As filed with the Securities and Exchange Commission on July 7, 2005
Registration No. 333-124709
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
ON
FORM S-4
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ORIGIN AGRITECH LIMITED
(Exact Name of Each Registrant as Specified in its Charter)
British Virgin Islands 6770 Not Applicable
(State or other jurisdiction of (Primary standard industrial (I.R.S.Employer
Incorporation or organization) classification code number) Identification Number)
----------
625 Broadway, Suite 1111
San Diego, California 92101
(619) 795-4627
(Address, including zip code, and telephone number, including area code, of each
registrant's principal executive offices)
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Mr. Kerry Propper
President
Origin Agritech Limited
625 Broadway, Suite 1111
San Diego, California 92101
(619) 795-4627
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
David Alan Miller, Esq.
Graubard Miller
405 Lexington Avenue
New York, New York 10174
Telephone: (212) 818-8800
Fax: (212) 818-8881
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective and all
other conditions to the merger contemplated by the Agreement and Plan of Merger
described in the enclosed proxy statement/prospectus have been satisfied or
waived.
If any of the securities being registered on this form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box: |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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
==================================== ====================== ==================== ===================== ===================
Proposed Proposed
Maximum Maximum Amount of
Title of each Class of Amount being Offering Price Per Aggregate Offering Registration
Security being registered Registered Security(1) Price(1) Fee
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Units, each consisting of one 4,025,000 Units $13.45 $54,136,250.00 $6,371.84
share of Common Stock, $.0001 par
value, and two Warrants (2)
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Shares of Common Stock 4,025,000 Shares ------- ------- -------(2)
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Warrants included as part of the 8,050,000 Warrants ------- ------- -------(2)
Units
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Shares of Common Stock underlying 8,050,000 Shares $5.00 $40,250,000.00 $4,737.43
the Warrants included in the
Units(3)
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Shares of Common Stock 875,000 Shares $7.70 $6,737,500.00 $793.00(4)
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Representative's Unit Purchase 1 $100 $100.00 -------(2)
Option
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Units underlying the 350,000 Units $9.90 $3,465,000.00 $407.83
Representative's Unit Purchase
Option ("Underwriter's Units")(3)
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Shares of Common Stock included as 350,000 Shares ------- ------- -------(2)
part of the Underwriter's Units(3)
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Warrants included as part of the 700,000 Warrants ------- ------- -------(2)
Underwriter's Units(3)
------------------------------------ ---------------------- -------------------- --------------------- -------------------
Shares of Common Stock underlying 700,000 Shares $6.40 $4,480,000.00 $527.30
the Warrants included in the
Underwriter's Units(3)
------------------------------------------------------------------------------------------------------ -------------------
Total Fee Due.................................................................................. $12,837.40
Amount of fee previously paid.................................................................. $10,169.53
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Amount of fee due with filing of Amendment No. 1............................................... $2,667.87
====================================================================================================== ===================
------------------------------------
(1) Based on the market price of the Units or exercise price for the purpose of
calculating the registration fee pursuant to Rule 457(f)(1) and Rule
457(g)(1).
(2) No fee pursuant to Rule 457(g).
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional securities as may be issued as a result of the anti-dilution
provisions contained in the Warrants.
(4) Based on the market price of a share of common stock on June 25, 2005.
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, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
Chardan China Acquisition Corp.
625 Broadway, Suite 1111
San Diego, CA 92101
To the Stockholders of Chardan China Acquisition Corp:
You are cordially invited to attend a special meeting of the
stockholders of Chardan China Acquisition Corp. ("Chardan"), relating to its
proposed purchase of the stock of State Harvest Holdings Limited ("Origin"), a
British Virgin Islands company, and related matters. The meeting will be held at
10:00 a.m., eastern time, on _________, 2005, at Chardan's offices at 625
Broadway, Suite 1111, San Diego, California, 92101.
At this meeting, you will be asked to consider and vote upon the
following proposals:
1. to approve a Stock Purchase Agreement, dated as of December 20, 2004
("Purchase Agreement") among Chardan, Origin and the stockholders of Origin (the
"Origin Stockholders") and the transactions contemplated thereby. Origin and the
Origin Stockholders (collectively, the "Origin Parties") have already approved
the Purchase Agreement;
2. to approve the merger of Chardan with and into a wholly owned
subsidiary formed under the laws of the British Virgin Islands, with the name
Origin Agritech Limited ("Agritech") for the purposes of redomestication of our
company to the British Virgin Islands (the "Redomestication Merger") and
acquiring Origin; and 3. to approve the Chardan 2005 Performance Equity Plan
("Stock Option Plan");
If these proposals are approved:
o we will acquire an operating business in China;
o we will change our corporate domicile from the State of Delaware to
the British Virgin Islands, which means we will be governed by the
laws of the British Virgin Islands;
o we will change our corporate name to "Origin Agritech Limited" as a
result of the Redomestication Merger;
o the majority of our board of directors and officers will be the
Origin Stockholders and their designees; o the Agritech Memorandum
of Association and the Articles of Association will become the
equivalent of our certificate of incorporation and by-laws,
respectively;
o each share of common stock of Chardan will automatically convert
into one share of common stock of Agritech; and
o each outstanding warrant of Chardan will be assumed by Agritech with
the same terms, but exercisable for common stock of Agritech.
Agritech will continue as a reporting company under the Securities
Exchange Act of 1934, as amended, with its units, common stock and warrants
trading on the Nasdaq National Market for which it has received provisional
approval of listing concurrent with the consummation of the Redomestication
Merger.
We will not consummate the transactions described under proposal 1
unless the Redomestication Merger in proposal 2 is also approved. Similarly, the
Redomestication Merger will not take place if the Purchase Agreement is not
approved. The approval of the Stock Option Plan in proposal 3 is not a condition
to consummation for the Purchase Agreement and the Redomestication Merger.
At the closing of the Purchase Agreement, the Origin Stockholders and
their designee, A Plus Resources Limited, will be paid an aggregate of
$10,000,000 in cash and issued an aggregate of 10,000,000 shares of Agritech
common stock for all the outstanding common stock of Origin. Of the cash portion
of the purchase price, $250,000 will be retained for one year by Agritech to
secure certain indemnification obligations of the Origin Stockholders. The above
cash payment will be made with some of the funds from the trust account; the
balance of the trust account will be used by Agritech for operating capital.
Additional purchase price payments will be made to the Origin
Stockholders and their designee, up to an aggregate of $15,000,000, if either of
the following occurs during any fiscal year of Agritech after the closing date
until December 31, 2008 (or June 30, 2009 if the fiscal year is changed to a
July 1 - June 30 fiscal year) from funds generated in the additional financing
or from operational earnings as described below:
A. If Agritech receives at least $40,000,000 in gross proceeds
in additional financing as a result of (i) the call of the outstanding public
warrants assumed by Agritech at the closing; (ii) Agritech's successful
completion of a follow-on offering; or (iii) a private investment into Agritech
by a strategic investor ("Financing Adjustment"), then Agritech will pay an
additional $15,000,000 to the Origin Stockholders and their designee; or
B. If Agritech generates net positive cash flow of $2,000,000
or more on a consolidated basis ("Earnings Adjustment"), then the Origin
Stockholders and their designee will be entitled to receive 75% of the net
positive cash flow up to a maximum of $7,500,000 per fiscal year and $15,000,000
in the aggregate.
If both an Earnings Adjustment and a Financing Adjustment
occur, the maximum aggregate amount to be paid to the Origin Stockholders and
their designee, from one or both adjustments, is $15,000,000.
As further additional purchase price, certain Origin Stockholders and
their designee will be issued an aggregate of 1,500,000 shares of common stock
of Agritech for each of the next four years if, on a consolidated basis,
Agritech generates after-tax profits (excluding after-tax operating profits from
any subsequent acquisitions of securities that have a dilutive effect and before
the expenses of this transaction and director and employee option expense) of at
least the following amounts:
Year ending June 30, After-Tax Profit
-------------------- ----------------
2006 $11,000,000
2007 $16,000,000
2008 $21,000,000
2009 $29,000,000
The affirmative vote of the holders of a majority of the outstanding
shares of Chardan common stock is required to approve each of the Purchase
Agreement and the Redomestication Merger. The affirmative vote of holders of a
majority of the shares represented and entitled to vote at the meeting is
required for approval of the Stock Option Plan.
Each Chardan stockholder that holds shares of common stock issued in
Chardan's initial public offering has the right to vote against the stock
purchase proposal and at the same time demand that Chardan convert such
stockholder's shares into cash equal to a pro rata portion of the funds held in
the trust account into which a substantial portion of the net proceeds of
Chardan's initial public offering was deposited. These shares will be converted
into cash only if the Purchase Agreement is consummated. However, if the holders
of 805,000 or more shares of common stock issued in Chardan's initial public
offering vote against the stock purchase proposal and demand conversion of their
shares, then Chardan will not consummate the Purchase Agreement. Chardan's
initial stockholders who purchased their shares of common stock prior to its
initial public offering and presently own an aggregate of approximately 17.9% of
the outstanding shares of Chardan common stock, have agreed to vote all of their
shares on the Purchase Agreement and Redomestication Merger proposals as the
majority of the other shares are voted.
Immediately after consummation of the Purchase Agreement, if no holder
of shares of Chardan common stock demands that Chardan convert these shares into
a pro rata portion of the trust account, Chardan stockholders will own
approximately 32.5% of Agritech's issued and outstanding shares of common stock.
If one or more of Chardan's stockholders vote against the stock purchase
proposal and demand that Chardan convert their shares into a pro rata portion of
the trust account, then Chardan's stockholders will own less than approximately
32.5% of Agritech's issued and outstanding shares of common stock.
Chardan's shares of common stock, warrants and units currently are
listed on the Over-the-Counter Bulletin Board under the symbols CAQC, CAQCW and
CAQCU, respectively. Chardan, however, has applied for listing on the Nasdaq
National Market and been provisionally approved contingent on the consummation
of the Redomestication Merger under the proposed symbols SEED, SEEDW and SEEDU.
If the securities are not listed on Nasdaq for some reason, they will remain
traded on the OTCBB.
After careful consideration of the terms and conditions of the proposed
Purchase Agreement, the Redomestication Merger and the Stock Option Plan, the
board of directors of Chardan has determined that the Purchase Agreement and the
transactions contemplated thereby, the Redomestication Merger and the Stock
Option Plan are fair to and in the best interests of Chardan and its
stockholders. The board of directors of Chardan did not obtain a fairness
opinion on which to base this assessment. The board of directors of Chardan
unanimously recommends that you vote or give instruction to vote "FOR" the
approval of the Purchase Agreement, the Redomestication Merger and the Stock
Option Plan.
Enclosed is a notice of special meeting and proxy statement containing
detailed information concerning the Purchase Agreement and the transactions
contemplated thereby, the Redomestication Merger and the Stock Option Plan.
Whether or not you plan to attend the special meeting, we urge you to read this
material carefully.
Your vote is important. Whether you plan to attend the special meeting
or not, please sign, date and return the enclosed proxy card as soon as possible
in the envelope provided.
I look forward to seeing you at the meeting.
Sincerely,
Richard D. Propper, MD
Chairman of the Board
Chardan China Acquisition Corp.
625 Broadway, Suite 1111
San Diego, CA 92101
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________ , 2005
TO ALL THE STOCKHOLDERS OF CHARDAN CHINA ACQUISITION CORP:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders,
including any adjournments or postponements thereof, of Chardan China
Acquisition Corp. ("Chardan"), a Delaware corporation, will be held 10:00 a.m.
eastern time, on ________, 2005, at Chardan's offices at 625 Broadway, Suite
1111, San Diego, California, 92101 for the following purposes:
o To consider and vote upon a proposal to adopt the Stock Purchase
Agreement, dated as of December 20, 2004, among Chardan, State
Harvest Holdings Limited, ("Origin"), a British Virgin Islands
company, and the stockholders of Origin (the "Origin Stockholders,"
together with Origin, the "Origin Parties"), and the transactions
contemplated thereby;
o To consider and vote upon the merger of Chardan into its wholly
owned subsidiary Origin Agritech Limited ("Agritech"), formed under
the laws of the British Virgin Islands, for the purposes of
reincorporation and redomestication of the company to the British
Virgin Islands (the "redomestication merger"); and
o To consider and vote upon a proposal to adopt the Chardan 2005
Performance Equity Plan.
The board of directors has fixed the close of business on ___________,
2005 as the date for which Chardan stockholders are entitled to receive notice
of, and to vote at, the Chardan special meeting and any adjournments thereof.
Only the holders of record of Chardan common stock on that date are entitled to
have their votes counted at the Chardan special meeting and any adjournments or
postponements of it.
Chardan will not transact any other business at the special meeting,
except for business properly brought before the special meeting or any
adjournment or postponement of it by Chardan's board of directors.
Your vote is important. Please sign, date and return your proxy card as
soon as possible to make sure that your shares are represented at the special
meeting. If you are a stockholder of record of Chardan common stock, you may
also cast your vote in person at the special meeting. If your shares are held in
an account at a brokerage firm or bank, you must instruct your broker or bank on
how to vote your shares. If you do not vote or do not instruct your broker or
bank how to vote, it will have the same effect as voting against the stock
purchase agreement and the redomestication merger.
The board of directors of Chardan unanimously recommends that you vote
"FOR" the approval of the stock purchase agreement, the redomestication merger
and the stock option plan.
By Order of the Board of Directors,
Richard D. Propper, MD
Chairman of the Board
____________________, 2005
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS OF
CHARDAN CHINA ACQUISITION CORP.
PROSPECTUS FOR UP TO 4,375,000 UNITS, 12,950,000 SHARES OF COMMON STOCK,
AND
8,750,000 WARRANTS OF ORIGIN AGRITECH LIMITED
----------------------------------------
The board of directors of Chardan China Acquisition Corp. ("Chardan")
and its wholly-owned subsidiary, Origin Agritech Limited ("Agritech") have
unanimously approved the acquisition of State Harvest Holdings Limited
("Origin") pursuant to a stock purchase agreement whereby Agritech will purchase
all of the outstanding securities held by the stockholders of Origin.
Furthermore, the board of directors of Chardan has unanimously approved the
reincorporation of Chardan from the State of Delaware to the British Virgin
Islands, through a redomestication merger with Agritech such that the merged
corporation will be incorporated under, and subject to, the laws of the British
Virgin Islands. We also believe that, for a variety of financial and tax
reasons, the British Virgin Islands is an attractive country of incorporation
for a company wholly operating in China. As a British Virgin Islands
corporation, Agritech will be able to benefit from these advantages, and we
believe the redomestication merger will permit us to take advantage of such
benefits.
In connection with the redomestication merger, you will receive from
Agritech units, common stock or warrants equal to the number of units, common
stock or warrants you own in Chardan, which will be in the name of Agritech,
following the redomestication merger. Agritech will assume the outstanding
obligations under the Chardan warrants, the terms and conditions of which will
not change, except that, upon exercise, warrant holders will receive shares of
common stock of Agritech, the newly reincorporated company. Upon consummation of
the redomestication merger, the operations and assets of Origin will become
those of Agritech and under the Agritech name.
Chardan was organized to serve as a vehicle for the acquisition of a
company operating in the Peoples Republic of China. Origin, through its four
operating subsidiaries in China, develops, produces, distributes and markets
hybrid food crop seeds to the Chinese agricultural industry.
Chardan's common stock, warrants and units are currently listed on the
Over-the-Counter Bulletin Board under the symbols CAQC, CAQCW and CAQCU,
respectively. The securities of Agritech, at the time of the redomestication
merger, will be listed on the Nasdaq National Market. The proposed symbols are
SEED, SEEDW and SEEDU.
This proxy statement/prospectus provides you with detailed information
about the acquisition of Origin and redomestication merger and the special
meeting of stockholders. We encourage you to carefully read this entire document
and the documents incorporated by reference. YOU SHOULD ALSO CAREFULLY CONSIDER
THE RISK FACTORS BEGINNING ON PAGE 23.
The acquisition of Origin cannot be completed unless at least a
majority of the shares of Chardan's common stock, are present in person or by
proxy and entitled to vote at the special meeting as of [ ], 2005, approve the
acquisition. The redomestication merger cannot be completed unless at least a
majority of outstanding shares of Chardan's common stock, present in person or
by proxy and entitled to vote at the special meeting as of [ ], 2005, approve
the redomestication merger.
The board of directors unanimously approved and declared advisable the
acquisition and the redomestication merger and unanimously recommends that you
vote or instruct your vote to be cast "FOR" the approval of the acquisition
proposal and "FOR" the approval of the redomestication merger proposal. The
board of directors did not obtain a fairness opinion for any aspect of the
transaction.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS IS DATED [ ], 2005, AND IS FIRST BEING
MAILED TO CHARDAN STOCKHOLDERS ON OR ABOUT [ ], 2005.
TABLE OF CONTENTS
Page
SUMMARY
SELECTED HISTORICAL FINANCIAL INFORMATION...............................18
THE ORIGIN PARTIES HISTORICAL FINANCIAL INFORMATION.....................18
CHARDAN HISTORICAL FINANCIAL INFORMATION................................19
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.............20
COMPARATIVE PER SHARE INFORMATION.......................................21
MARKET PRICE INFORMATION................................................22
RISK FACTORS............................................................23
FORWARD-LOOKING STATEMENTS..............................................23
THE CHARDAN SPECIAL MEETING.............................................23
CONSIDERATION OF THE STOCK PURCHASE TRANSACTION.........................23
THE STOCK PURCHASE AGREEMENT............................................23
CHARDAN REDOMESTICATION MERGER..........................................23
CHARDAN 2005 PERFORMANCE EQUITY PLAN....................................23
INFORMATION ABOUT THE ORIGIN PARTIES....................................23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF.................................23
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................23
INFORMATION ABOUT CHARDAN...............................................23
PRO FORMA...............................................................23
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.........23
DIRECTORS AND MANAGEMENT................................................23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................23
BENEFICIAL OWNERSHIP OF SECURITIES......................................23
PRICE RANGE OF SECURITIES AND DIVIDENDS.................................23
DESCRIPTION OF THE COMBINED COMPANY'S...................................23
SECURITIES FOLLOWING THE STOCK PURCHASE.................................23
STOCKHOLDER PROPOSALS...................................................23
LEGAL MATTERS...........................................................23
EXPERTS ................................................................23
DELIVERY OF DOCUMENTS TO STOCKHOLDERS...................................23
WHERE YOU CAN FIND MORE INFORMATION.....................................23
ANNEXES
A--Stock Purchase Agreement, as amended
B--Form of Agritech Memorandum of Association, including all amendments
C--Form of Agritech Articles of Association
D--The Chardan 2005 Performance Equity Plan
E--Agritech Audit Committee Charter
F--Agritech Nominating Committee Charter
G--Agritech Code of Ethics
H--Employee Complaint Procedures for Auditing Matters
I--Section 262 of the Delaware General Business Law
J--Proxy Card
This proxy statement/prospectus incorporates important business and
financial information about Chardan Origin and the Origin Operating Companies
that is not included in or delivered with the document. This information is
available without charge to security holders upon written or oral request. The
request should be sent to
Dr. Richard Propper
c/o Origin Agritech Limited
625 Broadway, Suite 1111
San Diego, California 92101
(619) 795-4627
To obtain timely delivery of requested materials, security holders must
request the information no later than five days before the date they submit
their proxies or attend the special meeting. The latest date to request the
information to be received timely is ______________, 2005.
The financial statements of Origin are prepared using Renminbi, the
currency of the Peoples Republic of China ("PRC"). For convenience, the Renminbi
amounts have been converted throughout the text of the proxy
statement/prospectus into United States dollars. The Renminbi is a controlled
currency, and the exchange rate maintained by the PRC is approximately 8.27
Renminbi to one United States dollar. This is the exchange rate used for the
translated dollar amounts in the text of this proxy statement/prospectus.
Under the law of the British Virgin Islands, Agritech is authorized to
issue "ordinary shares" and holders of ordinary shares are "members." References
to ordinary shares and members have been translated to common stock
stockholders, which are terms more familiar to United States persons who Chardan
believes are the majority of its stockholders.
QUESTIONS AND ANSWERS ABOUT THE MEETING
Q. Why is Chardan proposing A. Chardan was organized to effect a business combination with an operating
the stock purchase? business that is based in China and that has significant growth potential.
The operating companies of Origin, after the consummation of the stock
purchase will be Beijing Origin Seed Limited, Henan Origin Cotton
Technology Development Limited, Changchun Origin Seed Technology
Development Limited and Beijing Origin State Harvest Biotechnology Limited
(these four companies are referred to as the "Origin Operating
Companies"). Together they develop, produce, distribute and market hybrid
food crop seeds to the Chinese agriculture industry. The Origin Operating
Companies have, collectively, demonstrated significant growth since
commencing operations in 1997. Chardan believes that the Origin Operating
Companies have the infrastructure in place to expand their business through
the development of additional hybrids and the expansion of its customer
base. As a result, Chardan believes that a business combination with
Origin will provide Chardan stockholders with an opportunity to participate
in a combined company with significant growth potential.
Q. Why is Chardan proposing A. Chardan is proposing the reincorporation of itself into a company formed
the redomestication under the laws of the British Virgin Islands to align its income tax
merger? liabilities with the location of its activities to reduce the overall
impact of corporate income tax on the surviving company and its
stockholders. Because the future operations will be almost exclusively
foreign to the United States, the redomestication merger is intended to
reduce or entirely eliminate the income tax liability of the company in the
United States and permit greater flexibility in structuring acquisitions or
creating subsidiaries in China and other countries as the business of
Origin expands. By becoming a non-United States company, it is believed
that the successor company will only be taxed on its operations by the
jurisdiction in which they are located and undertaken, and will not be
subject to additional income taxes merely by virtue of the location of its
place of incorporation.
Q. Why is Chardan proposing A. Chardan is proposing the stock option plan to enable the company to
the stock option plan? attract, retain and reward its directors, officers, employees and
consultants using equity-based incentives.
1
Q. What is being voted on? A. There are three proposals that you are being asked to vote on. The first
proposal is to adopt the stock purchase agreement, dated December 20, 2004
and the transactions contemplated thereby. We refer to this proposal as the
stock purchase proposal.
The second proposal is to approve the merger of Chardan with and into
Agritech for purposes of redomestication to the British Virgin Island. We
refer to this proposal as the redomestication merger proposal.
The third proposal is to adopt Chardan's 2005 Performance Equity Plan. We
refer to this proposal as the stock option plan proposal.
Q. What vote is required in A. The approval of the stock purchase will require the affirmative vote of a
order to adopt the stock majority of the outstanding shares of Chardan's common stock. If the
purchase proposal? holders of 805,000 or more shares of common stock issued in Chardan's
initial public offering vote against the stock purchase and demand that
Chardan convert their shares into a pro rata portion of the trust account
as of the record date, then the stock purchase will not be consummated.[No
vote of the holders of Chardan's warrants is necessary to adopt the stock
purchase proposal or other proposals, and Chardan is not asking the warrant
holders to vote on the stock purchase proposal or the other proposals.]
Chardan will not consummate the transaction described in the stock purchase
proposal unless the redomestication merger is also approved. Similarly,
the redomestication merger will not be consummated if the stock purchase
proposal is not approved. The approval of the stock option plan proposal
is not a condition to the consummation of the stock purchase or
redomestication merger proposals.
Q. What vote is required in The affirmative vote of the holders of a majority of the outstanding shares
order to adopt the of Chardan common stock is required to approve the redomestication merger
redomestication merger? proposal.
Q. What vote is required in A. The approval of the stock option plan will require the affirmative vote of
order to adopt the stock a majority of the shares represented and entitled to vote at the meeting.
option plan? The approval of the stock option plan is not a condition to the approval of
the stock purchase or the redomestication merger proposals.
Q. How do the Chardan A. All of the insiders who purchased their shares prior to the initial public
insiders intend to vote offering (including the officers and directors) have agreed to vote the
their shares? shares held by them on the stock purchase and redomestication merger
proposals in accordance with the vote of the majority of the shares of
common stock issued in the initial public offering. They have indicated
that they also will vote in favor of the stock option plan proposal.
Q. What will I receive in A. Chardan security holders will receive an equal number of shares of common
the redomestication stock of Agritech in exchange for their Chardan common stock, and Agritech
merger? will assume the outstanding Chardan warrants, the terms and conditions of
which will not change, except that on exercise, they will receive Agritech
common stock.
2
Q. How will the A. Chardan will merge into Agritech, incorporated as a British Virgin Islands
redomestication merger company on March 11, 2005, and its wholly owned subsidiary. As a result of
be accomplished? the redomestication merger, each currently issued outstanding share of
common stock of Chardan will automatically convert into a share of common
stock of Agritech. This procedure will result in you becoming a
stockholder in Agritech.
Q. Will the Chardan A. Generally for United States federal income tax purposes, stockholders who
stockholders be taxed as are United States holders will not recognize any gain or loss, provided no
a result of the holder owns 5% or more of the common stock of Agritech following the
redomestication merger? redomestication merger. We urge you to consult your own tax advisors with
regard to your particular tax consequences of the redomestication merger.
Q. Will Chardan be taxed on A. We believe that Chardan will not incur any material amount of federal
the redomestication income or withholding tax as a result of the redomestication merger. The
merger? IRS may not agree with this conclusion. In such an event, there may be a
significant tax obligation for Agritech, the surviving company, to pay.
Q. How much of the A. The Origin Stockholders initially will receive 10,000,000 shares of common
surviving company will stock of Agritech. After the stock purchase, if no Chardan stockholders
existing Chardan demand that Chardan convert their shares into a pro rata portion of the
stockholders own? trust account and no Chardan stockholder exercises its appraisal rights,
then Chardan's stockholders who own shares immediately prior to the stock
purchase will own approximately 32.5% of the outstanding common stock of
Agritech. Existing Chardan stockholders could own less than approximately
32.5% if one or more Chardan stockholders vote against the stock purchase
proposal and demand conversion of their shares into a pro rata portion of
the trust account or appraisal rights are exercised.
Q. What will the name of A. The name of the surviving company following completion of the stock
the surviving company be purchase and redomestication merger will be "Origin Agritech Limited."
after the stock purchase?
Q. Do I have conversion A. If you hold shares of common stock issued in Chardan's initial public
rights? offering, then you have the right to vote against the stock purchase
proposal and demand that Chardan convert these shares into a pro rata
portion of the trust account in which a substantial portion of the net
proceeds of Chardan's initial public offering are held. We sometimes refer
to these rights to vote against the stock purchase and demand conversion of
the shares into a pro rata portion of the trust account as conversion
rights.
3
Q. If I have conversion A. If you wish to exercise your conversion rights, you must vote against the
rights, how do I stock purchase proposal and at the same time demand that Chardan convert
exercise them? your shares into cash. If, notwithstanding your vote, the stock purchase
is completed, then you will be entitled to receive a pro rata portion of
the trust account, including any interest earned thereon through the record
date. You will be entitled to convert each share of common stock that you
hold into approximately $________. If you exercise your conversion rights,
then you will be exchanging your shares of Chardan common stock for cash
and will no longer own these shares. You will be entitled to receive cash
for these shares only if you continue to hold these shares through the
closing of the stock purchase and then tender your stock certificate. If
the stock purchase is not completed, then your shares cannot be converted
to cash.
Q. What happens to the A. Upon consummation of the stock purchase:
funds deposited in the
trust account after the stockholders electing to exercise their conversion rights will receive
consummation of the their pro rata portion of the funds in the trust account;o $10,000,000 of
stock purchase? the funds in the trust account will be paid to the Origin Stockholders as
part of the stock purchase consideration, less $250,000 which will be
retained by Agritech to satisfy any damages of the existing Chardan
stockholders under the indemnification provisions of the stock purchase
agreement; and the balance of the funds in the trust account will be
retained by Agritech for operating capital subsequent to the closing of the
business combination.
Q. Who will manage the A. The combined company will be managed by the current management of Origin.
combined company? Dr. Gengchen Han, who is currently the chief executive officer of Origin,
will become the chairman and chief executive officer and a director of
Agritech. Yasheng Yang, who is currently the president of Origin, will be
the president and chief operating officer and a director of Agritech.
Liang Yuan, who is currently executive director of Origin, will be the
executive vice president and a director of Agritech. Dr. Richard D.
Propper, who is currently the chairman of the Chardan board, will become
vice president for Corporate Development, but he will not be a director.
Kerry Propper, who is currently the executive vice president and a director
of Chardan will become a director of Agritech. Michael D. Chermak, who is
currently a director of Chardan, will become a director of Agritech. In
addition, there will be four additional directors. These persons are:
Bailiang Zhang, Dafang Huang, Steven Urbach and Remo Richli.
Q. Do I have dissenter or A. In connection with the redomestication merger, the Chardan stockholders
appraisal rights? have appraisal rights under Delaware corporate law.
4
Q. What happens if the A. If the stock purchase is not consummated, Chardan will continue to search
stock purchase is not for an operating company to acquire. However, Chardan will be liquidated if
consummated? it does not consummate a business combination by September 22, 2005, unless
a letter of intent, agreement in principle or definitive agreement has been
executed by September 22, 2005, in which case, Chardan will be liquidated
if it does not consummate such business combination by March 22, 2006. In
any liquidation, the funds held in the trust account, plus any interest
earned thereon, together with any remaining out-of-trust net assets, will
be distributed pro rata to Chardan's common stockholders, excluding the
Chardan initial stockholders, each of whom has waived any right to any
liquidation distribution.
Q. When do you expect the A. It is currently anticipated that the stock purchase will be completed
stock purchase to be promptly following the Chardan special meeting on _________, 2005.
completed?
Q. If I am not going to A. Yes. After carefully reading and considering the information contained in
attend the Chardan this proxy statement/prospectus, please fill out and sign your proxy card.
special meeting in Then return the enclosed proxy card in the return envelope as soon as
person, should I return possible, so that your shares may be represented at the Chardan special
my proxy card instead? meeting.
Q. What will happen if I A. An abstention or failure to vote will have the same effect as a vote
abstain from voting or against the stock purchase proposal, but will not have the effect of
fail to vote? converting your shares into a pro rata portion of the trust account. An
abstention or failure to vote will also have the effect of voting against
the redomestication merger, but will have no effect on the approval of the
stock option plan.
Q. What do I do if I want A. Send a later-dated, signed proxy card to Chardan's secretary prior to the
to change my vote? date of the special meeting or attend the special meeting in person and
vote. You also may revoke your proxy by sending a notice of revocation to
Chardan's secretary at the address of Chardan's corporate headquarters.
Q. If my shares are held in A. No. Your broker can vote your shares only if you provide instructions on
"street name" by my how to vote. You should instruct your broker to vote your shares, following
broker, will my broker the directions provided by your broker.
vote my shares for me?
Q. Do I need to turn in my A. No. If you hold your securities in Chardan in certificate form, as opposed
old certificates? to holding them through your broker, you do not need to exchange them for
certificates issued by Agritech. Your current certificates will represent
your rights in Agritech. You may exchange them by contacting the transfer
agent, Continental Stock Transfer & Trust Company, Reorganization
Department, and following their requirements for reissuance. If you elect
conversion or appraisal, you will need to deliver your old certificate to
Agritech.
5
Q. Who can help answer my A. If you have questions about the stock purchase, you may write or call
questions? Chardan China Acquisition Corp., 625 Broadway, Suite 1111, San Diego, CA
92101. The phone number is (619) 795-4627.
6
SUMMARY
Summary
This section summarizes material items related to the proposals to be
voted on. These items are described in greater detail elsewhere in this proxy
statement/prospectus. You should carefully read this proxy statement/prospectus
and the other documents to which this proxy statement/prospectus refers you. See
"Where You Can Find More Information."
The Companies
Chardan
Chardan is a blank check company organized as a corporation under the
laws of the State of Delaware on December 5, 2003. It was formed to effect a
business combination with an unidentified operating business having operations
based in China and significant growth potential. On March 22, 2004, Chardan
successfully consummated an initial public offering of its equity securities
from which it derived net proceeds of approximately $21,242,000. The prices of
Chardan's common stock, warrants to purchase common stock and units (each unit
consisting of one share of common stock and two warrants to purchase common
stock) are quoted on the Over-the-Counter Bulletin Board under the symbols CAQC
for the common stock, CAQCW for the warrants and CAQCU for the units.
Approximately $20,527,500 of the net proceeds of the initial public offering was
placed in a trust account and will be released to Chardan upon consummation of
the stock purchase, subject to the exercise of conversion rights by holders of
less than 20% of the Chardan stock issued in the initial public offering. The
balance of the net proceeds of approximately $714,500 has been and will be used
by Chardan to pay the expenses incurred in its pursuit of a business
combination. These expenses include legal and accounting fees, payment to
consultants to Chardan who have assisted with due diligence reviews of business
combination targets, travel expenses, monthly office expenses of $7,500 payable
to Chardan Ventures LLC, and premiums for general and officer and director
insurance. Other than its initial public offering and the pursuit of a business
combination, Chardan has not engaged in any business to date. If Chardan does
not consummate a business combination by the later of September 22, 2005 and
March 22, 2006, if a letter of intent, an agreement in principle or a definitive
agreement to complete a business combination has been executed but not
consummated by September 22, 2005, then, pursuant to article fifth of its
certificate of incorporation, Chardan's officers must take all actions necessary
to dissolve and liquidate Chardan within 60 days.
The mailing address of Chardan's principal executive office is Chardan
China Acquisition Corp., 625 Broadway, Suite 1111, San Diego, California 92101,
and its telephone number is (619) 795-4627.
The Origin Parties
Origin was organized by the Origin stockholders as a corporation under
the laws of the British Virgin Islands on November 24, 2004, and on December 25,
2004 Origin entered into consignment agreements and technology agreements to
control the stock of the four Origin Operating Companies. Origin itself does not
engage in any operations.
The four Origin Operating Companies are Beijing Origin Seed Limited,
Changchun Origin Seed Technology Development Limited, Henan Origin Cotton
Technology Development Limited and the newly created and currently inactive
Beijing Origin State Harvest Biotechnology Limited, the technology-intellectual
property holding and licensing company ("Origin Biotechnology"). Beijing Origin
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Seed Limited is 97.96% controlled by Origin, with Henan Agriculture University
holding the remaining 2.04%; Henan Origin Cotton Technology Development Limited
is 97.96% controlled by Origin, with the remaining 2.04% owned by Mr. Gu
Dengbin, an individual; and Changchun Origin Seed Technical Development Limited
and Origin Biotechnology is 100% controlled by Origin. Three of the Chinese
Operating Companies have also executed Technology Service Agreements with Origin
Biotechnology for the assignment, holding and management of the technology and
intellectual property of the seeds and their production. The four Origin
Operating Companies are organized and exist under the laws of the PRC. The
Origin Operating Companies conduct the various business operations which include
development, production, marketing, distributions and sale of food crop hybrid
seeds. The businesses of the Origin Operating Companies began in 1997.
Under Chinese law, it is permissible for record owners of a Chinese
corporation to consign to another all the indicia of ownership and control of
their stock while retaining only title. This includes the consignment of the
record owner's voting, dispositive, dividend, meeting calling, proposal
submission and other rights so that the consignee is for all intents and
purposes the functional owner, except for record ownership. The reason for this
is that PRC law relating to corporations prevents the full title transfer of
shares of a joint stock company for three years after the corporate creation. In
the case of the Beijing Origin, Changchun Origin and Henan Origin, these
corporations were reorganized in 2003, and the stock of these companies is under
this title transfer restriction. Origin Biotechnology was created as a wholly
foreign-owned company of Origin, hence a consignment agreement for its control
is unnecessary. The consignment agreements provide for the full transfer of
share ownership, including title, when the corporate law restrictions terminate.
However, because the Origin Operating Companies are engaged in the "fundamental"
business of food production, only a 49% title transfer of ownership is permitted
under PRC law and is expected to occur, and the consignment agreements will
continue to be binding on the stockholders and their heirs until a greater title
ownership may be held by Origin. As greater title ownership is permitted, the
shares automatically transfer to Origin for no additional consideration.
Both counsel for Chardan and the Origin Parties have assured all the
parties to the stock purchase agreement and consignment agreements that the
consignment agreements are enforceable under the laws of the PRC so as to give
Origin the functional ownership of the Origin Operating Companies.
For the years ended December 31, 2003 and 2004, Origin generated
approximately $23,000,000 and approximately $36,000,000 in revenue,
respectively, principally from the sale of hybrid corn seeds.
The Origin Operating Companies have in development a number of
additional hybrid corn seeds which they plan to seek approval for and begin
marketing over the next years. There is also under development cotton and rice
seeds which the Origin Operating Companies plan to commence marketing in 2005.
The current management of the Origin Operating Companies is led by Dr.
Gengchen Han and Messrs. Yasheng Yang and Liang Yuan, each of whom will become
executive officers of Agritech and will continue to operate the Origin Operating
Companies. These persons will also become three of the nine-person board of
directors of Agritech. Kerry Propper, a current director and an officer of
Chardan, also will be a director of Agritech. Dr. Han and Messrs Yang and Yuan
will enter into a voting agreement with Agritech and Mr. Propper for their
commitment to take such action as is necessary to nominate and elect Mr. Propper
and a designee of his (currently Mr. Steven Urbach) as directors of Agritech for
three years after the closing. Of the remaining four director positions, two
will be filled upon the recommendation the Origin Parties and two will be
jointly determined by the Origin Parties and Chardan, but consideration will be
made in meeting the requirements of having directors who are both independent
and financially literate.
The mailing address of Origin's principal executive offices is 12
Shangdi Xinxi Lu, Haidian District, Beijing 100085 China, and its telephone
number is (86) 10-62988498.
8
The Business Combination
The stock purchase agreement provides for Chardan to form a wholly
owned subsidiary under the laws of the British Virgin Islands, under the name
"Origin Agritech Limited." At the time of closing of the stock purchase
agreement, Chardan will merge with and into Agritech for the purpose of
redomestication out of the United States to secure future tax benefits and
greater corporate flexibility to structure the business of Origin within China
and effect acquisitions and reorganizations under Chinese law. Simultaneously
with the redomestication merger, Agritech will acquire all of the issued and
outstanding stock of Origin, gaining control of the four Origin Operating
Companies pursuant to existing stock consignment agreements, dated December 24,
2004, between Origin and the stockholders of the Origin Operating Companies
other than Origin Biotechnology which latter company is wholly owned by Origin.
Following consummation of the stock purchase agreement and the redomestication
merger, Agritech will continue as the surviving company and owner of Origin and,
effectively, the Origin Operating Companies. Pursuant to the redomestication
merger, all of the Chardan common stock held by Chardan's stockholders will be
converted into common stock in Agritech and the other outstanding warrants of
Chardan will be assumed by Agritech.
At the closing, the Origin Stockholders and their designee, A Plus
Resources Limited, will be paid an aggregate of $10,000,000 in cash, using the
funds held in the trust account, and will issue an aggregate of 10,000,000
shares of Agritech common stock for all the outstanding common stock of Origin.
Of the cash portion of the purchase price, $250,000 will be held back for one
year by Agritech to secure certain indemnification obligations of the Origin
Stockholders.
Additional purchase price payments will be made to the Origin
Stockholders and their designee, up to an aggregate of $15,000,000, if either of
the following occurs during any fiscal year of Agritech after the closing date
until December 31, 2008 (or June 30, 2009 if the fiscal year is changed to a
July 1 - June 30 fiscal year) from funds generated in the additional financing
or from operational earnings as described below:
A If Agritech receives at least $40,000,000 in gross
proceeds in additional financing as a result (i) of the call of the issued and
outstanding public warrants assumed by Agritech at the closing; (ii) Agritech's
successful completion of a follow-on offering; or (iii) a private investment
into Agritech by a strategic investor ("Financing Adjustment"), then Agritech
will pay an additional $15,000,000 to the Origin Stockholders and their
designee; or
B If Agritech generates net positive cash flow of
$2,000,000 or more on a consolidated basis ("Earnings Adjustment"), then the
Origin Stockholders and their designee will be entitled to receive 75% of the
net positive cash flow up to a maximum of $7,500,000 per fiscal year and
$15,000,000 in the aggregate.
If both an Earnings Adjustment and a Financing Adjustment
occur, the maximum aggregate amount to be paid to the Origin Stockholders from
one or both adjustments is $15,000,000.
As further additional purchase price, certain Origin Stockholders and
their designee will be issued an aggregate of 1,500,000 shares of common stock
of Agritech for each of the next four years if, on a consolidated basis,
Agritech generates after-tax profits (excluding after-tax operating profits from
any subsequent acquisitions of securities that have a dilutive effect and before
the expenses of this transaction and director and employee option expense) of at
least the following amounts:
9
Year ending June 30, After-Tax Profit
2006 $11,000,000
2007 $16,000,000
2008 $21,000,000
2009 $29,000,000
Chardan and the Origin Parties plan to complete the stock purchase
promptly after the Chardan special meeting, provided that:
o Chardan's stockholders have approved the stock purchase agreement
and the redomestication merger proposals;
o holders of less than 20% of the shares of common stock issued in
Chardan's initial public offering vote against the stock purchase
proposal and demand conversion of their shares into cash; and
o the other conditions specified in the stock purchase agreement have
been satisfied or waived.
The designee, A Plus Resources Limited, a company formed under the laws
of the British Virgin Islands, is owned by Ms. Song Baoquing, and provided
financial advisory services to the Origin Parties.
The Stock Purchase Agreement
The stock purchase agreement is included as an annex to this proxy
statement/prospectus. We encourage you to read the stock purchase agreement. It
is the legal document that governs the stock purchase and the other transactions
contemplated by the stock purchase agreement. It is also described in detail
elsewhere in this proxy statement/prospectus.
The Chardan Stock Option Plan
The stock option plan reserves 1,500,000 shares of Chardan common stock
for issuance in accordance with the plan's terms. The purpose of the stock
option plan is to enable Chardan to offer its employees, officers, directors and
consultants whose past, present and/or potential contributions to Chardan have
been, are or will be important to the success of Chardan, an opportunity to
acquire a proprietary interest in Chardan. The various types of awards that may
be provided under the stock option plan will enable Chardan to respond to
changes in compensation practices, tax laws, accounting regulations and the size
and diversity of its business. Upon the redomestication merger, the plan will
become that of Agritech, and will be administered by the board of directors of
Agritech using the common stock of Agritech instead of Chardan common stock.
The stock option plan is included as an annex to this proxy
statement/prospectus. We encourage you to read the stock option plan in its
entirety.
Management
After the consummation of the stock purchase and of the redomestication
merger, the board of directors of the surviving corporation will be Dr. Gengchen
Han, Liang Yuan, Yasheng Yang, Bailiang Zhang, Da Fang Huang, Kerry Propper,
Steven Urbach, Michael D. Chermak and Remo Richli.
10
Each of Dr. Gengchen Han and Messrs. Liang Yuan and Yasheng Yang will
enter into a three-year employment agreement with Origin. Dr. Han will be
employed as Origin's chairman and chief executive officer, Mr. Yuan will be the
executive vice chairman and Mr. Yang will be president and chief operating
officer. The form of executive employment agreement which they will sign is
annexed as an annex to this proxy statement/prospectus.
Special Meeting of Chardan's Stockholders
Date, time and place. The special meeting of the stockholders of
Chardan will be held at 10:00 a.m., eastern time, on ___________, 2005, at
Chardan's offices at 625 Broadway, Suite 1111, San Diego, California, 92101 to
approve the stock purchase, the redomestication merger, and the stock option
plan proposals.
Approval of the Origin Stockholders
All of the Origin Stockholders have approved the stock purchase
proposal and the transactions contemplated thereby by virtue of the execution of
the stock purchase agreement.
Voting Power; Record Date
You will be entitled to vote or direct votes to be cast at the special
meeting if you owned shares of Chardan common stock at the close of business on
___________, 2005, which is the record date for the special meeting. You will
have one vote for each share of Chardan common stock you owned at the close of
business on the record date. Chardan warrants do not have voting rights. On the
record date, there were 4,900,000 outstanding shares of Chardan common stock.
Vote Required to Approve the Proposals
The approval of the stock purchase agreement proposal will require the
affirmative vote of the holders of a majority of the outstanding shares of
Chardan common stock on the record date.
The approval of the redomestication merger proposal will require the
affirmative vote of the holders of a majority of the outstanding shares of
Chardan common stock on the record date.
The approval of the stock option plan proposal will require the
affirmative vote of the holders of a majority of the shares represented and
entitled to vote at the meeting.
Relation of Proposals
The stock purchase will not be consummated unless the redomestication
merger proposal is approved, and the redomestication merger will not be
consummated unless the stock purchase proposal is approved. The approval of the
stock option plan is not a condition to consummation of either the stock
purchase or the redomestication merger proposals.
Conversion Rights
Pursuant to Chardan's certificate of incorporation, a holder of shares
of Chardan's common stock issued in its initial public offering may, if the
stockholder votes against the stock purchase, demand that Chardan convert such
shares into cash. This demand must be made in writing at the same time that the
stockholder votes against the stock purchase proposal. If so demanded, Chardan
will convert each share of common stock into a pro rata portion of the trust
account as of the record date. If you exercise your conversion rights, then you
will be exchanging your shares of Chardan common stock for cash and will no
longer own these shares. You will be entitled to receive cash for these shares
only if you continue to hold these shares through the effective time of the
stock purchase and then tender your stock certificate to the combined company.
If the stock purchase is not completed, then these shares will not be converted
into cash at that time.
11
The stock purchase will not be consummated if the holders of 20% or
more of common stock issued in Chardan's initial public offering (805,000 shares
or more) exercise their conversion rights.
Appraisal Rights
Appraisal rights are available under the Delaware General Corporation
Law for the stockholders of Chardan in connection with the redomestication
merger proposal. The procedure to exercise appraisal rights is described in
detail elsewhere in this proxy statement. For a more complete discussion of
appraisal rights, see pages 63 to 65 and Annex I.
Proxies
Proxies may be solicited by mail, telephone or in person.
If you grant a proxy, you may still vote your shares in person if you
revoke your proxy before the special meeting.
Stock Ownership
On the record date, directors and executive officers of Chardan and
their affiliates (the "Management Shareholders") beneficially owned and were
entitled to vote 689,501 shares of Chardan's common stock. In addition, there
are four additional insider persons who beneficially own 185,499 shares of
common stock acquired prior to the initial public offering. Together the
Management Shareholders and these stockholders are the "Initial Shareholders."
The total of these two groups of shares represent 875,000 shares or
approximately 17.9% of Chardan's issued and outstanding common stock. In
connection with its initial public offering, Chardan and EarlyBirdCapital, Inc.
entered into agreements with each of the Initial Shareholders, pursuant to which
each Initial Stockholder agreed to vote his or its shares of Chardan common
stock on the business combination in accordance with the majority of the votes
cast by the holders of shares issued in connection with the initial public
offering.
Chardan's Board of Directors' Recommendation
After careful consideration, Chardan's board of directors has
determined unanimously that the stock purchase plan proposal, the
redomestication merger proposal, and the stock option proposal are fair to, and
in the best interests of, Chardan and its stockholders. Chardan's board has
unanimously approved and declared advisable the stock purchase proposal, the
redomestication merger proposal and the stock option plan proposal, and
unanimously recommends that you vote or instruct your vote to be cast "FOR" the
adoption of the stock purchase proposal, the redomestication merger proposal,
and the stock option plan proposal. The board of directors did not obtain a
fairness opinion.
Interests of Chardan Directors and Officers in the Stock Purchase
When you consider the recommendation of Chardan's board of directors
that you vote in favor of adoption of the stock purchase proposal, you should
keep in mind that a number of Chardan's executives and members of Chardan's
board have interests in the stock purchase agreement that are different from, or
in addition to, your interests as a stockholder. These interests include, among
other things:
12
o if the stock purchase is not approved and Chardan fails to
consummate an alternative transaction within the time allotted
pursuant to its amended and restated certificate of incorporation,
Chardan will be required to liquidate. In such event, the shares of
common stock held by Chardan's officers and directors will be
worthless because Chardan's officers, directors and initial
stockholders are not entitled to receive any liquidation proceeds.
Additionally, the warrants held by such persons will expire
worthless in the event of liquidation;
o after the completion of the stock purchase, Kerry Propper and Steven
Urbach, a designee of Mr. Propper's, will serve as members of the
board of directors of Agritech;
o after the completion of the stock purchase, Dr. Richard Propper will
continue to serve in the capacity of Vice President, Corporate
Development (without individual compensation), and Chardan Capital,
LLC, an affiliate of Dr. Propper, Mr. Beharry, Mr. Zhang, and Mr.
Huang, will provide a variety of ongoing services to Origin over the
next two years at a cost to Origin of $30,000 per month which
services will be on a non-exclusive basis and include advice and
help in meeting US public reporting requirements and accounting
standards, Sarbanes-Oxley compliance, corporate structuring and
development, stockholder relations, corporate finance and
operational capitalization and such other similar services as
requested and agreed to by Chardan Capital, LLC; and
o if the business combination transaction is not consummated under
certain circumstances, Chardan's officers and directors and certain
initial stockholders may be personally liable for a termination fee
payable to the Origin Stockholders.
Conditions to the Completion of the Stock Purchase
Each of Chardan's and the Origin Parties' obligation to effect the
stock purchase is subject to the satisfaction or waiver of specified conditions,
including the following:
Conditions to Chardan's and the Origin Parties' obligations
o Approval by Chardan's stockholders of the stock purchase and
redomestication merger proposals;
o the absence of any order or injunction preventing consummation of
the stock purchase;
o the absence of any suit or proceeding by any governmental entity or
any other person challenging the stock purchase or seeking to obtain
from the Origin Parties or Chardan any damages;
o at Chardan's stockholders' meeting, holders of no more than 805,000
shares of common stock issued in Chardan's initial public offering,
vote against the stock purchase proposal and demand that Chardan
convert their shares into a pro rata portion of the trust account;
and
o Certain key members of the management team of Origin and the Origin
Operating Companies will have entered into employment agreements in
form and substance acceptable to Chardan, providing, among other
things, for a term of three (3) years at compensation levels in
effect prior to the closing of the stock purchase and including
intellectual property assignment and non-competition provisions to
be in effect for a period of two (2) years following termination of
employment.
13
Conditions to Chardan's obligations
o the Origin Parties' representations and warranties that are
qualified as to materiality must be true and correct in all
respects, and those not qualified as to materiality must be true and
correct in all material respects, as of the date of completion of
the stock purchase, except representations and warranties that
address matters as of another date, which must be true and correct
as of that other date, and Chardan must have received an officer's
certificate from the Origin Parties to that effect;
o the Origin Parties must have performed in all material respects all
obligations required to be performed by them;
o Origin will have acquired ownership and control of the four Origin
Operating Companies and the technology service agreements among the
Origin Operating Companies will be executed;
o the Origin Parties must have received all required and unconditional
approvals or consents of governmental authorities, and Chardan must
have received written confirmation that such approvals and consents
have been received;
o at closing, Origin and the Origin Stockholders will have certified
to Chardan that on a consolidated basis, immediately prior to
closing, Origin and the Origin Operating Companies, together, will
have not less than $10,000,000 in cash assets and its short and long
term debt arose only in the ordinary course;
o Chardan's board of directors must have determined that the combined
fair market value of Origin and the Origin Operating Companies,
together, is at least 80% of the net assets of Chardan;
o there must not have occurred since the date of the stock purchase
agreement any Origin Material Adverse Effect, as defined in the
stock purchase agreement;
o the Origin Proxy Statement/Prospectus Information, as defined in the
stock purchase agreement, accurately describes Origin, the Origin
Operating Companies and the business in which they are engaged, and
the Origin Stockholders, and the Origin Proxy Statement/Prospectus
Information does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements in the Origin Proxy Statement/Prospectus Information not
misleading; and
Conditions to the Origin Parties' obligation
o Chardan's representation and warranty regarding the compliance of
the stock purchase agreement and the agreements contemplated by the
stock purchase agreement with the applicable provisions in Chardan's
certificate of incorporation and the underwriting agreement it
executed in its initial public offering must be true and correct in
all respects, as of the date of completion of the stock purchase;
o Chardan must have performed in all material respects all obligations
required to be performed by them under the stock purchase agreement;
14
o the Origin Parties must have received a written opinion, dated as of
the closing date, from Guantao Law Firm, counsel to the Origin
Parties relating to, among other things, the validity and
enforceability of the stock consignment agreements;
o there must not have occurred since the date of the stock purchase
agreement any Chardan Material Adverse Effect, as defined in the
stock purchase agreement; and
o the Origin Parties must have received an officer's certificate of
Chardan to the effect that the Chardan board of directors has
independently determined that the combined fair market value of
Origin and the Origin Operating Companies is at least 80% of the net
assets of Chardan as of the date of consummation of the stock
purchase.
No Solicitation
The stock purchase agreement contains detailed provisions prohibiting
each of Chardan and the Origin Parties from seeking an alternative transaction.
These covenants generally prohibit Chardan and the Origin Parties, as well as
their officers, directors, subsidiaries, employees, agents and representatives,
from taking any action to solicit an alternative acquisition proposal. The stock
purchase agreement does not, however, prohibit Chardan from considering an
unsolicited bona fide written superior proposal from a third party. The approval
of the stock purchase agreement by the Origin Parties has already been given,
and no proposal from a third party will be effective to revoke or withdraw that
approval.
Termination, Amendment and Waiver
The stock purchase agreement may be terminated at any time prior to the
consummation of the stock purchase, whether before or after receipt of the
Chardan stockholder approval, as follows:
o by mutual written consent of Chardan and Origin;
o by either party if the other party amends a schedule and such
amendment or supplement reflects a material adverse change in the
condition, operations or prospects of its business;
o by either party if the closing has not occurred by August 1, 2005
(unless such terminating party is in breach of any of its material
covenants, representations or warranties);
o by either party if the other party has breached any of its covenants
or representations and warranties in any material respect and has
not cured its breach within ten business days of the notice of an
intent to terminate, provided that the terminating party is itself
not in breach;
o by Origin, if the board of directors of Chardan (or any committee
thereof) shall have failed to recommend or withdraw or modify in a
manner adverse to Origin its approval or recommendation of the stock
purchase agreement and any of the transactions contemplated thereby;
o by Chardan if its board of directors shall have determined in good
faith, based upon the advice of outside legal counsel, that failure
to terminate the stock purchase agreement is reasonably likely to
result in the board of directors breaching its fiduciary duties to
stockholders by reason of a pending, unsolicited, bona fide written
proposal for a superior transaction; or
15
o by either party if, at the Chardan stockholder meeting, the stock
purchase agreement and the redomestication merger shall fail to be
approved and adopted by the affirmative vote of the holders of
Chardan's common stock, or 20% or more of the shares sold in
Chardan's initial public offering request conversion of their shares
into the pro rata portion of the trust account in accordance with
the Chardan certificate of incorporation.
