.
1
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All of our principals are also principals of Chardan China Acquisition
Corp., a company formed in December 2003 for the purpose of effecting a merger,
capital stock exchange, asset acquisition or other similar business combination
with an operating business that has its primary operating facilities located in
the People's Republic of China. Chardan China Acquisition Corp. consummated its
initial public offering in March 2004 and in December 2004 entered into a
definitive agreement for a business combination with State Harvest Holdings
Limited, a British Virgin Islands corporation ("Origin"), and all of its
stockholders. Both we and Chardan China III have agreed that, unless and until
Chardan China Acquisition Corp. consummates a business combination or liquidates
prior thereto, neither will execute a letter of intent, agreement in principle
or definitive agreement for a business combination. If the business combination
between Chardan China Acquisition Corp. and Origin fails for any reason, our
principals will have a pre-existing fiduciary obligation to Chardan China
Acquisition Corp. and will offer it all suitable business opportunities prior to
offering it to us or Chardan China III.
Our principal executive offices are located at 625 Broadway, Suite 1111,
San Diego, California 92101 and our telephone number is (858) 847-9000.
2
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THE OFFERING
Securities offered:................... 5,000,000 units, at $6.00 per unit,
each unit consisting of:
o one share of common stock; and
o two warrants.
The units will begin trading on or
promptly after the date of this
prospectus. Each of the common stock
and warrants may trade separately on
the 90th day after the date of this
prospectus unless EarlyBirdCapital
determines that an earlier date is
acceptable, based upon its assessment
of the relative strengths of the
securities markets and small
capitalization companies in general,
and the trading pattern of, and demand
for, our securities in particular. In
no event will EarlyBirdCapital allow
separate trading of the common stock
and warrants 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, including an
audited balance sheet, upon 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 include proceeds
we receive from the exercise of the
over-allotment option if the
over-allotment option is exercised
prior to the filing of the Form 8-K.
If the over-allotment option is
exercised after our initial filing of
a Form 8-K, we will file an amendment
to the 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,
or amendment thereto, or in a
subsequent Form 8-K information
indicating if EarlyBirdCapital has
allowed separate trading of the common
stock and warrants prior to the 90th
day after the date of this prospectus.
Common stock:
Number outstanding before
this offering...................... 1,250,000 shares
Number to be outstanding
after this offering................ 6,250,000 shares
Warrants:
Number outstanding before
this offering...................... 0 warrants
Number to be outstanding
after this offering................ 10,000,000 warrants
3
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Exercisability..................... Each warrant is exercisable for one
share of common stock.
Exercise price..................... $5.00
Exercise period.................... The warrants will become exercisable
on the later of:
o the completion of a business
combination with a target
business, and
o [________], 2006 [ONE YEAR
FROM THE DATE OF THIS
PROSPECTUS].
The warrants will expire at 5:00
p.m., New York City time, on
[________], 2009 [FOUR YEARS FROM
THE DATE OF THIS PROSPECTUS] or
earlier upon redemption.
Redemption......................... We may redeem the outstanding
warrants (other than those purchased
by our directors and several
individuals affiliated with companies
they are associated with within the
40-trading day period following
separate trading of the warrants but
including any warrants issued upon
exercise of our unit purchase option):
o in whole and not in part,
o at a price of $.01 per warrant at any
time after the warrants become
exercisable,
o upon a minimum of 30 days' prior
written notice of redemption, and
o if, and only if, the last sale price
of our common stock equals or exceeds
$8.50 per share for any 20 trading
days within a 30-trading day period
ending three business days before we
send the notice of redemption.
The redemption criteria for our
warrants have been established at a
price which is intended to provide
warrantholders a reasonable premium
to the initial exercise price and
provide a sufficient degree of
liquidity to cushion the market
reaction to our redemption call.
4
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Proposed OTC Bulletin Board
symbols for our:
Units.............................. [______]
Common stock....................... [______]
Warrants........................... [______]
Offering proceeds to be held in
trust:................................ $25,835,000 of the proceeds of this
offering ($5.167 per unit) will be
placed in a trust account at Lehman
Brothers Inc. maintained by
Continental Stock Transfer & Trust
Company, acting as trustee pursuant
to an agreement to be signed on the
date of this prospectus. These
proceeds will not be released until
the earlier of the completion of a
business combination and our
liquidation. Therefore, unless and
until a business combination is
consummated, the proceeds held in the
trust fund 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. These expenses may be paid
prior to a business combination only
from the net proceeds of this
offering not held in the trust
account (initially, approximately
$965,000).
None of the warrants may be exercised
until after the consummation of a
business combination and, thus, after
the proceeds of the trust fund have
been disbursed. Accordingly, the
warrant exercise price will be paid
directly to us and not placed in the
trust account.
5
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Limited payments to insiders:......... There will be no fees or other cash
payments paid to our existing
stockholders, officers, directors or
their affiliates prior to, or for any
services they render in order to
effectuate, the consummation of a
business combination other than:
o repayment of an aggregate $80,000
non-interest bearing loan made by
Kerry Propper and Chardan Capital
Partners;
o payment of $7,500 per month to
Chardan Capital, LLC for office
space and related services; and
o 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.
Stockholders must approve
business combination:................. We will seek stockholder approval
before we effect any business
combination, even if the nature of
the acquisition would not ordinarily
require stockholder approval under
applicable state law. 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 the shares of common
stock owned by them immediately
before this offering in accordance
with the majority of the shares of
common stock voted by the public
stockholders. We will proceed with
a business combination only if (i) a
majority of the shares of common
stock voted by the public
stockholders are voted in favor of
the business combination and (ii)
public stockholders owning less than
20% of the shares sold in this
offering exercise their conversion
rights described below.
6
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Conversion rights for
stockholders voting to reject a
business combination:................. Public stockholders voting against a
business combination will be entitled
to convert their stock into a pro
rata share of the trust account,
including any interest earned on
their portion of the trust account,
if the business combination is approved
and completed. Our existing
stockholders will not have such
conversion rights with respect to the
shares of common stock owned by them
prior to this offering, but will have
such rights with respect to shares
purchased by them in the offering or
after market. Public stockholders who
convert their stock into their share of
the trust fund will continue to have
the right to exercise any warrants they
may hold.
Liquidation if no business
combination:.......................... We will dissolve and promptly
distribute only to our public
stockholders the amount in our trust
fund (including any accrued interest)
plus any remaining net assets if we
do not effect a business combination
within 18 months after consummation
of this offering (or within 24 months
from the consummation of this
offering if a letter of intent,
agreement in principle or definitive
agreement has been executed within 18
months after consummation of this
offering and the business combination
has not yet been consummated within
such 18 month period). All of our
officers and directors own shares of
our common stock, but have waived
their right to receive distributions
(other than with respect to common
stock underlying units they purchase
in this offering or common stock they
purchase in the after market) upon
our liquidation prior to a business
combination. We will pay the costs
of liquidation and dissolution from
our remaining assets outside of the
trust fund.
7
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Escrow of existing stockholders'
shares:............................... On the date of this prospectus, all
of our existing stockholders,
including all of our officers and
directors, will place the shares they
owned before this offering into an
escrow account maintained by
Continental Stock Transfer & Trust
Company, acting as escrow agent.
Subject to certain limited exceptions
(such as transfers to relatives and
trusts for estate planning purposes,
while remaining in escrow), these
shares will not be transferable
during the escrow period and will not
be released from escrow until
[________], 2008 [THREE YEARS FROM
THE DATE OF THIS PROSPECTUS].
RISKS
In making your decision on whether to invest in our securities, you should
take into account not only the risks of doing business in the PRC, but also the
special risks we face as a result of our principals' pre-existing fiduciary
obligations to Chardan China Acquisition Corp. You should also take into account
the fact that we are a blank check company and this offering is not being
conducted in compliance with Rule 419 promulgated under the Securities Act of
1933, as amended, and, therefore, you will not be entitled to protections
normally afforded to investors in Rule 419 blank check offerings. Additionally,
our initial security holders' initial equity investment is below that which is
required under the guidelines of the North American Securities Administrators'
Association, Inc. You should carefully consider these and the other risks set
forth in the section entitled "Risk Factors" beginning on page 10 of this
prospectus.
8
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SUMMARY FINANCIAL DATA
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 30, 2005
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ACTUAL AS ADJUSTED
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BALANCE SHEET DATA:
Working capital (deficiency)................ $(940) $26,824,060
Total assets................................ 104,960 26,824,060
Total liabilities........................... 80,900 --
Value of common stock which may be
converted to cash ($5.167 per share).... -- 5,164,417
Stockholders' equity........................ 24,060 21,659,643
The working capital deficiency excludes $25,000 of costs related to this
offering which were paid prior to April 30, 2005. These deferred offering costs
have been recorded as a long-term asset and are reclassified against
stockholders' equity in the "as adjusted" information.
The "as adjusted" information gives effect to the sale of the units we are
offering, including the application of the related gross proceeds and the
payment of the estimated remaining costs from such sale.
The working capital and total assets amounts include the $25,835,000 to be
held in the trust account, which will be available to us only upon the
consummation of a business combination within the time period described in this
prospectus. If a business combination is not so consummated, the trust account
will be distributed solely to our public stockholders.
We will not proceed with a business combination if either (i) the holders
of a majority of the common stock held by public stockholders attending the
meeting called to approve a business combination fail to vote in favor of such
combination or (ii) public stockholders owning 20% or more of the shares sold in
this offering both vote against the business combination and exercise their
conversion rights. Accordingly, if we have the requisite vote, we may effect a
business combination even if public stockholders owning up to approximately
19.99% of the shares sold in this offering exercise their conversion rights and
vote against the business combination. If this occurred, we would be required to
convert to cash up to approximately 19.99% of the 5,000,000 shares sold in this
offering, or 999,500 shares of common stock, at an initial per-share conversion
price of $5.167, without taking into account interest earned on the trust
account. The actual per-share conversion price will be equal to:
o the amount in the trust account, including all accrued interest, as
of two business days prior to the proposed consummation of the
business combination,
o divided by the number of shares of common stock sold in the
offering.
9
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RISK FACTORS
An investment in our securities involves a high degree of risk. You should
consider carefully all of the risks described below, together with the other
information contained in this prospectus, before making a decision to invest in
our units.
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 recently incorporated development stage company with no operating
results to date. Therefore, our ability to begin operations is dependent upon
obtaining financing through this 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 that has its primary operating facilities located in the PRC in any
city or province north of the Yangtze River. We have not conducted any
discussions and we have no plans, arrangements or understandings with any
prospective acquisition candidates. We have no present revenues and will not
generate any revenues until, at the earliest, after the consummation of a
business combination.
IF WE ARE FORCED TO LIQUIDATE BEFORE A BUSINESS COMBINATION AND DISTRIBUTE THE
TRUST ACCOUNT, OUR PUBLIC STOCKHOLDERS WILL RECEIVE LESS THAN $6.00 PER SHARE
AND OUR WARRANTS WILL EXPIRE WORTHLESS.
If we are unable to complete a business combination within the prescribed
time frames and are forced to liquidate our assets, the per-share liquidation
distribution will be less than $6.00 because of the expenses of this offering,
our general and administrative expenses and the anticipated costs of seeking a
business combination. Furthermore, there will be no distribution with respect to
our outstanding warrants which will expire worthless if we liquidate before the
completion of a business combination.
IF THE NET PROCEEDS OF THIS OFFERING NOT BEING PLACED IN TRUST IS INSUFFICIENT
TO ALLOW US TO OPERATE FOR AT LEAST THE NEXT 24 MONTHS, WE MAY BE UNABLE TO
COMPLETE A BUSINESS COMBINATION.
We believe that, upon consummation of this offering, the funds available
to us outside of the trust account 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. However, we cannot assure you that our estimates
will be accurate. We could use a portion of the funds not being placed in trust
to pay fees to consultants to assist us with our search for a target business.
Additionally, we could use a portion of the funds not being placed in trust as a
down payment or to fund a "no-shop" provision with respect to a particular
proposed business combination, although we do not have any current intention to
do so. If we did and were subsequently required to forfeit such funds (whether
as a result of our breach or otherwise), we might not have sufficient funds to
continue searching for, or conduct due diligence with respect to, a target
business.
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 its primary
operating facilities in the PRC 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, with the SEC
upon consummation of this offering 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.
Because we are not subject to Rule 419, our units will be immediately tradable,
and we have a longer period of time to complete a business combination in
certain circumstances than we would if we were subject to such rule.
10
BECAUSE THERE ARE NUMEROUS COMPANIES WITH A BUSINESS PLAN SIMILAR TO OURS
SEEKING TO EFFECTUATE A BUSINESS COMBINATION, IT MAY BE MORE DIFFICULT FOR US TO
DO SO.
Since August 2003, based on publicly available information, approximately
26 similarly structured blank check companies have completed initial public
offerings. Of these companies, only one company has consummated a business
combination, while three other companies have announced they have entered into a
definitive agreement for a business combination, but have not consummated such
business combination. Accordingly, there are approximately 25 blank check
companies with more than $1.09 billion in trust that are seeking to carry out a
business plan similar to our business plan. Furthermore, there are a number of
additional offerings that are still in the registration process but have not
completed initial public offerings and there are likely to be more blank check
companies filing registration statements for initial public offerings after the
date of this prospectus and prior to our completion of a business combination.
While some of those companies have specific industries that they must complete a
business combination in, a number of them may consummate a business combination
in any industry they choose. We may therefore be subject to competition from
these and other companies seeking to consummate a business plan similar to ours.
We cannot assure you that we will be able to successfully compete for an
attractive business combination. Additionally, because of this competition, we
cannot assure you that we will be able to effectuate a business combination
within the required time periods. If we are unable to find a suitable target
business within such time periods, we will be forced to liquidate.
IF THIRD PARTIES BRING CLAIMS AGAINST US, THE PROCEEDS HELD IN TRUST COULD BE
REDUCED AND THE PER-SHARE LIQUIDATION PRICE RECEIVED BY STOCKHOLDERS WILL BE
LESS THAN $5.167 PER SHARE.
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, prospective target
businesses or other entities we engage, 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, there is no guarantee
that they will execute such agreements. Nor is there any guarantee that such
entities will agree to waive any claims they may have in the future as a result
of, or arising out of, any negotiations, contracts or agreements with us and
will not seek recourse against the trust account for any reason. Accordingly,
the proceeds held in trust could be subject to claims which could take priority
over the claims of our public stockholders. We cannot assure you that the
per-share distribution from the trust fund will not be less than $5.167, plus
interest, due to claims of such creditors. If we liquidate before the completion
of a business combination and distribute the proceeds held in trust to our
public stockholders, our directors and several individuals affiliated with
companies they are associated with have severally agreed that they will be
personally liable to ensure that the proceeds in the trust fund are not reduced
by the claims of target businesses,various vendors or other entities that are
owed money by us for services rendered or contracted for or products sold to us.
However, we cannot assure you that these individuals will be able to satisfy
those obligations.
11
SINCE WE HAVE NOT YET SELECTED ANY TARGET BUSINESS WITH WHICH TO COMPLETE A
BUSINESS COMBINATION AND ARE NOT LIMITED TO ANY PARTICULAR INDUSTRY, WE ARE
UNABLE TO CURRENTLY ASCERTAIN THE MERITS OR RISKS OF THE BUSINESS' OPERATIONS.
Because we have not yet identified a prospective target business and are
not limited to any particular industry, investors in this offering have no
current basis 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 adversely affected by the
currently unascertained risks of that industry. 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 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. Subject to the limitations that a target business have its primary
operating facilities located in the PRC in any province or city north of the
Yangtze River and have a fair market value of at least 80% of our net assets at
the time of the acquisition, we will have virtually unrestricted flexibility in
identifying and selecting a prospective acquisition candidate.
WE MAY ISSUE SHARES OF OUR CAPITAL STOCK 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 amended and restated certificate of incorporation authorizes the
issuance of up to 20,000,000 shares of common stock, par value $.0001 per share,
and 1,000,000 shares of preferred stock, par value $.0001 per share. Immediately
after this offering (assuming no exercise of the underwriters' over-allotment
option), there will be 3,000,000 authorized but unissued shares of our common
stock available for issuance (after appropriate reservation for the issuance of
shares upon full exercise of our outstanding warrants and the purchase option
granted to EarlyBirdCapital, the representative of the underwriters) and all of
the 1,000,000 shares of preferred stock available for issuance. Although we have
no commitments as of the date of this offering to issue our securities, we will,
in all likelihood, issue a substantial number of additional shares of our common
stock or preferred stock, or a combination of common and preferred stock, to
complete a business combination. The issuance of additional shares of our common
stock or any number of shares of our preferred stock:
o may significantly reduce the equity interest of investors in this
offering;
o may subordinate the rights of holders of common stock if preferred
stock is issued with rights senior to those afforded to our common
stock;
o 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 also result in the resignation or removal of
our present officers and directors; and
12
o may adversely affect prevailing market prices for our common stock.
Similarly, if we issue debt securities, it could result in:
o default and foreclosure on our assets if our operating revenues
after a business combination are insufficient to pay our debt
obligations;
o 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 require the maintenance of certain
financial ratios or reserves and any such covenant is breached
without a waiver or renegotiation of that covenant;
o our immediate payment of all principal and accrued interest, if any,
if the debt security is payable on demand; and
o 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.
