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China Energy & Resources Ltd ˇ S-1 ˇ On 9/6/07

Filed On 9/6/07 4:32pm ET   ˇ   SEC File 333-145901   ˇ   Accession Number 1193805-7-2365

  in   Show  and 
  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 9/06/07  China Energy & Resources Ltd      S-1                   17:309                                    E-Data Systems Inc/FA

Registration Statement (General Form)   ˇ   Form S-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-1         Registration Statement (General Form)                116    559K 
 2: EX-1.1      Form of Underwriting Agreement                        59    211K 
 3: EX-3.1.1    Certificate of Incorporation                           8     29K 
 4: EX-3.1.2    Certificate of Amendment                               2      8K 
 5: EX-3.1.3    Certificate of Amendment                               2      8K 
 6: EX-3.2      By-Laws                                               11     44K 
 7: EX-4.4      Form of Warrant Agreement                             14     51K 
 8: EX-4.5      Form of Unit Purchase Option Agreement                17     61K 
 9: EX-10.1     Form of Letter Agreement                               4     23K 
10: EX-10.2     Form of Letter Agreement                               4     22K 
11: EX-10.3     Form of Letter Agreement                               1      7K 
12: EX-10.4     Form of Subscription Agreement                        26     94K 
13: EX-10.5     Form of Investment Management Trust Agreement         16     50K 
14: EX-10.6     Form of Securities Escrow Agreement                    9     27K 
15: EX-10.7     Form of Administrative Services Agreement              1      8K 
16: EX-10.8     Form of Registration Rights Agreement                 17     70K 
17: EX-23.1     Consent of Rothstein Kass                           HTML      5K 


S-1   ˇ   Registration Statement (General Form)
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
"Calculation of Registration Fee
6Private Placement
7The offering
"Public Warrants
8Private Warrants
9Units
"Warrants
17Risk Factors
"Risks associated with our business
53Proposed Business
58China Mineral Resources Law
60Effecting a Business Combination
"We have not identified a target business
62Fair market value of target business
63Opportunity for stockholder approval of business combination
"Conversion rights
64Dissolution and liquidation if no business combination
69Comparison to offerings of blank check companies
73Our Executive Officers and Directors
76Conflicts of Interest
84Purchase Option
87Underwriting
"State Blue Sky Information
95Where You Can Find Additional Information
105Underwriting Agreement
106Initial Stockholders
107Unit Purchase Option
109Item 13. Other Expenses of Issuance and Distribution
"Item 14. Indemnification of Directors and Officers
112Item 15. Recent Sales of Unregistered Securities
113Item 16. Exhibits and Financial Statement Schedules
114Item 17. Undertakings
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As filed with the Securities and Exchange Commission on September 6, 2007 Registration No. 333-_______ ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ______________ CHINA RESOURCES LTD. (Exact name of registrant as specified in its charter) ______________ [Enlarge/Download Table] Delaware 6770 26-0422971 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) Shen Zhen China Jia Yue Trading Co., Ltd Room 921, Block A, Golden Central Tower, Jintian Road, Futian District, Shenzhen, P.R. China. 86- 755-23993668 (telephone) 86- 755-23993698 (facsimile) (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Frederick E. Smithline, Esq. China Resources Ltd. c/o Eaton & Van Winkle LLP Three Park Avenue, 16th floor New York, NY 10016 (212) 779-9910 (telephone) (212) 779-9928 (facsimile) (Name, address, including zip code, and telephone number, including area code, of agent for service) Vincent McGill, Esq. Douglas S. Ellenoff, Esq. Eaton & Van Winkle LLP Stuart Neuhauser, Esq. Three Park Avenue Kathleen Cerveny, Esq. New York, New York 10016 Ellenoff Grossman & Schole LLP (212) 779-9910 370 Lexington Avenue (212) 779-9928--facsimile New York, New York 10017 (212) 370-1300 (212) 370-7889--facsimile ______________ 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. |_| CALCULATION OF REGISTRATION FEE [Enlarge/Download Table] ============================================================================================================== Proposed Proposed Maximum Maximum Offering Aggregate Amount of Title of Each Class of Security Being Amount Being Price Per Offering Registration Registered Registered Security(1) Price(1) Fee -------------------------------------------- ------------ ----------- ------------- ----------- Units, each consisting of one share of 4,600,000 $ 10.00 $ 46,000,000 $ 1,412.20 common stock, $0.0001 par value, and one warrant(2) Shares of common stock included in the 4,600,000 -- -- -- (3) units(2) Warrants included in the units(2) 4,600,000 -- -- -- (3) Shares of common stock underlying the 4,600,000 $ 7.50 $ 34,500,000 $ 1,059.15 warrants included in the units(2) Representatives' unit purchase option 1 $ 100.00 $ 100 $ 0 Units underlying the representative's unit 280,000 $ 11.00 $ 3,080,000 $ 94.56 purchase option ("Representative's Units")(4) Shares of common stock included as part 280,000 -- -- -- (3) of the Representative's Units(4) Warrants included as part of the 280,000 -- -- -- (3) Representative's Units(4) Shares of common stock underlying the 280,000 $ 7.50 $ 2,100,000 $ 64.47 warrants included in the Representative's Units(4) Total(4) $ 85,680,100 $ 2,630.38 ============================================================================================================== (1) Estimated solely for the purpose of calculating the registration fee. (2) Includes 600,000 units, consisting of 600,000 shares of common stock and 600,000 warrants, which may be issued upon exercise of a 45-day option granted to the underwriters to cover over-allotments, if any. (3) No fee is required pursuant to Rule 457(g). (4) Pursuant to Rule 416, there also are being registered such indeterminable additional securities as may be issued to prevent dilution as a result of stock splits, stock dividends or similar transactions. 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.
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The information in this 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 dated September __, 2007 (Subject to Completion) PROSPECTUS $40,000,000 China Resources Ltd. 4,000,000 Units China Resources Ltd. is a newly organized Business Combination Company(TM), or BCC(TM), formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase or similar business combination, an unidentified operating business that has its principal operations in the People's Republic of China, or PRC. While our efforts in identifying a prospective target business will not be limited to a particular industry segment, we intend to focus our initial efforts on acquiring an operating business in the natural resources sector, particularly minerals, whose activities include mining, extracting, smelting, processing and/or fabricating. We do not have any specific merger, capital stock exchange, asset acquisition, stock purchase or other similar business combination under consideration and have not contacted any prospective target business or had any discussion, formal or otherwise, with respect to such a transaction. This is an initial public offering of our securities. We are offering 4,000,000 units. Each unit has an offering price of $10.00 and consists of: o one share of our common stock; and o one warrant. Each warrant entitles the holder to purchase one share of our common stock at a price of $7.50. Each warrant will become exercisable on the later of our completion of a business combination and [ ], 2008, and will expire on [ ], 2011, or earlier upon redemption. Prior to the date of this prospectus, certain of our directors and officers, or entities that they control, will purchase from us in a private placement a total of 2,600,000 warrants to purchase an aggregate of 2,600,000 shares of our common stock for a total purchase price of $2,600,000 , or $1.00 per warrant. The private warrants are identical to the warrants included in the units in this offering. If we fail to consummate a business combination, the private warrants will expire worthless. These warrants are subject to transfer restrictions which expire on the earlier of: (i) a business combination or (ii) our dissolution and liquidation. There is no public market for our units, common stock or warrants. We anticipate that the units will be quoted on the OTC Bulletin Board under the symbol [ _____U] on or promptly after the date of this prospectus. Once the securities comprising the units begin separate trading, the units will continue to trade under the symbol [____U] and the common stock and warrants will be quoted on the OTC Bulletin Board under the symbols [____] and [____W ], respectively. Each of the common stock and warrants may trade separately beginning on the 10th business day following the earlier to occur of: (i) the expiration of the underwriters' over-allotment option or (ii) its exercise in full. We cannot assure you that our securities will continue to be quoted on the OTC Bulletin Board in the future. Our business and an investment in our securities involve significant risks. These risks are described under the caption "Risk Factors" beginning on page 15 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of if this prospectus. Any representation to the contrary is a criminal offense.
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Per Unit Total ---------- ------------- Public offering price $ 10.00 $ 40,000,000 Underwriting discount(1)(2) $ 0.60 $ 2,400,000 Net proceeds, before expenses, to us $ 9.40 $ 37,600,000 ---------- (1) Includes underwriting compensation in the amount of 4.0% of the gross proceeds, or $0.40 per unit, a total of $1,600,000 ($1,840,000 if the underwriters' over-allotment option is exercised in full), plus deferred underwriting compensation payable to Maxim Group LLC, the representative of the underwriters, in the amount of an additional 2.0% of the gross proceeds, or $0.20 per unit, a total of $800,000 ($920,000 if the underwriters' over-allotment option is exercised in full) payable only upon completion of the initial business combination, as described in this prospectus. Does not include a non-accountable expense allowance in the amount of 1.0% of the gross proceeds, or $0.10 per unit ($400,000 in total), payable to Maxim Group LLC, or the unit purchase option granted to Maxim Group LLC. For information concerning underwriting compensation, see "Underwriting." (2) No discounts or commissions are payable with respect to the warrants purchased in the private placement. Of the proceeds we will receive from this offering and the sale of the private warrants, approximately $9.80 per unit, or $39,200,000 ($9.75 per unit, or $44,840,000 if the underwriters' over-allotment option is exercised in full) in the aggregate, will be deposited into a trust account at Merrill Lynch, Pierce, Fenner & Smith Incorporated, maintained by American Stock Transfer & Trust Company, acting as trustee. An additional $800,000 ($920,000 if the underwriters' over-allotment option is exercised in full), or $0.20 per unit, representing the deferred underwriting discount payable to Maxim Group LLC if we complete a business combination, will be deposited in the trust account and will be available for distribution to public stockholders upon our liquidation if we do not complete a business combination. If the over-allotment option is exercised, the first $240,000 in interest earned on the amount held in the trust account (net of taxes payable) will be used to bring the amount held in trust for the benefit of the public stockholders to an aggregate of $46,000,000 ($10.00 per share). The underwriters also may purchase up to an additional 600,000 units from us at the public offering price, less the underwriting discount, within 45 days from the date of this prospectus to cover over-allotments. We have also agreed to sell for $100 to Maxim Group LLC, the representative of the underwriters in this offering, as additional compensation, an option to purchase up to 280,000 units at $11.00 per unit. The units we will issue upon exercise of this option are identical to those offered by this prospectus. The option and the securities we will issue upon its exercise have been registered under the registration statement of which this prospectus forms a part. The underwriters expect to deliver the units against payment in New York, New York on , 2007. Maxim Group LLC , 2007 1
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Table of Contents Page ---- Prospectus Summary 1 Summary Financial Data 13 Risk Factors 15 Use of Proceeds 41 Capitalization 44 Dilution 45 Management's Discussion and Analysis of Financial Condition and Results of Operations 48 Proposed Business 51 Our Executive Officers and Directors 71 Security Ownership 75 Certain Relationships and Related Transactions 77 Description of Securities 79 Dividend Policy 84 Underwriting 85 Legal Matters 93 Experts 93 Where You Can Find Additional Information 93 Index to Financial Statements F-1 If you are not an institutional investor, you may purchase securities in this offering only if you reside within the states in which we have applied to have the securities registered. We have registered the securities in: Colorado, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, New York, Rhode Island and Wyoming. You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. This prospectus contains forward-looking statements that are based upon our or our management's expectations and beliefs concerning future developments and their potential effect upon us. You should not place undue reliance on these forward-looking statements which may involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading "Risk Factors." Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Except as may be required under applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. "Business Combination Company"(TM) and "BCC"(TM) are service marks of Maxim Group LLC. 2
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Prospectus Summary This summary provides an overview of certain information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our units. You should carefully read the prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our units, including the information discussed under "Risk Factors" beginning on page 15 and our financial statements and the notes thereto that appear elsewhere in this prospectus. Unless otherwise stated, all of the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. As used in this prospectus, unless the context otherwise indicates: o the terms "we," "us" and "our company" refer to China Resources Ltd.; o references to our certificate of incorporation include our certificate of incorporation as filed with the Office of the Secretary of State of Delaware on June 8, 2007, and all amendments thereto; o the term "existing stockholders" refers to our directors and executive officers who owned 1,000,000 shares of our common stock, sometimes referred to in this prospectus as "founding shares," immediately prior to the date of this offering and the private placement; o references to the "PRC" or "China" include all territory claimed by or under the control of the Central Government, except Hong Kong, Macau, and Taiwan, also known as the People's Republic of China; the term "Central Government" means the national government of the People's Republic of China, or the PRC, and its various ministries, agencies and commissions; the term "Provinces" include provinces, autonomous regions, and municipalities directly under the Central Government; the term "Local Governments" refers to governments in the PRC, including governments at all administrative levels below the Central Government, including provincial governments, governments of municipalities directly under the Central Government, municipal governments, county governments, and township governments; and the term "PRC Government" means the Central Government and Local Governments; o the term "private placement" refers to the purchase by certain of our directors and officers, or entities that they control, in a private placement that will occur prior to the date of this prospectus of an aggregate of 2,600,000 warrants at $1.00 per warrant; and the term "private warrants" refers to the 2,600,000 warrants to be purchased in the private placement; o the term "public stockholders" means the holders of our common stock sold as part of the units in this offering or in the aftermarket, including any existing stockholders, to the extent that they purchase or acquire units in this offering or in the aftermarket; o references to "Renminbi" or "RMB" are to Renminbi yuan, which is the lawful currency of the PRC; o the term "representative" refers to Maxim Group LLC; and o the term "sponsor" refers to Mr. Fuzu Zeng, our CEO, President, Chairman of the Board and principal stockholder. Our Strategy and Target Business We are a blank check company known as a Business Combination Company(TM) or BCC(TM). We were formed under the laws of the State of Delaware on June 8, 2007 for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase or similar business combination, an unidentified operating business that has its principal operations in the PRC. While our efforts in identifying a prospective target business will not be limited to a particular industry segment, we intend to focus our initial efforts on acquiring an operating business in the natural resources sector, particularly minerals, whose activities include mining, extracting, smelting, processing and/or fabricating. Opportunities for market expansion have emerged for businesses with operations in the PRC 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 business combinations and an attractive operating environment for a target business for several reasons, including increased government focus within the PRC on privatizing assets, improving foreign trade and encouraging business and economic activity leading to the PRC having one of the highest gross domestic product growth rates among major industrial countries in the world, as well as strong growth in many sectors of its economy driven by emerging private enterprises. 3
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Notwithstanding these facts, there are various risks of business combinations in the PRC, including the risk that we may be unable to enforce our rights in the PRC, that the government may revert back to former policies less conducive to free trade and that relations between China and countries in other regions of the world, including the United States, may deteriorate leading to reduced trade. While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business or businesses whose collective fair market value is at least equal to 80% of our net assets (excluding deferred underwriting discounts and commissions payable to the representative of $800,000, or $920,000 if the underwriters' over-allotment option is exercised in full) at time of the business combination. As used in this prospectus, a "target business" shall include one or more operating businesses with principal operations in the PRC and a "business combination" shall mean the acquisition by us of such a target business. We have not, directly or indirectly, contacted any potential target businesses or their representatives or had any discussions, formal or otherwise, with respect to effecting any potential business combination with our company. Moreover, we have not engaged or retained any agent or other representative to identify or locate any suitable acquisition candidate for us. We have not yet taken any measure, directly or indirectly, to locate a target business. Our management team is aware of the restrictions that apply to the identification of, and negotiations and agreements with, prospective target businesses and the disclosure required when there is an agreement pertaining to an acquisition or an acquisition is probable. We may further seek to acquire a target business that has a fair market value significantly in excess of 80% of our net assets. In order to do so, we may seek to raise additional funds through a private offering of debt or equity securities and/or any other method of financing, although we have not entered into any such arrangement and do not plan to seek additional financing for that purpose. However, if we did, such arrangement would only be completed simultaneously with the completion of the business combination. 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. For more information, see the section below entitled "Proposed Business - Fair market value of target business." Following completion of this offering and until we complete a business combination, our officers and directors will not receive any compensation. However, all of these 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. These individuals may be paid consulting, management or other fees from target businesses as a result of the business combination, with any and all amounts being fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials furnished to our stockholders. Our offices are located at Shen Zhen China Jia Yue Trading Co., Ltd., Room 921, Block A, Golden Central Tower, Jintian Road, Futian District, Shenzhen, P.R. China , and our telephone number is 86-755-23993668. Private Placement Prior to the date of this prospectus, certain of our directors and officers, or entities that they control, will purchase from us in a private placement an aggregate of 2,600,000 warrants for a total purchase price of $2,600,000, or $1.00 per warrant. Each warrant may be exercised to purchase one share of our common stock at $7.50 per share and commencing on the later of: (i) the completion of a business combination with a target business or (ii) one year from the date of this prospectus. The warrants will expire at 5:00 p.m., New York City time, on [ ], 2011, four years following the date of this prospectus, or earlier upon redemption. 4
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Of the $2,600,000 gross proceeds from the sale of the 2,600,000 warrants in the private placement, $2,500,000 will be deposited into the trust account pending completion of a business combination, with the remaining $100,000 available to us outside the trust for working capital. The private warrants will contain restrictions prohibiting their transfer until the earlier of the consummation of a business combination or our dissolution and liquidation and will be deposited and held in escrow until such time as the restrictions on transfer expire. The Offering Securities offered: 4,000,000 units, at $10.00 per unit, each unit consisting of: o one share of common stock; and o one warrant. Trading commencement and The units will begin trading on or promptly after separation of common stock the date of this prospectus. Each of the common and warrants: stock and warrants may trade separately beginning on the 10th business day following the earlier to occur of: (i) the expiration of the underwriters' over-allotment option or (ii) its exercise in full. In no event will separate trading of the common stock and warrants occur until we have filed a Current Report on Form 8-K with the Securities and Exchange Commission containing an audited balance sheet reflecting our receipt of the gross proceeds of this offering and issuing a press release announcing when such separate trading will begin. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the completion of this offering, which is anticipated to take place three business days following the date of this prospectus. 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 Current Report on Form 8-K. If the over-allotment option is exercised following the initial filing of this Form 8-K, we will file an amendment to that Form 8-K, or an additional Form 8-K, reporting information relating to the exercise of the over-allotment option. Although we will not distribute copies of the Current Report on Form 8-K to individual unit holders, the Current Report will be available on the SEC's website after its filing. For more information on where you can find a copy of these and other of our filings, see the section appearing elsewhere in the prospectus titled "Where You Can Find Additional Information." Common stock: Number outstanding before 1,000,000 the date of this offering: Number to be outstanding 5,000,000 (does not include 280,000 shares of our after this offering: common stock included in the representative's unit purchase option). Public Warrants: Number outstanding before None this offering: Number to be outstanding 4,000,000 (does not include 280,000 warrants after this offering: included in the representative's unit purchase option) Exercisability: Each public warrant is exercisable for one share of common stock. Exercise price: $7.50 per share 5
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Exercise period for the The warrants will become exercisable on the later public warrants included in of: the units sold in this offering: o the completion of an initial business combination with a target business; and o [ ], 2008, one year following the date of this prospectus; provided that a current registration statement is in effect and a current prospectus is available with respect to the common stock we will issue upon exercise of the public warrants. All warrants will expire at 5:00 p.m., New York City time, on [_________], 2011, four years following the date of this prospectus, or earlier upon redemption. Redemption: When the warrants are exercisable, we may redeem the outstanding public warrants (including any warrants issued upon exercise of the representative's unit purchase option): o in whole and not in part; o at a price of $.01 per warrant; 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 $14.25 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption; provided that a current registration statement is in effect and a current prospectus is available with respect to the common stock we will issue upon exercise of the public warrants. We have established the above conditions to provide public warrant holders with a reasonable premium to the initial warrant exercise price as well as a reasonable cushion against a negative market reaction, if any, to our redemption call. The warrants which we will issue to the representative upon the exercise of the representative's unit purchase option are subject to the same redemption conditions. If the foregoing conditions are satisfied and we call the public warrants for redemption, each warrant holder shall then be entitled to exercise his or her warrant prior to the date scheduled for redemption; however, we cannot assure you that the price of the common stock will exceed the $14.25 trigger price for redemption or the warrant exercise price after the redemption call is made. Private warrants: Number of private warrants None outstanding before this offering and the private placement: Number of private warrants 2,600,000 outstanding after this offering and the private placement: Exercisability: Each private warrant is exercisable for one share of common stock. Exercise price: $7.50 per share Exercise period: The 2,600,000 private warrants will become exercisable on the later of: the completion of a business combination; or 6
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[ ], 2008 one year following the date of this prospectus. The private warrants will expire at 5:00 p.m., New York City time, on [ ], 2011 four years following the date of this prospectus. Redemption: We may redeem the private warrants: o in whole and not in part (and only in conjunction with the redemption of the public warrants); o at a redemption price of $0.01 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 closing price of our common stock equals or exceeds $14.25 per share for any 20 trading days within a 30-trading day period ending three business days before we send the notice of redemption; provided that a current registration statement is in effect and a current prospectus is available with respect to the common stock we will issue upon exercise of the public warrants. If the foregoing conditions are satisfied and we call the private warrants for redemption, each warrant holder will be entitled to exercise his or her warrant before the date scheduled for redemption. Proposed OTC Bulletin Board symbols for our: Units: [_____U] Common stock: [_______] Warrants: {______W] Offering and private Except for $100,000 that we will retain for our placement proceeds to be working capital requirements, all of the proceeds held in the trust account: of this offering and the private placement will be placed in a trust account at Merrill Lynch, Pierce, Fenner & Smith Incorporated, maintained by American Stock Transfer & Trust Company, as trustee, pursuant to an agreement to be signed on the date of this prospectus. An additional $800,000 ($920,000 if the underwriters' over-allotment option is exercised in full), representing the deferred underwriting discount payable to Maxim Group LLC, will be deposited in the trust account and will be available for distribution to public stockholders upon our liquidation if we do not complete a business combination. We believe that the inclusion in the trust account of the proceeds from the private placement and the deferred portion of the underwriting discounts and commissions is a benefit to our stockholders because additional proceeds will be available for distribution to investors if we liquidate the trust account as part of our dissolution and prior to our completing an initial business combination. 7
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Offering and private placement proceeds to be held in the trust account: - continued Subject to federal bankruptcy and similar laws, these proceeds will not be released until the earlier of (i) the completion of a business combination on the terms described in this prospectus, or (ii) implementation of our plan of dissolution and liquidation. Therefore, unless and until a business combination is completed, the proceeds held in the trust account will not be available for our use for any purpose, including the payment of any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business or the negotiation of an agreement to effect the business combination, except that there can be released to us periodically from the interest earned on the trust account, net of taxes on such interest, upon request of our Board, up to $1,000,000 to fund our working capital requirements and to pay expenses associated with pursuing a business combination; provided that if the over-allotment option is exercised in full, to the extent the funds in trust are less than $10.00 per share, the first $240,000 in interest earned on the amount held in the trust account (net of taxes payable) will be used to cover such shortfall to bring the amount held in trust for the benefit of the public stockholders to an aggregate of $46,000,000 ($10.00 per share). With this exception, expenses incurred by us while seeking a business combination may be paid prior to a business combination only from the net proceeds of this offering not held in the trust account (initially, $100,000 after the payment of the expenses related to this offering). Although we do not know the rate of interest to be earned on the trust account and are unable to predict an exact amount of time it will take to complete a business combination, we anticipate that the interest that will accrue on the trust account, even at an interest rate of 4% per annum (approximately $3,120,000 over a period of 24 months if the underwriters' over-allotment option is not exercised), during the time it will take to identify a target and complete an acquisition in the aggregate amount available to us, will be sufficient to fund our working capital requirements and to pay expenses associated with pursuing a business combination. The net proceeds attributable to the deferred underwriting discounts and commissions (and any accrued interest thereon, net of taxes payable) will be paid to the representative upon completion of a business combination on the terms described in this prospectus. None of the warrants may be exercised until after the completion of a business combination and, thus, after the proceeds of the trust account have been disbursed. Accordingly, after the completion of a business combination, the proceeds from the exercise of the warrants will be paid directly to us and not placed in the trust account. We may use a portion of the up to $1,000,000 in interest earned (net of taxes) we may withdraw from the trust account to make a deposit, down payment or fund a "no-shop, standstill" provision with respect to a particular proposed business combination. If we were ultimately required to forfeit those funds (whether as a result of our breach of the agreement relating to such payment or otherwise), we may not have a sufficient amount of working capital available to pay expenses related to finding a suitable business combination without securing additional financing. If we were unable to secure additional financing, we would most likely fail to complete a business combination in the allotted time and would be forced to liquidate. Limited payments to There will be no fees or other cash payments paid insiders: to our existing stockholders or our officers or directors prior to or in connection with a business combination, other than: 8
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o payment of $7,500 per month from the closing of this offering to the earlier of the consummation of a business combination and our dissolution and liquidation, to Shen Zhen China Jia Yue Trading Co., Ltd., an affiliate of our sponsor, for office space and related services; o repayment of advances from our sponsor to fund certain of the expenses associated with this offering out of the proceeds of this offering; and o reimbursement of out-of-pocket expenses incurred by our officers and directors in connection with certain activities on our behalf, such as identifying and investigating possible business targets and business combinations. Conditions to consummating Our initial business combination must occur with our initial business one or more target businesses whose collective fair combination: market value is at least equal to 80% of our net assets (excluding deferred underwriting discounts and commissions payable to the representative of $800,000, or $920,000 if the underwriters' over-allotment option is exercised in full) at the time of such business combination. Stockholders must approve We will seek stockholder approval before we effect business combination: our initial business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable law. In connection with the vote required for our initial business combination, our executive officers and directors have agreed to vote their respective founding shares in accordance with the majority of the shares of common stock voted by the public stockholders. They also have agreed to vote all shares of common stock they acquire in this offering or in the aftermarket in favor of a business combination. As a result, our existing stockholders will not have any conversion rights attributable to their shares in the event that a business combination is approved by a majority of our public stockholders. We will proceed with the initial business combination only if the following conditions are met: (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 35% of the shares sold in this offering vote against the business combination and exercise their conversion rights, as described below. Voting against the business combination alone will not result in conversion of a stockholder's shares for a pro rata share of the trust account. To receive a per share cash payment of $10.00, which includes $0.20 attributable to underwriting compensation, a stockholder who voted against the proposed business combination also must have exercised his or her conversion rights, described below. Even if stockholders holding less than 35% of the shares of common stock included in the units sold in this offering exercise their conversion rights, we may be unable to complete a business combination if, after payment for shares converted, the fair market value of the business to be acquired is less than 80% of our net assets (excluding deferred underwriting discounts and commissions) at the time of the business combination, which amount is required as a condition to the completion of our initial business combination. In that event, we may be forced to find additional financing to complete such a business combination, complete a different business combination or dissolve and liquidate. Conversion rights for Public stockholders who properly exercise their stockholders voting to conversion rights and who vote against a business reject a business combination which is approved will be entitled to combination: convert their stock into a per share cash payment of $10.00 (which includes $0.20 attributable to the 9