If the stock purchase agreement is terminated by Chardan for material
breach of a covenant, representation or warranty or material amendment to a
schedule of Origin (which includes information about the Origin Operating
Companies) or Origin Stockholders, then the Origin Stockholders will pay Chardan
$1,000,000 upon termination of the stock purchase agreement in lieu of any other
right or remedy that the Chardan may have against the other parties to the stock
purchase agreement for such breach. If the stock purchase agreement is
terminated by Origin for a material breach of a covenant, representation or
warranty or material amendment to a schedule of Chardan, or because the board of
directors of Chardan fails to recommend or withdraws or modifies its approval or
recommendation of approval of the stock purchase agreement, then Richard
Propper, Kerry Propper, Jiangnan Huang, Li Zhang, Dan Beharry and Steven Urbach
(pro rata in relation to their initial ownership in Chardan) will pay Origin
$1,000,000 upon termination of the stock purchase agreement in lieu of any other
right or remedy that Origin may have against the other parties to the stock
purchase agreement for such breach. The $1,000,000 amount payable to the Origin
Stockholders by the foregoing person will be prorated based on their initial
ownership of Chardan common stock. The Origin Parties have no right to damages
from Chardan or Agritech and they have no right to any amount held in the trust
account. The Origin Parties have agreed not to make any claim against Chardan
and Agritech that would adversely affect the business, operations or prospects
of Chardan and Agritech or the amount of the funds held in the trust account.
Quotation or Listing
Chardan's outstanding common stock, warrants and units are quoted on
the Over-the-Counter Bulletin Board. The common stock, warrants and units of
Agritech, at the consummation of the stock purchase, will be quoted on the
Nasdaq National Market. The proposed symbols for Nasdaq are SEED, SEEDW and
SEEDU. Seeking the Nasdaq listing is an obligation of Chardan under the stock
purchase agreement. Agritech's securities have been provisionally approved for
listing on the Nasdaq National Market, subject to consummation of the
redomestication merger and stock purchase of Origin. If Nasdaq listing is not
achieved, it is anticipated that the common stock, warrants and units will
continue to trade on the OTCBB.
Governance and Voting Arrangements after the Purchase
As provided in the stock purchase agreement, the board of the combined
company will initially consist of nine members, five of whom are designated by
Origin, two of whom are designated by Chardan and the others to be mutually
determined. At the closing, Dr. Han and Messrs. Yang and Yuan will enter into a
voting agreement with Agritech and Mr. Kerry Propper pursuant to which they will
agree to take such action as is necessary to nominate and elect Mr. Kerry
Propper and a designee of his (currently Mr. Steven Urbach) as directors for
three years after the closing.
Indemnification by Origin Stockholders
The Origin Stockholders have agreed to indemnify Agritech for breaches
of the representations, warranties and covenants of the Origin Parties. In order
to secure the indemnity obligation, $250,000 of the purchase price will be
retained by Agritech. The funds do not represent the exclusive remedy for losses
incurred in connection with a breach by the Origin Parties. The holdback will
only be available to satisfy claims against the Origin Parties that are made
within one year after the completion of the stock purchase. On the one-year
anniversary of completion of the stock purchase, any remaining holdback that has
not been used to satisfy damages will be released to the Origin Stockholders,
however, certain rights to indemnification survive for longer periods.
16
Comparison of Stockholders Rights
In connection with the consummation of the stock purchase agreement,
Chardan has formed a wholly owned subsidiary under the laws of the British
Virgin Islands, under the name of Agritech. Chardan will, if the stock purchase
proposal and redomestication merger proposal are approved, merge with Agritech,
effectively changing its jurisdiction of incorporation from Delaware to the
British Virgin Islands. Chardan's common stock will be converted into common
stock of Agritech. The rights of Chardan stockholders will change accordingly. A
comparison of the rights of stockholders under Delaware and British Virgin
Islands law is included elsewhere in this proxy statement/prospectus.
Material United States Federal Income Tax Consequences of the Stock Purchase
Chardan expects that the redomestication merger will qualify as a
reorganization for United States income tax purposes. No gain or loss will be
recognized on the exchange of the Chardan common stock for the stock of
Agritech, provided no holder of Chardan common stock owns 5% or more of the
stock of Agritech following the redomestication merger. Stockholders of Chardan
are encouraged to consult their own tax advisors, because the tax consequences
may be different among the stockholders depending on their personal
circumstances.
Chardan will not recognize any gain or loss as a result of the stock
purchase or redomestication merger with Agritech.
Accounting Treatment
The stock purchase will be accounted for as a recapitalization of
Origin rather than as an acquisition. The financial statements of Agritech will
combine the historical statements of Origin and Chardan for the prior years
giving effect to the merger and stock purchase transactions as if it occurred on
January 1, 2004. After the acquisition, the financial statements of Origin
Companies will become the financial statements of Agritech.
Regulatory Matters
The stock purchase and the transactions contemplated by the stock
purchase agreement are not subject to any federal or state regulatory
requirement or approval, including the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, or HSR Act, except for filings necessary to effectuate the
transactions contemplated by the stock purchase and redomestication merger
proposals with the State of Delaware and the British Virgin Islands.
Board Solicitation
Your proxy is being solicited by the board of directors of Chardan on
each of the three proposals being presented to the stockholders at the special
meeting.
17
SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following financial information to assist you in
your analysis of the financial aspects of the stock purchase. We derived Origin
historical information from the audited consolidated financial statements of
Origin as of and for each of the years ended December 31, 2004, 2003 and 2002.
We derived the Chardan historical information from the audited financial
statements of Chardan as of December 31, 2004 and for the periods then ended and
from the unaudited financial statements at March 31, 2005 and for the
three-month periods then ended. The information is only a summary and should be
read in conjunction with each company's historical consolidated financial
statements and related notes contained elsewhere herein. The historical results
included below and elsewhere in this proxy statement/prospectus are not
indicative of the future performance of Origin, Chardan or the combined company
resulting from the business combination.
THE ORIGIN PARTIES HISTORICAL FINANCIAL INFORMATION
Year Ended December 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
Revenue $36,430,799 $23,155,094 $11,936,798 $ 9,075,764 $ 5,650,225
Net income 7,909,076 3,497,959 3,211,752 981,259 481,848
Income (loss) per share 0.08 0.13 -- -- --
Book value per share 0.17 0.34 -- -- --
Dividends paid per share 0.0025 0.0074 -- -- --
As at Year Ended December 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
Total assets $50,309,138 $37,153,175 $31,123,038 $11,781,627 $ 9,312,712
Total current 32,985,232 27,541,487 24,807,546 9,336,486 7,317,013
liabilities
Long-term liability 346,982 347,255 347,255 -- --
Stockholders' equity 16,549,920 8,879,466 5,572,684 2,383,516 1,407,861
18
CHARDAN HISTORICAL FINANCIAL INFORMATION
For the Period From
December 5, 2003
March 31, 2005 Year Ended (Inception) to March
(unaudited) December 31, 2004 31, 2005(unaudited)
--------------- --------------- ---------------
Revenue $ -- $ -- $ --
Interest income on trust account 87,121 166,483 253,604
Net loss (156,523) (667,699) (824,757)
Net loss per share (0.03) (0.17) --
Cash dividends per share -- -- --
March 31, December 31,
2005 ---------------------------------
(unaudited) 2004 2003
--------------- --------------- ---------------
Total assets (including cash deposited in $ 20,863,957 $ 20,884,091 $ 84,988
trust account in 2004)
Common stock subject to possible redemption 4,103,450 4,103,450 --
Stockholders' equity 16,339,216 16,495,739 24,465
19
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The stock purchase will be accounted for as a recapitalization of
Origin rather than an acquisition. Accordingly, although the merger and stock
purchase is structured such that the Origin Operating Companies will be directly
and indirectly controlled subsidiaries of Agritech at closing, Origin and the
Origin Operating Companies will be treated as the continuing reporting entity
for accounting purposes. The assets and liabilities of Chardan will be recorded,
as of completion of the merger and stock purchase, at their respective
historical cost, which is considered to be the equivalent of fair value and
added to those of Origin and the Origin subsidiaries. For a more detailed
description of purchase accounting, see "The Merger--Anticipated Accounting
Treatment" on page 38.
We have presented below selected unaudited pro forma combined financial
information that reflects the purchase method of accounting and is intended to
provide you with a better picture of what our businesses might have looked like
had they actually been combined. The combined financial information may have
been different had the companies actually been combined. The selected unaudited
pro forma combined financial information does not reflect the effect of asset
dispositions, if any, or cost savings that may result from the stock purchase.
You should not rely on the selected unaudited pro forma combined financial
information as being indicative of the historical results that would have
occurred had the companies been combined or the future results that may be
achieved after the stock purchase. The following selected unaudited pro forma
combined financial information has been derived from, and should be read in
conjunction with, the unaudited pro forma condensed combined financial
statements and related notes thereto included elsewhere in this proxy
statement/prospectus.
Year Ended
December 31, 2004
--------------------------------------------------------------------------
Assuming Maximum Approval Assuming Minimum Approval
------------------------------ ------------------------------------
(in thousands, except per share data)
Revenue $ 36,431 $ 36,431
Net income 7,282 7,241
Net income per share 0.51 0.53
Total assets 61,443 $ 57,298
Long-term debt 347 347
Stockholders' equity 27,190 23,046
20
COMPARATIVE PER SHARE INFORMATION
The following table sets forth selected historical per share
information of Origin and Chardan and unaudited pro forma combined per share
ownership information of Origin and Chardan after giving effect to the stock
purchase proposal of Origin, which includes control of the Origin Operating
Companies and the merger between the Chardan and Agritech, assuming a maximum
level and a minimum level of approval of the stock purchase by Chardan
stockholders who exercise their conversion and/or appraisal right. The stock
purchase will be accounted for as a recapitalization of Origin. You should read
this information in conjunction with the selected historical financial
information, included elsewhere in this proxy statement/prospectus, and the
historical financial statements of Origin and Chardan and related notes that are
included elsewhere in this proxy statement/prospectus. The unaudited Origin and
Chardan pro forma combined per share information is derived from, and should be
read in conjunction with, the Unaudited Pro Forma Condensed Combined Financial
Statements and related notes included elsewhere in this proxy
statement/prospectus. The historical per share information is derived from
financial statements as of and for the years ended December 31, 2003 and 2004.
The unaudited pro forma combined per share information does not purport
to represent what the actual results of operations of Origin and Chardan would
have been had the companies been combined or to project the Origin and Chardan
results of operations that may be achieved after the stock purchase.
Number of shares of common Combined
stock assumed to be issued in stock purchase: Origin Chardan(1)(2) Company(2)
--------------------------------------------- ------ ------------- ----------
Assuming maximum approval 10,000,000 4,900,000 15,100,000
67.55% 32.45% 100%
Assuming minimum approval 10,000,000 4,095,402 14,295,402
71.35% 28.65% 100%
Net (loss) per share--historical:
Year ended December 31, 2003: $ 0.13 $ (0.00)
Year ended December 31, 2004: $ 0.08 $ (0.17)
Net income per share--pro forma:
Year ended December 31, 2004:
Maximum $ 0.51
Minimum $ 0.53
Book value per share--December 31, 2004 $ 0.17 $ 4.03(3) $ 1.61(3)
Cash dividends declared per share--Year ended December
31, 2004 $ 0.0025 -- $ 0.02(3)(4)
Notes:
(1) Operations of Chardan are for the period from December 5, 2003
(inception) to December 31, 2004.
(2) Historical per share amounts for Chardan were determined based upon
the actual weighted average shares outstanding at December 31, 2003 and 2004,
respectively, and consolidated pro forma per share amounts for Chardan and
Origin (a) were determined based upon the assumed number of shares to be issued
under the two different levels of approval and (b) include 200,000 shares to be
issued to Best of the Best upon consummation of the Stock Purchase Agreement.
(3) Calculated based on the minimum approval, to record refund of funds
($4,103,450 plus related interest) to dissenting stockholders.
21
(4) Assumes no change in the total dividends paid in 2004 (RMB2,000,000).
MARKET PRICE INFORMATION
Chardan's common stock, warrants and units are each quoted on the
Over-the-Counter Bulletin Board under the symbols CAQC, CAQCW and CAQCU,
respectively. Chardan's units commenced public trading on March 16, 2004 and its
common stock and warrants commenced public trading on March 29, 2004. The
closing price for each share of common stock, warrant and unit of Chardan on
Thursday, December 23, 2004, the last trading day before announcement of the
execution of the stock purchase agreement, as amended, was $5.05, $.90 and
$6.90, respectively.
In connection with the stock purchase, application has been made for
the quotation of the combined company's common stock, warrants and units on the
Nasdaq National Market and has been provisionally approved. The proposed symbols
are SEED, SEEDW and SEEDU. Management anticipates that the Nasdaq listing will
be concurrent with the consummation of the redomestication merger. If the
listing on Nasdaq is not finally approved, it is expected that the common stock,
warrants and units will continue to trade on the OTCBB.
The table below sets forth, for the calendar quarters indicated, the
high and low bid prices of the Chardan common stock, warrants and units as
reported on the Over-the-Counter Bulletin Board. The over-the-counter market
quotations reported below reflect inter-dealer prices, without markup, markdown
or commissions and may not represent actual transactions.
Over-the-Counter Bulletin Board
---------------------------------------------------------------------------
Common Stock Warrants Units
----------------------- ---------------------- ----------------------
-
High Low High Low High Low
---------- ---------- --------- --------- --------- ---------
2004 First Quarter N/A N/A N/A N/A $6.25 $5.99
2004 Second Quarter $4.85 $4.65 $1.05 $0.64 $6.95 $6.03
2004 Third Quarter $4.94 $4.75 $0.85 $0.61 $6.80 $5.70
2004 Fourth Quarter $6.65 $4.85 $2.03 $0.62 $10.60 $6.00
2005 First Quarter $8.12 $6.20 $3.12 $1.60 $14.35 $9.30
Holders
As of June __, 2005, there was one holder of record of the units,
eleven holders of record of the common stock and two holders of record of the
warrants. Chardan believes the beneficial holders of the units, common stock and
warrants to be in excess of 400 persons each.
Dividends
Chardan has not paid any dividends on its common stock to date and
does not intend to pay dividends prior to the completion of a business
combination. The payment of dividends in the future will be contingent upon
revenues and earnings, if any, capital requirements and general financial
condition subsequent to completion of a business combination. The payment of any
dividends subsequent to a business combination will be within the discretion of
the then board of directors. It is the present intention of the board of
directors to retain all earnings, if any, for use in the business operations
and, accordingly, the board does not anticipate declaring any dividends in the
foreseeable future.
22
RISK FACTORS
You should carefully consider the following risk factors, together with
all of the other information included in this proxy statement/prospectus, before
you decide whether to vote or instruct your vote to be cast to adopt the stock
purchase proposal.
If Origin and the Origin Operating Companies do not manage their growth
successfully, their growth and chances for continued profitability may slow or
stop.
Origin and the Origin Operating Companies have expanded their
operations rapidly during the last several years, and they plan to continue to
expand with new seed products and distribution outlets. This expansion has
created significant demands on their administrative, operational and financial
personnel and other resources, particularly its need for working capital.
Additional expansion in existing or new markets and new lines of business could
strain these resources and increase its need for capital, which may result in
cash flow shortages. Origin's and the Origin Operating Companies' personnel,
systems, procedures, controls and existing space may not be adequate to support
further expansion.
Origin and the Origin Operating Companies have a short operating history and are
subject to the risks of a new enterprise any one of which could limit growth and
product and market development.
Origin's and the Origin Operating Companies' short operating history
makes it difficult to predict how their businesses will develop. Accordingly,
Origin and the Origin Operating Companies face all of the risks and
uncertainties encountered by early-stage companies, such as:
o uncertain growth in the market for, and uncertain market acceptance
of, its products and services;
o the evolving nature of the crop seed business in PRC, where
significant consolidation is likely to occur, leading to the
formation of companies better able to compete with Origin than is
currently the case; and
o the risks of competition, technological change or evolving customer
preferences could harm sales of their products or services.
If Origin and the Origin Operating Companies are not able to meet the
challenges of building their businesses and managing their growth, the likely
result will be slowed growth, lower margins, additional operational costs and
lower income.
The profitability of Origin's and the Origin Operating Companies' businesses
will decrease if they do not continue to find and market products considered
valuable by Chinese farmers.
The profitability of Origin's seed business depends on recurring and
sustained reorders. Reorder rates are inherently uncertain due to several
factors, many of which are outside Origin's control. These include changing
customer preferences, competitive price pressures, failure to develop acceptable
new products and general economic conditions.
23
Three of the Origin Operating Companies will be controlled subsidiaries through
stock consignment agreements rather than by direct ownership of shares, the
terms of which may have to be enforced causing extra costs, uncertainty of
ownership of the operating businesses and the possible loss of rights.
PRC law does not permit the transfer of shares in a Chinese joint stock
company within three years of its formation. In addition, under PRC law, foreign
entities are not currently permitted to own more than 49% of a seed production
company. These legal restrictions prevent Agritech, through Origin, from having
full ownership of the stock of three of the Origin Operating Companies because
they underwent restructuring in 2003. In order to address those restrictions,
Origin, a non-Chinese entity, will not directly own the shares of three of the
Chinese Operating Companies. Rather, it will hold the right to control the
shares in all respects, including voting, dividends, nomination of directors,
and corporate management, through stock consignment agreements executed by the
owners of the stock of these companies. When the shares can be transferred, they
will be transferred over to Origin for no additional consideration. These
agreements are commonly used in the PRC, and Chardan has consulted its Chinese
counsel and been assured of their efficacy and enforceability.
There is the risk, however, that a consigning stockholder will not
fulfill its obligations under the stock consignment agreement. In that event,
Origin may need to resort to PRC courts to have its rights under the agreements
enforced. Such enforcement will cause Origin to incur legal expenses, while the
case is pending it will cause uncertainty in the rights of Origin, and may
result in a PRC court deciding not to enforce the agreements in part or at all.
To the extent these agreements are neither observed nor enforced as intended,
the Origin Operating Companies will not be controlled by Origin as intended
which will affect their value to Origin and restrict the ability to obtain the
income and other rights of ownership. It may also prevent the consolidation of
their financial statements which would reduce the reported earnings of the
consolidated companies. The uncertainty of ownership may also affect the market
value of the company.
Origin and the Origin Operating Companies, due to their size and short operating
history, depends substantially on a few key personnel which if not retained
would cause declines in productivity and profitability and loss of vision, all
of which would diminish the prospects of the company and investor interest.
Due to their size and short operating history, Origin's and the Origin
Operating Companies' success depends to a large extent upon the continued
service of a few executive officers and key employees, including:
o Dr. Gengchen Han;
o Dr. Yasheng Yang; and
o Liang Yuan.
The loss of the services of one or more of these key employees could
have an adverse effect on Origin and the Origin Operating Companies, as each of
these individuals played a significant role in developing and executing the
overall Origin business plan and maintaining customer relationships and
proprietary technology systems. While none of these key personnel is
irreplaceable, the loss of the services of any of these individuals would be
disruptive in business through a disruption to the senior management and loss of
the current corporate vision. Origin believes that its overall future success
will depend in large part upon its ability to attract and retain highly skilled
managerial and marketing personnel. There can be no assurance that Origin and
the Origin Operating Companies will be successful in attracting and retaining
such personnel on terms acceptable to them. Inadequate personnel will limit
growth of the company, and will be seen as a detriment to the prospects of the
company and result in loss of investor interest in the company.
24
If Origin and the Origin Operating Companies do not comply with applicable
government regulations, they may be prohibited from continuing some or all of
their operations resulting in a reduction of growth and ultimately market share
due to loss of competitive position.
The revenue of Origin depends on receiving approval from the PRC
government to market new seed hybrids that the Origin Operating Companies will
develop. In addition, there may be circumstances under which the approvals
granted are subject to change without substantial advance notice, and it is
possible that the Origin Operating Companies could fail to obtain the approvals
that they require to expand their business as they intend to do. The failure to
obtain or to maintain such approvals would limit the number and quality of
products that the Origin Operating Companies would be able to offer. This
reduction in product offerings would cause a reduction in the growth previously
experienced and over time would result in loss of market share from the
competitive pressures of seeds developed by others that would likely be better
than the Origin products.
The single business line of crop seed development and production does not permit
Origin to spread its business risks among different business segments, such that
a disruption in its seed production or the industry would hurt the company more
immediately and directly.
After the stock purchase there will be one industry in which Origin
will be operating. Without business line diversity, Origin will not be able to
spread the risk of its operations. Therefore, its business opportunities,
revenues and income could be more immediately and directly affected by
disruptions in production of seed from such things as drought and disease or
widespread problems affecting the industry such as the absence of farmer credit
and payment disruptions and rejection of modified crop seeds. If there is a
disruption as described above, the revenues and income of the Origin will be
reduced and the business operations may have to be scaled back.
Natural disaster could damage seed production, in which event Origin will suffer
a loss of production and will suffer the consequential losses of revenues,
market disruption and reputation, and there is no agriculture insurance in the
PRC to cover loss of seed crops.
The Origin Operating Companies produce their seeds using a network of
approximately 60,000 farmers, which plant the crops and harvest the seeds for
use as crop seeds for the next growing season. As a result, the source of supply
for Origin's seeds is subject to all of the risks associated with any
agricultural enterprise, including widespread drought, pestilence or other
natural disasters. While the use of such a large number of farmers provides some
protection against a widespread failure of any particular crop, the majority of
the seed production farmers are located in a just two provinces, making them
subject to risks that are somewhat local in nature. Origin has attempted to
manage this risk by obligating itself to pay the farmers who produce its seeds
only for the quantity of seeds that they produce. However, a significant portion
of Origin's expenses are in the nature of fixed overhead, and in the event of a
widespread failure of the seed crop, Origin would likely sustain substantial
operating losses. Although insurance to protect against such a risk is available
in many jurisdictions, such insurance is not available in the PRC.
25
The Origin Operating Companies rely on its network of 60,000 farmers for
production of its seeds, and although its relationship with those farmers has
been stable in the past, there are no assurances that those relationships will
remain stable in the future, the result of which could limit the amount of seed
products available to the Origin Operating Companies for sale to customers and
customer loyalty.
The Origin Operating Companies believe they maintain a favorable
relationship with the farmers in the seed production network by paying them a
higher price for their crop seeds than they would receive by producing crops for
sale in the market. In addition, the large number of farmers on which the Origin
Operating Companies rely to produce crop seeds means that no one or even several
of them can, acting independently, adversely and materially affect the business
of Origin. However, events such as a shift in pricing caused by an increase in
the value of food crops rather than seed crops, increase in land prices or
competition could disrupt the chain of supply. Any of these disruptions could
limit the supply of seeds that the Origin Operating Companies obtain, adversely
affecting supply and thereby lowering revenues from the lack of product to sell.
Such disruption could also damage distributor relationships and farmer loyalty
to the brand if the Origin Operating Companies cannot supply the quantity of
seed expected from them.
The corn seed prices and sales volumes may decrease in any given year with a
corresponding reduction in sales, margins and profitability.
During most of the brief existence of the Origin Operating Companies,
the corn seed market has been stable in the PRC, but in the past, it was marked
by periods of instability. In the future there may be periods of instability
during which commodities prices and sales volume might fluctuate greatly.
Commodities can be affected by general economic conditions, weather, disease and
aspects of demand such as financing, competition and trade restrictions.
Although Origin has followed a branded product strategy to differentiate its
products from those of other crop seed producers, the crop seed market continues
to behave as a commodity market. As a result, the price that Origin is able to
demand for its seeds is somewhat dependent on the size of the supply of its
seeds and the seeds of other producers. Therefore, the potential exists for
fluctuation in supply, and consequently in price, in Origin's own markets, even
in the absence of significant external events that might cause volatility. As a
result, the level of revenues that Origin receives in any given year is subject
to change. Because decisions are made regarding the level of production prior to
the time that the volume of orders and the market price for those orders is
known, it is possible that Origin will have too much or not enough product
available, each with the attendant impact on revenues, margins and
profitability.
Origin's revenues depend on the ability of a large number of small farmers
buying the seed for cash because financing for purchases of this size and type
is not available; therefore, if a substantial number of Origin's customers
become unable to pay for seed, Origin's sales, revenues and profitability will
decline.
Origin has a large and diversified customer base, with no single
customer representing even 1% of its revenues. The large customer base provides
some protection against the loss of revenues due to the inability of a
significant number of Origin's customers paying for the seed that has been
previously ordered. The unavailability of credit for farmers in China further
reduces the ability of those farmers to withstand the effects of difficult
economic times. The lack of credit could prevent them from fulfilling their
purchasing commitments with the result that Origin's revenues and profitability
would be reduced.
26
Competition, both domestic and foreign, may slow or reverse Origin's recent
rapid growth, which could result in a decrease in margins and cause an operating
loss.
Competition may develop from consolidation within the Chinese seed
industry and privatization of seed producers that are extensions of the county
governments. A number of companies are developing using more efficient business
models. Competition may develop from foreign seed producers who have
high-quality products. As competition develops, Origin will expect its recent
rapid growth to slow and will probably experience a reduction in margins. As
marketing expenses increases, it may experience operating losses.
Technological change in creating seed hybrids could adversely affect Origin's
business, causing a loss in business opportunities, market share and revenues.
Origin currently relies upon traditional methods of creating crop seed
hybrids to develop its new products. While these methods are highly effective,
there has been an increase in the development of genetically modified
agricultural products to increase the quality and quantity of crop yields. This
new genetic technology is controversial, and it has not been widely accepted in
many regions of the world, including China. However, as the ability to use
genetic modification to produce seeds that are superior to or less costly than
those that Origin produces by traditional methods increases, the threat of
competition from this source becomes more realistic. A number of factors that
are difficult to predict, such as a shift among farmer and consumer attitudes
making these kinds of products fore or less acceptable, affect the extent to
which this potential threat could affect Origin's business prospects.
Origin is taking steps to respond to the competition risk presented by
genetically modified agricultural products. It has commenced its own research
and development efforts for genetically modified seeds, and it has entered into
agreements with other research institutions in China working on genetic
modifications that give Origin the right to market the seeds they develop.
However, there can be no assurance that these efforts will be successful in
producing improved seed varieties that are able to compete with those produced
by other genetically-modified seed producers or that ultimately genetically
modified seeds will be accepted by the Chinese farmer or Chinese consuming
public.
If the PRC does not leave in place or continue to expand its economic reforms,
the result may be to interfere with the growth of private businesses in the PRC
such as Origin and the source of much needed capital from elsewhere will become
limited.
Since the late 1970's, the PRC has been reforming its economic system
and changing from a planned economy based on governmental dictates and
priorities. It has implemented measures to emphasize the use of market forces
and reduce state ownership and control of business and business planning. It is
impossible to predict whether or not the government will continue to encourage
economic liberalization and further release its control over the economy and
encourage private enterprise. We also cannot predict the timing or extent of
future economic reforms that may be proposed. Any return to the PRC's policies
in effect previously could reduce the freedom of private businesses to operate
in a profitable manner, reduce the incentives of those businesses to be
profitable or both
The economy of China has been experiencing unprecedented growth and resulted in
some inflation which if the government tries to control by traditional means of
monetary policy or returns to planned economic techniques, Origin's business
will suffer a reduction in sales growth and expansion opportunities.
The rapid growth of the Chinese economy has resulted in higher levels
of inflation. If the government tries to control inflation, it may have an
adverse effect on the business climate and growth of private enterprise in the
PRC. An economic slow down will have an adverse effect on Origin's sales and may
increase costs. If inflation is allowed to proceed unchecked, Origin's costs
would likely increase, and there can be no assurance that it would be able to
increase its prices to an extent that would offset the increase in its expenses.
27
A return to profit repatriation controls may limit the ability to pay dividends,
expand business and reduce the attractiveness of investing in Chinese business
opportunities.
PRC law allows enterprises owned by foreign investors to remit their
profits, dividends and bonuses earned in the PRC to other countries, and the
remittance does not require prior approval by the State Administration of
Foreign Exchange (SAFE). SAFE regulations required extensive documentation and
reporting, some of which was burdensome and slowed payments. If there is a
return to payment restrictions and reporting, the ability of a Chinese company
to attract investors will be reduced. Also, current investors may not be able to
obtain the profits of the business in which they own for other reasons. Relevant
PRC law and regulation permit payment of dividends only from retained earnings,
if any, determined in accordance with PRC accounting standards and regulations.
It is possible that the PRC tax authorities may require changes in income of the
company that would limit the ability of it to pay dividends and other
distributions. PRC law requires companies to set aside a portion of net income
to fund certain reserves which amounts are to distributable as dividends. These
rules and possible changes could restrict a company in the PRC from repatriating
funds to State Harvest and ultimately Agritech and the shareholders as
dividends.
Any devaluation of the currency of the PRC could negatively impact Origin's
results of operations as reported in United States dollars.
Upon consummation of the acquisition of Origin, the operations of the
company will be located exclusively in the PRC. If the exchange rate of the
Renminbi is effected by lowering its value as against the US dollar, Origin's
reported profitability when stated in US dollars will decrease. Origin does not
engage in any currency hedging transactions because its business in conducted in
the PRC and it has few obligations denominated in foreign currencies.
There government regulations that limit or prohibit foreign investment in the
PRC, which may restrict the growth of Origin.
Although there is a general restriction on foreign investment in the
seed industry in the PRC, the corporate structure of Origin enables it to
receive foreign investment. The continued ability to receive foreign investment
may be important to its ability to continue to rapidly expand its business and
to manage that expansion effectively. There is no way to be certain that a
change in the regulations allowing Origin to receive foreign investment will not
occur which could disrupt its plan to expand its business.
If certain exemptions within the PRC regarding withholding taxes are removed, we
may be required to deduct Chinese corporate withholding taxes from any dividends
that are paid by the Chinese companies to its parent company which will reduce
the return on investment.
Under current PRC tax laws, regulations and rulings, companies are
exempt from paying withholding taxes with respect to dividends paid to
stockholders outside the PRC. If the foregoing exemption is eliminated, Origin
may be required to withhold such taxes which will reduce the revenues of the
parent company and the amount of retained earnings that may be distributed to
the stockholders.
28
Because some of the Agritech directors and officers will reside outside of the
United States and substantially all of the assets will be located outside of the
United States, it may be difficult for investors to enforce their legal rights
against such individuals and the company.
Some of our directors and officers after the consummation of the stock
purchase will reside outside of the United States and substantially all of our
assets will be located outside of the United States. As a result, it may not be
possible for investors in the United States to enforce their legal rights, to
effect service of process upon our directors or officers or to enforce judgments
of United States courts predicated upon civil liabilities and criminal penalties
of our directors and officers under the United States securities laws, the laws
of the British Virgin Islands and the Agritech Memorandum and Articles of
Association. Moreover, Chardan has been advised that the PRC does not have
treaties providing for the reciprocal recognition and enforcement of judgments
of courts with the United States and it is uncertain whether or not there would
be effective enforcement in the PRC of criminal penalties imposed under United
States securities laws.
There will be a substantial number of shares of common stock available for sale
in the future which may be increased volumes of common stock available and a
decline in the market price of the common stock.
The initial purchase price for the acquisition of Origin and its
subsidiaries includes 10,000,000 shares of common stock. These shares are not
being registered and a substantial portion of them will be held by insiders;
therefore they will be restricted. Commencing one year after the consummation of
the acquisition, these shares will become eligible for resale in the public
market under Rule 144 with limitations, and after two years some of these shares
may become eligible for resale in the public market under Rule 144(k). As a
result, the number of shares available for sale will likely increase which tends
to adversely impact the market price of a stock.
As a result of the reincorporation in the British Virgin Islands, the governing
documents of the company will provide its stockholders with rights that differ
from those afforded by Delaware law which may be more protective in some
instances and less protective in others.
Chardan will merge with its wholly owned subsidiary in the British
Virgin Islands, and the constituent documents of the BVI company will be in
compliance with the laws of that jurisdiction. The rights of stockholders and
requirements of directors of a BVI company differ in a number of respects from
those of a Delaware company. These differences may result in differing outcomes
in the event of takeovers, stockholder suits and governance procedures from
those that the stockholders are familiar with when investing in United States
companies. In addition, there is not a substantive body of law interpreting the
corporate law of the BVI, so there is no basis for analyzing likely outcomes of
such matters in advance. Finally, if there are controversies, these will have to
be determined in accordance with BVI law and may have to be determined and
enforced in jurisdictions other than the United States resulting in less
predictability and additional costs.
As a result of the redomestication merger, the Chardan stockholders have
appraisal rights, the exercise of which would reduce the amount of cash assets
available to the surviving corporation.
The Chardan stockholders have appraisal rights under Delaware law in
connection with the redomestication merger. If exercised, these persons are
entitled to a cash payment for the fair value of their shares at the time of the
redomestication merger, without increase or decrease for the anticipated value
of the merger or subsequent acquisition. Any payment will reduce the cash assets
of the surviving company which may limit its ability to implement its business
plan.
29
The combined company's working capital could be reduced, and Chardan
stockholders could own as little as 28.65% of the combined company's common
stock, if Chardan stockholders exercise their right to convert their shares into
cash.
Pursuant to Chardan's certificate of incorporation, holders of shares
issued in Chardan's initial public offering may vote against the stock purchase
and demand that Chardan convert their shares into a pro rata share of the trust
account, as of the record date, where a substantial portion of the net proceeds
of the initial public offering are held, including all interest earned thereon.
Chardan and the Origin Parties will not consummate the stock purchase if holders
of 805,000 or more shares of common stock issued in Chardan's initial public
offering, exercise these conversion rights. To the extent the stock purchase is
consummated and holders have demanded to so convert their shares, there will be
a corresponding reduction in the amount of funds available to the combined
company following the stock purchase. As of _____________, 2005, the record
date, assuming the stock purchase proposal is adopted, the maximum amount of
funds that could be disbursed to Chardan's stockholders upon the exercise of
their conversion rights is approximately $____________, or approximately 20% of
the funds then held in the trust account.
The outstanding warrants may be exercised and as a result the underlying shares
would become eligible for future resale in the public market which would result
in dilution and might have an adverse effect on the market price of the common
stock.
Outstanding warrants and unit purchase options to purchase an aggregate
of 9,100,000 shares of common stock issued in connection with the Chardan
initial public offering will become exercisable after the consummation of the
stock purchase. If they are exercised, then a substantial number of additional
shares of Chardan common stock will be eligible for resale in the public market.
Sales of substantial numbers of such shares in the public market could adversely
affect the market price of such shares.
If certain financial or financing objectives are achieved, the Origin
Stockholders will be entitled to receive additional stock of Agritech as
contingent consideration for the acquisition of their Origin stock which would
result in dilution and might have an adverse effect on the market price of the
common stock.
Under the stock purchase agreement, the Origin Stockholders are
entitled to receive additional common stock if certain financial or financing
targets are achieved. There is no obligation to register the stock after
issuance. However, after being held for the appropriate periods, the common
stock will be eligible for resale under Rule 144. If the additional stock is
earned, it will significantly increase the number of shares of common stock
outstanding. The issuance of this additional stock will have a dilutive effect
on the stock already outstanding and may cause a reduction in the trading price
of the common stock in the public market.
If Origin meets targeted financing and earnings objectives, the Origin
Stockholders will be entitled to additional cash payments which will reduce the
amount of working capital available for use in the business which may hinder
expansion or cause the company to borrow to cover expenses.
In the future, if Origin raises additional capital and/or has net
profits, the Origin Stockholders will be entitled to an additional $15,000,000
of cash consideration as contingent purchase price for their share in Origin. To
the extent that Origin must pay these amounts from its future additional capital
and future profits, then it will have less funds available for use in the
business. The reduced working capital may limit or hinder expansion or to cover
expenses cause the company to borrow more funds at a time when borrowings may
not be advantageous and at costs that are in excess of what might otherwise be
acceptable.
30
If Chardan is unable to receive a listing of its securities on the Nasdaq
National Market, then it may be more difficult for its stockholders to sell
their securities.
The units, common stock and warrants are currently traded in the
over-the-counter market and quoted on the Over-the-Counter Bulletin Board.
Agritech has applied for listing on the Nasdaq National Market, and received
indication that the listing will be confirmed upon consummation of the business
combination. If Agritech is unable to obtain a listing or approval of trading of
its securities on Nasdaq National Market, then it may be more difficult for its
stockholders to sell their securities.
Chardan directors and executive officers have interests in the stock purchase
that are different from yours because if the stock purchase is not approved then
the securities held by them may become worthless.
In considering the recommendation of the board of directors of Chardan
to vote for the proposal to adopt the stock purchase agreement and other
proposals you should be aware that certain members of the Chardan board are
parties to agreements or arrangements that provide them with interests that
differ from, or are in addition to, those of Chardan stockholders generally.
Chardan's executives and directors are not entitled to receive any of the net
proceeds of Chardan's initial public offering that may be distributed upon
liquidation of Chardan. Therefore, if the stock purchase is not approved and
Chardan fails to consummate an alternative transaction within the time allotted
pursuant to its certificate of incorporation, the securities held by Chardan's
officers and directors may be worthless.
Voting control by executive officers, directors and other affiliates of the
combined company may limit your ability to influence the outcome of director
elections and other matters requiring stockholder approval.
Upon consummation of the stock purchase, executive officers, directors
and affiliates of the combined company will own a majority of the combined
company's voting stock. These stockholders can control substantially all matters
requiring approval by our stockholders, including the election of directors and
the approval of other business transactions. This concentration of ownership
could have the effect of delaying or preventing a change in our control or
discouraging a potential acquirer from attempting to obtain control of us, which
in turn could have a material adverse effect on the market price of the common
stock or prevent our stockholders from realizing a premium over the market price
for their shares of common stock.
FORWARD-LOOKING STATEMENTS
We believe that some of the information in this proxy
statement/prospectus constitutes forward-looking statements within the
definition of the Private Securities Litigation Reform Act of 1995. However, the
safe-harbor provisions of that act do not apply to statements made in this proxy
statement/prospectus. You can identify these statements by forward-looking words
such as "may," "expect," "anticipate," "contemplate," "believe," "estimate,"
"intends," and "continue" or similar words. You should read statements that
contain these words carefully because they:
o discuss future expectations;
o contain projections of future results of operations or financial
condition; or
o state other "forward-looking" information.
31
We believe it is important to communicate our expectations to the
Chardan stockholders. However, there may be events in the future that we are not
able to predict accurately or over which we have no control. The risk factors
and cautionary language discussed in this proxy statement/prospectus provide
examples of risks, uncertainties and events that may cause actual results to
differ materially from the expectations described by Chardan or the Origin
Parties in its forward-looking statements, including among other things:
o the number and percentage of Chardan stockholders voting against the
stock purchase proposal;
o changing interpretations of generally accepted accounting
principles;
o outcomes of government reviews, inquiries, investigations and
related litigation;
o continued compliance with government regulations;
o legislation or regulatory environments, requirements or changes
adversely affecting the businesses in which Origin and the Origin
Operating Companies are engaged;
o fluctuations in customer demand;
o management of rapid growth;
o intensity of competition from other providers of crop seeds; o
timing of approval and market acceptance of new products;
o general economic conditions; and o geopolitical events and
regulatory changes.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement/prospectus.
All forward-looking statements included herein attributable to any of
Chardan, the Origin Parties or any person acting on either party's behalf are
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section. Except to the extent required by applicable laws
and regulations, Chardan and the Origin Parties undertake no obligations to
update these forward-looking statements to reflect events or circumstances after
the date of this proxy statement/prospectus or to reflect the occurrence of
unanticipated events.
Before you grant your proxy or instruct how your vote should be cast or
vote on the adoption of the stock purchase agreement you should be aware that
the occurrence of the events described in the "Risk Factors" section and
elsewhere in this proxy statement/prospectus could have a material adverse
effect on Chardan, Origin the Origin Operating Companies or the combined
company.
32
THE CHARDAN SPECIAL MEETING
Chardan Special Meeting
We are furnishing this proxy statement/prospectus to you as part of the
solicitation of proxies by the Chardan board of directors for use at the special
meeting in connection with the proposed stock purchase, redomestication merger
and stock option plan. This document provides you with the information you need
to know to be able to vote or instruct your vote to be cast at the special
meeting.
Date, Time and Place
We will hold the special meeting at 10:00 a.m., PST, on ___________ at
625 Broadway, Suite 1111, San Diego, California 92101, to vote on the proposals
to approve the stock purchase agreement, the redomestication merger and stock
option plan.
Purpose of the Special Meeting
At the special meeting, we are asking holders of Chardan common stock
to: o approve the stock purchase proposal; o approve the redomestication merger
proposal; and o approve the stock option proposal.
The Chardan board of directors:
o has unanimously determined that the stock purchase proposal, the
redomestication merger proposal and the stock option proposal are
fair to and in the best interests of Chardan and its stockholders;
o has unanimously approved the stock purchase proposal, the
redomestication merger proposal and the stock option proposal;
o unanimously recommends that Chardan common stockholders vote "FOR"
the proposal to adopt the stock purchase agreement,
o unanimously recommends that Chardan common stockholders vote "FOR"
the proposal to redomesticate in the British Virgin Islands; and
o unanimously recommends that Chardan common stockholders vote "FOR"
the proposal to adopt the stock option plan.
Record Date; Who is Entitled to Vote
The "record date" for the special meeting is __________, 2005. Record
holders of Chardan common stock at the close of business on the record date are
entitled to vote or have their votes cast at the special meeting. On the record
date, there were 4,900,000 outstanding shares of Chardan common stock.
Each share of Chardan common stock is entitled to one vote per share at
the special meeting.
33
Pursuant to agreements with Chardan, any shares of Chardan common stock
held by stockholders who purchased their shares of common stock prior to the
initial public offering will be voted in accordance with the majority of the
votes cast at the special meeting on the stock purchase and redomestication
merger proposals.
Chardan's issued and outstanding warrants do not have any voting
rights, and record holders of Chardan warrants will not be entitled to vote at
the special meeting.
Voting Your Shares
Each share of Chardan common stock that you own in your name entitles
you to one vote. Your proxy card shows the number of shares of Chardan common
stock that you own.
There are three ways to vote your shares of Chardan common stock at the
special meeting:
o You can vote by signing and returning the enclosed proxy card. If
you vote by proxy card, your "proxy," whose name is listed on the
proxy card, will vote your shares as you instruct on the proxy card.
If you sign and return the proxy card but do not give instructions
on how to vote your shares, your shares will be voted as recommended
by the Chardan board "FOR" the adoption of the stock purchase
proposal, the redomestication merger proposal, and the stock option
plan proposal.
o You can vote by telephone or on the internet by following the
telephone or Internet voting instructions that are included with
your proxy card. If you vote by telephone or by the Internet, you
should not return the proxy card.
o You can attend the special meeting and vote in person. We will give
you a ballot when you arrive. However, if your shares are held in
the name of your broker, bank or another nominee, you must get a
proxy from the broker, bank or other nominee. That is the only way
we can be sure that the broker, bank or nominee has not already
voted your shares.
IF YOU DO NOT VOTE YOUR SHARES OF CHARDAN COMMON STOCK IN ANY OF THE
WAYS DESCRIBED ABOVE, IT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
ADOPTION OF THE STOCK PURCHASE PROPOSAL AND THE REDOMESTICATION MERGER PROPOSAL,
BUT WILL NOT HAVE THE EFFECT OF A DEMAND OF CONVERSION OF YOUR SHARES INTO A PRO
RATA SHARE OF THE TRUST ACCOUNT IN WHICH A SUBSTANTIAL PORTION OF THE PROCEEDS
OF CHARDAN'S INITIAL PUBLIC OFFERING ARE HELD OR A DEMAND FOR APPRAISAL RIGHTS
UNDER DELAWARE LAW.
Who Can Answer Your Questions About Voting Your Shares
If you have any questions about how to vote or direct a vote in respect
of your Chardan common stock, you may call Dr. Richard D. Propper, Chardan's
chairman, (619) 795-4627.
No Additional Matters May Be Presented at the Special Meeting
This special meeting has been called only to consider the adoption of
the stock purchase proposal, the redomestication merger proposal and the stock
option proposal. Under Chardan's by-laws, other than procedural matters incident
to the conduct of the meeting, no other matters may be considered at the special
meeting, if they are not included in the notice of the meeting.
34
Revoking Your Proxy
If you give a proxy, you may revoke it at any time before it is
exercised by doing any one of the following:
o You may send another proxy card with a later date;
o You may notify Dr. Propper, Chardan's chairman, in writing before
the special meeting that you have revoked your proxy; and
o You may attend the special meeting, revoke your proxy, and vote in
person, as indicated above.
Vote Required
The presence, in person or by proxy, of a majority of all the
outstanding shares of common stock constitutes a quorum at the special meeting.
Proxies that are marked "abstain" and proxies relating to "street name" shares
that are returned to Chardan but marked by brokers as "not voted" will be
treated as shares present for purposes of determining the presence of a quorum
on all matters. The latter will not be treated as shares entitled to vote on the
matter as to which authority to vote is withheld by the broker ("broker
non-votes"). If you do not give the broker voting instructions, under the rules
of the NASD, your broker may not vote your shares on the proposals to approve
the stock purchase, the redomestication merger or the stock option plan.
The approval of the stock purchase and redomestication merger proposals
will require the affirmative vote of the holders of a majority of the Chardan
common stock outstanding on the record date. Because each of these proposals
require the affirmative vote of a majority of the shares of common stock
outstanding and entitled to vote, abstentions and shares not entitled to vote
because of a broker non-vote will have the same effect as a vote against the
proposal.
For consummation of the stock purchase agreement, the redomestication
merger proposal must be approved by the stockholders. For the redomestication
merger to be implemented, the stock purchase proposal must be approved by the
stockholders.
The approval of the stock option plan will require the affirmative vote
of a majority of the Chardan common stock present and entitled to vote at the
meeting. Abstentions are deemed entitled to vote on the proposal, therefore,
they have the same effect as a vote against the proposal, and broker non-votes
are not deemed entitled to vote on the proposal, therefore, they will have no
effect on the vote on the proposal.
Conversion Rights
Any stockholder of Chardan holding shares of common stock issued in
Chardan's initial public offering who votes against the stock purchase proposal
may, at the same time, demand that Chardan convert his shares into a pro rata
portion of the trust account as of the record date. If demand is made and the
stock purchase is consummated, Chardan will convert these shares into a pro rata
portion of funds held in a trust account plus interest, as of the record date.
The closing price of Chardan's common stock on ____________, 2005 (the
record date) was $______ and the per-share, pro-rata cash held in the trust
account on that date was approximately $___________. Prior to exercising
conversion rights, Chardan stockholders should verify the market price of
Chardan's common stock as they may receive higher proceeds from the sale of
their common stock in the public market than from exercising their conversion
rights if the market price per share is higher than the conversion price.
35
If the holders of 805,000 or more shares of common stock issued in
Chardan's initial public offering (an amount equal to 20% or more of these
shares), vote against the stock purchase and demand conversion of their shares,
Chardan will not be able to consummate the stock purchase.
If you exercise your conversion rights, then you will be exchanging
your shares of Chardan common stock for cash and will no longer own these
shares. You will be entitled to receive cash for these shares only if you
continue to hold these shares through the effective time of the stock purchase
and then tender your stock certificate to the combined company.
Appraisal Rights
Under Delaware corporate law, the redomestication merger of Chardan
with Agritech causes the stockholders of Chardan to have appraisal rights in
connection with the transactions for which approval is sought. This right is
separate from the conversion rights of the holders of shares of Chardan common
stock issued in the initial public offering. However, because the exercise of
the appraisal right and the conversion rights both require a tender of the
holder's shares to Chardan, only one right may be elected in respect of the
shares. See pages 63 to 65 and Annex I for more information about appraisal
rights.
Solicitation Costs
Chardan is soliciting proxies on behalf of the Chardan board of
directors. This solicitation is being made by mail but also may be made by
telephone or in person. Chardan and its respective directors, officers and
employees may also solicit proxies in person, by telephone or by other
electronic means. In addition, the preferred member representatives and officers
of the Origin Parties are soliciting proxies and may solicit proxies in person,
by telephone or by other electronic means. These persons will not be paid for
doing this.
Chardan has not hired a firm to assist in the proxy solicitation
process but may do so if it deems this assistance necessary. Chardan will pay
all fees and expenses related to the retention of any proxy solicitation firm.
Chardan will ask banks, brokers and other institutions, nominees and
fiduciaries to forward its proxy materials to their principals and to obtain
their authority to execute proxies and voting instructions. Chardan will
reimburse them for their reasonable expenses.
Stock Ownership
At the close of business on the record date, Dr. Richard D. Propper,
Kerry S. Propper, Jiangnan Huang, Li Zhang, Daniel P. Beharry, Steven Urbach,
Anthony Errico and the Estate of Michael Urbach beneficially owned and were
entitled to vote approximately 875,000 shares of Chardan common stock, or
approximately 17.9% of the then outstanding shares of Chardan common stock,
which includes all of the shares held by the directors and executive officers of
Chardan and their affiliates. Those persons, who were stockholders of Chardan
prior to its initial public offering of securities, have agreed to vote their
shares on the stock purchase and redomestication merger proposals in accordance
with the majority of the votes cast by the holders of shares issued in Chardan's
initial public offering.
Dr. Richard D. Propper is currently chairman of the board of directors
of Chardan, Mr. Huang is chief executive officer, Mr. Kerry S. Propper is
executive vice president, and Mr. Zhang is chief financial officer. On the
record date, directors and executive officers of Chardan and their affiliates
beneficially owned and were entitled to vote 689,501 shares of Chardan's common
stock. These shares represent approximately 14.1% of Chardan's outstanding
common stock.
36
Fairness Opinion
Chardan did not obtain a fairness opinion in respect of the acquisition
of Origin or the redomestication merger.
CONSIDERATION OF THE STOCK PURCHASE TRANSACTION
The following discussion of the principal terms of the stock purchase
agreement dated as of December 20, 2004 among Chardan, Dr. Richard D. Propper,
Kerry S. Propper, MD, Jiangnan Huang, Zhang Li, Daniel P. Beharry, Steven Urbach
and the Origin Parties is subject to, and is qualified in its entirety by
reference to, the stock purchase agreement. A copy of the stock purchase
agreement is attached as an annex to this proxy statement/prospectus and is
incorporated in this proxy statement/prospectus by reference.
General Description of the Stock Purchase
Pursuant to the stock purchase agreement, on March 11, 2005, Chardan
established a wholly owned subsidiary, Origin Agritech Limited, under the laws
of the British Virgin Islands, and Chardan will merge with and into Agritech.
Agritech will be the surviving entity, and the separate corporate existence of
Chardan will cease at the effective time of the merger. Simultaneously with the
merger, Agritech will purchase the issued and outstanding stock of Origin, which
in turn will own, or will have acquired the rights to control, the outstanding
stock of the Origin Operating Companies. We refer to Agritech, after giving
effect to completion of the stock purchase, as Agritech or the combined company.
As a result of the stock purchase, the former owners of Origin and the Origin
Operating Companies will own approximately 66.2% of the outstanding shares of
the combined company's common stock, assuming no redemptions or exercise of
appraisal rights.
Background of the Stock Purchase
The terms of the stock purchase agreement are the result of
arm's-length negotiations between representatives of Chardan and the Origin
Parties. The following is a brief discussion of the background of these
negotiations, the stock purchase and related transactions.
Chardan was formed on December 5, 2003 to serve as a vehicle to
accomplish a business combination with an unidentified operating business in the
PRC with significant growth potential. Chardan completed an initial public
offering in March 2004, in which it raised net proceeds of approximately
$21,242,000. Of these net proceeds, $20,527,500 were placed in a trust account
immediately following the initial public offering and, in accordance with
Chardan's certificate of incorporation, will be released either upon the
consummation of a business combination or upon the liquidation of Chardan.
Chardan must liquidate unless it has consummated a business combination by
September 22, 2005. If a letter of intent, agreement in principle or a
definitive agreement to complete a business combination was executed but the
transaction was not consummated prior to September 22, 2005, then it is not
required to liquidate unless the business combination contemplated by such
letter of intent, agreement in principle or definitive agreement is not
consummated by March 22, 2006.
37
At the end of March 2004, Chardan commenced its efforts to locate a
company with which to effect a business combination. To assist Chardan in
locating and evaluating companies in the PRC, on March 29, 2004, Chardan engaged
Best of the Best, a business acquisition consulting firm, to identify potential
acquisition candidates, prepare background investigations, industry analysis and
due diligence reports. Best of the Best was contacted immediately after the
consummation of the initial public offering by Huang Jiangnan, an officer and
director of Chardan who has known the principals of Best of the Best for many
years. This initial contact was made after the effective date of the initial
public offering, and discussions about their engagement commenced shortly
thereafter. Under the terms of the agreement, Best of the Best will be paid a
total of $250,000, payable in four installments: $87,500 at the commencement of
their engagement, $37,500 on the announcement of Chardan's intention to pursue a
particular business combination, $87,500 when Chardan's stockholders approve a
business combination, and $37,500 when a business combination is approved. In
addition, upon consummation of the business combination, Chardan will issue
200,000 shares of restricted common stock to Best of the Best. The services that
Best of the Best provided included the following: assisting Chardan in
identifying acquisition opportunities, assisting in preparing and executing
required confidentiality, market stand-off and similar agreements; compiling
preliminary information about merger candidates; performing financial due
diligence and analysis; recommending acquisition structures; assessing the
information about the potential target that is available; and working with
accountants and legal staff to prepare for a business combination, including
agreement negotiation.
Best of the Best commenced identifying and screening acquisition
candidates in April 2004. Best of the Best used its knowledge of Chinese
companies and its network of contacts, screening potential companies based on
Chardan's criteria. Chardan also sought to identify acquisition candidates,
principally through the efforts of Huang Jiangnan and Li Zhang, officers and
directors of Chardan. Both of these persons have extensive contacts through the
Chinese business and legal community in the PRC.
Best of the Best and Chardan selected ten companies as potential
candidates for a business combination, Chardan requested preliminary reports
from Best of the Best for its evaluation of the potential targets. On the basis
of that review and information, in May 2004, Chardan selected one candidate with
which to pursue an agreement. Chardan was not able to agree to acceptable terms
with this first target company. Based on an analysis of the valuation of
comparable public companies, this first target's existing financial condition,
management expertise, volatile earnings quarter over quarter, and the fact that
the target's management dramatically reduced their forecast for 2004 after tax
income, Chardan determined that a business combination with that first target
was not in the best interests of Chardan's stockholders.
During the negotiations with the first target, Best of the Best
continued their due diligence on the other previously identified companies,
which included the Origin Operating Companies. After deciding not to pursue that
first potential transaction in late June 2004, Chardan entered into discussions
with Dr. Han, the principal of the Origin Operating Companies, regarding a
potential business combination.
The Origin Operating Companies had been among the companies with which
Chardan had held preliminary meetings in April, but had not pursued any
substantive business combination discussions. The first formal meeting to
discuss this transaction was held on June 24, 2004, in Beijing, China. Chardan
and an advisory firm for the Origin Parties, Chum Investment Corporation,
exchanged information about Chardan and the Origin Operating Companies and
suggested a general structure and terms of an acquisition by Chardan. Then on
June 26, 2004, representatives of Chardan, the Origin Stockholders and Chum met
at the offices of the Origin Operating Companies in Beijing to discuss
preliminary issues of due diligence, exchange of information, pricing and other
terms of an acquisition. During its discussions with the Origin Operating
Companies, Chardan continued to evaluate other potential candidates for a
business combination.
On August 23, 2004, Dr. Propper, Mr. Huang and Mr. Zhang from Chardan
and the Origin Stockholders, including representatives of Chum, met in Beijing
for further discussions about the respective businesses and terms of the
transaction. The parties were in general agreement about the acquisition terms,
but at this meeting they began to discus various specifics and raised related
topics to the acquisition and disclosure process.