OUR ABILITY TO SUCCESSFULLY EFFECT A BUSINESS COMBINATION AND TO BE SUCCESSFUL
AFTERWARDS WILL BE TOTALLY DEPENDENT UPON THE EFFORTS OF OUR KEY PERSONNEL, SOME
OF WHOM MAY JOIN US FOLLOWING A BUSINESS COMBINATION.
Our ability to successfully effect a business combination will be totally
dependent upon the efforts of our key personnel. The future role of our key
personnel in the target business, however, cannot presently be ascertained.
Although it is possible that some or all of our key personnel such as Richard D.
Propper, M.D., Jiangnan Huang, Kerry Propper and Li Zhang will remain associated
in senior management or advisory positions with the target business following a
business combination, it is likely that the management of the target business at
the time of the business combination will remain in place. Moreover, our
management will 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, the terms of which,
including the compensation to be paid to such individuals, would be determined
at such time between the respective parties. However, the ability of our key
personnel 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. 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.
13
OUR OFFICERS AND DIRECTORS WILL ALLOCATE THEIR TIME TO OTHER BUSINESSES, THEREBY
CAUSING CONFLICTS OF INTEREST IN THEIR DETERMINATION AS TO HOW MUCH TIME TO
DEVOTE TO OUR AFFAIRS. THIS CONFLICT OF INTEREST COULD HAVE A NEGATIVE IMPACT ON
OUR ABILITY TO CONSUMMATE A BUSINESS COMBINATION.
Our officers and directors are not required to commit their full time to
our affairs, which may result in a conflict of interest in allocating their time
between our operations and other businesses. We do not intend to have any full
time employees prior to the consummation of a business combination. All of our
executive officers are engaged in several other business endeavors, including
Chardan China Acquisition Corp. and Chardan China III, and are not obligated to
contribute any specific number of hours to our affairs. If our executive
officers' 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 a business
combination. We cannot assure you that these conflicts will be resolved in our
favor.
OUR OFFICERS, DIRECTORS AND THEIR AFFILIATES ARE NOW, AND MAY IN THE FUTURE
BECOME, AFFILIATED WITH ENTITIES ENGAGED IN BUSINESS ACTIVITIES SIMILAR TO THOSE
INTENDED TO BE CONDUCTED BY US AND ACCORDINGLY, MAY HAVE CONFLICTS OF INTEREST
IN DETERMINING TO WHICH ENTITY A PARTICULAR BUSINESS OPPORTUNITY SHOULD BE
PRESENTED.
Our officers and directors are now and 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 us. Each of our officers
and directors are principals of Chardan China Acquisition Corp. and Chardan
China III. Unless and until Chardan China Acquisition Corp. consummates a
business combination or liquidates prior thereto, our principals will be
required to offer all suitable business opportunities for a business combination
to Chardan China Acquisition Corp. prior to presenting it to us and we have
agreed that we will not execute a letter of intent, agreement in principle or
definitive agreement for a business combination until Chardan China Acquisition
Corp. consummates a business combination. Accordingly, they may have conflicts
of interest in presenting business opportunities to us and other entities.
ALL OF OUR OFFICERS AND DIRECTORS OWN SHARES OF OUR COMMON STOCK WHICH WILL NOT
PARTICIPATE IN LIQUIDATION DISTRIBUTIONS AND THEREFORE THEY MAY HAVE A CONFLICT
OF INTEREST IN DETERMINING WHETHER A PARTICULAR TARGET BUSINESS IS APPROPRIATE
FOR A BUSINESS COMBINATION.
All of our officers and directors own shares of our common stock that were
issued prior to this offering, but have waived their right to receive
distributions with respect to those shares upon our liquidation if we are unable
to consummate a business combination. Additionally, our directors have agreed
with the representative of the underwriters that they and certain of their
affiliates or designees will purchase up to 1,000,000 warrants in the open
market at prices not to exceed $0.75 per warrant during the first 40 trading
days following separate trading of the warrants. The shares acquired prior to
this offering and any warrants owned by our directors and officers will be
worthless if we do not consummate a business combination. The personal and
financial interests of our directors and officers may influence their motivation
in identifying and selecting a target business and completing a business
combination timely. Consequently, our directors' and officers' discretion in
identifying and selecting a suitable target business may result in a conflict of
interest when determining whether the terms, conditions and timing of a
particular business combination are appropriate and in our stockholders' best
interest.
14
IF OUR COMMON STOCK BECOMES SUBJECT TO THE SEC'S PENNY STOCK RULES,
BROKER-DEALERS MAY EXPERIENCE DIFFICULTY IN COMPLETING CUSTOMER TRANSACTIONS AND
TRADING ACTIVITY IN OUR SECURITIES MAY BE ADVERSELY AFFECTED.
If at any time we have net tangible assets of $5,000,000 or less and our
common stock has a market price per share of less than $5.00, transactions in
our common stock may be subject to the "penny stock" rules promulgated under the
Securities Exchange Act of 1934. Under these rules, broker-dealers who recommend
such securities to persons other than institutional accredited investors must:
o make a special written suitability determination for the purchaser;
o receive the purchaser's written agreement to the transaction prior
to sale;
o provide the purchaser with risk disclosure documents which identify
certain risks associated with investing in "penny stocks" and which
describe the market for these "penny stocks" as well as a
purchaser's legal remedies; and
o obtain a signed and dated acknowledgment from the purchaser
demonstrating that the purchaser has actually received the required
risk disclosure document before a transaction in a "penny stock" can
be completed.
If our common stock becomes subject to these rules, broker-dealers may
find it difficult to effectuate customer transactions and trading activity in
our securities may be adversely affected. As a result, the market price of our
securities may be depressed, and you may find it more difficult to sell our
securities.
INITIALLY, WE WILL ONLY BE ABLE TO COMPLETE ONE BUSINESS COMBINATION, WHICH WILL
CAUSE US TO BE SOLELY DEPENDENT ON A SINGLE BUSINESS AND A LIMITED NUMBER OF
PRODUCTS OR SERVICES.
The net proceeds from this offering will provide us with only
approximately $26,800,000 which we may use to complete a business combination.
Our initial business combination must be with a business with a fair market
value of at least 80% of our net assets at the time of such acquisition.
Consequently, initially it is probable that we will have the ability to complete
a business combination with only a single operating business. Accordingly, the
prospects for our success may be:
15
o solely dependent upon the performance of a single business, or
o dependent upon the development or market acceptance of a single or
limited number of products, processes or services.
In this case, we will 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.
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.
When we seek stockholder approval of any business combination, we will
offer each public stockholder the right to have his, her or its shares of common
stock converted to cash if the stockholder votes against the business
combination and the business combination is approved and completed. Such holder
must both vote against such business combination and then exercise his, her or
its conversion rights to receive a pro rata portion of the trust fund.
Accordingly, 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 such conversion rights, we may either need to reserve
part of the trust fund for possible payment upon such conversion, or we may need
to arrange third party financing to help fund our business combination in case a
larger percentage of stockholders exercise their conversion rights than we
expect. Therefore, we may not be able to consummate a business combination that
requires us to use all of the funds held in the trust account as part of the
purchase price, or we may end up having a leverage ratio that is not optimal for
our business combination. This may limit our ability to effectuate the most
attractive business combination available to us.
BECAUSE OF OUR LIMITED RESOURCES AND THE SIGNIFICANT COMPETITION FOR BUSINESS
COMBINATION OPPORTUNITIES, WE MAY NOT BE ABLE TO CONSUMMATE AN ATTRACTIVE
BUSINESS COMBINATION.
We expect to encounter intense competition from other entities having a
business objective similar to ours, including venture capital funds, leveraged
buyout funds and operating businesses competing for acquisitions in the PRC.
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 businesses. Further, the obligation we have to
seek stockholder approval of a business combination may delay the consummation
of a transaction. Additionally, our outstanding warrants, and the future
dilution they potentially represent, may not be viewed favorably by certain
target businesses. Any of these obligations may place us at a competitive
disadvantage in successfully negotiating a business combination.
16
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, in as much as 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 or the depletion of the available net proceeds in search of a target
business, or because we become obligated to convert into cash a significant
number of shares from dissenting stockholders, we will be required to seek
additional financing. We cannot assure you that such financing would 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 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 EXISTING STOCKHOLDERS, INCLUDING OUR OFFICERS AND DIRECTORS, CONTROL A
SUBSTANTIAL INTEREST IN US AND THUS MAY INFLUENCE CERTAIN ACTIONS REQUIRING A
STOCKHOLDER VOTE.
Upon consummation of our offering, our existing stockholders (including
all of our officers and directors) will collectively own 20% of our issued and
outstanding shares of common stock (assuming they do not purchase units in this
offering). None of our existing stockholders, officers and directors has
indicated to us that he intends to purchase our securities in the offering. 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. It is unlikely that there will be an annual meeting of
stockholders to elect new directors prior to the consummation of a business
combination, in which case all of the current directors will continue in office
at least until the consummation of the business combination. If there is an
annual meeting, as a consequence of our "staggered" board of directors, only a
minority of the board of directors will be considered for election and our
existing stockholders, because of their ownership position, will have
considerable influence regarding the outcome. Accordingly, our existing
stockholders will continue to exert control at least until the consummation of a
business combination. In addition, our existing stockholders and their
affiliates and relatives are not prohibited from purchasing units in this
offering or shares in the aftermarket. If they do, we cannot assure you that our
existing stockholders will not have considerable influence upon the vote in
connection with a business combination.
17
OUR EXISTING STOCKHOLDERS PAID AN AGGREGATE OF $25,000, OR $0.02 PER SHARE, FOR
THEIR SHARES AND, ACCORDINGLY, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION FROM THE PURCHASE OF OUR COMMON STOCK.
The difference between the public offering price per share and the pro
forma net tangible book value per share of our common stock after this offering
constitutes the dilution to you and the other investors in this offering. The
fact that our existing stockholders acquired their shares of common stock at a
nominal price has significantly contributed to this dilution. Assuming the
offering is completed, you and the other new investors will incur an immediate
and substantial dilution of approximately 31.17% or $1.87 per share (the
difference between the pro forma net tangible book value per share of $4.13, and
the initial offering price of $6.00 per unit).
OUR OUTSTANDING WARRANTS AND OPTION MAY HAVE AN ADVERSE EFFECT ON THE MARKET
PRICE OF OUR COMMON STOCK AND MAKE IT MORE DIFFICULT TO EFFECT A BUSINESS
COMBINATION.
In connection with this offering, as part of the units, we will be issuing
warrants to purchase 10,000,000 shares of common stock. We will also issue an
option to purchase 250,000 units to the representative of the underwriters
which, if exercised, will result in the issuance of an additional 500,000
warrants. To the extent we issue shares of common stock to effect a business
combination, the potential for the issuance of substantial numbers of additional
shares upon exercise of these warrants and option could make us a less
attractive acquisition vehicle in the eyes of a target business as such
securities, when exercised, will increase the number of issued and outstanding
shares of our common stock and reduce the value of the shares issued to complete
the business combination. Additionally, we have agreed that warrants purchased
by our directors and several individuals affiliated with companies they are
associated with at prices not to exceed $0.75 per warrant during the 40-trading
day period following separate trading of the warrants shall not be redeemable by
us as long as such warrants continue to be held by such individuals or their
affiliates. Accordingly, our warrants and option may make it more difficult to
effectuate a business combination or increase the cost of the target business.
Additionally, the sale, or even the possibility of sale, of the shares
underlying the warrants and option could have an adverse effect on the market
price for our securities or on our ability to obtain future financing. If and to
the extent these warrants and option are exercised, you may experience dilution
to your holdings.
IF OUR EXISTING STOCKHOLDERS EXERCISE THEIR REGISTRATION RIGHTS, IT MAY HAVE AN
ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK AND THE EXISTENCE OF
THESE RIGHTS MAY MAKE IT MORE DIFFICULT TO EFFECT A BUSINESS COMBINATION.
Our existing stockholders are entitled to make a demand that we register
the resale of their shares of common stock at any time commencing three months
prior to the date on which their shares are released from escrow. If our
existing stockholders exercise their registration rights with respect to all of
their shares of common stock, then there will be an additional 1,000,000 shares
of common stock eligible for trading in the public market. The presence of this
additional number of shares of common stock eligible for trading in the public
market may have an adverse effect on the market price of our common stock. 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
as a result of these registration rights and the potential future effect their
exercise may have on the trading market for our common stock.
18
IF YOU ARE NOT AN INSTITUTIONAL INVESTOR, YOU MAY PURCHASE OUR SECURITIES IN
THIS OFFERING ONLY IF YOU RESIDE WITHIN CERTAIN STATES AND MAY ENGAGE IN RESALE
TRANSACTIONS ONLY IN THOSE STATES AND A LIMITED NUMBER OF OTHER JURISDICTIONS.
We have applied to register our securities, or have obtained or will seek
to obtain an exemption from registration, in Colorado, Delaware, the District of
Columbia, Florida, Hawaii, Illinois, Indiana, Maryland, New York and Rhode
Island. If you are not an "institutional investor," you must be a resident of
these jurisdictions to purchase our securities in the offering. Institutional
investors in every state, except Idaho, may purchase units in this offering
pursuant to exemptions provided to such entities under the Blue Sky laws of
various states. The definition of an "institutional investor" varies from state
to state but generally includes financial institutions, broker-dealers, banks,
insurance companies and other qualified entities. In order to prevent resale
transactions in violation of states' securities laws, you may engage in resale
transactions only in the states referred to in the first sentence of this
paragraph, if you are not an institutional investor, and in all states, other
than Idaho. If you are an institutional investor, you may resell your shares in
other jurisdictions in which an applicable exemption is available or a Blue Sky
application has been filed and accepted. This restriction on resale may limit
your ability to resell the securities purchased in this offering and may impact
the price of our securities.
19
THE REPRESENTATIVE OF THE UNDERWRITERS IN THE OFFERING WILL NOT MAKE A MARKET
FOR OUR SECURITIES WHICH COULD ADVERSELY AFFECT THE LIQUIDITY AND PRICE OF OUR
SECURITIES.
EarlyBirdCapital, the representative of the underwriters in this offering,
does not make markets in securities and will not be making a market in our
securities. EarlyBirdCapital not acting as a market maker for our securities may
adversely impact the liquidity of our securities.
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.
If we are 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:
o restrictions on the nature of our investments; and
o restrictions on the issuance of securities.
In addition, we may have imposed upon us burdensome requirements,
including:
o registration as an investment company;
o adoption of a specific form of corporate structure; and
o reporting, record keeping, voting, proxy, compliance policies and
procedures and disclosure requirements and other rules and
regulations.
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
only be invested by the trust agent in United States "government securities"
within the meaning of Section 2(a)(16) of the Investment Company Act of 1940
having a maturity of 180 days or less. 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. If we were deemed to be subject to that act, compliance with these
additional regulatory burdens would require additional expense for which we have
not allotted.
WE DO NOT HAVE ANY "INDEPENDENT" DIRECTORS AND WILL GENERALLY NOT HAVE THE
BENEFIT OF INDEPENDENT DIRECTORS EXAMINING OUR FINANCIAL STATEMENTS AND THE
PROPRIETY OF EXPENSES INCURRED ON OUR BEHALF AND SUBJECT TO REIMBURSEMENT.
All of our directors are also executive officers of ours. However, no
salary or other compensation will be paid to our officers and directors for
services rendered by them on our behalf prior to or in connection with a
business combination. Nevertheless, we will not have the benefit of any
independent directors sitting on an audit committee to review our financial
statements or examining the propriety of expenses incurred on our behalf and
subject to reimbursement. There is no limit on the amount of out-of-pocket
expenses that could be incurred and there will be no review of the
reasonableness of the expenses by anyone other than our board of directors,
which would include persons who may seek reimbursement, or a court of competent
jurisdiction if such reimbursement is challenged. Although we believe that all
actions taken by our directors on our behalf will be in our best interests
whether or not they are deemed to be "independent," we cannot assure you that
this will actually be the case. If actions are taken, or expenses are incurred
that are actually not in our best interests, it could have a material adverse
effect on our business and operations and the price of our securities.
20
BECAUSE OUR INITIAL STOCKHOLDERS' INITIAL EQUITY INVESTMENT WAS ONLY $25,000,
OUR OFFERING MAY BE DISALLOWED BY STATE ADMINISTRATORS THAT FOLLOW THE NORTH
AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION, INC. STATEMENT OF POLICY ON
DEVELOPMENT STAGE COMPANIES.
Pursuant to the Statement of Policy Regarding Promoter's Equity Investment
promulgated by The North American Securities Administrators Association, Inc.,
an international organization devoted to investor protection, any state
administrator may disallow an offering of a development stage company if the
initial equity investment by a company's promoters does not equal a certain
percentage of the aggregate public offering price. Our promoters' initial
investment of $25,000 is less than the required $860,000 minimum amount pursuant
to this policy. Accordingly, a state administrator would have the discretion to
disallow our offering if it wanted to. We cannot assure you that our offering
would not be disallowed pursuant to this policy. Additionally, if we are unable
to complete a business combination, our promoters will lose their entire
initial investment. Conversely, if we are able to complete a business
combination, the shares of common stock acquired prior to this offering will be
worth significantly more than $25,000.
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 and the terms of the warrants
were negotiated between us and the representatives. Factors considered in
determining the prices and terms of the units, including the common stock and
warrants underlying the units, include:
o the history and prospects of companies whose principal business
is the acquisition of other companies;
o prior offerings of those companies;
o our prospects for acquiring an operating business at attractive
values;
o our capital structure;
o an assessment of our management and their experience in
identifying operating companies;
o general conditions of the securities markets at the time of the
offering; and
o 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 underwriters are unable to compare
our financial results and prospects with those of public companies operating in
the same industry.