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deferred underwriting compensation) if the business combination is completed. Our existing stockholders will not be able to convert their founding shares into a cash payment under these circumstances. For more information, see the section entitled "Proposed Business--Effecting a Business Combination--Conversion rights." Public stockholders who properly convert their common stock will be paid the per share conversion price of $10.00 promptly following the completion of our initial business combination. Since this amount may be lower than the market price of the common stock on the date of conversion, there may be a disincentive on the part of public stockholders to exercise their conversion rights. For more information, see "Proposed Business--Effecting a Business Combination--Opportunity for stockholder approval of business combination." Dissolution and liquidation We have agreed with the trustee to promptly adopt if no business combination: a plan of dissolution and liquidation and initiate procedures for our dissolution and liquidation and the distribution of our assets, including the funds held in the trust account, if we do not effect a business combination within 18 months after completion of this offering (or within 24 months after the completion of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after completion of this offering and the business combination related thereto has not been completed within that 18-month period). We cannot provide investors with assurances of a specific time frame for the dissolution and liquidation. Pursuant to our certificate of incorporation, upon the expiration of such time periods, our purpose and powers will be limited to acts and activities relating to dissolving, liquidating and winding up. As required under Delaware law, we will seek stockholder approval for any voluntary plan of dissolution and liquidation. Upon our receipt of the required approval by our stockholders of our plan of dissolution and liquidation, we will liquidate our assets, including the trust account, and after (i) paying or making reasonable provision to pay all claims and obligations known to us; (ii) making such provision as will be reasonably likely to be sufficient to provide compensation for any claim against us which is the subject of a pending action, suit or proceeding to which we are a party; and (iii) making such provision as will be reasonably likely to be sufficient to provide compensation for claims that have not been made known to us or that have not arisen but that, based on facts known to us, are likely to arise or to become known to us within ten years after the date of dissolution, distribute our remaining assets solely to our public stockholders. Our existing stockholders will not have the right to participate in any liquidating distributions occurring upon our failure to complete a business combination with respect to their founding shares, and have agreed to vote all of their shares in favor of any such plan of dissolution and liquidation. In addition, if we liquidate, the representative has agreed to waive its right to the $800,000 ($920,000 if the underwriters' over-allotment option is exercised in full) of contingent compensation deposited in the trust account for its benefit. 10
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Dissolution and liquidation We estimate that, in the event we liquidate the if no business combination: trust account, a public stockholder will receive - continued approximately $10.00 per share, without taking into account interest earned, net of taxes on the trust account, out of the funds in the trust account. We expect that all costs associated with implementing our plan of dissolution and liquidation, as well as payments to any creditors, will be funded by the proceeds of this offering deposited in the trust account, together with interest earned (net of taxes) released to us of up to $1,000,000 for working capital, but if the funds in the trust account (including interest earned) are not sufficient for those purposes or to cover our liabilities and obligations, the amount distributed to our public stockholders would be less than $10.00 per share. In the event the over-allotment option is exercised in full, to the extent the funds in trust are less than $10.00 per share, the first $240,000 in interest earned on the amount held in the trust account (net of taxes payable) will be used to cover such shortfall to bring the amount held in trust for the benefit of the public stockholders to an aggregate of $46,000,000 ($10.00 per share). We estimate that our total costs and expenses for implementing and completing our stockholder-approved plan of dissolution and liquidation will be in the range of $50,000 to $75,000. This amount includes all costs and expenses relating to filing of our dissolution in the State of Delaware, the winding up of our company and the costs of a proxy statement and meeting relating to the approval by our stockholders of our plan of dissolution and liquidation. We believe that there should be sufficient funds available from the interest released to us of up to $1,000,000 for working capital to fund the $50,000 to $75,000 of expenses, although we cannot assure you that there will be sufficient funds for those purposes. Our sponsor has agreed to indemnify us for these expenses to the extent there are insufficient funds available from the proceeds not held in the trust account and interest released to us from the trust account. In addition, if we seek approval from our stockholders to complete a business combination in the period within 90 days prior to the expiration of 24 months after the completion of this offering (assuming that the period in which we need to complete a business combination has been extended, as provided in our certificate of incorporation), the proxy statement related to such business combination will also seek stockholder approval for our board's recommended plan of dissolution and liquidation, in the event our stockholders do not approve such business combination. If no proxy statement seeking the approval of our stockholders for a business combination has been filed 30 days prior to the date that is 24 months after the completion of this offering, our board of directors will, prior to such date, convene, adopt and recommend to our stockholders a plan of dissolution and liquidation and, on such date, file a proxy statement with the Securities and Exchange Commission, or SEC, seeking stockholder approval for such plan. For more information regarding the dissolution and liquidation procedures and the factors that may impair our ability to distribute our assets, including stockholder approval requirements, or cause distributions to be less than $10.00 per share, please see the sections entitled "Risk Factors--Risks associated with our business--If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per share liquidation price received by stockholders will be less than $10.00 per share," "Risk Factors--Risks associated with our business--Under Delaware law, our dissolution requires certain approvals by holders of our outstanding stock, without which we will not be able to dissolve and liquidate and distribute our assets to our public stockholders," "Risk Factors--Risks associated with our business--Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them," and "Proposed Business--Effecting a business combination--Dissolution and liquidation if no business combination." 11
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Escrow of founding shares On the date of this prospectus, all of our existing and private warrants: stockholders will place their founding shares into an escrow account maintained by American Stock Transfer & Trust Company, acting as escrow agent. These shares will be released from escrow on the earlier of (i) [____________], 2010, three years following the date of this prospectus and (ii) one year following the completion of a business combination with a target business. The foregoing restriction is subject to certain limited exceptions. Individuals holding founding shares may transfer such securities to an entity controlled by such individual or to family members and trusts for estate planning purposes or, upon death, to an estate or beneficiaries. Entities holding founding shares may transfer such securities to persons or entities controlling, controlled by, or under common control with such entity. Even if transferred under these circumstances, the founding shares will remain in the escrow account. The shares may be released from escrow prior to the above date only if, following the initial business combination, we complete a transaction in which all of the stockholders of the combined entity have the right to exchange their shares of common stock for cash, securities or other property. If we are forced to liquidate, the founding shares will be cancelled. The private warrants will be placed in the same escrow account as the founding shares until we have completed a business combination and each of the holders of the private warrants has agreed not to sell or transfer the private warrants until after we have completed a business combination, subject to the same exceptions described above with respect to the founding shares. Determination of offering We based the size of this offering on our belief amount: as to the capital required to facilitate our combination with one or more viable target businesses with sufficient scale to operate as a stand-alone public entity. We also considered the financial resources of competitors, including other blank check companies with no limitation on the industries in which they may acquire businesses and the amounts such blank check companies were seeking to raise or have raised in recent public offerings. We believe that raising the amount described in this offering will offer us a variety of potential target businesses. In addition, we also considered the past experiences of our officers and directors in operating businesses, and the size of those businesses. We believe that possessing an equity base equivalent to the net proceeds of this offering will provide us the capital to combine with viable target businesses in the sector within which we intend to focus our efforts initially. The determination of the offering price of our units and the valuation accorded to our company is more arbitrary than the pricing of securities for or valuation of operating companies in or related to the sector within which we intend to focus our efforts initially. Risks In making your decision on whether to invest in our securities, you should take into account not only the backgrounds of the members of our management team, but also the special risks we face as a blank check company. In addition, you should consider the following risks: 12
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o this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings; o investors' funds will be held in trust for up to 24 months in the event we are unable to consummate a business combination; o if third parties bring claims against us, the proceeds held in trust could be reduced and the per share liquidation price may be less than $10.00 per share; o stockholders may be held liable for claims by third parties against us to the extent of distributions received by them; o an effective registration statement may not be in place when you desire to exercise your warrants, thereby potentially causing those warrants to be practically worthless; and o 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 which are set forth in detail in the section entitled "Risk Factors" beginning on page 15 of this prospectus 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 operations to date, so only balance sheet data is presented. [Enlarge/Download Table] June 30, 2007 (Unaudited) -------------------------------- Actual As Adjusted(1) ----------- -------------- Balance Sheet Data: Working capital (deficit) $ (79,040) $39,317,460 Total assets $ 121,460 $39,317,460 Advances from stockholder $ 104,000(2) $ -- Total liabilities $ 104,000 $ 800,000 Value of common stock which may be converted to cash(3) $ -- $11,759,990 Stockholders' equity $ 17,460 $26,757,470 ---------- (1) The "as adjusted" information gives effect to the sale of the units in this offering and the sale of the private warrants in the private placement, including the application of the related gross proceeds and the payment of the estimated remaining costs from such transactions, including repayment of amounts advanced by our sponsor to fund certain expenses associated with this offering, and the $800,000 ($920,000 if the underwriters' over-allotment is exercised in full) being held in the trust account representing the deferred underwriting compensation. (2) Represents amounts advanced by a stockholder to fund certain expenses associated with this offering that will be repaid out of the proceeds of this offering. (3) If a business combination is approved and completed, public stockholders who voted against the business combination will be entitled to convert their stock into cash at a per share price of $10.00, which includes the $0.20 deferred underwriting compensation attributable to the share. However, the ability of stockholders to receive $10.00 per share upon liquidation is subject to any valid claims by our creditors which are not covered by amounts held in the trust account or the indemnities provided by our sponsor. See "Risk Factors - Risks associated with our business - If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per share liquidation price received by stockholders will be less than $10.00 per share and "Proposed Business - Effecting a business combination - Dissolution and liquidation if no business combination." In the event the over-allotment option is exercised in full the first $240,000 in interest earned on the amount held in the trust account (net of taxes payable) will be used to bring the amount held in trust for the benefit of the public stockholders to an aggregate of $46,000,000 ($10.00 per share). 13
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Working capital deficit at June 30, 2007 excludes $96,500 of costs related to this offering and the private placement, which were incurred on or prior to June 30, 2007. These deferred offering costs have been recorded as a long-term asset and are reclassified against stockholders' equity in the "as adjusted" column. Working capital (as adjusted) and total assets (as adjusted) amounts include $39,200,000 ($44,840,000 if the underwriters' over-allotment option is fully exercised) deposited in the trust account and $800,000 ($920,000 if the underwriters' over-allotment is exercised in full) being held in the trust account representing the deferred underwriting compensation, which will be distributed on completion of our initial business combination to: (i) any public stockholders who exercise their conversion rights; (ii) the representative, in the amount of $800,000 ($920,000 if the underwriters' over-allotment option is exercised in full), plus interest net of taxes payable, in payment of deferred underwriting discounts and commissions; and (iii) us, in the amount remaining in the trust account following the payment to any public stockholders who exercise their conversion rights and payments to the underwriters of deferred discounts and commissions. All those proceeds will be distributed from the trust account only upon completion of a business combination within the time period described in this prospectus. If a business combination is not so completed, we have agreed to promptly adopt a plan of dissolution and liquidation and initiate procedures for our dissolution and liquidation and the distribution of our assets to our public stockholders, including the available funds held in the trust account. We will not proceed with a business combination if public stockholders owning 35% or more of the shares sold in this offering vote against the business combination and exercise their conversion rights. Accordingly, we may effect a business combination if public stockholders owning up to 1,399,999 shares of common stock (1,609,999 shares if the over-allotment option is exercised in full), one share less than 35% of the shares sold in this offering, vote against the business combination and exercise their conversion rights. If this occurs, we will convert to cash up to 1,399,999 shares of common stock at a per share conversion price of $10.00. Of the $10.00 per share conversion price, $0.20 per share represents a portion of the deferred underwriting compensation, which the representative has agreed to forego on a pro-rated basis for each share that is converted. Accordingly, the total deferred underwriting compensation payable to the representative in the event of a business combination will be reduced by $0.20 for each share that is converted. The balance, plus interest net of taxes payable, will be paid from proceeds held in the trust account which are payable to us upon consummation of the business combination. In order to partially offset the resulting dilution to non-redeeming stockholders, the existing stockholders have agreed to surrender to us for cancellation up to 100,000 founding shares on a pro-rated basis (at an assumed value of $10.00 per share). Conversion payments will be paid from proceeds held in the trust account which are payable to us upon consummation of the business combination. Even if stockholders holding less than 35% of the shares of common stock included in the units sold in this offering exercise their conversion rights, we may be unable to complete a business combination if, after payment for shares converted, our net assets (excluding deferred underwriting discounts and commissions) at the time of the business combination are less than 80% of the fair market value of the business acquired, which amount is required as a condition to the completion of our initial business combination. In that event, we may be forced to find additional financing to complete such a business combination, complete a different business combination or dissolve and liquidate. 14
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Risk Factors Investing in our securities involves a high degree of risk. You should carefully consider the risks described below and all of the other information set forth in this prospectus before deciding to invest in our units. If any of the events or developments described below occurs, our business, financial condition or results of operation could be negatively affected. In that case, the trading price of our securities could decline, and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors discussed in this prospectus, including the risks described below. Risks Associated with Our Business We are a development stage company with no operating history and, accordingly, you will not have any basis on which to evaluate our ability to achieve our business objective. We are a recently incorporated development stage company with no operating results to date. Therefore, our ability to commence operations is dependent upon obtaining financing through the public offering of our securities. Since we do not have an operating history, you will have no basis upon which to evaluate our ability to achieve our business objective, which is to acquire an operating business. We have not conducted any discussions and we have no plans, arrangements or understandings with any prospective acquisition candidates. We will not generate any revenues until, at the earliest, after the completion of a business combination. We cannot assure you as to when, or if, a business combination will occur. We may not be able to complete a business combination within the required time frame, in which case, we will be forced to dissolve and liquidate. We must complete a business combination with one or more operating businesses with a collective fair market value equal to at least 80% of our net assets (excluding deferred underwriting discounts and commissions of $800,000, or $920,000 if the underwriters' over-allotment option is exercised in full) at the time of the business combination within 18 months after the completion of this offering (or within 24 months after the completion of this offering if a letter of intent, agreement in principle or a definitive agreement has been executed within 18 months after the completion of this offering and the business combination relating thereto has not yet been completed within that 18-month period). If we fail to complete a business combination within the required time frame, we have agreed with the trustee to promptly initiate procedures to dissolve and liquidate our assets. We may not be able to find suitable target businesses within the required time frame. In addition, our negotiating position and our ability to conduct adequate due diligence on any potential target may be reduced as we approach the deadline for the completion of a business combination. We do not have any specific merger, capital stock exchange, asset acquisition, asset purchase or similar business combination transaction under consideration and we have not had any contacts or discussions with any target business regarding such a transaction. The terms on which we may effect a business combination can be expected to become less favorable as we approach our eighteen and twenty four month deadlines. Under our certificate of incorporation, we must adopt a plan of dissolution and liquidation and initiate procedures for our dissolution and liquidation and the distribution of our assets, including the funds held in the trust account, if we do not effect a business combination within 18 months after completion of this offering (or within 24 months after the completion of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after completion of this offering and the business combination related thereto has not been completed within such 18-month period). We have agreed with the trustee to promptly adopt a plan of dissolution and liquidation and initiate procedures for our dissolution and liquidation and the distribution of our assets, including the funds held in the trust account, upon expiration of the time periods set forth above. Any entity with which we negotiate, or attempt to negotiate, a business combination, will, in all likelihood, be aware of these time limitations and can be expected to negotiate accordingly. In such event, we may not be able to reach an agreement with any proposed target prior to such period and any agreement that is reached can be expected to be on terms less favorable to us than if we did not have the time period restrictions set forth above. Additionally, as the 18 or 24 month time periods draw closer, we may not have the desired amount of leverage in the event any new information comes to light after entering into definitive agreements with any proposed target but prior to consummation of a business transaction. 15
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Under Delaware law, the requirements and restrictions relating to this offering contained in our certificate of incorporation may be amended, which could reduce or eliminate the protection afforded to our stockholders by such requirements and restrictions. Our certificate of incorporation contains certain requirements and restrictions relating to this offering that will apply to us until the completion of a business combination. Specifically, our certificate of incorporation provides, among other things, that: o upon completion of this offering, a certain amount of the net proceeds from the offering shall be placed into the trust account, together with the proceeds from the private placement, which proceeds may not be disbursed from the trust account except in connection with a business combination, upon our dissolution and liquidation, or as otherwise permitted in our certificate of incorporation; o prior to consummating a business combination, we must submit such business combination to our public stockholders for approval; o we may complete the business combination if approved by the holders of a majority of the shares of common stock issued in this offering and public stockholders owning less than 35% of the shares sold in this offering exercise their conversion rights; o if a business combination is approved and completed, public stockholders who voted against the business combination and who properly exercise their conversion rights will receive a cash payment per share of $10.00; o if a business combination is not completed or a letter of intent, an agreement in principle or a definitive agreement is not signed within the time periods specified in this prospectus, then our corporate purposes and powers will immediately thereupon be limited to acts and activities relating to dissolving and winding up our affairs, including liquidation of our assets (including funds in the trust account), and we will not be able to engage in any other business activities; and o we may not complete any merger, capital stock exchange, asset purchase, stock purchase or similar transaction other than a business combination that meets the conditions specified in our certificate of incorporation, including the requirement that the business combination be with one or more operating businesses whose fair market value, collectively, is at least equal to 80% of our net assets (excluding the deferred underwriting discounts and commissions) at the time of that business combination. Under Delaware law, the foregoing requirements and restrictions may be amended if our board of directors adopts a resolution declaring the advisability of an amendment which is then approved by stockholders holding a majority of our outstanding shares. Such an amendment could reduce or eliminate the protection that such requirements and restrictions afford to our stockholders. However, under our certificate of incorporation and the terms of the underwriting agreement, neither we nor our board will propose or seek stockholder approval of any amendment of these provisions without the approval of stockholders holding 95% of our outstanding shares. You will not be entitled to protections normally afforded to investors of blank check companies. Since the net proceeds of this offering are intended to be used to complete a business combination with a target business that has not been identified, we may be deemed to be a "blank check" company under the U.S. securities laws. However, since we will have net tangible assets in excess of $5,000,000 upon the successful completion of this offering and will file a Current Report on Form 8-K with the SEC upon completion of this offering, including an audited balance sheet demonstrating net tangible assets in excess of $5,000,000, 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, such as entitlement to all the interest earned on the funds deposited into the trust account. 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 would normally be permitted under Rule 419. For a more detailed comparison of our offering to offerings under Rule 419, see the section entitled "Proposed Business--Comparison to offerings of blank check companies". 16
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Unlike most other blank check offerings, we allow up to 1,399,999 shares, representing one share less than 35% of the shares sold to our public stockholders, to exercise their conversion rights. The ability of a larger number of our stockholders to exercise their conversion rights may not allow us to consummate the most desirable business combination or optimize our capital structure. When we seek stockholder approval of a business combination, we will offer each public stockholder (but not our existing stockholders with respect to any shares they owned prior to the consummation of this offering) 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 consummated. Such holder must both vote against such business combination and then exercise his, her or its conversion rights to receive a cash payment per share of $10.00, which includes $0.20 attributable to deferred underwriting compensation. Unlike most other blank check offerings which have a 20% threshold, we will allow up to 1,399,999 shares, representing one share less than 35% of the shares sold to our public stockholders, to exercise their conversion rights. 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 account 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. In the event that the acquisition involves the issuance of our stock as consideration, we may be required to issue a higher percentage of our stock to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive business combination available to us. Under Delaware law, our dissolution requires certain approvals by holders of our outstanding stock, without which we will not be able to dissolve and liquidate and distribute our assets to our public stockholders. We have agreed with the trustee to promptly adopt a plan of voluntary dissolution and liquidation and initiate procedures for our dissolution and liquidation if we do not effect a business combination within 18 months after completion of this offering (or within 24 months after the completion of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after completion of this offering and the business combination related thereto has not been completed within that 18-month period). However, pursuant to Delaware law, such dissolution requires certain affirmative votes of stockholders. Specifically, Delaware law requires either (i) the affirmative vote by stockholders then holding a majority of our outstanding common stock approving a resolution by the board of directors to dissolve the company; or (ii) a written consent by all stockholders in which case no prior action by directors is necessary. We contemplate that any such dissolution would be sought by the board of directors' adopting a resolution to dissolve, followed by a meeting of stockholders. Soliciting the vote of our stockholders will require the preparation of preliminary and definitive proxy statements, which are required to be filed with the SEC and could be subject to its review. This process could take a substantial amount of time ranging from 40 days to several months. In the event we seek stockholder approval for a plan of dissolution and liquidation and do not obtain such approval, we will nonetheless continue to pursue stockholder approval for our dissolution. Pursuant to the terms of our certificate of incorporation, our powers following the expiration of the permitted time periods for consummating a business combination will automatically be limited to acts and activities relating to dissolving and winding up our affairs, including liquidation. After the permitted time periods for consummating a business combination have lapsed, the funds held in the trust account may not be distributed except upon our dissolution and, unless and until such approval is obtained from our stockholders, the funds held in the trust account will not be released for any other corporate purpose. Consequently, holders of a majority of our outstanding stock must approve our dissolution in order to receive the funds held in the trust account. 17
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As a result, the distribution of our assets to the public stockholders could be subject to considerable delay. Furthermore, we may need to postpone the stockholder meeting, re-solicit our stockholders or amend our plan of dissolution and liquidation to obtain the required stockholder approval, all of which would further delay the distribution of our assets and result in increased costs. If we are not able to obtain approval from a majority of our stockholders, we will not be able to dissolve and liquidate and we will not be able to distribute funds from our trust account to public stockholders and these funds will not be available for any other corporate purpose. In the event we seek stockholder approval for a plan of dissolution and liquidation and do not obtain such approval, we will nonetheless continue to pursue stockholder approval for our dissolution. However, we cannot assure you that our stockholders will approve our dissolution in a timely manner or will ever approve our dissolution. As a result, we cannot provide investors with assurances of a specific timeframe for the dissolution and distribution. If our stockholders do not approve a plan of dissolution and liquidation and the funds remain in the trust account for an indeterminate amount of time, we may be considered to be an investment company. Please see the section below entitled "Risks associated with this offering--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 third parties bring claims against us, the proceeds held in the trust account could be reduced and the per share liquidation price received by stockholders will be less than $10.00 . Our placing of funds in trust may not protect those funds from third party claims against us. Although we will seek to have all vendors and service providers we engage, providers of financing and prospective target businesses we negotiate with, execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will execute such agreements. Nor is there any guarantee that, even if such entities execute such agreements with us, they will not seek recourse against the trust account. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of our public stockholders. If we liquidate before the completion of a business combination and distribute the proceeds held in trust to our public stockholders, our sponsor has agreed, pursuant to a written agreement with us and the representative, that he will be personally liable to ensure that the proceeds in the trust account are not reduced by vendors, service providers, providers of financing or prospective target businesses that are owed money by us for services rendered or contracted for or products sold to us. However, we cannot assure you that he will be able to satisfy those obligations nor can we assure you that the per-share distribution from the trust account will not be less than $10.00, plus available interest, due to such claims. In the event the over-allotment option is exercised in full, to the extent the funds in trust are less than $10.00 per share, the first $240,000 in interest earned on the amount held in the trust account (net of taxes payable) will be used to cover such shortfall to bring the amount held in trust for the benefit of the public stockholders to an aggregate of $46,000,000 ($10.00 per share). In the event that the proceeds in the trust account are reduced and the sponsor asserts that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether we would take legal action against our sponsor to enforce his indemnification obligations. Furthermore, creditors may seek to interfere with the distribution of the trust account pursuant to federal or state creditor and bankruptcy laws, which could delay the actual distribution of such funds or reduce the amount ultimately available for distribution to our public stockholders. Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us that is not dismissed, the funds held in our trust account will be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to claims of third parties with priority over the claims of our public stockholders. To the extent bankruptcy claims deplete the trust account, we cannot assure you we will be able to return to our public stockholders at least $10.00 per share. 18
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Our independent directors may decide not to enforce our sponsor's indemnification obligations, resulting in a reduction in the amount of funds in the trust account available for distribution to our public stockholders. Our sponsor has agreed to reimburse us for our debts to any vendor for services rendered or products sold to us, potential target businesses or to providers of financing, if any, in each case only to the extent necessary to ensure that such claims do not reduce the amount in the trust account. In the event that the proceeds in the trust account are reduced and our sponsor asserts that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether we would take legal action against our sponsor to enforce his indemnification obligations. While we currently expect that our independent directors would take action on our behalf against our sponsor to enforce his indemnification obligations, it is possible that our independent directors in exercising their business judgment may choose not to do so in a particular instance. If our independent directors choose not to enforce our sponsor's indemnification obligations, the amount of funds in the trust account available for distribution to our public stockholders may be reduced and the per share liquidation distribution could be less than the initial $10.00 held in the trust account. We will dissolve and liquidate if we do not consummate a business combination and our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them. We will dissolve and liquidate our trust account to our public stockholders 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 certain extension criteria are satisfied). Under Sections 280 through 282 of the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in dissolution. If a corporation complies with certain procedures intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder's pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. Although we will seek stockholder approval to liquidate the trust account to our public stockholders as part of our plan of dissolution and liquidation, we do not intend to comply with those procedures. In the event that our board of directors recommends and the stockholders approve a plan of dissolution and liquidation where it is subsequently determined that the reserve for claims and liabilities was insufficient, stockholders who received a return of funds could be liable for claims made by creditors. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them in a dissolution and any such liability of our stockholders will likely extend beyond the third anniversary of such dissolution. Accordingly, we cannot assure you that third parties will not seek to recover from our stockholders amounts owed to them by us. Since we have not currently selected any target business with which to complete a business combination, investors in this offering are unable to currently ascertain the merits or risks of the target business's operations. Since we have not yet identified a prospective target business, investors in this offering have no current basis to evaluate the possible merits or risks of the target business's operations. 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. For a more complete discussion of our selection of a target business, see the section below entitled "Proposed Business--Effecting a business combination--We have not identified a target business." 19