38
After several days of negotiations and due diligence review in Beijing
from September 19 to September 21, 2004 by and among Dr. Propper, Mr. Kerry
Propper, Mr. Zhang Li and Mr. Jiangnan Huang of Chardan and Dr. Gengchen Han,
Mr. Yasheng Yang and Ms. Yu Ping Zhao of the Origin Operating Companies,
Chardan, for itself, and Dr. Han, in respect of the Origin Parties, signed a
memorandum of understanding on September 22, 2004. This memorandum set forth the
following:
o the reorganization of the Origin Operating Companies which was to
take into account the best tax arrangements for all parties;
o the consideration to be paid for the Origin Operating Companies,
which is reflected in the stock purchase agreement;
o the terms of the additional purchase price to be paid over time
based on performance criteria;
o the desire for a stock option plan; and
o the inclusion of certain Origin Stockholders on the board of
directors of the surviving corporation.
Promptly after the execution of the memorandum of understanding,
Chardan's United States counsel prepared a draft of the stock purchase agreement
and sent it to counsel for the Origin Parties. In addition, the Chinese counsel
of Chardan consulted with Chinese counsel for the Origin Parties and commenced
negotiation of the stock consignment agreements, the technology assignment
agreements and reorganization of the Chinese Operating Companies. Origin, under
the name State Harvest Holding Limited, was established in the British Virgin
Islands on November 24, 2004 by Chinese counsel for the Origin Parties.
During the period between October 20, 2004 and December 6, 2004,
counsel exchanged emails about various points in the agreements and continued to
modify them and exchanged drafts of documents. Counsel and the accountants for
all the parties conducted legal and financial due diligence and negotiated
points in the agreements. During this period, representatives of Chardan and the
Origin Parties also conducted further due diligence from a business point of
view and began preparation of this proxy statement/prospectus.
On October 30, 2004, representatives of Best of the Best met with the
board of directors of Chardan to give a report of their due diligence of the
Origin Operating Companies and analysis of the business in which the Origin
Operating Companies operate. At the meeting were all the board members of
Chardan and Mr. Wu Cheong, representing Best of the Best, who made the report.
The board of directors unanimously resolved to proceed with the acquisition
process and continue to work towards execution of a definitive stock purchase
agreement.
On November 22, 2004, Dr. Propper and Dr. Han and Messrs. Yang and Yuan
exchanged emails about the terms and forms of employment agreements. These
agreements were further negotiated and the terms subsequently finalized on
December 1, 2004.
On December 7, 2004, there was a meeting at the offices of Chardan's
United States counsel, Graubard Miller, in New York City, to negotiate the final
terms of stock purchase agreement. All the officers and directors of Chardan and
Chardan's United States counsel attended the meeting in person. Dr. Han and Mr.
Song Xuesong, executive director of Chum Investment Corporation, advisor to the
Origin Parties, and Mr. Cui Liguo, partner of Guantao Law Firm, counsel to the
Origin Parties, attended the meeting in person. Other members of Guantao Law
Firm attended the meeting by telephone conference.
39
On December 7, 2004, after the meeting with the Origin representatives,
the board of directors of Chardan met to review the transaction documents and
evaluate and approve the acquisition of Origin. The board of directors reviewed
the latest forms of stock purchase agreement, the stock consignment agreements,
the technology license agreements, the employment agreements and voting
agreement. The board of directors also reviewed the disclosure schedules to the
stock purchase agreement of the Origin Parties. After review of the due
diligence materials and the report of Best of the Best and discussion, the
foregoing were unanimously approved, subject to final negotiation and
modification, and the board determined to recommend the approval of the stock
purchase agreement, redomestication merger and related transactions and the
stock option plan to the stockholders.
From December 8, 2004 to December 10, 2004, Dr. Propper, Mr. Propper
and Dr. Han met with their respective counsel in meetings in New York City to
finalize the transaction documents, and the Origin Parties delivered the
preliminary financial statements required before the signing of the stock
purchase agreement.
The stock purchase agreement was signed on December 20, 2004. Chardan
filed a press release and Current Report on Form 8-K on December 27, 2004
announcing the execution of the agreement and discussing the terms of the stock
purchase. The Current Report was amended on January 21, 2005 to file the audited
financial statements of Origin for the years ended December 31, 2001, 2002 and
2003 and for the nine months ended September 30, 2004 and pro forma statements
of operations of Chardan showing the acquisition as if it occurred on January 1,
2003 and pro forma balance sheets as if it occurred September 30, 2004.
Board Consideration and Approval of Transaction
While no one factor determined the final agreed upon consideration in
the stock purchase, Chardan's board of directors reviewed various industry and
financial data, including certain valuation analyses and metrics compiled by
members of the board and by Best of Best in order to determine that the
consideration to be paid to the Origin Parties was reasonable and that the stock
purchase was in the best interests of Chardan's stockholders.
Best of the Best conducted a due diligence review of Origin and the
Origin Operating Companies that included an industry analysis, a description of
Origin's existing business model, a valuation analysis and financial projections
in order to enable the board of directors to ascertain the reasonableness of
this range of consideration. Throughout the negotiation process, Best of the
Best continued to assemble and review relevant due diligence materials and, on
October 22, 2004, delivered a presentation to the board of directors and a due
diligence package that included the information regarding Origin and the Origin
Operating Companies that Best of the Best had gathered and prepared. During its
negotiations with the Origin Parties, Chardan did not receive services from any
financial advisor other than Best of the Best.
Interest of Chardan Directors and Officers in the Stock Purchase
In considering the recommendation of the board of directors of Chardan
to vote for the proposals to approve the stock purchase agreement, the
redomestication merger and the stock option plan, you should be aware that
certain members of the Chardan board have agreements or arrangements that
provide them with interests in the stock purchase that differ from, or are in
addition to, those of Chardan stockholders generally. In particular:
40
o if the stock purchase is not approved and Chardan fails to
consummate an alternative transaction within the time allotted
pursuant to its amended and restated certificate of incorporation,
Chardan would be required to liquidate. In such event, the shares of
common stock held by Chardan's directors and officers would be
worthless because Chardan's directors and officers are not entitled
to receive any of the liquidation proceeds and any warranty they
hold will expire worthless.
o Chardan's executives and directors own a total 689,501 shares of
Chardan common stock that have a market value of $________ based on
Chardan's share price of $________ as of _______ 2005, the record
date. However, as Chardan's directors and executives are
contractually prohibited from selling their shares prior to March
16, 2007 (during which time the value of the shares may increase or
decrease), it is impossible to determine what the financial impact
of the stock purchase will be on Chardan's directors and executives;
o the transactions contemplated by the stock purchase agreement
provide that Mr. Kerry Propper will be a director of Agritech and he
will have the right to appoint one additional director of the nine
members of the board of directors of the combined company for three
years (which person is currently Steven Urbach);
o after completion of the stock purchase, Dr. Propper will continue to
serve in the capacity of Vice President, Corporate Development
(without personal compensation), and Chardan Capital LLC, an
affiliate of Dr. Propper, Mr. Beharry, Mr. Zhang and Mr. Huang, will
provide a variety of ongoing services to Origin over the next two
years at a cost to Origin of $30,000 per month, which services will
be on a non-exclusive basis and include advice and help in meeting
US public reporting requirements and accounting standards,
Sarbanes-Oxley compliance, corporate structuring and development,
stockholder relations, corporate finance and operational
capitalization and such other similar services as suggested and
agreed to by Chardan Capital, LLC; and
o Chardan's directors and officers and certain initial stockholders
may be personally liable for a pro rata share of a termination fee
of $1 million that is payable to the Origin Stockholders if the
stock purchase agreement is terminated under certain limited
conditions.
Chardan's Reasons for the Stock Purchase and Recommendation of the
Chardan Board
The Chardan board of directors concluded that the stock purchase
agreement with the Origin Parties is in the best interests of Chardan's
stockholders. The Chardan board of directors did not obtain a fairness opinion.
Each member of Chardan's board of directors has extensive experience in
performing due diligence of acquisition targets and in valuing companies. Three
of the directors , Dr. Propper and Messrs. Li and Huang, are currently
principals in Chardan Capital LLC, a strategic financial and management
consulting company that focuses on identifying attractive Chinese companies and
in structuring transactions involving those companies. One director, Mr. Kerry
Propper, is the Chief Executive Officer of Chardan Capital Markets, a registered
NASD broker dealer.
The Chardan board of directors considered a wide variety of factors in
connection with its evaluation of the stock purchase. In light of the complexity
of those factors, the Chardan board of directors did not consider it practicable
to, nor did it attempt to, quantify or otherwise assign relative weights to the
specific factors it considered in reaching its decision. In addition, individual
members of the Chardan board may have given different weight to different
factors.
41
In considering the stock purchase, the Chardan board of directors gave
considerable weight to the following factors:
Origin's and the Origin Operating Companies' record of growth and
expansion and high potential for future growth
Important criteria to Chardan's board of directors in identifying an
acquisition target was that the company has established business operations,
that it was generating current revenues, and that it had what Chardan believes
to be a potential to experience rapid additional growth in the future. Chardan's
board of directors believes that Origin and the Origin Operating Companies have
in place the infrastructure for strong business operations, a large and growing
customer base, significant technological capabilities and brand name
recognition. Origin commenced business operations in late 1997, and it has
experienced an average annual revenue growth of greater than 30% from 2002
through 2004. The 2003 revenues were approximately $27 million, with then
estimated revenues for 2004 of approximately $36 million, and then projected
revenues for 2005 of greater than $55 million.
Although revenue projections are inherently uncertain, Chardan's board
of directors believed, and continues to believe, the projections for Origin's
business are much more reliable than most, based on its expected revenues.
Approximately 80% of Origin's orders for seeds to be delivered in the next
growing season are received in the prior year. These orders are accompanied by
deposits of 10% to 20% of the purchase price so there is a strong indication of
the actual purchase that will take place in the following year and, therefore,
projected revenues are able to be anticipated with relative certainty.
This record of significant and predictable growth helped to convince
Chardan's board of directors that a business combination with Origin would be in
the best interests of Chardan's stockholders.
Chardan's board of directors believes that Origin and the Origin
Operating Companies have the ability to continue growth because:
o the existing customers represent a recurring revenue stream;
o Origin budgets approximately 5% of current revenue to research and
development activities during the following year. However, because
of the revenue growth experienced by Origin, the amount actually
spent has been approximately 3% of Origin's total revenue. Through
this research and development, Origin has developed and Chardan's
board of directors believes it will continue to develop additional
hybrid seed offerings;
o Origin places an emphasis on its sales and marketing functions, with
over 1,000,000 customers in a database, the production and
circulation of a newspaper three times a year through their
distributor network that reaches between 1,000,000 and 2,000,000
readers per issue, television advertising, product demonstrations,
and the maintenance of a call center for receiving customer service
inquiries;
o the Chinese crop seed market remains fragmented and consists of
large numbers of companies that operate at the county and provincial
level; and
o few of the competing companies to Chardan's knowledge have a
research and development program that appears to be as effective as
Origin's, resulting in what the Chardan board believes will be a
continuation of superior seed and support offerings by Origin to
customers, thereby increasing its customer base and sales in the
future.
42
Based on its review of the Origin Operating Companies historical
financial statements and their business model and relationships, Chardan's board
of directors believes that Origin Operating Companies' products are sold at
attractive gross margins, and that they have controllable variable costs and
low, scalable fixed costs.
Origin represents an opportunity to invest in a growing, dynamic
industry
Another criterion important to Chardan's board of directors in
identifying an acquisition target was that the company be in an emerging or
expanding industry with potential for growth. China's enormous population
represents one of the largest market for crops in the world. Although the growth
rate of China's population has slowed, China's population will continue to
increase in absolute terms. While the demand for corn and other crops for
consumption by the Chinese population is large and growing, the use of corn, in
particular, as an animal feed, source of starch products and even for use as a
fuel will likely support continued growth in this industry.
Although there are currently a large number of seed companies that meet
the demand of farmers in the PRC, Chardan's board of directors believes that few
of them are developing and producing advanced hybrid seeds that offer the
advantages of Origin's hybrid seeds. Chardan's board of directors expects that
Origin's product offerings, continued efforts to develop and produce hybrids for
additional crops, its market presence and effective marketing strategies will
result in an increase of Origin's share of its existing markets and enable
Origin to enter additional markets.
The experience of Origin's management.
Another criterion important to Chardan's board of directors in
identifying an acquisition target was that the company have a seasoned
management team with specialized knowledge of the markets within which it
operates and the ability to lead a company in a rapidly changing environment.
Chardan's board of directors believes that Origin's management has demonstrated
that ability, addressing what has until now been a market consisting of local
businesses with little meaningful research and development into a biotech
industry that focuses on product development, efficient production and effective
marketing and customer service programs. By utilizing its growing revenues to
expand its market share and develop additional products, Origin's management
seems to have demonstrated a commitment to a strategy that has given it a
significant presence in the seed industry in the PRC.
Origin's ability to execute its business plan, even with the risk that
Chardan's public stockholders would vote against the stock purchase and exercise
their conversion rights.
Chardan's board of directors considered the risk that the current
public stockholders of Chardan would vote against the stock purchase and demand
to redeem their shares for cash upon consummation of the stock purchase, thereby
depleting the amount of cash available to the combined company following the
stock purchase or cause a condition of the stock purchase agreement not to be
met. Chardan's board of directors deemed this risk to be no worse with regard to
Origin than it would be for other target companies and believes that Origin will
still be able to implement its business plan, even if the full amount of the
funds deposited in the trust account are not available at closing.
Due Diligence Information Materials
In performing the analysis described above, Chardan's board of
directors also reviewed an information statement prepared by Chardan's
consultants, Best of the Best, in connection with its search for a suitable
target company.
43
The Best of the Best information included a general description of the
business of the Origin Operating Companies as it existed prior to the report, a
diagram of the Origin Parties' business model, including its research and
development capabilities, its licensing strategy, its seed production processes
and distribution network. A separate diagram showed the capital structure of the
Origin Parties as of the date of the package, valuation calculations and
analysis, projected uses of the cash in Chardan's trust account subsequent to
the stock purchase and an organizational chart for Origin and the Origin
Operating Companies.
The Best of the Best information then gave a market overview that
described the Chinese seed crop market generally and how the Origin Operating
Companies fit into and compete within that market. The description showed Origin
to be engaged principally in corn seed production, but it also showed Origin
moving into cotton and other crop seeds, both as a diversification and an
expansion strategy. Depending on the market prices for crops, farmers will often
convert their land from production of one crop to another. The materials
described how Origin's plan to enter the cotton seed markets will enable it to
hedge against shifts in farmers' crop selection. It also provided information
regarding the geographical markets in which the Origin Operating Companies
compete within the PRC. A separate section detailed the nature of the seed
distribution process in the PRC and another examined the competitive and other
threats that the Origin Operating Companies face in conducting their business,
including market fluctuations and unfavorable weather.
The materials also contained an overview of the products of the Origin
Operating Companies, both current and those in development, and the permit
process that companies must go through to sell seeds in the PRC, including a
separate process for new hybrid seeds. The package made a specific point of
describing the Origin Operating Companies past and current approach and past
success in moving products through that permit process.
The materials contained a section describing the Origin Operating
Companies' business model. Among the elements in that business model are the
development of strong internal research and development, continued use of
licensed seed products, establishment of strong brand identity, reliance on an
effective system of master and sub distributors to extend the reach of Origin
into the marketplace, a strong, value added customer service and technical
support component and the emphasis on print and other advertising to establish,
maintain and extend Origin's customer base.
A section on personnel examined the role of its principal executives,
including Dr. Han, who is the Executive Chairman, Mr. Yang, who has overall
operational responsibility and direct control over marketing, and Mr. Yuan,
whose responsibilities include infrastructure and public relations. The
information described in this section supports Chardan's board of directors'
determination that the Origin Operating Companies have an experienced and
talented management team, capable of continuing the success achieved in the
past.
A section on risk factors in the materials described the risks inherent
the business plan of the Origin Operating Companies. These risks are discussed,
among others, in the risk factors section of this proxy statement/prospectus.
A section in the Best of the Best information materials discussed the
history of Origin that showed a record of growth and a leverageable business
model, including rapidly increasing revenues, solid gross profit margins and,
controllable variable costs. This section also discussed the substantial
reinvestment in the business made by Origin through a strong research and
development effort, something that Origin considers to be important to its
future success.
Chardan's board of directors also reviewed a report prepared for
Chardan by Xing An Securities Co. Ltd., based in China, to prepare an overview
of the seed business in China, highlighting their thoughts on Origin's place
therein. This document corroborated Chardan's board of director's initial view
of the potential of the Origin Operating Companies.
44
Mr. Kerry Propper, a director and officer of Chardan, prepared for the
board of directors an analysis of the post-transaction value of the Origin
Operating Companies. He analyzed comparable companies in the seed/agricultural
markets, taking into account their relative market presences and cycle maturity.
He prepared a list of comparative price/earnings ratios of these companies and
compared them to the price/earnings of the Origin Operating Companies and their
anticipated price/earnings. The valuation for the future of the Origin Operating
Companies was based on many assumptions, including projected top-line sales,
assumed margins, and projected net income. Since there is little depreciation
and amortization in the company's history, taxes were eliminated. Capital
resources were taken into account, based on the capital of the company after the
acquisition and for income and reinvestment, and for the potential of exercise
of outstanding warrants of Chardan. Based on this analysis, Mr. Propper
concluded that comparatively speaking, the enterprise value of the Origin
Operating Companies, immediately after the acquisition, was favorable. On the
basis of the analysis, he concluded that the board of directors, from an
economic point of view, should consider the acquisition of the Origin Operating
Companies.
Chardan's board of directors also considered the methods by which a
foreign company may own and control the PRC companies that are newly organized
or are in restricted industries. In structuring the transaction and in preparing
the documentation, Chardan retained its own PRC counsel to advise it on the
acquisition of stock that is subject to transfer restrictions. The methodology
of stock consignment agreements and technology service agreements is widely used
in these instances. The agreements were drafted by its PRC counsel and reviewed
by United States counsel. Although the agreements are initially control
arrangements, they provide for transfer of title in the future if and when the
restrictions lift, without any further consideration. Moreover, the consignment
agreements prevent the title holder from transferring the shares to another or
taking any action limiting the rights of Origin. The consignment agreement
freezes the ownership in the hands of the record/title owner, but gives the
consignee, Origin, all the incidents of beneficial ownership, including voting,
dividend, director nomination, management selection and every other right of
ownership other than record ownership. Record ownership is subject to the
directions of Origin so long as it is a permitted transfer and transferee under
PRC law. The stock purchase agreement provides for opinions of PRC counsel on
the validity and enforceability of all the agreements by the Origin Parties. On
the basis of its discussions with counsel and the similarity of the Origin
agreements to those used by other foreign owners, the Chardan board of directors
believed that the restrictions and use of stock consignment agreements was an
acceptable business strategy to obtain an acquisition opportunity in the PRC.
Satisfaction of 80% Test
It is a requirement that any business acquired by Chardan have a fair
market value equal to at least 80% of its net assets at the time of acquisition,
which assets shall include the amount in the trust account. Based on the
financial analysis of Origin generally used to approve the transaction, the
Chardan board of directors determined that this requirement was met. More
specifically, the board used a comparable price/earnings ratio analysis,
discounted cash flow analysis and asset valuation analysis and believes that, on
the basis of these methodologies, the fair market value of Origin substantially
exceeds 80% of the Chardan assets. Furthermore, just the value of the shares
forming a portion of the consideration being paid, which amount was negotiated
at arms-length, is well in excess of 80% of the Chardan assets. The Chardan
board of directors believes because of the financial skills and background of
several of its members, it was qualified to make these different analysis itself
and conclude that the acquisition of the Origin Operating Companies met this
requirement without recourse to an independent source.
45
Conclusion of the Board of Directors
After careful consideration, Chardan's board of directors determined
unanimously that each of the stock purchase proposal, the redomestication merger
proposal and the stock option proposal is fair to and in the best interests of
Chardan and its stockholders. Chardan's board of directors has approved and
declared advisable the stock purchase proposal, the redomestication merger
proposal and the stock option proposal and unanimously recommends that you vote
or give instructions to vote "FOR" each of the proposals to adopt the stock
purchase proposal, the redomestication merger proposal, the stock option
proposal and the election of directors.
The foregoing discussion of the information and factors considered by
the Chardan board of directors is not meant to be exhaustive, but includes the
material information and factors considered by the Chardan board of directors.
Material U.S. Federal Income Tax Considerations of the Redomestication Merger
The following discusses the material U.S. federal income tax
consequences of the redomestication merger to the Chardan stockholders who are
U.S. Holders. A United States Holder is: (i) a beneficial owner of Chardan
common stock that is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust that
is described in Section 7701(a)(3) of the Code and (ii) holds the Chardan common
stock as a capital asset. This discussion is based on the United States Internal
Revenue Code of 1986, as amended, which we refer to as the Code, and Treasury
regulations promulgated thereunder.
Chardan expects that the redomestication merger will qualify as a
reorganization under the Code. No gain or loss will be recognized on the
exchange of the Chardan common stock held by Chardan's stockholders for stock of
Agritech, provided no holder of Chardan common stock owns 5% or more of the
stock of Agritech following the redomestication merger. The federal tax basis of
the shares of Agritech received by the holder of Chardan common stock in the
merger will be the same as the adjusted tax basis of such Chardan common stock
surrendered in exchange therefore. The holding period of the shares of Agritech
received in the redomestication merger by the holder of Chardan common stock
will include the period during which such Chardan common stock was held as a
capital asset on the date of the redomestication merger.
The foregoing U.S. federal income tax consequences is not affected by
the changes made to the Code by the American Jobs Creation Act of 2004 in the
treatment of domestic business entities which expatriate from the United States
to a foreign jurisdiction. These new provisions generally apply to the direct or
indirect acquisition of substantially all of the properties of a domestic
enterprise by a foreign corporation if there is at least 60% or 80% of
continuing share ownership in the successor foreign entity by the former U.S.
corporation's stockholders and substantial business activities are not conducted
in the jurisdiction in which such successor is created or organized. Under the
Chardan redomestication merger and the stock purchase agreement, following the
redomestication merger into Agritech, the holders of Chardan common stock will
own 32.5% of the shares of Agritech.
For United States federal income tax purposes, the gross amount of all
dividends paid with respect to Agritech shares out of current or accumulated
earnings and profit ("E&P") to a United States Holder generally will be treated
as foreign source ordinary income to such holder. United States corporations
that hold Agritech common stock will not be entitled to the dividends received
deduction available for dividends received from United States corporations. To
the extent a distribution exceeds E&P, it will be treated first as a return of
capital to the extent of the United States Holder's basis, and then as gain from
the sale of a capital asset.
46
The conclusions expressed above are based on current law. Future
legislative, administrative or judicial changes or interpretations, which can
apply retroactively, could affect the accuracy of those conclusions. No rulings
have been or will be sought from the Internal Revenue Service concerning the tax
consequences of the transactions contemplated by the stock purchase agreement or
redomestication merger.
The discussion does not address all of the tax consequences that may be
relevant to particular taxpayers in light of their personal circumstances or to
taxpayers subject to special treatment under the Code. Such taxpayers include
non-U.S. persons, insurance companies, tax-exempt entities, dealers in
securities, banks and persons who acquired their stock interests pursuant to the
exercise of employee options or otherwise as compensation.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX
CONSEQUENCES TO ANY PARTICULAR STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT
DISCUSSED ABOVE, EACH STOCKHOLDER IS URGED TO CONSULT A TAX ADVISOR WITH RESPECT
TO THE SPECIFIC TAX CONSEQUENCES OF THE TRANSACTIONS CONTEMPLATED BY THE
REDOMESTICATION MERGER AND THE STOCK PURCHASE TO HIM, HER OR IT, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S.
FEDERAL TAX LAWS
Anticipated Accounting Treatment
The stock purchase will be accounted for as a capital transaction for
accounting and financial reporting purposes. Accordingly, for accounting
purposes, the stock purchase will be treated as the equivalent of Origin's
issuing stock for the net monetary assets of Chardan, accompanied by a
recapitalization. The net monetary assets of Chardan will be stated at their
fair value, essentially equivalent to historical costs, with no goodwill or
other intangible assets recorded. Under this method of accounting, Origin will
be the continuing entity for financial reporting purposes. The retained earnings
(deficit) of Origin will be carried forward after the stock purchase. Operations
prior to the stock purchase will be those of Origin and the Origin Operating
Companies.
Regulatory Matters
The stock purchase and the transactions contemplated by the stock
purchase agreement are not subject to the HSR or any federal or state regulatory
requirement or approval, except for filings necessary to effectuate the
transactions contemplated by the stock purchase proposal with the State of
Delaware and the British Virgin Islands.
47
THE STOCK PURCHASE AGREEMENT
The following summary of the material provisions of the stock purchase
agreement is qualified by reference to the complete text of the stock purchase
agreement, a copy of which is attached as an annex to this proxy
statement/prospectus, and is incorporated by reference. All stockholders are
encouraged to read the stock purchase agreement in its entirety for a more
complete description of the terms and conditions of the stock purchase.
Structure of the Stock Purchase and Redomestication Merger
At the effective time of the stock purchase agreement, Chardan will be
merged with and into Agritech. Agritech will continue as the surviving company.
All of the stock of Chardan will be converted into the right to receive stock in
Agritech on a one-for-one basis. Thereafter, Agritech will purchase all the
common stock of Origin, a British Virgin Island corporation, for $10,000,000 and
10,000,000 shares of common stock, and the additional purchase price described
below. At the time that Origin is acquired by Agritech, Origin will acquire
direct ownership and rights to control the stock of the Origin Operating
Companies, thus obtaining the seed development, distribution and licensing
operations in the PRC from the current owners.
Closing and Effective Time of the Stock Purchase
The closing of the stock purchase will take place promptly following
the satisfaction of the conditions described below under "The stock purchase
agreement--Conditions to the Stock Purchase," unless Chardan and the Origin
Parties agree in writing to another time.
Name; Headquarters; Stock Symbol
After completion of the stock purchase:
o the name of the combined company will be Origin Agritech Limited;
o the corporate headquarters and principal executive officers will be
located at 12 Shangdi Xinxi Lu, Haidian District, Zhongguancun
Development Building, Beijing, PRC, which is currently the Origin
Parties' corporate headquarters; and
o the combined company will cause the common stock, warrants and units
outstanding prior to the stock purchase, which are traded on the OTC
Bulletin Board, to continue trading on either the OTC Bulletin Board
or the Nasdaq Stock Market. At the time of the closing, the symbol
will change to one determined by the management or board of
directors and the trading medium that is reasonably representative
of the corporate name or business of the combined company.
Purchase Price
At the closing, the Origin Stockholders and their designee, A Plus
Resources Limited, will be paid an aggregate of $10,000,000 in cash, using funds
held in the trust account, and will issue an aggregate of 10,000,000 shares of
Agritech common stock for all the outstanding common stock of Origin. Of the
cash portion of the purchase price, $250,000 will be held back for one year by
Agritech to secure certain indemnification obligations of the Origin
Stockholders. The balance of the funds in the trust account will be used for
operational expenses.
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Additional purchase price payments will be made to the Origin
Stockholders and their designee of up to an aggregate of $15,000,000, if either
of the following occurs during any fiscal year of Agritech after the closing
date until December 31, 2008 (or June 30, 2009 if the fiscal year is changed to
a July 1-June 30 fiscal year) from funds generated from financing activities or
earnings as described below:
A. If Agritech receives at least $40,000,000 in gross proceeds
in additional financing as a result (i) of the call of the outstanding public
warrants assumed by Agritech at the closing; (ii) Agritech's successful
completion of a follow-on offering; or (iii) a private investment into Agritech
by a strategic investor ("Financing Adjustment"), then Agritech will pay an
additional $15,000,000 to the Origin Stockholders and their designee; or
B. If Agritech generates net positive cash flow of $2,000,000
or more on a consolidated basis ("Earnings Adjustment"), then the Origin
Stockholders and their designee will be entitled to receive 75% of the net
positive cash flow up to a maximum of $7,500,000 per fiscal year and $15,000,000
in the aggregate.
In the event that both an Earnings Adjustment and a Financing
Adjustment occurs, the maximum aggregate amount to be paid to the Origin
Stockholders and their designee from one or both adjustments is $15,000,000.
As further additional purchase price, certain Origin Stockholders and
their designee will be issued an aggregate of 1,500,000 shares of common stock
of Agritech for each of the next four years, if on a consolidated basis,
Agritech generates after-tax profits (excluding after-tax operating profits from
any subsequent acquisition for securities that have a dilutive effect and before
the expenses of this transaction and director and employee option expense) of at
least the following amounts:
Year ending June 30, After Tax Profit
-------------------- ----------------
2006 $11,000,000
2007 $16,000,000
2008 $21,000,000
2009 $29,000,000
The designee, A Plus Resources Limited, a company formed under the laws
of the British Virgin Islands, is owned by Ms. Song Baoqing, and provided
financial advice and investment banking services to the Origin Parties.
Representations and Warranties
The stock purchase agreement contains a number of generally reciprocal
representations and warranties that Origin, the Origin Stockholders and Chardan
made to each other. These representations and warranties relate, as applicable,
to:
o organization, standing, power;
o capital structure;
o authorization, execution, delivery, enforceability of the stock
purchase agreement;
o absence of conflicts or violations under organizational documents,
certain agreements and applicable laws or decrees, as a result of
the contemplated transaction, receipt of all required consents and
approvals;
49
o absence of certain changes or events since September 30, 2004;
o litigation;
o compliance with applicable laws;
o absence of brokers;
o absence of certain changes;
o liabilities;
o related party transactions;
o licenses and permits; and
o completeness and truthfulness of the information and provisions in
the stock purchase agreement.
Origin or the Origin Stockholders or both also make representations to
Chardan regarding:
o accuracy of the information contained in the financial statements;
and absence of undisclosed liabilities;
o labor relations and employee plans;
o environmental liability;
o taxes, tax returns and audits;
o real and personal property and the title to and condition of assets;
o the absence of illegal or improper transactions;
o the collectibility of accounts receivable;
o the nature and condition of inventory;
o the contract to which they are parties;
o intellectual property rights;
o non-real estate leases;
o insurance;
o the accuracy and completeness of books and records; and
o litigation and certain settled litigation.
50
The Origin Stockholders also make representations to Chardan regarding:
o their acquisition of Agritech common stock being solely for their
own account;
o their status as accredited investors;
o the adequacy of the information they received regarding Chardan;
o the restricted nature of the securities that they will receive under
the stock purchase agreement; and
o the placement of legends on the certificates representing the
securities issued to them under the stock purchase agreement.
Chardan also makes representations to the Origin Parties regarding:
o filings with the SEC and the accuracy and completeness of the
information contained in those filings, including the financial
statements and the lack of undisclosed liabilities; and
o the amount of funds contained in the trust account.
Materiality and Material Adverse Effect
Many of the representations and warranties made by the Origin and the
Origin Stockholders are qualified by materiality or the use of the term
"material adverse effect." For the purposes of the stock purchase agreement, a
"material adverse effect" means a material adverse effect on the business,
financial condition or results of operations or prospects of Origin or the
Origin Operating Companies.
Several of the representations and warranties made by Chardan are
qualified by materiality. However, only Chardan's representation and warranty
related to the absence of litigation is qualified by the use of the term
"material adverse effect."
Interim Operations of Chardan and the Origin Parties
Interim Covenants relating to the Origin Parties. Under the stock
purchase agreement, each of Origin and the Origin Stockholders has agreed, as
applicable, to conduct business in the usual, regular and ordinary course, in
substantially the same manner as previously conducted. In addition to this
agreement regarding the conduct of business generally, subject to specified
exceptions, each of the Origin Parties has agreed that, except as otherwise
expressly permitted or required by the stock purchase agreement, it:
o will not declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of their capital stock;
o will not pledge, sell, transfer, dispose or otherwise encumber or
grant any rights or interests to any others in the Origin stock or
the Origin Operating Companies stock;
o will not pledge, sell, transfer, lease dispose of or otherwise
encumber any property of assets of any Origin Operating Company,
other than in accordance with past practice or in the normal course
of business;
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o will not issue, deliver, sell or grant any shares of its capital
stock, any securities convertible into or exchangeable for, or any
options, warrants or rights to acquire, any shares of capital;
o will not make or agree to a general wage or salary increase or enter
into any employment contract, increase the compensation payable or
to become payable to any officer or employee of any Origin Operating
Company or adopt or increase the benefits of any bonus, insurance,
pension or other employee benefit plan, payment or arrangement,
except for those increases consistent with past practices, normally
occurring as the result of regularly scheduled salary reviews and
increases, and except for increases directly or indirectly required
as a result of changes in applicable laws;
o will not merge or consolidate with, or acquire all or substantially
all the assets of, or otherwise acquire, and other business
operations;
o will not make any payments outside the ordinary course of business;
o will not make any capital expenditures, except in accordance with
prudent business and operational practices consistent with prior
practice;
o will provide Chardan with access to information regarding the
business of Origin and the Origin Operating Companies;
o will maintain in effect insurance of the types and in the amounts
customarily acquired to protect the assets and business of the
Origin Operating Companies;
o each Origin Stockholder will protect the confidential information of
Origin and the Origin Operating Companies that he has received in
the course of the negotiations;
o each Origin Stockholder will refrain from competing with Origin or
the Origin Operating Companies;
o will refrain from any discussions or negotiations with any other
party regarding the issuance of any capital stock or the sale or
transfer of any portion of the business of any Origin Operating
Company;
o each Origin Stockholder will refrain from engaging in any
transaction involving the securities of Chardan;
o will disclose certain material information that arises or comes to
be known between the date of the stock purchase agreement and the
date of the closing;
o will use their best efforts to obtain all authorizations, consents,
orders and approvals that may be or become necessary for their
execution and delivery of, and the performance of their obligations
pursuant to, the stock purchase agreement;
o each Origin Stockholder agrees that it has not acquired any rights
to and will not use any of the intellectual property of Origin or
the Origin Operating Companies;
o each Origin Stockholder will pay any taxes that become due as a
result of the issuance to them of Agritech common stock;
52
o will do all things necessary to effectuate Origin's acquisition or
control of the Origin Operating Companies stock that Origin does not
already own;
o will reorganize Origin as required by the stock purchase agreement;
o will provide to Chardan such information as is necessary regarding
Origin and the Origin Operating Companies as is required under the
rules of the SEC for combination proxy statements; and
o will provide to Chardan interim internal financial and management
reports regarding the conduct of the business of the Origin
Operating Companies.
Interim Covenants relating to Chardan. The stock purchase agreement,
among other things, requires Chardan to:
o conduct its business in the ordinary course, not sell or issue any
capital securities of Chardan, encumber any of the assets of Chardan
or incur any debt out of the ordinary course, not declare or pay any
dividend, or make any general wage increase;
o not change its by-laws or articles;
o call the stockholders meeting to which this proxy relates;
o incorporate Agritech; and
o cause the board of Agritech, at the time of closing, to consist of
nine persons, of which five persons will be nominated at the
suggestion of the Origin Parties (including Dr. Han and Messrs. Yang
and Yuan) and two persons will be Mr. Kerry Propper and one designee
of his (currently, Mr. Steven Urbach), and the remaining persons
will be selected on the basis of their complying with listing and
other legal requirements.
No Solicitation by Chardan
Except as described below, generally Chardan will not:
o solicit, initiate or encourage the submission of any acquisition
proposal;
o enter into any agreement with respect to any acquisition proposal;
or
o participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any
acquisition proposal.
However, as provided under Delaware corporate law, if Chardan receives
a bona fide written acquisition proposal which was not solicited by Chardan, it
may, before the stock purchase agreement is adopted by its stockholders, furnish
information regarding itself to the person making the acquisition proposal and
participate in discussions, but not negotiations, with the person regarding the
acquisition proposal, if:
o the board of directors determines, in good faith that the
acquisition proposal constitutes or is reasonably likely to lead to
a superior proposal; and
53
o the board of directors determines in good faith that failure to
submit such superior proposal to its stockholders would cause the
board of directors to violate its fiduciary duties to the
stockholders under applicable law.
If Chardan has received a superior proposal, Chardan has the right to
terminate the stock purchase agreement, based upon a determination in good
faith, based upon the advice of outside legal counsel, that the failure to
terminate is reasonably likely to result in the board of directors breaching its
fiduciary duty.
Chardan has agreed not to withdraw or modify, or propose to withdraw or
modify, in a manner adverse to the Origin Parties, the approval by its board of
directors of the stock purchase agreement or the stock purchase or the
recommendation by the board of directors of the transactions contemplated by the
stock purchase agreement.
No Solicitation by the Origin Parties
The Origin Parties have agreed not to:
o solicit, initiate or encourage discussions regarding or the
submission of any acquisition proposal;
o enter into any agreement with respect to any acquisition proposal;
or
o participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any
acquisition proposal.
The Origin Parties will cease immediately all discussions and
negotiations regarding any proposal that constitutes, or may reasonably be
expected to lead to an acquisition proposal. The Origin Stockholders have
acknowledged that they have already approved the stock purchase agreement and
that no modification will be effective to withdraw or revoke their approval of
the stock purchase agreement.
Chardan Stockholders' Meeting
Chardan has agreed to call and hold a meeting of its stockholders, as
soon as practicable after the date of the stock purchase agreement for the
purpose of seeking the approval of the stock purchase by its stockholders.
Chardan has also agreed that it will file all required proxy materials with the
SEC and, through its board of directors, recommend to its stockholders that they
approve and adopt the stock purchase proposal.
Access to Information; Confidentiality
Chardan and the Origin Parties will afford to the other party and its
representatives prior to completion of the stock purchase reasonable access
during normal business hours to all of their respective properties and records
and will promptly provide to the other party a copy of each document filed
pursuant to the requirements of the securities laws the United States, and all
other information concerning its business, properties and personnel as the other
party reasonably requests. The information will be held in confidence to the
extent required by the provisions of the confidentiality agreement between the
two parties.
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Reasonable Efforts; Notification
Chardan and the Origin Parties have agreed that they will use all
reasonable efforts to take all actions, and to do all things necessary, proper
or advisable to consummate the stock purchase and the transactions contemplated
by the stock purchase agreement in the most expeditious manner practicable. This
includes:
o obtaining all necessary actions or non-actions, waivers, consents
and approvals from governmental entities and making all necessary
registrations and filings, including filings with governmental
entities, if any and taking all reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or
proceeding by, any governmental entity;
o obtaining all necessary consents, approvals or waivers from third
parties;
o defending any lawsuits or other legal proceedings, whether judicial
or administrative, challenging the stock purchase agreement or any
other agreement contemplated by the stock purchase agreement or the
consummation of the stock purchase or other transactions
contemplated by the stock purchase agreement including seeking to
have any stay or temporary restraining order entered by any court or
other governmental entity vacated or reversed; and
o executing and delivering any additional instruments necessary to
consummate the stock purchase or other transactions contemplated by
the stock purchase agreement and to fully carry out the purposes of
the stock purchase agreement and the transaction agreements
contemplated by the stock purchase agreement.
The Origin Parties will give prompt notice to Chardan, and Chardan will
give prompt notice to the Origin Parties, of:
o any representation or warranty made by it or contained in the stock
purchase agreement that is not qualified as to materiality becoming
untrue or inaccurate in any respect or any representation or
warranty that is qualified by materiality becoming untrue or
inaccurate in any material respect; or
o the failure by it to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or
satisfied by it under the stock purchase agreement.
However, no notification will affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under the stock purchase agreement or the agreements contemplated
thereby as originally made. Accordingly, such notification may permit a
termination of the stock purchase agreement.
Indemnification
The Origin Stockholders shall indemnify and hold harmless Agritech for
any damages, whether as a result of any third party claim or otherwise, and
which arise from or in connection with the breach of representations and
warranties and agreements and covenants of the Origin Parties. Agritech shall
indemnify and hold harmless each Origin Stockholder for any damages, whether as
a result of any third party claim or otherwise, and which arise from or in
connection with the breach of representations and warranties and agreements and
covenants of Chardan, which will be assumed by Agritech upon the redomestication
merger. Claims may be asserted once the damages exceed $50,000. Any
indemnification payments shall be deemed to be an adjustment to the purchase
price. There will be withheld $250,000 from the initial payment of $10,000,000
to be paid to the Origin Stockholders at the closing, for a period of 12 months,
to be available to satisfy, in whole or part, any claim under the
indemnification obligations of the Origin Stockholders.
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The determination to assert a claim for indemnification against the
Origin Stockholders for the benefit of Agritech will be determined by an
independent committee of the board of directors of Agritech. The independent
committee of the board of directors will consist of two persons, as selected by
the board of directors, none of whom is an officer or employee of Agritech and
its subsidiaries or is the direct or beneficial owner of 5% or more of the
voting capital stock of Agritech.
Expenses
Except as provided in the stock purchase agreement, all fees and
expenses incurred in connection with the stock purchase and the other
transactions contemplated by the stock purchase agreement will be paid by the
party incurring such expenses, whether or not the stock purchase is consummated.
The Origin Parties have agreed they have no right to claim or be paid any amount
from the Chardan trust account, except on consummation of the stock purchase
agreement.
Public Announcements
Chardan, on the one hand, and the Origin Parties, on the other hand,
have agreed:
o to consult with each other before issuing, and provide each other
the opportunity to review and comment upon, any press release or
other public statements with respect to the stock purchase and the
other transactions contemplated by the stock purchase agreement; and
o not to issue any press release or make any public statement prior to
this consultation, except as may be required by applicable laws or
court process.
Conditions to the Completion of the Acquisition
Consummation of the stock purchase is conditioned on the stockholders
of Chardan, at a meeting called for these purposes, (i) approving the stock
purchase agreement and related transactions, and (ii) approving the merger of
Chardan into Agritech for the purpose of corporate reincorporation and
redomestication in the British Virgin Islands, which will include retention of
the Agritech name and an increase in the authorized capital of the current
company. The stockholders will also be asked to adopt a stock option and award
plan, but the stock purchase and redomestication transactions are not dependent
on the approval of this plan.
In addition, the stock purchase agreement is conditioned upon (i) no
order, stay, judgment or decree issued by any governmental authority preventing,
restraining or prohibiting in whole or in part, the consummation of the
transactions contemplated in the stock purchase agreement, (ii) execution and
delivery to each party of each of the various transaction documents, (iii)
delivery by each party to the other party of a certificate to the effect that
the representations and warranties of each party are true and correct in all
material respects as of the closing and all covenants contained in the stock
purchase agreement have been materially complied with by each party, and (iv)
receipt of necessary consents and approvals by third parties and completing
necessary proceedings.
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The obligations of Origin and each Origin Stockholder to consummate the
transactions contemplated by the stock purchase agreement also are conditioned
upon each of the following, among other things:
o Agritech will be an existing company under the laws of the British
Virgin Islands;
o Origin shall have entered into, effective as of the closing, the
employment agreements with the key executives, Dr. Han and Messrs.
Yang and Yuan, the forms of which are exhibits to the stock purchase
agreement; and
o disbursement of funds held in the trust account maintained for
Chardan.
The obligation of Chardan to consummate the transactions contemplated
by the stock purchase agreement also are conditioned upon each of the following,
among other things:
o the Origin Stockholders will have delivered the Origin stock;
o the stock consignment agreements and technology services agreements
will have been executed and delivered;
o at the closing, there will have been no material adverse change in
the assets, liabilities, financial condition or prospects of Origin,
the Origin subsidiaries or its business from that shown or reflected
in the financial statements of Origin at September 30, 2004 and as
to be described in the Chardan proxy statement, and between the date
of the stock purchase agreement and the closing date, there shall
not have occurred an event which, in the reasonable opinion of
Chardan would have a material adverse effect on Origin or the
subsidiaries of Origin;
o at the closing, Origin and its subsidiaries, on a consolidated basis
immediately prior to closing, will have not less than US $10,000,000
in cash assets and will have short and long term debt only to the
extent arising in the ordinary course of business;
o the information about Origin and its subsidiaries and its management
provided for inclusion in the Chardan proxy statement at the time of
its distribution and at the closing, will accurately reflect the
business, Origin, the Origin subsidiaries and the Origin
Stockholders, and not contain any untrue statement of a material
fact or omission; and
o each of Dr. Han and Messrs. Yang and Yuan will have entered into the
form of voting agreement which is an exhibit to the stock purchase
agreement that provides for them to vote all of the shares of
Agritech over which they have direct or beneficial ownership and
voting authority in favor of Kerry Propper and one of Mr. Propper's
designees (currently Mr. Steven Urbach) as directors of Agritech for
a period of three years after the closing.
The obligation of the Origin Parties to consummate the transactions
contemplated by the stock purchase agreement are also conditioned upon each of
the following, among other things:
o Chardan must have performed all its obligations and all of Chardan's
representations and warranties must be true and correct; and
o the Origin Parties must have received an opinion, dated as of the
closing, from Guantao Law Firm, counsel to the Origin Parties.
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Termination
The stock purchase agreement may be terminated at any time, but not
later than the closing as follows:
o by mutual written consent of Chardan and Origin;
o by either party if the other party amends a schedule and such
amendment or supplement reflects a material adverse change in the
condition, operations or prospects of its business;
o by either party if the closing has not occurred by August 1, 2005
(unless such terminating party is in breach of any of its material
covenants, representations or warranties);
o by either party if the other party has breached any of its covenants
or representations and warranties in any material respect and has
not cured its breach within 10 business days of the notice of an
intent to terminate, provided that the terminating party is itself
not in breach;
o by Origin, if the board of directors of Chardan (or any committee
thereof) shall have failed to recommend or withdraw or modify in a
manner adverse to Origin its approval or recommendation of the stock
purchase agreement and any of the transactions contemplated thereby;
o by Chardan if its board of directors shall have determined in good
faith, based upon the advice of outside legal counsel, that failure
to terminate the stock purchase agreement is reasonably likely to
result in the board of directors breaching its fiduciary duties to
stockholders by reason of a pending, unsolicited, bona fide written
proposal for a superior transaction; or
o by either party if, at the Chardan stockholder meeting, the stock
purchase agreement and redomestication merger and the transactions
contemplated thereby shall fail to be approved and adopted by the
affirmative vote of the holders of Chardan's common stock, or 20% or
more of the shares sold in the initial public offering are presented
for conversion into the pro rata portion of the trust account in
accordance with the Chardan certificate of incorporation.
If the stock purchase agreement is terminated by Chardan for material
breach of a covenant, representation or warranty or material amendment to a
schedule of Origin, the Origin subsidiaries or Origin Stockholders, then the
Origin Stockholders will pay Chardan $1,000,000 upon termination of the stock
purchase agreement in lieu of any other right or remedy that the Chardan may
have against the other parties to the stock purchase agreement for such breach.
If the stock purchase agreement is terminated by Origin for a material breach of
a covenant, representation or warranty or material amendment to a schedule of
Chardan, or because the board of directors of Chardan fails to recommend or
withdraws or modifies its approval or recommendation of approval of the stock
purchase agreement, then Richard Propper, Kerry Propper, Jiangnan Huang, Li
Zhang, Dan Beharry and Steven Urbach (pro rata in relation to their initial
ownership in Chardan) will pay Origin $1,000,000 upon termination of the stock
purchase agreement in lieu of any other right or remedy that Origin may have
against the other parties to the stock purchase agreement for such breach. The
$1,000,000 amount payable to the Origin Stockholders by the foregoing person
will be pro-rated based on their initial ownership of Chardan common stock. The
Origin entities have no right to damages from Chardan or Agritech and they have
no right to any amount held in the trust account, and they have agreed not to
make any claim against Chardan and Agritech that would adversely affect the
business, operations or prospects of Chardan and Agritech or the amount of the
funds held in the trust account.
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Effect of Termination
In the event of proper termination by either Chardan or the Origin
Parties, the stock purchase agreement will become void and have no effect,
without any liability or obligation on the part of Chardan or the Origin
Parties, except in connection with:
o the confidentiality obligations set forth in the stock purchase
agreement; and
o the provisions described above relating to certain payments to be
paid upon termination.
Amendment
The stock purchase agreement may be amended at any time before or after
receipt of the approval from Chardan's stockholders. However, after receipt of
the approval from Chardan's stockholders, the parties may not, without further
stockholders' approval, amend the stock purchase agreement, in a manner that by
law requires further approval by the stockholders of Chardan. In addition, no
amendment will be binding on any of the parties unless such amendment made in
writing by all of them.
Extension; Waiver
At any time prior to the consummation of the stock purchase, Chardan
and the Origin Parties may extend the time for the performance of any of the
obligations or other acts, waive any inaccuracies in the representations and
warranties or waive compliance with any of the conditions. Any agreement on the
part of either Chardan or the Origin Parties to any such extension or waiver
will be valid only if set forth in an instrument in writing signed on behalf of
it. The failure of Chardan or the Origin Parties to assert any of its rights
will not constitute a waiver.
Employment Agreements
Each of Dr. Han and Messrs. Yuan and Yang will enter into a three-year
employment agreement with Origin. Dr. Han will be employed as the chairman and
chief executive officer, Mr. Yuan will be the executive vice chairman and Mr.
Yang will be president and chief operating officer. Each of the agreements
provide for an annual salary of $250,000 and a discretionary cash bonus based on
growth in Chardan's per-share value, achievement of growth and business targets,
satisfaction of company capital requirements and other criteria, as the
compensation committee determines. The executives will be entitled to insurance
benefits, five weeks vacation, a car and reimbursement of business expenses and,
if necessary, relocation expenses. The agreements will be terminable by Origin
for death, disability and cause. The executive may terminate for good reason,
which includes Chardan's breach, the executive not being a member of the board
of directors, and change of control. In the event of termination for good
reason, the executive will receive two years compensation and benefits. The
agreements contain provisions for the protection of confidential information and
a three-year-after employment non-competition period within China. In the stock
purchase agreement, there is an additional non-competition agreement applicable
to these persons for the greater of five years after consummation or two years
after employment that includes Hong Kong and Taiwan, in addition to China.
Stock Consignment Agreement
The stock consignment agreements provide for the control of the shares
of the Origin Operating Companies, other than the Origin Biotechnology. The
reason for the agreement is that the shares of the initial stockholder of a
joint stock company formed under PRC law may not be transferred for three years
starting from the date of establishment of the incorporated company, and there
is an additional restriction on foreign investment in certain industries,
including seed production.
59
The agreements give Origin the control of the shares subject thereto in
the three Origin Operating Companies. The agreements give Origin the right to
manage in all respects the shares held in title by the stockholder, including
all stockholder rights to call meetings of stockholders, to submit stockholder
proposals, to elect directors, to vote the shares on all matters and to exercise
all other rights of a stockholder in respect of the shares consigned. More
specifically, the consignment agreements include giving the right to select,
replace and increase the number of the directors, supervisors and recommend new
director and supervisor persons, and to exercise management rights, controlling
rights and decision-making power over the shares or the subject company. The
title holder of the shares has agreed not to interfere with Origin's exercise of
its rights and to cooperate fully and promptly to permit Origin to exercise its
authority over the consigned shares. This includes all limitations on the
ability of the consignee to transfer or dispose of the shares to someone other
than Origin, give guarantees using the shares, consign the shares to another,
alter the ownership proportion in any way, dispose of any rights in the
ownership of the shares, and agree to any debt or restructuring of the shares.
Origin has the right to take all action in respect of the consigned shares to
avoid any damage or infringement of its rights, including in the event of the
consigning stockholder's bankruptcy. Origin, under the agreements, has all the
property rights in the consigned shares, including the profits, interests,
dividends, bonuses and residue assets. If, in the future, any stock subject to
the consignment agreements can be legally transferred to Origin, without further
action or payment by Origin, it shall be transferred to Origin in whole or in
part for no additional consideration to the consigning stockholder. All the
stockholder's stock is subject to the agreement. The agreement is subject to
force majeure limitations. The term of the agreement is initially three years,
but is automatically renewed indefinitely until both Origin and the consignee
agree to terminate. There is no unilateral right of termination, except in the
event of a breach in which event the non-breaching party may cancel the
consignment agreement after notice and a reasonable cure period. The consigning
stockholder has warranted its authority to enter into the agreement and that
Origin has the sole rights under the consignment agreement to the shares. The
agreement is binding on the heirs of the respective consigning stockholder.
The import of the stock consignment agreements is that Origin, and
subsequently Agritech, may consolidate the Origin Operating Companies whose
shares are subject to stock consignment agreements in the manner of wholly and
majority owned subsidiaries and enjoy the economic benefits of such
subsidiaries. The stock consignment agreement is subject to enforceability and
limitations of the laws and rules of PRC. The consignee may not transfer the
consignment agreement, except as permitted by PRC law, such that the consignee
cannot do indirectly what the title owner cannot do directly. However, Agritech
may transfer its interest in Origin without limitation from the PRC law relating
to restrictions on the consigned shares. If there is non-performance by the
stockholder or unenforceability of some or all of the agreement, Origin and
Agritech may loose the benefits of the agreements and suffer severe economic
loss and right. No assurance can be given that a foreign company will be able to
enforce their rights vis-a-vis a PRC citizen, and Chardan is not aware of any
cases where these types of stock consignment agreements have been interpreted by
PRC courts. Notwithstanding the foregoing, PRC counsel to the Origin Parties and
PRC counsel to Chardan have indicated in writing that these agreements are
enforceable under current PRC law, noting, however, that none of these kinds of
agreements have yet been subject to judicial review or interpretation. The
consignment agreement provides that if there is any interpretation of the terms
by a PRC court, the agreement should be construed in such a way as to give
Origin as much of the full and actual ownership and full beneficial rights and
benefits of the consigned stock as is possible, so as to approximate full
ownership under all applicable law. In the event that the consignment agreement
is not enforced or is terminated because of a breach by Origin that is not
cured, the right to the stock would be lost and the economic rights would be
terminated. Such a termination would not terminate the technology assignment
agreements, so notwithstanding the termination of a consignment agreement, the
technology and intellectual property would continue to be owned by Origin. Also,
the termination of one stockholder's consignment agreement does not cause the
termination of any of the other consignment agreements, so it would only result
as a reduction in consigned shares under Origin's control.
60
The following is a table of the parties to the consignment agreements:
% of Shares
Consigned Stock Consigning Owner Consigned
--------------- ---------------- ---------
Beijing Origin Han Gengchen 34.4%
Yang Yasheng 28.675%
Yuan Liang 25.8%
Zhao Yuping 3.995%
Zhang Weidong 3.13%
Chen Weicheng 1.96%
-------------------
97.96%
Changchun Origin Beijing Origin 99.0%
Han Gengchen 1.0%
-------------------
100.0%
Henan Origin Beijing Origin 90.0%
Zhang Yingli 4.1%
Yang Yasheng 3.86%
-------------------
97.96%
Technology Service Agreements
As part of the reorganization of the Origin Operating Companies, all of
the intellectual property rights of Beijing Origin, Changchun Origin and Henan
Origin are being transferred to Origin Biotechnology pursuant to technology
service agreements, dated December 25, 2004. The purpose of this was to permit
the better management and licensing of the intellectual property. Under the
technology agreements, Origin Biotechnology will provide technical research and
production and distribution services for the seeds produced by the group. These
services will include support in the research and development of agricultural
seeds, analysis of breeding technologies, environment and feasibility
suggestions, technical tutorials and breeding field supervision, market analysis
and seed promotion, insect prevention and technical education to distributors
and farmers. The term is for an initial three years, but it is automatically
renewed unless both parties agree to a termination. The fees payable among the
Origin Operating Companies is variable depending on differing formulae for
different categories of seeds. Generally, the fees will be as follows: 1.20 Yuan
RMB per kilogram of corn sold by the party receiving the technical services; 6
Yuan RMB per kilogram of rice sold by the party receiving the technical service
and 12 Yuan RMB per kilogram of cotton sold by the party receiving the technical
services. The fees will be confirmed and paid at the end of each growing season.