RISKS ASSOCIATED WITH OUR ACQUISITION OF A TARGET BUSINESS IN THE PRC
ADVERSE CHANGES IN ECONOMIC POLICIES OF THE CHINESE GOVERNMENT COULD HAVE A
MATERIAL ADVERSE EFFECT ON THE OVERALL ECONOMIC GROWTH OF CHINA, WHICH COULD
REDUCE THE DEMAND FOR PRODUCTS WE ULTIMATELY PRODUCE OR SELL FOLLOWING A
BUSINESS COMBINATION.
Since the late 1970's, the Chinese government has been reforming the
economic system in China. These reforms have resulted in significant economic
growth. However, we cannot predict the future direction of economic reforms or
the effects such measures may have on our future business following a business
combination. Any adverse change in the economic conditions in China, in policies
of the Chinese government or in laws and regulations in China, could have a
material adverse effect on the overall economic growth of China and the
development of the target business.
IF RELATIONS BETWEEN THE UNITED STATES AND THE PRC DETERIORATE, IT COULD CAUSE
POTENTIAL TARGET BUSINESSES OR THEIR GOODS OR SERVICES TO BECOME LESS
ATTRACTIVE.
The relationship between the United States and the PRC is subject to
sudden fluctuation and periodic tension. For instance, the United States
recently announced its intention to impose new short-term quotas on Chinese
clothing imports, which may be extended for several years. Such import quotas
may adversely affect political relations between the two countries and result in
retaliatory countermeasures by the PRC in industries that may affect our
ultimate target business. Relations may also be compromised if the U.S. becomes
a more vocal advocate of Taiwan or proceeds to sell certain military weapons and
technology to Taiwan. Changes in political conditions in the PRC and changes in
the state of Sino-U.S. relations are difficult to predict and could adversely
affect our operations or cause potential target businesses or their goods and
services to become less attractive. Because we are not limited to any specific
industry, there is no basis for investors in this offering to evaluate the
possible extent of any impact on our ultimate operations if relations are
strained between the PRC and the United States.
21
IF THE PRC IMPOSES RESTRICTIONS TO REDUCE INFLATION, FUTURE ECONOMIC GROWTH IN
THE PRC COULD BE SEVERELY CURTAILED, WHICH COULD LEAD TO A SIGNIFICANT DECREASE
IN OUR PROFITABILITY FOLLOWING A BUSINESS COMBINATION.
While the economy of the PRC has experienced rapid growth, this growth has
been uneven among various sectors of the economy and in different geographical
areas of the country. Rapid economic growth can lead to growth in the supply of
money and rising inflation. If prices for the products of our ultimate target
business rise at a rate that is insufficient to compensate for the rise in the
costs of supplies, it may have an adverse effect on profitability. In order to
control inflation in the past, the PRC has imposed controls on bank credits,
limits on loans for fixed assets and restrictions on state bank lending. If
similar restrictions are imposed, it may lead to a slowing of economic growth.
Because we are not limited to any specific industry, the ultimate industry that
we operate in may be affected more severely by such a slowing of economic
growth.
ANY DEVALUATION OF CURRENCIES USED IN THE PRC COULD NEGATIVELY IMPACT OUR TARGET
BUSINESS' RESULTS OF OPERATIONS AND CAUSE THE COST OF A TARGET BUSINESS AS
MEASURED IN DOLLARS TO INCREASE.
Because our objective is to acquire a target business having its primary
operating facilities located in the PRC, and because substantially all revenues
and income would be received in a foreign currency such as Renminbi, the main
currency used in the PRC, the dollar equivalent of our net assets and
distributions, if any, would be adversely affected by reductions in the value of
the Renminbi. The value of the Renminbi fluctuates and is affected by, among
other things, changes in the PRC's political and economic conditions. The
conversion of Renminbi into foreign currencies such as the dollar has been
generally based on rates set by the People's Bank of China, which are set daily
based on the previous day's interbank foreign exchange market rates and current
exchange rates on the world financial markets. The official exchange rate had
remained stable over the past several years. However, China recently adopted a
floating rate with respect to the Renminbi, with a 0.3% fluctuation. As a
result, the exchange rate of the Renminbi recently rose to 8.11 against the
dollar, amounting to a 2% appreciation of the Renminbi. This floating exchange
rate, and any appreciation of the Renminbi that may result from such rate, could
cause the cost of a target business as measured in dollars to increase.
BECAUSE CHINESE LAW WILL GOVERN ALMOST ALL OF ANY TARGET BUSINESS MATERIAL
AGREEMENTS, WE MAY NOT BE ABLE TO ENFORCE OUR RIGHTS WITHIN THE PRC OR
ELSEWHERE, WHICH COULD RESULT IN A SIGNIFICANT LOSS OF BUSINESS, BUSINESS
OPPORTUNITIES OR CAPITAL.
Chinese law will govern almost all of our target business' material
agreements, many of which may be with Chinese governmental agencies. We cannot
assure you that the target business will be able to enforce any of its material
agreements or that remedies will be available outside of the PRC. The system of
laws and the enforcement of existing laws in the PRC may not be as certain in
implementation and interpretation as in the United States. The Chinese judiciary
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. 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.
22
Additionally, after the consummation of a business combination, it is
likely that substantially all of our assets will be located outside of the
United States and some of our officers and directors may reside outside of the
United States. As a result, 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. Moreover, we have been advised that the PRC does
not have treaties providing for the reciprocal recognition and enforcement of
judgments of courts with the United States. Further, it is unclear if
extradition treaties now in effect between the United States and the PRC would
permit effective enforcement of criminal penalties of the Federal securities
laws.
MANY INDUSTRIES IN CHINA ARE SUBJECT TO GOVERNMENT REGULATIONS THAT LIMIT OR
PROHIBIT FOREIGN INVESTMENTS IN SUCH INDUSTRIES, WHICH MAY LIMIT THE POTENTIAL
NUMBER OF ACQUISITION CANDIDATES.
The Chinese government has imposed regulations in various industries that
would limit foreign investors' equity ownership or prohibit foreign investments
altogether in companies that operate in such industries. As a result, the number
of potential acquisition candidates available to us may be limited.
RECENT CHANGES IN THE PRC'S CURRENCY POLICIES MAY CAUSE A TARGET BUSINESS'
ABILITY TO SUCCEED IN THE INTERNATIONAL MARKETS TO BE DIMINISHED.
Historically, the PRC "pegged" its currency to the United States dollar.
This meant that each unit of Chinese currency had a set ratio for which it could
be exchanged for United States currency, as opposed to having a floating value
like other countries' currencies. Many countries argued that this system of
keeping the Chinese currency low when compared to other countries gave Chinese
companies an unfair price advantage over foreign companies. Due to mounting
pressure from outside countries, the PRC recently reformed its economic policies
to establish a floating value. As a result of this policy reform, target
companies may be adversely affected since the competitive advantages that
existed as a result of the former policies will cease. We cannot assure you that
a target business with which we consummate a business combination will be able
to compete effectively with the new policies in place.
23
BECAUSE ANY TARGET BUSINESS THAT WE ATTEMPT TO COMPLETE A BUSINESS COMBINATION
WITH WILL BE REQUIRED TO PROVIDE OUR STOCKHOLDERS WITH FINANCIAL STATEMENTS
PREPARED IN ACCORDANCE WITH AND RECONCILED TO UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, PROSPECTIVE TARGET BUSINESSES MAY BE LIMITED.
In accordance with requirements of United States federal securities laws,
in order to seek stockholder approval of a business combination, a proposed
target business will be required to have certain financial statements which are
prepared in accordance with, or which can be reconciled to, United States
generally accepted accounting principles and audited in accordance with United
States generally accepted auditing standards. To the extent that a prospective
target business does not have financial statements which have been prepared
with, or which can be reconciled to, United States generally accepted accounting
standards, and audited in accordance with United States generally accepted
auditing standards, we will not be able to acquire such target business. These
financial statement requirements may limit the pool of potential target
businesses which we may acquire.
RECENT PRC REGULATIONS RELATING TO ACQUISITIONS OF PRC COMPANIES BY FOREIGN
ENTITIES MAY LIMIT OR ADVERSELY EFFECT OUR ABILITY TO ACQUIRE PRC COMPANIES.
Regulations were recently promulgated by the PRC State Development and
Reform Commission, or SDRC, and the PRC SAFE, that will require registrations
with, and approvals from, PRC government authorities in connection with direct
or indirect offshore investment activities by PRC residents and PRC corporate
entities. If an offshore company controlled by PRC residents intends to acquire
a PRC company, such acquisition will be subject to strict examination by the
relevant foreign exchange authorities. The regulations also state that the
approval of the relevant foreign exchange authorities is required for any sale
or transfer by the PRC residents of a PRC company's assets or equity interests
to foreign entities, such as us, for equity interests or assets of the foreign
entities.
If a PRC shareholder with a direct or indirect stake in an offshore parent
company fails to make the required SAFE registration, the PRC subsidiaries of
such offshore parent company may be prohibited from making distributions of
profit to the offshore parent and from paying the offshore parent proceeds from
any reduction in capital, share transfer or liquidation in respect of the PRC
subsidiaries. Further, failure to comply with the various SAFE registration
requirements described above could result in liability under PRC law for foreign
exchange evasion.
As a result of the foregoing, we cannot assure you that we or the owners
of the target business we intend to acquire, as the case may be, will be able to
complete the necessary approval, filings and registrations for a proposed
business combination. This may restrict our ability to implement our acquisition
strategy and adversely affect our operations.
IF WE DETERMINE TO CHANGE DOMICILES IN CONNECTION WITH A BUSINESS COMBINATION,
THE NEW JURISDICTION'S LAWS WILL LIKELY GOVERN ALL OF OUR MATERIAL AGREEMENTS
AND WE MAY NOT BE ABLE TO ENFORCE OUR LEGAL RIGHTS.
In connection with a business combination, we may determine to relocate
the home jurisdiction of our business from Delaware to a jurisdiction outside of
the United States, including China. If we determine to do this, the new
jurisdiction's corporate law will control our corporate governance requirements
and will determine the rights of our stockholders. The new jurisdiction's
corporate law may provide less protection to our stockholders than is afforded
by Delaware law. In addition, upon reincorporation, we may become a "foreign
private issuer" for purposes of United States securities laws, which means that
we may be subject to less stringent reporting requirements and that some
provisions of the United States securities laws (such as the proxy rules and the
short-swing trading rules) would not apply to us. In addition, if we were to
relocate to a foreign jurisdiction, whether or not we reincorporate outside the
United States, the new jurisdiction's laws will likely govern all of our
material agreements. We cannot assure you that the system of laws and the
enforcement of existing laws in such jurisdiction would 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 in a new
jurisdiction could result in a significant loss of business, business
opportunities or capital. Any such reincorporation will likely subject us to
foreign regulation, including foreign taxation.
24
USE OF PROCEEDS
We estimate that the net proceeds of this offering will be as set forth in
the following table:
Without Over- Over-Allotment
llotment Option Option Exercised
--------------- ----------------
Gross proceeds.................................................. $30,000,000.00 $34,500,000.00
Offering expenses(1)
Underwriting discount (8% of gross proceeds)................. 2,400,000.00 2,760,000.00
Underwriting non-accountable expense allowance
(1% of gross proceeds)................................. 300,000.00 300,000.00
Legal fees and expenses (including blue sky services
and expenses).......................................... 350,000.00 350,000.00
Miscellaneous expenses....................................... 43,339.54 43,339.54
Printing and engraving expenses.............................. 60,000.00 60,000.00
Accounting fees and expenses................................. 25,000.00 25,000.00
SEC registration fee......................................... 11,440.45 11,440.45
NASD registration fee........................................ 10,220.01 10,220.01
Net proceeds
Held in trust................................................ 25,835,000.00 29,835,000.00
Not held in trust............................................ 965,000.00 1,105,000.00
-------------- --------------
Total net proceeds..................................... $26,800,000.00 $30,940,000.00
============== ==============
Use of net proceeds not held in trust
Payment of administrative fee to Chardan
Capital, LLC ($7,500 per month for two years) .......... $180,000 (18.7%) $ 180,000 (16.3%)
Legal, accounting and other expenses attendant to
the due diligence investigations, structuring and
negotiation of a business combination .................. 150,000 (15.5%) 150,000 (13.6%)
Due diligence of prospective target businesses .............. 50,000 (5.2%) 50,000 (4.5%)
Legal and accounting fees relating to SEC reporting
obligations ............................................ 40,000 (4.1%) 40,000 (3.6%)
Working capital to cover miscellaneous expenses,
D&O insurance and reserves ............................. 545,000 (56.5%) 685,000 (62.0%)
-------- ------ ---------- --------
Total .............................................. $965,000 (100.0%) $1,105,000 (100.0%)
======== ====== ========== ========
- ----------
(1) A portion of the offering expenses have been paid from the funds we
received from Kerry Propper and Chardan Capital Partners described below.
These funds will be repaid out of the proceeds of this offering not being
placed in trust upon consummation of this offering.
$25,835,000, or $29,835,000 if the underwriters' over-allotment option is
exercised in full, of net proceeds will be placed in a trust account at Lehman
Brothers Inc. maintained by Continental Stock Transfer & Trust Company, New
York, New York, as trustee. 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.
25
The payment to Chardan Capital, LLC, an affiliate of Dr. Richard D.
Propper, our chairman of the board, Li Zhang, our chief executive officer, and
Jiangnan Huang, our executive vice president, of a monthly fee of $7,500 is for
general and administrative services including office space, utilities and
secretarial support. Chardan Capital, LLC will also be paid a similar monthly
fee of $7,500 for general and administrative services to be used by Chardan
China III. This arrangement is being agreed to by Chardan Capital, LLC for our
benefit and is not intended to provide Dr. Propper and Messrs. Zhang and Huang
compensation in lieu of a salary. We believe, based on rents and fees for
similar services in the San Diego metropolitan area, that the fee charged by
Chardan Capital, LLC is at least as favorable as we could have obtained from an
unaffiliated person. Upon completion of a business combination or the
distribution of the trust account to our public stockholders, we will no longer
be required to pay this monthly fee.
We intend to use the excess working capital (approximately $545,000, or
$685,000 if the over-allotment option is exercised in full) for director and
officer liability insurance premiums (approximately $80,000), with the balance
of $465,000, or $605,000 if the over-allotment option is exercised in full,
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 existing stockholders in connection with activities on our behalf as
described below. We believe that the excess working capital will be sufficient
to cover the foregoing expenses and reimbursement costs. We could use a portion
of the funds not being placed in trust to pay fees to consultants to assist us
with our search for a target business. Although we do not have any current
intention to do so, we could also use a portion of the funds not being placed in
trust as a down payment or to fund a "no-shop" provision with respect to a
particular proposed business combination. If we did, the amount that would be
used as a down payment or to fund a "no-shop" provision would be determined
based on the terms of the specific business combination and the amount of our
available funds at the time. Forfeiture of such funds (whether as a result of
our breach or otherwise) could result in our not having sufficient funds to
continue searching for, or conducting due diligence with respect to, potential
target businesses.
To the extent that our capital stock is used in whole or in part as
consideration to effect a business combination, the proceeds held in the trust
account as well as any other net proceeds not expended will be used to finance
the operations of the target business.
Kerry Propper, our chief financial officer, secretary and director, and
Chardan Capital Partners, one of our stockholders, have advanced to us a total
of $80,000 which was used to pay a portion of the expenses of this offering
referenced in the line items above for SEC registration fee, NASD registration
fee and legal and audit fees and expenses. The loans will be payable without
interest on the earlier of April 11, 2006 or the consummation of this offering.
The loans will be repaid out of the proceeds of this offering not being placed
in trust.
The net proceeds of this offering not held in the trust account and not
immediately required for the purposes set forth above will be invested only in
United States "government securities" within the meaning of Secion 2(a)(16) of
the Investment Company Act of 1940 having a maturity of 180 days or less so that
we are not deemed to be an investment company under the Investment Company Act.
The interest income derived from investment of these net proceeds during this
period will be used to defray our general and administrative expenses, as well
as costs relating to compliance with securities laws and regulations, including
associated professional fees, until a business combination is completed.
26
We believe that, upon consummation of this offering, we will have
sufficient available funds to operate for at least the next 24 months, assuming
that a business combination is not consummated during that time.
Commencing on the date of this prospectus through the consummation of the
acquisition of the target business, we will pay Chardan Capital, LLC the fee
described above. Other than this $7,500 per month administrative fee, no
compensation of any kind (including finder's, consulting or other similar fees)
will be paid to any of our existing officers, directors or stockholders, or any
of their affiliates, prior to, or for any services they render in order to
effectuate, the consummation of the business combination. 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 and performing due diligence on suitable business
combinations. 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.
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) only in the event of our liquidation or if that public stockholder were
to seek to convert such shares into cash in connection with a business
combination which the public stockholder voted against and 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.
DILUTION
The difference between the public offering price per share of our common
stock, assuming no value is attributed to the warrants included in the units,
and the pro forma net tangible book value per share of our common stock 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 common stock which may be converted into cash), by the number of
outstanding shares of our common stock.
