Filed On 9/6/07 4:32pm ET ˇ SEC File 333-145901 ˇ Accession Number 1193805-7-2365
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
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
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)
______________
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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
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==============================================================================================================
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.
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.
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
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
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
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
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
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
[ ], 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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
[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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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."
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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.
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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.
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Our Executive Officers and Directors
Our executive officers and directors are:
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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.
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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.
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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.
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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.
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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,
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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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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