Officers of the Combined Company
After the consummation of the stock purchase, the board of directors
will appoint the following executive officers:
o Gengchen Han as the Chairman and Chief Executive Officer,
o Yasheng Yang as President and Chief Operating Officer,
61
o Liang Yuan as Executive Vice Chairman, and
o Dr. Richard Propper, Vice President, Corporate Development.
Voting Agreement
Dr. Han and Messrs. Yang and Yuen have agreed that for three years
after the closing of the stock purchase, they will vote or cause to be voted all
of their shares of common stock in Agritech for Mr. Kerry Propper and one
nominee designated (currently Mr. Steven Urbach) by Mr. Propper as directors of
Agritech.
CHARDAN REDOMESTICATION MERGER
General
Chardan is reincorporating in the British Virgin Islands and in that
process changing its name and corporate documents and affecting a new board of
directors. The redomestication merger is an obligation under the stock purchase
agreement with the Origin Parties.
We believe that the reincorporation in the British Virgin Islands (BVI)
will give the continuing company more flexibility and simplicity in various
corporate transactions. We also believe that being reincorporated in the BVI
will facilitate and reduce the costs of any further reorganization of the Origin
Operating Companies and permit the creation and acquisition of additional
companies in China as the business of Origin expands. We believe that the
reincorporation will reduce taxes and other costs of doing business by Agritech
in the future because its operations will be in China after the acquisition. The
BVI has adopted an International Business Companies Act that allows for flexible
and creative corporate structures for international businesses. Further, BVI
international business companies are wholly exempt from BVI tax on their income.
As part of the reincorporation, Chardan's corporate name will be that of the
surviving company, "Origin Agritech Limited."
The full texts of the Plan of Merger and the Memorandum and Articles of
Association of Agritech are set forth in annexes to this proxy
statement/prospectus. The discussion of these documents and the comparison of
rights set forth below are qualified in their entirety by reference to those
annexes.
Adoption of the Redomestication Merger
The board of directors has approved the reincorporation plan and
redomestication merger and recommends that the stockholders of Chardan approve
it.
The affirmative vote of the holders of a majority of the shares
outstanding of Chardan is required for approval of the reincorporation plan and
redomestication merger. Abstentions and broker non-votes will have the effect of
a vote against the proposal.
The reincorporation plan will not be implemented if the stock purchase
agreement is not approved or the stock purchase is not consummated. The stock
purchase will not be consummated if Chardan does not reincorporate in the BVI.
The board of directors unanimously recommends a vote "FOR" the approval
of the reincorporation plan and redomestication merger.
62
Plan of Reincorporation and Redomestication Merger
The reincorporation will be achieved by the merger of Chardan, a
Delaware company, with and into Agritech, a BVI corporation, which is wholly
owned by Chardan at this time, with Agritech being the surviving entity. The
Memorandum of Association and the Articles of Association, the equivalent of a
certificate of incorporation and bylaws of a United States company, of the
surviving company will be those of Agritech, written in compliance with BVI law.
The effectiveness of the reincorporation and the merger is conditioned upon the
filing by both Chardan and Agritech of a certificate of merger with the State of
Delaware and articles of merger with the BVI. Upon the filing of these
documents, Chardan will cease its corporate existence in the State of Delaware.
At the time of the redomestication merger, one new share of Agritech
will be issued for each outstanding share of common stock of Chardan held by our
stockholders on the effective date for the reincorporation. Each share of
Agritech that is owned by Chardan will be canceled and resume the status of
authorized and unissued Agritech common stock. The Chardan shares no longer will
be eligible to trade on the over-the-counter bulletin board market. The shares
of Agritech will be eligible to trade in their place beginning on or about the
effective date of the reincorporation under a new CUSIP number and trading
symbol. The symbol will be assigned if the market will be the OTCBB or will be
as determined with the approval of Nasdaq if that is were the shares will trade
upon consummation of the stock purchase.
Your percentage ownership of Chardan will not be affected by the
reincorporation. As part of the stock purchase transaction, however, there will
be the issuance of additional shares of common stock as partial consideration
for the Origin Companies. As part of the reincorporation, Agritech will assume
the outstanding warrants of Chardan on the same terms as currently issued. In
addition, Agritech will assume all outstanding obligations of Chardan and
succeed to those benefits enjoyed by Chardan. The business of Chardan, upon the
reincorporation and the acquisition of the Origin Companies will become that of
Origin.
Replacement of the current stock certificate of Chardan after the
redomestication merger will not be necessary. DO NOT DESTROY YOUR CURRENT STOCK
CERTIFICATES IN THE CHARDAN NAME. The issued and outstanding stock certificates
of Chardan will represent the rights that our stockholders will have in
Agritech. Stockholders, however, may submit their stock certificates to our
transfer agent, Continental Stock Transfer and Trust Company, 17 Battery Place,
New York, New York 10004 (212-509-4000) for new certificates, subject to normal
requirements as to proper endorsement, signature guarantee, if required, and
payment of applicable taxes.
If you have lost your certificate, you can contact our transfer agent
to have a new certificate issue. You may be requested to post a bond or other
security to reimburse us for any damages or costs if the lost certificate is
later delivered for sale or transfer.
Management of Agritech
The directors of Agritech will be nine persons. These will be Dr.
Gengchen Han and Messrs. Yasheng Yang, Liang Yuan, Bailiang Zhang, Da Fang
Huang, Kerry Propper, Steven Urbach, Michael D. Chermak and Remo Richli. The
officers of Agritech will be Dr. Han and Messrs. Yang, and Yuan. See "Directors
and Management of the Combined Company following the Stock Purchase."
Dr. Han and Messrs. Yang and Yuan will be employed pursuant to written
employment agreements described above.
63
Appraisal Rights
If the redomestication merger occurs, the Chardan stockholders who do
not vote in favor of the redomestication merger have the right to demand in cash
the fair value of their Chardan shares (exclusive of any element of value
arising from the accomplishment or expectation of the merger) instead of taking
the surviving corporation common stock. Holders of options or warrants to
purchase Chardan common stock do not have any appraisal rights.
Chardan common stock will not be converted into surviving corporation
common stock if the holder of the shares validly exercises and perfects
statutory appraisal rights with respect to the shares. When and if the holder of
those shares withdraws the demand for appraisal or otherwise becomes ineligible
to exercise appraisal rights, the shares will automatically convert into shares
of the surviving corporation common stock on the same basis as the other shares
that convert in the redomestication merger.
To perfect the appraisal right, stockholders must not vote in favor of
the redomestication merger and then mail or deliver a written demand for
appraisal, before the taking of the vote on the merger at the special meeting of
Chardan stockholders. This written demand must be separate from any written
consent or vote against approval of the redomestication merger. Voting against
approval of the redomestication merger or failing to vote on the proposal will
not constitute a demand for appraisal within the meaning of Section 262 of the
Delaware General Corporations Law. The written demand should be delivered to:
Chardan China Acquisition Inc./Origin Agritech Limited
625 Broadway, Suite 1111
San Diego, CA 92101
Attention: Dr. Richard Propper
A written demand for appraisal of the Chardan shares is only effective
if it reasonably informs Chardan of the identity of the stockholder and that the
stockholder demands appraisal of his, her or its shares. Accordingly, the
written demand for appraisal should specify the stockholder's name and mailing
address, the number of shares of Chardan stock owned and that the stockholder is
thereby demanding appraisal.
A dissenting stockholder who is the record owner, such as a broker, of
Chardan stock as a nominee for others, may exercise a right of appraisal with
respect to the common stock held for one or more beneficial owners, while not
exercising such right for other beneficial owners. In that case, the record
stockholder should specify in the written demand the number of shares as to
which the stockholder wishes to demand appraisal. If the written demand does not
expressly specify the number of shares, Chardan will assume that the written
demand covers all the shares of Chardan common stock that are in the nominee's
name.
It is important that Chardan receive all written demands promptly as
provided above. Failure to comply with any of these conditions will result in
the stockholder only being entitled to receiving the shares of Agritech in the
redomestication merger.
Dissenting stockholders must not approve the redomestication merger. If
a dissenting stockholder votes in favor of the merger, the stockholder's right
to appraisal will terminate, even if the stockholder previously filed a written
demand for appraisal. A vote against approval of the redomestication merger is
not required in order to exercise appraisal rights.
Dissenters must continuously hold their shares of Chardan common stock
from the date they make the demand for appraisal through the closing of the
redomestication merger. Record holders of Chardan common stock who make the
appraisal demand, but subsequently sell their shares of common stock prior to
the merger will lose any right to appraisal in respect of the sold shares.
64
Within 120 days after the effective date of the merger, either the
surviving corporation or any stockholder who has complied with the conditions of
Section 262 may file a petition in the Delaware Court of Chancery demanding that
the Chancery Court determine the fair value of the shares of stock held by all
the stockholders who are entitled to appraisal rights. Neither Chardan nor the
surviving corporation has any intention at this time of filing this petition.
Because the surviving corporation has no obligation to file this petition, if no
dissenting stockholder files this petition within 120 days after the closing,
the dissenting stockholder may lose its rights of appraisal.
A dissenting stockholder who no longer wishes to exercise appraisal
rights must withdraw the holder's demand for appraisal rights within 60 days
after the effective date of the redomestication merger. A stockholder also may
withdraw a demand for appraisal after 60 days after the effective date of the
merger, but only with the written consent of the surviving corporation. If a
stockholder effectively withdraws a demand for appraisal rights, the stockholder
will receive the merger consideration provided in the redomestication merger.
If the stockholder is in compliance with the demand requirements, its
is entitled to receive from the surviving corporation a statement setting for
the aggregate number of shares for which appraisal has been demanded and the
aggregate number of stockholders making the demand. To obtain this statement,
the stockholder must make a written demand to the surviving corporation within
120 days after the effective date of the redomestication merger. The surviving
corporation must make the statement before the later of (i) the 10th day after
receiving such request or (ii) the 10th day after the period win which demand
for appraisal rights must be made has expired.
If a Chancery Court proceeding is commenced by a dissenting
stockholder, the surviving corporation has 20 days to provide the court with the
names of dissenting stockholders with which it has not settled a claim for
appraisal. The court may then send notice of a hearing to all the stockholders
demanding appraisal rights, and then conduct a hearing to determine whether the
stockholders have fully complied with Section 262 and their entitlement to the
appraisal rights under that section. The court may require deposit of the stock
certificates of dissenting stockholders with the court. A dissenting stockholder
who does not follow this requirement may be dismissed from the proceeding.
The Chancery Court will determine the value of the shares. To determine
the fair value, the court will consider all relevant factors, and will exclude
any appreciation or depreciation due to the anticipation or accomplishment of
the redomestication merger. Whether or not an investment banking firm has
determined that the merger is fair is not an opinion that the merger
consideration is fair value under Section 262. Upon determination of the value,
the surviving corporation will be ordered to pay that value, together with
simple or compound interest as the court directs. To receive payment, the
dissenting stockholders must surrender their stock certificates to the surviving
corporation.
The costs of the appraisal proceeding may be assessed against the
surviving corporation and the stockholders as the court determines.
Differences of Stockholder Rights
Upon the completion of the reincorporation, the memorandum (as amended)
and articles of association of Agritech will become the governing documents of
the surviving corporation. Although the corporate statutes of Delaware and the
British Virgin Islands are similar, certain differences exist. The most
significant differences, in the judgment of the management of Chardan are
65
summarized below. Stockholders should refer to the annexes of the memorandum (as
amended) and articles of association and to the Delaware corporate law and
corporate law of the British Virgin Islands, including the International
Business Company's Act ("IBCA") to understand how these laws apply to Chardan
and Agritech and may affect you. Under the British Virgin Islands law, holders
of a company's stock are referred to as members, as opposed to stockholders,
which reference is carried through in the table.
Provision Chardan Agritech
----------------------------------------- ----------------------------------- ----------------------------------
Authorized Capital 21 million shares of which 20 61 million shares of which 60
million are shares of common million are ordinary shares;
and
stock, $.0001 par value per share 1 million are preference
shares,
and 1 million are shares of each with a par value of $.001
preferred stock, par value $.0001 per share
per share
Par Value Stated in United States dollars No par value
Changes in capital generally Changes in capital may be made
require stockholder approval upon resolution of members or
directors
Preferred (Preference) Shares Directors may fix the Same as Chardan, but subject
to
designations, powers, the memorandum
preferences, rights,
qualifications, limitations and
restrictions by resolution
Registered Shares Shares of capital stock of Same as Chardan
Chardan to be registered shares
Purpose of Corporation To engage in any lawful act not Same as Chardan subject to the
prohibited by law prohibition of conducting
certain business activities in
the BVI (i.e., banking,
insurance and local BVI
businesses)
Amendment of Certificate of Requires stockholder vote and, Requires vote of the members,
Incorporation except in limited circumstances, being a person that holds
by the board of directors shares, or as permitted by the
IBCA 1984 by the board of
directors and articles
Registered Office 9 East Loockerman Street P.O. Box 173
Kent County Kingston Chambers
Dover, Delaware Road Town,
Tortola, British Virgin
Islands
Transfer Agent Continental Stock Transfer & Same as Chardan
Trust Company
66
Provision Chardan Agritech
----------------------------------------- ----------------------------------- ----------------------------------
Voting Rights Common stock: one share, one Same as Chardan
vote on all matters before the Directors elected by plurality
holders of the common stock as provided in memorandum and
Other classes of equity may have articles; all other matters
by a
voting rights as assigned to them majority of those shares
present
by the board of directors or as and entitled to vote
approved by stockholders
Directors elected by plurality,
all other matters either by
majority of issued and
outstanding or majority of those
present and entitled to vote as
specified by law
Redemption of Equity Shares may be repurchased or Same as Chardan
otherwise acquired, provided the
capital of the company will not
be impaired by the acquisition
Company may hold or sell treasury
shares
Stockholder/Member consent Permitted as required for a vote Same as Chardan
at a meeting
Notice Requirements for In general, to bring a matter To bring a matter before an
Stockholder/Member Nominations and before an annual meeting or to annual meeting or to nominate
a
Other nominate a candidate for candidate for director, a
member
Proposals director, a stockholder must give must give notice to the
company
notice of the proposed matter or of not less than 30 days nor
nomination not less than 60 days more than 60 days.
and not more than 90 days prior If the member is making a
to public disclosure of the date proposal on a matter or
of annual meeting nominating a candidate for
In the event that less than 70 director and there is less
than
days notice or prior public 40 days notice or prior public
disclosure of the date of the disclosure of the date is
given
meeting is given or made to or made to members, to be
stockholder, to be timely, the timely, must be received no
notice must be received by the later than the close of
business
company no later than the close on the 10th day following the
of business on the 10th day day on which such notice of
the
following the day on which such date of the meeting was mailed
notice of the date of the meeting or such public disclosure was
was mailed or public disclosure made.
was made, whichever first occurs
67
Provision Chardan Agritech
----------------------------------------- ----------------------------------- ----------------------------------
Meetings of Stockholders/Members - In person or by proxy or other In person or by proxy or by
any
Presence appropriate electronic means teleconference means where
persons can hear one another
Meeting of Stockholder/Member - Notice Not less than 10 days or more Not less than seven days; no
than 60 days maximum limit
Meeting of Stockholders/Members - Call Regular and annual meetings shall Meetings may be called by the
of Meeting be called by the directors. directors or by members
holding
Special meetings may be called 50 percent of the outstanding
only by majority of board of votes. The articles require
an
directors, chief executive annual meeting of the members
officer or by a majority of the for the election of directors
to
issued and outstanding capital be called by the directors
stock entitled to vote Meetings on short notice may
be
called upon waiver or presence
of all the members holding
shares entitled to vote or 90%
of the total number of shares
entitled to vote agree to
short
notice
Meeting of Stockholders /Members- Place Within or without Delaware Within or outside the BVI as
the
directors consider necessary
or
desirable
Meeting of Stockholders/Members - Quorum Majority of the capital stock One-half of the votes of the
issued and outstanding and shares of each class or series
entitled to vote at meeting. entitled to vote. Adjournment
Meeting may be adjourned for up for such time as directors
to 30 days without additional determine.
notice to stockholders.
Meeting of Stockholders/Members - As fixed by the directors, no As fixed by the directors
Record Date more than 60 days and no less
than 10 days before the meeting.
If not fixed, the day before
notice of meeting is given
Directors - Election By the stockholders as entitled By the members as entitled by
by their terms, including the their terms, including the
holders of common stock holders of common stock
Directors - Term Staggered board of three classes; Annual term
for terms of three years
68
Provision Chardan Agritech
----------------------------------------- ----------------------------------- ----------------------------------
Directors - Removal By the stockholders for cause By resolution of the members
for
cause or without cause on a
vote
of the members representing
66-2/3 of the shares entitled
to
vote or the directors for any
reason on a resolution signed
by
all the other directors absent
from meetings for six months
without leave of the board,
death or incapacity
Directors - Vacancy May be filled by majority of May be filled by members or
the
remaining directors (unless they board of directors
are the result of the action of
stockholders) and newly created
vacancies may be filled by
majority of remaining directors
Directors - Number Unless established by certificate Same as Chardan
of incorporation, as determined
by board of directors, but not
less than one
Directors - Quorum and Vote Requirements A majority of the entire board. One-half of the total number
of
The affirmative vote of a directors, present in person
or
majority of directors present at by alternate, except if there
a meeting at which there is a are only two or less directors
quorum constitutes action by the then a quorum will be all the
board of directors directors
Directors - Managing Director Not applicable Provision for the board to
select one or more directors
to
be managing directors, provide
for special remuneration and
assign such powers as the
board
determines so long as it is
not
a power that requires board
approval
Directors - Powers All powers to govern the Same as Chardan
corporation not reserved to the
stockholders
Directors - Committees Directors may establish one or Same as Chardan
more committees with the
authority that the board
determines
69
Provision Chardan Agritech
----------------------------------------- ----------------------------------- ----------------------------------
Directors - Consent Action Directors may take action by By written consent in same
written consent of all directors, manner as if at a meeting in
in addition to action by meeting persons, by directors or by
alternate
Director - Alternates Not permitted Directors may, by written
instrument, appoint an
alternate
who need not be a director,
who
may attend meetings in the
absence of the director and
vote
and consent in the place of
the
directors
Directors - Appoint Officers Directors appoint the officers of Same as Chardan, subject to
the
the corporation, subject to the memorandum
by-laws, with such powers as they
determine
Director - Limitation of Liability Directors liability is limited, Duty to act honestly and in
good
except for (i) breach of loyalty, faith with a view to the best
(ii) act not in good faith or interests of the company and
which involves international exercise care, diligence and
misconduct or a knowing violation skill of a reasonably prudent
of law, (iii) willful violation person acting in comparable
of law in respect of payment of circumstances. No provisions
in
dividend or redeeming shares, or the memorandum, articles or
(iv) actions in which director agreement may relieve a
receives improper benefit director, officer, or agent
from
the duty to act in accordance
with the memorandum or
articles
or from personal liability
arising from the management of
the business or affairs of the
company.
Director - Indemnification Insurance Company may purchase insurance in Same as Chardan, extends to a
relation to any person who is or liquidator of the company
was a director or officer of the
company
70
Provision Chardan Agritech
----------------------------------------- ----------------------------------- ----------------------------------
Amendments to Organizational Documents Amendments must be approved by Amendments to the memorandum
and
the board of directors and by a articles may be made by
majority of the outstanding stock resolution of the members or
by
entitled to vote on the the directors
amendment, and if applicable, by
a majority of the outstanding
stock of each class or series
entitled to vote on the amendment
as a class or series. By-laws
may be amended by the
stockholders entitled to vote at
any meeting or, if so provided by
the certificate of incorporation,
by the board of directors
Sale of Assets The sale of all or substantially The sale of more than 50% of
the
all the assets of the company assets of the company requires
requires stockholder approval member approval
Dissenters Rights Provision is made under Delaware Provision is made under the
IBCA
corporate law to dissent and to dissent and obtain fair
value
obtain fair value of shares in of shares in connection with
connection with certain corporate certain corporate actions that
actions that require stockholder require member approval or
approval or consent consent
Indemnification Of Officers And Directors
As indicated in the comparison of charter provisions, a director,
officer or agent of a company formed under the laws of the British Virgin
Islands is obligated to act honestly and in good faith and exercise care,
diligence and skill of a reasonably prudent person acting in comparable
circumstances. The Memorandum and Articles of Agritech do not relieve directors,
officers or agents from personal liability arising from the management of the
business of the company. Notwithstanding the foregoing, Section 57 of the
International Companies Ordinance of 1984 of the British Virgin Islands may
indemnify directors, officers and agents against all expenses, including legal
fees and judgments, fines and settlements, in respect of actions related to
their employment. The stock purchase agreement provides indemnification in
respect of the representations, warranties and covenants of the parties, some of
which may relate to the securities laws of the United States. There are no
agreements that relieve directors, officer or agents from personal liability.
Agritech is permitted and intends to obtain director and officer insurance.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, Agritech and
Chardan have been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy, as expressed in the
Securities Act of 1933,as amended, and is, therefore, unenforceable.
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Defenses Against Hostile Takeovers
While the following discussion summarizes the reasons for, and the
operation and effects of, the principal provisions of Agritech's Memorandum (as
amended) and Articles of Association that management has identified as
potentially having an anti-takeover effect, it is not intended to be a complete
description of all potential anti-takeover effects, and it is qualified in its
entirety by reference to the full texts of Agritech's Memorandum and Articles of
Association.
In general, the anti-takeover provisions of Agritech's Memorandum and
Articles of Association are designed to minimize susceptibility to sudden
acquisitions of control that have not been negotiated with and approved by
Agritech's board of directors. As a result, these provisions may tend to make it
more difficult to remove the incumbent members of the board of directors. The
provisions would not prohibit an acquisition of control of Agritech or a tender
offer for all of Agritech's capital stock. The provisions are designed to
discourage any tender offer or other attempt to gain control of Agritech in a
transaction that is not approved by the board of directors, by making it more
difficult for a person or group to obtain control of Agritech in a short time
and then impose its will on the remaining stockholders. However, to the extent
there provisions successfully discourage the acquisition of control of Agritech
or tender offers for all or part of Agritech's capital stock without approval of
the board of directors, they may have the effect of preventing an acquisition or
tender offer which might be viewed by stockholders to be in their best
interests.
Tender offers or other non-open market acquisitions of stock will
generally be made at prices above the prevailing market price of Agritech's
stock. In addition, acquisitions of stock by persons attempting to acquire
control through market purchases may cause the market price of the stock to
reach levels that are higher than would otherwise be the case. Anti-takeover
provisions may discourage such purchases, particularly those of less than all of
Agritech's stock, and may thereby deprive stockholders of an opportunity to sell
their stock at a temporarily higher price. These provisions may therefore
decrease the likelihood that a tender offer will be made, and, if made, will be
successful. As a result, the provisions may adversely affect those stockholders
who would desire to participate in a tender offer. These provisions may also
serve to insulate incumbent management from change and to discourage not only
sudden or hostile takeover attempts, but also any attempts to acquire control
that are not approved by the board of directors, whether or not stockholders
deem such transactions to be in their best interest.
Stockholder Meetings. British Virgin Island law provides that
stockholder meetings shall be convened by the board of directors upon the
written request of stockholders holding more than 50% of the votes of the
outstanding voting shares of the company. Agritech's Articles of Association
provide that annual stockholder meetings for the election of directors may be
called only by the directors.
Number of Directors and Filling Vacancies on the Board of Directors.
British Virgin Island law requires that the board of directors of a corporation
consist of one or more members and that the number of directors shall be set by
the corporation's Articles of Association. Agritech's Articles of Association
provide that the number of directors shall be not less than one, subject to any
subsequent amendment to change the number of directors. The power to determine
the number of directors is vested in the board of directors. The power to fill
vacancies, whether occurring by reason of an increase in the number of directors
or by resignation, is vested primarily in the board of directors. Directors may
be removed by the members only for cause or without cause on a vote of the
members representing 66-2/3 of the shares entitled to vote.
Election of Directors. Under British Virgin Island law, there is no
cumulative voting by stockholders for the election of the directors. The absence
of cumulative voting rights effectively means that the holders of a majority of
the stock voted at a stockholders meeting may, if they so choose, elect all
directors of Agritech, thus precluding a small group of stockholders from
controlling the election of one or more representatives to the board of
directors.
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Advance Notice Requirements for Nomination of Directors and
Presentation of New Business at Meetings of Stockholders; Action by Written
Consent. The Agritech Articles of Association will provide for advance notice
requirements for stockholder proposals and nominations for director. Generally,
to be timely, notice must be delivered to the secretary of Agritech at its
principal executive offices not fewer than 30 days nor more than 60 days prior
to the first anniversary date of the annual meeting for the preceding year.
Special meetings may be called by Agritech's board of directors or by
stockholders comprising 50% of the combined voting power of the holders of the
then outstanding shares entitled to vote. These provisions make it more
procedurally difficult for a stockholder to place a proposal or nomination on
the meeting agenda or to take action without a meeting, and therefore may reduce
the likelihood that a stockholder will seek to take independent action to
replace directors or seek a stockholder vote with respect to other matters that
are not supported by management.
Federal Income Tax Consequences of the Reincorporation
Chardan believes that, for federal income tax purposes, no gain or loss
will be recognized by Chardan, Agritech or the stockholders of Chardan who
receive Agritech common stock for their Chardan common stock in connection with
the reincorporation and redomestication merger. The adjusted tax basis of each
whole share of Agritech common stock receives by a Chardan stockholder as a
result of the reincorporation and redomestication merger will be the same as the
stockholder's aggregate adjusted tax basis in the shares of Chardan common
stock. A stockholder who holds Chardan common stock will include in his holding
period for the Agritech common stock that he receives his holding period for the
Chardan common stock.
State, local or foreign income tax consequences to stockholders may
vary from the federal income tax consequences described above, and STOCKHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISOR AS TO THE CONSEQUENCES TO THEM OF THE
REINCORPORATION UNDER ALL APPLACIBLE TAX LAWS.
Transfer of Agritech Securities Upon Death of Holder
Because Agritech is a BVI company, the transfer of the securities of
Agritech, including the common stock and warrants, for estate administration
purposes will be governed by BVI law. This may require that the estate of a
decedent security holder of Agritech seek to probate or transfer under letters
of administration for the estate issued by a court in the BVI. Agritech has
attempted to modify this requirement by inserting in its Articles of Association
a provision that permits the board of directors to decide whether or not to
permit decedent transfers based on estate documentation from jurisdictions other
than the BVI, more in accordance with United States practice, without any action
having to be taken in the BVI. The board of directors intends to follow this
procedure. There is no assurance that this will result in an enforceable
transfer. The board of directors will be fully indemnified for its actions in
this regard pursuant to the Articles of Association.
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CHARDAN 2005 PERFORMANCE EQUITY PLAN
Background
Effective as of December 7, 2004, the Chardan board of directors
approved by unanimous written consent the "2005 Performance Equity Plan,"
subject to stockholder approval. The plan reserves 1,500,000 shares of Chardan
common stock for issuance in accordance with the plan's terms. The purpose of
the stock option plan is to enable Chardan to offer its employees, officers,
directors and consultants whose past, present and/or potential contributions to
Chardan have been, are or will be important to the success of Chardan, an
opportunity to acquire a proprietary interest in Chardan. The various types of
incentive awards that may be provided under the stock option plan will enable
Chardan to respond to changes in compensation practices, tax laws, accounting
regulations and the size and diversity of its business.
There are approximately 400 persons who will be eligible to be granted
awards, including directors, officers and employees of the Origin Operating
Companies and Origin and Agritech. No allocations of shares that may be subject
to awards have been made in respect of the executive officers or any other
group. All awards will be subject to the recommendations of management and the
compensation committee and approval by the board of directors or the stock
option committee.
A summary of the principal features of the stock option plan is
provided below, but is qualified in its entirety by reference to the full text
of the stock option plan which is attached to this proxy statement/prospectus as
an annex.
Shares Available
The stock option plan reserves 1,500,000 shares of common stock for
awards. If Chardan's stockholders approve this proposal, the total number of
shares of common stock available for issuance under the stock option plan will
be subject to the adjustments described below.
Administration
The plan is administered by our compensation committee. Under the plan,
the compensation committee has full authority, subject to the provisions of the
plan, to award any of the following, either alone or in tandem with each other:
o stock options;
o stock appreciation rights;
o restricted stock;
o deferred stock;
o stock reload options; and
o other stock-based awards.
Subject to the provisions of the plan, the compensation committee
determines, among other things, the persons to whom from time to time awards may
be granted, the specific type of award to be granted, the number of shares
subject to each award, share prices, any restrictions or limitations on the
awards, and any vesting, exchange, deferral, surrender, cancellation,
acceleration, termination, exercise or forfeiture provisions related to the
awards. The interpretation and construction by the compensation committee of any
provisions of, and the determination by the compensation committee of any
questions arising under, the plan or any rule or regulation established by the
compensation committee pursuant to the plan is final and binding on all persons
interested in the plan.
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Stock subject to the plan
The plan authorizes a total of 1,500,000 shares of common stock to be
granted as awards under the plan. In order to prevent the dilution or
enlargement of the rights of holders under the plan, our compensation committee
may determine whether or not to adjust the terms of the awards or the number of
shares reserved for issuance under the plan in the event of any stock split,
reverse stock split, stock dividend payable on our shares of common stock,
combination or exchange of shares, or other extraordinary event occurring after
the grant of an award. Shares of our common stock that are awarded under the
plan may be either treasury shares or authorized but unissued shares. Treasury
shares are those purchased or acquired by us from a stockholder or in the public
market. If any award granted under the plan is forfeited or terminated, the
shares of common stock reserved for issuance pursuant to the award will be made
available for future award grants under the plan. The committee may not grant to
any one holder options to purchase more than 300,000 shares of common stock in
any one calendar year in the aggregate under the plan.
Eligibility
Subject to the provisions of the plan, awards may be granted to key
employees, officers, directors and consultants who are deemed to have rendered
or are able to render significant services to us or our subsidiaries and who are
deemed to have contributed or to have the potential to contribute to our
success. Incentive stock options may only be awarded to individuals who are our
employees at the time of grant. Notwithstanding the foregoing, an award may be
granted to an individual in connection with his or her hiring or retention, or
at any time on or after the date he or she reaches an agreement with us, either
oral or in writing, with respect to his or her hiring, even though it may be
prior to the date he or she first performs services for us or our subsidiaries.
However, no portion of any award of this nature can vest prior to the date that
the individual first performs the services he or she was hired or retained to
perform.
Types of awards
Options. Under the plan, our compensation committee may award to
participants stock options that:
o are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Code; or
o are not intended to be so qualified.
Incentive stock options may only be awarded to our employees and those
of our subsidiaries. To the extent that any stock option intended to qualify as
an incentive stock option does not so qualify it will constitute a non-incentive
stock option.
Our compensation committee will fix the term of each stock option.
However, an incentive stock option may be granted only within the ten-year
period commencing from the effective date of the plan and may only be exercised
within ten years from the date of grant, or five years from the date of grant in
the case of a participant who at the time the stock option is granted owns more
than 10% of the total combined voting power of all of our classes of voting
securities.
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The exercise price of stock options granted under the plan will be
determined by our compensation committee at the time of the grant, but in no
event will the price be less than the fair market value of the underlying common
stock on the last trading day prior to the date the stock option is granted.
However, the exercise price of an incentive stock option granted to a 10%
stockholder will not be less than 110% of the fair market value of the shares on
the last trading day prior to the date the stock option is granted. The number
of shares covered by incentive stock options which may be exercised by
participants in any year cannot have an aggregate fair market value in excess of
$100,000, measured at the date of grant.
The compensation committee will determine the terms and conditions of
stock options and when they will become exercisable. Any requirement that
options be exercised in installments may be waived in whole or in part by the
compensation committee.
Payment of the exercise price may be made in cash, in shares of our
common stock owned by the participant, in a combination of the two, or
otherwise, as reflected in the applicable award agreement. Additionally, the
compensation committee may permit a participant to elect to pay the exercise
price by irrevocably authorizing a third party to sell shares of common stock,
or a sufficient portion of the shares, acquired upon exercise of the stock
option and pay to us a sufficient portion of the sale proceeds to pay the entire
exercise price and any tax withholding resulting from the exercise. A
participant has no rights as a stockholder with respect to the shares of our
common stock underlying a stock option granted under the plan until shares are
actually issued upon exercise of the stock option.
If the employment of a participant who is an employee of ours or a
subsidiary of ours is terminated by reason of the participant's death or
disability, any stock option held by the participant will automatically
terminate except that any vested portion of the option may be exercised by the
disabled participant, or by his legal representative or legatee, as the case may
be, for a period of one year or a greater or lesser period as may be specified
by the compensation committee in the grant, from the date of the death or
disability, or until the expiration of the exercise period for the stock option,
which ever is shorter.
Unless otherwise provided in the grant of a stock option, if a
participant's employment with us or any of our subsidiaries is terminated for
any reason other than due to death or disability, the participant's stock option
will automatically terminate. However, if the participant's employment is
terminated without cause or due to retirement on or after the age of 65, then
the portion of his or her stock option which has vested as the date of
termination may be exercised:
o for three months after termination or for the balance of the stock
option's exercise period, which ever is shorter; or
o for a greater or lesser period as may be specified by the
compensation committee in the grant.
Stock appreciation rights. Under the plan, our compensation committee
may grant stock appreciation rights to participants who have received stock
options. A stock appreciation right entitles the holder to surrender to us all
or a portion of a stock option in exchange for a number of shares of our common
stock determined by multiplying the excess of the fair market value per share of
our common stock on the exercise date over the exercise price per share by the
number of shares subject to the stock option and then dividing it by the fair
market value of the common stock on the date the stock appreciation right is
exercised. In the case of an incentive stock option, a stock appreciation right
may only be granted simultaneously with the grant of the underlying incentive
stock option. In the case of non-incentive stock option, a stock appreciation
right may be granted at or after the time of the grant of the underlying
non-incentive stock option. A stock appreciation right will terminate upon
termination or exercise of the related stock option. Upon exercise of a stock
appreciation right, the underlying stock option will be deemed to have been
exercised, and the related shares of our common stock will no longer be
available for issuance under the plan.
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Restricted stock. Our compensation committee may award shares of our
common stock which are subject to restrictions as the compensation committee may
determine in addition to, or in lieu of, other awards granted to participants
under the plan. The compensation committee will determine at the time of the
award, the period during which the award may be subject to forfeiture and the
vesting schedule of the shares under the award. A participant will have the
right to vote the restricted stock granted to him and to receive dividend
payments distributed on the shares in the form of cash or cash equivalents.
However, during the time that restricted stock is subject to forfeiture and
until the restricted stock is fully vested, we will retain custody of the stock
certificate representing the restricted shares and will retain custody of all
distributions, other than payment of dividends in cash or in cash equivalents,
made or declared with respect to the restricted stock. If the participant
breaches the terms or conditions set forth in the plan or in the award agreement
pertaining to the restricted stock award, or if the restricted stock otherwise
does not vest, then the participant will forfeit the award of restricted stock
and any distributions which were retained by us relating to the restricted
stock.
Deferred stock. Our compensation committee may award shares of our
common stock to be received at the end of a specified deferral period and upon
satisfaction of any other applicable restrictions, terms and conditions provided
for in the grant of the award. Any deferred stock that does not vest will be
forfeited. Deferred stock awards granted under the plan may not be sold,
exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of
other than to us the applicable deferral period. A participant will not have any
rights as a stockholder by virtue of the award of deferred stock until the
expiration of the applicable deferral period and the issuance by of a stock
certificate evidencing the award of the deferred stock. A participant may
request that the compensation committee defer issuance of an award of deferred
shares for an additional specified period, subject to certain conditions.
Stock reload options. Our compensation committee may grant to a
participant, concurrently with the grant of an incentive stock option, and at or
after the time of grant in the case of a non-incentive stock option, an option
covering a number of shares up to the amount of shares of our common stock held
by the participant for at least six months and used to pay all or part of the
exercise price of an option, and any shares withheld by us as payment for
withholding taxes. Any stock reload option will have an exercise price equal to
the fair market value of our common stock as of the date of grant of the stock
reload option. Unless otherwise provided in the stock reload option grant, a
stock reload option may be exercised commencing one year after it is granted and
will expire on the date of expiration of the stock option to which the reload
option is related.
Other stock-based awards. Our compensation committee may award other
stock-based awards, subject to limitations under applicable law, in addition to,
or in lieu of, other awards granted to participants under the plan. These other
stock-based awards are payable in, valued in, or otherwise based on, or related
to, our shares of common stock. These other stock-based awards may be in the
form of the right to purchase shares of our common stock which are not subject
to any restrictions or conditions, convertible or exchangeable debentures or
other rights convertible into shares of our common stock, as well as awards
valued by reference to the value of securities of, or the performance of, one of
our subsidiaries. Subject to the terms of the plan, the compensation committee
has complete discretion to determine the terms and conditions of other
stock-based awards. Other stock-based awards may be awarded either alone, in
addition to, or in tandem with any other awards under the plan or any other plan
in effect.
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Accelerated Vesting and Exercisability
Unless otherwise provided in the grant of an award, if any "person," as
is defined in Sections 13(d) and 14(d) of the Securities and Exchange Act of
1934, as amended ("Exchange Act"), is or becomes the "beneficial owner," as
referred in Rule 13d-3 under the Exchange Act, directly or indirectly, of our
securities representing 50% or more of the combined voting power of our then
outstanding voting securities in one or more transactions, and our board of
directors does not authorize or approve the acquisition, then the vesting
periods with respect to options and awards granted and outstanding under the
plan will be accelerated and will immediately vest, and each participant of an
option and award will have the immediate right to purchase and receive all
shares of our common stock subject to the option and award in accordance with
the terms set forth in the plan and in the corresponding award agreements.
Unless otherwise provided in the grant of an award, the compensation
committee may, in the event of an acquisition of substantially all of our assets
or at least 50% of the combined voting power of our then outstanding securities
in one or more transactions, including by way of merger or reorganization, which
has been approved by our board of directors, accelerate the vesting of any and
all stock options and other awards granted and outstanding under the plan.
Repurchases
Unless otherwise provided in the grant of an award, the compensation
committee may, in the event of an acquisition of substantially all of our assets
or at least 50% of the combined voting power of our then outstanding securities
in one or more transactions, including by way of merger or reorganization, which
has been approved by our board of directors, require a holder of any award
granted under the plan to relinquish the award to us upon payment by us to the
holder of cash in an amount equal to the fair market value of the award or $0.01
per share for awards that are out-of-the money.
Forfeitures
Unless otherwise provided in the grant of an award, if a participant's
employment with us or a subsidiary of ours is terminated for any reason and
within 12 months of the termination, the person either:
o accepts employment with any competitor of, or otherwise engages in
competition with, our business;
o solicits any of our or our subsidiaries' customers or employees to
do business with or render services to the person or any business
with which the person becomes affiliated or to which the person
renders services; or
o discloses to anyone outside our company or uses any of our or our
subsidiaries' confidential information or material in violation of
our policies or any agreement between the person and us or any of
our subsidiaries,
the compensation committee may require the participant to return to us the
economic value of any award which was obtained by the participant during the
period beginning six months prior to the date the participant's employment with
us was terminated. Unless otherwise provided in the grant of an award, if a
participant is terminated for cause, the compensation committee may require that
the participant return to us the economic value of any award which was obtained
by the participant during the six month period.
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Withholding taxes
We may withhold, or require participants to remit to us, an amount
sufficient to satisfy any federal, state or local withholding tax requirements
associated with awards under the plan. If permitted by our compensation
committee, tax withholding may be settled with shares of our common stock,
including shares that are part of the award that gives rise to the withholding
requirement.
Awards of stock appreciation rights, deferred shares, performance
shares and performance units under the plan may, in some cases, result in the
deferral of compensation that is subject to the requirements of Code Section
409A. To date, the U.S. Treasury Department and Internal Revenue Service have
issued only preliminary guidance regarding the impact of Code Section 409A on
the taxation of these types of awards. Generally, to the extent that deferrals
of these awards fail to meet certain requirements under Code Section 409A, such
awards will be subject to immediate taxation and tax penalties in the year they
vest unless the requirements of Code Section 409A are satisfied. It is the
intent of the Company that awards under the 2005 Plan will be structured and
administered in a manner that complies with the requirements of Code Section
409A.
Agreements; Transferability
Stock options, stock appreciation rights, restricted stock, deferred
stock, stock reload options and other stock-based awards granted under the plan
will be evidenced by agreements consistent with the plan in a form as prescribed
by the compensation committee. Neither the plan nor agreements evidencing awards
under the plan confer any right to continued employment upon any holder of a
stock option, stock appreciation right, restricted stock, deferred stock, stock
reload option or other stock-based award. Further, except as:
o expressly provided in the plan,
o expressly provided in the grant of an award, or
o discussed above with respect to the transferability of stock options
in certain limited exceptions,
all agreements will provide that the right to exercise stock options, receive
restricted stock after the expiration of the restriction period or deferred
stock after the expiration of the deferral period, receive payment under other
stock-based awards, or exercise a stock appreciation right cannot be transferred
except by will or the laws of descent and distribution.
Stock options may not be assigned or transferred by a participant
except by will or by the laws of descent and distribution, and during the
lifetime of a participant, the stock options may only be exercisable by the
person to whom it was granted, or, to the extent of legal incapacity or
incompetency, the participant's guardian or legal representative.
Notwithstanding the foregoing, with the approval of the compensation committee,
a participant may transfer a stock option:
o by gift, for no consideration, or pursuant to a domestic relations
order, in either case, to or for the benefit of the participant's
immediate family; or
o to an entity in which the participant or members of the
participant's immediate family own more than fifty percent of the
voting interest, in exchange for an interest in that entity.
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Additionally, the transfer will be subject to any additional limits that the
compensation committee may establish and the execution of any documents that the
compensation committee may require. If a transfer of this nature is made, the
transferee shall remain subject to all the terms and conditions applicable to
the stock option prior to the transfer.
Term and amendments
The plan will terminate when there are no awards outstanding and when
no further awards may be granted, provided that incentive options may only be
granted until December 7, 2014. Our board of directors has the right to amend,
suspend or discontinue any provision of the plan, provided that the action may
not adversely affect awards previously granted between a participant and us
without the participant's consent.
Federal income tax consequences
The following discussion of the federal income tax consequences of
participation in the plan is only a summary of the general rules applicable to
the grant and exercise of stock options and other awards and does not give
specific details or cover, among other things, state, local and foreign tax
treatment of participation in the plan. The information contained in this
section is based on present law and regulations, which are subject to being
changed prospectively or retroactively.
Incentive stock options
Participants will recognize no taxable income upon the grant or
exercise of an incentive stock option. The participant will realize no taxable
income when the incentive stock option is exercised if the participant has been
an employee of our company or our subsidiaries at all times from the date of the
grant until three months before the date of exercise, one year if the
participant is disabled. The excess, if any, of the fair market value of the
shares on the date of exercise of an incentive stock option over the exercise
price will be treated as an item of adjustment for a participant's taxable year
in which the exercise occurs and may result in an alternative minimum tax
liability for the participant. We will not qualify for any deduction in
connection with the grant or exercise of incentive stock options. Upon a
disposition of the shares after the later of two years from the date of grant or
one year after the transfer of the shares to a participant, the participant will
recognize the difference, if any, between the amount realized and the exercise
price as long-term capital gain or long-term capital loss, as the case may be,
if the shares are capital assets.
If common stock acquired upon the exercise of an incentive stock option
is disposed of prior to the expiration of the holding periods described above:
o the participant will recognize ordinary compensation income in the
taxable year of disposition in an amount equal to the excess, if
any, of the lesser of the fair market value of the shares on the
date of exercise or the amount realized on the disposition of the
shares, over the exercise price paid for the shares; and
o we will qualify for a deduction equal to any amount recognized,
subject to the limitation that the compensation be reasonable.
In the case of a disposition of shares earlier than two years from the date of
the grant or in the same taxable year as the exercise, where the amount realized
on the disposition is less than the fair market value of the shares on the date
of exercise, there will be no adjustment since the amount treated as an item of
adjustment, for alternative minimum tax purposes, is limited to the excess of
the amount realized on the disposition over the exercise price, which is the
same amount included in regular taxable income.
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Non-Incentive stock options
With respect to non-incentive stock options:
o upon grant of the stock option, the participant will recognize no
income provided that the exercise price was not less than the fair
market value of our common stock on the date of grant;
o upon exercise of the stock option, if the shares of common stock are
not subject to a substantial risk of forfeiture, the participant
will recognize ordinary compensation income in an amount equal to
the excess, if any, of the fair market value of the shares on the
date of exercise over the exercise price, and we will qualify for a
deduction in the same amount, subject to the requirement that the
compensation be reasonable; and
o we will be required to comply with applicable federal income tax
withholding requirements with respect to the amount of ordinary
compensation income recognized by the participant.
On a disposition of the shares, the participant will recognize gain or
loss equal to the difference between the amount realized and the sum of the
exercise price and the ordinary compensation income recognized. The gain or loss
will be treated as capital gain or loss if the shares are capital assets and as
short-term or long-term capital gain or loss, depending upon the length of time
that the participant held the shares.
If the shares acquired upon exercise of a non-incentive stock option
are subject to a substantial risk of forfeiture, the participant will recognize
ordinary income at the time when the substantial risk of forfeiture is removed,
unless the participant timely files under the Code, Section 83(b), to elect to
be taxed on the receipt of shares, and we will qualify for a corresponding
deduction at that time. The amount of ordinary income will be equal to the
excess of the fair market value of the shares at the time the income is
recognized over the amount, if any, paid for the shares.
Stock appreciation rights
Upon the grant of a stock appreciation right, the participant
recognizes no taxable income and we receive no deduction. The participant
recognizes ordinary income and we receive a deduction at the time of exercise
equal to the cash and fair market value of common stock payable upon the
exercise.
Restricted stock
A participant who receives restricted stock will recognize no income on
the grant of the restricted stock and we will not qualify for any deduction. At
the time the restricted stock is no longer subject to a substantial risk of
forfeiture, a participant will recognize ordinary compensation income in an
amount equal to the excess, if any, of the fair market value of the restricted
stock at the time the restriction lapses over the consideration paid for the
restricted stock. A participant's shares are treated as being subject to a
substantial risk of forfeiture so long as his or her sale of the shares at a
profit could subject him or her to a suit under Section 16(b) of the Exchange
Act. The holding period to determine whether the participant has long-term or
short-term capital gain or loss begins when the restriction period expires, and
the tax basis for the shares will generally be the fair market value of the
shares on this date.
A participant may elect under Section 83(b) of the Code, within 30 days
of the transfer of the restricted stock, to recognize ordinary compensation
income on the date of transfer in an amount equal to the excess, if any, of the
fair market value on the date of transfer of the shares of restricted stock, as
determined without regard to the restrictions, over the consideration paid for
the restricted stock. If a participant makes an election and thereafter forfeits
the shares, no ordinary loss deduction will be allowed. The forfeiture will be
treated as a sale or exchange upon which there is realized loss equal to the
excess, if any, of the consideration paid for the shares over the amount
realized on such forfeiture. The loss will be a capital loss if the shares are
capital assets. If a participant makes an election under Section 83(b), the
holding period will commence on the day after the date of transfer and the tax
basis will equal the fair market value of shares, as determined without regard
to the restrictions, on the date of transfer.
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On a disposition of the shares, a participant will recognize gain or
loss equal to the difference between the amount realized and the tax basis for
the shares.
Whether or not the participant makes an election under Section 83(b),
we generally will qualify for a deduction, subject to the reasonableness of
compensation limitation, equal to the amount that is taxable as ordinary income
to the participant, in its taxable year in which the income is included in the
participant's gross income. The income recognized by the participant will be
subject to applicable withholding tax requirements.
Dividends paid on restricted stock which is subject to a substantial
risk of forfeiture generally will be treated as compensation that is taxable as
ordinary compensation income to the participant and will be deductible by us
subject to the reasonableness limitation. If, however, the participant makes a
Section 83(b) election, the dividends will be treated as dividends and taxable
as ordinary income to the participant, but will not be deductible by us.
Deferred stock
A participant who receives an award of deferred stock will recognize no
income on the grant of the award. However, he or she will recognize ordinary
compensation income on the transfer of the deferred stock, or the later lapse of
a substantial risk of forfeiture to which the deferred stock is subject, if the
participant does not make a Section 83(b) election, in accordance with the same
rules as discussed above under the caption "Restricted stock."
Other stock-based awards
The federal income tax treatment of other stock-based awards will
depend on the nature and restrictions applicable to the award.
INFORMATION ABOUT THE ORIGIN PARTIES
Business of Origin
General
State Harvest Holdings Limited (referred to as Origin), is a British
Virgin Islands holding company was established on October 6, 2004. On December
25, 2004, it entered into stock consignment agreements for the control of the
Origin Operating Companies, other than Origin Biotechnology of which it owns
100% of the outstanding stock. Through the control of the four Origin Operating
Companies, it will conduct operations in the field of hybrid crop seed
development, production and distribution through its subsidiaries, which are
Beijing Origin Seed Limited ("Origin Seed"), Changchun Origin Seed Technology
Development Limited, Henan Origin Cotton Technology Development Limited and
Beijing Origin State Harvest Biotechnology Limited ("Origin Biotechnology"), the
technology-intellectual property holding and licensing company. All of the
Origin Operating Companies are organized under the laws of the PRC.
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The first Origin Operating Company formed was Origin Seed, which was
founded in Beijing in 1997 and began operations in 1998. The initial operations
consisted of licensing existing proprietary hybrid corn seeds for development
and production and initial commercial distribution of its first hybrid corn
seed, YuYu 22. Although Origin has continued to license hybrid seeds from
others, it is increasingly relying on its own proprietary hybrid seed varieties
which it began to develop in 1998. In 2003, it began commercial distribution of
OS 19, the first of Origin's products to be entirely internally developed.
The Chinese Crop Seed Market
The Chinese agricultural sector is primarily made up of small land
holdings. Typically, farms are family owned and tend to be small, on average
just 0.2 hectors (about 0.5 acres). Origin estimates that there are
approximately 200,000,000 peasant family farms in China. The Chinese farms are
currently providing the majority of the food that is consumed in China.
Increasingly, corn is becoming an important crop in China because it has a
number of uses, including as livestock feed and a source of fuel in the nature
of ethanol.
Origin believes that the Chinese agricultural seed industry can be
characterized as fragmented, generally served by small, local seed suppliers.
These seed companies typically developed as part of the local county
governmental structure, designed to provide service and support to local farmers
prior to China's more recent drive toward modernization and a market economy.
They are, in a true sense, extensions of the government bureaucracy. As a
result, these local seed suppliers tend to be small, inefficient, resistant to
or lacking the resources to pursue innovation and technology and, since they are
government run, not very profitable. Their products tend to be based on those
varieties of crops that have been grown in their respective locales for years,
or even decades. Rarely is there much upgrading of the quality of the seeds and
varietals by these local seed suppliers.
Improved seed products have been generally available in China through
large multinational suppliers, the largest being Pioneer International, Monsanto
and Sygenta, and each having established operations in China some time ago.
However, management has observed that these large companies tend to operate in a
manner typical of western-style agribusiness, where customers are large
corporations themselves with extensive in-house technical staffs to select seeds
and develop cultivation methods that maximize yields. Success for them depends
on making sales to a relative few accounts that do not require a high level of
technical support. Management believes that the traditional Western agribusiness
model does not work well in China, where small family farms continue to
predominate. As a result, it does not appear that the multinational seed
companies have penetrated the Chinese market to any appreciable extent.
Origin was founded with a business strategy that would meet what it
believes to be the needs of Chinese farmers. That business strategy consisted of
the following elements:
(i) Reliance on proprietary seed products, initially licensed and
increasingly internally developed, to deliver superior value to customers and
establish barriers to competition;
(ii) Devising a process for obtaining regulatory approvals for new crop
seeds (a Chinese legal requirement) that has proven efficient and effective;
(iii) Establishing a broad network of farmers in several regions to
participate in the seed development process and to produce crop seeds for
commercial distribution once approval is received;
(iv) Creating an effective distribution system using a relatively small
network of primary distributors, only one in each county with exclusive
territories, with which it can deal directly and efficiently which, in turn,
develop their own secondary distribution network to reach out directly to the
family farmers. This distribution network is not only a means for securing and
fulfilling orders, but it acts as a conduit for Origin's marketing and technical
support activities.
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(v) Origin relies on a number of marketing activities to retain
existing customers and attract new ones. These marketing activities include:
- a demonstration program that provides technical assistance
to customers regarding the correct seed choice and proper cultivation methods;
- television advertising and a newsletter published three
times per year that reaches nearly 2 million seed customers and provides them
with information on the benefits of Origin's products and the techniques for
maximizing yields;
- a database of over 1 million customers that Origin uses to
keep repeat sales at a high level, an important component of revenue growth.
(vi) Origin delivers customer service and technical support to assist
customers throughout the growing season for its products. Customers can contact
Origin through a dedicated call center that handles up to 6,000 calls per day.
Field service representatives are dispatched within 48 hours of a customer's
request for help.
This business model and strategy has proven effective. Origin has
increased its annual revenues by an annual average of more than 30% over the
three year period of fiscal 2002 through fiscal 2004. Management believes that
it will increase revenues for fiscal 2005. This estimate is based on the fact
that Origin receives orders with deposits well in advance of the next year's
growing season, which enables it to calculate demand and make estimates of its
sales volume and revenue. Generally, Origin seed products carry a premium price.
Several factors enable Origin to obtain the higher price, including what it
believes to be superior quality of the seeds, which superiority is based on
higher crop yield factors and disease and drought resistance of its seeds.
Origin seeds currently provide dealers a higher profit margin, therefore,
management finds that they tend to more actively promote Origin products in the
market place.
Origin Represents a Consolidation Opportunity in a Fragmented Market
Origin believes that the global hybrid seed market is largely
controlled by Monsanto, Pioneer International and Sygenta; however, there does
not appear to be a market leader in China at this time. The Chinese seed market
has many suppliers. Management believes that eight companies control less than
25% of the market. Management believes that most of the seed companies,
especially the small and government-affiliated ones, are generally, poorly run
and have no motivation to expand geographically. Management also believes that
their product is generally neither uniform nor up to international standards.
Origin believes that, in the future, it is likely that these companies will
discontinue seed production and become distributors for the larger, better
capitalized and quality oriented seed companies, like Origin.
Intellectual Property Base
Origin has a growing portfolio of its own seed hybrids and varieties,
some of which are subject to Chinese patents. Origin considers its proprietary
products and patents to be important to its business. The basis for a patent on
a seed is the use of DNA fingerprinting. The presence of a DNA fingerprint
enables identification of the seed and can be used to determine if others are
infringing on the patent. Origin also uses additional measures of
identification, including holographic coding of each bag of seed, to limit
infringement and support enforcement of its rights. Farmers can call the
technical support line to verify the code, ensuring the seed is a genuine Origin
product. Operators note each time a code is verified, negating the possibility
of a counterfeiter repeatedly using the same number. Origin receives as many as
6,000 phone calls per day for technical assistance and code verification. The
patented seeds are as follows:
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Patent Name of Patent Patent Number Proprietor of Patent Effective Period
------ -------------- ------------- -------------------- ----------------
Design Patent Packing bag ZL 993 14865.4 Beijing Origin Seed November 1, 1999
to
Limited October 31, 2009
Invention Patent A method of producing ZL 02146510.X Beijing Origin Seed October 18, 2002
to
hybrid corn seed Limited October 17, 2022
Henan Agriculture
University
In addition, the Origin Operating Companies have seven trademarks that
have been registered in the PRC, which registrations cover periods expiring
between 2009 through 2015. These trademarks include names and artwork and are
used in connection with all their seed products and packaging.