At April 30, 2005, our net tangible book value was a deficiency of $940,
or approximately $.00 per share of common stock. After giving effect to the sale
of 5,000,000 shares of common stock included in the units, and the deduction of
underwriting discounts and estimated expenses of this offering, our pro forma
net tangible book value at April 30, 2005 would have been $21,659,643 or $4.13
per share, representing an immediate increase in net tangible book value of
$4.09 per share to the existing stockholders and an immediate dilution of $1.87
per share or 31.17% to new investors not exercising their conversion rights. For
purposes of presentation, our pro forma net tangible book value after this
offering is approximately $5,164,417 less (and calculated based on approximately
999,500 less shares of common stock) than it otherwise would have been because
if we effect a business combination, the conversion rights to the public
stockholders may result in the conversion into cash of up to approximately
19.99% of the aggregate number of the shares sold in this offering at a per
share conversion price equal to the amount in the trust account as of two
business days prior to the consummation of the proposed business combination,
inclusive of any interest, divided by the number of shares of common stock sold
in this offering.
27
The following table illustrates the dilution to the new investors on a per
share basis, assuming no value is attributed to the warrants included in the
units:
Public offering price ........................................... $6.00
Net tangible book value before this offering ............... $ --
Increase attributable to new investors ..................... 4.13
-----
Pro forma net tangible book value after this offering ........... 4.13
-----
Dilution to new investors ....................................... $1.87
=====
The following table sets forth information with respect to our existing
stockholders and the new investors:
SHARES PURCHASED TOTAL CONSIDERATION
---------------- ------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
Existing stockholders 1,250,000 20.0% $ 25,000 0.1% $ 0.02
New investors ....... 5,000,000 80.0% $30,000,000 99.9% $ 6.00
--------- ----------- ----------- ----------- -----------
6,250,000 100.0% $30,025,000 100.0%
========= =========== =========== ===========
The pro forma net tangible book value after the offering is calculated as
follows:
Numerator:
Net tangible book value before this offering ............. $ (940)
Proceeds from this offering .............................. 26,800,000
Offering costs paid in advance and excluded
from net tangible book value before this offering 25,000
Less: Proceeds held in trust subject to conversion to
cash ($25,835,000 x 19.99%) ..................... (5,164,417)
------------
$ 21,659,643
============
Denominator:
Shares of common stock outstanding prior to this offering 1,250,000
Shares of common stock included in the units offered ..... 5,000,000
Less: Shares subject to conversion (5,000,000 x 19.99%) .. (999,500)
------------
5,250,500
============
28
CAPITALIZATION
The following table sets forth our capitalization at April 30, 2005 and as
adjusted to give effect to the sale of our units and the application of the
estimated net proceeds derived from the sale of our units:
APRIL 30, 2005
--------------
AS
ACTUAL ADJUSTED
------ --------
Common stock, $.0001 par value, -0- and 999,500 shares which are
subject to possible conversion, shares at conversion value .... $ -- $ 5,164,417
============ ============
Stockholders' equity:
Preferred stock, $.0001 par value, 1,000,000 shares
authorized; none issued or outstanding ...................... -- --
============ ============
Common stock, $.0001 par value, 20,000,000 shares authorized;
1,250,000 shares issued and outstanding; 5,250,500 shares
issued and outstanding, actual (excluding 999,500 shares
subject to possible conversion), as adjusted ................ 125 525
Additional paid-in capital .................................. 24,875 21,660,058
Deficit accumulated during the development stage ............ (940) (940)
------------ ------------
Total stockholders' equity: ........................... 24,060 21,659,643
============ ============
Total capitalization .................................. $ 24,060 $ 26,824,060
============ ============
If we consummate a business combination, the conversion rights afforded to
our public stockholders may result in the conversion into cash of up to
approximately 19.99% of the aggregate number of shares sold in this offering at
a per share conversion price equal to the amount in the trust account, inclusive
of any interest thereon, as of two business days prior to the proposed
consummation of a business combination, divided by the number of shares sold in
this offering.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We were formed on March 10, 2005 to serve as a vehicle to effect a merger,
capital stock exchange, asset acquisition or other similar business combination
with an operating business that has its primary operating facilities located in
the People's Republic of China in any city or province north of the Yangtze
River. We intend to utilize cash derived from the proceeds of this offering, our
capital stock, debt or a combination of cash, capital stock and debt, in
effecting a business combination. The issuance of additional shares of our
capital stock:
o may significantly reduce the equity interest of our stockholders;
o may subordinate the rights of holders of common stock if preferred
stock is issued with rights senior to those afforded to our common
stock;
o 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
o may adversely affect prevailing market prices for our common stock.
Similarly, if we issue debt securities, it could result in:
o default and foreclosure on our assets if our operating revenues
after a business combination are insufficient to pay our debt
obligations;
o 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 any such covenant is breached
without a waiver or renegotiation of that covenant;
o our immediate payment of all principal and accrued interest, if any,
if the debt security is payable on demand; and
o 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.
30
We estimate that the net proceeds from the sale of the units, after
deducting offering expenses of approximately $800,000, including $300,000
evidencing the underwriters' non-accountable expense allowance of 1% of the
gross proceeds, and underwriting discounts of approximately $2,400,000, or
$2,760,000 if the over-allotment option is exercised in full, will be
approximately $26,800,000, or $30,940,000 if the over-allotment option is
exercised in full. Of this amount, $25,835,000, or $29,835,000 if the
over-allotment option is exercised in full, will be held in trust and the
remaining $965,000, or $1,105,000 if the over-allotment option is exercised in
full, will not be held in trust. We intend to use substantially all of the net
proceeds of this offering to acquire a target business, including identifying
and evaluating prospective acquisition candidates, selecting the target
business, and structuring, negotiating and consummating the business
combination. To the extent that our capital stock is used in whole or in part as
consideration to effect a business combination, the proceeds held in the trust
account as well as any other net proceeds not expended will be used to finance
the operations of the target business. We believe that, upon consummation of
this offering, the funds available to us outside of the trust account 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 anticipate that we will incur approximately $180,000 for the
administrative fee payable to Chardan Capital, LLC ($7,500 per month for two
years), $150,000 of expenses for legal, accounting and other expenses attendant
to the due diligence investigations, structuring and negotiating of a business
combination, $50,000 of expenses for the due diligence and investigation of a
target business, $40,000 of expenses in legal and accounting fees relating to
our SEC reporting obligations and $545,000, or $685,000 if the over-allotment
option is exercised in full, for general working capital that will be used for
miscellaneous expenses and reserves, including approximately $80,000 for
director and officer liability insurance premiums. 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, we may need to raise
additional funds through a private offering of debt or equity securities if such
funds are required to consummate a business combination that is presented to us,
although we have not entered into any such arrangement and have no current
intention of doing so.
We are obligated, commencing on the date of this prospectus, to pay to
Chardan Capital, LLC, an affiliate of Dr. Propper and Messrs. Zhang and Huang, a
monthly fee of $7,500 for general and administrative services. In addition, on
April 11, 2005, Kerry Propper and Chardan Capital Partners advanced a total of
$80,000 to us, on a non-interest bearing basis, for payment of offering expenses
on our behalf. The loans will be payable without interest on the earlier of
April 11, 2006 or the consummation of this offering. The loans will be repaid
out of the proceeds of this offering not being placed in trust.
We have agreed to issue to the representative of the underwriters, for
$100, an option to purchase up to a total of 250,000 units. We estimate that the
fair value of this option is approximately $550,000 ($2.20 per unit) using a
Black-Scholes option-pricing model. The fair value of the option granted to the
representative is estimated as of the date of grant using the following
assumptions: (1) expected volatility of 44.5%, (2) risk-free interest rate of
3.8% and (3) expected life of 5 years.
31
PROPOSED BUSINESS
INTRODUCTION
We are a Delaware blank check company incorporated on March 10, 2005 in
order to serve as a vehicle for the acquisition of an operating business that
has its primary operating facilities located in the People's Republic of China
in any city or province north of the Yangtze River, including but not limited to
the Jiangshu and Hubei provinces and Chongging.
Simultaneously with our formation, our principals incorporated Chardan
China III formed for the purpose of effecting a merger, capital stock exchange,
asset acquisition or other similar business combination with an operating
business that has its primary operating facilities located in the People's
Republic of China in any city or province south of the Yangtze River. We believe
that conducting these two offerings simultaneously will be beneficial to us for
a number of reasons, including allowing us to allocate expenses between us and
Chardan III such as airfare, lodging and other expenses in connection with
traveling to and from China, thereby reducing the cost to each of us.
All of our principals are also principals of Chardan China Acquisition
Corp. Both we and Chardan China III have agreed that, unless and until Chardan
China Acquisition Corp. consummates a business combination or liquidates prior
thereto, neither will execute a letter of intent, agreement in principle or
definitive agreement for a business combination. Accordingly, if the business
combination between Chardan China Acquisition Corp. and Origin fails for any
reason, our principals will have a pre-existing fiduciary obligation to Chardan
China Acquisition Corp. and will offer it all suitable business opportunities
prior to offering it to us or Chardan China III.
OPPORTUNITIES IN CHINA
Opportunities for market expansion have emerged for businesses with
operations in China due to certain changes in the PRC's political, economic and
social policies as well as certain fundamental changes affecting the PRC and its
neighboring countries. We believe that China represents both a favorable
environment for making acquisitions and an attractive operating environment for
a target business for several reasons, including:
o prolonged economic expansion within China, including gross domestic
product growth of approximately 9% on average over the last 25
years, including 9.5% in 2004, with forecasted growth of more than
8% for 2005 (ChinaDaily.com, October 20, 2004);
o attractive valuations for target businesses within China;
o increased government focus within China on privatizing assets,
improving foreign trade and encouraging business and economic
activity;
o favorable labor rates and efficient, low-cost manufacturing
capabilities;
32
o the recent entry of China into the World Trade Organization, the
sole global international organization dealing with the rules of
trade between nations, which may lead to a reduction on tariffs for
industrial products, a reduction in trade restrictions and an
increase in trading with the United States; and
o the fact that China's public equity markets are not as well
developed and active as the equity markets within the United States
and are characterized by companies with relatively small market
capitalizations and low trading volumes.
We believe that these factors and others should enable us to acquire a target
business with growth potential on favorable terms.
GOVERNMENT REGULATIONS
Government regulations relating to foreign exchange controls
The principal regulation governing foreign exchange in China is the
Foreign Currency Administration Rules (IPPS), as amended. Under these rules, the
Renminbi, China's currency, is freely convertible for trade and service related
foreign exchange transactions, but not for direct investment, loan or investment
in securities outside of China unless the prior approval of the State
Administration for Foreign Exchange ("SAFE") of China is obtained. Foreign
investment enterprises ("FIEs") are required to apply to the SAFE for "Foreign
Exchange Registration Certificates for FIEs." Following a business combination,
we will likely be an FIE as a result of our ownership structure. With such
registration certificates, which need to be renewed annually, FIEs are allowed
to open foreign currency accounts including a "basic account" and "capital
account." Currency translation within the scope of the "basic account," such as
remittance of foreign currencies for payment of dividends, can be effected
without requiring the approval of the SAFE. However, conversion of currency in
the "capital account," including capital items such as direct investment, loans
and securities, still require approval of the SAFE. This prior approval may
delay or impair our ability to operate following a business combination.
Government regulations relating to taxation
According to the PRC income Tax Law of Foreign Investment Enterprises and
Foreign Enterprises and the Implementation Rules for the Income Tax Law, the
standard Enterprise Income Tax ("EIT") rate of FIEs is 33%, reduced or exempted
in some cases under any applicable laws or regulations. Income such as dividends
and profits derived from the PRC by a foreign enterprise which has no
establishment in the PRC is subject to a 20% withholding tax, unless reduced or
exempted by any applicable laws or regulations. The profit derived by a foreign
investor from a FIE is currently exempted from EIT. However, if this exemption
were to be removed in the future, we might be required to deduct certain amounts
from dividends we may pay to our stockholders following a business combination
to pay corporate withholding taxes.
33
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,
as well as our existing cash, our capital stock, debt or a combination of these
in effecting a business combination. Although substantially all of the net
proceeds of this offering are intended to be generally applied 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 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. Our officers, directors, promoters and
other affiliates have not engaged in discussions on our behalf with
representatives of other companies regarding the possibility of a potential
merger, capital stock exchange, asset acquisition or other similar business
combination with us, nor have we, nor any of our agents of affiliates, been
approached by any candidates (or representatives of any candidates) with respect
to a possible acquisition transaction with us. Additionally, we have not
contacted any of the prospective target businesses of Chardan China Acquisition
Corp. and do not intend to do so unless the operations, profits or prospects of
such target business improved significantly and we were made aware of such
change. At this time, we do not anticipate this happening. We have also 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.
Subject to the limitations that a target business have its primary
operating facilities located in the PRC in any city or province north of the
Yangtze River and have a fair market value of at least 80% of our net assets at
the time of the acquisition, 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.
34
Sources of target businesses
While we have not yet identified any acquisition candidates, we believe
that there are numerous acquisition candidates in the PRC that we intend to
target. 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, who may present
solicited or unsolicited proposals. Our existing stockholders, including our
officers and directors, as well as their affiliates may also bring to our
attention target business candidates that they become aware of through their
business contacts. While we do not presently anticipate engaging the services of
professional firms or other individuals that specialize in business acquisitions
on any formal basis, and have no arrangements or understandings, preliminary or
otherwise, with respect to such engagements, we may engage these firms
(including Best of Best, a firm that assisted Chardan China Acquisition Corp.
with its business combination) or other individuals in the future, in which
event we may pay a finder's 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 or stockholders or any
entity with which they are affiliated be paid any finders fee, consulting fee or
other compensation prior to, or for any services they render in order to
effectuate, the consummation of a business combination.
Selection of a target business and structuring of a business combination
Subject to the requirement that our initial business combination must be
with a target business that has its primary operating facilities located in the
PRC in any city or province north of the Yangtze River and have a fair market
value that is at least equal to 80% of our net assets at the time of such
acquisition, 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 will consider, among other factors, the following:
o financial condition and results of operation;
o growth potential;
o experience and skill of management and availability of additional
personnel;
o capital requirements;
o competitive position;
o barriers to entry;
o stage of development of the products, processes or services;
o degree of current or potential market acceptance of the products,
processes or services;
o proprietary features and degree of intellectual property or other
protection of the products, processes or services;
o regulatory environment of the industry; and
35
o costs associated with effecting the business combination.
These criteria are not intended to be exhaustive. 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. We will
also seek to have all prospective target businesses execute agreements with us
waiving any right, title, interest or claim of any kind in or to any monies held
in the trust account. If any prospective target business refuses to execute such
agreement, it is unlikely we would continue negotiations with such target
business.
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
The initial target business that we acquire must have a fair market value
equal to at least 80% of our net assets at the time of such acquisition,
including any amount held in the trust fund subject to the conversion rights
described below, although we may acquire a target business whose fair market
value significantly exceeds 80% of our net assets. In order to consummate 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 our 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 such business will be determined by our board of directors
based upon standards generally accepted by the financial community, such as
actual and potential sales, earnings and cash flow and 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 that is a member of the National Association of
Securities Dealers, Inc. with respect to the satisfaction of such criteria.
Since any opinion, if obtained, would merely state that fair market value meets
the 80% of net assets threshold, it is not anticipated that copies of such
opinion would be distributed to our stockholders, although copies will be
provided to stockholders who request it. We will not be required to obtain an
opinion from an investment banking firm 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
While we may seek to effect business combinations with more than one
target business, our initial business combination must be with a target business
which satisfies the minimum valuation standard at the time of such acquisition,
as discussed above. Consequently, it is probable that initially we will have the
ability to effect only a single business combination. Accordingly, 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:
36
o 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
o result in our dependency upon the development or market acceptance
of a single or limited number of products, processes or services.
Limited ability to evaluate the target business' management
Although we intend to closely 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 or
all of our key personnel will remain associated in senior management or advisory
positions with us following a business combination, it is unlikely that any of
them will devote their full 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 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. While the personal and financial interests of such individuals may
influence their motivation in identifying and selecting a target business, the
ability of such individuals 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, we cannot assure you that our officers and directors will 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.
Opportunity for stockholder approval of business combination
Prior to the completion of a business combination, we will submit the
transaction to our stockholders for approval, even if the nature of the
acquisition is such as would not ordinarily require stockholder approval under
applicable state law. In connection with seeking stockholder approval of a
business combination, we will furnish our stockholders with proxy solicitation
materials prepared in accordance with the Securities Exchange Act of 1934, as
amended, which, among other matters, will include a description of the
operations of the target business and audited historical financial statements of
the business.
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 shares of common stock owned by them immediately
prior to this offering in accordance with the majority of the shares of common
stock voted by the public stockholders. This voting arrangement shall not apply
to shares included in units purchased in this offering or purchased following
this offering in the open market by any of our existing stockholders, officers
and directors. Accordingly, they may vote these shares on a proposed business
combination any way they choose. We will proceed with the business combination
only if a majority of the shares of common stock voted by the public
stockholders are voted in favor of the business combination and public
stockholders owning less than 20% of the shares sold in this offering both
exercise their conversion rights and vote against the business combination.