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Because there are numerous companies with a business plan similar to ours seeking to effectuate a business combination, including companies seeking to consummate a business combination with companies in China, it may be more difficult for us to do so. Since August 2003, based upon publicly available information, over 116 similarly structured blank check companies have completed initial public offerings in the United States. Of these companies, only 31 companies have consummated a business combination, while 25 other companies have announced they have entered into a definitive agreement for a business combination, but have not consummated such business combination and five companies have failed to consummate a business combination and have either returned or announced their intention to return proceeds to their stockholders. Accordingly, there are approximately 55 blank check companies with more than $5.3 billion in trust that are seeking to carry out a business plan similar to our business plan. Of these companies, eight with more than $270 million in trust are seeking to consummate a business combination with a company in the PRC. Furthermore, there are a number of additional offerings for blank check companies 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 must complete a business combination in specific industries, a number of them may consummate a business combination in any industry they choose. Therefore, we may be subject to competition from these and other companies seeking to consummate a business plan similar to ours. Because of this competition, we cannot assure you that we will be able to effectuate a business combination within the required time periods. Further, the fact that only 55 of such companies have either consummated a business combination or entered into a definitive agreement for a business combination may indicate that there are fewer attractive target businesses available to such entities or that may privately-held target businesses are not inclined to enter into these types of transactions with publicly held blank check companies like ours. Our ability to successfully effect a business combination and to be successful afterward will be totally dependent upon the efforts of our management, some of whom may join us following a business combination and whom we would have only a limited ability to evaluate. It is also likely that our current officers and directors will resign upon the completion of a business combination. Our ability to successfully effect a business combination will be totally dependent upon the efforts of our management. However, at this time we are unable to ascertain the future role of our management following a business combination. Although we expect certain members of our management team to remain associated with us following a business combination, it is unlikely that our entire management team will remain with the combined company after the completion of a business combination. Thus, we will likely employ other personnel following the business combination. While we intend to closely scrutinize any additional 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, as well as U.S. securities laws, which could cause us to have to expend time and resources helping them become familiar with such laws. This could be expensive and time consuming and could lead to various regulatory issues which may adversely affect our operations. None of our officers and only one of our directors has any previous experience in effecting a business combination through a blank check company which could limit our ability to complete a business combination. None of our officers and only one of our directors, Frederick E. Smithline, has ever been associated with a blank check company. Accordingly, you may not have sufficient information with which to evaluate the ability of our management team to identify and complete a business combination using the proceeds of this offering. Our management's lack of experience in operating a blank check company could limit our ability to complete a business combination and could result in our having to liquidate the trust account. Our officers and directors are 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, or 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. Additionally, our officers and directors may become aware of business opportunities that may be appropriate for presentation to us as well as the other entities with which they are or may be affiliated. Our officers and directors involved in businesses similar to what we may intend to conduct following a business combination may have fiduciary or contractual obligations to present opportunities to those entities first. We cannot assure you that any such conflicts will be resolved in our favor. 20
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Because our officers and directors own shares of our common stock that will not participate in liquidating distributions, 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 and some of them beneficially own the private warrants. None of these persons will have the right to receive distributions from the funds held in a trust account with respect to the founding shares or the private warrants upon our dissolution and liquidation in the event we fail to complete a business combination, and they would lose their entire investment in us were this to occur. Therefore, the personal and financial interests of our officers and directors may influence their motivation in identifying and selecting target businesses and completing a business combination in a timely manner. This 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 public stockholders' best interest. For a complete discussion of the potential conflicts of interest of which you should be aware, see the section below entitled "Our Executive Officers and Directors--Conflicts of Interest." Our officers and directors may allocate their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs, which could have a negative impact on our ability to complete 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 completion of a business combination. Our executive officers are engaged in other business endeavors, and are not obligated to contribute any specific number of hours per week to our affairs. If our executive officers' other business affairs require them to devote more substantial amounts of time to those affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to complete a business combination. For a complete discussion of the potential conflicts of interest of which you should be aware, see the section below entitled "Our Executive Officers and Directors--Conflicts of Interest." We cannot assure you that these conflicts will be resolved in our favor. We will be dependent upon $100,000 available to us from the proceeds of the private placement and the interest earned on the trust account to fund our search for a target company and consummation of a business combination. Of the net proceeds from the sale of the private warrants and our initial public offering, only $100,000 will be available to us outside of the trust to fund our working capital requirements and for expenses associated with potential business combinations. We are dependent upon sufficient interest being earned on the proceeds held in the trust account to provide us with the additional working capital we need to search for a target company and consummate a business combination. While we may withdraw up to an aggregate of $1,000,000 of interest earned on the funds in the trust account, net of taxes thereon, for these purposes, if interest rates were to decline substantially, or if the over-allotment option is exercised in full and we are required to allocate the first $240,000 in interest to the trust account, we may not have sufficient funds available to complete a business combination. In that event, we would need to borrow funds from our insiders or others or be forced to liquidate. None of our officers, directors or stockholders is required to provide any financing to us in connection with, or after, a business combination. Our officers and directors' interests in obtaining reimbursement for any out-of-pocket expenses incurred by them may lead to a conflict of interest in determining whether a particular target business is appropriate for a business combination and in the public stockholders' best interest. Our officers and directors will not receive reimbursement for any out-of-pocket expenses incurred by them unless and until we complete a business combination to the extent that such expenses exceed the up to $1,100,000 available to us to satisfy our working capital requirements and to pursue a business combination, which includes $100,000 from the proceeds of the sale of the private warrants and up to $1,000,000 in interest earned on the funds in the trust account, net of taxes thereon, which may be released to us periodically, upon request of our Board.. These amounts are based on management's estimates of the funds needed to fund our operations for up to the next 24 months and complete a business combination. Those estimates may prove to be inaccurate, especially if a portion of the available proceeds is used to make a down payment in connection with the business combination or pay exclusivity or similar fees or if we expend a significant portion in pursuit of an acquisition that is not completed. The financial interest of our directors and officers could influence their motivation in selecting a target business or negotiating with a target business in connection with a proposed business combination and, thus, there may be a conflict of interest when determining whether a particular business combination is in the public stockholders' best interest. 21
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It is probable that our initial business combination will be with a single target business, which may cause us to be solely dependent on a single business and a limited number of products and services. Our initial business combination must be with a business or businesses with a collective fair market value of at least 80% of our net assets (excluding deferred underwriting discounts and commissions payable to the representative of $800,000, or $920,000 if the underwriters' over-allotment option is exercised in full) at the time of that business combination. We may not be able to acquire more than one target business because of various factors, including possible complex accounting issues, which would include generating pro forma financial statements reflecting the operations of several target businesses as if they had been combined, and numerous logistical issues, which could include attempting to coordinate the timing of negotiations, proxy statement disclosure and closings with multiple target businesses. In addition, we would also be exposed to the risk that conditions to closings with respect to the acquisition of one or more of the target businesses would not be satisfied bringing the fair market value of the initial business combination below the required fair market value of 80% of our net assets threshold. Accordingly, while it is possible that we may attempt to effect our initial business combination with more than one target business, we are more likely to choose a single target business if deciding between one target business meeting such 80% threshold and comparable multiple target business candidates collectively meeting the 80% threshold. Consequently, it is probable that, unless the purchase price consists substantially of our equity, we will have the ability to complete only the initial business combination with the proceeds of this offering. Accordingly, the prospects for our success may be: 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 and 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. Further, the prospects for our success may be entirely dependent upon the future performance of the initial target business or businesses that we acquire. Because of our limited resources and the significant competition for business combination opportunities, we may not be able to complete 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. 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: o our obligation to seek stockholder approval of a business combination may materially delay the completion of a transaction; 22
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o our obligation to convert into cash the shares of common stock in certain instances may materially reduce the resources available for a business combination; and o 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 material competitive disadvantage in successfully negotiating a business combination, particularly against a competitor that does not need stockholder approval. Because of these factors, we may not be able to successfully compete for an attractive business combination, or to effectuate any business combination within the required time periods. If we do not find a suitable target business within such time periods, we will be forced to liquidate. A significant portion of our working capital could be expended in pursuing acquisitions that are not completed. We expect that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. In addition, we may opt to make down payments or pay exclusivity or other fees in connection with structuring and negotiating a business combination. If a decision is made not to complete a specific business combination, the costs incurred up to that point for the proposed transaction, potentially including down payments or exclusivity or similar fees, would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, we may fail to complete the transaction for any number of reasons, including those beyond our control such as that 35% or more of our public stockholders vote against the transaction and exercise their conversion rights even though a majority of our public stockholders approve the transaction. Any such event will result in a loss to us of the related costs incurred, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. For more information, see the section entitled "Proposed Business--Effecting a Business Combination--We have not identified a target business." 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 the transaction or abandon a particular business combination. 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 not held in trust (including interest earned on the trust account released to us for working capital) 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 complete 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 complete 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. The ability of our stockholders to exercise their conversion rights may not allow us to effectuate the most desirable business combination. 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 so elects and votes against the business combination and the business combination is approved and completed. 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 account 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 expected. 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. 23
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Our outstanding warrants may have an adverse effect on the market price of common stock and make it more difficult to effect a business combination. We will issue warrants to purchase an aggregate of 6,600,000 shares of common stock in connection with the private placement of warrants and the offering of the units (not including the 280,000 warrants included in the representative's unit purchase option or the 600,000 warrants included in the over-allotment option). 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 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. Accordingly, our warrants 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 could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings. Risks related to business combinations with companies that have operations in China Business combinations with companies that have operations in China entail special considerations and risks. If we are successful in completing a business combination with a target business with operations in China, we will be subject to, and possibly adversely affected by, the following risks: After a business combination, substantially all of our assets will likely be located in China and substantially all of our revenue will be derived from our operations in China. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and legal policies, developments and conditions in China. The PRC's economic, political and social conditions, as well as government policies, could affect our business. The PRC economy differs from the economies of most developed countries in many respects. China's GDP has grown consistently since 1978 (National Bureau of Statistics of China). However, we cannot assure you that such growth will be sustained in the future. If in the future China's economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate a business combination and if we effect a business combination, the ability of that target business to become profitable. The PRC's economic growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may have a negative effect on us, depending on the industry in which we engage in a business combination. For example, our financial condition and results of operations may be adversely affected by PRC government control over capital investments or changes in tax regulations that are applicable to a potential target business and a business combination. The PRC's economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the PRC government has implemented measures emphasizing the use of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over PRC economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. We cannot assure you that China's economic, political or legal systems will not develop in a way that becomes detrimental to our business, results of operations and prospects. 24
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A recent positive economic change has been the PRC's entry into the World Trade Organization, or WTO, the sole global international organization dealing with the rules of trade between nations. It is believed that the PRC's entry will ultimately result in a reduction on tariffs for industrial products, a reduction in trade restrictions and an increase in trading with the United States. However, the PRC has not fully complied with all of its WTO obligations to date, including fully opening its markets to American goods and easing the current trade imbalance between the two countries. If actions are not taken to rectify these problems, trade relations may be strained and this may have a negative impact on China's economy. 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, or services we offer, 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. As a result of merger and acquisition regulations implemented on September 8, 2006 relating to acquisitions of assets and equity interests of Chinese companies by foreign persons, it is expected that acquisitions will take longer and be subject to economic scrutiny by the PRC government authorities such that we may not be able to complete a transaction. On September 8, 2006, the Ministry of Commerce, or MOFCOM, together with several other government agencies, promulgated a comprehensive set of regulations governing the approval process by which a Chinese company may participate in an acquisition of its assets or its equity interests and by which a Chinese company may obtain public trading of its securities on a securities exchange outside the PRC. Although there was a complex series of regulations in place prior to September 8, 2006 for approval of Chinese enterprises that were administered by a combination of provincial and centralized agencies, the new regulations have largely centralized and expanded the approval process to the Ministry of Commerce, the State Administration of Industry and Commerce, the State Administration of Foreign Exchange, or SAFE or its branch offices, the State Asset Supervision and Administration Commission, or SAIC, and the China Securities Regulatory Commission. Depending on the structure of a transaction, these regulations will require the Chinese parties to make a series of applications and supplemental applications to the aforementioned agencies, some of which must be made within strict time limits and depending on approvals from one or the other of the aforementioned agencies. The application process has been supplemented to require the presentation of economic data concerning a transaction, including appraisals of the business to be acquired and evaluations of the acquirer which will permit the government to assess the economics of a transaction in addition to the compliance with legal requirements. If obtained, approvals will have expiration dates by which a transaction must be completed. Also, completed transactions must be reported to MOFCOM and some of the other agencies within a short period after closing or be subject to an unwinding of the transaction. It is expected that compliance with the regulations will be more time consuming than in the past, will be more costly for the Chinese parties and will permit the government much more extensive evaluation and control over the terms of the transaction. Therefore, acquisitions in China may not be able to be completed because the terms of the transaction may not satisfy aspects of the approval process and may not be completed, even if approved, if they are not consummated within the time permitted by the approvals granted. 25
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Because the September 8, 2006, PRC merger and acquisition regulations permit government agencies to scrutinize the economics of an acquisition transaction and require consideration in a transaction to be paid within stated time limits, we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction. The regulations have introduced aspects of economic and substantive analysis of the target business and the acquirer and the terms of the transaction by MOFCOM and the other governing agencies through submissions of an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the Chinese business or assets. The regulations require that in certain transactions, the consideration must be paid within strict time periods, generally not in excess of a year. Because the Chinese authorities have expressed concern with offshore transactions which converted domestic companies into foreign investment enterprises, or FIEs, in order to take advantage of certain benefits, including reduced taxation, in China, regulations require foreign sourced capital of not less than 25% of the domestic company's post-acquisition capital in order to obtain FIE treatment. Accordingly, if a sufficient amount of foreign capital is not infused into the domestic company, it will not be eligible to obtain FIE treatment. In asset transactions there must be no harm to third parties and the public interest in the allocation of assets and liabilities being assumed or acquired. These aspects of the regulations will limit our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, we may not be able to negotiate a transaction with terms that will satisfy our investors and protect our stockholders' interests in an acquisition of a Chinese business or assets. The PRC merger and acquisition regulations of September 8, 2006, have introduced industry protection and anti-trust aspects to the acquisition of Chinese companies and assets which may limit our ability to effect an acquisition. Under the PRC merger and acquisition regulations, acquisitions of Chinese domestic companies relating to "important industries" that may affect the national economic security or result in the transfer of "actual control" of companies having "famous Chinese brand names" or "well established Chinese brand names" must be reported and approved by MOFCOM. We do not plan to pursue an acquisition in any of the industries to which these particular regulations apply. The merger and acquisition regulations also provide for antitrust review requirements for certain large transactions or transactions involving large companies and roll-up transactions with the same effect in the relevant Chinese market. In addition, certain mergers and acquisitions among foreign companies occurring outside of the PRC could also be subject to antitrust review in China which is similar to United States anti-trust law concepts. The regulations use various economic tests to determine if the transaction has to be reported to MOFCOM which include (i) if any of the parties to the transaction has a turnover in the Chinese market of more than RMB 1,500,000,000, (ii) if in a transaction outside of the PRC, any party thereto has assets in the PRC of more than RMB 3,000,000,000, (iii) if any of the parties to the transaction, before its consummation, has control of not less than 20% of the Chinese market, (iv) if any of the parties as a result of the transaction will control 25% of the Chinese market, (v) if the foreign investor has acquired 10 or more enterprises in related industries in the PRC during the last year, or (vi) if a transaction outside of the PRC results in the foreign entities acquiring 15 or more FIEs in related industries within the PRC. Exemptions may be sought from the MOFCOM and SAIC on the basis that: (i) the transaction will improve market competition, (ii) the transaction will restructure unprofitable entities and ensure employment, (iii) the transaction will introduce high technologies and increase international competitiveness, and (iv) the transaction will improve the environment. Notwithstanding the September 8, 2006, regulations, there is a draft anti-monopoly law being considered which may replace or supplement the above provisions. Any transaction that we contemplate will have to comply with these regulations and may require additional approval or abandonment if we are not able to satisfy the requirements of the governmental authorities. When we evaluate a potential transaction, we will consider the need to comply with these regulations which may result in our modifying or not pursuing a particular transaction. Although the merger and acquisition regulations provide specific requirements and procedures, there are many ambiguities which give the regulators great latitude in the approval process which will cause uncertainty in our ability to complete a transaction on a timely basis. 26
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The merger and acquisition regulations set forth many requirements that have to be followed, but there are still many ambiguities in the meaning of many provisions. Although further regulations are anticipated in the future, until there has been clarification either by pronouncements, regulation or practice, there is some uncertainty in the scope of the regulations. Moreover, the ambiguities give the regulators wide latitude in the enforcement of the regulations and the transactions to which they may or may not apply. Therefore, we cannot predict the extent to which the regulations will apply to a transaction, and therefore, there may be uncertainty in whether or not a transaction will be completed until the approval process is under way or until the preliminary approvals are obtained. If relations between the United States and the PRC deteriorate, potential target businesses or their goods or services could become less attractive. The relationship between the United States and the PRC is subject to sudden fluctuations 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 also may 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. If the PRC imposes restrictions to reduce inflation, future economic growth in the PRC could be severely curtailed which could materially and adversely impact 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. 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. Imposition of similar restrictions may lead to a slowing of economic growth and decrease the interest in the services or products we may ultimately offer leading to a material and adverse impact on our profitability. Any devaluation of currencies used in the PRC could negatively impact our target business' results of operations and any appreciation thereof could cause the cost of a target business as measured in dollars to increase. Because our objective is to complete a business combination with 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, or RMB, 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 United States dollar has been generally based on rates set by the People's Bank of China. These rates 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 0.5% fluctuation. As of September 5, 2007, the exchange rate of the Renminbi was 0.132429 against the United States dollar. 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. 27
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Changes in the PRC's currency policies may cause a target business' ability to succeed in the international markets to be diminished. Until recently, China "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 other countries, the Chinese government recently announced that it is pegging the exchange rate of the Renminbi against a number of currencies, rather than just the United States dollar. 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. Fluctuations in the value of the Renminbi relative to foreign currencies could affect our operating results. Following a business combination, our payroll and other costs of non-United States operations will be payable in foreign currencies, primarily Renminbi. To the extent future revenue is denominated in non-United States currencies, we would be subject to increased risks relating to foreign currency exchange rate fluctuations that could have a material adverse affect on our business, financial condition and operating results. The value of Renminbi against the United States dollar and other currencies may fluctuate and is affected by, among other things, changes in China's political and economic conditions. As our operations will be primarily in China, any significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert United States dollars into Chinese Renminbi for our operations (for instance, where we have been paid in United States dollars for our goods or services), appreciation of this currency against the United States dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert our Renminbi into United States dollars for other business purposes (for instance, if the providers of goods or services located outside of China that we do business with require payment in United States dollars) and the United States dollar appreciates against this currency, the United States dollar equivalent of the Renminbi we convert would be reduced. The Chinese government recently announced that it is pegging the exchange rate of the Renminbi against a number of currencies, rather than just the United States dollar. Fluctuations in the Renminbi exchange rate could adversely affect our ability to find an attractive target business with which to consummate a business combination and to operate our business after a business combination. Exchange controls that exist in the PRC may limit our ability to utilize our cash flow effectively following a business combination. Following a business combination, we will be subject to the PRC's rules and regulations on currency conversion. In the PRC, the State Administration for Foreign Exchange (SAFE) regulates the conversion of the Renminbi into foreign currencies. Currently, foreign investment enterprises, or FIEs, are required to apply to the SAFE for "Foreign Exchange Registration Certificates for FIEs." Following a business combination, we will likely be a 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" and "capital" account. Currency conversion 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. We cannot assure you that the PRC regulatory authorities will not impose further restrictions on the convertibility of the Renminbi. Any future restrictions on currency exchanges may limit our ability to use our cash flow for the distribution of dividends to our stockholders or to fund operations we may have outside of the PRC. If the PRC enacts regulations in our target business' proposed industry segments which forbid or restrict foreign investment, our ability to consummate a business combination could be severely impaired. Many of the rules and regulations that companies face in China are not explicitly communicated. If new laws or regulations forbid foreign investment in industries in which we want to complete a business combination, they could severely limit the candidate pool of potential target businesses. Additionally, if the relevant Chinese authorities find us or the target business with which we ultimately complete a business combination to be in violation of any existing or future Chinese laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation: 28
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o levying fines; o revoking our business and other licenses; o requiring that we restructure our ownership or operations; and o requiring that we discontinue any portion or all of our business. Regulations relating to offshore investment activities by PRC residents may increase the administrative burden we face and create regulatory uncertainties that may limit or adversely affect our ability to acquire PRC companies. Regulations were issued on October 21, 2005 by the SAFE (that replaced two previously issued regulations on January 24, 2005 and April 19, 2005, respectively) that will require approvals from, and registrations with, PRC government authorities in connection with direct or indirect offshore investment activities by PRC residents and PRC corporate entities. The SAFE regulations retroactively require approval and registration of direct or indirect investments previously made by PRC residents in offshore companies. In the event that a PRC shareholder with a direct or indirect stake in an offshore parent company fails to obtain the required SAFE approval and make the required 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 approval and registration requirements described above, as currently drafted, could result in liability under PRC law for foreign exchange evasion. As a result of the lack of implementing rules, the uncertainty as to when the new draft regulations will take effect, and uncertainty concerning the reconciliation of the new regulations with other approval requirements, it remains unclear how these existing regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We are committed to complying with the relevant rules. 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 approvals, filings and registrations for a proposed business combination. This may restrict our ability to implement our business combination strategy and adversely affect our operations. 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. While we are not aware of any laws or regulations currently in effect that would limit our ability to consummate a business combination, we cannot assure you that changes in Chinese laws will not occur in the future. We also 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 and contracts 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. 29
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Because, after the consummation of a business combination, some of our directors and officers may reside outside of the United States and substantially all of our assets will be located outside of the United States, investors may have difficulty enforcing their legal rights against such individuals. After the consummation of a business combination, some of our directors and officers may reside outside of the United States and substantially all of our assets will be located outside of the United States. As a result, investors in the United States may not be able 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, extradition treaties now in effect between the United States and the PRC are unclear as to whether effective enforcement of criminal penalties of the Federal securities laws would be permitted. If our management following a business combination is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws which could lead to various regulatory issues. Following a business combination, our management will likely resign from their positions as officers of the company and the management of the target business at the time of the business combination will remain in place. We cannot assure you that management of the target business will be familiar with United States securities laws. If new management is unfamiliar with our laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations. Because any target business with which we attempt to complete a business combination may 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 may be required to have certain financial statements which are prepared in accordance with, or which can be reconciled to, U.S. generally accepted accounting principles and audited in accordance with U.S. generally accepted auditing standards. To the extent that a proposed target business does not have financial statements which have been prepared with, or which can be reconciled to, U.S. generally accepted accounting principles and audited in accordance with U.S. generally accepted auditing standards, we may not be able to complete a business combination with that proposed target business. These financial statement requirements may limit the pool of potential target businesses with which we may complete a business combination. If certain exemptions within the PRC regarding withholding taxes are removed, we may be required to deduct Chinese corporate withholding taxes from dividends we may pay to our stockholders following a business combination. According to the PRC's applicable income tax laws, regulations, notices and decisions related to foreign investment enterprises and their investors, or (the Applicable Foreign Enterprises Tax Law, income such as dividends and profits distribution from the PRC derived from a foreign enterprise which has no establishment in the PRC is subject to a 20% withholding tax, unless the relevant income is specifically exempted from tax under the Applicable Foreign Enterprises Tax Law. Currently, profits derived by a stockholder, such as through dividends from a foreign investment enterprise, or FIE, are exempted. However, if the foregoing exemption is removed in the future following a business combination, we may be required to deduct certain amounts from dividends we may pay to our stockholders to pay corporate withholding taxes. After we consummate a business combination, our operating company in China will be subject to restrictions on dividend payments. After we consummate a business combination, we will rely on dividends and other distributions from our operating company to provide us with cash flow and to meet our other obligations. Current regulations in China would permit our operating company in China to pay dividends to us only out of its accumulated distributable profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, our operating company in China will be required to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of its accumulated profits each year. Such cash reserve may not be distributed as cash dividends. In addition, if our operating company in China incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. 30