Origin launched its first proprietary product in 2003 after six years
of research and development. In 2004, Origin delivered four new proprietary corn
seeds and one cottonseed products. With its research, breeding system and
management, Origin is planning to introduce approximately 40 new proprietary
products into the government testing and approval cycle in the calendar years
2005 through 2008. The testing and approval process takes three full years.
Currently, Origin has seven products in the third and last year of the testing
and approval cycle, 16 products in the second and 23 products in the first.
In addition to the development of its own proprietary seeds, Origin
licenses the distribution of seeds developed by independent research and
development institutions which have no commercialization ability or distribution
channels of their own. Currently, Origin licenses 14 varieties of corn and two
varieties of cotton seed. Under the typical license agreement, one of the Origin
Operating Companies will license a designated product for exclusive production
and marketing within China. The license fees vary in their method of
determination, but generally they are a percentage of revenues from the sale of
the variety or is a flat fee arrangement. No agreement requires payment in
excess of 1% of the revenues of Origin. Beijing Origin has these types of
agreements with Hubei Province Shiyan Agricultural Sciences Institute, China
Academy of Sciences Microbiology Institute and Corn Research Institution of Li
County in Hebei Province. Only one corn seed product, YuYu 22, is licensed on a
non-exclusive basis. The YuYu 22 variety is licensed from Henan Agricultural
University for an indefinite term. The university has granted the right to
produce, distribute and propagate the variety. The university also will provide
technical materials and instructions, supervise seed quality and evaluate
growing areas. It will also pursue the PRC New Plant Variety Notification for
YuYu 22. Beijing Origin pays a technology license fee of 20RMB for each mu (unit
of area equivalent to .164 of an acre) of seed production area per year. Beijing
Origin is responsible for all the propagation costs, maintaining quality
standards, and safeguarding the variety reputation and rights of the university.
As the Origin Operating Companies develop more of their own seeds and as they
are approved, the number of seeds that they license from others has been
declining. Origin expects that this decline in licensing from others will
continue. Origin does not consider that it is dependant on any single licensed
seed product.
In the future, Origin will pursue licensing of its own proprietary
seeds. One of the goals of the reorganization and establishment of Origin
Biotechnology is to hold all the intellectual property assets of the Origin
Operating Companies. To date, Origin has not engaged in any meaningful licensing
arrangements of its seeds for the production and sale by others.
Origin has also sought and achieved court protection of its branded
seeds. In an action commenced in the Nanzhou courts, in July 2004 against 12
seed companies which sold one of its corn seed products without license, the
first tribunal level ordered a cease and desist of infringement of the company
seed product and awarded damages in the amount of RMB 4,700,000 (US$567,873).
The case was appealed by the defendants on the issue of the damages only, which
appeal was dismissed. This case is unique in China and has demonstrated support
for protecting seed production and ownership rights under the Regulations of the
PRC on the Protection of New Varieties of Plants which protects the right of an
owner of a plant variety to produce and sell the varieties and propagating
material.
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Genetically modified (GM) seeds have not enjoyed a large share of
Chinese crop seed market to date. The timing and rate of acceptance of GM seeds
in China are not yet clear. However, Origin believes that the advantages of GM
seeds potentially makes them a significant component of the Chinese crop seed
market. As a result, it has begun its own biotech research program to develop GM
seeds, giving it the future capability to enter the market as acceptance of
those products grows.
Origin's Commercial Product Development.
Origin believes that it maintains a strict seed quality control system.
It was the first Chinese seed company to gain ISO9001-2000 certification. To
continue its position as a quality producer, the company budgets approximately
5% of its gross income resources based on the prior year results on research and
development. Because of the increase in gross revenues, the actual amount spend
has generally been 3%. Origin has spent 6,773,621RMB (US$818,416), 5,287964RMB
and 5,371,954RMB in each of the years ended December 31, 2004, 2003, and 2002,
respectively.
Also, Origin established its own stable of seed production bases in
Gansu and Inner Mongolia by providing seed-producing farmers with technical
training and field quality control practices. Origin believes that it has
significant processing capability and uses advanced equipment for efficiency and
maintaining a high quality of hybrid seeds. By employing these practices, Origin
believes that it has achieved a product quality on par with that of its foreign
counterparts that is consistently well received by its customers.
Origin has close relationships with some of the top academic research
institutions in China, including the Chinese Academy of Science, China
Agricultural Academy of Science, Beijing Agricultural Academy of Science, Henan
Agricultural University and Liaoning Agricultural Academy. Origin has cooperated
with these institutions through contractual research, partnering relationships
and by joint-licensing various varieties of their hybrid seeds. One of Origin's
subsidiaries is 2.04% owned by Henan Agricultural University.
These relationships were important to Origin in its early stages to
help it get started in the crop seed business as they made available to Origin
already developed and approved seeds that Origin could then put into production
and distribution. As Origin has developed its internal capabilities to perform
research and develop hybrid and genetically modified seeds, the importance of
these relationships has diminished significantly, but they remain helpful to
Origin continuing its efforts to expand its product offering and its market
share.
The development of the science of genetics has permitted the creation
of new species of corn, rice and cotton, rather than just new varieties.
Genetically modified (GM) corn, soybean and cotton have been widely used in the
United States and many other countries to guard against insect damage and to
increase yields. The future potential for GM corn and rice in China exists.
Since receiving Chinese government approval, cotton modified to guard against
borer damage is now widely planted. Because the Chinese market has widely
accepted GM cotton and the Ministry of Agriculture is beginning to promote GM
rice seed as well, Origin believes that GM products will eventually be fully
promoted and accepted in the Chinese market.
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In response to these developments, Origin initiated its own biotech
program in 2000, and it is cooperating with the Chinese Academy of Science,
China Agricultural University, China Agricultural Academy of Science and Beijing
Agricultural Academy of Science on gene research. Origin's strategy is to ensure
that its technology will be ready when the market is ready.
Once approval for distribution of a new seed is obtained, the producer
must turn to commercial development of the seed variety. Origin does this by
distributing the seed to its network of more than 60,000 farmers, each of whom
plants the hybrid to produce seeds for commercial distribution the following
season. This network of local farmers who produce Origin's seeds is an important
element of Origin's strategy to produce an increasing number of products with
consistent quality.
Origin depends on this network of farmers to grow and develop its seeds
for commercial distribution. A problem in this network could disrupt the
introduction of a new product or the continued availability of an existing one.
However, Origin has taken several measures to reduce those risks and to convert
its commercial product development network into a reliable source of its
products. Those measures include obtaining the cooperation of local government
officials in converting land to crop seed production and offering the farmers
who produce the seeds attractive returns relative to those they would receive
from growing crops for sale or consumption.
National Marketing and Distribution
Origin has its own sales organization consisting of 142 persons that
oversee all aspects of the distribution and retail sale network and promote the
company sales to the expanding distribution chain.
Origin has established a stable, nationwide distribution network with
over 1,200 first-level distributors and over 20,000 second-level distributors
and some retailers. The distributors in turn sell to the retailers and retailers
sell to the farmers. This distribution network covers almost all the provinces
of the PRC, excluding only Qinghai and Tibet. The top five provinces in terms of
sales volume are Jilin, Sichuan, Liaoning, Chongqin and Hunan, representing
42.51% of Origin's 2003 annual sales volume.
The terms of the Origin distributor agreement provide for territorial
exclusivity, usually on a county-wide basis. To enforce exclusivity and monitor
product locations, Origin assigns a code to each distributor and marks all
packaging sent to the distributor with this code. Vigilant monitoring of
territory integrity and enforcement of contractual penalties, which may include
termination of distribution rights, provides stability and profitability within
the distribution network, ensuring quality services and product availability.
Origin believes that it enjoys a very positive reputation for its implementation
and enforcement of this exclusive distribution system. Distributors buy Origin
seeds at a wholesale price established by Origin, and are required to make full
payment prior to delivery. Distributors which place orders and make deposits on
an order in the period August - October for sales to be made the following year
are generally offered a discount. At the end of the annual sales season, Origin
sets a final sales price that often is below the suggested retail price.
Normally, Origin will defer recognition of revenue from deposits until services
have been rendered, the price is fixed or determinable, collectibility is
reasonably assured and the right of return is expired. In the seed industry in
the PRC, the selling price will be determined around April or May for seeds sold
during the several months prior to that time. Advance deposit orders account for
between 70% and 80% of Origin's sales. The term of a typical distributor
agreement varies depending on negotiations and the nature of the distributor and
its prospective territory. There usually is an initial payment for the
distribution right which is applied in whole or in part to future orders,
depending upon compliance with the terms of the agreement. The agreement also
delineates pricing adherence requirements and permissibly discounting sales,
territory, ordering and supply obligations, returns market support and other
regular business terms and dispute resolution agreements. No one distributor
accounts for more than 1% of sales.
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On an annual basis, Origin's sales team assists distributors in writing
monthly sales plans. These sales plans are then submitted to Origin via
facsimile 30 days prior to required seed delivery dates. Every year during the
harvest season, Origin organizes corn production demonstrations in cooperation
with local villages and seed distributors, to which are invited farmers and
others in the seed distribution chain. At these demonstrations, Origin teams
show their hybrid corn, explain planting techniques, discuss industry best
practices and disseminate promotional materials. These marketing and production
demonstrations help create new demand, not only in each village where
demonstrations are held, but also in nearby villages, for both the current
season and for succeeding years.
The technical service department of Origin has a 24-hour toll-free
number available for farmers and distributors, through which they can obtain
solutions to specific technical problems and issues of seed piracy. If on-site
help is required, a Technical Assistant will arrive on location within 48 hours
of a call. Origin also enlists the help of its distributors to provide help and
advice to the farmer. Origin believes that its focus on customer service and
technical support have helped it to build brand identity and loyalty,
contributing to its total sales growth over the last several years.
Using local TV and radio broadcasts, Origin promotes its brand to over
70% of its geographic market, reaching over fourteen million individual farmer
households. Additionally, Origin publishes a seasonal newspaper, "Origin News,"
with a distribution to about twenty million farmers in which it addresses
technical issues, shares success stories and further promotes the Origin brand.
Origin News is the de facto source of product and technical information for the
Chinese peasant farmer. Origin maintains a database of over 1,000,000 farmers
that tracks buying habits and contact information.
Product and technical service brochures are provided throughout the
distribution network and prove a valuable tool in promoting the sale of the corn
seed product and the recognition of the Origin brand. The Origin slogan, "When
buying seed, quality is paramount -- trust Origin," appears on all promotional
material, helping to build the brand in all the local markets.
Future Strategy: Entering the Cottonseed and Rice Seed Markets
Origin believes that the PRC is the largest producer and consumer of
cotton in the world and demand appears to be growing in the PRC. In China, rice
is planted mainly for human consumption, and the demand for rice seed is
substantial in China. Since the business models for corn, cotton and rice
production are very similar, and they share similar sales channels, part of
Origin's strategic plan is to participate in the cotton and rice seed business.
Since its inception in 1998, Origin has been working to develop its own
hybrid cottonseed. Currently, it has two cotton products in government testing
programs. After its success with corn seed sales in the Southwest of China (a
primary agricultural area for rice), Origin decided to enter the rice business
by taking advantage of its existing sales channels and corporate brand image. To
facilitate a quick start to this program, Origin plans to license a hybrid rice
seed from a partner research institute for resale by the end of this year.
Government Regulation
Participation in the crop seed business is a highly regulated activity
in the PRC. For a company to enter the seed business, it must obtain two special
licenses. One is issued at the provincial level, entitling the holder to engage
in seed production in that province. This license specifies the types of seeds
which may be produced. The second is a license to distribute seeds. As described
below, the level of the licensee's registered capital determines if the
distribution license is issued at the national or provincial level:
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o To obtain a national distribution license, the licensee must have
registered capital of at least RMB 30 million (approximately
$3,750,000);
o To obtain a provincial license to distribute hybrid seeds, the
licensee requires registered capital of not less than RMB 5 million
(approximately $645,000); and
o To obtain a provincial license to distribute non-hybrid seed
varieties, the licensee requires registered capital of not less than
RMB 1 million (approximately $125,000).
A separate license is required to import and export seeds. To obtain
this license, the applicant must have minimum registered capital of RMB 10
million (approximately $1,250,000).
Origin has a national distribution license, which entitles it to sell
approved seeds in any province in the PRC.
In addition to the license(s) needed to engage in the seed production
and distribution business, each seed must undergo a stringent regulatory review
before it may be sold in China. A seed production company cannot receive a
license to engage in seed production, regardless of the level of its registered
capital, until it has secured rights to an approved seed product.
The testing of seeds for approval can be conducted at the provincial
level or the national level. However, seeds that have been approved at the
provincial level can only be distributed in the province in which the approval
was issued. An approval at the national level means the approved seed can be
distributed nationwide.
The procedure for provincial examination and approval requires the
applicant to:
o Submit the application to provincial government;
o Go through two cycles of monitored growth in at least five different
locations in the province. Seeds submitted for testing are planted
together with control seeds, which is typically the most popular
seed with farmers in the testing locations. Only seeds that have and
increased yield of 8% or higher versus the control seeds and that
rank in the top 6 among all seeds then being tested are cleared to
proceed to the second year of testing, during which the results of
the initial test season must be confirmed;
o Go through one successful cycle of trial production, also in at
least five different locations; and
o Granting of the provincial examination certificate and public
announcement.
The procedure for national examination and approval requires the
applicant to:
o Submit the application to the Ministry of Agriculture;
o Go through two cycles of monitored production in at least five
different locations. Only seeds that have 8% or higher yield
compared to control seeds and that also rank in the top 6 among all
seeds being tested in that cycle can proceed to the second year of
testing; and
o Go through one successful cycle of trial production in at least five
different locations.
Seeds developed outside of China must also follow the above procedures
before they can be distributed in China.
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The ability to process an application for approval is an important
element of success, especially in view of the long timeframe associated with
obtaining approval after the seed has been developed. Failures and delays in
getting the approvals on a timely basis can seriously disrupt the planning that
is critical to begin commercial production. A minimum of six years - three to
obtain approval and three to develop the first crop of seed for commercial
distribution - is required to bring a seed to market after it has been
developed. Because of its extensive network of seed-producing farmers, Origin is
able to bring a new product to market consistently in the minimum time. Other
seed companies often take an additional season or more to bring an approved
product to market. This loss of an entire growing season can be a significant
disadvantage.
Origin has been able to successfully process 12 applications for
approval through the required agencies, including one in 2003, four in 2004 and
seven in 2005. While no approval is assured until granted, Origin believes that
it can expect to have a high number of successful product approvals for its
upcoming products, and thus ensure that it will have a product base that will
enable it to continue to expand its market presence.
Competition
Origin faces competition at several different levels, ranging from
several other private Chinese companies, local seed companies that are often
extensions of the local government, and large multinational hybrid and
genetically modified seed producers. Origin believes that it can compete
effectively with each of these and believes that it can continue to do so into
the future. Each of these groups of competitors is discussed in turn, below.
Other Large Chinese Seed Companies. Origin believes there are eight
seed companies that control about 25% of the corn seed market. Of the other seed
suppliers, most have a market share that probably is measured in fractions of a
percent. The majority of the largest crop seed companies have been in existence
for considerably longer periods of time than Origin. Many of them have greater
financial resources than Origin. Some of these larger entities are state owned
enterprises where the incentives are different and the business agility is not
as great. Origin competes within this group on the basis of its consistent
product quality, brand identity, customer and technical support, enforcement of
its intellectual property rights, and a pipeline of proprietary products.
Local Seed Companies. The local seed companies in China are the legacy
of the centrally planned agricultural economy that was predominant in China
until recently. Most of these are, or were, affiliated with county governments,
which played a role in determining what crops would be grown and by whom. As was
often the case with planned economies, these extensions of the bureaucracy had
no profit motive, and no incentive to improve efficiencies, increase sales or
innovate with new products. Market expansion was limited by the tight geographic
boundaries within which they were designed to operate.
The majority of these local companies lack the scale and the resources
to compete with Origin in a number of ways. They lack access to the improved,
proprietary hybrids that are the core of Origin's business. For the most part
they do not have effective marketing, advertising, technical support or customer
service operations. The majority of Origin's recent growth has come from
acquiring customers from these operations. Origin believes that the existing
trend will continue, and that eventually some of these smaller, local
distributors can be integrated into Origin's distribution network.
Multinational Seed Companies. At the opposite end of the competitive
spectrum from the local seed companies are the large multinational companies, of
which Pioneer International, Monsanto and Sygenta are just two. These concerns
present a formidable competitive threat from the standpoint of their financial
resources and the high quality of their seed products. However, the unique
aspects of the Chinese crop seed market, which distinguish it from the market in
western countries, have proven a significant barrier to entry for these very
large companies, even though they have come to the market through joint ventures
formed with existing Chinese seed companies.
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The principal difference between the Chinese and Western markets is the
sheer number of customers which these companies need to reach in China that in
turn produces a low average sale. Success in China depends on effectively
marketing to a very large number of small customers, which is entirely different
from selling to large agricultural customers that dominate the markets in North
America and Europe. Relatively few Chinese companies have achieved any degree of
success in doing so, and the international competitors, despite several years of
trying, have not succeeded to any meaningful degree.
Another important consideration limiting the competitiveness of these
multinationals is their heavy reliance on genetically modified organisms to
produce their crops. Origin's market research indicates that most of the
superior products that the multinationals have to offer are genetically
modified. To date, a cotton seed is the only genetically modified seed product
to have received approval in China. By contrast, Origin relies primarily upon
standard hybridizing to produce its improved seed varieties. However, Origin
recognizes the potential that genetically modified crop seeds will gain
acceptance in China and for that reason it has begun a biotech seed development
program that relies on genetic modifications to improve the quality of seeds and
their yields, positioning Origin to compete in that portion of the market..
Should genetically modified seeds begin to gain broader acceptance in
the market, the large biotech companies, who currently make the majority of
those seeds, would become more serious competitors. However, they will also
continue to face numerous obstacles in competing with Origin, including the
significant lead time associated with obtaining approval of a new seed and the
need to establish effective sales, marketing and distribution networks to manage
the large volume of small purchases that is characteristic of the Chinese
market.
Employees
As of December 31, 2004, Origin and the Origin Operating Companies had
approximately 400 full-time employees. Origin and the Origin Operating Companies
expect to employ additional personnel as they expand their operations. Origin
believes that its employee relations are good.
Origin currently has 32 research and development specialists, 142 sales
people, 59 administrative staff, and 183 technicians in its production plants.
Facilities
The Origin Operating Companies own or lease manufacturing facilities,
laboratories, seed production and other agricultural facilities, office space,
warehouses, research stations and breeding centers in Beijing and Gansu, Henan,
Helongjiang, Liaoning, Jilin, Hainan and Sichuan Provinces. The leased
facilities are rented at regular commercial rates, and management believes other
facilities are available at competitive rates should it be required to change
locations or add facilities.
91
The Origin headquarters are located in Beijing, where it leases office
space and land for research and development center.
Origin owns three seed conditioning plants located in Linze (in
northwest China), Changchun (in northeast China) and Zhengzhou (in central
China), and leases one seed conditioning plant located in Chengdu (in southwest
China). At these properties are seed processing equipment, bleachers, warehouses
and other production facilities.
Origin also leases land as maize breeding stations in Harbin, Tieling
(northwest China), Beijing, Zhengzhou), Chengdu, and Hainan island.
Origin is planning on building additional facilities in Beijing and in
two other locations for the Linze branch office and for Changchun Origin.
Together, the owned, leased and proposed facilities are adequate to
conduct the business operations of Origin.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Business
Origin develops and supplies crop seeds to the PRC agricultural market.
Its initial focus was on hybrid corn seed production and sales, but it has
expanded its activities to include the development and sale of hybrid cotton
seeds and rice seeds as well.
Origin achieved net income of RMB 65.46 million (US$ 7,9 million) in
2004 and RMB28.95 million (US$3.49 million) in 2003, and RMB 26.56 million
(US$3.2 million) in 2002. For 2004, Origin generated RMB 301.52 million
(US$36.43 million) in total revenues, compared to RMB 191.65 million (US$23.16
million) and RMB 98.72 million (US$11.93 million) for 2003 and 2002,
respectively, representing an increase of 57.33% and 94.14%, respectively.
During 2004, approximately 97.67% of Origin's product revenues came from sales
of its corn hybrid seeds. The remaining approximately 1.6% of revenues were
derived from the sale of cotton seeds, and 0.73 % of revenues came from rice
seed . The rice seed business is expected to become a growth point in Origin's
business in the near term.
Origin's ability to continue growing sales will depend upon a number of
factors, including its need of sufficient funds to expand market share and to
develop and to offer new superior quality products and after sales service,
which historically has been the principal driver of increased sales, its
continued ability to obtain new customers who will re-order on a predictable
basis, its ability to continue expansion of its product line to include rice
seeds, and the decreasing competitiveness of the local seed companies that
formerly dominated the seed market in the PRC.
Origin was incorporated under the laws of the British Virgin Islands on
October 6, 2004. On December 1, 2004, Origin established Beijing Origin State
Harvest Biotechnology Limited ("BioTech"), a wholly foreign owned enterprise
under the laws of PRC.
To comply with ownership requirements under PRC law which restrict
direct wholly foreign ownership of companies in the seed industry in the PRC,
Origin have entered into a series of stock consignment agreements with three
affiliated Chinese entities Beijing Origin, Henan Cotton and Changchun Origin
and all the stockholders of Beijing Origin, together holding 97.96% of the total
equity shares of Beijing Origin (except for the Henan Agriculture University who
holds 2.04% of the Beijing Origin's shares); all stockholders of the Henan
Origin Cotton together holding 97.96% of the total equity shares of the Henan
Cotton (except for Mr. Gu Dengbin, who holds 2.04% of the Henan Cotton's
shares), and all stockholders holding 100% of the equity shares of the Changchun
Origin. Origin conducts substantially all of its business through Beijing
Origin, Henan Cotton and Changchun Origin.
92
Through the stock consignment agreements with these aforesaid
stockholders of Chinese affiliates, Origin has the power to vote all shares of
all these stockholders on all matters and otherwise control the three companies.
During the consignment period which is three years from the signing of this
Agreement and is extended automatically until a written termination agreement is
signed by the parties, Origin is entitled to exercise and enjoy any and all
property rights, other than title, in relation to the consigned shares which
include, but are not limited to, the profits, interests, dividends, bonus, and
after liquidation, the residue assets. If Origin is permitted to acquire title
under PRC law, the consigned shares will be transferred to Origin with no
additional compensation to be paid by Origin to any consigning stockholder.
Beijing Origin, Henan Cotton and Changchun Origin (collectively "the Variable
Interest Entities") also entered into technical service agreements with BioTech.
Under these agreements, BioTech shall provide, with its own technical research
resources and team, technical services for the production and distribution of
agricultural seeds during the period of this agreement. In return, the Variable
Interest Entities are required to pay BioTech service fees calculated according
to the weight of corn, rice and cotton seeds sold by the Variable Interest
Entities.
Under the requirements of FIN 46 (Revised) "Consolidation of Variable
Interest Entities" ("FIN 46 (R)"), Origin is deemed to be the sole beneficiary
of the Variable Interest Entities: Beijing Origin, Henan Cotton and Changchun
Origin. Accordingly, Origin's consolidated financial statements are prepared by
including the consolidated financial statements of Beijing Origin and its
subsidiaries through December 24, 2004, and subsequently the Company's
consolidated financial statements includes Origin and its subsidiary and Beijing
Origin and its subsidiaries, Henan Cotton and Changchun Origin.
Critical Accounting Policies.
The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States, or U.S. GAAP. The preparation of those financial statements
requires us to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions or
conditions.
Critical accounting policies are those that reflect significant
judgments or uncertainties, and potentially result in materially different
results under different assumptions and conditions. We have described below what
we believe are our most critical accounting policies that involve a high degree
of judgment and the methods of their application. For a description of all of
the company's significant accounting policies, see Note 2 to Origin's
consolidated financial statements.
Revenue Recognition
Origin derives revenue primarily from the sale of various branded
conventional seeds and branded seeds with biotechnology traits. Origin
recognizes revenue when pervasive evidence of an arrangement exists, services
have been rendered , the price is fixed and determinable, collectibility is
reasonably assured and the right of return has expired. Accordingly, Origin
defers revenue until all sale return privileges lapse which generally occurs
within 15 days of delivery at which time the selling price has been finalized
with the customer. Amounts billed in excess of revenue recognized are recorded
as deferred revenue.
Impairment of long-lived assets
Origin reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may no
longer be recoverable. When these events occur, Origin measures impairment by
comparing the carrying value of the long-lived assets to the estimated
undiscounted future cash flows expected to result from the use of the asset and
eventual disposition. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, an
impairment loss, equal to the excess of the carrying amount over the fair market
value of the asset is recognized.
93
Acquired intangible assets, net
Acquired intangible assets consist primarily of purchased technology
rights and are stated at cost less accumulated amortization. Amortization is
calculated on a straight-line basis over the estimated useful lives of these
assets of 6 to 10 years and records in cost of revenues.
Government subsidies
Origin receives government subsidies in the form funds for research and
development activities and subsidies which reduce the cost of land use rights.
Results of Operations
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003.
Total net revenue increased by 57.33% from 2003 to 2004, to RMB 301.52
million (US$36.43 million) in 2004, as compared to RMB 191.65 million (US$23.16
million) in 2003. This increase was due to an increase in the quantity of corn
seed sold together with a higher selling price. The expansion of sales in the
Southwest and Northeast regions of China caused a substantial increase in sales
quantity. The volume of corn seed was increased by 12.15 million kilograms,
which grew from 26.3 million kilograms in 2003 to 38.45 million kilograms in
2004. In addition, the expansion in net revenue was due to the change in product
sales mix. In 2003, the corn seed product brand YuYu 22 was the principal
product. However, its unit selling price was relatively lower than the other
corn seeds sold by Origin. In 2004, the corn seed product brand, Linao 1, had a
relatively higher unit selling price brand and was the most popular product
sold. In addition, there were 140,000 kilograms in rice seed sales valued at
(RMB2.22 million (US$0.27 million), resulting from Origin developing, planting ,
and selling rice seeds beginning in 2004.
The cost of seeds sold increased by 49.53% to RMB 178.31 million (US$
21.54 million) in 2004 from RMB 118.98 million (US$14.38 million) in 2003. This
increase was primarily the result of the increase in the quantity of corn seed
sold. Nevertheless, the increase in cost of sales is less than the increase in
net revenue. This was mainly caused by the increase in selling price which
outweigh the increase in cost of sales. In 2004, cost of corn seeds sold was RMB
173.79million (US$20.99 million). The average cost of corn seed sold per unit
increased by 1.5% in 2004 compared to 2003, of which in 2004, an increase in
technology usage fees and the shipping costs were the key causes. On the other
hand, there was saving in other material costs such as seed coatings. The
technology usage fees, paid based on quantity sold were RMB13.39 million
(US$1.62 million ) and, RMB 6.52 million (US$0.79 million) in 2004 and in 2003
respectively. The increase of technology usage fee is more than the increase of
cost of sales, which is mainly due to the amount sold of product YuYu 22, which
had a lower charge for technology usage fee, and the decrease in sales quantity
from 48.42% in 2003 to 18.7% in 2004. Shipping and handling costs increased by
70% to RMB8.09 million in 2004 from RMB4.75 million in 2003 because of the
increase in sales together with the increase in gas prices and strict limits on
loads per trucks.
As a percentage of total net revenues, overall gross margin was 40.86%
in the year ended December 31, 2004, as compared with 37.92% in the year ended
December 31, 2003. This increase in gross margins were primarily the result of
change in product sales mix, an increase in the selling price and effective cost
controls.
94
Operating expenses increased to RMB51.31 million (US$6.20 million) from
RMB 37.55 million (US$4.54 million) in 2003. The increase was due to substantial
increases in selling and marketing expenses and general and administrative
expenses and, to a lesser extent, an increase in research and development
expenses.
Selling and marketing expenses increased by 53.19% to RMB 20.39 million
(US$2.46 million) in 2004 from RMB 13.31 million (US$1.61 million) in 2003. Of
the RMB 20.39 million (US$2.46 million) in 2004, approximately RMB3.15 million
(US$0.38 million) was used for advertising, RMB 3.06(US$0.37 million) million
was used for materials to educate our customers about the basics of planting our
seed products, RMB 9.17 million (US$1.11 million) was spent for transportation
and traveling, RMB 3.44 million (US$0.42 million) for salary and benefits, and
RMB 1.42 million (US$0.17 million) on telecommunication. The increase in selling
and marketing expenses was primarily due to an increase in advertising by
RMB1.35 million (US$0.16 million), an increase in materials to educate our
customers by RMB1.85 million (US$0.22 million), an increase in transportation
and traveling expenses by RMB 3.04 million (US$0.37 million) and an increase in
salary and benefits expenses by RMB 0.79 million (US$0.09 million), related to
increased sales, set up three new marketing departments in Changchun, Baoding
and Shenyang, and the increase in incentive bonuses for its marketing staff.
General and administrative expenses increased by 27.44% to RMB 24.15
million (US$2.92 million) in 2004 from RMB 18.95 million (US$2.29 million) in
2003 primarily due to the increase in general personnel expenses by RMB3.67
million (US$0.44 million), increase in expenses associated with running motor
vehicles and traveling expenses by RMB0.56 million (US$0.07 million) and an
increase in general office supplies by RMB0.42 million (US$0.05million). All
these were associated with the increase in the scale of our operation.
Research and development expense increased by 27.98% to RMB6.77 million
(US$0.82 million) in 2004 from RMB 5.29 million (US$0.64 million) in 2003. The
increase was due primarily to the hiring of additional staff in developing own
breeding program and the set up of two research stations in Chendu and
Changchun.
Income from operations increased by 104.69%, from RMB 35.12 million
(US$4.24 million) in 2003 to RMB 71.89 million (US$8.69 million) in 2004. This
increase in income from operations was primarily attributable to the large
growth in overall revenues and the level of the costs for sales Origin
maintained.
Interest expense increased by 72% to RMB 0.83 million (US$0.1 million)
in 2004 from RMB 0.48 million (US$0.06 million) in 2003. The increase in
interest expense was primarily attributable to the amount of loans increased
from RMB35million (US$4.23 million) in 2003 to RMB41 million (US$4.95 million)
in 2004, and the average interest rate increased from 5.04% to 5.33%.
Equity in earnings of associated company increased to RMB1.92 million
(US$0.23 million) in 2004 from zero in 2003 due to the acquisition of 30%
interest in Shijiazhuang Li Yu Technology Development Co., Ltd.
Other income decreased by 86.89% to RMB0.15 million (US$0.02 million)
in 2004 from RMB 1.14 million (US$0.14 million) in 2003 as reduction in subsidy
from government.
Income taxes decreased 1.4% to RMB7.7 million (US$0.93 million) in 2004
from RMB7.81 million (US$0.94 million) in 2003. Though Origin recorded a
substantial increase in income before taxation, there was still a decrease in
taxation due to the shifting of operations to our PRC subsidiary and branch
which were either exempted or enjoyed the tax cut from the enterprise income tax
in 2004.
95
Net income increased 126.10% to RMB 65.46 million (US$7.91 million) in
2004, compared to approximately RMB 28.95 million (US$3.49 million) in 2003.
This significant increase in profits was primarily the result of an increase in
sales, both in terms of volume and average selling price per kilogram of seed,
with a lower growth rate in the associated costs to produce the income as
compared with fiscal year 2003.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002.
Total net revenues increased by 94.14% from 2002 to 2003, being
approximately RMB 191.65 million (US$23.15 million) in 2003, as compared to
approximately RMB 98.72 million (US$11.93 million) in 2002. This increase was
the result of an increase in corn seed sales of 15.8 million kilograms from
10.50 million kilograms to 26.30 million kilograms, mainly due to the
exploitation of the northeast market and further development of the market in
the Yellow River, Huai River and southwest regions. Increase in sales in these
areas is about 5.95 million kilograms, 2.6million kilograms, and 6.86million
kilograms respectively in 2003 as compared with 1.2million kilograms, 6.0
million kilograms, and 3.4 million kilograms respectively in 2002.
Cost of seeds sold increased 158.61% to RMB 118.98 million (US$14.38
million ) in 2003, as compared to RMB 46 million (US$5.56 million) in 2002. The
increase of the cost of seed is mainly due to the increase of quantity of corn
seed sold. The average cost of corn seed sold per unit was increased by 3% in
2003 compared to 2002. Of which in 2003, increase in technology usage fee , the
shipping cost and manufacturing cost were the key drivers. Technology usage
fees, paid based on quantity sold, were RMB6.52 million (US$0.79 million) and,
RMB1.75 million (US$0.21 million) in 2003 and in 2002 respectively. The increase
of technology usage fee is more than the increase of cost of sales, which is
mainly due to the product YuYu 22, which had a lower charge for technology usage
fee, decreased in sales quantity from 55.07% in 2002 to 48.42% in 2003. Shipping
and handling cost increased by 141.50% to RMB4.75 million in 2003 from RMB1.97
million in 2002 because of more use of trucks to transport seeds which was more
expensive than use of train and long distance between planting station in Gansu
to the manufacturing plant in northeast market. Manufacturing cost increased by
212% to RMB9.04 million (US$1.09 million) in 2003 from RMB2.9 million (US$0.35
million) in 2002. The increase of manufacturing cost is more than the increase
of the quantity of seed sold was mainly due to an increase of RMB0.6 million
(US$0.07) for workers' salaries.
As a percentage of total net revenues, overall gross margins were
37.92% in 2003, as compared with 53.40% in 2002. This decrease in gross margins
was primarily the result of higher salaries, increasing manufacturing costs, a
slightly higher price per unit of purchased seeds, and an increase in shipping
fees associated with entering the northeast market. Another important factor was
management's decision to decrease the price of its leading product, YuYu 22, as
part of a strategy to increase the sales volumes of other products that are
complementary to it.
Selling and marketing expenses increased by 105.40% to RMB 13.31
million (US$1.61 million) in 2003 from RMB 6.48 million (US$0.78 million) in
2002. For the RMB13.3 1 million in 2003, approximately RMB 1.8 million (US$
0.22) was expended for advertising, RMB 1.2 million (US$ 0.14 million) was
expended for materials to educate customers about the basics of plant our seed
production, RMB 6.13 million (US$ 0.74 million) was spent for transportation and
traveling, RMB1.48 million (US$ 0.19 million) was spent for telecommunications,
RMB2.64 million (US$0.32 million) for salary and benefits. The increase of
selling and marketing expenses was primarily due to an increase of adverting by
RMB1.06 million (US$0.13 million), an increase in materials to educate customer
by RMB0.27 million (US$0.03 million) for promoting new seed productions. And due
to increase of sales volume, the transportation and traveling expenses increased
RMB3.4 million (US$0.41million), telecommunication cost increased RMB1.05
million (US$0.13). In 2003, Origin set up two new sales branch in Tieling and
Cheng du, which cause the increase of salary by RMB1.09 million
(US$0.13million).
96
General and administrative expenses increased 96.57% to RMB 18.95
million (US$2.29 million) in 2003 from RMB9.64 million (US$1.16 million) in
2002, primarily due to the increase in general personnel expenses by RMB 4.27
million (US$ 0.52 million), office supplies & electricity cost increased by RMB
2.13 million (US$ 0.26 million), depreciation and amortization expenses
increased by RMB1.37 million (US$0.16 million). These increase was primarily due
to increase of the operation scales and the establishment of two new sales
branches in Tieling and Chengdu.
Research and development expense was RMB 5.28 million (US$ 0.64) and
RMB 5.37 (US$0.65) for 2003 and 2002 respectively, which consist primarily of
salaries, welfare& benefits, depreciation & amortization, office supplies and
electricity cost , lease fee for research. In order to maintain the leadership
of seed technology, Origin maintain a high expense to research and development
department. Income from operations increased by 104.69%, from RMB 35.12 million
(US$4.24 million) in 2003 to RMB 71.89 million (US$8.69 million) in 2004. This
increase in income from operations was primarily attributable to the large
growth in overall revenues and the level of the costs for sales Origin
maintained.
Income from operations increased by 12.49%, from RMB 31.22 million
(US$3.77 million) in 2002 to RMB 35.12 million (US$4.24 million) in 2003. This
increase in income from operations was less than the increase of revenue, mainly
due to the decrease of gross margin, increase of operating expenses.
Other income decreased by 99.12% to RMB1.14 million (US$0.14 million)
in 2003 from RMB2.27 million (US$0.27 million) in 2002 as a reduction of RMB1.50
million (US$0.18million) from license income.
Income taxes increased 423.48% to RMB7.8 million (US$0.94 million) in
2003 from RMB1.49 million (US$0.18 million) in 2002. This increase was due to
the increase of effective tax from 5% in 2002 to 21% in 2003.
Net income increased by 9% to RMB 28.95 million (US$3.49 million) in
2003 from RMB 26.56 million (US$3.21 million) in 2002. This increase of Net
income was less than the increase of Revenue, mainly due to the decrease of
gross margin, increase of operating expenses.
Liquidity and Capital Resources
The following table sets forth Origin's cash flows with respect to
operating activities, investing activities and financing activities for the
periods indicated:
Year ended December 31,
----------------------------------------------------------------------------
2002 (RMB) 2003 (RMB) 2004 (RMB) 2004
---------------- ---------------- ---------------- -----------------
(US Dollars)
Net cash (used in) provided by
operating activities 55,976,315 (14,961,297) 42,744,534 5,164,566
Net cash used in investing
activities (24,585,920) (32,961,133) (27,200,560) (3,286,480)
Net cash provided by financing
activities 10,000,000 18,445,872 4,082,765 493,296
Net increase(decrease) in cash and
cash equivalents 41,390,395 (29,476,558) 19,626,739 2,371,382
Cash and cash equivalents,
beginning of year 37,307,578 78,697,973 49,221,415 5,947,129
Cash and cash equivalents, end of
year 78,697,973 49,221,415 68,848,154 8,318,511
97
Origin financed its operations through cash generated from our
operating activities and short term borrowings.
Origin's net cash provided by operating activities in 2004 was
RMB42.74million (US$5.16 million). This was primarily attributable to our net
income of RMB65.4 million (US$7.9 million), as adjusted for an add-back of
RMB5.2 million (US$0.6 million) in depreciation and amortization as a non-cash
item, a RMB8.2 million (US$0.9 million) increase in accounts payable, a RMB47
million (US$5.6 million) increase in amounts due to growers and a RMB 5.2
million (US$0.63 million) increase in advances from customers which was offset
by a RMB64.9 million (US$7.8 million) increase in inventories and a RMB 27
million (US$3.2 million) decrease in advances from deferred revenues. Our net
cash used in operating activities in 2003 was RMB14.9 million (US$1.8million).
This was primarily attributable to our net income of RMB28.9 million (US$3.49
million), as adjusted for an add-back of RMB3.2 million (US$0.38 million) in
depreciation and amortization as a non-cash item, a RMB5.3 million (US$0.64
million) decrease in accounts receivable and a RMB16 million (US$1.9 million)
increase in advances from customers which was offset by a RMB 55.9 million
(US$6.7 million) increase in inventories, a RMB7 million (US$0.8 million)
decrease in due to growers and a RMB 9 million (US$1.1 million) decrease in
deferred revenues. Our net cash provided by operating activities in 2002 was
RMB55.9 million (US$6.7 million). This was primarily attributable to our net
income of RMB26.5 million (US$3.2 million), as adjusted for a RMB 35.7 million
(US$4.3 million) increase in due to growers and a RMB69.9 million (US$8.4
million) increase in deferred revenues which was offset by a RMB76.7 million
(US$9.2 million) increase in inventory.
Net accounts receivable decreased from RMB5 million (US$0.6 million) as
of December 31, 2002 to zero as of December 31, 2003 and remained nil as of
December 31, 2004. This decrease was primarily due to the full settlement of
accounts receivable and the cancellation of credit sale policy in 2003.
Inventories increased from RMB114.9 million (US$13.88 million) as of
December 31, 2002 to RMB170 million (US$20 million) as of December 31, 2003 and
to RMB235.8 million (US$28.5 million) as of December 31, 2004. This increase was
primarily due to the increase in inventory level so as to meet customer
requirements and our scheduled production. Consistent with the nature of the
seed industry, we generally produce in one growing season and then sell the seed
inventories in the following season. It will take two years time so that the
hybrid seeds are ready to be sold to the peasants. Any unfavorable weather may
affect the output. As the finished goods can be kept for 3 years, we revised
upward the safety level and trading level for keeping the inventories in 2003.
In 2004, we started to deliver earlier to the farmers in the southwest region
because sales have grown more rapidly in that region than originally
anticipated.
Due to growers fluctuated from RMB42.5 million (US$5.1 million) as of
December 31, 2002 to RMB35 million (US$4.2 million) as of December 31, 2003 and
to RMB 83 million (US$10 million) as of December 31, 2004. The fluctuation was
primarily due to schedule of payment to farmers in 2003 and 2004 and an increase
of 10 million kilogram seeds in 2004. The payment to growers is normally by
installments, 45% when purchased the seeds, about 50% would be paid before the
Chinese New Year. The date of Chinese New Year in 2003, 2004 and 2005 were
February 1, January 22, and February 9 respectively. The last 5% would be paid
several months later.
98
Deferred revenues decreased from RMB74.7 million (US$9 million) as of
December 31, 2002 to RMB65 million (US$7.8 million) as of December 31, 2003 and
to RMB37.9 million (US$4.5 million) as of December 31, 2004. This decrease was
primarily due to a boom in the seed market, because of which, many farmers had
to prepay the full amount before they could get the seeds. The significant
decrease in 2004 was caused by significant growth in sales of corn in the
Southwestern region of China, where the sales season in most parts of the region
ends much earlier than that of the company's other sales regions. Normally, we
defer the recognition of revenue until services have been rendered, the price is
fixed or determinable, collectibility is reasonably assured and the right of
return has expired.
Net cash used in investment activities was RMB 27 million (US$3
million) in 2004 of which RMB15 million (US$1.8 million) was used in purchase of
plant and equipment, RMB8 million (US$0.9 million) in the acquisition of 8%
interest in Chuang Shi Ji Zhuan Ji Yin Technology Co., Ltd. and RMB 3 million
(US$0.36 million) in the acquisition of technology usage agreements. Net cash
used in investing activities was RMB32.9 million (US$3.97 million) in 2003 of
which RMB26.9 million (US$3.2 million) was used in purchase of plant and
equipment and RMB 5.9 million (US$0.7 million) in the acquisition of land use
rights. Net cash used in investing activities was RMB24.5 million (US$2.9
million) in 2002 of which RMB20 million (US$2.4 million) was used in purchase of
plant and equipment and RMB 4.5 million (US$0.5 million) in the acquisition of
land use rights. The increase was primarily attributable to the amount of
capital expenditure used for the construction of new headquarters offices in
Beijing and for set up the manufacturing plant in Shenyang which amounted to
RMB15 millions (US$1.8 million). We spent RMB32 million (US$3.8 million) capital
expenditure in 2003 for setting up the new manufacturing plants in Changchun and
Chengdu.
Net cash provided by financing activities was RMB 4 million (US$0.48
million) in 2004, RMB 18 million (US$2.1 million) in 2003 and RMB 10 million
(US$1.2 million) in 2002. The primary source of fund was short-term borrowings
from the banks. All short-term borrowings were fully settled when due.
To date, Origin has funded its operations through revenues derived from
operations and short-term borrowings. Due to the cyclical nature of the cash
flow inherent in Origin's business, with the majority of revenues received just
prior to the start of the planting season, the loans are bridge financing
arrangements and use the company's bank credit facilities to cover operating
expenses during low-revenue portions of the year.
The nature of Origin's business involves cycles in expenses and
revenues that are not always in phase. Most often in the third calendar quarter
of each year, Origin can face costs that are in excess of its revenue sources
during that period. Whether that occurs, and to what extent it occurs, depends
on the amount of deposits received from customers compared with the advanced
payments made to its seed producing farmers and the final payment for seed
procurement. The exact timing of these payments is determined by the Chinese
lunar calendar. As a result, in some years its cash needs are greater than in
others. This aspect of the business is the reason it has customarily relied upon
short term bridge loans to cover its expenses pending receipt of revenues from
farmers at the time of seed purchases.
Origin, on a consolidated basis, has had access to sufficient financing
in the past to manage these cash flow cycles. As discussed above, it has
consistently repaid its short-term borrowings at or before maturity. Its
strengthening balance sheet has enabled Origin to secure this financing the past
two fiscal years without the need for the third party guarantees needed
initially, and the average rate of interest that it has had to pay has steadily
declined over the past several years.
99
Origin believes that its cash and cash equivalents balance, together
with its access to financing sources, will continue to be sufficient to meet the
working capital needs associated with its current operations on an ongoing
basis, although that cannot be assured. Also, it is possible that Origin's cash
flow requirements could increase as a result of a number of factors, including
unfavorable timing of cash flow events, the decision to increase investment in
marketing and development activities or the use of cash for the acquisition of
one or more of its competitors to accelerate its rate of growth.
Contractual Obligations and Commercial Commitments
Origin has various contractual obligations that will affect its
liquidity. The following table sets forth the contractual obligations of Origin
as of December 31, 2004:
Payment Due by Period
----------------------------------------------------------------------------------------------------
Within 1
Total Year 2006 2007 2008 2009 Thereafter
------------ ------------ ----------- ------------ --------- --------- ------------
RMB RMB RMB RMB RMB RMB RMB
------------ ------------ ----------- ------------ --------- --------- ------------
Operating lease 13,078,930 1,252,087 1,138,594 1,152,956 438,761 418,541 8,677,991
commitments
------------ ------------ ----------- ------------ --------- --------- ------------
Other contractual 23,558,444 23,558,444 -- -- -- -- --
obligations
------------ ------------ ----------- ------------ --------- --------- ------------
Total contractual 36,637,374 24,810,531 1,138,594 1,152,956 438,761 418,541 8,677,991
obligations
------------ ------------ ----------- ------------ --------- --------- ------------
Equivalent US$ 4,426,675 2,997,708 137,570 139,305 53,013 50,570
------------ ------------ ----------- ------------ --------- --------- ------------
Other contractual commitments compose of capital commitment for the
purchase of plant and equipment of RMB17,958,444 (US$2,169,811) and share
purchase commitment of RMB5,600,000 (US$676,616).
Capital commitments for the purchase of plant and equipment, as of
December 31, 2004 are as follows:
RMB US$
------------------------ ---------------------------
Plant and building construction 16,255,074 1,964,003
Land use rights 1,200,000 144,989
Equipment 503,370 60,819
------------------------ ---------------------------
Total 17,958,444 2,169,811
======================== ===========================
Beijing Origin signed a contract on December 28, 2004 to purchase 7% of
the total outstanding shares of Chuang Shi Ji Zhuan Ji Yin Technology Co., Ltd.
for a total purchase price of RMB 5,600,000 (US$676,614). Origin will pay the
amount upon obtaining the necessary government approvals in 2005.
100
Operating lease
The Company leases certain office premises under non-cancelable leases.
Rent expense under operating leases for the years ended December 31, 2004, 2003,
and 2002 were RMB 2,867,698 (US$346,487), RMB 2,015,914 (US$243,571), and RMB
1,434,648 (US$173,340), respectively.
Off-Balance Sheet Arrangements
Except as described above under "-Indebtedness", we have not entered
into any financial guarantees or other commitments to guarantee the payment
obligations of any third parties.
Quantitative and Qualitative Disclosures about Market Risk. Origin is
exposed to various market risks, including: widespread drought, pestilence or
other natural disasters, could damage seed production, in which event, Origin
will suffer a loss of production and will suffer the consequential losses of
revenues, and there is no agriculture insurance in China to cover loss of seed
crops. Origin has attempted to manage this risk by obligating itself to pay the
farmers who produce its seeds only for the quantity of seeds that they produce
and setting up seed storage system in 2003. However, a significant portion of
Origin's expenses are in the nature of fixed overhead, and in the event of a
widespread failure of the seed crop, Origin would likely sustain substantial
operating losses. In addition, there is a high risk for seed storage ,due to
difficulty in management of moisture, temperature, humidity of storage
condition, any failure of which may result in damage of seeds in store and
operating losses; seasonal nature associates with seed market. Sales season of
main products of Origin last from October to June 31 next year, which results in
cycle changes of cash flow and operating activities. Repeal of privileges
granted by government to seed industry, such as tax exemption , reduction and
subsidies could adversely affect Origin's earnings; changes in foreign currency
exchange rates, all of Origin's product sales , assets and liabilities are
denominated in RMB and therefore it is exposed to foreign currency exchange
risk. For example, if Origin decides to convert Renminbi into US dollars for the
purpose of declaring dividends on the ordinary shares for other business
purposes and the US dollars appreciates against the Renminbi, the US dollar
equivalent of the earnings from the subsidiaries and variable interest entities
in China would be reduced. Origin has also not entered into financial
instruments to manage and reduce the impact of changes in foreign currency
exchange rates, although Origin may enter into such transactions in the future;
Origin's exposure to changes in interest rates relates primarily to the interest
income generated by the cash deposits in banks and interest expense arising fro
the short-term borrowings. Origin has not used derivative financial instruments
to hedge interest rate risk. Origin has not been exposed nor do they anticipate
being exposed to material risks due to changes in interest rates. The future
interest income may fluctuate in line with changes in interest rates. However,
the risk associated with fluctuating interest rates is principally confined to
the cash deposits in banks and, therefore, the exposure to interest rate risk is
minimal.
101
INFORMATION ABOUT CHARDAN
Business of Chardan
General
Chardan was formed on December 5, 2003, to serve as a vehicle to effect
a stock purchase, capital stock exchange, asset acquisition or other similar
business combination with an unidentified operating business with operations in
the Peoples Republic of China and believed to have significant growth potential.
Prior to executing the stock purchase agreement with the Origin Parties,
Chardan's efforts were limited to organizational activities, completion of its
initial public offering and the evaluation of possible business combinations.
Offering Proceeds Held in Trust
Chardan consummated its initial public offering on March 22, 2004. The
net proceeds of the offering, after payment of underwriting discounts and
expenses, were approximately $21,242,000. Of that amount, $20,527,500 was placed
in the trust account and invested in government securities. The remaining
proceeds have been used by Chardan in its pursuit of a business combination. The
trust account will not be released until the earlier of the consummation of a
business combination or the liquidation of Chardan. The trust account contained
approximately $__________ as of ______________, 2005, the record date. If the
stock purchase with the Origin Parties is consummated, the trust account will be
released to Chardan, less:
o amounts paid to stockholders of Chardan who do not approve the stock
purchase and elect to convert their shares of common stock into
their pro-rata share of the trust account; and
o the $9,750,000 ($10,000,000, less the $250,000 holdback) being paid
to Origin and the Origin Stockholders in the stock purchase.
Fair Market Value of Target Business
Pursuant to Chardan's certificate of incorporation, the initial target
business that Chardan acquires must have a fair market value equal to at least
80% of Chardan's net assets at the time of such acquisition. Chardan's board of
directors determined that this test was clearly met in connection with its
acquisition of Origin.
Stockholder Approval of Business Combination
Chardan will proceed with the acquisition of Origin only if a majority
of all of the outstanding shares of Chardan is voted in favor of the stock
purchase and redomestication merger proposals. The stockholders existing prior
to the initial public offering have agreed to vote their common stock on these
proposals in accordance with the vote of the majority offering. If the holders
of 20% or more of Chardan's common stock vote against the stock purchase
proposal and demand that Chardan convert their shares into, their pro rata share
of the trust account, then Chardan will not consummate the stock purchase. In
this case, Chardan would be able to present another potential business
combination to its stockholders, subject to the time limitations set forth
below.
102
Liquidation if no business combination
If Chardan does not complete a business combination by September 22,
2005, or by March 22, 2006 if the extension criteria described below have been
satisfied, Chardan will be dissolved and will distribute to all of its public
stockholders, in proportion to their respective equity interests, an aggregate
sum equal to the amount in the trust account, inclusive of any interest, plus
any remaining net assets. Chardan's existing stockholders have waived their
rights to participate in any liquidation distribution with respect to shares of
common stock owned by them immediately prior to the initial public offering.
There will be no distribution from the trust account with respect to Chardan's
warrants.
If Chardan were to expend all of the net proceeds of the initial public
offering, other than the proceeds deposited in the trust account, the per-share
liquidation price as of ______________, 2005 would be $________, or $_______
less than the per-unit offering price of $6.00 in Chardan's initial public
offering. The proceeds deposited in the trust account could, however, become
subject to the claims of Chardan's creditors and there is no assurance that the
actual per-share liquidation price will not be less than $_______, due to those
claims. If Chardan liquidates prior to the consummation of a business
combination, Richard D. Propper, MD, chairman of the board, Jiangnan Huang,
chief executive officer and director, Zhang Li, Chief Financial Officer and
director, and Kerry S. Propper, executive vice president and director, will be
personally liable to pay debts and obligations to vendors and certain other
entities that are owed money by, or hold a claim against Chardan, in an amount
in excess of the net proceeds of Chardan's initial public offering not held in
the trust account. There is no assurance, however, that they would be able to
satisfy those obligations.
If Chardan enters into either a letter of intent, an agreement in
principle or a definitive agreement to complete a business combination prior to
September 22, 2005, but is unable to complete the business combination by
September 22, 2005, then Chardan will have an additional six months in which to
complete the business combination contemplated by the letter of intent,
agreement in principle or definitive agreement. If Chardan is unable to do so by
March 22, 2006, upon notice from Chardan, the trustee of the trust account will
commence liquidating the investments constituting the trust account and will
turn over the proceeds to the transfer agent for distribution to the
stockholders holding shares acquired through the initial public offering.
The stockholders holding shares of Chardan common stock issued in the
initial public offering will be entitled to receive funds from the trust account
only in the event of Chardan's liquidation or if the stockholders seek to
convert their respective shares into cash and the stock purchase is actually
completed. In no other circumstances shall a stockholder have any right or
interest of any kind to or in the trust account.
Facilities
Chardan maintains executive offices at 625 Broadway, Suite 1111, San
Diego, California 92101. The cost for this space is included in a $7,500
per-month fee that Chardan Ventures, an affiliate of R. Richard D. Propper,
Jiangnan Huang and Zhang Li, charge Chardan for general and administrative
services. Chardan believes, based on rents and fees for similar services in the
San Diego area, that the fees charged by Chardan Ventures are at least as
favorable as Chardan could have obtained from an unaffiliated person. Chardan
considers its current office space adequate for current operations.
Employees
Chardan has four directors, three of whom also serve as officers. These
individuals are not obligated to contribute any specific number of hours to
Chardan's business per week, and they intend to devote only as much time as they
deem necessary to Chardan's affairs. Chardan has no paid employees.