37
Conversion rights
At the time we seek stockholder approval of any business combination, we
will offer each public stockholder the right to have such stockholder's shares
of common stock converted to cash if the stockholder votes against the business
combination and the business combination is approved and completed. Our existing
stockholders will not have such conversion rights with respect to the shares of
common stock owned by them prior to this offering, but will have such rights
with respect to shares purchased by them in the offering or after market. The
actual per share conversion price will be equal to the amount in the trust
account, inclusive of any interest (calculated as of two business days prior to
the consummation of the proposed business combination), divided by the number of
shares sold in this offering. Without taking into any account interest earned on
the trust account, the initial per share conversion price would be $5.167, or
$0.833 less than the per unit offering price of $6.00. An eligible stockholder
may request conversion at any time after the mailing to our stockholders of the
proxy statement and prior to the vote taken with respect to a proposed business
combination at a meeting held for that purpose, but the request will not be
granted unless the stockholder votes against the business combination and the
business combination is approved and completed. Any request for conversion, once
made, may be withdrawn at any time up to the date of the meeting. It is
anticipated that the funds to be distributed to stockholders entitled to convert
their shares who elect conversion will be distributed promptly after completion
of a business combination. Any public stockholder who converts his, her or its
stock into his, her or its share of the trust account still has the right to
exercise the warrants that he, she or it received as part of the units. We will
not complete any business combination if public stockholders, owning 20% or more
of the shares sold in this offering, both exercise their conversion rights and
vote against the business combination.
Liquidation if no business combination
If we do not complete a business combination within 18 months after the
consummation of this offering, or within 24 months after the consummation of
this offering if the extension criteria described below have been satisfied, we
will be dissolved and distribute to all of our public stockholders, in
proportion to their respective equity interests, an aggregate sum equal to the
amount in the trust account, inclusive of any interest, plus any remaining net
assets. Our existing stockholders have waived their rights to participate in any
liquidation distribution with respect to shares of common stock owned by them
immediately prior to this offering. There will be no distribution from the trust
account with respect to our warrants which will expire worthless. We will pay
the costs of liquidation and dissolution from our remaining assets outside of
the trust fund.
If we were to expend all of the net proceeds of this offering, other than
the proceeds deposited in the trust account, and without taking into account
interest, if any, earned on the trust account, the initial per share liquidation
price would be $5.167, or $0.833 less than the per-unit offering price of $6.00.
The proceeds deposited in the trust account could, however, become subject to
the claims of our creditors which could be prior to the claims of our public
stockholders. We cannot assure you that the actual per share liquidation price
will not be less than $5.167, plus interest, due to claims of creditors. Our
directors and several individuals affiliated with companies they are associated
with have severally agreed, pursuant to agreements with us and EarlyBirdCapital,
that, if we liquidate prior to the consummation of a business combination, they
will be personally 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 in excess of the net proceeds of this
offering not held in the trust account. We cannot assure you, however, that they
would be able to satisfy those obligations.
38
If we enter into either a letter of intent, an agreement in principle or a
definitive agreement to complete a business combination prior to the expiration
of 18 months after the consummation of this offering, but are unable to complete
the business combination within the 18-month period, then we will have an
additional six months in which to complete the business combination contemplated
by the letter of intent, agreement in principle or definitive agreement. If we
are unable to do so within 24 months following the consummation of this
offering, we will then liquidate. Upon notice from us, the trustee of the trust
account will commence liquidating the investments constituting the trust account
and will turn over the proceeds to our transfer agent for distribution to our
public stockholders. We anticipate that our instruction to the trustee would be
given promptly after the expiration of the applicable 18-month or 24-month
period.
A public stockholder will be entitled to receive funds from the trust
account only in the event of our liquidation or if he, she or it seeks to
convert his, her or its shares into cash upon our completion of a business
combination which that stockholder voted against and which is completed by us.
In no other circumstances will a stockholder have any right or interest of any
kind to or in the trust account.
COMPETITION
In identifying, evaluating and selecting a target business, we may
encounter intense competition from other entities having a business objective
similar to ours. There are approximately 25 blank check companies with more than
$1.09 billion in trust that are seeking to carry out a business plan similar to
our business plan and there are likely to be more blank check companies filing
registration statements for initial public offerings after the date of this
prospectus and prior to our completion of a business combination. Additionally,
we may be subject to competition from other companies looking to expand their
operations through the acquisition of a target business. 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 will be limited by our
available financial resources. This inherent competitive limitation gives others
an advantage in pursuing the acquisition of a target business. Further:
o our obligation to seek stockholder approval of a business
combination may delay the completion of a transaction;
o our obligation to convert into cash shares of common stock held by
our public stockholders to such holders that both vote against the
business combination and exercise their conversion rights may reduce
the resources available to us for a business combination; and
o our outstanding warrants and option, and the potential future
dilution they represent, may not be viewed favorably by certain
target businesses.
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.
39
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 executive offices at 625 Broadway, Suite 1111, San Diego,
California. The cost for this space, which is 1,000 square feet, is included in
the $7,500 per month fee Chardan Capital, LLC charges us for general and
administrative services pursuant to a letter agreement between us and Chardan
Capital, LLC. We share this space with Chardan Capital, LLC, Chardan China
Acquisition Corp. and Chardan China III. We believe, based on rents and fees for
similar services in the San Diego metropolitan area, that the fee charged by
Chardan Capital, LLC is at least as favorable as we could have obtained from an
unaffiliated person. We consider our current office space adequate for our
current operations.
EMPLOYEES
We have four executive officers, all of whom are members of our board of
directors. 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 the availability of suitable target businesses to
investigate, although we expect Dr. Propper, our chairman of the board, and Li
Zhang, our chief executive officer, to each devote an average of approximately
ten 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, common stock and warrants under the
Securities Exchange Act of 1934, as amended, 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 Securities Exchange Act
of 1934, our annual reports will contain financial statements audited and
reported on by our independent registered public accountants.
We will not acquire a target business if audited financial statements
based on United States generally accepted accounting principles cannot be
obtained for the target business. Additionally, our management will provide
stockholders with audited financial statements, prepared in accordance with
generally accepted accounting principles, of the prospective target business as
part of the proxy solicitation materials sent to stockholders to assist them in
assessing the target business. We cannot assure you that any particular target
business identified by us as a potential acquisition candidate will have
financial statements prepared in accordance with generally accepted accounting
principles or that the potential target business will be able to reconcile its
financial statements to United States generally accepted accounting principles.
The financial statements of a potential target business will be required to be
audited in accordance with United States generally accepted accounting
standards. To the extent that this requirement cannot be met, we will not be
able to acquire the proposed target business. While this may limit the pool of
potential acquisition candidates, given the broad range of companies with which
we may consummate a business combination, we do not believe that the narrowing
of the pool will be material.
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COMPARISON TO OFFERINGS OF BLANK CHECK COMPANIES
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 underwriters will not exercise their over-allotment option. None of
the terms of a Rule 419 offering will apply to this offering.
TERMS UNDER A RULE 419
TERMS OF OUR OFFERING OFFERING
----------------------- ---------------------------
ESCROW OF OFFERING
PROCEEDS.............. $25,835,000 of the net $24,570,000 of the
offering proceeds will be offering proceeds would
deposited into a trust be required to be
account at Lehman deposited into either an
Brothers Inc. maintained escrow account with an
by Continental Stock insured depositary
Transfer & Trust Company, institution or in a
acting as trustee. 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.
INVESTMENT OF NET
PROCEEDS.............. The $25,835,000 of net Proceeds could be
offering proceeds held in invested only in
trust will only be specified securities such
invested in U.S. as a money market fund
"government securities" meeting conditions of the
within the meaning of Investment Company Act of
Section 2(a)(16) of the 1940 or in securities
Investment Company Act that are direct
of 1940 having a maturity obligations of, or
of 180 days or less. obligations guaranteed as
to principal or interest
by, the United States.
LIMITATION ON FAIR
VALUE OR NET ASSETS
OF TARGET BUSINESS.... The initial target We would be restricted
business that we acquire from acquiring a target
must have a fair market business unless the fair
value equal to at least value of such business or
80% of our net assets at net assets to be acquired
the time of such represent at least 80% of
acquisition. the maximum offering
proceeds.
TRADING OF
SECURITIES ISSUED..... The units may commence No trading of the units
trading on or promptly or the underlying common
after the date of this stock and warrants would
prospectus. The common be permitted until the
stock and warrants completion of a business
comprising the units will combination. During this
begin to trade separately period, the securities
on the 90th day after the would be held in the
date of this prospectus escrow or trust account.
unless EarlyBirdCapital
informs us of its
decision to allow earlier
separate trading (based
upon its assessment of
the relative strengths
of the securities markets
and small capitalization
companies in general,
and the trading pattern
of, and demand for, our
securities in
particular), 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, including any
proceeds we receive from
the exercise of the
over-allotment option, if
such option is exercised
prior to the filing of
the Form 8-K.
41
TERMS UNDER A RULE 419
TERMS OF OUR OFFERING OFFERING
----------------------- ---------------------------
EXERCISE OF THE
WARRANTS.............. The warrants cannot be The warrants could be
exercised until the later exercised prior to the
of the completion of a completion of a business
business combination and combination, but
one year from the date of securities received and
this prospectus and, cash paid in connection
accordingly, will be with the exercise would
exercised only after the be deposited in the
trust fund has been escrow or trust account.
terminated and
distributed.
ELECTION TO REMAIN
AN INVESTOR........... We will give our A prospectus containing
stockholders the information required by
opportunity to vote on the SEC would be sent to
the business combination. each investor. Each
In connection with investor would be given
seeking stockholder the opportunity to notify
approval, we will send the company, in writing,
each stockholder a proxy within a period of no
statement containing less than 20 business
information required by days and no more than 45
the SEC. A stockholder business days from the
following the procedures effective date of the
described in this post-effective amendment,
prospectus is given the to decide whether he or
right to convert his or she elects to remain a
her shares into his or stockholder of the
her pro rata share of the company or require the
trust account. However, a return of his or her
stockholder who does not investment. If the
follow these procedures company has not received
or a stockholder who does the notification by the
not take any action would end of the 45th business
not be entitled to the day, funds and interest
return of any funds. or dividends, if any,
held in the trust or
escrow account would
automatically be 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.............. A business combination If an acquisition has not
must occur within 18 been consummated within
months after the 18 months after the
consummation of this effective date of the
offering or within 24 initial registration
months after the statement, funds held in
consummation of this the trust or escrow
offering if a letter of account would be returned
intent or definitive to investors.
agreement relating to a
prospective business
combination was entered
into prior to the end of
the 18-month period.
42
TERMS UNDER A RULE 419
TERMS OF OUR OFFERING OFFERING
----------------------- ---------------------------
RELEASE OF FUNDS...... The proceeds held in the The proceeds held in the
trust account will not be escrow account would not
released until the be released until the
earlier of the completion earlier of the completion
of a business combination of a business combination
and our liquidation upon or the failure to effect
failure to effect a a business combination
business combination within the allotted time.
within the allotted time.
43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our current directors and executive officers are as follows:
NAME AGE POSITION
---- --- --------
Dr. Richard D. Propper 58 Chairman of the Board of Directors
Li Zhang 52 Chief Executive Officer and Director
Kerry Propper 30 Chief Financial Officer,
Secretary and Director
Jiangnan Huang 55 Executive Vice President and Director
DR. RICHARD D. PROPPER has been our chairman of the board of directors
since our inception and has been the chief financial officer and a member of the
board of directors of Chardan China III since its inception. He has also served
as the chairman of the board of directors of Chardan China Acquisition Corp.
since its inception in December 2003. In August 2003, he formed Chardan Capital,
LLC, a venture capital management and financial strategic consulting firm based
in Southern California, and has been one of its managers since its formation.
During this time, Dr. Propper has been focused principally on building business
relationships between Chinese and U.S. companies. From June 2002 to July 2003,
Dr. Propper was chief executive officer and chairman of the board of Mera
Pharmaceuticals, Inc., a public company that produces products from aquatic
microorganisms. In 1984, he founded Montgomery Medical Ventures Funds, an early
stage venture capital firm, and was the managing general partner until July
1993. He then pursued private investment activities from July 1993 until he
formed Chardan Capital in August 2003. Dr. Propper received a B.S. from McGill
University and an M.D. from Stanford University. He also spent ten years on the
faculty of Harvard medical school as a research fellow and an assistant
professor in pediatrics. Dr. Propper is the father of Kerry Propper, our chief
financial officer and secretary.
LI ZHANG has been our chief executive officer and a member of our board of
directors since our inception and has been the executive vice president and a
member of the board of directors of Chardan China III since its inception. He
has also served as chief financial officer and a member of the board of
directors of Chardan China Acquisition Corp. since its inception in December
2003. Mr. Zhang has also served as a member and manager of Chardan Capital, LLC
since its inception in August 2003. Since September 2001, Mr. Zhang has been a
principal and president of Pacific Asia Ventures, LLC, a company that provides
strategic consulting services for Chinese-U.S. business relationships. Since
September 2002, he has been an advisor to Mera Pharmaceuticals, Inc. Mr. Zhang
has also been an advisor for Parentech, Inc., a company that produces products
that enhance the development and well-being of infants, since December 2002.
From January 1994 until September 2001, Mr. Zhang served as chairman of
Sino-American Investment, Inc., an investment consulting firm. From September
1996 until September 1998, Mr. Zhang also served as a consultant to the China
Retail Fund, a venture capital fund that invests in retail ventures with backing
from American International Group. Mr. Zhang has two decades of experience in
establishing commercial and financial relationships between Chinese companies,
government agencies and Western investors. Among his other affiliations during
that time, he was chairman of Sino-American Power, Ltd., an organization formed
for the purpose of building electric power generating plants in China, from 1994
through 1996. Mr. Zhang received a B.A. from the Shenyang Teacher's University
in the PRC.
44
KERRY PROPPER has been our chief financial officer, secretary and a member
of our board of directors since our inception and has been the chief executive
officer and a member of the board of directors of Chardan China III since its
inception. Mr. Propper has also served as the executive vice president and a
member of the board of directors of Chardan China Acquisition Corp. since its
inception in December 2003. Mr. Propper has been the owner and chief executive
officer of Chardan Capital Markets LLC, a New York based broker/dealer, since
July 2003. He has also been a managing member of SUJG, Inc., an investment
company since April 2005. Mr. Propper also sits on the board of directors of
Source Atlantic Inc., a health care consulting firm based in Massachuesetts. Mr.
Propper was a founder, and from February 1999 to July 2003 owner and managing
director of Windsor Capital Advisors, a full service brokerage firm also based
in New York. Mr. Propper also founded The Private Capital Group LLC, a small
private investment firm specializing in hard money loans and convertible
preferred debt and equity offerings for small public companies, in May 2000 and
was affiliated with it until December 2003. From July 1997 until February 1999,
Mr. Propper worked at Aegis Capital Corp., a broker dealer and member firm of
the NASD. Mr. Propper received his B.A. (with honors) in Economics and
International Studies from Colby College and studied at the London School of
Economics. Kerry Propper is Dr. Propper's son.
JIANGNAN HUANG has been our executive vice president and a member of our
board of directors since our inception and has been the chairman of the board of
directors of Chardan China III since its inception. Mr. Huang has also served as
the chief executive officer and a member of the board of directors of Chardan
China Acquisition Corp. since its inception in December 2003. Mr. Huang has also
served as a member and manager of Chardan Capital, LLC since August 2003. Mr.
Huang has been a senior advisor to CITIC Securities, a Chinese broker dealer,
with principal responsibility for its large international investment banking
projects, since October 2002. He has also held a number of other senior
positions in Chinese financial companies, including his tenure as president of
Hong Kong Southern Capital Financial Group and director and general manager of
Hong Kong Southern Capital Securities Co., Ltd. from July 2000 to October 2002.
From October 1997 until July 2000, he also served in a number of capacities with
China Everbright Securities Co., Ltd. (Hong Kong), including a role as chief
investment officer of the China Everbright Growth Fund. Mr. Huang received an
MBA from the China Social Sciences University in 1981, where he engaged in
advanced study at The Regional Economic Research & Development Center at the
United Nations.
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 Jiangnan
Huang, will expire at our first annual meeting of stockholders. The term of
office of the second class of directors, consisting of Kerry Propper, will
expire at the second annual meeting. The term of office of the third class of
directors, consisting of Dr. Propper and Li Zhang, will expire at the third
annual meeting.
45
EXECUTIVE COMPENSATION
No executive officer has received any cash compensation for services
rendered to us. Commencing on the effective date of this prospectus through the
acquisition of a target business, we will pay Chardan Capital, LLC, an affiliate
of Dr. Richard D. Propper, Jiangnan Huang and Li Zhang, a fee of $7,500 per
month for providing us with office space and certain office and secretarial
services. Chardan Capital, LLC will also be entering into an agreement with
Chardan China III pursuant to which it will provide similar services to Chardan
China III. Chardan China III will pay Chardan Capital, LLC a $7,500 per month
fee for these services. However, these arrangements are solely for the benefit
of us and Chardan China III and is not intended to provide Messrs. Propper,
Huang and Zhang compensation in lieu of a salary. Other than this $7,500
per-month fee, no compensation of any kind, including finder's, consulting or
other similar fees, will be paid to any of our existing stockholders, including
our officers and 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, which includes persons who
may seek reimbursement, or a court of competent jurisdiction if such
reimbursement is challenged. Because of the foregoing, we may generally not have
the benefit of independent directors examining the propriety of expenses
incurred on our behalf and subject to reimbursement.