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If any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive. If you are a U.S. holder, you will be taxed on the U.S. dollar value of your dividends at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the conversion rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you may actually ultimately receive. Because of certain tax rules, we may not be able to structure the most advantageous business combination to our company. If we seek to change domiciles in connection with a business combination, our stockholders may recognize a non-cash taxable gain upon the exchange of their shares for the newly formed company if our common stock has appreciated in value prior to the consummation of a business combination. The gain would equal the amount of any such increase in value over and above what the stockholder originally paid for his shares, unless a variety of conditions set forth in the tax codes are satisfied. To avoid this rule, our stockholders immediately prior to the business combination would have to own fifty percent or less of both the total voting power and the total value of the stock after the business combination. Other tax rules indicate that if our stockholders end up owning more than 80% of the stock of our company following a business combination, regardless of whether or not we seek to change domiciles in connection with such business combination, the combined company will be treated for all tax purposes as a United States corporation. This would negate any potential tax advantages of changing domiciles in connection with a business combination. We intend to structure any business combination which we wish to complete so that it is tax free to our stockholders. Accordingly, in order to avoid these negative situations, we may be forced to structure a business combination in which we issue more stock and less cash than we might have otherwise structured such business combination. Alternatively, we may be unable to complete a particular business combination that would otherwise be attractive to us. The legal authorities in China are in the process of evaluating tax and fee benefits previously provided to foreign investors and companies to encourage development within the country such that these benefits may be lessened or removed with the consequence that expenses may rise, impacting margins and net income. The PRC legal authorities are evaluating tax and fee benefits that have been available to foreign investors and companies operating in China and tax holidays for new enterprises. It is anticipated, in the near term, there are going to be changes that substantially reduce or eliminate many, if not all, the tax and other governmental fee advantages that heretofore have been available to foreign entities and newly created entities whether or not such new entities are foreign. The goal is to institute greater equalization of tax and government fee treatment of all corporate and similar entities in China. China is being encouraged to create this more equal treatment because of its WTO obligations and public opinion within China. There may be phase-ins of various taxes and fees for entities that currently benefit from either no or lower tax rates and fees compared to wholly Chinese companies and entities, but there can be no assurance of this. Even if there are phase-in periods, the length of such periods is not known. Overall, it is expected that the cost of operating in China will increase for those companies and entities that have had various tax and fee advantages in the past. As a result, any target business we might acquire in China that has had or expects to have benefits from some forms of preferential tax and fee rates may have increased costs which may have an adverse impact on operating margins and net income. 31
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The domestic corporate income tax has been 33%, compared to the 15% rate for overseas companies. However, as part of the recent government policy to improve the level and quality of foreign investment, China adopted a new law, which will become effective on January 1, 2008, that will unify the income tax rate for domestic and foreign enterprises at 25%. All companies regardless of type, ownership or location will be subject to the same tax rate, although some preferential rates will still apply to encourage the development of certain sectors, such as hi-tech enterprises, agriculture and fishery. Businesses who received preferential rates under the old system will have five years to integrate into the new system. After January 1, 2008, the existing tax holidays will not be available to new entities established by foreign investors in China. Tax breaks will still be available for investments in the west and north-east of the country and in high-technology industries. Risk Factors Associated with Mineral Resources-Related Operations If we are able to consummate a business combination with a target business in the minerals resources business in the PRC, there may be risks associated with operating a mineral resource-related company which may affect our eventual operations. We may consummate a business combination with a company that focuses on mining a specific type or types of minerals. Our operations could be affected by mining conditions, which may include faults, seam deterioration in quality or thickness, pressure in mine openings, the presence of gas, water inflow from water-bearing strata and propensity for spontaneous combustion inside the mines, as well as operational risks associated with all industrial or engineering activity, such as mechanical breakdowns. Our operations may involve underground mining, which is also subject to certain risks such as methane outbursts and accidents caused by roof weakness and groundfalls. The foregoing conditions may result in an increase in our cost of production as a result of delays and additional operational expenses. Accordingly, we cannot assure you that the occurrence of such events or conditions would not have a material adverse effect on our results of operations. The mining industry in the PRC also has drawbacks that the mining industry does not have within the United States. For instance: o In China, insurance coverage is a relatively new concept compared to that of the United States and for certain aspects of a business operation insurance coverage is restricted or expensive. Workers compensation for employees in the PRC may be unavailable or, if available, insufficient to adequately cover such employees. o The environmental laws and regulations in the PRC set various standards regulating certain aspects of health and environmental quality, including, in some cases, the obligation to rehabilitate current and former facilities and locations where operations are or were conducted. Violation of those standards could result in a temporary or permanent restriction by the PRC of our mining operations. We cannot assure you that a target business with which we ultimately complete a business combination will be able to adequately address any of these or other limitations. If we acquire a target business with mineral resources -related activities, we will be subject to certain additional risks particular to mineral production operations . The exploration for and production of minerals is highly speculative and involves risks different from and in some instances greater than risks encountered by companies in other industries. Many exploration programs do not result in the discovery of any minerals, and any minerals discovered may not be of sufficient quantity or quality. Simply discovering promising mineralization may not warrant production because the minerals may be difficult or impossible to extract or mine on a profitable basis, if at all. 32
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Profitability of any extraction and mining we may conduct will involve a number of factors, including, but not limited to: o the ability to obtain all required permits; o costs of bringing the property into production; o the construction of adequate production facilities; o the availability and costs of financing; o keeping ongoing costs of production at economic levels; and o market prices for the minerals to be mined staying above production costs. Further, even if we are able to extract minerals on a profitable basis, it could take months or even years from the time we commence such extraction to the time we are able to sell such minerals. We cannot assure you that any target business we may acquire in the future will own properties that contain deposits of minerals that will be profitable to extract or mine. Our earnings and, therefore our profitability, may be affected by metals price volatility. We anticipate that the majority of our future revenues will be derived from the sale of precious metals and, as a result, our earnings are directly related to the prices of these commodities. At present, the price of these commodities in the PRC is generally in line with that in the international market. There are many factors influencing the price of these resources including expectations for inflation; global and regional demand and production; political and economic conditions; and production costs in major producing regions.These factors are beyond our control and are impossible for us to predict. As a result, changes in the price of resources may adversely affect our operating results. The mineral resources company may not have conducted feasibility studies and, therefore, reliable estimates of proven or probable reserves may not be available and if minerals are depleted from the mining company's mines prior to termination of its mineral rights, it may be unable to generate revenues. Unless the mineral resources company has conducted feasibility studies to confirm the amount of proven or probable reserves contained in the mines in which it has been granted mineral rights, the quantity of ores and metal reserves will be based primarily on estimates that make it difficult to predict reliably the extent of mineral deposits in its mines or whether there will continue to be sufficient minerals deposits to allow it to extract minerals for the duration of its mining rights. Moreover, reserve estimation is an interpretive process based upon available data and various assumptions that are believed to be reasonable, and the economic value of ore reserves may be adversely affected by price fluctuations in the metal market, reduced recovery rates or a rise in production costs as a result of inflation or other technical problems arising in the course of extraction. We may have to rely on sub-contractors to perform extraction over whom we have little control. It is not uncommon for mineral companies to sub-contract ore extraction work to a third party. To some extent, the operations of the mining company are affected by the performance of the contractor, whose activities are not within its control. If the contractor fails to achieve the guaranteed monthly extraction volume, or the contractor otherwise fails to perform its obligations under its agreement with the mining company, the mining company may have the right to terminate the agreement with the contractor; however, termination of the relationship could adversely affect the operating results of the mining company. We may become subject to numerous risks and hazards associated with the mineral resources -related businesses. As a mineral resources-related company, we may be subject to a number of risks and hazards including: o environmental hazards; 33
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o industrial accidents; o unusual or unexpected geologic formations; o explosive rock failures; and o flooding and periodic interruptions due to inclement or hazardous weather conditions. Such risks could result in: o damage to or destruction of mineral properties or production facilities; o personal injury or death; o environmental damage; o delays in mining; o monetary losses; and o legal liability. Our business operations and related activities may be subject to PRC government regulations concerning environmental protection. We may have to make a significant financial commitment for the construction of environmental protection facilities and the establishment of a sound environmental protection management and monitoring system. Compliance with existing and future environmental protection regulations may increase our operating costs and may adversely affect our operating results. Our operations and business activities may involve dangerous materials. Although we may establish stringent rules relating to the storage, handling and use of such dangerous materials, there is no assurance that accidents will not occur. Should we be held liable for any such accident, we may be subject to penalties and possible criminal proceedings may be brought against its employees. We may be unable to successfully compete with companies having greater financial resources than are available to us. Natural resources have limited lives and as a result, we will have to continually seek to expand our reserves through the acquisition of additional resource rights. As there is a limited supply of desirable resource deposits in the PRC, we will face strong competition for resource rights from other natural resource companies, some of which have greater financial resources than us, and we may not be able to acquire attractive resource rights on terms that acceptable to us. Risks Associated with our Securities Our determination of the offering price of our units and of the aggregate amount of proceeds we are raising in this offering was more arbitrary than typically would be the case if we were an operating company rather than an acquisition vehicle. Prior to this offering, we had no operating history and there was no public market for any of our securities. The public offering price of the units, the terms of the warrants, aggregate proceeds we are raising, and the amount to be placed in a trust account were the products of a negotiation between the underwriters and us. The factors that were considered in making these determinations included: 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; o our capital structure; 34
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o an assessment of our management team and their experience in identifying acquisition targets and structuring acquisitions; and o general conditions of the securities markets at the time of the offering. Although these factors were considered, the determination of our per unit offering price and aggregate proceeds was more arbitrary than typically would be the case if we were an operating company, as is management's estimate of the amount needed to fund our operations for the next 24 months as we have no operating history or financial results. In addition, because we have not identified any potential target businesses, management's assessment of the financial requirements necessary to complete a business combination may prove to be inaccurate, in which case we may not have sufficient funds to complete a business combination and we will be forced to either find additional financing or dissolve and liquidate. There is no market for our securities and a market for our securities may not develop, which could adversely affect the liquidity and price of our securities. There is no market for our securities. Therefore, stockholders should be aware that they cannot benefit from information about prior market history as to their decisions to invest which means they are at further risk if they invest. In addition, the price of the securities, after the offering, can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. We intend to have our securities quoted on the OTC Bulletin Board, which will limit the liquidity and price of our securities more than if our securities were quoted or listed on a National Exchange. Our securities will be traded in the over-the-counter market. It is anticipated that they will be quoted on the OTC Bulletin Board, an NASD-sponsored and operated inter-dealer automated quotation system for equity securities not included in the Nasdaq Stock Market. Quotation of our securities on the OTC Bulletin Board will limit the liquidity and price of our securities more than if our securities were quoted or listed on a national exchange such as the Nasdaq Stock Market. 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. Our common stock may be subject to the penny stock rules promulgated under the Exchange Act unless our net tangible assets are greater than $5,000,000 or our common stock has a market price per share greater than $5.00. 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 a transaction prior to sale; o provide the purchaser with risk disclosure documents that identify certain risks associated with investing in "penny stocks" and that 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 "penny stock" can be completed. If our common stock becomes subject to these rules, broker-dealers may find it difficult to effect 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. If our existing stockholders or the purchasers of our private warrants 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 demand that we register the resale of the 1,000,000 founding shares they acquired prior to this offering at any time after the date on which their securities are released from escrow, which, except in limited circumstances, will occur upon the earlier of (i) , 2010 [three years following the date of this prospectus], and (ii) one year following the completion of a business combination. Furthermore, holders of the 35
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private warrants are entitled to demand the registration of the 2,600,000 private warrants and the 2,600,000 shares of common stock that we must issue upon exercise of the private warrants at any time after the completion of a business combination. If our existing stockholders exercise their registration rights with respect to all of their shares of common stock and warrants, then there will be an additional 3,600,000 shares of common stock eligible for trading in the public market. The presence of these additional securities 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 the target business, as the stockholders of the target business may be discouraged from entering into a business combination with us or 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. Our outstanding warrants and the representative's purchase option may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination. We will issue warrants to purchase 4,000,000 shares of common stock as part of the units offered by this prospectus, in addition to the private warrants to purchase 2,600,000 shares of common stock issued to certain of our directors and officers, or entities that they control, immediately prior to this offering. We also will issue an option to purchase 280,000 units to the representative of the underwriters which, if exercised, will result in the issuance of an additional 280,000 warrants. To the extent we issue shares of common stock to effect a business combination, the potential for the issuance of a substantial number 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. These 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. Accordingly, our warrants and option may make it more difficult to effectuate a business combination or increase the cost of acquiring the target business. Additionally, the sale, or even the possibility of sale, of the additional shares we will issue upon exercise of 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. 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 certificate of incorporation authorizes the issuance of up to 25,000,000 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 and the private placement (assuming no exercise of the underwriters' over-allotment option), we will have 12,840,000 authorized but unissued shares of common stock available for issuance (after appropriate reservation for the issuance of shares upon full exercise of our outstanding warrants and the representative's unit purchase option) 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 may 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. In the event we issue additional shares of our common stock or preferred stock upon a business combination, we would require purchasers of those shares to waive any rights to the funds in the trust account. 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 stockholders; o could cause a change in control if a substantial number of our shares of common stock are issued, which may affect 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 36
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o may adversely affect prevailing market prices for our common stock. Some potential investors may choose not to invest in us because public stockholders owning up to 1,399,999 shares, or one share less than 35% of the shares sold in this offering, may vote against a proposed business combination and convert their shares into a per share cash payment of $10.00, reducing the amount available to effect a potential business combination. Traditionally, blank check offerings have permitted a business combination to be consummated only if less than 20.0% of the shares issued in the offering exercise their redemption rights. Since our redemption threshold is 1,399,999 shares, or one share less than 35% of the shares sold in this offering, some potential investors may choose to not purchase our securities in the aftermarket because of the greater potential amount of cash that may be required to redeem shares of stockholders who vote against a proposed business combination. Therefore, our stock price and trading volume may be lower than similar companies with a lower threshold percentage. We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination, which may adversely affect our leverage and financial condition. Although we have no commitments as of the date of this offering to incur any debt, we may choose to incur a substantial amount of debt to finance a business combination. The incurrence of debt could result in: o default and foreclosure on our assets if our operating cash flow after a business combination were 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 contained covenants that required the maintenance of certain financial ratios or reserves and any such covenant were 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 was payable on demand; o our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding; o using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock, working capital, capital expenditures, acquisitions and other general corporate purposes; o limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; o increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and o other disadvantages compared to our competitors who have less debt. Any of the above listed factors could materially and adversely affect our business and results of operations. Furthermore, if our debt bears interest at floating rates, our interest expense could increase if interest rates rise. If we do not have sufficient earnings to service any debt incurred, we could need to refinance all or part of that debt, sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to do on commercially reasonable terms, or at all. Our existing stockholders control a substantial interest in us and thus may influence certain actions requiring stockholder vote. Upon completion of our offering and the private placement, our existing stockholders will collectively own approximately 20.0% (17.86%, if the underwriters' over-allotment option is exercised in full) of our outstanding shares of common stock, which could permit them to effectively influence the outcome of all matters requiring approval by our stockholders at such time, including the election of directors and approval of significant corporate transactions, following the completion of our initial business combination. 37
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Certain of our directors and officers, or entities that they control, have purchased an aggregate of 2,600,000 private warrants at a purchase price of $1.00 per warrant, which warrants are exercisable at $7.50 per share, to purchase 2,600,000 shares of our common stock in a private placement. In addition, it is unlikely that there will be an annual meeting of stockholders to elect new directors prior to the completion of a business combination, in which case all of the current directors will continue in office at least until the completion of the business combination. Accordingly, our existing stockholders will continue to exert control at least until the completion of a business combination. Although we are required to use our best efforts to have an effective registration statement covering the issuance of the shares underlying the warrants at the time that our warrant holders exercise their warrants, we cannot guarantee that a registration statement will be effective, in which case our warrant holders may not be able to exercise our warrants. Holders of our warrants will be able to exercise the warrants only if (i) a current registration statement under the Securities Act relating to the shares of our common stock underlying the warrants is then effective and (ii) such shares are qualified for sale or exempt from qualification under the applicable securities laws of the states in which the various holders of warrants reside. Although we have undertaken in a warrant agreement between American Stock Transfer & Trust Company and us, and therefore have a contractual obligation, to use our best efforts to maintain a current registration statement covering the shares underlying the warrants following completion of this offering to the extent required by federal securities laws, and we intend to comply with such undertaking, we cannot assure that we will be able to do so. In addition, we have agreed to use our reasonable efforts to register the shares underlying the warrants under the blue sky laws of the states of residence of the exercising warrant holders, to the extent an exemption is not available. The value of the warrants may be greatly reduced if a registration statement covering the shares issuable upon the exercise of the warrants is not kept current or if the securities are not qualified, or exempt from qualification, in the states in which the holders of warrants reside. Holders of warrants who reside in jurisdictions in which the shares underlying the warrants are not qualified and in which there is no exemption will be unable to exercise their warrants and would either have to sell their warrants in the open market or allow them to expire unexercised. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to qualify the underlying securities for sale under all applicable state securities laws. In no event will the registered holders of a warrant be entitled to receive a net-cash settlement in lieu of physical settlement in shares of our common stock. Because the warrants sold in the private placement were originally issued pursuant to an exemption from registration requirements under the federal securities laws, the holders of the private warrants will be able to exercise their warrants even if, at the time of exercise, we have not made available a current prospectus relating to the common stock we must issue upon exercise of the private warrants. As a result, the holders of the private warrants will not have any restrictions with respect to the exercise of their warrants. As described above, the holders of the warrants purchased in this offering will not be able to exercise them unless we have made available a current registration statement covering the shares we must issue upon their exercise. If you are not an institutional investor, you may purchase our securities in this offering only if you reside within the states in which we will apply to have the securities registered. Although the states are preempted from regulating the resale of our securities, state securities regulators who view blank check offerings unfavorably could use or threaten to use their investigative or enforcement powers to hinder the resale of our securities in their states. 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, Georgia, Hawaii, Illinois, Indiana, Louisiana, New York, Rhode Island and Wyoming. If you are not an "institutional investor," you must be a resident of these jurisdictions to purchase our securities in the offering. 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. 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. Under the 38
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National Securities Market Improvement Act of 1996, the states are pre-empted from regulating transactions in covered securities. We will file periodic and annual reports under the Exchange Act and our securities will be considered covered securities. Therefore, the states will be pre-empted from regulating the resale of the units, from and after the effective date of the registration statement of which this prospectus is a part, and the common stock and warrants comprising the units, once they become separately transferable. However, the states retain the jurisdiction to investigate and bring enforcement actions with respect to fraud or deceit, or unlawful conduct by a broker or dealer, in connection with the sale of securities. Although we are not aware of a state having used these powers to prohibit or restrict the resale of securities issued by blank check companies generally, certain state securities commissioners view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the resale of securities of blank check companies in their states. For a more complete discussion of the state securities laws and registrations affecting this offering, please see "Underwriting--State Blue Sky Information" below. We may make a mandatory redemption of our outstanding warrants at a time that is disadvantageous to our warrant holders. Subject to there being a current prospectus under the Securities Act with respect to the shares of common stock issuable upon exercise of the warrants, we may make a mandatory redemption of the warrants issued as a part of the units issued in this offering at any time after the warrants become exercisable in whole and not in part, at a price of $.01 per warrant, upon a minimum of 30 days prior written notice of redemption, if and only if, the last sale price of our common stock equals or exceeds $14.25 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Redemption of the warrants could force the warrant holders (i) to exercise the warrants and pay the exercise price therefor at a time when it may be disadvantageous for the holders to do so, (ii) to sell the warrants at the then current market price when they might otherwise wish to hold the warrants, or (iii) to accept the nominal redemption price which, at the time the warrants are called for redemption, is likely to be substantially less than the market value of the warrants. 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. We may be deemed to be an investment company, as defined under Sections 3(a)(1)(A) and (C) of the Investment Company Act of 1940, if, following the offering and prior to the consummation of a business combination, we are viewed as engaging in the business of investing in securities or we own investment securities having a value exceeding 40% of our total assets. 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 difficult for us to complete a business combination, including: o restrictions on the nature of our investments; and o restrictions on our 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 and disclosure requirements and other rules and regulations. However, 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 Treasury Bills issued by the United States with maturity dates of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940. By restricting the investment of the proceeds to these instruments, we intend to avoid being deemed an investment company within the meaning of the Investment Company Act of 1940. This offering is not intended for 39
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persons who are seeking a return on investments in government securities. The trust account and the purchase of government securities for the trust account is intended as a holding place for funds pending the earlier to occur of either: (i) the consummation of our primary business objective, which is a business combination, or (ii) absent a business combination, our dissolution and return of the funds held in this trust account to our public stockholders as part of our plan of dissolution and liquidation. Notwithstanding our belief that we are not required to comply with the requirements of such act, in the event that the stockholders do not approve a plan of dissolution and liquidation and the funds remain in the trust account for an indeterminable amount of time, we may be considered to be an investment company and thus required to comply with such act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require that we incur additional unanticipated expenses. Our existing stockholders paid an aggregate of $25,000, or approximately $0.025 per share for their founding 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 of our common stock 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 the founding shares at a nominal price has significantly contributed to this dilution. Assuming the offering is completed without exercise of over-allotment, you will incur an immediate and substantial dilution of approximately 28.9% or $2.89 per share (the difference between the pro forma net tangible book value per share of $7.11 and the initial offering price of $10.00 per unit). Assuming the offering is completed with exercise of over-allotment, you will incur an immediate and substantial dilution of approximately 26.9% or $ 2.69 per share (the difference between the pro forma net tangible book value per share of $7.31 and the initial offering price of $10.00 per unit). Because our existing 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 promotional or 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 promotional or 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 substantially less than the required minimum amount pursuant to this policy (assuming non-exercise of the over-allotment option). 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. Our directors may not be considered "independent" under the policies of the North American Securities Administrators Association, Inc. and, therefore, may take actions or incur expenses that are not deemed to be independently approved or independently determined to be in our best interest. All of our officers and directors own shares of our common stock. Additionally, no salary or other compensation will be paid to our officers or directors for services rendered by them on our behalf prior to or in connection with a business combination. We believe that only one member of our board of directors is currently "independent" as that term is commonly used. However, under the policies of the North American Securities Administrators Association, Inc., because our directors may receive reimbursement for 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, state securities administrators could take the position that such individual is not "independent." If this were the case, they would take the position that we would not have the benefit of independent directors examining the propriety of expenses incurred on our behalf and subject to reimbursement. Additionally, 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. To the extent such out-of-pocket expenses exceed the available proceeds not deposited in the trust account, such out-of-pocket 40