103
Periodic Reporting and Audited Financial Statements
Chardan has registered its securities under the Securities Exchange Act
of 1934 and has reporting obligations, including the requirement to file annual
and quarterly reports with the SEC. In accordance with the requirements of the
Securities Exchange Act of 1934, Chardan's annual reports will contain financial
statements audited and reported on by Chardan's independent accountants. Chardan
has filed with the Securities and Exchange Commission a Form 10-KSB covering the
fiscal year ended December 31, 2004 and a Form 10-QSB covering the fiscal
quarter ended March 31, 2005.
Legal Proceedings
There are no legal proceedings pending against Chardan.
Plan of Operations
The following discussion should be read in conjunction with Chardan's
Financial Statements and related notes thereto included elsewhere in this proxy
statement/prospectus.
Chardan was formed on December 5, 2003 to serve as a vehicle to effect
a stock purchase, capital stock exchange, asset acquisition or other similar
business combination with a currently unidentified business with operations in
the PRC that Chardan believes has significant growth potential.
Chardan consummated its initial public offering on March 22, 2004.
The net loss of $667,699 for the year ended December 31, 2004 consisted
primarily of $224,198 of travel and entertainment expenses, $232,304 of
consulting expenses, $91,567 for directors and officers liability insurance,
$71,371 for a monthly administrative services agreement, $174,999 for
professional fees, $13,964 for transfer agent fees and other formation expenses,
operating costs of $1,608 and franchise taxes of $24,171, offset by interest
income on the trust account investments, excluding deferred interest, in the
amount of $166,483. Of the consulting expenses, $125,000 relates to an agreement
Chardan entered into with Best of the Best during the quarter ended June 30,
2004, to assist in Chardan's search for prospective target companies in China.
The consulting firm has also performed due diligence on prospective target
businesses and assisted Chardan in structuring and consummating a business
combination with Origin. In the event Chardan acquires Origin, we are obligated
to pay the consulting firm an additional $125,000.
Chardan has also employed a financial public relations firm for a
period of one year, commencing in December 2004. Chardan agreed to an initial
retainer of $24,000 for the first two months of services to be paid $20,000 on
signing and the balance of $4,000 payable upon closing of the proposed business
combination. For the remaining 10 months, Chardan will pay $10,000 per month,
plus reasonable and necessary out-of-pocket expenses. The monthly payment will
accrue until the closing of the proposed business combination. The agreement is
renewed automatically for successive one year periods unless notice of
termination is given 30 days in advance of the renewal date.
$20,527,500 of the net proceeds of the initial public offering are in
trust, with the remaining net proceeds of approximately $714,500 to pay for
business, legal and accounting due diligence on prospective acquisitions and
continuing general and administrative expenses. The amount of net proceeds to be
available for these purposes was determined through discussion with the
underwriters of the initial public offering and based on the experience of other
companies engaged in similar business endeavors.
Chardan has incurred expenses in excess of the net proceeds not held in
the trust account from its initial public offering. The reason for this is in
part due to unanticipated additional expenses, including the costs associated
with a transaction that was not pursued, greater costs in the due diligence
process, and unanticipated additional travel between the United States and
China. All of the net proceeds of its initial public offering not held in trust
will be used to identify and evaluate prospective acquisition candidates, select
the target business, and structure, negotiate and consummate the business
combination.
104
Chardan intends to utilize its cash, including the funds held in the
trust account, capital stock, debt or a combination of the foregoing to effect a
business combination. To the extent that its capital stock or debt securities
are used in whole or in part as consideration to effect a business combination,
the proceeds held in the trust account as well as any other available cash will
be used to finance the operations of the target business. At March 31, 2005, we
had cash outside of the trust account of $19,974, and total liabilities of
$421,291, leaving Chardan with working capital of $20,442,666 or ($401,317),
excluding investments held in trust. If Chardan is unable to consummate its
proposed business combination with Origin discussed above in Item 1, it does not
believe it will have sufficient available funds outside of the trust account to
operate through March 22, 2006. Accordingly, Chardan intends to seek alternative
funds through borrowings, including from its officers and directors who have
indicated their willingness to lend the necessary sums.
Chardan is obligated to pay to Chardan Ventures LLC a monthly fee of
$7,500 for general and administrative services. In addition, in December 2003
and January 2004, Kerry Propper, Chardan's executive vice president, advanced an
aggregate of $70,000 to us, on a non-interest bearing basis, for payment of
offering expenses on Chardan's behalf. These amounts were repaid in March 2004
out of proceeds of its initial public offering.
Chardan is obligated, commencing April 1, 2004, to pay to Chardan
Ventures, an affiliate of Dr. Richard D. Propper, its chairman of the board,
Jiangnan Huang, a director and chief executive officer and Zhang Li, a director
and chief financial officer, a monthly fee of $7,500 for general and
administrative services.
Off-Balance Sheet Arrangements.
There were no off-balance sheet arrangements during the period from
December 5, 2003 (inception) through December 31, 2004 or in the quarter ended
March 31, 2005, that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to Chardan.
105
PRO FORMA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
combines the consolidated historical balance sheet of State Harvest Holdings
Limited, a BVI company, and the Origin Operating Companies (together, "Origin")
and the historical balance sheet of Chardan Capital Acquisition Corp.
("Chardan") as of December 31, 2004.
The following unaudited pro forma condensed consolidated statements of
operations combine the historical statements of operations of Origin and Chardan
for the year ended December 31, 2004, giving effect to the transaction described
in the Stock Purchase Agreement, dated December 20, 2004 (the "Transaction"), as
if it had occurred on January 1, 2004.
The unaudited pro forma condensed consolidated balance sheet at
December 31, 2004 and the statement of operations for the year then ended has
been prepared using two different levels of approval of the Transaction by the
Chardan stockholders, as follows:
o Assuming Maximum Approval: This presentation assumes that 100% of
Chardan stockholders approve the Transaction; and
o Assuming Minimal Approval: This presentation assumes that only 80.1%
of Chardan stockholders approve the Transaction.
We are providing this information to aid you in your analysis of the
financial aspects of the Transaction. The unaudited pro forma condensed
consolidated financial statements described above should be read in conjunction
with the historical financial statements of Origin and Chardan and the related
notes thereto. The unaudited pro forma information is not necessarily indicative
of the financial position or results of operations that may have actually
occurred had the Transaction taken place on the dates noted, or the future
financial position or operating results of the combined company.
The unaudited pro forma condensed consolidated financial statements
were prepared treating the Transaction as a recapitalization of Origin. Since
Chardan is not an operating company, the Transaction is treated as the issuance
of shares of Origin for the net tangible assets (consisting principally of cash)
of Chardan. Therefore, no goodwill has been recorded in the Transaction.
106
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ASSUMING MAXIMUM APPROVAL
DECEMBER 31, 2004
Pro Forma Pro forma
Origin Chardan Adjustments Combined
----------------------------------------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,318,511 $ 99,231 $ 20,735,328 (a) $19,403,070
(9,750,000) (b)
Investments held in trust 20,735,328 (20,735,328) (a)
Due from related parties 94,792 94,792
Advances to suppliers 198,594 198,594
Inventories 28,492,922 28,492,922
Income tax receivable 909,996 909,996
Prepaid expenses and other current assets 1,240,803 49,532 1,290,335
----------------------------------------------- ----------------
Total Current Assets 39,255,618 20,884,091 (9,750,000) 50,389,709
Land use rights, net 1,365,553 1,365,553
Plant and equipment, net 7,974,611 7,974,611
Equity investment 1,241,419 1,241,419
Acquired intangible assets, net 347,062 347,062
Deferred income tax assets 50,623 50,623
Other assets 74,252 74,252
----------------------------------------------- ----------------
Total assets $50,309,138 $20,884,091 $ (9,750,000) $61,443,229
=============================================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short term borrowings $ 4,953,785 $ 4,953,785
Accounts payable 2,747,727 $243,357 2,991,084
Due to growers 10,071,516 10,071,516
Due to officers and related parties 170,753 $250,000 (b) 420,753
Advances from customers 9,506,856 9,506,856
Deferred revenue 4,581,714 4,581,714
Deferred interest 41,545 (41,545) (c1) --
Income tax payable 139,187 139,187
Other payables and accrued expenses 813,694 813,694
----------------------------------------------- ----------------
Total Current Liabilities 32,985,232 284,902 208,455 33,478,589
Other long-term liabilities 346,982 346,982
----------------
----------------------------------------------- ----------------
Total Liabilities 33,332,214 284,902 208,455 33,825,571
----------------------------------------------- ----------------
Common stock subject to redemption 4,103,450 (4,103,450) (c1) --
----------------------------------------------- ----------------
Minority Interests 427,004 427,004
----------------------------------------------- ----------------
Shareholders' equity (deficiency):
Common stock 10,000 490 (10,000) (d) 1,510
1,020 (d)
Additional paid-in capital 12,082,402 17,163,483 4,103,450 (c1) 22,731,626
(12,082,402) (d)
1,464,693 (b)(d)(e)
Retained earnings (accumulated deficit) 4,457,518 (668,234) 41,545 (c1) 4,457,518
626,689 (e)
----------------------------------------------- ----------------
Total stockholders' equity 16,549,920 16,495,739 (5,855,005) 27,190,654
----------------------------------------------- ----------------
Total liabilities and stockholders' equity $50,309,138 $20,884,091 $ (9,750,000) $61,443,229
=============================================== ================
107
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ASSUMING MINIMUM APPROVAL
DECEMBER 31, 2004
Pro Forma Pro forma
Origin Chardan Adjustments Combined
------------------------------------------------ ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,318,511 $ 99,231 $ 20,735,328 (a) $ 15,258,075
(9,750,000) (b)
(4,144,995) (c2)
(a)
Investments held in trust 20,735,328 (20,735,328) --
Due from related parties 94,792 94,792
Advances to suppliers 198,594 198,594
Inventories 28,492,922 28,492,922
Income tax receivable 909,996 909,996
Prepaid expenses and other current assets 1,240,803 49,532 1,290,335
------------------------------------------------ ----------------
Total Current Assets 39,255,618 20,884,091 (13,894,995) 46,244,714
Land use rights, net 1,365,553 1,365,553
Plant and equipment, net 7,974,611 7,974,611
Equity investment 1,241,419 1,241,419
Acquired intangible assets, net 347,062 347,062
Deferred income tax assets 50,623 50,623
Other assets 74,252 74,252
------------------------------------------------ ----------------
Total assets $50,309,138 $ 20,884,091 $ (13,894,995) $ 57,298,234
================================================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short term borrowings $ 4,953,785 $ 4,953,785
Accounts payable 2,747,727 $243,357 2,991,084
Due to growers 10,071,516 10,071,516
Due to officers and related parties 170,753 $250,000 (b) 420,753
Advances from customers 9,506,856 9,506,856
Deferred revenue 4,581,714 4,581,714
Deferred interest 41,545 (41,545) (c2) --
Income tax payable 139,187 139,187
Other payables and accrued expenses 813,694 813,694
------------------------------------------------ ----------------
Total Current Liabilities 32,985,232 284,902 208,455 33,478,589
Other long-term liabilities 346,982 346,982
----------------
------------------------------------------------
Total Liabilities 33,332,214 284,902 208,455 33,825,571
------------------------------------------------ ----------------
Common stock subject to redemption 4,103,450 (4,103,450) (c2) --
------------------------------------------------ ----------------
Minority Interests 427,004 427,004
------------------------------------------------ ----------------
108
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
ASSUMING MINIMUM APPROVAL
DECEMBER 31, 2004
Pro Forma Pro forma
Origin Chardan Adjustments Combined
------------------------------------------------- ----------------
Shareholders' equity (deficiency):
Common stock 10,000 490 (10,000) (d) 1,510
1,020 (d)
Additional paid-in capital 12,082,402 17,163,483 (12,082,042) (d) 18,586,631
1,422,788 (b)(d)(e)
Retained earnings (accumulated deficit) 4,457,518 (668,234) 668,234 (e) 4,457,518
------------------------------------------------- ----------------
Total stockholders' equity 16,549,920 16,495,739 (10,000,000) 23,045,659
------------------------------------------------- ----------------
Total liabilities and stockholders' equity $ 50,309,138 $ 20,884,091 $ (13,894,995) $ 57,298,234
================================================= ================
109
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ASSUMING MAXIMUM APPROVAL
FOR THE YEAR ENDED DECEMBER 31, 2004
Pro Forma Pro forma
Origin Chardan Adjustments Combined
-------------------------------------------------- -----------------
Revenues $ 36,430,799 $ 36,430,799
Cost of revenues 21,544,457 21,544,457
------------------ -----------------
Gross Profit 14,886,342 14,886,342
------------------ -----------------
Operating expenses
Selling and marketing expenses 2,463,576 2,463,576
General and administrative expenses 2,917,851 $834,182 3,752,033
Research and development expenses 818,416 818,416
---------------------------------- -----------------
Total operating expenses 6,199,843 834,182 7,034,025
---------------------------------- -----------------
Income from operations 8,686,499 (834,182) 7,852,317
Interest expense (100,425) (100,425)
Interest income 44,948 166,483 $41,545 (c1) 252,976
Equity in earnings of associated company 232,538 232,538
Other income 18,017 18,017
-------------------------------------------------- -----------------
Income before income taxes and minority
Interests 8,881,577 (667,699) 41,545 8,255,423
Income taxes 930,162 930,162
-------------------------------------------------- -----------------
Income before minority interests 7,951,415 (667,699) 41,545
7,325,261
Minority interests (42,339) (42,339)
-------------------------------------------------- -----------------
Net income (loss) $ 7,909,076 $ (667,699) $ (41,545) $ 7,282,922
================================================== =================
Pro Forma Net income per share (f) $ 0.51
=================
110
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ASSUMING MINIMUM APPROVAL
FOR THE YEAR ENDED DECEMBER 31, 2004
Pro Forma Pro forma
Origin Chardan Adjustments Combined
-------------------------------------------------- -----------------
Revenues $ 36,430,799 $ 36,430,799
Cost of revenues 21,544,457 21,544,457
----------------- -----------------
Gross Profit 14,886,342 14,886,342
----------------- -----------------
Operating expenses
Selling and marketing expenses 2,463,576 2,463,576
General and administrative expenses 2,917,851 $834,182 3,752,033
Research and development expenses 818,416 818,416
--------------------------------- -----------------
Total operating expenses 6,199,843 834,182 7,034,025
--------------------------------- -----------------
Income from operations 8,686,499 (834,182) 7,852,317
Interest expense (100,425) (100,425)
Interest income 44,948 166,483 211,431
Equity in earnings of associated company 232,538 232,538
Other income 18,017 18,017
-------------------------------------------------- -----------------
Income before income taxes and minority
Interests 8,881,577 (667,699) -- 8,213,878
Income taxes 930,162 930,162
-------------------------------------------------- -----------------
Income before minority interests 7,951,415 (667,699) -- 7,283,716
Minority interests (42,339) (42,339)
-------------------------------------------------- -----------------
Net income (loss) $ 7,909,076 $ (667,699) $ -- $ 7,241,377
================================================== =================
Pro Forma Net income per share (f) $ 0.53
=================
111
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
(a) to record the release of funds held in trust by Chardan
(b) to record the payment of the $10,000,000 initial cash payment, net of
$250,000 hold back to secure indemnification obligations
(c1) assuming maximum approval, to reclassify common stock held in trust to
permanent equity and to record related deferred interest as income
(c2) assuming minimum approval, to record refund of funds to dissenting
stockholders
(d) to record the issuance of 10,000,000 shares of Chardan common stock for
all the shares of Origin
(e) to eliminate the accumulated deficit (as adjusted when assuming maximum
approval) of Chardan as Origin will be the continuing entity for
accounting purposes
(f) Pro forma net income per share was calculated by dividing pro forma net
income by the weighted average number of shares outstanding as follows:
------------------------------------------- -------------------------------------------------------------------------
Year ended December 31, 2004
------------------------------------------- -------------------------------------------------------------------------
Assuming Maximum Approval Assuming Minimum Approval
(100%) (80%)
------ -----
------------------------------------------- ------------------------------------ ------------------------------------
Shares issued to the shareholders of 10,000,000 10,000,000
Origin in the Transaction
------------------------------------------- ------------------------------------ ------------------------------------
Shares issued to Best of the Best in 200,000 200,000
connection with the Transaction
------------------------------------------- ------------------------------------ ------------------------------------
Chardan weighted average shares 4,039,000 3,409,364
--------- ---------
------------------------------------------- ------------------------------------ ------------------------------------
14,239,000 13,609,364
========== ==========
------------------------------------------- ------------------------------------ ------------------------------------
Options and warrants have not been considered since the related exercise prices
are in excess of the market prices during the periods.
112
DIRECTORS AND MANAGEMENT
Directors and Management Following the Stock Purchase
At the effective time of the stock purchase, the board of directors and
executive officers of Agritech will be as follows:
Name Age Position
----- ---- ---------
Gengchen Han 49 Chairman of the Board and Chief Executive Officer
Yasheng Yang 41 Director and President, Treasurer and Chief Operating
Officer
Liang Yuan 47 Director and Executive Vice Chairman
Bailiang Zhang 63 Director
Da Fang Huang 63 Director
Kerry S. Propper 30 Director
Steven Urbach 29 Director
Michael D. Chermak 45 Director
Remo Richli 42 Director
Gengchen Han will be the Chairman and Chief Executive Officer of
Agritech and will be the chief executive officer of each of the Origin Operating
Companies and Origin. Mr. Han is currently Executive Chairman of Origin Seed and
its affiliated companies, a position that he has held since founding the
business in 1997. Dr. Han has more than 20 years of experience in research and
development of hybrid seed products, particularly corn seed. From 1982 until
1984, Dr Han was a lecturer at the Henan Agriculture University. From 1984 to
1987, Dr. Han studied at Iowa State University and received his PhD degree in
Plan Breeding and Cytogenics. From 1989 until 1990 he was with the International
Maize and Wheat Improvement Center (CIMMYT) in Mexico. He then went to Pioneer
Hi-bred International from 1990 to 1996; his positions there having included
Regional Technical Coordinator for Asia/Pacific and Regional Supervisor for
China Business.
Yasheng Yang will be a director and the president, treasurer and chief
operating officer of Agritech and will be an executive officer of each of the
Origin Operating Companies and Origin. He has been the President and Chief
Operating Officer of Origin Seed in its affiliated companies since 1998,
principally responsible for advertising and marketing. Prior to joining Origin
Seed, from 1995 to 1997, he worked in the Fujian government as an officer, where
he specialized in technology, medical and educational areas.
Liang Yuan will be a director and the executive vice chairman of
Agritech and will be an executive officer of the Origin Operating Companies and
Origin. Mr. Yang has been the chairman of Origin Seed and its affiliated
companies since 1997, principally responsible for infrastructure and public
relations. Prior to joining Origin Seed, Mr. Yuan was at the Fujian Economic
Research Institute from 1985 to 1997, where he was in charge of the research and
development of the regional economy in Fujian province.
Bailiang Zhang will be a director of Agritech. Mr. Zhang served a
president of Henan Agriculture University from 1994 to 2003, and occupied other
positions in the University since 1985. As a result of his work in the field of
agriculture, he has received numerous honors, including acting as a
representative to the National People's Congress, and the 51 Labor Medal, one of
the highest awards given to Chinese citizens in recognition of significant
contributions to the welfare of the country.
113
Da Fang Huang will be a director of Agritech. Mr. Huang has been the
director and CAAS Professor of the Biotechnology Research Institute located in
Beijing, PRC since 1995. From 1993 to 1995, Mr. Huang was the Deputy Director
and CAAS Professor of the Institute of Plant Protection. From 1986 to 1988 and
in 1992, Mr. Huang was a visiting scientist at Cornell University and the Boyce
Thompson Institute. From 1960 to 1965, Mr. Huang was working at the Beijing
Agricultural University in the Department of Plant Pathology.
Kerry S. Propper will be a continuing director of Agritech, the
successor to Chardan. He was a founder and has been the executive vice president
and a director of Chardan since its inception in December 2003. Mr. Propper is
the chief executive officer and a director of each of Chardan China Acquisition
Corp. II and Chardan China Acquisition Corp. III, blank check companies
organized to locate and consummate business combinations in the PRC. Mr. Propper
is also a principal and CEO of Chardan Capital Markets, LLC, a broker dealer,
which he founded with Steven Urbach in February 2003. Mr. Propper has been the
owner and chief executive officer of The Gramercy Group LLC, a New York based
broker/dealer, since July 2003. From February 1999 until March 2003 Mr. Propper
was a founder, owner and managing director of Windsor Capital Advisors, LLC, an
investment advisory and investment banking firm located in New York. Mr. Propper
also founded The Private Capital Group LLC, a small private investment firm
specializing in loans and convertible preferred debt and equity offerings for
small public companies, in May 2000 and was affiliated with it until December
2003. From July 1997 until February 1999, Mr. Proper served as a senior trader
of Aegis Capital Corp, a broker dealer and member firm of the NASD. Mr. Propper
is also currently serving as a board member of Source Atlantic, Inc., a Boston
based health care technology company.
Steven Urbach will be a director of Agritech. He is currently a
principal in and President and Chief Financial Officer of Chardan Capital
Markets, LLC, which he founded with Kerry Propper in February 2003. From
February 1999 to February 2003, Mr. Urbach was a Senior Trader at Windsor
Capital Advisors, LLC, a firm specializing in making markets in Nasdaq
securities. From September 1997 until February 2000, Mr. Urbach worked at Chase
Manhattan Bank as an analyst and portfolio manager.
Michael D. Chermak will be a continuing director of Agritech. He is
currently the Chairman and Chief Executive Officer of Retail Pilot, the parent
of ShopGuard USA, a private company located in San Diego, California, which he
joined in 2004. ShopGuard markets tracking and security devices to the retail
industry. From August 2003 to June 2004, Mr. Chermak was the Chief Executive
Officer Carttronics, LLC, which made and marketed devices that prevent
unauthorized removal of shopping carts from retailers' premises. From June 2001
to July 2002, Mr. Chermak was the chief executive officer of First Opinion Corp.
which develops software used to assist healthcare providers in making
differential diagnoses of patients. From mid-1999 through July 2000, Mr. Chermak
was a principal of eByz, LLC, a software development company that he co-founded.
eByz was focused on supply chain simplification and automation software
products.
Remo Richli will be a director of Agritech. Mr. Richli has been engaged
since 2001 in corporate finance activities through his firm, Richli Consulting,
located in Switzerland and Los Angeles, California. From 1999 to 2001, Mr.
Richli was a financial expert at RP Associates, a firm of finance and accounting
task consultants. During his time with RP Associates, Mr. Richli was also the
Chief Financial Officer of one of its clients. From 1993 to 1999, Mr. Richli had
another consulting firm engaged in corporate finance consultancy for mid-sized
companies in financial distress and acted as the Chief Executive Officer of
client companies on a consulting basis. From 1991 to 1993, Mr. Richli worked
with the Department of Finance of the City of Luzern, Switzerland.
114
Meetings and Committees of the Board of Directors of Chardan
During the fiscal year ended December 31, 2004, Chardan's board of
directors held four meetings. Although Chardan does not have any formal policy
regarding director attendance at annual stockholder meetings, Chardan attempts
to schedule its annual meetings so that all of its directors can attend. In
addition, Chardan expects its directors to attend all board and committee
meetings and to spend the time needed and meet as frequently as necessary to
properly discharge their responsibilities.
Independence of Directors
In anticipation of being listed on the Nasdaq National Market, Agritech
will elect to follow the rules of Nasdaq in determining whether a director is
independent. The board of directors of Agritech also will consult with the
Company's counsel to ensure that the board's determinations are consistent with
those rules and all relevant securities and other laws and regulations regarding
the independence of directors. The Nasdaq listing standards define an
"independent director" generally as a person, other than an officer of the
company, who does not have a relationship with the company that would interfere
with the director's exercise of independent judgment. Consistent with these
considerations, the board of directors of Agritech has affirmatively determined
that, upon the appointment to the board of directors of Agritech on the closing
of the stock purchase, Messrs. Da Fang Huang, Bailiang Zhang, Steven Urbach,
Michael D. Chermak and Remo Richli will be the independent directors of Agritech
for the ensuing year. The other directors are not independent.
Chardan currently does not have an independent board of directors and
is not required to have one.
Audit Committee
In anticipation of being listed on the Nasdaq National Market, Agritech
will establish an audit committee to be effective at the consummation of the
stock purchase the members will be: Remo Richli (chairman), Steven Urbach and
Michael Chermak. As required by Nasdaq listing standards, Chardan's audit
committee is comprised of at least three independent directors who are also
"financially literate." The listing standards define "financially literate" as
being able to read and understand fundamental financial statements, including a
company's balance sheet, income statement and cash flow statement. Messrs.
Richli, Urbach and Chermak are financially literate. The board of directors
believes that each audit committee member has an understanding of generally
accepted accounting principles and financial statements, the ability to assess
the general application of such principles in connection with the company's
financial statements, including estimates, accruals and reserves, experience in
analyzing or evaluating financial statements of similar breadth and complexity
as the company's financial statements, an understanding of internal controls and
procedures for financial reporting and an understanding of audit committee
functions.
Audit Committee Financial Expert
The board of directors believes that Mr. Remo Richli, a director of
Agritech, will qualify as an "audit committee financial expert" within the
meaning of all applicable rules. The board of directors believes that Mr. Richli
has financial expertise from his degrees in business, his activities as a chief
executive officer and chief financial officer of various companies, and his
consulting activities in the areas of accounting, corporate finance, capital
raising and corporate financial analysis.
115
Current Chardan Board of Directors
In March 2005, the board of directors of Chardan established an audit
committee. The sole member of the committee is Mr. Michael Chermak, who is an
"independent director" and who is considered "financially literate," as such
terms are defined by Nasdaq. In March 2005 the board of directors adopted an
audit committee charter. Pursuant to the terms of the charter, the audit
committee's responsibilities include, among other things:
o annually reviewing and reassessing the adequacy of the committee's
formal charter;
o reviewing our annual audited financial statements with our
management and our independent auditors and the adequacy of our
internal accounting controls;
o reviewing analyses prepared by management and independent auditors
concerning significant financial reporting issues and judgments made
in connection with the preparation of our financial statements;
o the engagement of the independent auditor;
o reviewing the independence of the independent auditors;
o reviewing our auditing and accounting principles and practices with
the independent auditors and reviewing major changes to our auditing
and accounting principles and practices as suggested by the
independent auditor or our management;
o the appointment of the independent auditor to the board of
directors, which firm is ultimately accountable to the audit
committee and the board of directors;
o approving professional services provided by the independent
auditors, including the range of audit and non-audit fees; and
o reviewing all related party transactions on an ongoing basis for
potential conflict of interest situations.
The audit committee will pre-approve the services to be provided by its
independent auditors going forward. The audit committee also reviews and
recommends to the board of directors whether or not to approve transactions
between the company and an officer or director outside the ordinary course.
Meetings and Attendance
As the Chardan audit committee was not formed until March 2005, it did
not meet in the year ended December 31,2004.
Independent Auditors' Fees
Goldstein Golub Kessler LLP ("GGK") has a continuing relationship with
American Express Tax and Business Services Inc. ("TBS") from which it leases
auditing staff who are full time, permanent employees of TBS and through which
its partners provide non-audit services. As a result of this arrangement, GGK
has no full time employees and therefore, none of the audit services performed
were provided by permanent full-time employees of GGK. GGK manages and
supervises the audit and audit staff, and is exclusively responsible for the
opinion rendered in connection with its examination.
116
Other services, which do not include Financial Information System
Design and Implementation fees, have been provided by TBS.
Audit Fees
During the fiscal year ended December 31, 2004, Chardan paid, or expect
to pay, Chardan's principal accountant $20,000 for the services they performed
in connection with the initial public offering, including the financial
statements included in the Current Report on Form 8-K filed with the Securities
and Exchange Commission on March 22, 2004, $2,000 in connection with the 2003
Form 10-KSB, $15,000 in connection with the review of the Quarterly Reports on
Form 10-QSB, and approximately $12,000 in connection with the December 31, 2004
audit and Form 10-KSB.
Audit-Related Fees
During 2004, Chardan's principal accountant did not render assurance
and related services reasonably related to the performance of the audit or
review of financial statements.
Tax Fees
During 2004, Chardan paid TBS approximately $1,900 for tax compliance.
All Other Fees
During 2004, there were no fees billed for products and services
provided by the principal accountant to Chardan other than those set forth
above.
Audit Committee Pre-Approval Policies and Procedures
In accordance with Section 10A(i) of the Securities Exchange Act of
1934, before the company engages its independent accountant to render audit or
permitted non-audit services, the engagement will be approved by the audit
committee.
Audit Committee Report
As the audit committee of Chardan was not be formed until March 2005,
it has not yet met in respect of the end of a fiscal year or prepared a
committee report.
Code of Ethics
In anticipation of the stock purchase, the board of directors of
Agritech will adopt a code of ethics that applies to Agritech's directors,
officers and employees as well as those of its subsidiaries. A copy of the form
of Agritech's code of ethics has been filed as an annex to this proxy statement.
Requests for copies of Agritech's code of ethics should be sent in writing to
Chardan China Acquisition Corp., 625 Broadway, Suite 111, San Diego, California
92101, Attention: Secretary.
Chardan has not yet adopted a formal code of ethics statement because
the board of directors evaluated the business of the company and the number of
employees and determined that since the business is largely limited to
maintaining its cash investments while its searches for a target company and
consummates an acquisition and the only persons acting for Chardan are the five
directors who are also the officers, general rules of fiduciary duty and federal
and state securities laws are adequate ethical guidelines.
117
Stock Option Committee Information
Upon consummation of the stock purchase, the board of directors of
Agritech will establish a stock option committee with Steven Urbach and Remo
Richli as its members. The purpose of the stock option committee will be to
administer the company's stock option plans, including authority to make and
modify awards under such plans. Initially, the plan will be the Chardan 2005
Performance Equity Plan, as assumed by Agritech. Since the plan has not yet been
approved, the stock option committee has not had any meetings and no options or
other awards have been granted under the plan.
Nominating Committee Information
In anticipation of being listed on the Nasdaq National Market, Agritech
will form a nominating committee in connection with the consummation of the
stock purchase. The members will be Steven Urbach, Remo Richli and Michael D.
Chermak, each an independent director under Nasdaq listing standards. The
nominating committee will be responsible for overseeing the selection of persons
to be nominated to serve on Agritech's board of directors. The nominating
committee will consider persons identified by its members, management,
stockholders, investment bankers and others. A copy of the form of nominating
committee charter is attached as an annex to this proxy statement.
Chardan does not have any restrictions on stockholder nominations under
its certificate of incorporation or by-laws. The only restrictions are those
applicable generally under Delaware corporate law and the federal proxy rules.
Prior to the consummation of the stock purchase agreement, Chardan has not had a
nominating committee or a formal means by which stockholders can nominate a
director for election. Currently the entire board of directors decides on
nominees, on the recommendation of one or more members of the board. None of the
members of the board of directors are "independent." Currently, the board of
directors will consider suggestions from individual stockholders, subject to
evaluation of the person's merits. Stockholders may communicate nominee
suggestions directly to any of the board members, accompanied by biographical
details and a statement of support for the nominees. The suggested nominee must
also provide a statement of consent to being considered for nomination. Although
there are no formal criteria for nominees, the board of directors believes that
persons should be actively engaged in business endeavors, have a financial
background, and be familiar with acquisition strategies and money management.
Because the management and directors of Chardan are the same persons,
the board of directors has determined not to adopt a formal methodology for
communications from stockholders on the belief that any communication would be
brought to the boards' attention by virtue of the co-extensive employment.
Director Compensation
Agritech intends to pay its non-employee directors a per diem for each
board meeting that they attend, reimburse their expenses incurred in attending
meetings and award options to purchase shares of common stock to be issued on
election, exercisable at the market price of the common stock on the date of
issuance, vesting immediately and exercisable for five years. The options will
be issued under the stock option plan approved by the board of directors and
stockholders pursuant to this proxy statement and the underlying common stock
will be registered for issuance upon exercise. The amounts of compensation and
numbers of shares subject to options have not been determined.
118
Chardan's directors do not currently receive any cash compensation for
their service as members of the board of directors.
Executive Compensation
Each of Dr. Gengchen Han and Messrs. Liang Yuan and Yasheng Yang will
enter into employment agreements with Origin, effective as of the effective time
of the redomestication merger. Dr. Han will be employed as the chairman and
chief executive officer, Mr. Yuan will be the executive vice chairman and Mr.
Yang will be president and chief operating officer. The agreements will provide
for an annual salary of $250,000 and a discretionary cash bonus based on growth
in the combined company's per-share value, achievement of growth and business
targets, satisfaction of company capital requirements and other criteria, as the
compensation committee determines. The executives will be entitled to insurance
benefits, five weeks vacation, a car and reimbursement of business expenses and,
if necessary, relocation expenses. The agreements will be terminable by Origin
for death, disability and cause. The executive may terminate for good reason,
which includes Origin's breach, the executive not being a member of the board of
directors, and change of control. In the event of termination for good reason,
the executive will receive two years compensation and benefits. The agreements
contain provisions for the protection of confidential information and a
three-year-after employment non-competition period within China. In the purchase
agreement, there is an additional non-competition agreement applicable to these
persons for the greater of five years after consummation or two years after
employment that includes Hong Kong and Taiwan, in addition to China.
Origin's Executive Officers
The following sets forth summary information concerning the
compensation paid by Origin to Gengchen Han, Liang Yuan and Yasheng Yang during
the last three fiscal years.
Management Compensation Summary
Annual Compensation
-------------------
Name Year Salary ($) Bonus ($)
---- ---- --------- ---------
Gengchen Han 2002 50,051 0
2003 52,920 66,672
2004 -- --
Liang Yuan 2002 21,140 0
2003 18,663 50,004
2004 -- --
Yasheng Yang 2002 33,739 0
2003 36,612 55,576
2004 -- --
Since its formation, neither Origin nor any of the Origin Operating
Companies has granted any pension plans, stock options or stock appreciation
rights, any awards under long-term incentive plans, or any other non-cash
compensation.
Chardan Executive Officers
No executive officer of Chardan has received any cash or non-cash
compensation for services rendered to Chardan. Each executive officer has agreed
not to take any compensation prior to the consummation of a business
combination.
119
Commencing April 1, 2004 and ending upon the acquisition of a target
business, Chardan has paid and will continue to pay an administrative services
fee totaling $7,500 per month to Chardan Ventures for providing Chardan with
office space and certain office and secretarial services. Other than this $7,500
per month in fees, no compensation of any kind, including finders and consulting
fees, has been or will be paid to any of the Chardan stockholders existing prior
to its initial public offering, or any of their respective affiliates, for
services rendered prior to or in connection with a business combination.
However, Chardan stockholders existing prior to its initial public offering have
been and will continue to 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.
Executive Compensation Determination
It is the intention of Agritech to determine executive compensation by
a decision of the majority of the independent directors, at a meeting at which
the chief executive officer will not be present. In the future, the board may
establish a committee. At this time, Agritech does not believe a separate
committee is necessary because the senior executives of the company are employed
under written compensation agreements and the Stock Purchase Agreement provides
for equity-based incentive compensation, all of which agreements were negotiated
by the Chardan board of directors in arms-length negotiations.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chardan
Prior to Chardan's initial public offering, Chardan issued shares of
common stock to a number of parties at a price of $0.033 per share. Subsequent
to issuance, the Company authorized a 1.166666:1 forward split of its stock,
reducing the effective price per share to $0.029. These shares will be held in
escrow until March 2007. The parties to whom the stock was issued and the amount
of stock issued to them, as well as their relationship to the Company, are set
forth below. The number of shares shown are the number of shares held after the
split referred to above:
Number
Name of Shares Relationship to Us
---- --------- ------------------
Dr. Richard D. Propper 244,125 Chairman of the Board
Jiangnan Huang 134,167 Director, Chief Executive Officer
Zhang Li 134,167 Director, Chief Financial Officer
Kerry S. Propper 177,042 Director, Executive Vice President
Daniel P. Beharry 83,417 Shareholder
Steven Urbach 72,917 Shareholder
Anthony D. Errico, Jr. 23,333 Shareholder
Michael Urbach 5,832 Shareholder
The holders of these shares are entitled to make up to two demands that
Chardan register these shares pursuant to a registration rights agreement dated
March 4, 2004. The holders of the majority of these shares can elect to exercise
these registration rights at any time after the date on which these shares of
common stock are released from escrow. In addition, these stockholders have
certain "piggy-back" registration rights on registration statements filed
subsequent to the date on which these shares of common stock are released from
escrow. The combined company will bear the expenses incurred in connection with
the filing of any such registration statements.
Chardan Ventures, an affiliate of Dr. Richard D. Propper, Chardan's
Chairman, and Jiangnan Huang and Zhang Li, both officers and directors of
Chardan has agreed that commencing April 1, 2004 and ending upon the acquisition
of a target business, it will make available to Chardan a small amount of office
space and certain office and secretarial services, as Chardan may require from
time to time. Chardan has agreed to pay Chardan Ventures a total of $7,500 per
month for these services. As of January 31, 2005, Chardan has paid or accrued
for payment to Chardan Ventures a total of $75,000.
120
Chardan has and will continue to reimburse its officers and directors
for any reasonable out-of-pocket business expenses incurred by them in
connection with certain activities on its behalf, such as identifying and
investigating possible target businesses and business combinations.
Other than the $7,500 per-month administrative fee and reimbursable
out-of-pocket expenses payable to Chardan officers and directors, no
compensation or fees of any kind, including finders and consulting fees, will be
paid to any of the above listed Chardan stockholders.
After completion of the stock purchase, Dr. Propper will continue to
serve in the capacity of Vice President, Corporate Development, without
compensation, and Chardan Capital, LLC, an affiliate of Dr. Propper, Mr.
Beharry, Mr. Zhang and Mr. Huang, will provide a variety of ongoing services to
Origin over the next two years at a cost to Origin of $30,000 per month. The
services will be on a non-exclusive basis and will include advice and help in
meeting US public reporting requirements and accounting standards,
Sarbanes-Oxley compliance, corporate structuring and development, stockholder
relations, corporate finance and operational capitalization and such other
similar services as requested and agreed to by Chardan Capital, LLC.
All ongoing and future transactions between Chardan and any of its
officers and directors or their respective affiliates, will be on terms believed
by Chardan to be no less favorable than are available from unaffiliated third
parties and will require prior approval in each instance by a majority of the
members of Chardan board who do not have an interest in the transaction.
Dr. Richard Propper is the father of Mr. Kerry Propper.
Origin has lent the following amounts to some of its executive officers
who are also some of the Origin Stockholders, on a non-interest bearing basis,
without a specified due date:
RMB US$
2003 2004
---- ----
Yang Yasheng 300,000 $39,174
Zhao Yuping 200,000 $24,573
Han Gengchen $3,512
Yuan Liang $2,633
Zhang Weidong $319
Chen WieQiang ______ $200
---------
500,000 $70,411
======= =======
Henan Agricultural University owes Origin $24,381. During fiscal year
2004, Origin paid to Henan Agricultural University $253,736 for technology usage
fees for the exclusive right to use certain seed technologies. Henan
Agricultural University is a minority stockholder of Beijing Origin. Origin paid
Shijiazhuang Li Yu Technology Development Co., Ltd. in fiscal $995,945 in usage
fees for the exclusive right to use certain seed technologies and owes $170,753
as of December 31, 2004. Shijiazhuang Li Yu Technology Development Co., Ltd. was
previously owned by Yang YaSheng until September 2004 when it became owned by
Origin and accounted by the equity method of investment.
121
BENEFICIAL OWNERSHIP OF SECURITIES
Beneficial Owners of More Than 5% of Chardan Common Stock
Based upon filings made with the Securities and Exchange Commission
under Section 13(d) of the Exchange Act on or before June 15, 2005, Chardan is
aware of the following beneficial owners of more than 5% of any class of its
voting securities.
Approximate
Percentage of
Name and Address Shares of Chardan Outstanding
of Beneficial Owner(1) Common Stock Common Stock
Richard D. Propper, M.D.(2) 244,125 5.0%
Sapling LLC(3) 480,000 9.8%
Barry Rubenstein(4) 250,000 5.1%
Jack Silver(5) 250,000 5.1%
First New York Securities LLC(6) 94,950 1.9%
Judy Finger(6) 222,325 4.5%
Douglas Topkes(6) 222,325 4.5%
Haystack Capital L.P.(6) 116,200 2.4%
Joseph L. Dowling, III(7) 330,000 6.7%
Jeffrey L. Feinberg(8) 389,900 7.9%
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934. Unless otherwise noted, we
believe that all persons named in the table have sole voting and
investment power with respect to all shares of our common stock
beneficially owned by them.
(2) The business address of Dr. Propper is 625 Broadway, Suite 1111, San
Diego, California 92101. Does not include 271,250 shares of common
stock issuable upon exercise of warrants that are not currently
exercisable and will not become exercisable within the next 60 days.
(3) The business address of Sapling, LLC is 535 Fifth Avenue, 31st Floor,
New York, New York 10017. Fir Tree Value Master Fund, LP, a Cayman
Islands exempted limited partnership, is the sole member of Sapling,
LLC and Fir Tree, Inc., a New York corporation, is the manager of
Sapling, LLC. The information is derived from a Schedule 13G filed by
such entity with the Securities and Exchange Commission on December 23,
2004.
(4) The business address of Woodland Partners, Barry Rubenstein and Marilyn
Rubenstein is 68 Wheatley Road, Brookville, New York 11545. Mr.
Rubenstein has sole power to vote and dispose of 130,000 shares of
common stock and shared voting and dispositive authority for 70,000
shares of common stock with his spouse, Marilyn Rubenstein, held
through Woodland Partners of which they are general partners. The
amounts reported above do not include 120,000 shares underlying
warrants held by Woodland Partners and 160,000 shares underlying
warrants held by Barry Rubenstein Rollover IRA Account, none of which
are currently exercisable and which will not become exercisable within
the next 60 days. The information is derived from a Schedule 13G filed
by the above persons with the SEC on February 8, 2005.
122
(5) The business address of Jack Silver is c/o Sherleigh Associates LLC
(d/b/a Star Capital), 660 Madison Avenue, New York, New York 10021.
Does not include 500,000 shares of common stock issuable upon exercise
of warrants held by Mr. Mr. Silver which are not currently exercisable
and which will not become exercisable within the next 60 days. The
foregoing information was derived from a Schedule 13G filed with the
SEC on March 26, 2004.
(6) The business address of First New York Securities L.L.C., Ms. Judy
Finger, Mr. Douglas Topkes and Haystack Capital L.P. is 850 Third
Avenue, 17th Floor, New York, New York 10022. Ms. Finder and Mr. Topkes
are employed by and trade securities for the proprietary account of
First New York Securities and are managing members of Haystack Capital
L.L.C., which is the general partner of Haystack Capital L.P., a hedge
fund. First New York Securities LLC has sole power to vote and dispose
of 94,950 shares and Haystack Capital LP has sole power to vote and
dispose of 116,200 shares. Each of Judy Finger and Douglas Topkis have
shared power to vote 174,850 shares and each of Judy Finger and Douglas
Topkis have shared power to dispose of 222,325 shares. The amounts
reported above do not include 168,000 shares underlying warrants which
are not currently exercisable and which will not become exercisable
within the next 60 days. The information is derived from a Schedule 13G
filed by the above persons with the SEC on February 8, 2005.
(7) The business address of Joseph L. Dowling, III is 540 Madison Avenue,
38th Floor, New York, New York 10022. By virtue of the status as the
sole managing member of the entities that control the investment
decisions of Narragansett I, L.P., the owner of 102,300 shares, and
Narragansett Offshore, Ltd., the owner of 227,700 shares. Mr. Dowling
may be deemed to be the beneficial owner of shares owned by
Narragansett I and Narragansett Offshore and may be deemed to have sole
power to vote or direct the vote of and sole power to dispose or direct
the disposition of such securities. The information is derived from a
Schedule 13G filed by the above persons with the SEC on February 8,
2005.
(8) The securities reported as held by Mr. Feinberg represent shares of
common stock and are held by (i) a separately managed account managed
by Jeffrey L. Feinberg, and (ii) JLF Partners I, L.P., JLF Partners II,
L.P. and JLF Offshore Fund, Ltd., to which JLF Asset Management, L.L.C.
serves as the management company and/or investment manager. Jeffrey L.
Feinberg is the managing member of JLF Asset Management, L.L.C. The
address is 2775 Via de la Valle, Suite 204, Del Mar, California 92014.
The information is derived from a Schedule 13G filed by the above
persons with the SEC on March 23, 2005.
None of the above stockholders has any voting rights that are different
from the voting rights of any other stockholders.
Security Ownership of Officers and Directors of Chardan
The following table sets forth information with respect to the
beneficial ownership of Chardan common shares, as of __________________, by:
o each director and executive officer; and
o all directors and officers as a group.
123
Approximate
Percentage of
Shares of Chardan Outstanding
Name(1) Common Stock Common Stock(2)
-------- ------------ ---------------
Richard D. Propper, M.D. 244,125 5.0%
Chairman of the Board
Kerry Propper 177,042 3.6%
Executive Vice President and Director
Jiangnan Huang 134,167 2.7%
Chief Executive Officer and Director
Zhang Li 134,167 2.7%
Chief Financial Officer and Director
Michael D. Chermak
Director -0- -0-
Directors and officers as a group (five
persons) 689,501 14.1%
(1) Unless otherwise indicated, the business address of each of the individuals
is c/o 625 Broadway, Suite 1111, San Diego, CA 92101.
(2) Beneficial ownership and percentage has been determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934.
Dr. Richard Propper, Kerry Propper, Jiangnan Huang and Zhang Li may be
deemed to be our "parents" and "promoters," as these terms are defined under the
Federal Securities laws.
124
PRICE RANGE OF SECURITIES AND DIVIDENDS
Chardan
The shares of Chardan common stock, warrants and units are currently
traded on the Over-the-Counter Bulletin Board under the symbols "CAQC," "CACQW"
and "CACQU," respectively. The closing price for each share of common stock,
warrant and unit of Chardan on ____________, 2005, was $______, $_____ and
$_____, respectively. Chardan units commenced public trading on March 16, 2004
and common stock and warrants commenced public trading on March 22, 2004.
The table below sets forth, for the calendar quarters indicated, the
high and low bid prices of the Chardan common stock, warrants and units as
reported on the Over-the-Counter Bulletin Board. The over-the-counter market
quotations reported below reflect inter-dealer prices, without markup, markdown
or commissions and may not represent actual transactions.
Over-the-Counter Bulletin Board
-----------------------------------------------------------------------------
Chardan
Common Stock Chardan Warrants Chardan Units
------------------------- ---------------------- ----------------------
High Low High Low High Low
2004 First Quarter N/A N/A N/A N/A $6.25 $5.99
2004 Second Quarter $5.00 $4.65 $1.05 $0.64 $6.95 $6.03
2004 Third Quarter $4.94 $4.75 $0.85 $0.61 $6.80 $5.70
2004 Fourth Quarter $6.65 $4.85 $2.03 $0.62 $10.60 $6.00
2005 Fiscal Quarter $8.12 $6.20 $3.21 $1.60 $14.35 $9.30
Holders of Chardan common stock, warrants and units should obtain
current market quotations for their securities. The market price of Chardan
common stock, warrants and units could vary at any time before the stock
purchase.
In connection with the stock purchase, application has been made and
provisionally approved for the quotation of the combined company's common stock,
warrants and units on the Nasdaq National Market under the symbol "SEED,"
"SEEDW" and "SEEDU," respectively, subject to official notice of issuance. If
the securities are not listed on the Nasdaq, they will continue to be traded on
the over-the-counter bulletin board.
Holders
As of __________________ __, 2005, there was one holder of record of
the units, eleven holders of record of the common stock and two holders of
record of the warrants. Chardan believes the beneficial holders of the units,
common stock and warrants to be in excess of 400 persons each.
Dividends
Chardan has not paid any dividends on its common stock to date and do
not intend to pay dividends prior to the completion of a business combination.
The payment of dividends in the future will be contingent upon revenues and
earnings, if any, capital requirements and general financial condition
subsequent to completion of a business combination. The payment of any dividends
subsequent to a business combination will be within the discretion of the then
board of directors. It is the present intention of the board of directors to
retain all earnings, if any, for use in the business operations and,
accordingly, the board does not anticipate declaring any dividends in the
foreseeable future.
125
DESCRIPTION OF THE COMBINED COMPANY'S
SECURITIES FOLLOWING THE STOCK PURCHASE
The following description of the material terms of the capital stock
and warrants of the combined company following the stock purchase includes a
summary of specified provisions of the certificate of incorporation and by-laws
of Agritech that will be in effect upon completion of the stock purchase and the
merger. This description is subject to the relevant provisions of the
Corporation Law of the British Virgin Islands and is qualified by reference to
Agritech's certificate of incorporation and by-laws, copies of which are
attached to this proxy statement/prospectus and are incorporated in this proxy
statement/prospectus by reference.
General
The combined company has no authorized share capital, but it will be
authorized to issue 61,000,000 shares of all classes of capital stock, of which
60,000,000 will be ordinary shares, no par value and 1,000,000 will be
preference shares of, no par value. The capital of Agritech will be stated in
United States dollars.
Ordinary Shares
The holders of the combined company's ordinary shares are entitled to
one vote for each share on all matters submitted to a vote of stockholders and
do not have cumulative voting rights. Subject to the preferences and rights, if
any, applicable to the shares of preference stock, the holders of the ordinary
shares are entitled to receive dividends if and when declared by the board of
directors. Subject to the prior rights of the holders, if any, of the preference
shares, the holders of the ordinary shares are entitled to share ratably in any
distribution of the assets of the combined company upon liquidation, dissolution
or winding-up, after satisfaction of all debts and other liabilities.
Preference Stock
Shares of preference stock may be issued from time to time in one or
more series and the board of directors of Agritech, without approval of the
stockholders, is authorized to designate series of preference stock and to fix
the rights, privileges, restrictions and conditions to be attached to each such
series of shares of preference stock. The issuance of shares of preference
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of holders of the combined company's shares of common stock.
As of the date of this proxy statement/prospectus, there are no
outstanding shares of preference stock of any series.
Anti-takeover Effect of Unissued Shares of Capital Stock
Common Stock. After the stock purchase and redomestication merger,
Agritech will have outstanding approximately 15,100,000 shares of common stock,
assuming that none of the public stockholders elects to exercise the conversion
rights. The remaining shares of authorized and unissued common stock will be
available for future issuance without additional stockholder approval. While the
additional shares are not designed to deter or prevent a change of control,
under some circumstances the combined company could use the additional shares to
create voting impediments or to frustrate persons seeking to effect a takeover
or otherwise gain control by, for example, issuing those shares in private
placements to purchasers who might side with the combined company's board of
directors in opposing a hostile takeover bid.
126
Preference Stock. The memorandum and articles will grant the board of
directors the authority, without any further vote or action by the combined
company's stockholders, to issue preference stock in one or more series and to
fix the number of shares constituting any such series and the preferences,
limitations and relative rights, including dividend rights, dividend rate,
voting rights, terms of redemption, redemption price or prices, conversion
rights and liquidation preferences of the shares constituting any series. The
existence of authorized but unissued preference stock could reduce the combined
company's attractiveness as a target for an unsolicited takeover bid since the
combined company could, for example, issue shares of preference stock to parties
who might oppose such a takeover bid or shares that contain terms the potential
acquirer may find unattractive. This may have the effect of delaying or
preventing a change in control, may discourage bids for the common stock at a
premium over the market price of the common stock, and may adversely affect the
market price of, and the voting and other rights of the holders of, common
stock.
Warrants
As of _____________, 2005, there were 8,050,000 warrants outstanding.
Each warrant entitles the registered holder to purchase one share of our common
stock at a price of $5.00 per share, subject to adjustment as discussed below,
at any time commencing on the later of:
o the completion of the stock purchase; or
o March 16, 2005.
The warrants will expire at 5:00 p.m., New York City time on March 16,
2008. Chardan may call the warrants for redemption with EarlyBirdCapital's prior
consent:
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 warrantholder; and
o if, and only if, the reported last sale price of the common stock
equals or exceeds $8.50 per share, for any 20 trading days within a
30 trading day period ending on the third business day prior to the
notice of redemption to warrantholders.
The warrants have been issued in registered form under a warrant
agreement between Continental Stock Transfer & Trust Company, as warrant agent,
and Chardan.
The exercise price and number of shares of common stock issuable on
exercise of the warrants may be adjusted in certain circumstances, including in
the event of a stock dividend, recapitalization, reorganization, stock purchase
or consolidation of the company. However, the warrants will not be adjusted for
issuances of common stock at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate
on or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price, by
certified check payable to us, for the number of warrants being exercised. The
warrantholders do not have the rights or privileges of holders of common stock
and any voting rights until they exercise their warrants and receive 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.
127
The warrants may be deprived of any value and the market for the
warrants may be limited if the prospectus relating to the common stock issuable
upon the exercise of the warrants is not current or if the common stock is not
qualified or exempt from qualification in the jurisdictions in which the holders
of the warrants reside. No fractional shares will be issued upon exercise of the
warrants. However, if a warrantholder exercises all warrants then owned of
record by him, Chardan will pay to the warrantholder, in lieu of the issuance of
any fractional share which is otherwise issuable to the warrantholder, an amount
for such fractional share in cash based on the market value of the common stock
on the last trading day prior to the exercise date.
Purchase Option
Chardan has issued to the representative of the underwriters of its
initial public offering an option to purchase up to a total of 350,000 units at
a per-unit price of $9.90, commencing on the later of the consummation of the
stock purchase or March 16, 2005. The option expires on March 16, 2009. The
units issuable upon exercise of this option are the same as the publicly traded
units, consisting of one share of common stock and two warrants, except that the
warrants are exercisable at $6.40. The option contains demand and piggy-back
registration rights for period of five and seven years, respectively, and the
combined company will bear the expenses of the registration of the securities
for the holders of the option. The exercise price and number of units are
subject to adjustment in certain circumstances, including a stock dividend,
recapitalization reorganization, merger or consolidation.
Registration Rights Agreements
Chardan has entered into a registration rights agreement providing for
the registration of the shares of common stock issued prior to the initial
public offering and included in the purchase option. The warrants, to be
exercisable, must also continue to have the common stock underlying the warrants
registered on an effective registration statement.
Transfer Agent and Registrar
The transfer agent and registrar for the shares of Chardan common
stock, warrants and units is Continental Stock Transfer & Trust Company, 17
Battery Place, New York, New York 10004, (212) 509-4000.
STOCKHOLDER PROPOSALS
If the stock purchase is not consummated, the Chardan 2005 annual
meeting of stockholders will be held on or about October 1, 2005 unless the date
is changed by the board of directors. If you are a stockholder and you want to
include a proposal in the proxy statement for the year 2005 annual meeting, you
need to provide it to us by no later than August 2, 2005. You should direct any
proposals to our secretary at Chardan's principal office in San Diego, CA. If
you want to present a matter of business to be considered at the year 2005
annual meeting, under Chardan by-laws you must give timely notice of the matter,
in writing, to our secretary. To be timely, the notice has to be given between
July 2, 2005 and August 2, 2005.
LEGAL MATTERS
Maples & Calder, Road Town, Tortola, British Virgin Islands, will pass
upon the validity of the securities issued in connection with the
redomestication merger and certain other legal matters related to this joint
proxy statement/prospectus.