CONFLICTS OF INTEREST
As a result of their affiliations with Chardan China Acquisition Corp. and
Chardan China III, our officers and directors have pre-existing fiduciary
obligations that may cause them to have conflicts of interest in determining to
which entity they present a specific business opportunity. Both we and Chardan
China III have agreed that, unless and until Chardan China Acquisition Corp.
consummates a business combination or liquidates prior thereto, neither will
execute a letter of intent, agreement in principle or definitive agreement for a
business combination. If the business combination between Chardan China
Acquisition Corp. and Origin fails for any reason, our principals will have a
pre-existing fiduciary obligation to Chardan China Acquisition Corp. and will
offer it all suitable business opportunities prior to offering them to us or
Chardan China III. Accordingly, in such event, they may not present to us
opportunities that otherwise may be attractive to Chardan China Acquisition
Corp. unless it has declined to accept such opportunities. With respect to their
affiliations with Chardan China III, since the business purpose of Chardan China
III is to effect a merger, capital stock exchange, asset acquisition or other
similar business combination with an operating business that has its primary
operating facilities located in the People's Republic of China in any city or
province south of the Yangtze River, we believe the potential for conflicts of
interest due to this pre-existing obligation is minimal.
46
Potential investors should also be aware of the following other potential
conflicts of interest:
o None of our officers and directors is required to commit their full
time to our affairs and, accordingly, each may have a conflict of
interest in allocating their time among various business activities.
o 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
may have conflicts of interest in determining to which entity a
particular business opportunity should be presented.
o Our officers and directors are now and 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.
o Since our directors own shares of our common stock which will be
released from escrow only if a business combination is successfully
completed, and may own warrants which will expire worthless if a
business combination is not consummated, our board may have a
conflict of interest in determining whether a particular target
business is appropriate to effect a business combination.
Additionally, they may enter into consulting or employment
agreements with the company as part of a business combination,
pursuant to which they may be entitled to compensation for their
services. The personal and financial interests of our directors and
officers may influence their motivation in identifying and selecting
a target business, completing a business combination timely and
securing the release of their stock.
o Our directors and officers may purchase shares of common stock as
part of the units sold in this offering or in the open market and
would be entitled to vote as they choose on a proposal to approve a
business combination and exercise their conversion rights in
connection therewith.
o Our officers and directors 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 and performing due diligence on suitable business
combinations.
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:
o the corporation could financially undertake the opportunity;
o the opportunity is within the corporation's line of business; and
o it would not be fair to the corporation and its stockholders for the
opportunity not to be brought to the attention of the corporation.
47
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. We cannot assure
you that any of the above mentioned conflicts will 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 agreed,
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 business
opportunity which may reasonably be required to be presented to us under
Delaware law, subject to the pre-existing fiduciary obligations discussed above.
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 shares of common stock which were owned prior to
this offering in accordance with the vote of the public stockholders owning a
majority of the shares of our common stock sold in this offering. In addition,
they have agreed to waive their respective rights to participate in any
liquidation distribution but only with respect to those shares of common stock
acquired by them prior to this offering. Any common stock acquired by existing
stockholders in the offering or in the after market will be considered part of
the holdings of the public stockholders. These existing stockholders will have
the same rights as other public stockholders with respect to such shares,
including voting and conversion rights in connection with a potential business
combination. Accordingly, they may vote such shares on a proposed business
combination any way they choose.
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 existing stockholders unless we obtain an opinion from an independent
investment banking firm that the business combination is fair to our
stockholders from a financial point of view.
PRIOR AND PRESENT INVOLVEMENT OF PRINCIPALS IN BLANK CHECK COMPANIES
Each of our principals has been a principal of another company that has
completed an offering similar to this offering. Chardan China Acquisition Corp.
completed its initial public offering on March 22, 2004 and raised gross
proceeds of $24,150,000 at an offering price of $6.00 per unit. Since its
inception:
o Dr. Richard Propper, our chairman of the board, has served as the
chairman of the board of Chardan China Acquisition Corp.;
o Li Zhang, our chief executive officer, has served as the chief
financial officer and a member of the board of directors of Chardan
China Acquisition Corp.;
o Kerry Propper, our chief financial officer and secretary, has served
as the executive vice president and a member of the board of
directors of Chardan China Acquisition Corp.; and
48
o Jiangnan Huang, our executive vice president, has served as the
chief executive officer and a member of the board of directors of
Chardan China Acquisition Corp.
As of the date of this prospectus, Chardan China Acquisition Corp. has not
consummated a business combination with a target business. However, it has
entered into a Stock Purchase Agreement with Origin and all of its stockholders.
At the closing, the Origin stockholders and their designees, subject to
adjustments and certain holdbacks, will be paid an aggregate of $10,000,000 in
cash and issued an aggregate of 10,200,000 shares of common stock for all the
outstanding common stock of Origin. As additional purchase price, the Origin
stockholders and their designees will receive up to an aggregate of $15,000,000
and up to an aggregate of 1,500,000 additional shares of common stock in the
event certain conditions are met. None of our principals has received any salary
for their services to Chardan China Acquisition Corp. However, Chardan Capital,
LLC, an affiliate of Dr. Propper and Messrs. Zhang and Huang, receives a $7,500
fee from Chardan China Acquisition Corp. for general and administrative services
including office space, utilities and secretarial support. Following the
completion of the business combination, Dr. Richard Propper will continue to
serve in the capacity of executive vice president, corporate development and
Kerry Propper will continue to serve as a director, but neither will receive any
compensation for his services. Additionally, Chardan Capital, LLC, an affiliate
of Dr. Propper and Messrs. Zhang and Huang, will provide a variety of ongoing
services to Origin for two years from the consummation of the stock purchase
agreement and will receive $30,000 per month for its services.
Prior to Chardan China Acquisition Corp.'s initial public offering, our
principals purchased the following shares of common stock of Chardan China
Acquisition Corp. at $0.029 per share:
Name Number of Shares
- ---- ----------------
Dr. Richard D. Propper 244,125
Li Zhang 134,167
Kerry Propper 177,042
Jiangnan Huang 134,167
Subsequent to the effect date of Chardan China Acquisition Corp.'s initial
public offering, Dr. Propper purchased 2,000 units, including 2,000 shares of
common stock and warrants to purchase 4,000 shares of common stock, and warrants
to purchase a total of 271,250 shares of common stock for an aggregate purchase
price of $183,826, and Kerry Propper purchased warrants to purchase a total of
267,250 shares of common stock for an aggregate purchase price of $171,726.
49
In connection with Chardan China III's formation, our principals purchased
the following shares of common stock of Chardan China III at $0.025 per share:
Name Number of Shares
- ---- ----------------
Li Zhang 120,810
Kerry Propper 177,600
Jiangnan Huang 120,810
Additionally, Chardan Capital Partners, an affiliate of Dr. Richard D. Propper,
purchased 508,380 shares of common stock at $0.025 per share. Effective July 22,
2005, the board of directors of Chardan China III authorized a stock dividend of
0.25 shares of common stock for each outstanding share of common stock,
effectively lowering the purchase price to $0.02 per share.
50
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of July 28, 2005, and as adjusted to reflect
the sale of our common stock included in the units offered by this prospectus
(assuming none of the individuals listed purchase units in this offering), by:
o each person known by us to be the beneficial owner of more than 5%
of our outstanding shares of common stock;
o each of our officers and directors; and
o all 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.
APPROXIMATE PERCENTAGE
OF OUTSTANDING COMMON STOCK
---------------------------
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP BEFORE OFFERING AFTER OFFERING
- --------------------------------------- --------- --------------- --------------
Richard D. Propper 635,474(2) 50.8% 10.2%
Kerry Propper 312,500(3) 25.0% 5.0%
Li Zhang 151,013 12.1% 2.4%
Jiangnan Huang 151,013 12.1% 2.4%
All directors and executive officers as a group 1,250,000 100.0% 20.0%
(4 individuals)
- -----------
(1) Unless otherwise indicated, the business address of each of the
individuals is 625 Broadway, Suite 1111, San Diego, California 92101.
(2) Represents shares of common stock held by Chardan Capital Partners. A
family limited liability company established for the benefit of Dr.
Propper's family owns approximately 40% of such entity.
(3) Includes 90,500 shares of common stock held by SUJG, Inc., of which Mr.
Propper is a director and as such controls the voting and disposition of
such shares.
Immediately after this offering, our existing stockholders, which include
all of our officers and directors, collectively, will beneficially own 20% of
the then issued and outstanding shares of our common stock (assuming none of
them purchases any units in this offering). Because of this ownership block,
these stockholders may be able to exercise effective control over all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions other than approval of a business
combination.
51
All of the shares of common stock outstanding prior to the date of this
prospectus will be placed in escrow with Continental Stock Transfer & Trust
Company, as escrow agent, until the earliest of:
o three years following the date of this prospectus;
o our liquidation; and
o the consummation of 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 subsequent to our consummating a
business combination with a target business.
During the escrow period, the holders of these shares will not be able to sell
or transfer their securities, except to their spouses and children or trusts
established for their benefit, or in the case of Chardan Capital Partners, to
its present partners, 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, none of
our existing stockholders will receive any portion of the liquidation proceeds
with respect to common stock owned by them prior to the date of this prospectus.
Richard D. Propper, Jiangnan Huang, Kerry Propper and Li Zhang and Daniel
P. Beharry, Michael Franz and Michael Norris, each of whom is affiliated with
Chardan Capital, LLC, have agreed with EarlyBirdCapital that after this offering
is completed and within the first 40 trading days after separate trading of the
warrants has commenced, they or certain of their affiliates or designees will
collectively purchase up to 1,000,000 warrants in the public marketplace at
prices not to exceed $0.75 per warrant. They have further agreed that any
warrants purchased by them or their affiliates or designees pursuant to this
agreement will not be sold or transferred until after we have completed a
business combination. Such purchases will be made by EarlyBirdCapital, or such
other broker dealer as EarlyBirdCapital may assign the order to, in such amounts
and at such times as EarlyBirdCapital or such other broker dealer may determine,
in its sole discretion, during the 40-trading day period so long as the prices
do not exceed $0.75 per warrant. We have agreed that any warrants purchased
pursuant to this agreement will not be redeemable by us as long as they continue
to be held by such individuals or their affiliates. The warrants may trade
separately on the 90th day after the date of this prospectus unless
EarlyBirdCapital determines that an earlier date is acceptable. In no event will
EarlyBirdCapital allow separate trading of the common stock and warrants until
we file a Current Report on Form 8-K which includes an audited balance sheet
reflecting our receipt of the proceeds of this offering including any proceeds
we receive from the exercise of the over-allotment option if such option is
exercised prior to our filing of the Form 8-K. We believe that the purchases of
warrants by these individuals demonstrate confidence in our ultimate ability to
effect a business combination because the warrants will expire worthless if we
are unable to consummate a business combination.
Each of Dr. Propper and Messrs. Propper, Zhang and Huang are our
"promoters," as this term is defined under the Federal securities laws.
52
CERTAIN TRANSACTIONS
In March 2005, we issued 1,000,000 shares of our common stock to the
individuals set forth below for $25,000 in cash, at a purchase price of $0.025
per share, as follows:
NAME NUMBER OF SHARES RELATIONSHIP TO US
- ---- ---------------- ------------------
Li Zhang 120,810 Chief Executive Officer and Director
Kerry Propper 177,600 Chief Financial Officer, Secretary and
Director
Jiangnan Huang 120,810 Executive Vice President and Director
Chardan Capital Partners 508,380 Stockholder
SUJG, Inc. 72,400 Stockholder
Effective July 22, 2005, our board of directors authorized a stock
dividend of 0.25 shares of common stock for each outstanding share of common
stock, effectively lowering the purchase price to $0.02 per share.
The holders of the majority of these shares will be entitled to make up to
two demands that we register these shares pursuant to an agreement to be signed
prior to or on the date of this prospectus. The holders of the majority of these
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. In addition, these stockholders have certain "piggy-back"
registration rights with respect to registration statements filed subsequent to
the date on which these shares of common stock are released from escrow. We will
bear the expenses incurred in connection with the filing of any such
registration statements.
Our directors and several individuals affiliated with companies they are
associated with have entered into letter agreements with the representative of
the underwriters pursuant to which they agreed to purchase up to 1,000,000
warrants at prices not to exceed $0.75 per warrant during the 40-trading day
period following separate trading of the warrants. We have agreed that these
warrants shall not be redeemable by us as long as such warrants continue to be
held by such individuals or their affiliates. Because these individuals may be
insiders, or affiliates of insiders, at the time of the redemption call, their
ability to sell our securities in the open market will be significantly limited.
If they remain insiders, we will have policies in place that prohibit insiders
from selling our securities except during specific periods of time. Accordingly,
unlike public stockholders who could, if we called the warrants for redemption,
either sell their warrants or exercise such warrants and sell the shares of
common stock received upon such exercise freely in the open market, the insiders
would be significantly restricted from selling such securities. Additionally,
even if the insiders could sell their securities, any sale by an insider would
require him to file a Form 4 disclosing his sale and that would have a
depressive effect on the price of our stock during the redemption period. As a
result, we believe this non-call feature is appropriate.
Chardan Capital, LLC, an affiliate of Dr. Richard D. Propper, Li Zhang and
Jiangnan Huang, has agreed that, commencing on the effective date of this
prospectus through the acquisition of a target business, it will make available
to us and Chardan China III a small amount of office space and certain office
and secretarial services, as we may require from time to time. Both we and
Chardan China III have agreed to pay Chardan Capital, LLC $7,500 per month for
these services. Dr. Propper is president, a manager and 19.8% owner of Chardan
Capital, LLC. Each of Li Zhang and Jiangnan Huang is a manager and 16.1% owner
of Chardan Capital, LLC. As a result, they will benefit from the transactions to
the extent of their interest in Chardan Capital, LLC. However, these
arrangements are solely for the benefit of us and Chardan China III and are not
intended to provide Dr. Propper and Messrs. Zhang and Huang compensation in lieu
of a salary. We believe, based on rents and fees for similar services in the San
Diego metropolitan area, that the fee charged by Chardan Capital, LLC is at
least as favorable as we could have obtained from an unaffiliated person.
However, as our directors may not be deemed "independent," we did not have the
benefit of disinterested directors approving this transaction.
As of the date of this prospectus, Kerry Propper has advanced to us
$20,000 and Chardan Capital Partners has advanced to us $60,000 to cover
expenses related to this offering. The loans will be payable without interest on
the earlier of April 11, 2006 or the consummation of this offering. We intend to
repay these loans from the proceeds of this offering not being placed in trust.
53
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, which will be reviewed only by our
board or a court of competent jurisdiction if such reimbursement is challenged.
Other than the $7,500 per-month administrative fee and reimbursable
out-of-pocket expenses payable to our officers and directors, no compensation or
fees of any kind, including finders and consulting fees, will be paid to any of
our existing stockholders, officers or directors who owned our common stock
prior to this offering, or to any of their respective affiliates, for services
rendered to us prior to or with respect to the business combination.
All ongoing and future transactions between us and any of our officers and
directors or their respective affiliates, including loans by our officers and
directors, will require prior approval in each instance 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. These directors, if
they determine to be necessary or appropriate, will have 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.
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue 20,000,000 shares of common stock, par value
$.0001, and 1,000,000 shares of preferred stock, par value $.0001. As of the
date of this prospectus, 1,250,000 shares of common stock are outstanding, held
by six recordholders. No shares of preferred stock are currently outstanding.
UNITS
Each unit consists of one share of common stock and two warrants. Each
warrant entitles the holder to purchase one share of common stock. The common
stock and warrants will begin to trade separately on the 90th day after the date
of this prospectus unless EarlyBirdCapital informs us of its decision to allow
earlier separate trading, based upon its assessment of the relative strengths of
the securities markets and small capitalization companies in general and the
trading pattern of, and demand for, our securities in particular. In no event
may the common stock and warrants be traded separately until we have filed with
the SEC a Current Report on Form 8-K which includes an audited balance sheet
reflecting our receipt of the gross proceeds of this offering. We will file a
Current Report on Form 8-K with the SEC that includes this audited balance sheet
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 prior to the filing of the Form 8-K. If the
over-allotment option is exercised after our initial filing of the Form 8-K, we
will file an amendment to the 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, or amendment thereto, or in a subsequent Form 8-K information
indicating if EarlyBirdCapital has allowed separate trading of the common stock
and warrants prior to the 90th day after the date of this prospectus.
54
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 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 shares of
common stock owned by them immediately prior to this offering in accordance with
the majority of the shares of our common stock voted by our public stockholders.
This voting arrangement shall not apply to shares included in units purchased in
this offering or purchased following this offering in the open market by any of
our existing stockholders, officers and directors. Additionally, our existing
stockholders, officers and directors will vote all of their shares in any manner
they determine, in their sole discretion, with respect to any other items that
come before a vote of our stockholders.
We will proceed with the business combination only if a majority of the
shares of common stock voted by the public stockholders are voted in favor of
the business combination and public stockholders owning less than 20% of the
shares sold in this offering both exercise their conversion rights discussed
below and vote against 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
voted for the election of directors can elect all of the directors.
If we are forced to liquidate prior to a business combination, our public
stockholders are entitled to share ratably in the trust fund, inclusive of any
interest, and any net assets remaining available for distribution to them after
payment of liabilities. Our existing stockholders have agreed to waive their
rights to share in any distribution with respect to common stock owned by them
prior to the offering if we are forced to liquidate.
Our stockholders have no conversion, preemptive or other subscription
rights and there are no sinking fund or redemption provisions applicable to the
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 against the business combination and the business
combination is approved and completed. Public stockholders who convert their
stock into their share of the trust account still have the right to exercise the
warrants that they received as part of the units.