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expenses would not be reimbursed by us unless we consummate a business combination, in which event this reimbursement obligation would in all likelihood be negotiated with the owners of a target business. Although we believe all actions taken by our directors on our behalf will be in our best interests, whether or not they are deemed to be "independent" under the policies of the North American Securities Administrator Association, we cannot assure you 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 held by the public stockholders. Prospective target business' compliance with the Sarbanes-Oxley Act of 2002 may increase the time and costs of completing an acquisition. Our prospective target business may not be in compliance with the provisions of the Sarbanes-Oxley Act of 2002 regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Use of Proceeds We estimate that the net proceeds of this offering and the private placement will be as set forth in the following table: [Enlarge/Download Table] Without Over- Over-Allotment Allotment Option Option Exercised ------------- -------------- Gross proceeds Private placement $ 2,600,000 $ 2,600,000 Offering 40,000,000 46,000,000 ----------- ----------- Total $42,600,000 $48,600,000 =========== =========== Offering and private placement expenses (1) Underwriting discount(2) $ 1,600,000 $ 1,840,000 Deferred underwriting compensation(3) 800,000 920,000 Non-accountable expense allowance(4) 400,000 400,000 Printing and engraving expenses 75,000 75,000 Legal fees and expenses (including compliance with state securities laws) 275,000 275,000 Accounting fees and expenses 75,000 75,000 SEC registration fee 2,630 2,630 NASD registration fee 9,068 9,068 Miscellaneous expenses 63,302 63,302 =========== =========== Total offering and private placement expenses $ 3,300,000 $ 3,660,000 =========== =========== Net Proceeds Not held in trust $ 100,000 $ 100,000 =========== Held in trust for our benefit $39,200,000 $44,840,000 =========== =========== Total Net Proceeds $39,300,000 $44,940,000 =========== =========== Adjustments Deferred underwriting discounts and commissions held in trust(3) $ 800,000 $ 920,000 ----------- ----------- Total held in trust (maximum available for distribution upon liquidation, excluding accrued interest, net of taxes) $40,000,000 $45,760,000 Accrued interest (net of taxes) retained in trust before we may withdraw funds (5) =========== =========== Total amount held in trust not available to us $ 0 240,000 40,000,000 $46,000,000 =========== =========== Percentage of offering proceeds held in trust(6) 100.00% 100.00% 41
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[Enlarge/Download Table] Working capital from the proceeds of the private placement ($100,000) and interest earned on funds held in trust (up to $1,000,000) Amount Percent ----------- ----------- Legal, accounting and other expenses attendant to the structuring and $ 300,000 $ 27.28% negotiation of a business combination and the preparation and filing of the related proxy statement Payment for office space and administrative and support services 180,000 16.36% ($7,500 per month for up to two years) Due diligence of prospective target businesses 70,000 6.36% Legal and accounting fees relating to SEC reporting obligations 100,000 9.09% Working capital to cover miscellaneous expenses(7) 450,000 40.91% ----------- ----------- Total $ 1,100,000 $ 100.00% =========== =========== ---------- (1) A portion of the offering expenses, including SEC registration and NASD filing fees, and legal fees and expenses, have been paid out of advances from a stockholder which we will repay out of the proceeds of this offering. (2) Represents 4% of the gross proceeds from the sale of the units, or $0.40 per unit, for underwriting compensation of $1,600,000 (or up to $1,840,000 if the over-allotment option is exercised in full). (3) Represents 2% of the gross proceeds from the sale of the units, or $0.20 per unit, for deferred underwriting compensation of $800,000(or up to $920,000 if the over-allotment option is exercised in full) held in trust of deferred underwriting compensation which will be paid to the representative only upon the completion of the initial business combination only with respect to those units which have not been converted and will not be available for use to acquire an operating business. In the event that a business combination is not completed within the required time period, these amounts will be included in the liquidating distribution to our public stockholders. (4) Represents 1% of the gross proceeds from the sale of the units, or $0.10 per unit, for non-accountable expenses of $400,000 (except with respect to units included in the over-allotment option). (5) In the event the over-allotment option is exercised in full, to the extent the funds in trust are less than $10.00 per share, the first $240,000 in interest earned on the amount held in the trust account (net of taxes payable) will be used to cover such shortfall to bring the amount held in trust for the benefit of the public stockholders to an aggregate of $46,000,000 ($10.00 per share). (6) This percentage indicates the degree of protection that we and Maxim Group LLC, in structuring this offering, provided our public stockholders by requiring the deposit in the trust account of the proceeds from the sale of the private warrants and the units in this offering, net of the underwriting discount and related expenses of the offering, plus the deferred underwriting discount, to better assure our public stockholders that a substantial portion, if not all, of their subscription funds will be available for payment to them as a liquidating distribution if we are unable to consummate a business combination within the time parameters established by our certificate of incorporation. By requiring the deposit of the proceeds of sale of the private warrants, which become worthless if we are unable to consummate a business combination, and making those proceeds available for distribution to our public stockholders if, under the terms of our certificate of incorporation, we must liquidate and dissolve if we fail to consummate a business combination within the specified time period, we have shifted the risk of loss resulting from that failure to our sponsor and promoters, rather than our public stockholders. (7) The miscellaneous fees and expenses may include, without limitation, potential deposits, down payments, exclusivity fees, franchise taxes, finder's fees or similar fees or compensation, premiums for director and officer liability and key-man insurance, reserves and costs and expenses associated with our dissolution and liquidation. The net proceeds from this offering and the private placement, less $100,000 available to us for working capital, or $40,000,000 ($45,760,000 if the underwriters' over-allotment option is exercised in full), including $800,000 ($920,000 if the underwriters' over-allotment option is exercised in full) attributable to the deferred underwriting discounts and commissions, will be placed in a trust account at Merrill Lynch, Pierce, Fenner & Smith Incorporated, maintained by American Stock Transfer & Trust Company, acting as trustee. In the event the over-allotment option is exercised in full, to the extent the funds in the trust account are less than $10.00 per share, the first $240,000 in interest earned on the amount held in the trust account (net of taxes payable) will be used to cover such shortfall to bring the amount held in the trust account for the benefit of the public stockholders to an aggregate of $46,000,000 ($10.00 per share). 42
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Except for interest earned on the funds on deposit, net of taxes, of up to $1,000,000, that we may withdraw from the trust periodically, upon request of our Board, for our working capital requirements and to pay expenses associated with proposed business combinations, the proceeds will not be released from the trust account until the earlier of the completion of a business combination or our dissolution and liquidation. All amounts held in the trust account that are not converted to cash, used to pay taxes on interest earned or as interest income, net of taxes, for working capital will be released on closing of our initial business combination with one or more target businesses which have a fair market value of at least 80% of our net assets, excluding deferred underwriting discounts and commissions payable to the representative of $800,000 ($920,000 if the underwriters' over-allotment option is exercised in full), plus interest thereon, at the time of such business combination, subject to a majority of our public stockholders voting in favor of the business combination and less than 35% of the public stockholders voting against the business combination and exercising their conversion rights. Following release from the trust account of interest income to pay income taxes and for working capital, as described above, and after payment of the conversion price to any public stockholders who exercise their conversion rights, the representative will receive the deferred underwriting discounts and commissions, together with accrued interest thereon (except as to converted shares), and the remaining funds will be released to us and can be used to pay all or a portion of the purchase price of the business or businesses with which our initial business combination occurs. If the business combination is paid for using stock or debt securities, we may apply the cash released to us from the trust account for general corporate purposes, including for maintenance or expansion of operations of the acquired business, the payment of principal or interest due on indebtedness incurred in consummating our initial business combination or for working capital. Although we do not know the rate of interest to be earned on the trust account and are unable to predict an exact amount of time it will take to complete a business combination, we anticipate that the interest that will accrue on the trust account, even at an interest rate of 4% (approximately $3,120,000 for 24 months if the underwriters' over-allotment option is not exercised) per annum, during the time it will take to identify a target and complete an acquisition will be sufficient to fund our working capital requirements. The net proceeds of this offering held in the trust account will only be invested in United States "government securities," defined as any Treasury Bill issued by the United States having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940, so that we are not deemed to be an investment company under the Investment Company Act of 1940.. According to the Federal Reserve Statistical Release dated July 2, 2007, referencing historical interest rate data which appears on the Federal Reserve website, U.S. Treasury Bills with four week, three month and six month maturities were yielding, as of the week ended June 29, 2007, 4.20%, 4.67% and 4.77 %, respectively. While we cannot assure you the balance of the trust account will be invested to yield these rates, we believe such rates are representative of those we may receive on the balance of the trust account. We may withdraw up to an aggregate of $1,000,000 of interest earned, net of taxes, from the trust account periodically, upon request of our Board, for our working capital requirements and to pay expenses associated with a proposed business combination, except that if the underwriters fully exercise their over-allotment option, we will be unable to withdraw funds from the interest earned on amounts in the trust account until interest earned (net of taxes) thereon exceeds $240,000, since the first $240,000 of interest earned, net of taxes, will be added to the trust so that the amount held in the trust account for the benefit of the public stockholders will be increased to an aggregate of $46,000,000 ($10.00 per share). We believe that the $100,000 available to us outside of the trust account, together with the up to $1,000,000 of interest earned on the funds in the trust account, net of taxes, available to us, as described above, will be sufficient to allow us to operate for at least the next 18 months, or 24 months if we enter into a letter of intent, agreement in principle or definitive agreement for a business combination within the 18 months after the consummation of the offering, assuming that a business combination is not completed during that time. We intend to use these funds for potential deposits, down payments, exclusivity fees, franchise taxes, finder's fees or similar fees or compensation, premiums for director and officer liability and key-man insurance, reserves and costs and expenses associated with our dissolution and liquidation, with the balance available for other expenses of structuring and negotiating business combinations, as well as for reimbursement of any out-of-pocket expenses incurred by our directors and officers in connection with activities on our behalf as described below. Of this amount, we have reserved approximately $70,000 for reimbursement of expenses 43
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incurred in connection with conducting due diligence reviews of prospective target businesses. We expect that due diligence of prospective target businesses will be performed by some or all of our officers and directors and may include engaging market research and valuation firms, as well as other third party consultants. None of our officers or directors will receive any compensation for their due diligence efforts, other than reimbursement of any out-of-pocket expenses they may incur on our behalf while performing due diligence of prospective target businesses. To the extent such out-of-pocket expenses exceed the $100,000 of the net proceeds not deposited in the trust account and the available interest earned, net of taxes, on the funds in the trust account of up to $1,000,000 that may be released to us, as described above, those out-of-pocket expenses would not be reimbursed by us unless we complete a business combination. We have not reserved any specific amounts for such payments or fees, which may have the effect of reducing the available proceeds available to us from the trust account for payment of our ongoing expenses and reimbursement of out-of-pocket expenses incurred on our behalf. We have agreed to pay Shen Zhen China Jia Yue Trading Co., Ltd., an affiliate of our sponsor, a monthly fee of $7,500 for general and administrative services, including office space, utilities and secretarial support. We believe that, based on rents and fees for similar services in the district of the PRC where the office is located, the fee charged by Shen Zhen China Jia Yue Trading Co., Ltd., is at least as favorable as we could have obtained from an unaffiliated third party. This agreement commences on the date of this prospectus and will continue until the earlier of the completion of our initial business combination or our dissolution. As of the date of this prospectus, we have used the $25,000 we received from the sale of our shares to our officers and directors, together with the $138,599 advanced by our sponsor, to pay certain of the expenses associated with this offering, including the SEC registration and NASD filing fees, and legal and accounting fees and expenses. We will repay these advances out of the net proceeds of this offering. No compensation of any kind, including finder's and consulting fees, will be paid to any of our officers, directors or existing stockholders, or any of their affiliates, other than the payment of $7,500 per month to Shen Zhen China Jia Yue Trading Co., Ltd. from the trust account in connection with the general and administrative services rendered to us, prior to or in connection with the business combination. However, 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 participating in the offering process, 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. 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 fund, as well as any other net proceeds not expended, will be used to finance the operations of the target business, pay principal or interest due on indebtedness incurred in consummating the business combination or for other working capital purposes. 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, net of taxes payable and interest amounts previously released to us from the trust account) only in the event of our dissolution and liquidation upon our failure to complete a business combination within the allotted time or $10.00 per share (which includes $0.20 attributable to the deferred underwriting compensation) if that public stockholder were to seek to convert those shares to cash by exercising conversion rights in connection with a business combination which the public stockholder voted against and which we actually complete. In no other circumstances will a public stockholder have any right or interest of any kind to or in the trust account. In the event of our liquidation, our existing stockholders will be entitled to receive funds from the trust account solely with respect to any shares of our common stock which they purchased in or following this offering. Capitalization The following table sets forth our capitalization at June 30, 2007, and as adjusted to give effect to the sale of our units in this offering and private placement of 2,600,000 private warrants to certain of our directors and officers, or entities that they control, and the application of the estimated 44
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net proceeds derived from the sale of our units in this offering and warrants in the private placement: [Enlarge/Download Table] June 30, 2007 ------------- Actual As adjusted(1) ------------ -------------- (Unaudited) Advances from stockholder to pay certain offering expenses $ 104,000 $ -- Deferred underwriting compensation (2) -- $ 800,000 Common stock, subject to possible conversion of 1,399,999 shares at redemption value (2) $ -- $ 13,719,990 ------------ ------------ Stockholders' equity: Preferred stock, $0.0001 par value, 1,000,000 shares authorized; 0 $ -- $ -- issued or outstanding Common stock, $0.0001 par value, 25,000,000 shares authorized; $ 100 $ 500 1,000,000 shares issued and outstanding, 5,000,000 shares issued and outstanding (including 1,399,999 shares subject to possible conversion), as adjusted (2) Additional paid-in capital(3) $ 24,900 $ 25,604,510 Deficit accumulated during development stage $ (7,540) $ (7,540) ------------ ------------ Total stockholders' equity $ 17,460 $ 25,597,470 ------------ ------------ Total capitalization $ 121,460 $ 40,117,460 ============ ============ ---------- (1) As adjusted, includes deferred underwriting compensation in the amount of 2% of the gross proceeds of this offering, or $800,000 (or $920,000 if the underwriters' over-allotment option is exercised in full.) (2) If we complete a business combination, the conversion rights afforded to our public stockholders may result in the conversion of up to 1,399,999 shares, one share less than 35% of the aggregate number of shares sold in this offering, at a per share conversion price of $10.00, which includes $0.20 attributable to the deferred underwriting compensation. (3) Assumes no value is attributed to the warrants included in the units. Dilution The difference between the public offering price per share of 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 and the private placement 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 for cash), by the number of outstanding shares of our common stock. At June 30, 2007, our net tangible book value was deficiency of ($79,040), or approximately ($0.08) per share of common stock. After giving effect to the sale of 4,000,000 shares of common stock included in the units to be sold in this offering and the sale of 2,600,000 private warrants to purchase 2,600,000 shares of common stock at $1.00 per share, and the deduction of underwriting discounts and commissions and estimated expenses of this offering and the private placement, our pro forma net tangible book value (as decreased by the value of 1,399,999 shares of common stock which may be converted to cash) at June 30, 2007 would have been approximately $25,597,470, or $7.11 per share, representing an immediate increase in net tangible book value of $7.19 per share to the existing stockholders and an immediate dilution of $2.89 per share, or approximately 28.9%, to new investors not exercising their conversion rights. 45
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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: [Enlarge/Download Table] Public offering price $ 10.00 Net tangible book value before this offering $ (0.08) Increase attributable to new investors 7.19 ---------- Pro forma net tangible book value after this offering without exercise of 7.11 over-allotment ---------- Dilution to new investors without exercise of over-allotment $ 2.89 ========== Pro forma net tangible book value after this offering with exercise of $ 7.31 over-allotment ---------- Dilution to new investors with exercise of over-allotment $ 2.69 ========== Our pro forma net tangible book value after this offering, assuming no exercise of the over-allotment, is approximately $13,719,990 less than it otherwise would have been because, if we effect a business combination, the conversion rights of our public stockholders may result in the conversion into cash of up to 1,399,999 shares, representing one share less than 35% of the aggregate number of shares sold in this offering, at a per share conversion price of $10.00, which includes $0.20 per share of deferred underwriting discounts and commissions, the right to receive payment of which has been waived by the representative. The following table sets forth information with respect to our existing stockholders and the new investors: [Enlarge/Download Table] Total Consideration Average Shares Purchased(1) Price --------------------------- --------------------------- Per Number Percentage Amount Percentage Share ----------- ----------- ----------- ----------- ----------- Existing stockholders 1,000,000 20.00% $ 25,000 0.06% $ 0.025 New investors 4,000,000 80.00% $40,000,000 99.94% $ 10.00 ----------- ----------- ----------- ----------- 5,000,000 100.00% $40,025,000 100.00% =========== =========== =========== =========== ---------- (1) Assumes the sale of 4,000,000 units in this offering, but does not include (i) 4,000,000 shares of our common stock issuable upon exercise of the warrants sold as part of such units, (ii) 2,600,000 shares of our common stock issuable upon exercise of the private warrants, (iii) 280,000 shares of our common stock included in the representative's unit purchase option or (iv) 280,000 shares of our common stock issuable upon exercise of the warrants included in the representative's unit purchase option. 46
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The pro forma net tangible book value after the offering, assuming the underwriters' over-allotment option is not exercised, is calculated as follows: [Enlarge/Download Table] Numerator: Net tangible book value before the offering and private placement $ (79,040) Net proceeds from this offering and the private placement of warrants 39,300,000 Offering costs paid in advance and excluded from the net tangible book value before 96,500 this offering Less: Proceeds held in trust subject to conversion to cash (1) (13,719,990) ------------ $ 25,597,470 ============ Denominator: Shares of common stock outstanding prior to the offering 1,000,000 Shares of common stock included in the units offered 4,000,000 Less: Shares subject to conversion (1,399,999 ------------ Less: Founding shares subject to cancellation, not to exceed 100,000 shares (100,000) 3,500,001 ============ The pro forma net tangible book value after the offering and private placement, assuming the underwriters' over-allotment option is exercised, is calculated as follows: [Enlarge/Download Table] Numerator: Net tangible book value before the offering $ (79,040) Net proceeds from this offering and the private placement of warrants 44,940,000 Offering costs paid in advance and excluded from the net tangible book value before 96,500 this offering Less: Proceeds held in trust subject to conversion to cash (2) (15,777,990 ------------ $ 29,179,470 ============ Denominator: Shares of common stock outstanding prior to the offering 1,000,000 Shares of common stock included in the units offered 4,600,000 Less: Shares subject to conversion (1,609,999) ------------ Less: Founding shares subject to cancellation, not to exceed 100,000 shares (100,000) 3,890,001 ============ ---------- (1) Includes $280,000, or $0.20 per share, deferred underwriting compensation held in trust for redemption of shares. (2) Includes $322,000, or $0.20 per share, deferred underwriting compensation held in trust for redemption of shares. 47
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Management's Discussion and Analysis of Results of Operations and Financial Condition We are a blank check company known as a Business Combination Company(TM) or BCC(TM). We were formed under the laws of the State of Delaware on June 8, 2007 for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, asset purchase or similar business combination, an unidentified operating business that has its principal operations in the PRC. While our efforts in identifying a prospective target business will not be limited to a particular industry segment, we intend to focus our initial efforts on acquiring an operating business in the natural resources sector, particularly minerals, whose activities include mining, extracting, smelting, processing and/or fabricating. We do not have any specific capital stock exchange, asset acquisition or similar business combination under consideration and have not contacted any prospective target business or had any discussion, formal or otherwise, with respect to such a transaction. 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 stockholders; o will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect our ability to use our net operating loss carry forwards, if any, and may also result in the resignation or removal of one or more of our present officers and directors; and o may adversely affect prevailing market prices for our common stock. Similarly, if we issued debt securities, it could result in: o default and foreclosure on our assets if our operating revenues after a business combination were 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 contained covenants that required the maintenance of certain financial ratios or reserves and any such covenant were 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 was payable on demand; and o our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding. Results of Operations and Known Trends or Future Events 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, and concurrent private placement, of our equity securities. Following this offering, we will not generate any operating revenues until after completion of a business combination. We will generate non-operating income in the form of interest income on cash and cash equivalents after this offering. Immediately after the offering, we will begin paying monthly fees of $7,500 per month to Shen Zhen China Jia Yue Trading Co., Ltd., an affiliate of our sponsor, and expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. We expect our expenses to increase substantially after the closing of this offering and the private placement. Liquidity and Capital Resources Our liquidity needs have been satisfied to date through receipt of $25,000 in stock subscriptions from our existing stockholders and funds advanced for certain expenses associated with this offering by Mr.Fuzu Zeng, our Chairman, Chief Executive Officer, President and sponsor, which advances will be repaid out of the proceeds of this offering. We estimate the net proceeds from this offering and the sale of the private warrants, after deducting offering expenses of approximately $3,300,000 ($3,660,000 if the underwriters' over-allotment is exercised in full), including $800,000 ($920,000, if the underwriters' over-allotment is exercised in full) representing the deferred underwriting compensation payable to the representative, will be approximately $39,200,000, or $44,840,000 if the 48
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underwriters' over-allotment option is exercised in full. The deferred underwriting compensation of $800,000 ($920,000 if the underwriters' over-allotment option is exercised in full), or $0.20 per unit, will be deposited in the trust account, together with the net proceeds from this offering and the sale of the private warrants, and will be available for distribution to public stockholders upon our liquidation if we do not complete a business combination. Of the proceeds of the private placement, $100,000 will be available to us as working capital. In addition, we may withdraw from the trust fund periodically interest earned (net of taxes) of up to an aggregate of $1,000,000, upon request of our Board, for working capital and to pay expenses associated with potential business combinations; provided that if the over-allotment option is exercised in full, to the extent the funds in trust are less than $10.00 per share, the first $240,000 in interest earned on the amount held in the trust account (net of taxes payable) will be used to cover such shortfall to bring the amount held in trust for the benefit of the public stockholders to an aggregate of $46,000,000 ($10.00 per share). We intend to use substantially all of the net proceeds of this offering and from the sale of the private warrants 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 that are not used for such purpose, as well as any other net proceeds not expended will be used to finance the operations of the target business. We believe that, upon completion of this offering and the private placement, the $100,000 available to us from the proceeds of the private placement outside of the trust account, together with the up to an aggregate of $1,000,000 that we may withdraw periodically from the interest earned, net of taxes, on the funds in the trust account, upon request of our Board, for our working capital requirements and to pay the expenses associated with proposed business combinations, will be sufficient to allow us to operate for at least the next 18 months, or 24 months if we enter into a letter of intent, agreement in principle or definitive agreement for a business combination within the 18 months after the consummation of the offering, assuming that a business combination is not completed during that time. Over this time period, we anticipate making the following expenditures: o approximately $300,000 of expenses for legal, accounting and other expenses attendant to the structuring and negotiation of a business combination; o approximately $180,000 of expenses in fees relating to our office space and certain general and administrative services; o approximately $70,000 of expenses for the due diligence and investigation of a target business; o approximately $100,000 of expenses in legal and accounting fees relating to our SEC reporting obligations; and o approximately $450,000 for general working capital that will be used for other expenses, including potential deposits, down payments, exclusivity fees, franchise taxes, finder's fees or similar fees or compensation, premiums for director and officer liability and key-man insurance, reserves and costs and expenses associated with our dissolution and liquidation. We do not believe we will need additional financing following this offering in order to meet the expenditures required for operating our business prior to our initial business combination. However, we may need to obtain additional financing to complete a business combination or because we become obligated to convert into cash a significant number of shares from dissenting stockholders, in which case we may issue additional securities or incur debt in connection with such business combination. Although we do not know the rate of interest to be earned on the trust account and are unable to predict an exact amount of time it will take to complete a business combination, we anticipate that the interest that will accrue on the trust account, even at an interest rate of 4% per annum (approximately $3,120,000 for 24 months if the underwriters' over-allotment option is not exercised) during the time it will take to identify a target and complete an acquisition will be sufficient to fund our working capital requirements. Moreover, we will need to obtain additional financing to the extent such financing is required to complete a business combination or because we become obligated to convert into cash a significant number of shares from dissenting stockholders, in which case we may issue additional securities or incur debt in connection with such business combination. Following a business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations. 49
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We have granted a purchase option to the representative to be issued upon the closing of this offering. If the offering does not close, the purchase option will not be issued. Based on Emerging Issues Task Force 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, the purchase option will initially be measured at fair value and reported in permanent equity, and subsequent changes in fair value will not be recognized as long as the purchase option continues to be classified as an equity instrument. Accordingly, there will be no net impact on our financial position or results of operations except for recording of the $100 proceeds from the sale thereof. We estimate the fair value of the purchase option at the date of issue will be approximately $5.32 per unit or approximately $1,490,000 in the aggregate. If we do not consummate a business combination within the prescribed time period and we dissolve, liquidate and wind up, the purchase option will become worthless. Quantitative and Qualitative Disclosures about Market Risk The net proceeds of this offering, including amounts in the trust account, will be invested in U.S. "government securities," defined as any Treasury Bills issued by the United States having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 Act, so that we are not deemed to be an investment company under the Investment Company Act of 1940 Act. According to the Federal Reserve Statistical Release dated July 2, 2007, referencing historical interest rate data which appears on the Federal Reserve website, U.S. Treasury Bills with four week, three month and six month maturities were yielding, as of the week ended June 29, 2007, 4.20%, 4.67% and 4.77%, respectively. While we cannot assure you the balance of the trust account will be invested to yield these rates, we believe such rates are representative of those we may receive on the balance of the trust account. We may withdraw an aggregate of up to $1,000,000 in interest earned, net of taxes, from the trust account periodically, upon request of our Board, for our working capital requirements and to pay expenses associated with potential business combinations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk. Off-balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results As of June 30, 2007, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. No unaudited quarterly operating data is included in this prospectus, as we have conducted no operations to date. 50
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Proposed Business Introduction We are a recently organized Delaware blank check company formed to complete a business combination with one or more operating businesses that has its principal operations in the PRC. Although our efforts in identifying prospective target businesses will not be limited to a particular industry segment, we intend to focus our initial efforts on acquiring an operating business in the natural resources sector, particularly minerals, whose activities include mining, extracting, smelting, processing and/or fabricating. Accordingly, we may focus on any industry segment other than the above-referenced industry segment in our search for target businesses. To date, our efforts have been limited to organizational activities as well as activities related to this offering. We do not have any specific initial business combination under consideration. We have not, nor has anyone on our behalf, contacted any prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction. Since joining the World Trade Organization, or WTO, in 2001, China's national output has almost doubled and approximately one-third of total global growth since 2000 has been from China. o China is the world's third largest trading economy, after Japan and the United States. o China has had an average annual growth of approximately 9.5% over the past 25 years, with 10.7% growth in 2006 according to the World Bank. Proposed Industry Focus Initially, we intend to focus on companies in the natural resources sector, particularly minerals, whose activities include mining, extracting, smelting, processing and/or fabricating According to the "China's Policy on Mineral Resources--White Papers of Government," over 80% of industrial and processed raw materials and over 92% of primary energy are from mineral resources. There are over 170 different varieties of minerals that have been discovered in the PRC, approximately 158 of which have proven reserves. There are approximately ten energy-related minerals, including oil, natural gas, coal and uranium; approximately 54 metallic minerals, including iron, manganese, copper, aluminum, lead and zinc; and approximately 91 non-metallic minerals, including graphite, phosphorous, sulfur and sylvite. In 2004, the Chinese Government approved efforts to accelerate the development of the mining industry by supporting consolidation, scaling of operations, increased exploration and integration. In order to meet the demand for mineral resources, China is expanding and developing surveying and extraction techniques to boost domestic production and is opening the industry for Sino Foreign joint venture projects. The mineral sector had not been open to foreign investors until the PRC became a member of the WTO. Foreign investment has dramatically changed the landscape of the PRC mineral industry. The Central Government has established the following principles for mineral resources in China: o An increase in prospecting and exploitation. o International co-operation and foreign investment. o Promotion of ecologically sound mining methods and strict enforcement of green policy. o An open and competitive market with an emphasis on sustainable development o Improving technology and the quality and training of the workforce. According to the Foreign Investment Administration at the PRC Government's Ministry of Commerce, although there are only about 80,000 state-owned enterprises and approximately 200,000 collectively owned mines, the state-owned sector accounts for approximately 60% of total mineral production. China's mining industry is the third largest in the world, with total mineral production in 2005 of approximately 7 billion tons, or approximately $190 billion, with the highest coal, steel, copper, aluminum and cement production in the world. Of the more than 200,000 mineral deposits found in China, only 20,000 have been explored and assessed. China is the world's largest consumer of copper and iron ore, and the second largest consumer of aluminum and nickel. According to the KPMG China mining report entitled "Going for Gold - China as a Global Mining Player," published in November 2006: 51