128
EXPERTS
The consolidated financial statements of State Harvest Holdings Limited
as of December 31, 2002, 2003 and 2004, included in this joint proxy
statement/prospectus and the related financial statement schedules included
elsewhere in the registration statement of which this joint proxy
statement/prospectus forms a part, have been audited by Deloitte Touche Tohmatsu
CPA Ltd., independent registered public accountants, as stated in their report
appearing herein and elsewhere in the registration statement of which this joint
proxy statement/prospectus forms a part, and have been so included in reliance
upon the report of such firm, given upon their authority as experts in
accounting and auditing.
The financial statements of Chardan at December 31, 2004 and December
31, 2003 and for the period from December 5, 2003 (inception) to December 31,
2004, the year ended December 31, 2004 and the period from December 5, 2003
(inception) to December 31, 2003 included in this joint proxy
statement/prospectus and in the registration statement have been audited by
Goldstein Golub Kessler LLP, independent registered public accounting firm, to
the extent set forth in their report appearing elsewhere in this joint proxy
statement/prospectus and in the registration statement. The financial statements
and the report of Goldstein Golub Kessler LLP are included in reliance upon
their report given upon the authority of Goldstein Golub Kessler LLP as experts
in auditing and accounting.
DELIVERY OF DOCUMENTS TO STOCKHOLDERS
Pursuant to the rules of the Securities and Exchange Commission,
Agritech and services that it employs to deliver communications to its
stockholders are permitted to deliver to two or more stockholders sharing the
same address a single copy of each of Agritech's annual report to stockholders
and Agritech's proxy statement. Upon written or oral request, Agritech will
deliver a separate copy of the annual report to stockholder and/or proxy
statement to any stockholder at a shared address to which a single copy of each
document was delivered and who wishes to receive separate copies of such
documents in the future. Stockholders receiving multiple copies of such
documents may likewise request that Agritech deliver shingle copies of such
documents in the future. Stockholders may notify Agritech of their requests by
calling or writing Agritech at its principal executive offices at Origin
Agritech Limited, 625 Broadway, Suite 1111, San Diego, California 92101.
WHERE YOU CAN FIND MORE INFORMATION
Chardan files reports, proxy statements and other information with the
Securities and Exchange Commission as required by the Securities Exchange Act of
1934, as amended.
You may read and copy reports, proxy statements and other information
filed by Chardan with the Securities and Exchange Commission at the Securities
and Exchange Commission public reference room located at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference
Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. You
may also obtain copies of the materials described above at prescribed rates by
writing to the Securities and Exchange Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549.
Chardan files its reports, proxy statements and other information
electronically with the Securities and Exchange Commission. You may access
information on Chardan at the Securities and Exchange Commission web site
containing reports, proxy statements and other information at:
http://www.sec.gov.
After the stock purchase, if the securities of Chardan are listed on
the Nasdaq Stock Market, unless you notify Chardan of your desire not to receive
these reports, the combined company will furnish to you all periodic reports
that it files with the Securities and Exchange Commission, including audited
annual consolidated financial statements and unaudited quarterly consolidated
financial statements, as well as proxy statements and related materials for
annual and special meetings of stockholders. In addition, you will be able to
request Chardan's Annual Report on Form 10-KSB.
129
Information and statements contained in this proxy
statement/prospectus, or any annex to this proxy statement/prospectus
incorporated by reference in this proxy statement/prospectus, are qualified in
all respects by reference to the copy of the relevant contract or other annex
filed as an exhibit to this proxy statement/prospectus or incorporated in this
proxy statement/prospectus by reference.
All information contained in this proxy statement/prospectus or
incorporated in this proxy statement/prospectus by reference relating to Chardan
has been supplied by Chardan, and all such information relating to the Origin
Parties has been supplied by the Origin Parties. Information provided by either
of us does not constitute any representation, estimate or projection of the
other.
If you would like additional copies of this proxy statement/prospectus,
or if you have questions about the stock purchase, you should contact:
c/o Origin Agritech Limited
Chardan China Acquisition Corporation
625 Broadway, Suite 1111
San Diego, CA 92101
130
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF
DIRECTORS AND SHAREHOLDERS OF
STATE HARVEST HOLDINGS LIMITED
We have audited the accompanying consolidated balance sheets of State Harvest
Holdings Limited and its subsidiaries (the "Company") as of December 31, 2002,
2003 and 2004 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years ended December
31, 2004, all expressed in Renminbi. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of the internal control over
financial reporting. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2002, 2003 and 2004 and the results of its operations and its cash flows for
each of the three years ended December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America.
Our audits also comprehended the translation of Renminbi amounts into United
States Dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2. Such United States Dollar amounts
are presented solely for the convenience of the readers.
Deloitte Touche Tohmatsu CPA Ltd.
Beijing, China
May 4, 2005
F-1
STATE HARVEST HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
At December 31,
---------------------------------------------------------------------
2002 2003 2004 2004
---- ---- ---- ----
Assets RMB RMB RMB US$
Current assets:
Cash and cash equivalents...................... 78,697,973 49,221,415 68,848,154 $8,318,511
Accounts receivable, net of allowance of
RMB50,850, nil, nil for
2002, 2003 and 2004respectively.............. 5,274,006 - - -
Due from related parties....................... 420,000 520,000 784,547 94,792
Advances to suppliers.......................... 1,810,529 7,371,122 1,643,666 198,594
Inventories.................................... 114,903,721 170,887,988 235,821,671 28,492,922
Income tax receivable.......................... 9,795,564 1,449,676 7,531,581 909,996
Prepaid expenses and other current assets...... 7,038,563 8,504,254 10,269,502 1,240,803
--------- --------- --------- --------
Total current assets............................. 217,940,356 237,954,455 324,899,121 39,255,618
Land use rights, net............................. 5,177,677 10,988,736 11,301,997 1,365,553
Plant and equipment, net......................... 31,652,831 55,400,693 66,001,864 7,974,611
Long-term investment............................. - - 10,274,604 1,241,419
Acquired intangible assets, net.................. 570,319 237,956 2,872,463 347,062
Deferred income tax assets....................... 1,573,084 2,142,148 418,981 50,623
Other assets..................................... 473,261 532,771 614,550 74,252
--------- --------- --------- --------
Total assets..................................... 257,387,528 307,256,759 416,383,580 $50,309,138
========= ========= ========= ========
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings.......................... 15,000,000 35,000,000 41,000,000 $4,953,785
Accounts payable............................... 12,069,243 14,474,266 22,741,562 2,747,727
Due to growers................................. 42,552,299 35,411,109 83,356,902 10,071,516
Due to related parties......................... - - 1,413,234 170,753
Advances from customers........................ 57,285,612 73,419,263 78,683,497 9,506,856
Deferred revenues.............................. 74,764,068 65,295,950 37,920,553 4,581,714
Income tax payable............................. - - 1,151,985 139,187
Other payables and accrued expenses............ 3,487,187 4,167,510 6,734,536 813,694
--------- --------- --------- --------
Total current liabilities........................ 205,158,409 227,768,098 273,002,269 32,985,232
--------- --------- --------- --------
Other long-term liabilities ..................... 2,871,801 2,871,801 2,871,801 346,982
Minority interests............................... 3,271,218 3,183,679 3,534,095 427,004
Commitments and contingencies (Note 16)
Shareholders' equity:
Common shares (nil for 2002, RMB 1 par value;
100,000,000 shares authorized, issued and outstanding
at in 2003; US$ 1 par value; 10,000 shares
authorized, issued and outstanding at in 2004). - 100,000,000 82,765 10,000
Additional paid-in capital..................... 3,671,500 - 100,000,000 12,082,402
Retained earnings (accumulated deficit)........ 42,414,600 (26,566,819) 36,892,650 4,457,518
--------- --------- --------- --------
Total stockholders' equity....................... 46,086,100 73,433,181 136,975,415 16,549,920
--------- --------- --------- --------
Total liabilities and stockholders' equity....... 257,387,528 307,256,759 416,383,580 $50,309,138
========= ========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
STATE HARVEST HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
--------------------------------------------------------------------------
2002 2003 2004 2004
---- ---- ---- ----
RMB RMB RMB US$
Revenues..................................... 98,717,316 191,645,454 301,519,504 $36,430,799
Cost of revenues............................. (46,006,510) (118,976,611) (178,312,702) (21,544,457)
--------- --------- --------- --------
Gross profit................................. 52,710,806 72,668,843 123,206,802 14,886,342
--------- --------- --------- --------
Operating expenses:
Selling and marketing...................... (6,480,427) (13,310,899) (20,389,786) (2,463,576)
General and administrative................. (9,641,490) (18,947,787) (24,149,592) (2,917,851)
Research and development................... (5,371,954) (5,287,964) (6,773,621) (818,416)
--------- --------- --------- --------
Total operating expenses..................... (21,493,871) (37,546,650) (51,312,999) (6,199,843)
--------- --------- --------- --------
Income from operations....................... 31,216,935 35,122,193 71,893,802 8,686,499
Interest expense............................. (416,934) (483,314) (831,166) (100,425)
Equity in earning of associated company...... - - 1,924,604 232,538
Interest income.............................. 440,254 845,448 372,010 44,948
Other income................................. 2,265,862 1,137,140 149,119 18,017
Provision for litigation..................... (2,871,801) - - -
--------- --------- --------- --------
Income before income taxes and minority
interests.................................. 30,634,316 36,621,467 73,508,369 8,881,577
Income taxes................................. (1,498,312) (7,807,797) (7,698,484) (930,162)
--------- --------- --------- --------
Income before minority interests............. 29,136,004 28,813,670 65,809,885 $7,951,415
Minority interests........................... (2,574,818) 137,539 (350,416) (42,339)
--------- --------- --------- --------
Net income................................... 26,561,186 28,951,209 65,459,469 7,909,076
========= ========= ========= ========
Net Income per share:
Basic and diluted.......................... RMB - RMB 1.10 RMB 0.67 US$ 0.08
--------- --------- --------- --------
Shares used in computation:
Basic and diluted.......................... - 26,301,370 98,356,329 98,356,329
--------- --------- --------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
STATE HARVEST HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Common shares Additional earnings Total
---------------------------- paid-in (accumulated stockholders'
Shares Amount capital deficit) equity
------ ------ ------- -------- ------
(RMB) (RMB) (RMB) (RMB)
Balance as of January 1, 2001.................. - - 3,671,500 7,925,167 11,596,667
Net income..................................... - - - 8,115,010 8,115,010
--------- --------- -------- -------- ---------
Balance as of December 31, 2001................ - - 3,671,500 16,040,177 19,711,677
Capital contribution to minority interest...... - - - (186,763) (186,763)
Net income..................................... - - - 26,561,186 26,561,186
--------- --------- -------- -------- ---------
Balance as of December 31, 2002................ - - 3,671,500 42,414,600 46,086,100
Net income..................................... - - - 28,951,209 28,951,209
Capital restructuring.......................... 100,000,000 100,000,000 (3,671,500) (96,328,500) -
Cash dividend.................................. - - - (1,604,128) (1,604,128)
--------- --------- -------- -------- ---------
Balance as of December 31, 2003................ 100,000,000 100,000,000 - (26,566,819) 73,433,181
Net income..................................... - - - 65,459,469 65,459,469
Capital contribution........................... 10,000 82,765 - - 82,765
Capital restructuring.......................... (100,000,000) (100,000,000) 100,000,000 - -
Cash dividend.................................. - - - (2,000,000) (2,000,000)
--------- --------- -------- -------- ---------
Balance as of December 31, 2004................ 10,000 82,765 100,000,000 36,892,650 136,975,415
========= ========= ======== ======== =========
In USD......................................... 10,000 $ 10,000 $12,082,402 $ 4,457,518 $ 16,549,920
========= ========= ======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
STATE HARVEST HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------------------------------
2002 2003 2004 2004
---- ---- ---- ----
Operating activities: RMB RMB RMB US$
Net income......................................... 26,561,186 28,951,209 65,459,469 $7,909,076
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization.................... 1,555,976 3,260,788 5,225,135 631,322
Loss on disposal of plant and equipment.......... - 473,787 76,486 9,241
Bad debt provision............................... 30,228 (50,850) - -
Minority interests............................... 2,574,818 (137,539) 350,416 42,339
Equity in earnings of associated company......... - - (1,924,604) (232,538)
Changes in operating assets and liabilities:
Accounts receivable............................ (5,272,000) 5,324,856 - -
Due from related parties....................... (400,000) (100,000) (264,547) (31,964)
Advances to suppliers.......................... 963,469 (5,560,593) 5,727,456 692,014
Inventories.................................... (76,787,563) (55,984,267) (64,933,683) (7,845,549)
Income tax receivable.......................... (9,062,281) 8,345,888 (6,081,905) (734,840)
Prepaid expenses and other current assets...... (3,476,476) (1,465,691) (1,765,248) (213,284)
Deferred tax assets............................ (1,161,113) (569,064) 1,723,167 208,200
Other assets................................... (367,396) (59,510) (81,779) (9,881)
Accounts payable............................... 11,061,592 2,405,023 8,267,296 998,888
Due to growers................................. 35,777,069 (7,141,190) 47,945,793 5,793,003
Due to related parties......................... - - 1,413,234 170,753
Advances from customers ....................... 2,883,343 16,133,651 5,264,234 636,046
Deferred revenues.............................. 69,979,599 (9,468,118) (27,375,397) (3,307,606)
Income tax payable............................. - - 1,151,985 139,187
Other payables and accrued expenses............ (1,755,937) 680,323 2,567,026 310,159
Other long-term liabilities.................... 2,871,801 - - -
--------- --------- --------- --------
Net cash (used in) provided by operating activities.. 55,976,315 (14,961,297) 42,744,534 5,164,566
--------- --------- --------- --------
Investing activities:
Purchase of plant and equipment.................... (20,011,477) (26,995,374) (15,469,658) (1,869,106)
Purchase of land use rights........................ (4,574,443) (5,956,759) (535,810) (64,739)
Acquisition of cost method investment.............. - - (8,320,000) (1,005,256)
Acquisition of equity method investment............ - - (30,000) (3,625)
Purchase of intangible assets...................... - (9,000) (3,100,000) (374,554)
Proceeds on disposal of plant and equipment........ - - 254,908 30,800
--------- --------- --------- --------
Net cash used in investing activities................ (24,585,920) (32,961,133) (27,200,560) (3,286,480)
--------- --------- --------- --------
Financing activities:
Proceeds from short-term borrowings................ 15,000,000 35,000,000 41,000,000 4,953,785
Repayment of short-term borrowings................. (5,000,000) (15,000,000) (35,000,000) (4,228,841)
Dividend paid...................................... - (1,604,128) (2,000,000) (241,648)
Issuance of Share capital.......................... - - 82,765 10,000
Contribution from minority stockholders............ - 50,000 - -
--------- --------- --------- --------
Net cash (used in) provided by financing activities.. 10,000,000 18,445,872 4,082,765 493,296
--------- --------- --------- --------
Net increase (decrease) in cash and cash equivalents. 41,390,395 (29,476,558) 19,626,739 2,371,382
Cash and cash equivalents, beginning of year......... 37,307,578 78,697,973 49,221,415 5,947,129
--------- --------- --------- --------
Cash and cash equivalents, end of year............... 78,697,973 49,221,415 68,848,154 $8,318,511
========= ========= ========= ========
Supplemental disclosure of cash flow information:
Income taxes paid.................................. 9,821,705 2,355,531 10,905,237 $1,131,144
========= ========= ========= ========
Interest paid...................................... 416,934 483,314 831,166 $100,425
========= ========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Beijing Origin Seed Technology Inc. ("Beijing Origin") was established
on December 26, 1997 as a private limited liability company in the
People's Republic of China ("PRC") with an initial operating period of
twenty years.
On September 26, 2003, under PRC law, Beijing Origin was converted from
a private limited liability company to a joint stock company in order
to issue common shares. The registered capital, together with the
reserves, were converted into common shares.
Beijing Origin has six branches located in Lin Ze of Gan Su Province;
Zheng Zhou of He Nan Province; Cheng Du of Si Chuan Province; Tie Ling
and Shen Yang of Liao Ning Province; Bao Ding of He Bei Province,
respectively. Beijing Origin is the majority stockholder of two
subsidiaries with 90% and 99% shareholding, respectively, (1) He Nan
Origin Cotton Technology Limited ("He Nan Cotton"), (2) Chang Chun
Origin Seed Technology Development Limited ("Chang Chun Origin").
Beijing Origin and its subsidiaries were engaged in the research,
development, and distribution of hybridized corn seed and other
agriculture seed.
State Harvest Holdings Limited ("State Harvest") was incorporated under
the laws of the British Virgin Islands on October 6, 2004. On December
1, 2004, State Harvest established Beijing Origin State Harvest
Biotechnology Limited ("BioTech"), a wholly foreign owned enterprise
under the laws of PRC with an operating period of 20 years.
PRC regulations restrict direct wholly foreign ownership of seed
industry in the PRC. In order to comply with these regulations while
allowing foreign indirect participation, State Harvest conducts
substantially all of its business through its variable interest entity
Beijing Origin, including Beijing Origin subsidiaries: He Nan Cotton
and Chang Chun Origin.
Beijing Origin entered into Technical Service Agreements with BioTech.
Under these agreements, BioTech shall provide, with its own technical
research resource and team, technical services for the production and
distribution of agricultural seeds during the period of this agreement.
In return, Beijing Origin is required to pay BioTech a service fee
calculated according to the weight of corn, rice and cotton seeds sold
by the Beijing Origin.
In addition, State Harvest has been assigned 97.96% voting rights by
the stockholders of Beijing Origin through a Consignment Agreement
which includes the following terms: (1) the shares of Beijing Origin
cannot be transferred without the approval of State Harvest; (2) State
Harvest has the right to appoint all directors and senior management
personnel of Beijing Origin and (3) the stockholder rights including
voting rights require the transfer of the shares of Beijing Origin to
State Harvest or any party designated by the Company within three years
upon the removal of the PRC legal restriction.
F-6
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Through the consignment agreement described above, State Harvest is
deemed the sole beneficiary of Beijing Origin resulting in Beijing
Origin being deemed a subsidiary of State Harvest under the
requirements of FIN 46 (Revised) "Consolidation of Variable Interest
Entities" ("FIN 46 (R)"). The agreements described above provided for
effective control of Beijing Origin and its subsidiaries, He Nan Cotton
and Chang Chun Origin to be transferred to State Harvest at December
25, 2004. Neither State Harvest nor BioTech had any operating activity
prior to entering into the consignment agreement with Beijing Origin.
In substance, State Harvest has substantially the same stockholders of
Beijing Origin. This transaction has been accounted for as a
reorganization of entities under common control. Accordingly, State
Harvest's consolidated financial statements are prepared by including
the consolidated financial statements of Beijing Origin and its
subsidiaries through December 24, 2004, and subsequently the Company's
consolidated financial statements includes State Harvest and its
subsidiary and Beijing Origin and its subsidiaries.
Basis of presentation
The consolidated financial statements of the Company are prepared in
accordance with accounting principles generally accepted in the United
States of America ("US GAAP").
Basis of consolidation
The consolidated financial statements include the financial statements
of State Harvest, its majority owned subsidiary and its Variable
Interest Entities, Beijing Origin and its majority-owned subsidiary.
All significant inter-company transactions and balances are eliminated
in consolidation.
Investments in operating companies in which the Company has the ability
exercise significant influence, which is normally indicated by a 20% to
50% interest, are accounted for under the equity method. The Company's
share of these companies' earnings or losses are included in the
consolidated statement of operations.
Convenience translation into United States dollars
The consolidated financial statements are presented in Renminbi
("RMB"). The translation of RMB amounts into United States dollars has
been made for the convenience of the reader and has been made at the
exchange rate quoted by the People's Bank of China on December 31, 2004
of RMB 8.2765 to US$1.00. Such translation amounts should not be
construed as representations that the RMB amounts could be readily
converted into United States dollars at that rate or any other rate.
F-7
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Use of estimates
The preparation of the consolidated financial statements in conformity
with US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Estimates are adjusted to reflect actual
experience when necessary. Significant accounting estimates reflected
in the Company's consolidated financial statements include revenue
recognition, inventory valuation, allowance for doubtful accounts,
useful lives of plant and equipment and intangible assets, and the
valuation allowance for deferred income taxes. Actual results could
differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments which are unrestricted as to withdrawal or use, and which
have maturities of three months or less when purchased.
Concentrations of credit risk
Financial instruments that subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents. The Company
maintains its cash and cash equivalents with high-quality institutions
and only invests in high quality credit instruments. Deposits held with
banks may exceed the amount of insurance provided on such deposits.
Generally these deposits may be redeemed upon demand and therefore bear
minimal risk.
Inventories
Inventories are stated at the lower of cost or market value. Actual
cost is used to value raw materials and supplies. Finished goods and
work in process are valued at weighted-average actual cost.
Weighted-average actual cost includes packaging costs and manufacturing
overhead costs.
Land use rights, net
Land use rights are recorded at cost less accumulated amortization.
Amortization is provided over the term of the land use right agreement
on a straight-line basis for 50 years.
F-8
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Plant and equipment, net
Plant and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are calculated on a
straight-line basis over the following estimated useful lives:
Leasehold improvements Shorter of the useful lives or the lease term
Plant and building 20-40 years
Machinery and equipment 10-15 years
Furniture and office equipment 5 years
Motor vehicles 5 years
The Company constructs certain of its plant and facilities. In addition
to costs under construction contracts, external costs directly related
to the construction of such facilities, including duty and tariff, and
equipment installation and shipping costs, are capitalized.
Depreciation is recorded at the time assets are placed in service.
Acquired intangible assets, net
Acquired intangible assets consist primarily of purchased technology
rights and are stated at cost less accumulated amortization.
Amortization is calculated on a straight-line basis over the estimated
useful lives of these assets of 6 to 10 years and recorded in cost of
revenues.
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may no longer be recoverable. When these events occur, the
Company measures impairment by comparing the carrying value of the
long-lived assets to the estimated undiscounted future cash flows
expected to result from the use of the asset and eventual disposition.
If the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset, an
impairment loss, equal to the excess of the carrying amount over the
fair market value of the asset, is recognized.
Due to growers
The Company purchases seeds from the growers throughout the operating
cycle. The majority of the seeds are purchased from the growers from
the end of November through the following February.
Advances from customers
Beginning in 2003, due to the high demand for the Company's products,
the Company requires all customers to pay cash in full prior to
delivery of the seeds. Advances from customers represent cash received
from customers in advance of fulfilling a customer's purchase order.
Revenues related to such transactions are recognized when the seeds are
delivered and all other revenue recognition criteria are met.
F-9
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Revenue recognition
The Company derives its revenue primarily from the sale of various
branded conventional seeds and branded seeds with biotechnology traits.
Revenue is recognized when pervasive evidence of an arrangement exists,
services have been rendered, the price is fixed or determinable,
collectibility is reasonably assured and the right of return has
expired. Accordingly, the Company defers revenue until all sale return
privileges lapse generally occurs within 15 days of delivery, at which
time the selling price has been finalized with the customer.
Amounts billed in excess of revenue recognized are recorded as deferred
revenue.
Government subsidies
The Company receives government subsidies in the form of funds for
research and development activities and subsidies which reduce the cost
of land use rights.
(a) The Company received RMB610,000, RMB1,137,139 and RMB 70,960,
to fund research and development activities for the years
ended December 31, 2002, 2003 and 2004, respectively.
(b) The Company received a government incentive of RMB 5,005,148
and RMB3,719,940 for the year ended December 31, 2003 and
2004, respectively, in the form of a reduction in the cost of
land use rights.
Research and development costs
Research and development costs relating to the development of new
products and processes, including significant improvements and
refinements to existing products, are expensed as incurred.
Advertising costs
Advertising costs are expensed as incurred. Advertising expenses were
RMB817,689, RMB1,806,363 and RMB3,153,745, for the years ended December
31, 2002, 2003 and 2004, respectively, and included as part of selling
and marketing expenses.
F-10
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income taxes
Deferred income taxes are recognized for the future tax consequences of
temporary differences between the tax basis of assets and liabilities
and their reported amounts in the consolidated financial statements,
net operating loss carry forwards and credits. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. Current income taxes are provided for in
accordance with the laws of the relevant taxing authorities.
Fair value of financial instruments
The carrying amounts of financial instruments, consisting primarily of
cash and cash equivalents, accounts receivables, accounts payable,
accrued liabilities, advances from and payables to growers, short-term
borrowings, and income taxes payable, approximate their fair values due
to the short-term maturity of these instruments.
Shipping and Handling costs
The Company includes shipping and handling costs as either cost of
goods sold or selling and administrative expenses depending on the
nature of the expenses. The shipping and handling costs included as
part of cost sold in the statement of operations for the years ended
2002, 2003 and 2004 was RMB1,968,015, RMB4,752,863 and RMB8,089,211,
respectively. The shipping and handling costs included as part of
selling and marketing expenses in the statement of operations for the
years ended 2002, 2003 and 2004 was RMB1,405,049, RMB3,981,134 and
RMB6,321,683, respectively.
Recently issued accounting standards
In May 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." The Statement
establishes standards for how an issuer classifies and measures certain
financial instruments. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003. The Statement requires that certain financial
instruments that, under previous guidance, issuers could account for as
equity be classified as liabilities (or assets in some circumstances)
in statement of positions or consolidated balance sheets, as
appropriate. The financial instruments within the scope of this
Statement are: (i) mandatory redeemable shares that an issuer is
obligated to buy back in exchange for cash or other assets; (ii)
financial instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets; and (iii)
financial instruments that embody an obligation that can be settled
with shares, the monetary value of which is fixed, tied solely or
predominantly to a variable such as a market index, or varies inversely
with the value of the issuer's shares (excluding certain financial
instruments indexed partly to the issuer's equity shares and partly but
not predominantly, to something else). This Statement does not apply to
features embedded in a financial instrument that is not a derivative in
its entirety. The Statement also requires disclosures about alternative
ways of settling the instruments and the capital structure of entities,
all of whose shares are mandatory redeemable. The adoption of SFAS No.
150 did not have a material impact on the company's financial position,
cash flows or results of operations.
F-11
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In January 2003, the FASB issued Interpretation No. ("FIN") 46,
"Consolidation of Variable Interest Entities." FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," and provides guidance on the identification of
entities for which control is achieved through means other than voting
rights ("variable interest entities" or "VIEs") and how to determine
when and which business enterprise should consolidate the VIEs. This
new model for consolidation applies to an entity in which either: (1)
the equity investors (if any) lack one or more characteristics deemed
essential to a controlling financial interest or (2) the equity
investment at risk is insufficient to finance that entity's activities
without receiving additional subordinated financial support from other
parties. FIN 46 was applicable for periods ending December 15, 2003. In
December 2003, the FASB issued FIN 46 (revised), "Consolidation of
Variable Interest Entities" ("FIN 46-R"), which provides for the
deferral of implementation date to the end of the first reporting
period after December 15, 2004, unless the group has a special purpose
entity, in which case the provision must be applied for fiscal years
ending December 31, 2004. The company has adopted the provisions of FIN
46 (revised) since December 25, 2004.
In December 2003, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB
No. 104 revises or rescinds portions of the interpretative guidance
included in Topic 13 of the codification of staff accounting bulletins
in order to make this interpretive guidance consistent with current
authoritative accounting and auditing guidance and SEC rules and
regulations. It also rescinds the Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers document issued in
conjunction with Topic 13. Selected portions of that document have been
incorporated into Topic 13. The adoption of SAB No. 104 in December
2003 did not have an impact on the company's financial position, cash
flows or results of operations.
3. RELATED PARTY BALANCES AND TRANSACTIONS
Details of amounts due from and to related parties as of December 31,
2002, 2003 and 2004 are as follows:
(1) Amounts due from stockholders, recorded in due from related
parties on the consolidated balance sheet, as of December 31,
2002, 2003 and 2004 are as follow:
December 31,
----------------------------------------------------
Name of 2002 2003 2004 2004
-------- ---- ---- ---- ----
Shareholders
------------
RMB RMB RMB US$
Yang Ya Sheng - 300,000 324,226 39,174
Zhao Yu Ping 200,000 200,000 203,377 24,573
Han Geng Chen - - 29,067 3,512
Yuan Liang - - 21,792 2,633
Zhang Wei Dong - - 2,640 319
Chen Wei Qiang - - 1,655
------- ------- -------
200,000 500,000 582,757
======= ======= =======
F-12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
3. RELATED PARTY BALANCES AND TRANSACTIONS - continued
Amounts due from stockholders are non-interest bearing, unsecured, and
have no specific terms of repayment.
(2) Amounts due from related parties as of December 31, 2002, 2003 and
2004 are as follow:
Name of Shareholder
related party interested December 31,
------------- ---------- ------------------------------------------------
2002 2003 2004 2004
---- ---- ---- ----
RMB RMB RMB US$
Li Xian Corn *
Research 220,000 20,000 - -
Center
He Nan
Agriculture
University *** - - 201,790 24,381
-------- -------- -------- -------
220,000 20,000 201,790 24,381
======== ======== ======== =======
(3) Amounts due to related parties as of December 31, 2002, 2003 and 2004
are as follows:
Name of Shareholder
related party interested December 31,
------------- ---------- ------------
2002 2003 2004 2004
---- ---- ---- ----
RMB RMB RMB US$
Shijiazhuang Li
Yu
Technology **
Development
Co., Ltd. - - 1,413,234 170,753
-------- -------- -------- -------
- - 1,413,234 170,753
-------- -------- -------- -------
F-13
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
3. RELATED PARTY BALANCES AND TRANSACTIONS - continued
(4) Transactions with related parties for the years ended December 31,
2002, 2003 and 2004 are follows:
Name of Shareholder
related party interested December 31,
------------- ---------- ------------
2002 2003 2004 2004
---- ---- ---- ----
RMB RMB RMB US$
Li Xian Corn *
Research Center 1,443,754 4,495,617 - -
Shijiazhuang Li
Yu
Technology
Development **
Co., Ltd. - - 8,242,939 995,945
He Nan ***
Agriculture
University 371,000 687,502 1,104,098 253,736
-------- -------- -------- -------
1,814,754 5,183,119 9,347,037 1,249,681
-------- -------- -------- -------
The above balances relate to technology usage fees, which are
calculated based on revenue recognized and are paid to certain related
party research centers for the exclusive right to use certain seed
technologies.
* Li Xian Corn Research Center was previously owned by one of the
Company's principal stockholders, Yang Ya Sheng.
** Shijiazhuang Li Yu Technology Development Co., Ltd. was previously
owned by one of the Company's principal stockholders, Yang Ya Sheng,
and from September 2004 onwards, it became the company's equity
method investment.
*** He Nan Agriculture University is one of the stockholders of Beijing
Origin.
4. INVENTORIES
Inventories consist of:
As of
December 31,
2002 2003 2004 2004
---- ---- ---- ----
RMB RMB RMB US$
Work in
progress and
supplies 58,517,975 98,469,190 131,457,368 15,883,207
Finished goods 56,385,746 72,418,798 104,364,303 12,609,715
---------- ---------- ---------- ---------
114,903,721 170,887,988 235,821,671 28,492,922
---------- ---------- ---------- ---------
F-14
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
4. INVENTORIES - continued
As of December 31, 2002, 2003 and 2004, goods delivered to customers, recorded
in finished goods, are RMB46,364,546, RMB43,128,641, RMB 20,801,848 ,
respectively. Amounts will be relieved from inventory and recorded in cost of
sales when the related revenue is recognized.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of:
As of December 31,
2002 2003 2004 2004
---- ---- ---- ----
RMB RMB RMB US$
Employee
travel
allowance 3,048,877 4,174,814 3,108,682 375,604
Deposit for
land use rights 2,781,200 - 1,200,000 144,989
Deposit for
technology
usage fee - 3,100,000 1,000,000 120,824
Professional
fee - - 4,544,699 549,109
Other prepaid
expenses 1,208,486 1,229,440 416,121 50,277
--------- --------- --------- ---------
7,038,563 8,504,254 10,269,502 1,240,803
--------- --------- --------- ---------
6. LAND USE RIGHTS, NET
Land use rights, net consist of:
As of December 31,
2002 2003 2004 2004
---- ---- ---- ----
RMB RMB RMB US$
Land use rights 5,293,882 11,250,641 11,786,451 1,424,086
Less:
accumulated
amortization 116,205 261,905 484,454 58,533
--------- --------- --------- --------
Land use
rights, net 5,177,677 10,988,736 11,301,997 1,365,553
--------- --------- --------- --------
F-15
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
7. PLANT AND EQUIPMENT, NET
Plant and equipment, net consist of:
As of December 31,
----------------------------------------------------
2002 2003 2004 2004
---------- ---------- ---------- ----------
RMB RMB RMB US$
Plant and building ........... 16,606,445 28,117,697 30,814,063 3,723,079
Machinery and equipment ...... 10,015,765 17,414,532 19,225,819 2,322,941
Furniture and office equipment 3,032,484 4,675,017 5,549,586 670,518
Motor vehicles ............... 5,372,341 6,944,417 8,923,270 1,078,145
Leasehold improvements ....... 55,398 55,398 127,899 15,453
---------- ---------- ---------- ----------
Total ........................ 35,082,433 57,207,061 64,640,587 7,810,136
---------- ---------- ---------- ----------
Less: accumulated depreciation
and amortization .... 3,450,118 6,223,843 10,760,936 1,300,180
---------- ---------- ---------- ----------
Construction in progress ..... 20,516 4,417,475 12,122,213 1,464,655
---------- ---------- ---------- ----------
Plant and equipment, net ..... 31,652,831 55,400,693 66,001,864 7,974,611
========== ========== ========== ==========
Construction in progress relates to various projects where the Company
constructs certain of its plant and equipment.
8. LONG-TERM INVESTMENTS
As of December 31,
----------------------------------------------------
2002 2003 2004 2004
---------- ---------- ---------- ----------
RMB RMB RMB US$
Equity method investment ..... -- -- 1,954,604 236,163
Cost method investment ....... -- -- 8,320,000 1,005,256
---------- ---------- ---------- ----------
Total ........................ -- -- 10,274,604 1,241,419
========== ========== ========== ==========
Equity method investment
In 2004, the Company purchased a 30% equity interest in Shijiazhuang Li Yu
Technology Development Co., Ltd. ("Li Yu") from one of its principal
stockholders, Yang Ya Sheng, for RMB30,000. Li Yu operates as a research
and development center specializing in corn seed. The Company accounts for
its ownership in Li Yu under the equity method of accounting.
As of December 31,2004, the Company recorded the pro rata shares of
interest in Li Yu of RMB1,924,604.
F-16
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
8. LONG-TERM INVESTMENTS - continued
Cost method investment
In 2004, the Company entered into two agreements to acquire 8% in
aggregate of the outstanding shares of Chuang Shi Ji Zhuan Ji Yin
Technology Co., Ltd. ("Chuang Shi Ji") at a consideration of
RMB8,320,000. Chuang Shi Ji operates as a research and development
center specializing in cotton seed. The Company and Chuang Shi Ji
completed this transaction on October 8, 2004 upon obtaining the
necessary government approvals. The Company accounts for its ownership
in Chuang Shi Ji at cost.
9. ACQUISITIONS
On February 28, 2002, the Company contributed additional capital of
RMB5,850,000 to its majority owned subsidiary, He Nan Origin Seed
Cotton Technology Development Co., Ltd. ("He Nan"), a privately held
seed research and development. Prior to the capital contribution, the
Company held a 51% equity interest, which it previously acquired for
approximately RMB520,772. Under the terms of the capital contribution
contract, the Company now owns 90% of He Nan and the minority interest
was diluted to 10%. The capital contributed in excess of the fair value
of the net assets of He Nan Cotton was recorded as a reduction of the
company's retained earnings.
10. ACQUIRED INTANGIBLE ASSETS, NET
Acquired intangible assets consist of the following:
As of December 31,
---------------------------------------------------
2002 2003 2004 2004
--------- --------- --------- ---------
RMB RMB RMB US$
Technology usage agreements ... 991,559 991,559 4,091,559 494,359
Others ........................ -- 9,000 9,000 1,087
--------- --------- --------- ---------
991,559 1,000,559 4,100,559 495,446
Accumulated amortization ...... 421,240 762,603 1,228,096 148,384
--------- --------- --------- ---------
Acquired intangible assets, net 570,319 237,956 2,872,463 347,062
========= ========= ========= =========
Amortization expense for the years ended December 31, 2002, 2003 and 2004
were RMB206,328, RMB341,363 and RMB 465,493, respectively.
F-17
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
10. ACQUIRED INTANGIBLE ASSETS, NET - continued
Amortization expense on these intangible assets for each of the next
five years is as follows:
RMB
Year ending December 31,
2005........................................ 772,524
2006........................................ 652,461
2007........................................ 626,753
2008........................................ 626,753
2009........................................ 349,188
--------
Total......................................... 3,027,679
========
The Group enters into technology usage agreements with strategic
partners. The Group pays up-front fees for the exclusive rights to
certain seed technologies. Amounts are then amortized over the usage
period of 6-10 years into cost of sales.
11. SHORT-TERM BORROWINGS
As of December 31,
-------------------------------------------------------
2002 2003 2004 2004
---------- ---------- ---------- ---------
RMB RMB RMB US$
Short-term borrowings..... 15,000,000 35,000,000 41,000,000 4,953,785
========== ========== ========== ==========
At December 31, 2004, short-term borrowings were comprised of two loans
of RMB 20,000,000 and RMB 21,000,000 repayable on April 22, 2005 and
May 30, 2005, and bore interest at 5.31% per annum. Short-term loan of
RMB 20,000,000 was guaranteed by a third party, the third party
guarantee was secured by the Company's land use rights certification,
and the company's Zhongguancun Life Science Park land development
contract. Short-term loan of RMB 21,000,000 was guaranteed and secured
by the Company's Zhongguancun Life Science Park land use right
certification.
At December 31, 2003, short-term borrowings were comprised of four
loans of RMB10,000,000, RMB10,000,000, RMB5,000,000 and RMB10,000,000,
repayable on March 30, 2004, March 2, 2004, February 1, 2004 and March
28, 2004, respectively, bore interest at 5.04% , 5.04%, 5.04%, and
5.29% per annum, respectively and were repaid in 2004. Short-term
borrowings of RMB20,000,000 were guaranteed by a third party. The third
party guarantee was secured by the Company's land use rights
certification and the Company's Zhongguancun Life Science Park land
development contract.
At December 31, 2002, short-term borrowings were comprised of one loan
of RMB15,000,000, repayable on March 28, 2003, bore interest at 5.04%
per annum and were repaid in 2003. The loan was guaranteed by a third
party. The third party guarantee was secured by the Company's land use
rights certification and certain personal assets of the Company's
stockholder's.
The costs of the above third party guarantees were not significant.
F-18
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
11. SHORT-TERM BORROWINGS - continued
Interest expense and weighted average interest rate for the years ended
December 31, 2002, 2003 and 2004 were RMB416,934 and 5.5%, RMB483,314
and 5.2% and RMB 831,166 and 5.3%, respectively.
12. OTHER PAYABLES AND ACCRUED EXPENSES
Other payables and accrued expenses consist of:
As of December 31,
---------------------------------------------------
2002 2003 2004 2004
--------- --------- --------- ---------
RMB RMB RMB US$
Other payables .................. 2,101,366 1,981,097 2,325,164 280,936
Accrued welfare benefits ........ 1,333,060 2,054,223 4,022,614 486,028
Other taxes payable ............. 48,561 132,190 359,312 43,414
Other accrued expenses .......... 4,200 -- 27,446 3,316
--------- --------- --------- ---------
3,487,187 4,167,510 6,734,536 813,694
========= ========= ========= =========
13. SHAREHOLDERS' EQUITY
On October 6, 2004, Yuan Liang, the stockholder of Beijing Origin
established the holding company named State Harvest in the British Virgin
Islands with US$1. In November 2004, State Harvest issued 9,999 shares at
US$1 each.
Through contractual agreements described in Note 1, State Harvest is
deemed the sole beneficiary of the Variable Interest Entities.
Accordingly, the share capital of Beijing Origin is reclassified as
additional paid-in capital.
14. INCOME TAXES
State Harvest is a tax-exempted company incorporated in the British Virgin
Islands. The subsidiary and the Variable Interest Entities incorporated in
the PRC and governed by the PRC laws.
The applicable tax rate of the PRC Enterprise Income Tax ("EIT") to
Beijing Origin is 33%(30% of state income tax plus 3% local income tax).
However, preferential tax treatment of Beijing Origin as "high technology"
company has been agreed with the relevant tax authorities. Beijing Origin
is entitled to a preferential tax rate of 15%. Pursuant to the document of
(1998) Hai Di Shui Suo Zi 3205 and (2001) Hai Di Shui Qi Mian Zi (1306),
Beijing Origin is entitled to a three-year exemption from income taxes
commencing in 1998, followed by a 50% reduction in tax rates for the
succeeding three years.
F-19
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
14. INCOME TAXES - continued
In respect of other companies in the Company, according to the document
Gan Di Shui Suo Jian Mian Zi (2001) No. 107, Zhang Shi Di Shui Zheng Jian
Mian Zi (2002) No. 2 and (2003) No. 1 of Carry through the Advantage Tax
Treatment of West Development Strategy, Lin Ze Branch is entitled to a
preferential tax rate of 15%.
According to the document Cheng Guo Shui Shen (2004) 11, Cheng Du Branch
is entitled to a preferential tax rate of 15% as "high technology"
company, and was exempted from EIT for 2003 and 2004.
According to the document Chang Guo Shui (Gao Xin) Zi (2004) 001, Chuang
Chun Origin is entitled to a preferential tax rate of 15% as "high
technology" company, and was exempted from EIT for 2004 and 2005.
According to the document Yu Di Shui Suo Jian Mian (2003) No. 75, He Nan
Cotton is entitled to a preferential tax rate of 15% as "high technology"
company, and was exempted from EIT for 2002.
Bao Ding Branch, Shen Yang Branch, He Nan Branch and Tie Ling Branch are
subject to income tax at a statutory rate of 33%.
The provision for income taxes consists of the following:
Year ended December 31,
---------------------------------------------------------
2002 2003 2004 2004
---------- ---------- ---------- ----------
RMB RMB RMB US$
Current ........... 2,659,425 8,376,861 5,975,317 721,962
Deferred .......... (1,161,113) (569,064) 1,723,167 208,200
---------- ---------- ---------- ----------
1,498,312 7,807,797 7,698,484 930,162
========== ========== ========== ==========
F-20
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
14. INCOME TAXES - continued
The principal components of the deferred income tax assets are as follows:
As of December 31,
----------------------------------------------------------
2002 2003 2004 2004
---------- ---------- ---------- ----------
RMB RMB RMB US$
Noncurrent deferred tax assets:
Net operating loss
carry forward .................... 1,571,920 2,288,779 4,325,150 522,582
Others ............................. 157,833 261,116 418,981 50,623
---------- ---------- ---------- ----------
Noncurrent deferred tax assets ....... 1,729,753 2,549,895 4,744,131 573,205
Valuation allowances ............... (156,669) (407,747) (4,325,150) (522,582)
---------- ---------- ---------- ----------
Net noncurrent deferred
tax assets ......................... 1,573,084 2,142,148 418,981 50,623
========== ========== ========== ==========
The Company did not have any timing differences relating to deferred
tax liabilities as of December 31, 2002, 2003 and 2004.
A significant portion of the deferred tax assets recognized relate to
net operating loss and credit carry forwards. The Company operates
through multiple branches and subsidiaries and the valuation allowance
is considered on each individual basis. Where a valuation allowance was
not recorded, the Company believes that there was sufficient positive
evidence to support its conclusion not to record a valuation allowance
as it expects to generate sufficient taxable income in the future.
The valuation allowance in 2002 and 2003 has increased as it relates to
the net operating losses of Beijing Branch, He Nan Branch and Bao Ding
Branch of Beijing Origin. There is significant increase in valuation
allowance from 2003 and 2004 as Beijing Origin entered into a technical
service arrangement with BioTech in December 2004 which the Company
believes will not generate future taxable income to recognize the
income tax benefit.
A reconciliation between total income tax expense and the amount
computed by applying the statutory income tax rate to income before
taxes is as follows:
Year ended December 31,
------------------------
2002 2003 2004
---- ---- ----
% % %
Statutory rate 33 33 33
Effect of preferential tax treatment (32) (19) (31)
Permanent book-tax difference 3 6 4
Change in valuation allowance 1 1 5
--- --- ---
Effective income tax rate 5 21 11
=== === ===
F-21
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
15. EMPLOYEE BENEFIT PLANS AND PROFIT APPROPRIATION
Full time employees of the Company in the PRC participate in a
government mandated multi-employer defined contribution plan pursuant
to which certain pension benefits, medical care, unemployment
insurance, employee housing fund and other welfare benefits are
provided to employees. Chinese labor regulations require the Company to
accrue for these benefits based on certain percentages of the
employees' salaries. The total provisions for such employee benefits
were RMB554,707, RMB858,109 and RMB 1,576,903 for the years ended
December 31, 2002, 2003 and 2004, respectively.
Pursuant to the laws applicable to the PRC, State Harvest's PRC
subsidiary and the Variable Interest Entities must make appropriations
from after-tax profit to non-distributable reserves funds including:
(i) the statutory surplus reserve and; (ii) the statutory public
welfare fund. Subject to certain cumulative limits, the general reserve
fund requires annual appropriations of 10% for the statutory surplus
reserve and 5% for the statutory public welfare fund of after-tax
profit (as determined under PRC GAAP at each year-end). These reserve
funds can only be used for specific purposes of enterprise expansion
and staff welfare and bonus and are not distributable as cash
dividends. Appropriations to these reserves by the Company's PRC
subsidiary and the Variable Interest Entities were RMB4,461,877,
RMB7,211,767 and RMB 9,800,234 for the years ended December 31, 2002,
2003 and 2004, respectively.
16. COMMITMENTS AND CONTINGENCIES
(a) Capital commitments
Capital commitments for the purchase of plant and equipment, as of
December 31, 2004, are as follows:
RMB
---
Plant and building construction............. 16,255,074
Land use right.............................. 1,200,000
Equipment................................... 503,370
----------
17,958,444
==========
The equipment is scheduled to be delivered at the Company's facility
by than September 30, 2005. The Company expects to have the facility
construction completed no later than 2005.
F-22
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
16. COMMITMENTS AND CONTINGENCIES- continued
(b) Share purchase agreement
On December 28, 2004, the Company entered an agreement to acquire 7% of
the outstanding shares of Chuang Shi Ji in exchange for RMB5,600,000. The
company will pay the amount upon obtaining the necessary government
approvals in 2005.
(c) Operating lease
The Company leases certain office premises under non-cancelable leases.
Rent expense under operating leases for the years ended December 31, 2002,
2003 and 2004 were RMB1,434,648, RMB2,015,914 and RMB 2,867,698,
respectively.
Future minimum lease payments under non-cancelable operating leases
agreements were as follows:
Year ended December 31,
2005.......................................... 1,252,087
2006.......................................... 1,138,594
2007.......................................... 1,152,956
2008.......................................... 438,761
2009.......................................... 418,541
Thereafter.................................... 8,677,991
----------
13,078,930
----------
(d) Litigation
In December 2000, the Company signed an agreement to be a guarantor
on a loan given to Lin Ze Xian Seed Company by Agriculture Bank of
China Lin Ze Branch. Upon Linze Xian Seed Company's announcement of
bankruptcy, the Company was required to repay the outstanding loan.
On December 28, 2001, the Company was ordered by the Linze People's
Court to pay RMB2,871,801 to Agricultural Bank of China Lin Ze
Branch in fulfillment of the guarantee obligation. The civil
judgment of the Zhangye Intermediate People's Court suspended this
decision pending final outcome of Lin Ze Seed Company's bankruptcy
hearings. In 2002, the final judgment was made by the court,
accordingly, the Company expensed RMB2,871,801 as other expense in
the statement of operations in 2002.
F-23
STATE HARVEST HOLDINGS LIMITED
NOTES TO THE CONOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
17. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is engaged in the development and distribution of
biogenetically altered seeds. In accordance with SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
State Harvest's chief operating decision maker, the Chief Executive
Officer, receives and reviews consolidated results of operations when
making decisions about allocating resources and assessing performance of
the Company. The Company believes it operates in one segment, and all
financial segment information required by SFAS No. 131 can be found in the
consolidated financial statements.
All of the Company's sales and all of the Company's long-lived assets are
located in the PRC.
The Company had no customers which accounted for 10% or more of the
Company's revenue for any of the years presented in the consolidated
financial statements.
18. REORGANIZATION
On December 20, 2004, Chardan China Acquisition Corp. ("CCAC") entered
into a Stock Purchase Agreement ("Purchase Agreement") with the State
Harvest, and all the stockholders of the State Harvest ("the Company
stockholders") for CCAC's acquisition of the State Harvest. For the
acquisition, CCAC formed its own wholly-owned subsidiary under the laws of
the British Virgin Islands, under the name Origin Agritech Limited
("Agritech"), and at the time of the closing, CCAC will merge with and
into Agritech for the purpose of redomestication out of the United States
to secure future tax benefits. This redomestication merger will be
achieved by a one-for-one exchange of all the outstanding common stock of
CCAC for common stock of Agritech and the assumption of all the rights and
obligations of CCAC by Agritech, including assumption of the outstanding
warrants of CCAC on the same terms as they currently exist. Then, Agritech
immediately will acquire all the common stock of the State Harvest by the
issuance of shares and payment of cash consideration, making it a wholly
owned subsidiary.
F-24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Chardan China Acquisition Corp.
We have audited the accompanying balance sheets of Chardan China Acquisition
Corp. (a corporation in the development stage) as of December 31, 2004 and 2003,
and the related statements of operations, stockholders' equity and cash flows
for the period from December 5, 2003 (inception) to December 31, 2004, the year
ended December 31, 2004 and the period from December 5, 2003 (inception) to
December 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chardan China Acquisition Corp.
as of December 31, 2004 and 2003 and the results of its operations and its cash
flows for the period from December 5, 2003 (inception) to December 31, 2004, the
year ended December 31, 2004 and the period from December 5, 2003 (inception) to
December 31, 2003 in conformity with United States generally accepted accounting
principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 10, 2005, except for Notes 4 and 5, as to which the date is June 16, 2005
F-25
CHARDAN CHINA ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
December 31,
----------------------------
2004 2003
------------ ------------
Assets Current assets:
Cash $ 99,231 $ 59,988
Investments held in trust 20,735,328 --
Prepaid expenses 49,532 --
------------ ------------
20,884,091 59,988
Total current assets
Deferred offering costs -- 25,000
------------ ------------
Total assets $ 20,884,091 $ 84,988
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable, stockholder $ -- $ 60,000
Accrued expenses 243,357 523
Deferred interest 41,545 --
------------ ------------
Total current liabilities 284,902 60,523
------------ ------------
Common stock, subject to possible redemption,
804,598 shares at redemption value 4,103,450 --
------------ ------------
Commitment
Stockholders' equity
Preferred stock, $.0001 par value, Authorized 1,000,000
shares; none issued
Common stock, $.0001 par value
Authorized 20,000,000 shares Issued and outstanding
4,900,000 shares (which includes 804,598 subject to
possible redemption) and 875,000 shares in 2004 and
2003, respectively 490 87
Additional paid-in capital 17,163,483 24,913
Deficit accumulated during development stage (668,234) (535)
------------ ------------
Stockholders' equity 16,495,739 24,465
------------ ------------
Total liabilities and stockholders' equity $ 20,884,091 $ 84,988
============ ============
See notes to financial statements
F-26
CHARDAN CHINA ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
For the Period
from December 5, For the Period from
2003 (inception) Year Ended December 5, 2003
to December 31, December 31, (inception) to
2004 2004 December 31, 2003
----------- ----------- -----------
Operating Expenses:
Consulting fees $ 232,304 $ 232,304 $ --
Insurance 91,567 91,567 --
Other operating costs 2,143 1,608 535
Professional fees 174,999 174,999 --
Rent and office support 71,371 71,371 --
State franchise taxes 24,171 24,171 --
Transfer agent fees 13,964 13,964 --
Travel 224,198 224,198 --
----------- ----------- -----------
Operating loss (834,717) (834,182) (535)
Interest income on trust account 166,483 166,483 --
----------- ----------- -----------
Net loss $ (668,234) $ (667,699) $ (535)
=========== =========== ===========
Per share data:
Basic and diluted loss per share $ (0.17) $ (0.00)
=========== ===========
Basic and diluted weighted average common
shares outstanding 4,039,000 875,000
=========== ===========
See notes to financial statements
F-27
CHARDAN CHINA ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2004 AND
FOR THE PERIOD FROM DECEMBER 5, 2003 (INCEPTION) TO DECEMBER 31, 2004
Common Stock Deficit
--------------------------- accumulated
Additional during the Total
Paid-In development Stockholders'
Shares Amount Capital stage Equity
------------ ------------ ------------ ------------ ------------
Sale of 875,000 shares of common stock to 875,000 87 24,913 -- 25,000
initial stockholders as of December 5,
2003 (244,125 at $.141 per share and
630,875 at $.001 per share
Net loss for the period -- -- -- (535) (535)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2003 875,000 87 24,913 (535) 24,465
Sale of 4,025,000 units, net of underwriters'
discount and offering expenses (includes
804,598 shares subject to possible
redemption) 4,025,000 403 21,241,920 -- 21,242,323
Proceeds subject to possible redemption of
804,598 shares -- -- (4,103,450) -- (4,103,450)
Proceeds from issuance of an underwriter's
option -- -- 100 -- 100
Net loss for the period -- -- -- (667,699) (667,699)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2004 4,900,000 $ 490 $ 17,163,483 $ (668,234) $ 16,495,739
============ ============ ============ ============ ============
See notes of financial statements.
F-28
CHARDAN CHINA ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
For the Period For the Period
from December 5, from December 5,
2003 (inception) Year Ended 2003 (inception)
to December 31, December 31, to December 31,
2004 2004 2003
------------ ------------ ------------
Cash Flows from Operating Activities:
Net loss $ (668,234) $ (667,699) $ (535)
------------ ------------ ------------
Adjustments to reconcile net loss to net
cash used in operating activities
Accrued interest on Treasury Bills (194,390) (194,390) --
Increase in prepaid assets (49,532) (49,532) --
Increase in deferred interest 41,545 41,545 --
Increase in accrued expenses 243,357 242,834 523
------------ ------------ ------------
Total adjustments 40,980 40,457 523
------------ ------------ ------------
Net Cash Used in Operating Activities (627,254) (627,242) (12)
------------ ------------ ------------
Cash Flows from Investing Activities
Purchase of Treasury Bills (61,847,938) (61,847,938) --
Maturity of Treasury Bills 41,307,000 41,307,000 --
------------ ------------ ------------
Net Cash Used in Investing Activities (20,540,938) (20,540,938) --
------------ ------------ ------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock 24,175,000 24,150,000 25,000
Proceeds from issuance of underwriters option 100 100 --
Proceeds from notes payable, stockholders 70,000 10,000 60,000
Repayment of notes payable, stockholders (70,000) (70,000) --
Payment of stock issuance costs (2,907,677) (2,882,677) (25,000)
------------ ------------ ------------
Net cash Provided by Financing Activities 21,267,423 21,207,423 60,000
------------ ------------ ------------
NET INCREASE IN CASH 99,231 39,243 59,988
CASH -- BEGINNING -- 59,988 --
------------ ------------ ------------
CASH -- END $ 99,231 $ 99,231 $ 59,988
============ ============ ============
See notes to financial statements
F-29
CHARDAN CHINA ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
Chardan China Acquisitions Corp. (Chardan) was incorporated in Delaware
on December 5, 2003 as a blank check company whose objective is to
acquire an operating business that has its primary operating facilities
in the Peoples Republic of China.