PREFERRED STOCK
Our certificate of incorporation authorizes the issuance of 1,000,000
shares of blank check 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 preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of common stock, although the underwriting agreement prohibits us, prior
to a business combination, from issuing preferred stock which participates in
any manner in the proceeds of the trust account, or which votes as a class with
the common stock on a business combination. We may issue some or all of the
preferred stock to effect a business combination. In addition, the 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.
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WARRANTS
No warrants are currently outstanding. Each warrant entitles the
registered holder to purchase one share of our common stock at a price of $5.00
per share, subject to adjustment as discussed below, at any time commencing on
the later of:
o the completion of a business combination; and
o one year from the date of this prospectus.
The warrants will expire four years from the date of this prospectus at 5:00
p.m., New York City time.
We may call the warrants for redemption (except as set forth below and
including those issuable upon exercise of the purchase option described below):
o in whole and not in part,
o at a price of $.01 per warrant at any time after the warrants become
exercisable,
o upon not less than 30 days' prior written notice of redemption to
each warrant holder, and
o if, and only if, the reported last sale price of the common stock
equals or exceeds $8.50 per share, for any 20 trading days within a
30-trading day period ending on the third business day prior to the
notice of redemption to warrant holders.
Our directors and several individuals affiliated with companies they are
associated with have entered into letter agreements with the representative of
the underwriters pursuant to which they agreed to purchase up to 1,000,000
warrants at prices not to exceed $0.75 per warrant during the 40-trading day
period following separate trading of the warrants. Such purchases will be made
by EarlyBirdCapital, or such other broker dealer as EarlyBirdCapital may assign
the order to, in such amounts and at such times as EarlyBirdCapital or such
other broker dealer may determine, in its sole discretion, during the 40-trading
day period so long as the prices do not exceed $0.75 per warrant. We have agreed
that these warrants shall not be redeemable by us as long as such warrants
continue to be held by such individuals or their affiliates.
The redemption criteria for our warrants have been established at a price
which is intended to provide warrantholders a reasonable premium to the initial
exercise price and provide sufficient liquidity to cushion the market reaction
to our redemption call.
The warrants will be issued in registered form under a warrant agreement
between Continental Stock Transfer & Trust Company, as warrant agent, and us.
You should review a copy of the warrant agreement, which has been filed as an
exhibit to the registration statement of which this prospectus is a part, for a
complete description of the terms and conditions applicable to the warrants.
56
The exercise price and number of shares of common stock issuable on
exercise of the warrants may be adjusted in certain circumstances, including in
the event of a stock dividend or our recapitalization, reorganization, merger or
consolidation. However, the warrants will not be adjusted for issuances of
common stock at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price, by
certified or official bank check payable to us, for the number of warrants being
exercised. The warrant holders do not have the rights or privileges of holders
of common stock and any voting rights until they exercise their warrants and
receive shares of common stock. After the issuance of shares of common stock
upon exercise of the warrants, each holder will be entitled to one vote for each
share held of record on all matters to be voted on by stockholders.
No warrants will be exercisable unless at the time of exercise a
prospectus relating to common stock issuable upon exercise of the warrants is
current and the common stock has been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder of the
warrants. Under the terms of the warrant agreement, we have agreed to meet these
conditions and use our best efforts to maintain a current prospectus relating to
common stock issuable upon exercise of the warrants until the expiration of the
warrants. However, we cannot assure you that we will be able to do so. The
warrants may be deprived of any value and the market for the warrants may be
limited if the prospectus relating to the common stock issuable upon the
exercise of the warrants is not current or if the common stock is not qualified
or exempt from qualification in the jurisdictions in which the holders of the
warrants reside.
No fractional shares will be issued upon exercise of the warrants. If,
upon exercise of the warrants, a holder would be entitled to receive a
fractional interest in a share, we will, upon exercise, round up to the nearest
whole number the number of shares of common stock to be issued to the warrant
holder.
PURCHASE OPTION
We have agreed to sell to EarlyBirdCapital, the representative of the
underwriters an option to purchase up to a total of 250,000 units at $7.50 per
unit. The units issuable upon exercise of this option are identical to those
offered by this prospectus except that the warrants included in the option have
an exercise price of $6.65 (133% of the exercise price of the warrants included
in the units sold in this offering).
DIVIDENDS
We have not paid any cash dividends on our 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.
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OUR TRANSFER AGENT AND WARRANT AGENT
The transfer agent for our securities and warrant agent for our warrants
is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New
York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after this offering, we will have 6,250,000 shares of common
stock outstanding, or 7,000,000 shares if the underwriters' over-allotment
option is exercised in full. Of these shares, the 5,000,000 shares sold in this
offering, or 5,750,000 shares if the over-allotment option is exercised, 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 1,250,000 shares are
restricted securities under Rule 144, in that they were issued in private
transactions not involving a public offering. None of those will be eligible for
sale under Rule 144 prior to March 10, 2006. Notwithstanding this, all of those
1,250,000 shares have been placed in escrow and will not be transferable (except
for limited exceptions such as transfers to relatives and trusts for estate
planning purposes, while remaining in escrow) for a period of three years from
the date of this prospectus and will be released prior to that date only in the
event of our liquidation following a business combination or upon a subsequent
transaction resulting in our stockholders having the right to exchange their
shares for cash or other securities.
Rule 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares of our common stock for at least one year
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:
o 1% of the number of shares of common stock then outstanding, which
will equal 62,500 shares immediately after this offering (or 70,000
if the over-allotment option is exercised in full); and
o if the common stock is listed on a national securities exchange or
on The Nasdaq Stock Market, the average weekly trading volume of the
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.
Rule 144(k)
Under Rule 144(k), a person who 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 who has beneficially owned the restricted shares proposed to be sold
for at least two years, including the holding period of any prior owner other
than an affiliate, is entitled to sell their shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
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SEC Position on Rule 144 Sales
The Securities and Exchange Commission has taken the position that
promoters or affiliates of a blank check company and their transferees, both
before and after a business combination, act as "underwriters" under the
Securities Act when reselling the securities of a blank check company acquired
prior to the consummation of its initial public offering. Accordingly, the
Securities and Exchange Commission believes that those securities can be resold
only through a registered offering and that Rule 144 would not be available for
those resale transactions despite technical compliance with the requirements of
Rule 144.
Registration Rights
The holders of our 1,250,000 issued and outstanding shares of common stock
on the date of this prospectus 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 the majority of these shares are entitled to make up to two
demands that we register these shares. The holders of the majority of these
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. In addition, these stockholders have certain "piggy-back"
registration rights with respect to registration statements filed subsequent to
the date on which these shares of common stock are released from escrow. We will
bear the expenses incurred in connection with the filing of any such
registration statements.
UNDERWRITING
In accordance with the terms and conditions contained in the underwriting
agreement, we have agreed to sell to each of the underwriters named below, and
each of the underwriters, for which EarlyBirdCapital is acting as
representative, have severally, and not jointly, agreed to purchase on a firm
commitment basis the number of units offered in this offering set forth opposite
their respective names below:
UNDERWRITERS NUMBER OF UNITS
- - ------------ ---------------
EarlyBirdCapital, Inc.........................................
Total................................................
===============
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A copy of the underwriting agreement has been filed as an exhibit to the
registration statement of which this prospectus forms a part.
STATE BLUE SKY INFORMATION
We are not making an offer of these securities in any jurisdiction where
the offer is not permitted. We will offer and sell the units to retail customers
only in Colorado, Delaware, the District of Columbia, Florida, Hawaii, Illinois,
Indiana, Maryland, New York and Rhode Island. In New York and Hawaii, we have
relied on exemptions from the state registration requirements for transactions
between an issuer and an underwriter involving a firm-commitment underwritten
offering. In the other states, we have applied to have the units registered for
sale and will not sell the units in these states until such registration is
effective (including in Colorado, pursuant to 11-51-302(6) of the Colorado
Revised Statutes).
If you are not an institutional investor, you may purchase our securities
in this offering only in the jurisdictions described directly above.
Institutional investors in every state except in Idaho may purchase the units in
this offering pursuant to exemptions provided to such entities under the Blue
Sky laws of various states. The definition of an "institutional investor" varies
from state to state but generally includes financial institutions,
broker-dealers, banks, insurance companies and other qualified entities.
Under the National Securities Markets Improvement Act of 1996, the resale
of the units, from and after the date of this prospectus, and the common stock
and warrants comprising the units, once they become separately transferable, are
exempt from state registration requirements because we will file periodic and
annual reports under the Securities Exchange Act of 1934. However, states are
permitted to require notice filings and collect fees with regard to these
transactions and a state may suspend the offer and sale of securities within
such state if any such required filing is not made or fee is not paid. The
following states do not presently require any notice filings or fee payments and
permit the resale of the units, and the common stock and warrants comprising the
units, once they become separately transferable:
o Alabama, Arizona, Colorado, Connecticut, Florida, Georgia, Hawaii,
Indiana, Louisiana, Maine, Missouri, Nevada, New York, North
Carolina, Ohio, Pennsylvania, Utah, Virginia, Washington, and
Wisconsin.
Additionally, the following states permit the resale of the units, and the
common stock and warrants comprising the units, once they become separately
transferable, if the proper notice filings have been made and fees paid:
o Delaware, the District of Columbia, Kansas, Maryland, Michigan, New
Hampshire, Rhode Island, South Carolina, Texas and Vermont.
As of the date of this prospectus, we have not determined in which, if any, of
these states we will submit the required filings or pay the required fee.
Additionally, if any of these states that has not yet adopted a statute relating
to the National Securities Markets Improvement Act adopts such a statute in the
future requiring a filing or fee or if any state amends its existing statutes
with respect to its requirements, we would need to comply with those new
requirements in order for the securities to continue to be eligible for resale
in those jurisdictions.
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Despite the exemption from state registration provided by the National
Securities Markets Improvement Act, described above, the following states and
territory, regardless of whether they require a filing to be made or fee to be
paid, have advised us that they do not recognize this act as a basis for
exempting the registration of resales in their states of securities issued in
blank check offerings:
o Alaska, Arkansas, California, Illinois, Iowa, Kentucky,
Massachusetts, Minnesota, Mississippi, Montana, Nebraska, New
Jersey, New Mexico, North Dakota, Oklahoma, Oregon, Puerto Rico,
South Dakota, Tennessee, West Virginia and Wyoming.
We do not intend to register the resale of the securities sold in this offering
in these states.
However, we believe that the units, from and after the effective date, and
the common stock and warrants comprising the units, once they become separately
transferable, will be eligible for sale on a secondary market basis in each of
the following states, without any notice filings or fee payments, based upon the
availability of another applicable exemption from the state's registration
requirements:
o immediately in Delaware, the District of Columbia, Illinois,
Kentucky, Maryland and Rhode Island;
o commencing 90 days after the date of this prospectus in Iowa and New
Mexico; and
o commencing 180 days from the date of this prospectus in
Massachusetts.
Idaho has informed us that it does not permit the resale in its state of
securities issued in blank check offerings, without exception. We will amend
this prospectus for the purpose of disclosing additional states, if any, which
advise us that our securities will be eligible for secondary trading without
registration.
PRICING OF SECURITIES
We have been advised by the representative that the underwriters propose
to offer the units to the public at the initial offering price set forth on the
cover page of this prospectus. They may allow some dealers concessions not in
excess of $___ per unit and the dealers may reallow a concession not in excess
of $____ per unit to other dealers.
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 warrants
were negotiated between us and the representative. Factors considered in
determining the prices and terms of the units, including the common stock and
warrants underlying the units, include:
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o the history and prospects of companies whose principal business is
the acquisition of other companies;
o prior offerings of those companies;
o our prospects for acquiring an operating business at attractive
values;
o our capital structure;
o an assessment of our management and their experience in identifying
operating companies;
o general conditions of the securities markets at the time of the
offering; and
o 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 underwriters are unable to compare
our financial results and prospects with those of public companies operating in
the same industry.
OVER-ALLOTMENT OPTION
We have granted to the representative of the underwriters an option,
exercisable during the 45-day period commencing on the date of this prospectus,
to purchase from us at the offering price, less underwriting discounts, up to an
aggregate of 750,000 additional units for the sole purpose of covering
over-allotments, if any. The over-allotment option will only be used to cover
the net syndicate short position resulting from the initial distribution. The
representative of the underwriters may exercise the over-allotment option if the
underwriters sell more units than the total number set forth in the table above.
COMMISSIONS AND DISCOUNTS
The following table shows the public offering price, underwriting discount
to be paid by us to the underwriters and the proceeds, before expenses, to us.
This information assumes either no exercise or full exercise by the
representative of the underwriters of its over-allotment option.
PER UNIT WITHOUT OPTION WITH OPTION
-------- -------------- -----------
Public offering price................... $6.00 $30,000,000 $34,500,000
Discount................................ $0.48 $2,400,000 $2,760,000
Non-accountable Expense Allowance(1).... $0.06 $300,000 $300,000
Proceeds before expenses(2)............. $5.46 $27,300,000 $31,440,000
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- -----------
(1) The non-accountable expense allowance is not payable with respect to the
units sold upon exercise of the underwriters' over-allotment option.
(2) The offering expenses are estimated at $500,000.
PURCHASE OPTION
We have agreed to sell to the representative, for $100, an option to
purchase up to a total of 250,000 units. The units issuable upon exercise of
this option are identical to those offered by this prospectus except that the
warrants included in the option have an exercise price of $6.65 (133% of the
exercise price of the warrants included in the units sold in the offering). This
option is exercisable at $7.50 per unit (125% of the unit price), and is
exercisable on a cashless basis, commencing on the later of the consummation of
a business combination and one year from the date of this prospectus and
expiring five years from the date of this prospectus. The option and the 250,000
units, the 250,000 shares of common stock and the 500,000 warrants underlying
such units, and the 500,000 shares of common stock underlying such warrants,
have been deemed compensation by the NASD and are therefore subject to a 180-day
lock-up pursuant to Rule 2710(g)(1) of the NASD Conduct Rules. Additionally, the
option may not be sold, transferred, assigned, pledged or hypothecated for a
one-year period (including the foregoing 180-day period) following the date of
this prospectus except to any underwriter and selected dealer participating in
the offering and their bona fide officers or partners. Although the purchase
option and its underlying securities have been registered under the registration
statement of which this prospectus forms a part of, the option grants to holders
demand and "piggy back" rights for periods of five and seven years,
respectively, from the date of this prospectus with respect to the registration
under the Securities Act of the securities directly and indirectly issuable upon
exercise of the option. We will bear all fees and expenses attendant to
registering the securities, other than underwriting commissions which will be
paid for by the holders themselves. The exercise price and number of units
issuable upon exercise of the option may be adjusted in certain circumstances
including in the event of a stock dividend, or our recapitalization,
reorganization, merger or consolidation. However, the option will not be
adjusted for issuances of common stock at a price below the option exercise
price.
REGULATORY RESTRICTIONS ON PURCHASE OF SECURITIES
Rules of the SEC may limit the ability of the underwriters to bid for or
purchase our securities before the distribution of the units is completed.
However, the underwriters may engage in the following activities in accordance
with the rules:
o Stabilizing Transactions. The underwriters may make bids or
purchases for the purpose of preventing or retarding a decline in
the price of our units, so long as stabilizing bids do not exceed
the offering price of $6.00.
o Over-Allotments and Syndicate Coverage Transactions. The
underwriters 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. If the underwriters create a short position during the
offering, the representative may engage in syndicate covering
transactions by purchasing our units in the open market. The
representative may also elect to reduce any short position by
exercising all or part of the over-allotment option.
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o Penalty Bids. The representative may reclaim a selling concession
from a syndicate member when the unit originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
Stabilization and syndicate covering transactions may cause the price of
the 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 the securities if it discourages resales of the securities.
Neither we nor the underwriters make any representation or prediction as
to the effect that the transactions described above may have on the prices of
our securities. These transactions may occur on the OTC Bulletin Board, 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
Although we are not under any contractual obligation to engage any of the
underwriters to provide any services for us after this offering, and have no
present intent to do so, any of the underwriters 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 any of the underwriters provide
services to us after this offering, we may pay such 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 any of the
underwriters and no fees for such services will be paid to any of the
underwriters prior to the date which is 90 days after the date of this
prospectus.
INDEMNIFICATION
We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in this respect.
LEGAL MATTERS
The validity of the securities offered in this prospectus are being passed
upon for us by Graubard Miller, New York, New York. Blank Rome L.L.P., New York,
New York, is acting as counsel for the underwriters in this offering.
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EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by Goldstein Golub Kessler LLP,
independent registered public accounting firm, to the extent and for the period
set forth in their report appearing elsewhere in this prospectus and in the
registration statement. The financial statements and the report of Goldstein
Golub Kessler LLP are included in reliance upon their report given upon the
authority of Goldstein Golub Kessler LLP as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
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 450 Fifth Street, N.W., Washington, D.C.
20549-1004. 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 at http://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.
65
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Financial statements
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7 - F-11
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Chardan North China Acquisition Corporation
We have audited the accompanying balance sheet of Chardan North China
Acquisition Corporation (formerly Chardan China Acquisition Corp. II) (a
corporation in the development stage) as of April 30, 2005, and the related
statements of operations, stockholders' equity and cash flows for the period
from March 10, 2005 (inception) to April 30, 2005. 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 Chardan North China Acquisition
Corporation as of April 30, 2005, and the results of its operations and its cash
flows for the period from March 10, 2005 (inception) to April 30, 2005 in
conformity with United States generally accepted accounting principles.