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o Mining directly employs nearly five million people domestically. These companies are small and do not have advanced technology or large amounts of capital. There are many opportunities for safety and productivity improvements within these companies. The Government wants smaller mines to be consolidated to realize economies of scale. o Global coal consumption grew by 5% in 2005; China accounted for 80% of this growth. o 70% of China's electricity is generated from coal and this is not expected to fall significantly in coming decades. o Foreign companies have generally exported resources to China. Anglo-Australian Rio Tinto and BHP Billiton sell 47% and 53%, respectively, of their entire iron ore output to China. Companies outside of China are being bought for their potential output within China. The Chinese Government has established the following goals with regards to minerals and metals as part of its 11th five-year plan (2006-2010) : o Stabilize the global minerals market; o Establish a new order for international mining economics by enhancing negotiation and dialogue, taking actions to prevent price monopolies and promoting fair trade; o Promote sustainable development of mineral resources; and o Strengthen international cooperation by developing minerals trading, increasing mutual investment and facilitate transportation of mineral products. Business Strategy We have identified the following general criteria and guidelines that we believe are important in evaluating prospective target businesses. We will use these criteria and guidelines in evaluating acquisition opportunities. However, we may decide to enter into a business combination with a target business that does not meet these criteria and guidelines. o Established Companies with Proven Track Records. We will seek to acquire established companies with sound historical financial performance. We will typically focus on companies with a history of strong operating and financial results. o Companies with Strong Free Cash Flow Characteristics. We will seek to acquire companies that have a history of strong, stable free cash flow generation. We will focus on companies that have predictable, recurring revenue streams and an emphasis on low working capital and capital expenditure requirements. o Strong Competitive Industry Position. We will seek to acquire businesses that operate within the natural resources sector that have strong fundamentals. The factors we will consider include growth prospects, competitive dynamics, level of consolidation, need for capital investment and barriers to entry. Within the natural resources sector, we will focus on companies that have a leading market position. We will analyze the strengths and weaknesses of target businesses relative to their competitors, focusing on product quality, customer loyalty, cost impediments associated with customers switching to competitors, patent protection and brand positioning. We will seek to acquire businesses that demonstrate advantages when compared to their competitors, which may help to protect their market position and profitability and deliver strong free cash flow. o Experienced Management Team. We will seek to acquire businesses that have strong, experienced management teams. We will focus on management teams with a proven track record of driving revenue growth, enhancing profitability and generating strong free cash flow. We believe that the operating expertise of our founding shareholders will complement, not replace the target's management team. While it is possible that one or more of our officers or directors will remain associated in some capacity 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. o Audited Books and Accounts by a Fully Qualified Audited Firm. We will seek to acquire businesses that have audited books and accounts by a fully qualified auditing firm duly registered in the PRC. 52
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Government Regulation Regulations on Mergers and Acquisitions of PRC Companies by Foreign Investors On August 8, 2006, six PRC regulatory agencies, namely, the PRC Ministry of Commerce, or MOFCOM, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce and the SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. The New M&A Rule established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For instance, the New M&A Rule requires MOFCOM's approval for any acquisition by a foreign investor of a PRC domestic enterprise using any of its securities as part of the consideration. Accordingly, if we undertake a business combination with a PRC domestic enterprise using any of our securities as consideration, we will need to obtain MOFCOM's approval for the business combination. In addition, approvals of other PRC regulatory agencies also may be required under the New M&A Rule depending on how we ultimately structure our business combination. Regulation of Foreign Currency Exchange and Dividend Distribution Foreign currency exchange in China is governed by a series of regulations, including the Foreign Currency Administrative Rules (1996), as amended, and the Administrative Regulations Regarding Settlement, Sale and Payment of Foreign Exchange (1996), as amended. Under these regulations, the Renminbi is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loans or investments in securities outside China without the prior approval of the PRC State Administration of Foreign Exchange, or SAFE. Pursuant to the Administrative Regulations Regarding Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises in China may purchase foreign exchange without the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange, subject to a cap approved by SAFE, to satisfy foreign exchange liabilities or to pay dividends. However, the relevant PRC government authorities may limit or eliminate the ability of foreign-invested enterprises to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment in securities outside China are still subject to limitations and require approvals from SAFE. Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions Pursuant to the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, issued by SAFE on October 21, 2005, which became effective as of November 1, 2005, PRC residents are required to register with SAFE in connection with offshore investment activities. SAFE has stated that the purpose of these regulations is to ensure the proper balance of foreign exchange and the standardization of the cross-border flow of funds. According to Notice 75: o prior to establishing or assuming control of an offshore company for the purpose of financing that offshore company with assets or equity interests in an onshore enterprise in the PRC, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant local SAFE branch; o an amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore company upon either (1) the injection of equity interests or assets of an onshore enterprise to the offshore company, or (2) the completion of any overseas fund raising by such offshore company; and 53
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o an amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company, such as (1) an increase or decrease in its capital, (2) a transfer or swap of shares, (3) a merger or division, (4) a long-term equity or debt investment, or (5) the creation of any security interests over the relevant assets located in China. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations. As a foreign entity, if we purchase the assets or equity interest of a PRC company owned by PRC residents, those PRC residents will be subject to the registration procedures described in the regulations. Moreover, PRC residents who are beneficial holders of our shares are required to register with SAFE in connection with their investment in us. As a result of the lack of implementing rules and other uncertainties concerning how the existing SAFE regulations will be interpreted or implemented, we cannot predict how they will affect our business operations following a business combination. For example, our ability to conduct foreign exchange activities following a business combination, such as remittance of dividends and foreign-currency-denominated borrowings, may be subject to compliance with the SAFE registration requirements by such PRC residents, over whom we have no control. In addition, we cannot assure you that such PRC residents will be able to complete the necessary registration procedures required by the SAFE regulations. Following a business combination, we will require all our stockholders who are PRC residents to comply with any SAFE registration requirements, although we have no control over our stockholders or the outcome of those registration procedures. These uncertainties may restrict our ability to implement our acquisition strategy and adversely affect our business and prospects following a business combination. Dividend distribution The principal laws and regulations in China governing distribution of dividends by foreign-invested companies include: o The Sino-foreign Equity Joint Venture Law (1979), as amended; o The Regulations for the Implementation of the Sino-foreign Equity Joint Venture Law (1983), as amended; o The Foreign Investment Enterprise Law (1986), as amended; o The Sino-foreign Cooperative Enterprise Law (1988), as amended; o The Regulations of Implementation of the Foreign Investment Enterprise Law (1990), as amended; and o The Detailed Rules for the Implementation of the Sino-foreign Cooperative Enterprise Law (1995), as amended. Under these regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds unless such reserve funds have reached 50% of their respective registered capital. These reserves are not distributable as cash dividends. 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 primary currency, is freely convertible for trade and service 54
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related foreign exchange transactions (such as normal purchases and sales of goods and services from providers in foreign countries), but not for direct investment, loan or investment in securities outside of China unless prior approval is obtained from the State Administration for Foreign Exchange of China, or "SAFE." Foreign investment enterprises, or "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. On October 21, 2005, the SAFE issued Circular No. 75 on "Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Corporate Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles." Circular No. 75 confirms that the use of offshore special purpose vehicles as holding companies for PRC investments is permitted as long as there is compliance with applicable foreign exchange rules. 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 an FIE is currently exempted from the 20% withholding tax. 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. The domestic corporate income tax has been 33%, compared to the 15% rate for overseas companies. However, as part of the recent government policy to improve the level and quality of foreign investment, China adopted a new law, which will become effective on January 1, 2008, that will unify the income tax rate for domestic and foreign enterprises at 25%. All companies regardless of type, ownership or location will be subject to the same tax rate, although some preferential rates will still apply to encourage the development of certain sectors, such as hi-tech enterprises, agriculture and fishery. Businesses who received preferential rates under the old system will have five years to integrate into the new system. After January 1, 2008, the existing tax holidays will not be available to new entities established by foreign investors in China. Tax breaks will still be available for investments in the west and north-east of the country and in high-technology industries. Recent Developments in Foreign Investment Procedures Foreign investment into domestic Chinese companies has always been complex and is often complicated by high levels of bureaucracy. If a foreign company wants to invest domestically in China, or if a Chinese company/assets wish to list internationally, MOFCOM (Ministry of Commerce) approval is required which can be both difficult and time consuming to obtain. Recent reforms to the mergers and acquisitions outline a relatively new approach for foreign investment into China, comprising several approaches that are relatively unproven. This includes the FICLS (Foreign Investment Company of Limited Shares) approach, the FIVCE (Foreign Investment Venture Capital Enterprise) regulations and rules governing Joint Ventures and WFOEs (Wholly Foreign Owned Entities). These restrictions and regulations may be subject to unforeseen changes or amendments which may affect our ownership of businesses we acquire in China. A new approach, given the August 2006 M & A reforms have relaxed the laws, has been for foreign entities to invest directly into the domestic Chinese market in situations that are effectively joint ventures governed by Chinese law. The reason that these ventures are attractive is because of the ability to implement fast closures, as approval is only necessary from the much easier to obtain provincial, rather than national, level of government. These entities will then restructure to become a WFOE (Wholly Foreign Owned Entity) in the form of an offshore company, with offshore investment used to purchase the original domestic share of the joint venture. 55
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In recent years, stock exchanges in China (Shanghai and Shenzhen) have experienced significant volatility, but generally have performed relatively well. Shanghai was up 121% during 2006. According to PriceWaterhouseCoopers, China's equity markets are expected to overtake Hong Kong's in 2007 as the top location for mainland businesses to raise money through IPOs. The global stock sell-off in late February 2007, in particular the nearly 9% drop in the Shanhai market on February 27,, 2007, was relatively small compared to the large increases in recent months. This drop was fuelled by speculation that China's government would try to clamp down on illegal share trading and might impose a capital gains tax on stock market earnings. The effect of this drop and impacts on other markets amply demonstrates how interlinked China now is to the rest of the world economy. China is moving in the direction of increasing convertibility for RMB capital account transactions, which suggests that the future for foreign investment lies in the Chinese domestic market in an eventually much less bureaucratic environment: o China has established the Qualified Foreign Institutional Investor (QFII) regime for foreign institutional participation in the A Share market. o The Qualified Domestic Institutional Investor (QDII) scheme for domestic institutions to make portfolio investments abroad has been implemented. o Chinese individuals may now convert $20,000 of RMB per year into foreign currency. o RMB is likely to be fully convertible in a few years. China Mineral Resources Law In the natural resources sector, the PRC has enacted a series of laws and regulations over the past 20 years. The "China Mineral Resources Law" declares state ownership of all mineral resources in the PRC. However, mineral exploration rights can be purchased, sold and transferred by the PRC to foreign owned companies. Under the "Mineral Resources Law", all mineral resources of the PRC are owned by the Central Government. Mining rights are granted by the Central Government permitting recipients to conduct mining activities in a specific mining area during the license period. These rights entitle the licensee to undertake mining activities and infrastructure and ancillary work, in compliance with applicable laws and regulations, within the specific area covered by the license during the license period. The licensee is required to submit a mining proposal and feasibility studies to the relevant authority and to pay the Central Government a natural resources fee in an amount equal to a percent of annual sales. The Ministry of Land and Resources (MLR) is the principal regulator of mineral rights in China. The Ministry has authority to grant licenses for land-use and exploration rights, issue permits for mining rights and leases, oversee the fees charged for them and their transfer, and review reserve evaluations. The Central Government has issued detailed rules and regulations under the China Mineral Resources Law, including the "regulation on mineral resource survey and registration" and the "regulation on mineral resource exploration." The Chinese Government also publishes the "Guidance on Foreign Direct Investment" and the "Guiding Catalogue of Foreign Investment Projects", which classify into four categories the industries and specific types of minerals in the PRC and their availability to foreign direct investments, which categories are either: "encouraged," "permitted," "restricted" or "prohibited." For example, minerals with radiation, such as uranium, are prohibited from survey exploration by any non-state entity, including foreign owned companies. Minerals such as gold, silver and tungsten, are "restricted" from foreign ownership, while foreign investments in minerals such as ore, copper, tin, lead and aluminum are "encouraged." Subject to the type of mineral resources to be explored, foreign companies exploring mineral resources may be required to take a specific corporate form in order to comply with PRC laws and regulations (such as a joint venture or cooperative joint venture with a PRC national or to be majority owned by a PRC national). In recent years, the PRC government has encouraged foreign direct investment into the west inland of China (where most of the unexplored mineral resources are located) and has permitted foreign investors to own all or a majority of the companies exploring mineral resources that would otherwise be in the "restricted" category. 56
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To implement government policy in natural resource-related industries, the PRC issued several types of permits and certificates to related businesses such as: "Permit for mineral survey," "Permit for mineral exploration" and "Permit for land use." Holders of the permits are required to pay a one-time fee for such permit. The fees are determined in one of several ways - by a professional evaluator licensed with the government, through public auction or through bidding. The right that the permits represent may be exploited or they may be purchased, sold or otherwise transferred. The permits normally specify the location, area, type of mineral, scale of production and time period. Other than normal business licenses, the smelting and processing businesses usually do not require any special permits discussed above. Imports and exports of various mineral resources require quota licenses, which are issued by the PRC's Ministry of Business. The list of mineral resources subject to such quota licenses is published annually. It is anticipated that foreign ownership in the PRC mineral resources industry will be further accessible with the development of the PRC's economy and the integration of the PRC into the world economy. On October 14, 2003 a notice was published by the Ministry of Finance and State Administration of Taxation on the export tax reimbursement rate. According to the notice, commencing in 2004, tax reimbursement rates for most non-ferrous metal products were reduced by 5 to 13%. Export tax rebates for copper, aluminum, lead, zinc and tungsten were annulled. The Chinese government has published a white paper on China's Mineral Resources Policy. The main points are that: o China will increase the pace of reform to open up the mining industry further; o China will continue to increase mining production and promote international commodities, and o The Central Government will continue to improve investment in the mining sector through the reform of the administrative examination and approval system. The Central Government also plans to revive the mineral resources law to promote mineral exploration and in the interest of transparency provide a clear and fair system of granting mineral titles. Any company set up in China may register at the Ministry of Land and Resources for a prospecting license, subject to the conditions set out for geological prospecting. When granted, the license will be enforceable throughout China. In the event we complete a business combination with a target business in another industry subject to a regulatory framework in the PRC, we will be subject to PRC laws and regulations, compliance with which may be time-consuming, costly, and subject us to various risks and restrictions on how we operate our business. Even if a target business is not in an industry currently subject to regulations in the PRC, such target business and industry could be impacted by new legislation in the PRC. We cannot predict the timing or the effect of future developments in the regulatory framework of any industry in the PRC at this time. If new laws or regulations forbid foreign investment in any of these industries, they could severely impair our ability to complete a business combination with a target business in those sectors. 57
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Effecting a Business Combination General We are not 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, the private placement, our capital stock, debt or a combination of these in effecting a business combination. Although substantially all of the net proceeds of this offering and the private placement 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, prospective investors will invest in us without an opportunity to evaluate the specific merits or risks of any one or more business combinations. A business combination may involve the acquisition of a company which does not need substantial additional capital but which desires to establish a public trading market for shares in a company that owns or controls the operation of its business, 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 with which to seek a business combination. None of our officers, directors, promoters or other affiliates is engaged in discussions on our behalf with representatives of other companies regarding the possibility of a potential capital stock exchange, asset acquisition or similar business combination, or control transaction, with us nor have we, nor any of our agents of affiliates, been approached by any candidates (or representative of any candidates) with respect to a possible business combination with our company. Additionally, we have not engaged or retained any agent or other representative to identify or locate any suitable acquisition candidate. We have not established any specific attributes or criteria (financial or otherwise) for prospective target businesses. Finally, we note that there has been no diligence, discussions, negotiations and/or other similar activities undertaken, directly or indirectly, by us, our affiliates or representatives, or by any third party, with respect to a business combination transaction with us. Subject to the limitation that a target business has principal operations in the PRC and a fair market value of at least 80% of our net assets (excluding deferred underwriting discounts and commissions being held in the trust account) at the time of the business combination, as described below in more detail, we will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate. 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. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors. Sources of target businesses We anticipate that target business candidates will be brought to our attention from various sources, including our management team, investment bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds, consulting firms and other members of the financial community who will become aware that we are seeking a business combination partner via public relations and marketing efforts, direct contact by management or other similar efforts, who may present solicited or unsolicited proposals. Any finder or broker would only be paid a fee upon the completion of a business combination. The fee to be paid to such persons would be a percentage of the fair market value of the transaction with the percentage to be determined in an arm's-length negotiation between the finder or broker and us based on market conditions at the time we enter into an agreement with such finder or broker. While we do not presently anticipate engaging the services of professional firms that specialize in acquisitions on any formal basis, we may decide to engage such firms in the future or we may be approached on an unsolicited basis, in which event their compensation (which would be equal to a percentage of the fair market value of the transaction as agreed upon at the time of such engagement or agreement with a party that brings us an unsolicited proposal, as the case may be) may be paid from the offering proceeds not held in trust. Our officers and 58
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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 our officers and directors make no commitment as to the amount of time they will spend trying to identify or investigate potential target businesses, they believe that the various relationships they have developed over their careers together with their direct inquiry, will generate a number of potential target businesses that will warrant further investigation. In no event will we pay any of our existing officers, directors, special advisors or stockholders or any entity with which they are affiliated any finder's fee or other compensation for services rendered to us prior to or in connection with the completion of a business combination. In addition, none of our officers, directors, special advisors or existing stockholders will receive any finder's fee, consulting fees or any similar fees from any person or entity in connection with any business combination involving us other than any compensation or fees that may be received for any services provided following such 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 or businesses with principal operations in the PRC and having a collective fair market value that is at least 80% of our net assets (excluding deferred underwriting discounts and commissions being held in the trust account) at the time of a business combination, our management will have virtually unrestricted flexibility in identifying and selecting a prospective target business. We have not conducted any specific research with respect to identifying the number and characteristics of the potential acquisition candidates or the likelihood or probability of success of any proposed business combination. While we have determined broad criteria for a target business for a possible business combination, in particular that it has its principal operations in the PRC, we have not yet analyzed the businesses available for acquisition and have not identified a target business, we have not established any specific attributes or criteria (financial or otherwise) for the evaluation of prospective target businesses. We expect that our management will diligently review all of the proposals we receive with respect to a prospective target business. In evaluating a prospective target business, our management will conduct the necessary business, legal and accounting due diligence on such target business and will consider, among other factors, the following: o financial condition and results of operations; o earnings and growth potential; o experience and skill of management and availability of additional personnel; o capital requirements; o competitive position; o barriers to entry into the industry; o breadth of products offered; o degree of current or potential market acceptance of the products; o regulatory environment; and 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, where applicable, and inspection of facilities, as well as review of financial and other information which will be made available to us. 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. However, we will not pay any finder's or consulting fees to our existing stockholders or any of their respective affiliates for services rendered to or in connection with a business combination. 59
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Fair market value of target business The initial target business or businesses that we acquire, or acquire control of, must have a collective fair market value equal to at least 80% of our net assets (excluding deferred underwriting discounts and commissions being held in the trust account) at the time of a business combination. In order to complete that business combination, we may issue a significant amount of our debt or equity securities to the sellers of such businesses and/or seek to raise additional funds through a private offering of debt or equity securities. Since we have no specific business combination under consideration, we have not entered into any such fund raising arrangement and have no current intention of doing so. The fair market value of 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 (for example, if the financial analysis is too complicated for our board of directors to perform on its own), we will obtain an opinion from an unaffiliated, independent investment banking firm which 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. If we do obtain the opinion of an investment banking firm, a summary of the opinion will be contained in the proxy statement that will be mailed to stockholders in connection with obtaining approval of the business combination, and the investment banking firm will consent to the inclusion of their report in our proxy statement. In addition, information about how stockholders will be able to obtain a copy of the opinion from us will be contained in the proxy statement. 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 has sufficient fair market value. Possible 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 likely that we will have the ability to effect only one, or perhaps two, business combinations, although this may entail simultaneous acquisitions of several entities at the same time. We may not be able to acquire more than one target business because of various factors, including possible complex domestic or international accounting issues, which would include generating pro forma financial statements reflecting the operations of several target businesses as if they had been combined, and numerous logistical issues, which could include attempting to coordinate the timing of negotiations, regulatory approvals, proxy statement disclosure and other legal issues and closings with multiple target businesses. In addition, we would also be exposed to the risks that conditions to closings with respect to the acquisition of one or more of the target businesses would not be satisfied bringing the fair market value of the initial business combination below the required fair market value of 80% of net assets threshold. Additionally, if our business combination involves the simultaneous acquisitions of several entities at the same time, we would need to convince the sellers of such entities to agree that the purchase of their entities is contingent upon the simultaneous closings of the other acquisitions. Accordingly, for an indefinite period of time, the prospects for our future viability 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: o result in our dependency upon the performance of a single operating business; o result in our dependency upon the development or market acceptance of a single or limited number of products or services; and 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. 60
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Limited ability to evaluate the target business' management Although we expect certain members of our management team to remain associated with us 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, and we may employ other personnel following the business combination. 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 cannot presently be stated with any certainty. Moreover, our current management will only be able to remain with the combined company after the completion of a business combination if they are able to negotiate and agree to mutually acceptable employment terms in connection with any such combination, which terms would be disclosed to stockholders in any proxy statement relating to such transaction. While it is possible that one or more of our officers, directors and special advisors will remain associated in some capacity 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. 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 potential additional managers 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 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 Exchange Act, which, among other matters, will include a description of the operations of the target business and audited historical financial statements of the target business. In connection with the vote required for our initial business combination, all of our existing stockholders have agreed to vote their founding shares in accordance with the majority of the shares of common stock voted by the public stockholders. In addition, our existing stockholders have also agreed to vote all the shares of our common stock acquired in this offering or in the aftermarket in favor of a business combination. 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 35% of the shares sold in this offering vote against the business combination and exercise their conversion rights. Conversion rights At the time we seek stockholder approval of any business combination, we will offer each public stockholder the right to convert his, her or its shares of common stock to cash if the stockholder votes against the business combination and the business combination is approved and completed. The actual per-share conversion price will be $10.00, which includes $0.20 attributable to deferred underwriting compensation. 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. 61
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We will not complete any business combination if public stockholders owning 35% or more of the shares sold in this offering exercise their conversion rights and vote against the business combination. Accordingly, it is our understanding and intention in every case to structure and consummate a business combination in which if not more than 1,399,999 shares, representing one less share than 35% of the public stockholders, exercise their conversion rights, the business combination may proceed. We have increased the conversion percentage from 20% to one share less than 35% of the total shares sold in this offering to reduce the likelihood that a small group of investors holding a large block of our stock will be able to stop us from completing a business combination that is otherwise approved by public stockholders owning a large majority of our outstanding shares. As this is unfair and detrimental to the vast majority of our public stockholders, we determined the higher conversion threshold was appropriate. For stockholders to exercise their conversion rights, they must vote against the acquisition and have affirmatively elected to convert their shares by checking the appropriate box, or directing their broker to check the appropriate box, on the proxy card (enclosed with the proxy statement) and ensure the proxy card is delivered prior to the special meeting regarding the business combination. If a stockholder votes against the business combination but fails to properly exercise its conversion rights, that stockholder will not have its shares of common stock converted to cash at the per share price of $10.00. 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. Public stockholders who convert their stock will still have the right to exercise any warrants that they received as part of the units which they then own. Those who purchase common stock in the aftermarket at a price in excess of $10.00 per share may have a disincentive to exercise their conversion rights because the amount they would receive upon conversion could be less than their original or adjusted purchase price. Dissolution and liquidation if no business combination We have agreed with the trustee to promptly adopt a plan of dissolution and liquidation and initiate procedures for our dissolution and liquidation if we do not effect a business combination within 18 months after completion of this offering (or within 24 months after the completion of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after completion of this offering and the business combination related thereto has not been completed within such 18-month period). The plan of dissolution will provide that we liquidate all of our assets, including the trust account, and after reserving amounts sufficient to cover claims and obligations of the company and the costs of dissolution and liquidation, distribute those assets solely to our public stockholders. As discussed below, the plan of dissolution and liquidation will be subject to stockholder approval. Upon the approval by our stockholders of our plan of dissolution and liquidation, we will liquidate our assets, including the trust account, and after reserving amounts sufficient to cover claims and obligations of our company and the costs of dissolution and liquidation, distribute those assets solely to our public stockholders. Our existing stockholders have waived their rights to participate in any liquidating distributions occurring upon our failure to complete a business combination with respect to the founding shares and have agreed to vote all of their shares in favor of any such plan of dissolution and liquidation. We estimate that, in the event we liquidate the trust account, our public stockholders will receive approximately $10.00 per share, without taking into account interest earned on the trust account (net of taxes payable on such interest) and not withdrawn by us for working capital, as described elsewhere in this prospectus. Although we do not know the rate of interest to be earned on the trust account and are unable to predict an exact amount of time it will take to complete a business combination, we anticipate that the interest that will accrue on the trust account, even at an interest rate of 4% per annum (approximately $3,120,000 for 24 months if the underwriters' over-allotment option is not exercised) during the time it will take to identify a target and complete an acquisition will be sufficient to fund our working capital requirements. We expect that all costs associated with implementing a plan of dissolution and liquidation, as well as payments to any creditors, will be funded from the $100,000 made available to us from the net proceeds not held in the trust, plus the interest (net of taxes) on the funds deposited in the trust account and the interest on amounts held in the trust account (net of taxes) released to us as described elsewhere in this prospectus, although we cannot assure you that those funds will be sufficient f for those purposes. 62