/s/ Goldstein Golub Kessler LLP
Goldstein Golub Kessler LLP
New York, New York
May 16, 2005, except for the first paragraph of Note 7, as to which the date is
July 14, 2005, and the second paragraph of Note 7, as to which the date is July
22, 2005
F-2
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
================================================================================
APRIL 30, 2005
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS - CASH $ 79,960
DEFERRED OFFERING COSTS 25,000
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 104,960
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCRUED EXPENSES $ 900
NOTES PAYABLE, STOCKHOLDERS 80,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 80,900
- --------------------------------------------------------------------------------
COMMITMENT
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value
Authorized 1,000,000 shares; none issued
Common stock, $.0001 par value
Authorized 20,000,000 shares
Issued and outstanding 1,250,000 shares 125
Additional paid-in capital 24,875
Deficit accumulated during the development stage (940)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 24,060
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 104,960
================================================================================
See Notes to Financial Statements.
F-3
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
================================================================================
For the period from March 10, 2005 (inception) to April 30, 2005
- --------------------------------------------------------------------------------
FORMATION AND OPERATING COSTS $ 940
- --------------------------------------------------------------------------------
NET LOSS $ (940)
================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 1,250,000
- --------------------------------------------------------------------------------
NET LOSS PER SHARE $ 0.00
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
F-4
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================
For the period from March 10, 2005 (inception) to April 30, 2005
Deficit
Accumulated
Common Stock During the
------------ Addition paid-in Development Stockholders'
Shares Amount capital Stage Equity
--------------------------------------------------------------------------
Common shares issued March 10, 2005 at $.025 per share 1,000,000 $ 100 $ 24,900 $ -- $ 25,000
Effect of stock dividend (See Note 7) 250,000 25 (25) -- --
Net Loss -- -- -- (940) (940)
--------------------------------------------------------------------------
Balance at April 30, 2005 1,250,000 125 $ 24,875 $ (940) $ 24,060
==========================================================================
See Notes to Financial Statements.
F-5
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
================================================================================
For the period from March 10, 2005 (inception) to April 30, 2005
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (940)
Increase in accrued expenses 900
- --------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (40)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable, stockholder $ 80,000
Proceeds from sale of shares of common stock 25,000
Payments of deferred offering costs (25,000)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 80,000
- --------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH AT END OF PERIOD $ 79,960
================================================================================
See Notes to Financial Statements.
F-6
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION, Chardan North China Acquisition Corporation (formerly
BUSINESS Chardan China Acquisition Corp. II - see Note 7) (the
OPERATIONS AND "Company") was incorporated in Delaware on March 10,
SIGNIFICANT 2005 as a blank check company whose objective is to
ACCOUNTING acquire an operating business that has its primary
POLICIES operating facilities located in the People's Republic
of China in any city or province north of the Yangtze
River.
At April 30, 2005, the Company had not yet commenced
any operations. All activity through April 30, 2005
relates to the Company's formation and the proposed
public offering described below. The Company has
selected December 31 as its fiscal year-end.
F-7
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Company's ability to commence operations is
contingent upon obtaining adequate financial
resources through a proposed public offering
("Proposed Offering") which is discussed in Note 2.
The Company's management has broad discretion with
respect to the specific application of the net
proceeds of this Proposed Offering, although
substantially all of the net proceeds of this
Proposed Offering are intended to be generally
applied toward consummating a business combination
with an operating business that has its primary
operating facilities located in the People's Republic
of China in any city or province north of the Yangtze
River ("Business Combination"). Furthermore, there
is no assurance that the Company will be able to
successfully effect a Business Combination. Upon the
closing of the Proposed Offering, at least $5.167 per
unit sold in the Proposed Offering will be held in a
trust account ("Trust Account") and invested in
government securities until the earlier of (i) the
consummation of a Business Combination and (ii)
liquidation of the Company. 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. The Company,
after signing a definitive agreement for the
acquisition of a target business, will submit such
transaction for stockholder approval. In the event
that stockholders owning 20% or more of the shares
sold in the Proposed Offering vote against the
Business Combination and exercise their conversion
rights described below, the Business Combination will
not be consummated. All of the Company's
stockholders prior to the Proposed Offering,
including all of the officers and directors of the
Company ("Initial Stockholders"), have agreed to vote
their 1,250,000 founding shares of common stock in
accordance with the vote of the majority in interest
of all other stockholders of the Company ("Public
Stockholders") with respect to any Business
Combination. After consummation of a Business
Combination, these voting safeguards will no longer
be applicable.
With respect to a Business Combination which is
approved and consummated, any Public Stockholder who
voted against the Business Combination may demand
that the Company convert his or her shares. The per
share conversion price will equal the amount in the
Trust Account, calculated as of two business days
prior to the consummation of the proposed Business
Combination, divided by the number of shares of
common stock held by Public Stockholders at the
consummation of the Proposed Offering. Accordingly,
Public Stockholders holding 19.99% of the aggregate
number of shares owned by all Public Stockholders may
seek conversion of their shares in the event of a
Business Combination. Such Public Stockholders are
entitled to receive their per share interest in the
Trust Account computed without regard to the shares
held by Initial Stockholders.
The Company's Certificate of Incorporation provides
for mandatory liquidation of the Company in the event
that the Company does not consummate a Business
Combination within 18 months from the date of the
consummation of the Proposed Offering, or 24 months
from the consummation of the Proposed Offering if
certain extension criteria have been satisfied. In
the event of liquidation, it is likely that the per
share value of the residual assets remaining
available for distribution (including Trust Fund
assets) will be less than the initial public offering
price per share in the Proposed Offering (assuming no
value is attributed to the Warrants contained in the
Units to be offered in the Proposed Offering
discussed in Note 2).
F-8
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Deferred income taxes are provided for the
differences between the bases of assets and
liabilities for financial reporting and income tax
purposes. A valuation allowance is established when
necessary to reduce deferred tax assets to the
amount expected to be realized.
The Company recorded a deferred income tax asset for
the tax effect of net operating loss carryforwards
and temporary differences, aggregating approximately
$300. In recognition of the uncertainty regarding
the ultimate amount of income tax benefits to be
derived, the Company has recorded a full valuation
allowance at April 30, 2005.
The effective tax rate differs from the statutory
rate of 34% due to the increase in the valuation
allowance.
Loss per share is computed by dividing net loss by
the weighted-average number of shares of common
stock outstanding during the period.
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 at the date of the financial statements
and the reported amounts of expenses during the
reporting period. Actual results could differ from
those estimates.
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.
F-9
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
================================================================================
2. PROPOSED The Proposed Offering calls for the Company to offer
PUBLIC OFFERING for public sale up to 5,000,000 units ("Units").
Each Unit consists of one share of the Company's
common stock, $.0001 par value, and two Redeemable
Common Stock Purchase Warrants ("Warrants"). Each
Warrant will entitle the holder to purchase from the
Company one share of common stock at an exercise
price of $5.00 commencing the later of the
consummation of a Business Combination and one year
from the effective date of the Proposed Offering and
expiring four years from the effective date of the
Proposed Offering. Except as set forth below in Note
5, the Warrants will be redeemable, at the Company's
option, at a price of $.01 per Warrant upon 30 days'
notice after the Warrants become exercisable, only in
the event that the last sale price of the common
stock is at least $8.50 per share for any 20 trading
days within a 30 trading day period ending on the
third day prior to the date on which notice of
redemption is given. The Company will pay the
underwriters in the Proposed Offering an underwriting
discount of 8% of the gross proceeds of the Proposed
Offering and a non-accountable expense allowance of
1% of the gross proceeds of the Proposed Offering.
The Company will also issue an option, for $100, to the
representative of the underwriters in the Proposed
Offering ("Representative") to purchase 250,000 Units
contingent upon obtaining adequate financial
intends to account for the fair value of the option,
inclusive of the receipt of the $100 cash payment, as
an expense of the public offering resulting in a charge
directly to stockholders' equity. The Company estimates
that the fair value of this option is approximately
$550,000 ($2.20 per Unit) using a Black-Scholes
option-pricing model. The fair value of the option
granted to the Representative is estimated as of the
date of grant using the following assumptions: (1)
expected volatility of 44.5%, (2) risk-free interest
rate of 3.8% and (3) expected life of 5 years. The
option may be exercised for cash or on a "cashless"
basis, at the holder's option, such that the holder may
use the appreciated value of the option (the difference
between the exercise prices of the option and the
underlying warrants and the market price of the units
and underlying securities) to exercise the option
without the payment of any cash. The Warrants
underlying such Units will be exercisable at $6.65 per
share.
3. DEFERRED OFFERING Deferred offering costs consist principally of legal
COSTS and underwriting fees incurred through the balance
sheet date that are related to the Proposed Offering
and that will be charged to capital upon the receipt
of the capital raised.
4. NOTES PAYABLE, The Company issued unsecured promissory notes in
STOCKHOLDERS aggregate amount of $80,000 to two of its Initial
Stockholders, including one officer, on April 11,
2005. The notes are non-interest bearing and are
payable on the earlier of April 11, 2006 or the
consummation of the Proposed Offering. Due to the
short-term nature of the notes, the fair value of the
notes approximate their carrying amount.
5. COMMITMENT The Company presently occupies office space provided
by an affiliate of three Initial Stockholders. Such
affiliate has agreed that, until the consummation of
a Business Combination, it will make such office
space, as well as certain office and secretarial
services, available to the Company, as may be
required by the Company from time to time. The
Company has agreed to pay such affiliate $7,500 per
month for such services commencing on the effective
date of the Proposed Offering.
Pursuant to letter agreements dated April 30, 2005
with the Company and the Representative, the Initial
Stockholders have waived their right to receive
distributions with respect to their founding shares
upon the Company's liquidation.
The Company's directors and several individuals
affiliated with companies they are associated with have
agreed with the Representative that, after consummation
of the Proposed Offering and within the first
40-trading day period after separate trading of the
Warrants has commenced, they or certain of their
affiliates or designees will collectively purchase up
to 1,000,000 Warrants in the public marketplace at
prices not to exceed $0.75 per Warrant. The Company has
agreed that these Warrants shall not be redeemable by
the Company as long as such Warrants continue to be
held by such individuals or their affiliates.
F-10
CHARDAN NORTH CHINA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Initial Stockholders will be entitled to
registration rights with respect to their founding
shares pursuant to an agreement to be signed prior to
or on the effective date of the Proposed Offering.
The holders of the majority of these shares are
entitled to make up to two demands that the Company
register these shares at any time commencing three
months prior to the third anniversary of the
effective date of the Proposed Offering. In
addition, the Initial Stockholders have certain
"piggy-back" registration rights on registration
statements filed subsequent to the third anniversary
of the effective date of the Proposed Offering.
The Company has also agreed to pay the fees and issue
the securities to the underwriters in the Proposed
Offering as described above in Note 2.
6. PREFERRED STOCK The Company is authorized to issue 1,000,000 shares
of preferred stock with such designations, voting and
other rights and preferences as may be determined
from time to time by the Board of Directors.
7. SUBSEQUENT EVENT Effective July 14, 2005, the Company's Board of
Directors and Initial Stockholders authorized an
amendment to the Company's Certificate of Incorporation
to change the Company's name from Chardan China
Acquisition Corp. II to Chardan North China Acquisition
Corporation.
Effective July 22, 2005, the Company's Board of
Directors authorized a stock dividend of 0.25 shares of
common stock for each outstanding share of common
stock. All references in the accompanying financial
statements to the number of shares of common stock have
been retroactively restated to reflect these
transactions.
F-11
================================================================================
Until _______________, 2005, 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.
$30,000,000
CHARDAN NORTH CHINA ACQUISITION CORPORATION
5,000,000 UNITS
PROSPECTUS
EARLYBIRDCAPITAL, INC.
__________ __, 2005
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by us in connection with the offering
described in this registration statement (other than the underwriting discount
and commissions and the Representative's non-accountable expense allowance) will
be as follows:
Initial Trustees' fee.................................$ 1,000.00(1)
SEC Registration Fee.................................. 11,440.45
NASD filing fee....................................... 10,220.01
Accounting fees and expenses.......................... 25,000.00
Printing and engraving expenses....................... 60,000.00
Directors & Officers liability insurance premiums..... 80,000.00(2)
Legal fees and expenses............................... 300,000.00
Blue sky services and expenses........................ 50,000.00
Miscellaneous......................................... 42,339.54(3)
----------------
Total....................................$ 580,000.00
(1) In addition to the initial acceptance fee that is charged by Continental
Stock Transfer & Trust Company, as trustee, the registrant will be required to
pay to Continental Stock Transfer & Trust Company annual fees of $3,000 for
acting as trustee, $4,800 for acting as transfer agent of the registrant's
common stock, $2,400 for acting as warrant agent for the registrant's warrants
and $1,800 for acting as escrow agent.
(2) This amount represents the approximate amount of Director and Officer
liability insurance premiums the registrant anticipates paying following the
consummation of its initial public offering and until it consummates a business
combination.
(3) This amount represents additional expenses that may be incurred by the
Company in connection with the offering over and above those specifically listed
above, including distribution and mailing costs.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation provides that all directors, officers,
employees and agents of the registrant shall be entitled to be indemnified by us
to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
II-2
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees)."
II-3
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment of expenses incurred or paid by a director, officer or controlling
person in a successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to the court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Paragraph B of Article Eighth of our certificate of incorporation
provides:
"The Corporation, to the full extent permitted by Section 145 of the GCL,
as amended from time to time, shall indemnify all persons whom it may indemnify
pursuant thereto. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding for which such officer or director may be entitled to
indemnification hereunder shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized hereby."
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, we have agreed to indemnify the underwriters and the
underwriters have agreed to indemnify us against certain civil liabilities that
may be incurred in connection with this offering, including certain liabilities
under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) During the past three years, we sold the following shares of common
stock without registration under the Securities Act:
Stockholders Number of Shares
------------ ----------------
Li Zhang 120,810
Kerry Propper 177,600
Jiangnan Huang 120,810
Chardan Capital Partners 508,380
SUJG, Inc. 72,400
Such shares were issued on March 10, 2005 in connection with our
organization pursuant to the exemption from registration contained in Section
4(2) of the Securities Act as they were sold to sophisticated, accredited,
wealthy individuals. The shares issued to the individuals and entities above
were sold for an aggregate offering price of $25,000 at a purchase price of
approximately $0.025 per share. Effective July 22, 2005, our board of directors
authorized a stock dividend of 0.25 shares of common stock for each outstanding
share of common stock, effectively lowering the purchase price to $0.02 per
share. No underwriting discounts or commissions were paid with respect to such
sales.
II-4
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
Exhibit No. Description
----------- -----------
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealers Agreement.
3.1 Certificate of Incorporation.*
3.1.1 Certificate of Amendment to Certificate of Incorporation.*
3.2 By-laws.*
4.1 Specimen Unit Certificate.*
4.2 Specimen Common Stock Certificate.*
4.3 Specimen Warrant Certificate.*
4.4 Form of Unit Purchase Option to be granted to Representative.*
4.5 Form of Warrant Agreement between Continental Stock Transfer &
Trust Company and the Registrant.
5.1 Opinion of Graubard Miller.
10.1 Letter Agreement among the Registrant, EarlyBirdCapital, Inc.
and Dr. Richard D. Propper.*
10.2 Letter Agreement among the Registrant, EarlyBirdCapital, Inc.
and the Li Zhang.*
10.3 Letter Agreement among the Registrant, EarlyBirdCapital, Inc.
and Kerry Propper.*
10.4 Letter Agreement among the Registrant, EarlyBirdCapital, Inc.
and Jiangnan Huang.*
10.5 Letter Agreement among the Registrant, EarlyBirdCapital, Inc.
and Chardan Capital Partners.*
10.6 Letter Agreement among the Registrant, EarlyBirdCapital, Inc.
and SUJG, Inc.*
10.7 Form of Investment Management Trust Agreement between
Continental Stock Transfer & Trust Company and the
Registrant.
10.8 Form of Stock Escrow Agreement between the Registrant,
Continental Stock Transfer & Trust Company and the Initial
Stockholders.
10.9 Form of Letter Agreement between Chardan Capital, LLC and
Registrant regarding administrative support.*
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10.10 Form of Promissory Note, dated April 11, 2005, issued to each
of Kerry Propper and Chardan Capital Partners.*
10.11 Form of Registration Rights Agreement among the Registrant and
the Initial Stockholders.*
10.12 Form of Warrant Purchase Agreements.*
23.1 Consent of Goldstein Golub Kessler LLP.
23.2 Consent of Graubard Miller (included in Exhibit 5.1).
24 Power of Attorney (included on signature page of this
Registration Statement).*
* Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
iii. To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
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(b) The undersigned hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on the 27th day of July, 2005.
CHARDAN NORTH CHINA ACQUISITION CORPORATION
By: /s/ Li Zhang*
--------------------------------
Li Zhang
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Position Date
- ---- -------- ----
/s/ Dr. Richard D. Propper* Chairman of the Board July 27, 2005
- --------------------------
Dr. Richard D. Propper
/s/ Li Zhang* Chief Executive Officer (Principal July 27, 2005
- ------------ executive officer) and Director
Li Zhang
/s/ Kerry Propper Chief Financial Officer (Principal July 27, 2005
- ----------------- financial and accounting officer),
Kerry Propper Secretary and Director
/s/ Jiangnan Huang* Executive Vice President and July 27, 2005
- ------------------ Director
Jiangnan Huang
* By Kerry Propper, Power of Attorney
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