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If we do not have sufficient funds for those purposes, the amount distributed to our public stockholders would be less than $10.00 per share, without taking into account interest earned in the trust account (net of taxes payable thereon). Our sponsor has agreed to indemnify us for these expenses to the extent there are insufficient funds available from the proceeds not held in the trust account and interest released to us. To mitigate the risk of the amounts in the trust account being reduced by the claims of creditors, prior to completion of a business combination, we will seek to have all vendors, providers of financing or target businesses and other entities, which we refer to as potential contracted parties or a potential contracted party, execute valid and enforceable agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders. If a potential contracted party refuses to execute such a waiver, we will execute an agreement with that entity only if our management first determines that we would be unable to obtain, on a reasonable basis, substantially similar services or opportunities from another entity willing to execute such a waiver. Examples of instances where we may engage a third party that has refused to execute a waiver would be the engagement of a third party consultant whose particular expertise or skills are believed by management to be superior to those of other consultants that would agree to execute a waiver or a situation in which management does not believe it would be able to find a provider of required services similar in talent willing to provide the waiver. There is no guarantee that vendors, providers of financing or prospective target businesses, or other entities will execute such agreements, or even if they execute such agreements that they would be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility and other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with a claim against our assets, including the funds held in the trust account. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of our public stockholders. If we liquidate before the completion of a business combination and distribute the proceeds held in trust to our public stockholders, our sponsor has agreed, pursuant to a written agreement with us and the representative, that he will be personally liable to ensure that the proceeds in the trust account are not reduced by vendors, service providers, providers of financing or prospective target businesses that are owed money by us for services rendered or contracted for or products sold to us. However, we cannot assure you that he will be able to satisfy those obligations nor can we assure you that the per-share distribution from the trust account will not be less than $10.00, plus available interest, due to such claims. In the event that the proceeds in the trust account are reduced and the sponsor asserts that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether we would take legal action against the sponsor to enforce his indemnification obligations. Accordingly, we cannot assure you that the actual per-share liquidation value receivable by our public stockholders will not be less than $10.00 due to claims of creditors. We believe the likelihood of our sponsor having to indemnify the trust account is limited because we will endeavor to have all vendors and prospective target businesses as well as other entities execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. The indemnification provisions are set forth in the form of insider letter to be executed by our sponsor. The insider letter provides that in the event we obtain a valid and enforceable waiver of any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our stockholders from a vendor, prospective target business or other entity, the indemnification will not be available. The form of insider letter to be executed by our sponsor is an exhibit to the registration statement of which this prospectus forms a part. In the event that the board recommends and our stockholders approve a plan of dissolution and liquidation where it is subsequently determined that the reserve for claims and liabilities is insufficient, stockholders who received a return of funds from the liquidation of our trust account could be liable for such claims made by creditors. Furthermore, creditors or other parties may seek to interfere with the distribution of the trust account pursuant to federal or state creditor, bankruptcy and similar laws which could delay the actual distribution of such funds or reduce the amount ultimately available for distribution to our public stockholders. If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the funds held in our trust account will be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to claims of third parties with priority over the claims of our public stockholders. It is possible that other actions by creditors or others could also render the trust account subject to claims of third parties. To the extent bankruptcy proceedings or other actions deplete the trust account, we cannot assure you we will be able to return to our public stockholders the liquidation amounts they might otherwise receive. 63
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As required under Delaware law, we will seek stockholder approval for any voluntary plan of dissolution and liquidation. We currently believe that any plan of dissolution and liquidation subsequent to the expiration of the 18 and 24 month deadlines would proceed in approximately the following manner (subject to our agreement to take earlier action as described below): o our board will, consistent with its obligations described in our certificate of incorporation to dissolve, prior to the passing of such deadline, convene and adopt a specific plan of dissolution and liquidation, which it will then vote to recommend to our stockholders; at such time we will also prepare a preliminary proxy statement setting out such plan of dissolution and liquidation as well as the board's recommendation of such plan; o upon such deadline (or earlier as described below), we would file our preliminary proxy statement with the SEC; if the SEC does not review the preliminary proxy statement, then, approximately 10 days following the filing date, we will file a definitive proxy statement with the SEC and will mail the definitive proxy statement to our stockholders, and approximately 30 days following the mailing, we will convene a meeting of our stockholders, at which they will either approve or reject our plan of dissolution and liquidation; and o if the SEC does review the preliminary proxy statement, we currently estimate that we will receive their comments approximately 30 days following the filing of the preliminary proxy statement. We will mail a definitive proxy statement to our stockholders following the conclusion of the comment and review process (the length of which we cannot predict with any certainty, and which may be substantial) and we will convene a meeting of our stockholders as soon as permitted thereafter. In addition, if we seek approval from our stockholders to complete a business combination within 90 days of the expiration of 24 months after the completion of this offering (assuming that the period in which we need to complete a business combination has been extended, as provided in our certificate of incorporation), the proxy statement related to such business combination will also seek stockholder approval for our board's recommended plan of dissolution and liquidation, in the event our stockholders do not approve such business combination. We will dissolve and liquidate, and distribute our trust account and remaining net assets to our public stockholders, 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 certain extension criteria are satisfied). Under Sections 280 through 282 of the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. If the corporation complies with certain procedures intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder's pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, we will seek stockholder approval to liquidate our trust account and remaining net assets to our public stockholders as soon as reasonably possible as part of our plan of dissolution and liquidation and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them in a dissolution and any such liability of our stockholders will likely extend beyond the third anniversary of such dissolution. Accordingly, we cannot assure you that third parties will not seek to recover from our stockholders amounts owed to them by us. In the event that we seek stockholder approval for a plan of dissolution and liquidation and do not obtain such approval, we will nonetheless continue to take all reasonable actions to obtain stockholder approval for our dissolution. Pursuant to the terms of our certificate of incorporation, our purpose and powers following the expiration of the permitted time periods for consummating a business combination will automatically be limited to acts and activities relating to dissolving and winding up our affairs, including liquidation. 64
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Following the expiration of such time periods, the funds held in our trust account may not be distributed except upon our dissolution and, unless and until such approval is obtained from our stockholders, the funds held in our trust account will not be released. Consequently, holders of a majority of our outstanding stock must approve our dissolution in order to receive the funds held in our trust account, and the funds will not be available for any other corporate purpose. Our existing stockholders have agreed to vote all the shares of common stock held by them in favor of the dissolution. We cannot assure you that our stockholders will approve our dissolution in a timely manner or will ever approve our dissolution. As a result, we cannot provide investors with assurances of a specific time frame for our dissolution and liquidation. Please see the section entitled "Risk Factors--Risks associated with this offering--Under Delaware law, our dissolution requires certain approvals by holders of our outstanding stock, without which we will not be able to dissolve and liquidate and distribute our assets to our public stockholders." Generally, under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. If we complied with certain optional procedures set forth in Section 280 of the Delaware General Corporation Law intended to enhance the likelihood dissolving companies have made reasonable provision for all claims and obligations against them, including, inter alia, a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of a stockholder with respect to claims against us would generally be limited to the lesser of such stockholder's pro rata share of the claim or the amount distributed to the stockholder as part of the dissolution, and any liability of the stockholder for such claims and obligations would generally be barred after the third anniversary of the dissolution. However, it is our intention to make liquidating distributions to our public stockholders as soon as reasonably possible after dissolution and, therefore, we do not intend to comply with those procedures. As such, our public stockholders could potentially be liable for any claims against us to the extent of distributions received by them in a dissolution and any such liability of our public stockholders will likely extend beyond the third anniversary of such dissolution. Because we will not be complying with Section 280, we will seek stockholder approval to comply with Section 281(b) of the Delaware General Corporation Law, requiring us to adopt a plan of dissolution that will provide for our payment, based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims, and (iii) all claims that may be potentially brought against us within the subsequent ten years. However, because we are a blank check company rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as accountants, lawyers, investment bankers, etc.) or potential target businesses. As described above, we intend to have all vendors and prospective target businesses execute valid and enforceable agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account. As a result, we believe the claims that could be made against us are significantly reduced and the likelihood that any claim that would result in any liability extending to the trust is remote. 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 116 similarly structured blank check companies that have completed initial public offerings in the United States with more than $5.3 billion in trust that are seeking to carry out a business plan similar to our business plan. Of these, eight companies with over $270 million in trust are seeking to effectuate a business combination with a company in the PRC. Furthermore, there are a number of additional offerings for blank check companies 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. Additionally, we may be subject to competition from entities other than blank check companies having a business objective similar to ours, including venture capital firms, leverage buyout firms and operating businesses 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 65
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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 business combination with a target business. Further, the following may not be viewed favorably by certain target businesses: o our obligation to seek stockholder approval of a business combination or obtain the necessary financial information to be included in the proxy statement to be sent to stockholders in connection with such business combination may delay or prevent the completion of a transaction; o our obligation to convert shares of common stock held by our public stockholders into cash in certain instances may reduce the resources available to effect a business combination; o our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses; and o the requirement to acquire an operating business that has a fair market value equal to at least 80% of our net assets (excluding deferred underwriting discounts and commissions) at the time of the acquisition could require us to acquire several companies or closely related operating businesses at the same time, all of which sales would be contingent on the closings of the other sales, which could make it more difficult to complete the business combination. Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management believes, however, that our status as a public entity and potential access to the United States public equity markets may give us a competitive advantage over privately-held entities having a similar business objective as ours in acquiring a target business with significant growth potential on favorable terms. If we succeed in effecting a business combination, there will be, in all likelihood, intense competition from competitors of the target business. We cannot assure you that, subsequent to a business combination, we will have the resources or ability to compete effectively. Facilities We do not own any real estate or other physical property. Our offices are located at Shen Zhen China Jia Yue Trading Co., Ltd., Room 921, Block A, Golden Central Tower, Jintian Road, Futian District, Shenzhen, P.R. China, , and our telephone number is 86- 755-23993668. We have agreed to pay Shen Zhen China Jia Yue Trading Co., Ltd., an affiliate of our sponsor, a monthly fee of $7,500 for general and administrative services, including office space, utilities and secretarial support. We believe that, based on rents and fees for similar services in the Futian District,Shenzhen, PRC, the fee charged by Shen Zhen China Jia Yue Trading Co., Ltd. is at least as favorable as we could have obtained from an unaffiliated third party. This agreement commences on the date of this prospectus and will continue until the earlier of the completion of our initial business combination or our dissolution. Officers We have three officers, all of whom are members of our board of directors. These individuals are not obligated to contribute any specific number of hours per week and intend to devote only as much time as they deem necessary to our affairs. The amount of time they will devote prior to the completion time period will vary based on the availability of suitable target businesses to investigate. We do not intend to have any full time employees prior to the completion of a business combination. Periodic Reporting and Financial Information We have registered our units, common stock and warrants under the Exchange Act, and have reporting obligations, including the requirement that we file annual reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain financial statements audited and reported on by our independent accountants. 66
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We will not acquire a target business if audited financial statements based on United States generally accepted accounting principles cannot be obtained for such target business. Our management will provide stockholders with such financial information as part of the proxy solicitation materials sent to stockholders to assist them in assessing each specific target business we seek to acquire. Our management believes that the requirement of having available financial information for the target business may limit the pool of potential target businesses available for acquisition. We will be required to comply with the internal control requirements of the Sarbanes-Oxley Act for the fiscal year ending December 31, 2007. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Legal Proceedings To the knowledge of management, there is no litigation currently pending or contemplated against us or any of our officers or directors in their capacity as such. 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 assuming the underwriters' over-allotment option is not exercised). None of the terms of a Rule 419 offering will apply to this offering. [Enlarge/Download Table] Terms of Our Offering Terms Under a Rule 419 Offering --------------------------------- -------------------------------- Escrow of offering proceeds $40,000,000 comprised of a $33,480,000 of the offering portion of the proceeds of this proceeds would be required to offering and the private be deposited into either an placement and $800,000 in escrow account with an insured deferred underwriting discounts depositary institution or in a and commissions will be separate bank account deposited into a trust account established by a broker-dealer at Merrill Lynch, Pierce, Fenner in which the broker-dealer acts & Smith Incorporated, maintained as trustee for persons having by American Stock Transfer & the beneficial interests in the Trust Company. account. Investment of net proceeds The $40,000,000 held in trust Proceeds could be invested only will only be invested in U.S. in specified securities such as "government securities," defined a money market fund meeting as any Treasury Bill issued by conditions of the Investment the United States having a Company Act of 1940 or in maturity of 180 days or less or securities that are direct money market funds meeting obligations of, or obligations certain criteria. guaranteed as to principal or interest by, the United States. Limitation on fair value or net The initial target business that We would be restricted from assets of target business we acquire must have a fair acquiring a target business market value equal to at least unless the fair value of such a 80% of our net assets (excluding business or net assets to be deferred underwriting acquired represent at least 80% compensation of $800,000) at the of the maximum offering time of such business proceeds. combination. 67
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[Enlarge/Download Table] Trading of securities issued The units will begin trading on No trading of the units or the or promptly after the date of underlying common stock and this prospectus. The units will warrants would be permitted continue to trade and each of until the completion of a the common stock and warrants business combination. During may trade separately beginning this period, the securities on the 10th business day would be held in the escrow or following the earlier to occur trust account. of: (i) the expiration of the underwriters'over-allotment option or (ii) its exercise in full. In no event will separate trading of the common stock and warrants occur until we have filed a Current Report on Form 8-K with the Securities and Exchange Commission containing an audited balance sheet reflecting our receipt of the gross proceeds of this offering and issuing a press release announcing when such separate trading will begin. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the completion of this offering, which is anticipated to take place three business days following the date of this prospectus. 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 Current Report on Form 8-K. If the over-allotment option is exercised following the initial filing of this Form 8-K, we will file an amendment to that Form 8-K, or an additional Form 8-K, reporting information relating to the exercise of the over-allotment option. For more information, see the section entitled "Description of Securities--Units." 68
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[Enlarge/Download Table] Exercise of the warrants The warrants cannot be exercised The warrants could be exercised until the later of the completion prior to the completion of a of a business combination or one business combination, but year following the date of this securities received and cash prospectus and, accordingly, will paid in connection with the only be exerciseable after the exercise would be deposited in trust account has been terminated the escrow or trust account. and distributed. Election to remain an investor We will give our stockholders the A prospectus containing opportunity to vote on the business information required by the SEC combination. In connection with would be filed as part of a seeking stockholder approval, we post-effective amendment to the will send each stockholder a proxy original registration statement statement containing information filed in connection with the required by the SEC. A stockholder offering and would be sent to following the procedures described each investor. Each investor in this prospectus is given the would be given the opportunity right to convert his or her shares to notify the company, in for his or her pro rata share of writing, within a period of no the trust account. However, a less than 20 business days and stockholder who does not follow no more than 45 business days these procedures or a stockholder from the effective date of the who does not take any action would post-effective amendment, to not be entitled to the return of decide whether he or she elects any funds. If a majority of the to remain a stockholder of the shares of common stock voted by the company or require the return of public stockholders are not voted his or her investment. If the in favor of a proposed initial company has not received the business combination but 18 months notification by the end of the has not yet passed since the 45th business day, funds and completion of this offering, we may interest or dividends, if any, seek other target businesses with held in the trust or escrow which to effect our initial account would automatically be business combination that meet the returned to the stockholder. criteria (or 24 months if a letter Unless a sufficient number of of intent, agreement in principle investors elect to remain or definitive agreement has been investors, all of the deposited executed within such 18-month funds in the escrow account must period but as to which a be returned to all investors and combination is not yet complete) we none of the securities will be have not obtained stockholder issued. approval for an alternate initial business combination, we will take steps to liquidate and dissolve to effect the distribution of the proceeds of the trust account, including accrued interest, net of income taxes on such interest, to the extent available for distribution, as described in this prospectus. Business combination deadline A business combination must occur If an acquisition has not been within 18 months after the completed within 18 months after completion of this offering or the effective date of the within 24 months after the initial registration statement, completion of this offering if a funds held in the trust or letter of intent or definitive escrow account would be returned agreement relating to a prospective to investors. business combination was entered into prior to the end of the 18-month period. 69
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[Enlarge/Download Table] Release of funds Except for $7,500 per month payable The proceeds held in the escrow to an affiliate of our sponsor for account would not be released rent and related office overhead until the earlier of the and up to an aggregate of completion of a business $1,000,000 that we may withdraw combination or the failure to from interest earned, net of taxes, effect a business combination on funds in the trust account within the allotted time. periodically, upon request of our Board, to fund our working capital requirements, including expenses associated with potential business combinations, amounts held in the trust account will not be released until the earlier of the completion of a business combination or our liquidation upon our failure to effect a business combination within the allotted time. While we intend, in the event of our dissolution and liquidation, to distribute funds from our trust account to our public stockholders as promptly as possible pursuant to our stockholder approved plan of dissolution and liquidation, the actual time at which our public stockholders receive their funds will be longer than the five business days under a Rule 419 offering. Interest earned on the trust Interest earned on the trust Interest earned on proceeds held account account will be held in the trust in the trust account would be fund for the benefit of our public held in the trust account for stockholders, except to the extent the sole benefit of the we may withdraw up to $1,000,000 in stockholders and would not be the aggregate periodically of released until the earlier of interest earned, net of taxes, upon the completion of a business request of our Board, for working combination or the failure to capital and to pay expenses effect a business combination associated with potential business within the allotted time. In the combinations. While we intend, in event a business combination was the event of our dissolution and not completed within 18 months, liquidation, to distribute funds proceeds held in the trust from our trust account to our account would be returned within public stockholders as promptly as five business days of such date. possible pursuant to our stockholder approved plan of dissolution and liquidation, the actual time at which our public stockholders receive their funds will be longer than the five business days under a Rule 419 offering. 70
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Our Executive Officers and Directors Our executive officers and directors are: [Enlarge/Download Table] Name Age Position ---------------------- --- ------------------------------------------------------------ Fuzu Zeng 40 Chief Executive Officer, President and Chairman of the Board Gerald Nugawela 52 Chief Financial Officer, Treasurer and Director Brian Baiping Shen 43 Director Frederick E. Smithline 75 Director Guiying Guo 39 Secretary and Director Fuzu Zeng has been our Chairman of the Board of Directors, Chief Executive Officer and President since our incorporation on June 8, 2007. Mr. Zeng has over 18 years experience in the base metal industry, including cross border trading, financing, logistic support, structured trade finance and marketing development. Mr. Zeng was the founder, and since 2004 has been Co-Chairman and a Director of Unionmet (Singapore) Limited, a leading producer of indium in the PRC. Unionmet is headquartered in Singapore and maintains production and research and development divisions in Liuzhou, Guangxi, PRC. Its customers include Samsung Corp. LG and Marubeni. Unionmet is listed on the Singapore Stock Exchange and has a market capitalization of approximately $180,000,000. Mr. Zeng also was the co-founder and from 1995 to 2006 was a Managing Director of Raffemet Pte Ltd. (formerly known as Nonfemet Commodity Pte Ltd.). The company was acquired in a management buy-out sponsored by him in December 1997. Raffemet Pte Ltd is a leading base metal integrated structured trade and finance service provider in the China-Asian region and is based in Singapore. Its clients include Aluminum Corporation of China (or Chalco), China Minmetal Corporation, China Western Mining Corp, Codelco, Zhuhou Smelter, Huludao Smelter, SKS Mining Corp, QTX Aluminum Smelter Corp. Yunan Aluminum Smelter Corp. Henan Shenhuo Aluminum Smelters Corp. and China Nonfemet Corp. In addition, Mr. Zeng is a director of China Global Investment Fund Limited, a privately-owned closed-end British investment fund, managed by Green Atlantic Partners China. This fund invests in growth stage China-based businesses using international financing, particularly in companies engaged in the natural resources sector. Mr. Zeng graduated with a Bachelor Degree in Mining Engineering from the Central-South University, PRC. He is a regular contributor to the International Enterprise Singapore advisory panel. Gerald Nugawela has been our Chief Financial Officer and Treasurer since our incorporation on June 8, 2007 and a member of our Board of Directors since August 20, 2007. Mr. Nugawela has over 20 years of experience working with extractive enterprises. Prior to joining us, since 2005, Mr. Nugawala was employed by Ivanhoe Mines as Commercial Manager of Myanmar Ivanhoe Copper Co. Ltd. Ivanhoe produces over 39,000 tons of copper and has annual revenues in excess of $300 million. At Ivanhoe, Mr. Nugawela was responsible for managing treasury operations, accounting, supply and contracts administration, output agreements, business analysis and planning. Mr. Nugawela was instrumental in arranging the sale of the company to Chinese Aluminum Company. He prepared the valuation model (approximately $400 million) and met with prospective purchasers in their due diligence investigation of the company. From 2002 to 2004, he was a lecturer in accounting and management information systems at Edith Cowan University in Perth, Western Australia. From 1992 to 2001, he served as a consultant to several energy and mining companies, including Western Power Corporation (a state-owned electric utility in Australia) and Aurora Gold Ltd. (an Australian mining company operating in Indonesia), where he implemented enterprise resource planning systems in Indonesia. In the second half of 1998, Mr. Nugawela advised MinCom Indonesia, a mining software company, in business processing engineering. From 1980 to 1983, Mr. Nugawela was employed by Coopers & Lybrand, chartered accountants, in Australia, in the audit division, where his clients included WMC Resources (now part of BHP Billiton), Rio Tinto, Alcoa of Australia and Worsley Alumina. 71
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Brian Baiping Shen has been a director of our company since our incorporation. Mr. Shen has been advising Fortune 500 companies on developing market entry and brand strategies in China since 1996. His clients include Proctor & Gamble, Coca-Cola, General Motors, Wrigley's, Wyeth, Sony, and CITIC-Prudential. His understanding of Chinese culture and his experience across various industries provides us with a valuable asset in evaluating potential targets in China. Mr. Shen has been a member of the management committee and the National Planning Director of Leo Burnett (China) Ltd, a subsidiary of the Chicago based global communication group, since 2000. He has played a significant role in building Leo Burnett's China operation from a ten-person office in Shanghai in 1998 to a leading brand communication company in China with a staff in excess of four hundred. Under his supervision, the Coca-Cola Company launched Minute Maid in China in 2004. It is now the second largest juice business in China. Mr. Shen graduated with a Bachelor Degree in Applied Physics from Hefei Polytechnic University, PRC and a Master Degree in Applied Finance from the Macquarie University, Australia. Frederick E. Smithline has been a director of our company since incorporation. Mr. Smithline has been practicing corporate and securities law in New York City for over 40 years, as a partner of and counsel to Epstein, Becker and Green (from 1982 to 2002), as counsel to Fischbein, Badillo, Wagner & Harding (from 2002 to 2004), and since 2004 as counsel to Eaton & Van Winkle LLP. From 1969 to 1973, he was a principal at two Wall Street investment banking firms. Mr. Smithline specializes in advising early stage companies on structure and finance. He has served on public boards, including more than 20 years as a director and then Chairman of DVL, Inc., a publicly traded finance company (1990 to 2003), the Hungarian Broadcast Company, a media Company (1998 to 2000), and since August 2006, as a director of TransTech Services Partners Inc., an India-based -blank check company focused on the IT sector. He was a co- founder of International Isotopes, Inc., a publicly-traded company that is in the business of making radioactive isotopes for diagnostic and therapeutic purposes. Mr. Smithline is a graduate of The Harvard Law School and served for two years in the U.S. Army Counterintelligence Corps in Germany. Guiying Guo has been our corporate secretary and a director of our company since incorporation. Ms. Guo is an attorney admitted to practice law in New York and the PRC. She has been practicing corporate and securities law for almost 14 years, initially in Beijing as an in-house counsel to a computer manufacturer, then with Lee & Lee in Singapore. From 1999 to 2003, Ms. Guo was an associate with Cadwalader, Wickersham & Taft in New York City. Since 2003, Ms. Guo has been of counsel to Schiff Hardin LLP. Ms. Guo has advised clients on a wide array of business opportunities, including investment projects in manufacturing and power plants, toll roads and real estate development in China. Ms. Guo represents Chinese companies doing business in the United States, as well as domestic clients investing in the Pacific Rim. She currently represents several large Chinese aluminum smelters and mining companies, including. Qingtongxia Aluminum Corporation, Yunnan Aluminum Co., Ltd., Guang Dong Metal Material Corporation and Greater China Corporation. She advises clients on their international investment projects, trade disputes and trade finance issues. She also serves as counsel to several Chinese-oriented businesses and cultural associations in New York City and is a lecturer and commentator on commercial law and business practices in China. No Assurance of Future Services from Executive Officers or Board Members Our executive officers and directors are not obligated to remain with us after a business combination. While we believe that one or more target businesses with which we may combine may find our executive officers and directors to be highly experienced and attractive candidates to fill post-combination officer and director positions, we cannot assure you that a combination agreement will call for the retention of our current management team. If the agreement does not, our executive officers and directors may not continue to serve in those capacities after we have completed a business combination. Number and Terms of Directors Our board of directors is comprised of five members, each of whom shall serve as director until his or her successor is duly elected and qualified at the next annual meeting of stockholders. 72
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These individuals will play a key role in identifying and evaluating prospective acquisition candidates, selecting the target business and structuring, negotiating and consummating its acquisition. None of these individuals has been a principal of or affiliated with a blank check company, other than Frederick Smithline, one of our directors. However, we believe that the skills and expertise of these individuals, their collective access to acquisition opportunities and ideas, their contacts, their familiarity with energy and resource companies and their transaction expertise should enable them to successfully identify and effect an acquisition, although we cannot assure you that they will, in fact, be able to do so. Our company's management has a strong local presence, significant experience in China's natural resources sector, hands-on experience in business operations in China and cross-border transactional experience. This combination of resources and experience positions the company to capitalize on the significant economic opportunities in China over the next several years, including strategic investments in Chinese business engaged in energy and resources activities. Our management comprise seasoned professionals with substantial experience in private equity investing, operations, and restructuring of businesses, including the integration of mergers and acquisitions. Audit Committee Our board of directors intends to establish an audit committee within 90 days following the date of this prospectus, at which time our board intends to adopt an audit committee charter. Director Independence Our board of directors has determined that Frederick E. Smithline is an "independent director" within the meaning of Rule 10A-3 promulgated under the Exchange Act. We intend to locate and appoint additional independent directors to serve on the board of directors and audit committee from time to time to comply with applicable U.S. federal securities laws. Code of Ethics Prior to the date of this prospectus, we will adopt a code of ethics applicable to our principal executive officers in accordance with applicable U.S. federal securities laws. Executive Compensation No executive officer has received any cash compensation for services rendered and no compensation of any kind, including finder's and consulting fees, will be paid to any of our officers or directors, or any of their respective affiliates prior to or in connection with a business combination. Moreover, none of our officers or directors, or any of their respective affiliates, will receive any cash compensation for services rendered prior to or in connection with a business combination. However, all of these 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. These individuals may be paid consulting, management or other fees from target businesses as a result of the business combination, with any and all amounts, to the extent then known, being fully disclosed to stockholders in the proxy solicitation materials furnished to the stockholders. It is unlikely the amount of such compensation will be known at the time of a stockholder meeting held to consider a business combination, as it will be up to the directors of the post-combination business to determine executive and director compensation. In this event, such compensation will be publicly disclosed at the time of its determination in a Form 8-K, as required by the SEC. We have agreed to pay Shen Zhen China Jia Yue Trading Co., Ltd., an affiliate of our sponsor, $7,500 per month for office space and general and administrative services commencing on the date of this prospectus and continuing until the earlier of the completion of our initial business combination or our dissolution. We believe that, based on rents and fees for similar services in the Futian District,Shenzhen, PRC, that $7,500 per month for office space and administrative services is at least as favorable as we could have obtained from an unaffiliated third party. 73
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Conflicts of Interest Potential investors should be aware of the following potential conflicts of interest: o None of our officers and directors is required to commit his or her full time to our affairs and, accordingly, each of them will have conflicts of interest in allocating 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. They may have conflicts of interest in determining to which entity a particular business opportunity should be presented. For a complete description of the other affiliations of our officers and directors, see the biographical information for each of our officers and directors at the beginning of this section. o Our officers and directors may in the future become affiliated with entities, including other blank check companies, engaged in business activities similar to those intended to be conducted by our company. o All of our officers and directors beneficially own shares of our common stock which will be released from escrow only in certain limited situations, own shares with respect to which they are waiving their redemption and liquidation distribution rights and, with respect to certain securities owned by them, are subject to a lock-up agreement expiring upon the consummation of a business combination. Accordingly, such individuals may have a conflict of interest in determining whether a particular target business is appropriate to effect a business combination. 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 In the event management were to make substantial loans to us in excess of the amount outside the trust account, they may look unfavorably upon or reject a business combination with a potential target whose owners refuse to pay such amounts. 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 opportunity is within the corporation's line of business; o it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the corporation; and o the corporation could financially undertake the opportunity. 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 in principle, until the earlier of the consummation of a business combination, our liquidation or such time as he or she ceases to be an officer or director, to present to the company for its 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 any pre-existing fiduciary obligations. Each of our directors has, or may come to have following the consummation of this offering, to a certain degree, other fiduciary obligations. Each of our directors may have fiduciary obligations to those companies on whose board of directors he or she serves or may serve in the future. To the extent that any of our directors identifies business opportunities that may be suitable for any of these other companies, that director may have competing fiduciary obligations. Accordingly, our directors may not present opportunities to us that otherwise may be attractive to us, unless these other companies and their successors have declined to accept those opportunities. Based upon information provided to us by our management, other than the persons disclosed in this prospectus, we are not aware of any pre-existing fiduciary duties owed by our members of management to any person or entity. 74
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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 founding shares in accordance with the vote of the public stockholders owning a majority of the shares of our common stock sold in this offering and have agreed to waive their rights to participate in any liquidation distribution occurring upon our failure to complete a business combination with respect to those shares of common stock. In addition, our existing stockholders have also agreed to vote all shares of common stock they acquire in this offering or in the aftermarket in favor of a business combination. 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 unaffiliated stockholders from a financial point of view. We do not anticipate entering into a business combination with an entity affiliated with any of our existing stockholders. Our officers and directors will also receive reimbursement for 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. There is no limit on the amount of these out-of-pocket expenses, but such expenses will be subject to the review and approval of our board of directors. Although we believe that all actions taken by our officers and directors on our behalf will be in our best interests, we cannot assure you that this will be the case. Key Man Insurance Prior to the consummation of a business combination, we will apply for and obtain, and for a period of three years from the date of the consummation of that business combination we will maintain in effect, for our benefit, a key-man life insurance policy in respect of Mr. Zeng, our sponsor and Chief Executive Officer, President and Chairman of the Board, in the amount of $2,000,000. Security Ownership The following table sets forth certain information as of the date of this prospectus, concerning the beneficial ownership of our common stock, and as adjusted to reflect the sale of our common stock included in the units offered by this prospectus (assuming no purchase of 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. As of the date of this prospectus, we have outstanding 1,000,000 shares of common stock, representing the founding shares sold to our executive officers and directors in connection with our formation. 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. Unless otherwise indicated, the business address of each of the individuals is c/o our company, Shen Zhen China Jia Yue Trading Co., Ltd., Room 921, Block A, Golden Central Tower, Jintian Road, Futian District, Shenzhen, P.R. China, 75
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[Enlarge/Download Table] Approximate Percentage of Amount and Outstanding Common Stock Nature of -------------------------- Beneficial Before After Name and Address of Beneficial Owner Ownership(1) Offering Offering(2) -------------------------------------------------------- --------------- ---------- ----------- Fuzu Zeng 500,000(2) 50.0% 10.00% Brian Baiping Shen 200,000(3) 20.0% 4.00% Gerald Nugawela 100,000 10.0% 2.00% PO Box 107 Floreat Park Western Australia 6014 Frederick E. Smithline 75,000 7.5% 1.50% Three Park Avenue, 16th floor New York, NY 10016 Guiying Guo 125,000(3) 12.5% 2.50% 900 Third Avenue, 23rd floor New York, NY 10022 All directors and executive officers as a group (6 1,000,000 100.0% 20.0% individuals) =============== ========== =========== ---------- (1) The share amounts do not include the shares of common stock we will issue upon exercise of the private warrants sold to certain of our directors and officers, or entities that they control, in a private placement, prior to the date of this prospectus since they may not be exercised within sixty days of the date of this prospectus. The beneficial owners of the private warrants are Fuzu Zeng (1,100,000), Brian Baiping Shen (1,000,000), Gerald Nugawela (250,000) and Guiying Guo (250,000). (2) Assumes the sale of 4,000,000 units in this offering, but does not include (i) 4,000,000 shares of our common stock we will issue upon exercise of the warrants sold as part of the units, (ii) 2,600,000 shares of our common stock we will issue upon exercise of the private warrants, (iii) 280,000 shares of our common stock included in the representative's unit purchase option or (iv) 280,000 shares of our common stock which we will issue upon exercise of the warrants included in the representative's unit purchase option (3) These shares are registered in the name of Glenn Richmond, the spouse of Ms. Guo, although Ms. Guo shares voting and dispositive power over these shares. Upon completion of this offering, our existing stockholders will collectively own approximately 20.0% (17.86%, if the underwriters' over-allotment option is exercised in full) of our outstanding shares of common stock, which could permit them to effectively influence the outcome of all matters requiring approval by our stockholders at such time, including the election of directors and approval of significant corporate transactions, following the completion of our initial business combination. Prior to offering, certain of our directors and officers, or entities that they control, will purchase an aggregate of 2,600,000 private warrants from us at a price of $1.00 per warrant which will entitle them. to acquire 2,600,000 shares of our common stock at an exercise price of $7.50 per share. The warrants are identical to the warrants included in the units in this offering. The warrants are not exercisable until the later of: (i) the completion of a business combination with a target business or (ii) one year from the date of this prospectus. The warrants expire at 5:00 p.m., New York City time on [ ], 2011, four years following the date of this prospectus, unless previously redeemed by us. 76
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On the date of this prospectus, all of our existing stockholders will place the founding shares into an escrow account with American Stock Transfer & Trust Company, as escrow agent. These shares and units will be released from escrow on the earlier of (i) [ ], 2010, three years following the date of this prospectus and (ii) one year following the completion of a business combination with a target business. The holders of the private warrants will place the private warrants into the escrow account until the completion of our initial business combination. During the escrow period, the holders of these securities will not be able to sell or transfer their securities, except individuals may transfer securities to an entity controlled by such individual or to family members and trusts for estate planning purposes or, upon death, to an estate or beneficiaries, and entities may transfer securities to persons or entities controlling, controlled by, or under common control with such entity, or otherwise as provided in the stock escrow agreement, but will retain all other rights as our stockholders, including, without limitation, the right to vote their shares of common stock and the right to receive cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow. If we are unable to effect a business combination and liquidate, 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. The private warrants will be placed in escrow and each of holders of the private warrants will enter into a lock-up agreement in which he or it will agree that it will not sell or transfer any of such securities or the shares underlying such warrants until after we have completed a business combination, subject to the same exceptions described above with respect to the escrowed securities. We consider Fuzu Zeng and Brian Baiping Shen to be our "promoter(s)," as that term is defined under Rule 405 of the Securities Act. Certain Relationships and Related Transactions In connection with our formation, we issued an aggregate of 1,000,000 shares of our common stock to our directors and executive officers, for an aggregate of $25,000 in cash, or per share purchase price of $0.025, as follows: [Enlarge/Download Table] Number of Name Shares Relationship to Us -------------------------- --------- ----------------------------------------------------------- Fuzu Zeng 400,000 Chief Executive Officer, President and Chairman of the Board Gerald Nugawela 50,000 Chief Financial Officer and Treasurer Brian Baiping Shen 250,000 Director Frederick E. Smithline 75,000 Director Guiying Guo 75,000 Secretary and Director 77
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On August 17, 2007, Mr. Zeng purchased 50,000 of the shares issued to Mr. Shen for $1,250, or $0.025 per share. On August 27, 2007, each of Mr. Zeng, Mr. Nugawela and the spouse of Ms. Guo purchased 50,000 of the shares issued to a former director for $1,250, or $0.025 per share. In addition, if we take advantage of increasing the size of the offering pursuant to Rule 462(b) under the Securities Act, we may effect a stock dividend in such amount to maintain the existing stockholders' collective ownership at 20.0% of our issued and outstanding shares of common stock upon completion of the offering. If we reduce the size of the offering, we may effect a reverse stock split of our common stock in order to maintain the existing stockholders allocated ownership at 20.0% of our issued and outstanding common stock upon the completion of this offering and the private placement. Prior to the date of this prospectus, certain of our directors and officers, or entities that they control,will purchase from us an aggregate of 2,600,000 warrants, at $1.00 per warrant or an aggregate of $2,600,000 in a private placement. The private warrants are identical to the warrants included in the units being sold in this offering. Each warrant is exercisable into one share of common stock at $7.50 and will become exercisable on the later of (i) the completion of a business combination with a target business or (ii) one year from the date of this prospectus. The warrants have been deposited in escrow and will not be released until the completion of a business combination with a target business. All of the gross proceeds from the sale of the 2,600,000 warrants in the private placement, or $2,600,000, will be deposited into the trust account. The private warrants contain restrictions prohibiting their transfer until the earlier of the consummation of a business combination or our dissolution and liquidation and will be subject to a lock-up agreement until such time as the restrictions on transfer expire. Furthermore, in each case, these warrants may not be transferred other than in accordance with the Securities Act. The 1,000,000 founding shares owned by our directors and executive officers will be entitled to registration rights under an agreement to be signed prior to the effective date of this offering. The holders of the majority of these securities and their transferees are each entitled to make up to two demands that we register the securities owned by them. The holders of the majority of these securities can elect to exercise these registration rights at any time after the date on which the securities are released from escrow. In addition, these holders have certain "piggy-back" registration rights on registration statements filed subsequent to such date. Holders of the private warrants. also will be entitled to demand and "piggy-back" registration rights with respect to the private warrants and the shares of common stock underlying the private warrants at any time after we complete a business combination. Our existing stockholders have waived their rights to participate in any liquidation distribution with respect to their founding shares but not with respect to any shares of common stock acquired in connection with or following this offering. In connection with the vote required for our initial business combination, all of our existing stockholders have agreed to vote their respective founding shares in accordance with the majority of the shares of common stock voted by the public stockholders. Our existing stockholders have agreed to vote all the shares of our common stock acquired in this offering or in the aftermarket in favor of a business combination. Our existing stockholders will not have any of the conversion rights attributable to their shares. We will reimburse our sponsor, out of the proceeds of this offering, for advances to pay certain expenses of this offering. As of the date of this prospectus, amounts advanced subject to reimbursement totaled $138,599. We will reimburse our officers and directors for any 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. Subject to availability of proceeds not placed in the trust account and interest income, net of income taxes, available to us from the trust account, there is no limit on the amount of accountable out-of-pocket expenses reimbursable by us. We have agreed with the underwriters that our board of directors will review and approve all expense reimbursements made to our officers, directors and special advisors. We have agreed to pay Shen Zhen China Jia Yue Trading Co., Ltd., an affiliate of our sponsor, a monthly fee of $7,500 for general and administrative services, including office space, utilities and secretarial support, commencing on the date of this prospectus and and continuing until the earlier of the completion of our initial business combination or our dissolution. We believe that, based on rents and fees for similar services in Singapore, the fee charged by Shen Zhen China Jia Yue Trading Co., Ltd. is at least as favorable as we could have obtained from an unaffiliated third party. 78
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Other than reimbursable out-of-pocket expenses payable to our officers and directors, the general and administrative services arrangement with Shen Zhen China Jia Yue Trading Co., Ltd., no compensation or fees of any kind, including finder's and consulting fees, will be paid to any of our existing stockholders 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, directors and existing stockholders or their respective affiliates, including loans by our officers, directors and existing stockholders, will be on terms believed by us to be no less favorable than are available from unaffiliated third parties, and such transactions or loans, including any forgiveness of loans, will require prior approval, in each instance, by a majority of our uninterested "independent" directors or the members of our board who do not have an interest in the transaction, in either case who have access, at our expense, to our attorneys or independent legal counsel. Description of Our Securities General We are authorized to issue 25,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. As of the date of this prospectus, we have outstanding 1,000,000 shares of common stock held by five record holders. We have not issued any shares of preferred stock. Units Each unit consists of one share of common stock and one warrant. Each warrant entitles the holder to purchase one share of common stock. The units will begin trading on or promptly after the date of this prospectus. The units will continue to trade and each of the common stock and warrants may trade separately beginning on the 10th business day following the earlier to occur of: (i) the expiration of the underwriters' over-allotment option or (ii) its exercise in full. In no event will separate trading of the common stock and warrants occur until we have filed a Current Report on Form 8-K with the Securities and Exchange Commission containing an audited balance sheet reflecting our receipt of the gross proceeds of this offering and issuing a press release announcing when such separate trading will begin. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the completion of this offering, which is anticipated to take place three business days following the date of this prospectus. 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 Current Report on Form 8-K. If the over-allotment option is exercised following the initial filing of this Form 8-K, we will file an amendment to that Form 8-K, or an additional Form 8-K, reporting information relating to the exercise of the over-allotment option. Although we will not distribute copies of the Current Report on Form 8-K to individual unit holders, the Current Report will be available on the SEC's website after its filing. For more information on where you can find a copy of these and other of our filings, see the section appearing elsewhere in the prospectus titled "Where You Can Find Additional Information." Common Stock Our stockholders are entitled to one vote for each share held of record 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 founding shares in accordance with the majority of the public stockholders, and to vote any shares they acquire in this offering and the aftermarket in favor of any proposed business combination. Additionally, our officers, directors and existing stockholders 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, except that they will be required to vote in favor of our dissolution and liquidation. 79
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Our existing stockholders have also agreed to waive their rights to participate in any liquidation occurring upon our failure to complete a business combination, but only with respect to the founding shares and securities acquired in the private placement. 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 35% of the shares sold in this offering exercise their conversion rights, discussed below. All of the members of our board of directors are 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 dissolve and liquidate prior to a business combination, our public stockholders are entitled to share ratably in the trust fund, inclusive of any interest not previously released to us to fund working capital requirements, and net of any income taxes due on such interest, which income taxes, if any, shall be paid from the trust fund and after payment of claims and obligations of the company. If we do not complete an initial business combination and the trustee must distribute the balance of the trust account, the representative has agreed that: (i) it will forfeit any rights or claims to its deferred underwriting discounts and commissions, including any accrued interest thereon, then in the trust account, and (ii) the deferred underwriting discounts and commissions will be distributed on a pro rata basis among the public stockholders, together with any accrued interest thereon and net of income taxes payable on such interest. Our existing stockholders have waived their rights to participate in any liquidating distributions occurring upon our failure to complete a business combination with respect to the founding shares, and have agreed to vote all of their shares in favor of any such plan of liquidation and dissolution. However, our existing stockholders will participate in any liquidating distributions with respect to any other shares of common stock acquired by them in connection with or following this offering. Our stockholders have no redemption, 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 for cash equal to their pro rata share of the trust fund if they vote against the business combination and the business combination is approved and completed. Public stockholders who redeem their stock into their share of the trust fund still have the right to exercise the warrants that they received as part of the units which they have not previously sold. Preferred Stock Our certificate of incorporation authorizes the issuance of 1,000,000 shares of blank check preferred stock with such designations, 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 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 fund, 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. Warrants Warrants issued as part of the units in this offering Each warrant issued in this offering entitles the registered holder to purchase one share of our common stock at a price of $7.50 per share, subject to adjustment as discussed below, at any time commencing on the later of: o the completion of a business combination; or o one year following the date of this prospectus. 80
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The warrants included in the units sold in the offering, will expire on the fourth anniversary of the date of this prospectus at 5:00 p.m., New York City time, unless previously redeemed by us. The units will begin trading on or promptly after the date of this prospectus. The units will continue to trade and the common stock and warrants included in the units may trade separately beginning on the 10th business day following the earlier to occur of: (i) the expiration of the underwriters' over-allotment option or (ii) its exercise in full. In no event will separate trading of the common stock and warrants occur until we have filed a Current Report on Form 8-K with the Securities and Exchange Commission containing an audited balance sheet reflecting our receipt of the gross proceeds of this offering and issuing a press release announcing when such separate trading will begin. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the completion of this offering, which is anticipated to take place three business days following the date of this prospectus. 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 Current Report on Form 8-K. If the over-allotment option is exercised following the initial filing of this Form 8-K, we will file an amendment to that Form 8-K, or an additional Form 8-K, reporting information relating to the exercise of the over-allotment option. Although we will not distribute copies of the Current Report on Form 8-K to individual unit holders, the Current Report will be available on the SEC's website after its filing. For more information on where you can find a copy of these and other of our filings, see the section appearing elsewhere in the prospectus titled "Where You Can Find Additional Information." We may make a mandatory redemption of all of the warrants (including any warrants issued upon exercise of the representative's 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 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 $14.25 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. We have established these criteria to provide public warrant holders with a reasonable premium to the initial warrant exercise price as well as a reasonable cushion against a negative market reaction, if any, to our redemption call. If the foregoing conditions are satisfied and we call the public warrants for redemption, each warrant holder shall then be entitled to exercise his, her or its warrants prior to the date scheduled for redemption, however; there can be no assurance that the price of the common stock will exceed the call trigger price or the warrant exercise price after the redemption call is made. The public warrants will be issued in registered form under a warrant agreement between American 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. The exercise price and number of shares of common stock we will issue upon 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 exercise price. 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 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 or 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. 81
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Holders of our warrants will be able to exercise the warrants only if (i) a current registration statement under the Securities Act of 1933 relating to the shares of our common stock underlying the warrants is then effective and (ii) such shares are qualified for sale or exempt from qualification under the applicable securities laws of the states in which the various holders of warrants reside. Although we have undertaken in a warrant agreement between American Stock Transfer & Trust Company and us, and therefore have a contractual obligation, to use our best efforts to maintain a current registration statement covering the shares underlying the warrants following completion of this offering to the extent required by federal securities laws, and we intend to comply with such undertaking, we cannot assure that we will be able to do so. In addition, we have agreed to use our reasonable efforts to register the shares underlying the warrants under the blue sky laws of the states of residence of the exercising warrantholders, to the extent an exemption is not available. The value of the warrants may be greatly reduced if a registration statement covering the shares issuable upon the exercise of the warrants is not kept current or if the securities are not qualified, or exempt from qualification, in the states in which the holders of warrants reside. Holders of warrants who reside in jurisdictions in which the shares underlying the warrants are not qualified and in which there is no exemption will be unable to exercise their warrants and would either have to sell their warrants in the open market or allow them to expire unexercised. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to qualify the underlying securities for sale under all applicable state securities laws. In no event will the registered holders of a warrant be entitled to receive a net-cash settlement in lieu of physical settlement in shares of our common stock. 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 round up to the nearest whole number the number of shares of common stock to be issued to the warrant holder. Private Warrants Prior to the date of this prospectus, certain of our directors and officers, or entities that they control, will purchase from us in a private placement an aggregate of 2,600,000 warrants for a total purchase price of $2,600,000, or $1.00 per warrant. The private warrants are identical to the warrants included in the units in this offering. Each warrant may be exercised to purchase one share of common stock at $7.50 per share commencing on the later of: (i) the completion of a business combination with a target business or (ii) one year from the date of this prospectus. The warrants will expire at 5:00 p.m., New York City time, on [ ], 2011, four years following the date of this prospectus, unless previously redeemed. Except for $100,000 available to us as working capital, all of the gross proceeds from the sale of the 2,600,000 warrants in the private placement, or $2,500,000, will be deposited into the trust account. The private warrants contain restrictions prohibiting their transfer until the earlier of the consummation of a business combination and our dissolution and liquidation and will be subject to a lock-up agreement until such time as the restrictions on transfer expire. Furthermore, in each case, these warrants may not be transferred other than in accordance with the Securities Act. Purchase Option We have agreed to sell to the representative, or its designees, an option to purchase up to 280,000 units at $10.00 per unit. The units we will issue upon exercise of this option are identical to those offered by this prospectus. For a more complete description of the purchase option, see the section below entitled "Underwriting -- Purchase Option." Our Transfer Agent and Warrant Agent The transfer agent for our securities and warrant agent for our warrants is American Stock Transfer & Trust Company, New York, New York. Shares Eligible for Future Sale Immediately after this offering, we will have outstanding 5,000,000 shares of common stock, or 5,600,000 shares if the underwriters' over-allotment option is exercised in full. Of these shares, the 4,000,000 shares sold in this offering, or 4,600,000 shares if the underwriters' over-allotment option is exercised in full, will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by any of our affiliates within the meaning of Rule 144 under the Securities Act. All of the remaining 1,000,000 shares are restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering. None 82
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of those will be eligible for sale under Rule 144. Notwithstanding this, 1,000,000 of those shares have been placed in escrow and will not be transferable until the earlier of (i) , 2010, three years following the date of this prospectus and (ii) one year following the completion of a business combination with a target business, subject to certain limited exceptions, such as transfers to affiliates or to family members and trusts for estate planning purposes and upon death, while in each case remaining subject to the escrow agreement, and will only be released prior to that date if we are forced to dissolve and liquidate, in which case the securities would be destroyed, or if we were to complete a transaction after the completion of a business combination which results in all of the stockholders of the combined entity having the right to exchange their shares of common stock for cash, securities or other property. 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 5,000,000 shares immediately after this offering (5,600,000 shares if the underwriters' exercise their over-allotment option in full); and o 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 his or her shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. SEC Position on Rule 144 Sales The SEC has taken the position that promoters or affiliates of a blank check company and their transferees, both before and after a business combination, would act as an "underwriter" under the Securities Act when reselling the securities of that blank check company. Accordingly, Rule 144 may not be available for the resale of those securities despite technical compliance with the requirements of Rule 144, in which event the resale transactions would need to be made through a registered offering. Registration Rights The holders of our founding shares will be entitled to registration rights under an agreement to be signed prior to the effective date of this offering. The holders of the majority of these securities and their transferees are each entitled to make up to two demands that we register the securities owned by them. The holders of the majority of these securities can elect to exercise these registration rights at any time after the date on which the securities are released from escrow. In addition, these holders have certain "piggy-back" registration rights on registration statements filed subsequent to such date. Also, holders of the private warrants will be entitled to demand and "piggy-back" registration rights with respect to the private warrants and the shares of common stock underlying the private warrants at any time after we complete a business combination. In addition, the underwriters will be entitled to certain demand and "piggy-back" registration rights with respect to the shares, the warrants and the shares of common stock underlying the warrants included in units subject to the underwriters' option. We will bear the expenses incurred in connection with any such registration statements other than underwriting discounts or commissions for shares not sold by us. 83
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