In March 2004, Chardan completed an initial public offering (the
Offering) in which it raised net proceeds of approximately $21,242,000.
Immediately following the Offering, $20,527,500 of the net proceeds
were placed in an interest bearing trust account until the earlier of
the consummation of a business combination or the liquidation of the
Company. The Company's Certificate of Incorporation provides for
mandatory liquidation of the Company, without stockholder approval, in
the event that the Company does not consummate a Business Combination
prior to September 22, 2005, or March 22, 2006 if certain extension
criteria have been satisfied. In the event of liquidation, it is likely
that the per share value of the residual assets remaining available for
distribution (including Trust Fund assets) will be less than the
initial public offering price per share in the Offering due to costs
related to the Offering and since no value would be attributed to the
Warrants contained in the Units sold (Note 3).
In April 2004, Chardan commenced its efforts to locate a company with
which to effect a business combination (Note 5).
After signing a definitive agreement for the acquisition of a target
business, such transaction will be submitted for stockholder approval.
In the event that stockholders owning 20% or more of the outstanding
stock excluding, for this purpose, those persons who were stockholders
prior to the Offering, vote against the Business Combination and
exercise their conversion rights described below, the Business
Combination will not be consummated. All of the Company's stockholders
prior to the Offering, including all of the officers and directors of
the Company ("Initial Stockholders"), have agreed to vote their 875,000
founding shares of common stock in accordance with the vote of the
majority in interest of all other stockholders of the Company ("Public
Stockholders") with respect to the Business Combination. After
consummation of the Business Combination, all of these voting
safeguards will no longer be applicable. With respect to a Business
Combination which is approved and consummated, any Public Stockholder
who voted against the Business Combination may demand that the Company
convert his shares. The per share conversion price will equal the
amount in the Trust Fund as of the record date for determination of
stockholders entitled to vote on the Business Combination divided by
the number of shares of common stock held by Public Stockholders at the
consummation of the Offering. Accordingly, Public Stockholders holding
19.99% of the aggregate number of shares owned by all Public
Stockholders may seek conversion of their shares in the event of a
Business Combination. Such Public Stockholders are entitled to receive
their per-share interest in the Trust Fund computed without regard to
the shares held by Initial Stockholders. Accordingly, a portion of the
net proceeds from the offering (19.99% of the amount originally held in
the Trust Fund) has been classified as common stock subject to possible
conversion in the accompanying balance sheet and 19.99% of the related
interest earned on the investments held in the Trust Fund has been
recorded as deferred interest.
F-30
CHARDAN CHINA ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly
liquid debt instruments with a maturity of three months or less when
purchased to be cash equivalents. The Company maintains its cash in
bank deposit accounts in the United States of America which, at times,
may exceed applicable insurance limits. The Company has not experienced
any losses in such accounts. The Company believes it is not exposed to
any significant credit risk on cash and cash equivalents.
Investments Held in Trust
Investments held in trust are invested in United States government
securities (Treasury Bills) with a maturity of 180 days or less which
are accounted for as a trading security and recorded at market value
which approximates amortized cost. The amount held in the Trust Fund,
including money market funds of approximately $1,800, was approximately
$20,734,000 at December 31, 2004. The excess of market value over cost,
exclusive of the deferred interest described below, is included in
interest income in the accompanying Statement of Operations.
Deferred Interest
Deferred interest consists of 19.99% of the interest earned on the
investments held in trust.
Income Taxes
The Company accounts for income taxes using the asset and liability
method, as prescribed by Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes." Under the asset and liability
method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. Statutory taxes not based on income are included in
general and administrative expenses.
F-31
CHARDAN CHINA ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Initial Public Offering
On March 22, 2004, the Company sold 4,025,000 units ("Units") in an
initial public offering, which included all of the 525,000 Units
subject to the underwriters' over-allotment option. Each Unit consisted
of one share of the Company's common stock, $.0001 par value, and two
Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant
will entitle the holder to purchase from the Company one share of
common stock at an exercise price of $5 commencing the later of the
completion of a Business Combination with a target business or one year
from the effective date of the Offering and expiring five years from
the date of the prospectus. The Warrants will be redeemable at a price
of $.01 per Warrant upon 30 days' notice after the Warrants become
exercisable, only in the event that the last sale price of the common
stock is at least $8.50 per share for any 20 trading days within a 30
trading day period ending on the third day prior to the date on which
notice of redemption is given. In connection with the Offering, the
Company issued, for $100, an option to the representative of the
underwriters to purchase 350,000 Units at an exercise price of $9.90
per Unit. In addition, the warrants underlying such Units are
exercisable at $6.40 per share.
As of December 31, 2004, 9,100,000 shares of common stock were reserved
for issuance upon exercise of redeemable warrants and underwriters'
unit purchase option.
Deferred Offering Costs
Deferred offering costs consisted principally of legal and underwriting
fees incurred through December 31, 2003 that were related to the
proposed offering and that were charged to capital upon the receipt of
the capital raised.
Reverse Stock Split
In February 2004, the Company's Board of Directors authorized a
1.1666666-to-one forward stock split of its common stock. All
references in the accompanying financial statements to the numbers of
shares have been retroactively restated to reflect the stock split.
Income (Loss) Per Common Share
Basic and diluted loss per common share is computed by dividing net
loss by the weighted average number of common shares outstanding after
giving effect to the stock split. Diluted earnings per share gives
effect to dilutive options, warrants and other potential common stock
outstanding during the period. Potential common stock, amounting
9,100,000 shares, has not been included in the computation of diluted
loss per share, as the effect would be antidilutive.
Recent Pronouncements
Management does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted would have a
material effect on the accompanying financial statements.
F-32
CHARDAN CHINA ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2. INCOME TAXES
As of December 31, 2004 and 2003 the Company had approximately $668,000
and $535 of net operating loss carry forwards which expire in tax years
beginning in 2023. The availability to offset income taxes in future
years may be restricted if the Company undergoes an ownership change,
which may occur as a result of any Business Combination.
The tax effect of temporary differences that give rise to the Company's
deferred tax assets and liabilities are as follows as of December 31,
2004:
2004 2003
-------- --------
Net operating loss carry forwards $227,000 $ 182
Less: Valuation allowance 227,000 182
-------- --------
Net deferred income tax asset $ -- $ --
======== ========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred income tax assets will not be realized. The ultimate
realization of deferred tax assets depends on the generation of future
taxable income and tax planning in making these assessments.
3. RELATED PARTY TRANSACTIONS
Commencing on March 16, 2004 and ending upon the acquisition of a
target business, the Company incurs an administrative fee of $7,500 per
month from Chardan Ventures, LLC, a company managed and owned 50% by
the Company's Chairman of the Board. The fee includes the provision of
office space and certain office and secretarial services.
In December 2003 and January 2004, an officer of Chardan advanced
$60,000 and $10,000, respectively, for payment of offering expenses.
The advances were evidenced by unsecured non-interest bearing
promissory notes payable on the earlier of December 29, 2004 or the
consummation of the Company's initial pubic offering. The loans were
repaid following the successful completion of the initial public
offering.
4. COMMITMENTS AND CONTINGENCIES
During the quarter ended June 30, 2004, the Company entered into an
agreement with a consulting firm to assist in the search to identify
prospective target businesses for the Business Combination. As part of
the agreement, the consulting firm received $125,000 and agreed to
perform due diligence on such prospective target businesses as well as
assist in structuring and consummating the business combination. Under
the agreement, as amended, in the event a business combination is
ultimately approved by Chardan's stockholders and consummated, the
Company is obligated to issue 200,000 shares of the Company's common
stock to the consulting firm and to pay the consulting firm an
additional $125,000.
F-33
CHARDAN CHINA ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
4. COMMITMENTS AND CONTINGENCIES (continued)
In December 2004, Chardan entered into a consulting agreement with The
Equity Group Inc. (Equity) to provide financial public relations and
investor relations services to Chardan. The terms of the agreement
provide for an initial retainer of $24,000, covering the first two
months of the agreement, to be paid $20,000 upon signing with the
balance of $4,000 payable upon closing of the target acquisition (Note
5). Thereafter, the agreement requires monthly payments of $10,000 plus
reasonable and necessary out-of-pocket expenses. The monthly retainer
for month three until the closing of the target acquisition accrues but
is not payable until said closing. The contract remains in effect for
successive one year periods, subject to termination by either party on
any yearly anniversary date upon 30 days written notice. Additional
services provided by Equity are to be billed separately at mutually
agreed upon fees.
As of December 31, 2004, the minimum non-cancelable commitment under
the agreement is $114,000.
5. PURCHASE AGREEMENT FOR PROPOSED BUSINESS COMBINATION
On December 20, 2004, the Company entered into a Stock Purchase
Agreement with State Harvest Holdings Limited, a British Virgin Islands
corporation ("Origin"), and all the stockholders of Origin ("Origin
stockholders"). The Stock Purchase Agreement was subsequently amended
through June 16, 2005.
Origin is a British Virgin Islands holding company formed for the
purpose of owning, as of the closing, four Chinese companies engaged in
the production, sale and licensing of agricultural corn, cotton and
rice seeds. The three operating companies are Beijing Origin Seed
Limited, Chang Chun Origin Seed Technical Development Limited and He
Nan Origin Cotton Technology Development Limited, and the technology -
intellectual property holding and licensing company is Beijing Origin
State Harvest Biotechnology Limited. At the closing, the Origin
stockholders and their designees, subject to adjustments and certain
holdbacks, will be paid an aggregate of $10,000,000 in cash and issued
an aggregate of 10,000,000 shares of common stock for all the
outstanding common stock of Origin. Of the cash portion of the purchase
price, $250,000 will be held back for one year to secure certain
indemnification obligations of the Origin stockholders. As additional
purchase price, the Origin stockholders and their designees will
receive up to an aggregate of $15,000,000 and up to an aggregate of
6,000,000 additional shares of common stock in the event certain
conditions are met.
Origin was founded in December 1997, with headquarters in Beijing.
Origin specializes in the research, development, production, sale and
distribution of agricultural crop seeds with a primary concentration is
on hybrid corn seed. They have over four hundred employees and four
subsidiaries, one of which is a technology holding corporation to old
and manage its intellectual property. Origin operates through several
branches in locations in Beijing, Hebei, Gansu, He Nan, Liaoning,
Jilin, and Sichuan with plans to expand to additional production
facilities, sales offices and research stations throughout China's main
corn, cotton, and rice agricultural belts.
If approved, it is anticipated that the transaction will be consummated
in the second quarter of 2005.
F-34
CHARDAN CHINA ACQUISITION CORP.
(CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
ASSETS
March 31,
2005 December 31,
(Unaudited) 2004
------------ ------------
CURRENT ASSETS
Cash $ 19,974 $ 99,231
Investment held in trust 20,843,983 20,735,328
Prepaid expenses -- 49,532
------------ ------------
Total Current Assets 20,863,957 20,884,091
------------ ------------
TOTAL ASSETS $ 20,863,957 $ 20,884,091
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $ 358,211 $ 243,357
Deferred interest 63,080 41,545
------------ ------------
Total Current Liabilities 421,291 284,902
------------ ------------
Common stock, subject to possible redemption, 804,598 shares at
redemption value 4,103,450 4,103,450
COMMITMENT
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value, authorized 1,000,000 shares;
none issued
Common stock, $.0001 par value, authorized 20,000 shares
Issued and outstanding 4,900,000 shares (which includes 804,598
subject to possible redemption) 490 490
Additional paid-in capital 17,163,483 17,163,483
Deficit accumulated during development stage (824,757) (668,234)
------------ ------------
Total Stockholders' Equity 16,339,216 16,495,739
------------ ------------
Total Liabilities and Stockholders' Equity $ 20,863,957 $ 20,884,091
============ ============
See notes to unaudited financial statement
F-35
CHARDAN CHINA ACQUISITION CORP.
(CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Period from
December 5, 2003 Three months Three months
(inception) to ended ended
March 31, 2005 March 31, 2005 March 31, 2004
---------------- ---------------- ----------------
Operating Expenses:
Consulting fees $ 287,026 $ 54,722 $ --
Insurance 120,595 29,028 4,455
Other operating costs 17,851 15,708 2,066
Professional fees 272,553 97,554 3,032
Rent and office support 93,871 22,500 3,871
State franchise taxes 30,271 6,100 --
Transfer agent fees 19,438 5,474 --
Travel 236,756 12,558 7,908
---------------- ---------------- ----------------
Operating loss 1,078,361 243,644 21,332
Interest income on trust fund 253,604 87,121 3,723
---------------- ---------------- ----------------
Net loss $ 824,757 $ 156,523 $ 17,609
================ ================ ================
Per share data:
Basic and diluted loss per share $ 0.03 0.01
================ ================
Basic and diluted weighted-average
common shares outstanding 4,900,000 1,317,308
================ ================
See notes to unaudited financial statement
F-36
CHARDAN CHINA ACQUISITION CORP.
(CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated Total
Additional During Stockholders'
Shares Amount Paid-in Capital Development Stage Equity
------------ ------------ ------------ ------------ ------------
Sale of 875,000 shares of common stock to initial
stockholders as of December 5, 2003 (244,125 at
$1.41 per share and 630,875 at $.0001 per share) 875,000 $ 87 $ 24,913 $ -- $ 25,000
Net loss for the period -- -- -- (535) (535)
------------ ------------ ------------ ------------ ------------
Balance of December 31, 2003 875,000 87 24,913 (535) 24,465
Sales of 4,025,000 units, net of underwriters'
discount and offering expenses (includes 804,598
shares subject to possible redemption) 4,025,000 403 21,241,920 -- 21,242,323
Proceeds subject to possible redemption of 804,598
shares -- -- (4,103,450) -- (4,103,450)
Proceeds from issuance of an underwriters' option -- -- 100 -- 100
Net loss for the period -- -- -- (667,699) (667,699)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2004 4,900,000 490 17,163,483 (668,234) 16,495,739
------------ ------------ ------------ ------------ ------------
Net loss for the period (unaudited) -- -- -- (156,523) (156,523)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 2005 4,900,000 $ 490 $ 17,163,483 $ (824,757) $ 16,339,216
============ ============ ============ ============ ============
See notes to unaudited financial statement
F-37
CHARDAN CHINA ACQUISITION CORP.
(CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Period
from
December 5, 2003 Three months Three months
(inception) to ended ended
March 31, 2005 March 31, 2005 March 31, 2004
---------------- ---------------- ----------------
Cash Flows from Operating Activities
Net loss $ (824,757) $ (156,523) $ (17,609)
Adjustments to reconcile net loss to net
cash used in operating activities
Accrued interest on Treasury Bill (40,298) (40,298) --
Increase in deferred interest 63,080 21,535 930
(Increase) decrease in prepaid assets -- 49,532 (122,394)
Increase in accrued expenses 358,211 114,854 7,107
Increase due to officers and directors -- -- 7,908
Total adjustments 380,993 145,623 (106,449)
Net Cash Used in Operating Activities (443,764) (10,900) (124,058)
---------------- ---------------- ----------------
Cash Flows from Investing Activities
Maturity of Treasury Bills 103,416,534 62,303,924 --
Purchase of Treasury Bills (124,220,219) (62,372,281) (20,532,153)
Net Cash Used in Investing Activities (20,803,685) (68,357) (20,532,153)
Cash Flows from Financing Activities
Proceeds from public offering 24,175,000 -- 24,150,000
Proceeds from issuance of option 100 -- 100
Payment of costs of public offering (2,907,677) -- (2,795,657)
Proceeds from notes payable stockholders 70,000 -- 10,000
Repayment of notes payable, stockholders (70,000) -- (70,000)
Net Cash Provided by Financing Activities 21,267,423 -- 21,294,443
NET INCREASE (DECREASE) IN CASH 19,974 (79,257) 638,232
CASH AT BEGINNING OF PERIOD -- 99,231 59,988
CASH AT END OF PERIOD $ 19,974 $ 19,974 $ 698,220
---------------- ---------------- ----------------
See notes to unaudited financial statement
F-38
CHARDAN CHINA ACQUISITION CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements at March 31, 2005 and for the periods ended
March 31, 2005 and March 31, 2004 are unaudited. In the opinion of
management, all adjustments (consisting of normal accruals) have been
made that are necessary to present fairly the financial position of
Chardan China Acquisition Corp. (the "Company") as of March 31, 2005
and the results of its operations and its cash flow for the three
months ended March 31, 2005 and March 31, 2004 and from December 5,
2003 (inception) to March 31, 2005. Operating results for the interim
periods presented are not necessarily indicative of the results to be
expected for a full year.
The statements and related notes have been prepared pursuant to the
rules and regulations of the U.S. Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules
and regulations. These financial statements should be read in
conjunction with the financial statements that were included in the
Company's Annual Report on Form 10-KSB for the periods ended December
31, 2004 and 2003.
Business and Organization
The Company was incorporated in Delaware on December 5, 2003 as a blank
check company whose objective is to acquire an operating business that
has its primary operating facilities in the People's Republic of China.
In March 2004, Chardan completed an initial public offering (the
Offering) in which it raised net proceeds of approximately $21,242,000.
Immediately following the Offering, $20,527,500 of the net proceeds
were placed in an interest bearing trust account until the earlier of
the consummation of a business combination or the liquidation of the
Company. The Company's Certificate of Incorporation provides for
mandatory liquidation of the Company, without stockholder approval, in
the event that the Company does not consummate a Business Combination
prior to September 22, 2005, or March 22, 2006 if certain extension
criteria have been satisfied. In the event of liquidation, it is likely
that the per share value of the residual assets remaining available for
distribution (including Trust Fund assets) will be less than the
initial public offering price per share in the Offering due to costs
related to the Offering and since no value would be attributed to the
Warrants contained in the Units sold.
In April 2004, Chardan commenced its efforts to locate a company with
which to effect a business combination (Note 5).
F-39
CHARDAN CHINA ACQUISITION CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Business and Organization (Continued)
After signing a definitive agreement for the acquisition of a target
business, such transaction will be submitted for stockholder approval.
In the event that stockholders owning 20% or more of the outstanding
stock excluding, for this purpose, those persons who were stockholders
prior to the Offering, vote against the Business Combination and
exercise their conversion rights described below, the Business
Combination will not be consummated. All of the Company's stockholders
prior to the Offering, including all of the officers and directors of
the Company ("Initial Stockholders"), have agreed to vote their 875,000
founding shares of common stock in accordance with the vote of the
majority in interest of all other stockholders of the Company ("Public
Stockholders") with respect to the Business Combination. After
consummation of the Business Combination, all of these voting
safeguards will no longer be applicable. With respect to a Business
Combination which is approved and consummated, any Public Stockholder
who voted against the Business Combination may demand that the Company
convert his shares. The per share conversion price will equal the
amount in the Trust Fund as of the record date for determination of
stockholders entitled to vote on the Business Combination divided by
the number of shares of common stock held by Public Stockholders at the
consummation of the Offering. Accordingly, Public Stockholders holding
19.99% of the aggregate number of shares owned by all Public
Stockholders may seek conversion of their shares in the event of a
Business Combination. Such Public Stockholders are entitled to receive
their per-share interest in the Trust Fund computed without regard to
the shares held by Initial Stockholders. Accordingly, a portion of the
net proceeds from the offering (19.99% of the amount originally held in
the Trust Fund) has been classified as common stock subject to possible
conversion in the accompanying balance sheet and 19.99% of the related
interest earned on the investments held in the Trust Fund has been
recorded as deferred interest.
Investments Held in Trust
Investments held in trust are invested in United States government
securities (Treasury Bills) with a maturity of 180 days or less which
are accounted for as a trading security and recorded at market value
which approximates amortized cost. The amount held in the Trust Fund,
including money market funds of approximately $2,750, was approximately
$20,844,000 at March 31, 2004. The excess of market value over cost,
exclusive of the deferred interest described below, is included in
interest income in the accompanying Statement of Operations.
Deferred Interest
Deferred interest consists of 19.99% of the interest earned on the
investments held in trust.
F-40
CHARDAN CHINA ACQUISITION CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company accounts for income taxes using the asset and liability
method, as prescribed by Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes". Under the asset and liability
method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. Statutory taxes not based on income are included in
general and administrative expenses.
Initial Public Offering
On March 22, 2004, the Company sold 4,025,000 units ("Units") in an
initial public offering, which included all of the 525,000 Units
subject to the underwriters' over-allotment option. Each Unit consisted
of one share of the Company's common stock, $.0001 par value, and two
Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant
will entitle the holder to purchase from the Company one share of
common stock at an exercise price of $5 commencing the later of the
completion of a Business Combination with a target business or one year
from the effective date of the Offering and expiring five years from
the date of the prospectus. The Warrants will be redeemable at a price
of $.01 per Warrant upon 30 days' notice after the Warrants become
exercisable, only in the event that the last sale price of the common
stock is at least $8.50 per share for any 20 trading days within a 30
trading day period ending on the third day prior to the date on which
notice of redemption is given. In connection with the Offering, the
Company issued, for $100, an option to the representative of the
underwriters to purchase 350,000 Units at an exercise price of $9.90
per Unit. In addition, the warrants underlying such Units are
exercisable at $6.40 per share.
As of March 31, 2005, 9,100,000 shares of common stock were reserved
for issuance upon exercise of redeemable warrants and underwriters'
unit purchase option.
Reverse Stock Split
In February 2004, the Company's Board of Directors authorized a
1.1666666 to one forward stock split of its common stock. All
references in the accompanying financial statements to the numbers of
shares have been retroactively restated to reflect the stock split.
Income (Loss) Per Common Share
Basic and diluted loss per common share is computed by dividing net
loss by the weighted average number of common shares outstanding after
giving effect to the stock split.
F-41
CHARDAN CHINA ACQUISITION CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
2. INCOME TAXES
As of March 31, 2005 the Company had approximately $819,000 of net
operating loss carryforwards which expire in tax years beginning in
2023. The availability to offset income taxes in future years may be
restricted if the Company undergoes an ownership change, which may
occur as a result of any Business Combination.
The tax effect of temporary differences that give rise to the Company's
deferred tax assets and liabilities are as follows as of March 31,
2005:
Net operating loss carryforwards $ 278,500
Less: Valuation allowance 278,500
-----------------
Net deferred income tax asset $ -
=================
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred income tax assets will not be realized. The ultimate
realization of deferred tax assets depends on the generation of future
taxable income and tax planning in making these assessments.
3. RELATED PARTY TRANSACTIONS
Commencing on March 16, 2004 and ending upon the acquisition of a
target business, the Company incurs an administrative fee of $7,500 per
month from Chardan Ventures, LLC, a company managed and owned 50% by
the Company's Chairman of the Board. The fee includes the provision of
office space and certain office and secretarial services.
In December 2003 and January 2004, an officer of Chardan advanced
$60,000 and $10,000, respectively, for payment of offering expenses.
The advances were evidenced by unsecured non-interest bearing
promissory notes payable on the earlier of December 29, 2004 or the
consummation of the Company's initial pubic offering. The loans were
repaid following the successful completion of the initial public
offering.
4. COMMITMENTS AND CONTINGENCIES
During the quarter ended June 30, 2004, the Company entered into an
agreement with a consulting firm to assist in the search to identify
prospective target businesses for the Business Combination. As part of
the agreement, the consulting firm received $125,000 and agreed to
perform due diligence on such prospective target businesses as well as
assist in structuring and consummating the business combination. In the
event a business combination is ultimately approved by Chardan's
stockholders and consummated, the Company is obligated to pay the
consulting firm an additional $125,000.
F-42
CHARDAN CHINA ACQUISITION CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
4. COMMITMENTS AND CONTINGENCIES (Continued)
In December 2004, Chardan entered into a consulting agreement with The
Equity Group Inc. (Equity) to provide financial public relations and
investor relations services to Chardan. The terms of the agreement
provide for an initial retainer of $24,000, covering the first two
months of the agreement, to be paid $20,000 upon signing with the
balance of $4,000 payable upon closing of the target acquisition (Note
5). Thereafter, the agreement requires monthly payments of $10,000 plus
reasonable and necessary out-of-pocket expenses. The monthly retainer
for month three until the closing of the target acquisition accrues but
is not payable until said closing. The contract remains in effect for
successive one year periods, subject to termination by either party on
any yearly anniversary date upon 30 days' written notice. Additional
services provided by Equity are to be billed separately at mutually
agreed upon fees.
As of March 31, 2005, the minimum non-cancelable commitment under the
agreement is $114,000.
5. PURCHASE AGREEMENT FOR PROPOSED BUSINESS COMBINATION
On December 20, 2004, the Company entered into a Stock Purchase
Agreement with State Harvest Holdings Limited, a British Virgin Islands
corporation ("Origin"), and all the stockholders of Origin ("Origin
stockholders"). Origin is a British Virgin Islands holding company
formed for the purpose of owning, as of the closing, four Chinese
companies engaged in the production, sale and licensing of agricultural
corn, cotton and rice seeds. The three operating companies are Beijing
Origin Seed Limited, Changchun Origin Seed Technical Development
Limited and Henan Origin Cotton Technology Development Limited, and the
technology - intellectual property holding and licensing company is
Beijing Origin State Harvest Biotechnology Limited. At the closing, the
Origin stockholders and their designees, subject to adjustments and
certain holdbacks, will be paid an aggregate of $10,000,000 in cash and
will be issued an aggregate of 10,000,000 shares of common stock for
all the outstanding common stock of Origin. Of the cash portion of the
purchase price, $250,000 will be held back for one year to secure
certain indemnification obligations of the Origin stockholders. As
additional purchase price, the Origin stockholders and their designees
will receive up to an aggregate of $15,000,000 and up to an aggregate
of 6,000,000 additional shares of common stock in the event certain
conditions are met.
Origin was founded in December 1997, with headquarters in Beijing.
Origin specializes in the research, development, production, sale and
distribution of agricultural crop seeds with a primary concentration on
hybrid corn seed. They have over four hundred employees and four
subsidiaries, one of which is a technology holding corporation to hold
and manage its intellectual property. Origin operates through several
branches in locations in Beijing, Hebei, Gansu, Henan, Liaoning, Jilin,
and Sichuan with plans to expand to additional production facilities,
sales offices and research stations throughout China's main corn,
cotton, and rice agricultural belts.
If approved, it is anticipated that the transaction will be consummated
in the second or third quarter of 2005.
F-43
[Outside Back Cover of Prospectus]
Until [____________ 90 days after effective date], all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
Annex A
STOCK PURCHASE AGREEMENT
AMONG
CHARDAN CHINA ACQUISITION CORP.,
DR. RICHARD D. PROPPER, KERRY PROPPER, JIANGNAN HUANG,
LI ZHANG, DAN BEHARRY, STEVEN URBACH,
STATE HARVEST HOLDINGS LIMITED,
DR.HAN GENGCHEN, MR.YANG YASHENG, MR.YUAN LIANG,
MS.ZHAO YUPING, MR.ZHANG WEIDONG, MR.CHEN WEICHENG,
MS. BO LUXIA, MR. HUANG XILIN, and Mr. HUO QINGTAO
------------------------
Dated: December 20, 2004
------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I THE ORIGIN STOCK PURCHASE...................................................2
SECTION 1.01 Purchase and Sale...........................................................2
SECTION 1.02 Purchase Price..............................................................2
SECTION 1.03 Earn-Out Agreement..........................................................4
SECTION 1.04 Allocation of Purchase Price................................................5
ARTICLE II THE CLOSING.................................................................5
SECTION 2.01 The Closing.................................................................5
SECTION 2.02 Deliveries..................................................................5
SECTION 2.03 Additional Agreements.......................................................6
SECTION 2.04 Further Assurances..........................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES..............................................7
OF ORIGIN AND THE ORIGIN STOCKHOLDERS.......................................7
SECTION 3.01 The Origin Stock............................................................7
SECTION 3.02 Organization of Origin......................................................7
SECTION 3.03 Authority and Corporate Action; No Conflict.................................8
SECTION 3.04 Brokers....................................................................11
SECTION 3.05 Disclosure.................................................................11
SECTION 3.06 Survival of Representations and Warranties.................................11
ARTICLE IV REPRESENTATION AND WARRANTS OF THE ORIGIN
SUBSIDIARIES...............................................................12
SECTION 4.01 The Origin Subsidiary Stock................................................12
SECTION 4.02 Organization of the Origin Subsidiaries....................................12
SECTION 4.03 Authority and Corporate Action; No Conflict................................13
SECTION 4.04 Consents and Approvals.....................................................14
SECTION 4.05 Financial Statements.......................................................14
SECTION 4.06 No Undisclosed Liabilities.................................................14
SECTION 4.07 Real Property..............................................................15
SECTION 4.08 Certain Personal Property..................................................15
SECTION 4.09 Non-Real Estate Leases.....................................................15
SECTION 4.10 Accounts Receivable........................................................15
SECTION 4.11 Inventory..................................................................16
SECTION 4.12 Contracts, Obligations and Commitments.....................................16
SECTION 4.13 Licenses, Permits, Etc.....................................................17
SECTION 4.14 Intellectual Property Rights...............................................18
SECTION 4.15 Title to and Condition of Assets...........................................20
SECTION 4.16 Taxes, Tax Returns and Audits..............................................22
SECTION 4.17 Absence of Certain Changes.................................................23
SECTION 4.18 Employee Plans; Labor Matters..............................................25
SECTION 4.19 Compliance with Law........................................................25
SECTION 4.20 No Illegal or Improper Transactions........................................25
SECTION 4.21 Related Transactions.......................................................26
SECTION 4.22 Records....................................................................26
SECTION 4.23 Insurance..................................................................26
i
SECTION 4.24 Litigation.................................................................26
SECTION 4.25 Settled Litigation.........................................................27
SECTION 4.26 Brokers....................................................................27
SECTION 4.27 Disclosure.................................................................27
SECTION 4.28 Survival of Representations and Warranties.................................27
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CCAC.....................................27
SECTION 5.01 Organization...............................................................28
SECTION 5.02 Capitalization.............................................................28
SECTION 5.03 Authority and Corporate Action; No Conflict................................29
SECTION 5.04 Consents and Approvals.....................................................30
SECTION 5.05 Valid Issuance of Chardan Sub Stock........................................30
SECTION 5.06 Financial Statements.......................................................30
SECTION 5.07 SEC Reports................................................................31
SECTION 5.08 Trust Fund.................................................................31
SECTION 5.09 No Undisclosed Liabilities.................................................32
SECTION 5.10 Absence of Certain Changes.................................................32
SECTION 5.11 Compliance with Law........................................................33
SECTION 5.12 Litigation.................................................................33
SECTION 5.13 Brokers....................................................................33
SECTION 5.14 Survival of Representations and Warranties.................................34
SECTION 5.15 Records....................................................................34
SECTION 5.16 Disclosure.................................................................34
ARTICLE VI COVENANTS OF ORIGIN, THE ORIGIN SUBSIDIARIES...............................34
SECTION 6.01 Conduct of the Business....................................................34
SECTION 6.02 Access to Information......................................................36
SECTION 6.03 Insurance..................................................................36
SECTION 6.04 Protection of Confidential Information; Non-Competition....................36
SECTION 6.05 Post-Closing Assurances....................................................39
SECTION 6.06 No Other Negotiations......................................................39
SECTION 6.07 No Securities Transactions.................................................39
SECTION 6.08 Fulfillment of Conditions..................................................40
SECTION 6.09 Disclosure of Certain Matters..............................................40
SECTION 6.10 Regulatory and Other Authorizations; Notices and Consents..................40
SECTION 6.11 Use of Intellectual Property...............................................41
SECTION 6.12 Related Tax................................................................41
SECTION 6.13 Origin Acquisition.........................................................41
SECTION 6.14 Origin Merger Reorganization...............................................41
SECTION 6.15 Origin Proxy Information...................................................42
SECTION 6.16 Interim Financial Information..............................................42
ARTICLE VII COVENANTS OF CCAC..........................................................42
SECTION 7.01 Conduct of the Business....................................................42
SECTION 7.02 Stockholder Meeting........................................................44
SECTION 7.03 Fulfillment of Conditions..................................................45
SECTION 7.04 Disclosure of Certain Matters..............................................45
SECTION 7.05 Chardan Sub Incorporation..................................................45
SECTION 7.06 Post-Closing Assurances....................................................45
SECTION 7.07 Regulatory and Other Authorizations; Notices and Consents..................46
SECTION 7.08 Books and Records..........................................................46
ii
ARTICLE VIII ADDITIONAL COVENANTS OF THE PARTIES........................................47
SECTION 8.01 Other Information..........................................................47
SECTION 8.02 Mail Received After Closing................................................47
SECTION 8.03 Further Action.............................................................47
SECTION 8.04 Schedules..................................................................48
SECTION 8.05 Execution of Agreements....................................................48
SECTION 8.06 Confidentiality............................................................48
SECTION 8.07 Public Announcements.......................................................48
SECTION 8.08 Board of CCAC - Chardan Sub................................................49
SECTION 8.09 Nominations of Directors...................................................50
SECTION 8.10 CCAC or Chardan Sub........................................................50
ARTICLE IX CONDITIONS TO CLOSING......................................................50
SECTION 9.01 Conditions to Each Party's Obligations.....................................50
SECTION 9.02 Conditions to Obligations of Origin, the Origin Subsidiaries
and the Origin Stockholders................................................51
SECTION 9.03 Conditions to Obligations of CCAC..........................................53
ARTICLE X INDEMNIFICATION............................................................57
SECTION 10.01 Indemnification by Origin Stockholders.....................................57
SECTION 10.02 Indemnification by CCAC....................................................57
SECTION 10.03 Notice, Etc................................................................58
SECTION 10.04 Limitations................................................................59
SECTION 10.05 Adjustment to Purchase Price; Setoff.......................................59
SECTION 10.06 Claims on behalf or in right of CCAC and Chardan Sub.......................60
ARTICLE XI TERMINATION AND ABANDONMENT................................................60
SECTION 11.01 Methods of Termination.....................................................60
SECTION 11.02 Effect of Termination......................................................62
SECTION 11.03 No Claim Against Trust Fund................................................63
ARTICLE XII DEFINITIONS................................................................64
SECTION 12.01 Certain Defined Terms......................................................64
ARTICLE XIII GENERAL PROVISIONS.........................................................67
SECTION 13.01 Expenses...................................................................67
SECTION 13.02 Notices....................................................................68
SECTION 13.03 Amendment..................................................................68
SECTION 13.04 Waiver.....................................................................69
SECTION 13.05 Headings...................................................................69
SECTION 13.06 Severability...............................................................69
SECTION 13.07 Entire Agreement...........................................................69
SECTION 13.08 Benefit....................................................................69
SECTION 13.09 Governing Law..............................................................69
SECTION 13.10 Counterparts...............................................................70
iii
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated December 20, 2004, among CHARDAN CHINA
ACQUISITION CORP., a Delaware corporation ("CCAC"), KERRY PROPPER, an
individual, DR. RICHARD D. PROPPER, an individual, JIANGNAN HUANG, an
individual, LI ZHANG, an individual, DAN BEHARRY, an individual, STEVEN URBACH,
an individual, STATE HARVEST HOLDINGS LIMITED, a British Virgin Islands
corporation ("Origin"), and D.HAN GENGCHEN, an individual, MR.YANG YASHENG, an
individual, MR.YUAN LIANG, an individual, MS.ZHAO YUPING, an individual,
MR.ZHANG WEIDONG, an individual, MR.CHEN WEICHENG, an individual, MS. BO LUXIA,
an individual, Mr. HUANG XILIN, an individual, and MR. HUO QINGTAO, an
individual.
Capitalized terms used herein that are not otherwise defined shall have
the meanings ascribed to them in Article XII hereof.
WHEREAS, Origin, through the companies listed on Schedule A hereto
("Origin Subsidiaries"), which include the manner and ownership amounts of such
companies by Origin, owns and operates in the Peoples Republic of China ("PRC")
the Business, as hereinafter defined; and
WHEREAS, the Origin Stockholders listed on Schedule B hereto ("Origin
Stockholders") are the direct and beneficial owners of all of the outstanding
capital stock of Origin (including by means of nominee arrangements, trust,
stock power or similar arrangement) (together all stock and other rights or
arrangements are referred to as the "Origin Stock"); and
WHEREAS, subject to the terms and conditions of this Agreement, CCAC will
form a wholly owned subsidiary pursuant to the corporate laws of the British
Virgin Islands ("Chardan Sub") and consummate a plan of merger ("Plan of
Merger") pursuant to which CCAC will be merged with and into Chardan Sub (the
"Chardan Merger") at the Closing (as defined in Article II); and
WHEREAS, subject to the terms and conditions of this Agreement, Origin,
either directly or through operational contracts and stock consignment
agreement, owns all of the shares of capital stock of the Origin Subsidiaries,
other than the 2.04% of each of Beijing Origin Seed Limited Incorporated and
Henan Origin Cotton Technical Limited Company held by Henan Agricultural
University and Mr. Gu Dengbin, respectively ("Origin Subsidiary Stock") and
through such ownership and contractual arrangements have full right and title to
use and benefit from the assets of the Origin Subsidiaries; and
1
WHEREAS, subject to the terms and conditions of this Agreement, Chardan
Sub at the Closing, shall acquire by an issuance of its capital stock and
payment of cash, all of the Origin Stock from the Origin Stockholders ("Origin
Stock Purchase").
IT IS AGREED:
ARTICLE I
THE ORIGIN STOCK PURCHASE
SECTION 1.01 Purchase and Sale. Upon the terms and subject to the
conditions hereof, at the Closing, the Origin Stockholders shall sell, transfer,
assign and convey to Chardan Sub, and Chardan Sub shall purchase from the Origin
Stockholders, all of the right, title and interest of the Origin Stockholders in
and to the Origin Stock representing all of the issued and outstanding Origin
Stock.
SECTION 1.02 Purchase Price.
(a) Subject to adjustment and the holdbacks as hereinafter set forth,
the aggregate purchase price ("Purchase Price") to be paid by
Chardan Sub to Origin Stockholders or its designees for the Origin
Stock shall be the following:
(i) $25,000,000 as set forth in Section 1.02 (b) below;
(ii) certificates representing, in the aggregate, 10,200,000 shares
of Chardan Sub's common stock, par value $0.0001 per share
("Chardan Sub Stock"), which will represents no less than 65%
of the total outstanding equity capital of the succeeding
listing corporation after the Chardan Merger is accomplished,
to be delivered to the Origin Stockholders and their
designees;
(b) Payments.
(i) Initial Payment. At the Closing, the sum of $10,000,000 (the
"Initial Payment"), less the Holdback Amount, will be paid by wire
transfer of immediately available United States dollars to Origin
Stockholders or their designees as specified in a written notice
given to CCAC or Chardan Sub, no later than two business days prior
to the Closing, for the purpose of the acquisition of the Origin
Stock.
2
(ii) Additional Payments. In the event that any of the following events
occur any year after the Closing Date and ending the fiscal year
ending December 31, 2008 (or June 30, 2009 if the fiscal year of the
combined entity is changed), Chardan Sub shall promptly pay in
aggregate to the Origin Stockholders or their designees, as an
addition to the Purchase Price, the amounts set forth below in cash
by wire transfer to the accounts of the Origin Stockholders as
specified on Schedule 1.02(a) in respect of the Origin Stock
ownership:
(a) If Chardan Sub receives at least $40,000,000 in gross proceeds in
additional financing ("Financing Adjustment") as a result of (1) the call
of CCAC's presently outstanding public warrants (which such warrants will
be assumed by Chardan Sub at the Closing), (2) Chardan Sub's successful
completion of a secondary offering, or (3) the private investment into
Chardan Sub by a strategic investor, then the Origin Stockholders or their
designees shall be entitled to receive an additional $15,000,000; or
(b) If Origin generates a net positive cash flow of not less than $2,000,000
in any fiscal year ending December 31, or June 30, beginning December 31,
2005 or June 30, 2006, respectively depending on the fiscal year
("Earnings Adjustment"), the Origin Stockholders shall be entitled to
receive 75% of the net positive cash flow of such fiscal year up to
$7,500,000 per year until a total of $15,000,000 has been received;
provided that the board of directors of the surviving corporation, solely
on the basis of a proposal by Dr. Han, as a director, may reduce the
amount to be paid in any one year.
(iii) In the event that both an Earnings Adjustment and a Financing
Adjustment occurs, the maximum amount to be paid to the Origin
Stockholders shall be $15,000,000. For purposes of example only, if
Earnings Adjustments have occurred such that the Origin Stockholders
are entitled to receive $5,000,000 (in one or more installments) and
a Financing Adjustment subsequently occurs, only the balance of
$10,000,000 shall be paid to the Origin Stockholders as a result of
a Financing Adjustment for a total of $15,000,000.
(iv) If any amount is to be paid on either a Financing Adjustment or
Earnings Adjustment, then such amount will be paid to the Origin
Stockholders pursuant to the original payment instructions received
from Origin's Shareholders prior to the Closing as set forth on
Schedule C.
3
(c) Holdback. The sum of $250,000 ("Holdback Amount") to be withheld from the
Initial Payment, representing a portion of the cash portion of the
Purchase Price will be retained by Chardan Sub for a period of 12 months.
The Holdback Amount will be security for the indemnification obligations
of the Origin Stockholders set forth in Article X. Subject to this section
and Article X, on the 12 month anniversary of the Closing, or the first
business day thereafter, Chardan Sub shall deliver the Holdback Amount pro
rata to the Origin Stockholders (or their designees) in the same
proportions as the Initial Payment was allocated among them. Chardan Sub
may withhold from the Holdback Amount the equivalent of any amount then in
dispute related to the Origin Stockholders indemnification obligations
arising pursuant to Article X or for which Chardan Sub has notified the
Origin Stockholders of an indemnification Claim. Any withheld Holdback
Amount, to the extent not applied in satisfaction of an indemnification
Claim, will be paid by Chardan Sub promptly on resolution of the dispute
or Claim. Nothing in this section shall be construed as limiting the
liability of the Origin Stockholders for indemnification claims or any
other claim by Chardan, Chardan Sub or any other rightful claimant, and
the Holdback Amount shall not be considered liquidated damages for any
breach of this Agreement or any other matter related hereto.
SECTION 1.03 Earn-Out Agreement. So long as CCAC, following the Closing,
on a consolidated basis, achieves or exceeds the after tax profits (excluding
any after tax operating profits from any acquisition by Origin that was for the
issuance of securities that has a dilutive effect on the holders of common stock
of CCAC, or Chardan Sub after the Closing, and before the expenses of the
transaction contemplated by this Agreement and the expenses of director and
employee options in each of the fiscal years) calculated for the period of July
1 to the succeeding June 30, ending on June 30 in each of 2006, 2007, 2008 and
2009 as set forth below, the Origin Stockholders shall receive after the Closing
the number of shares of Chardan Sub Stock set forth below. Such additional
shares shall be issued within 90 days after June 30.
4
Number of Shares of Consolidated Company to be earned
By each shareholder in the 12-month period ending
--------------------------------------------------------------------------------
Name June 30, 2006 June 30, 2007 June 30, 2008 June 30, 2009
------------------------ ---------------- ---------------- ---------------- ----------------
A Plus Resources Limited 270,000 270,000 270,000 270,000
HAN Gengchen 431,976 431,976 431,976 431,976
YUAN Liang 431,976 431,976 431,976 431,976
YANG Yasheng 252,027 252,027 252,027 252,027
ZHANG Weidong 39,237 39,237 39,237 39,237
CHEN Weicheng 24,600 24,600 24,600 24,600
BO Luxia 20,739 20,739 20,739 20,739
ZHAO Yuping 15,619 15,619 15,619 15,619
HUANG Xilin 6,913 6,913 6,913 6,913
HUO Qingtao 6,913 6,913 6,913 6,913
---------------- ---------------- ---------------- ----------------
Total 1,500,000 shares 1,500,000 shares 1,500,000 shares 1,500,000 shares
After Tax Profit Targets for 12 Months Ending
--------------------------------------------------------------------------------
June 30, 2006 June 30, 2007 June 30, 2008 June 30, 2009
$11,000,000 $16,000,000 $21,000,000 $29,000,000
SECTION 1.04 Allocation of Purchase Price. All payments of the Purchase
Price shall be made in proportion as requested by the Origin Stockholders as set
forth on Schedule C.
ARTICLE II
THE CLOSING
-----------
SECTION 2.01 The Closing. Subject to the terms and conditions of this
Agreement, the consummation of the Origin Stock Purchase and the transactions
contemplated by this Agreement shall take place at a closing ("Closing") to be
held at 10:00 a.m., local time, on the fourth business day after the date on
which the last of the conditions to Closing set forth in Article IX is
fulfilled, at the offices of Graubard Miller, 600 Third Avenue, New York, New
York 10016, or at such other time, date or place as the Parties may agree upon
in writing. The date on which the Closing occurs is referred to herein as the
"Closing Date."
SECTION 2.02 Deliveries.
(a) Origin Stockholders. At the Closing, each Origin Stockholder will
(i) assign and transfer to Chardan Sub all of such Origin
Stockholder's right, title and interest in and to his, her or its
5
respective portion of the Origin Stock by delivering to Chardan Sub
the certificates representing such Origin Stock, duly endorsed for
transfer and free and clear of all liens and (ii) deliver to Chardan
Sub the certificates, opinions and other agreements contemplated by
Article IX hereof and the other provisions of this Agreement.
(b) Chardan Sub. At the Closing, Chardan Sub shall deliver to the Origin
Stockholders (i) the cash and shares of Chardan Sub Stock
representing the Purchase Price to which each of the Origin
Stockholders is entitled pursuant to Sections 1.02 and (ii) the
certificates, opinions and other agreements and instruments
contemplated by Article IX hereof and the other provisions of this
Agreement.
SECTION 2.03 Additional Agreements. At the Closing, the following
agreements will have been executed and delivered (collectively, the "Transaction
Documents"), the effectiveness of each of which is subject to the Closing:
(a) a Merger Agreement between CCAC and Chardan Sub in a form to be
attached as Schedule D hereto;
(b) the Stock Consignment Agreements in the forms attached hereto as
Schedules E, F and G between Origin and the following parties:
(1) all shareholders of Beijing Origin Seed Limited ("Beijing
Origin") holding 97.96% of the total equity shares of Beijing
Origin, except for the Henan Agriculture University who is
holding 2.04% of the Beijing Origin's shares;
(2) all shareholders holding 100% of the equity shares of the
Changchun Origin Seed Technical Development Limited
("Changchun Company"); and
(3) all shareholders of the Henan Origin Cotton Technology
Development Limited ("Henan Company") holding 97.96% of the
total equity shares of the Henan Company, except for Mr. Gu
Dengbin, who is holding 2.04% of the Henan Company shares; and
(c) the Technology Service Agreements between Beijing Origin State
Harvest Biotechnology Limited ("Biotechnology Company") and each of
Changchun Company, Henan Company and Beijing Origin in the form of
Schedule H attached hereto.
6
SECTION 2.04 Further Assurances. Subject to the terms and conditions of
this Agreement, at any time or from time to time after the Closing, each of the
Parties hereto shall execute and deliver such other documents and instruments,
provide such materials and information and take such other actions as may
reasonably be necessary, proper or advisable, to the extent permitted by law, to
fulfill its obligations under this Agreement and the other Transaction Documents
to which it is a party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ORIGIN AND THE ORIGIN STOCKHOLDERS
-------------------------------------
Except for the representations and warranties set forth in Sections 3.7
through 3.12, which are made solely by the Origin Stockholders, severally and
not jointly, to CCAC, Origin and the Origin Stockholders, jointly and severally,
represent and warrant to CCAC and Chardan Sub (as of the Closing) as follows:
SECTION 3.01 The Origin Stock.
(a) Ownership. The Origin Stockholders are the registered and beneficial
owners of all of the shares of Origin Stock in the amounts set forth
in Schedule 3.01(a), free and clear of all Liens, except as set
forth in Schedule 3.01(a), which shares constitute all of the
outstanding shares of capital stock of Origin. There are no options,
warrants or other contractual rights outstanding which give any
Person the right to acquire shares of Origin Stock owned by the
Origin Stockholders, whether or not such rights are presently
exercisable.
(b) Capitalization. The authorized capital stock of Origin is set forth
in Schedule 3.01(b). All of the outstanding shares of Origin Stock
are validly issued, fully paid and non-assessable. There are no
options, warrants or other contractual rights outstanding which give
any Person the right to require the issuance of any capital stock of
Origin, whether or not such rights are presently exercisable.
SECTION 3.02 Organization of Origin. Origin is an international business
company duly organized, validly existing and in good standing under the law of
the British Virgin Islands. Origin is duly qualified to do business as a foreign
corporation and is in good standing in each of the jurisdictions in which the
property owned, leased or operated by Origin or the nature of the business which
it conducts requires qualification (which jurisdictions are listed in Schedule
3.02), or if not so qualified, such failure or failures, singly or in the
aggregate, would not have a material adverse effect on the Business, assets,
operations, financial condition, liquidity or prospects of Origin and the Origin
Subsidiaries, separately and as a whole ("Origin Material Adverse Effect").
Origin has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and as presently
contemplated to be conducted.
7
SECTION 3.03 Authority and Corporate Action; No Conflict.
-------------------------------------------
(a) Origin and each of the Origin Stockholders has all necessary power and
authority to enter into this Agreement and the other Transaction Documents to
which it is a party and to consummate the Origin Stock Purchase and other
transactions contemplated hereby and thereby. All action, corporate and
otherwise, necessary to be taken by Origin to authorize the execution, delivery
and performance of this Agreement, the Transaction Documents and all other
agreements and instruments delivered by Origin and the Origin Stockholders in
connection with the Origin Stock Purchase has been duly and validly taken. This
Agreement and the Transaction Documents to which Origin and each Origin
Stockholder is a party has been duly executed and delivered by Origin and each
Origin Stockholder and constitutes the valid, binding, and enforceable
obligation of Origin and each Origin Stockholder, enforceable in accordance with
its terms, except (i) as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or similar laws of
general application now or hereafter in effect affecting the rights and remedies
of creditors and by general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity) and (ii) as
enforceability of any indemnification provision may be limited by federal and
state securities laws and public policy of the United States, BVI and PRC.
(b) Neither the execution and delivery of this Agreement or any of the
other Transaction Documents contemplated hereby by Origin or each Origin
Stockholder nor the consummation of the transactions contemplated hereby or
thereby will (i) except as set forth in Schedule 3.03, conflict with, result in
a breach or violation of or constitute (or with notice of lapse of time or both
constitute) a default under, (A) the Memorandum and Articles of Association of
Origin or (B) any law, statute, regulation, order, judgment or decree or any
instrument, contract or other agreement to which Origin or an Origin Stockholder
is a party or by which it (or any of its properties or assets) is subject or
8
bound; (ii) result in the creation of, or give any party the right to create,
any lien, charge, option, security interest or other encumbrance upon the assets
of Origin or an Origin Stockholder; (iii) terminate or modify, or give any third
party the right to terminate or modify, the provisions or terms of any contract
to which Origin or an Origin Stockholder is a party; or (iv) result in any
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, qualification, authorization or approval applicable to Origin or an
Origin Stockholder.
(c) Consents and Approvals. Other than as set forth on Schedule 3.04, the
execution and delivery of this Agreement and the Transaction Documents by Origin
and each Origin Stockholder does not, and the performance of this Agreement and
the Transaction Documents by it will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
Governmental Authority, except where failure to obtain such consents, approvals,
authorizations or actions, or to make such filings or notifications, would not
prevent it from performing any of its material obligations under this Agreement
and the Transaction Documents and would not have an Origin Material Adverse
Effect.
(d) Licenses, Permits, Etc. To the best of the knowledge of each Origin
Stockholder, Origin possesses or will possess prior to the Closing all Permits
necessary, in all material respects, to own and operate the Business through the
Origin Subsidiaries, which necessary Permits are described or are as set forth
on Schedule 3.05 hereto. True, complete and correct copies of Permits issued to
Origin have previously been delivered to CCAC. To the best of the knowledge of
Origin and each Origin Stockholder, Origin is not in default in any material
respect under any of such Permits and no event has occurred and no condition
exists which, with the giving of notice, the passage of time, or both, would
constitute a default thereunder. Neither the execution and delivery of this
Agreement, the Transaction Documents or any of the other documents contemplated
hereby nor the consummation of the transactions contemplated hereby or thereby
nor, to the best of the knowledge of Origin and each Origin Stockholder,
compliance by Origin with any of the provisions hereof or thereof will result in
any suspension, revocation, impairment, forfeiture or nonrenewal of any Permit
applicable to the Business.
(e) Taxes, Tax Returns and Audits. Except as specifically set forth in
Schedule 3.09, (a) Origin has filed on a timely basis (taking into account any
9
extensions received from the relevant taxing authorities) all returns and
reports pertaining to all Taxes that are or were required to be filed by Origin
with the appropriate taxing authorities in all jurisdictions in which such
returns and reports are or were required to be filed, and all such returns and
reports are true, correct and complete in all material respects, (b) all Taxes
that are due from or may be asserted against Origin (including deferred Taxes)
in respect of or attributable to all periods ending on or before the Closing
Date have been or will be fully paid, deposited or adequately provided for on
the books and financial statements of Origin or are being contested in good
faith by appropriate proceedings, (c) no issues have been raised (or are
currently pending) by any taxing authority in connection with any of the returns
and reports referred to in clause (a) which might be determined adversely to
Origin and which could have an Origin Material Adverse Effect, (d) Origin has
not given or requested to give waivers or extensions of any statute of
limitations with respect to the payment of Taxes, and (e) no tax liens which
have not been satisfied or discharged by payment or concession by the relevant
taxing authority or as to which sufficient reserves have not been established on
the books and financial statements of Origin are in force as of the date hereof.
(f) Acquisition Entirely for Own Account. The Chardan Sub Stock to be
acquired by each Origin Stockholder will be acquired for investment for such
Origin Stockholder's own account and not with a view to the resale or
distribution of any part thereof.
(g) Disclosure of Information. Each Origin Stockholder acknowledges that
all of the SEC Reports (defined in Section 5.06) were fully available to it, and
it has reviewed and understands them. Each Origin Stockholder acknowledges that
it has received all the information that it has required relating to CCAC and
the acquisition of the Chardan Sub Stock. Each Origin Stockholder further
represents that it has had an opportunity to ask questions and receive answers
from CCAC regarding the terms and conditions of its acquisition of the Chardan
Sub Stock.
(h) Accredited Investor. Each Origin Stockholder is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act.
(i) Restricted Securities. Each Origin Stockholder understands that it
will acquire constitutes "restricted securities" from Chardan Sub under the
United States federal securities laws and that under such laws and applicable
regulations such securities may only be sold in the United States pursuant to an
effective registration statement or an available exemption from registration.
10
(j) Legends. It is understood that the certificates evidencing the Chardan
Sub Stock shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE
TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE,
TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER
THE ACT."
SECTION 3.04 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Origin, any Origin Subsidiary or any Origin Stockholder.
SECTION 3.05 Disclosure. No representation or warranty by Origin or any
Origin Stockholder contained in this Agreement and no information contained in
any Schedule or other instrument furnished or to be furnished to CCAC pursuant
to this Agreement or in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained therein not misleading.
SECTION 3.06 Survival of Representations and Warranties. The
representations and warranties of Origin and each Origin Stockholder set forth
in this Agreement shall survive the Closing for a period of four years, except
that the representations and warranties set forth in Sections 3.01, 3.02 and
3.03 shall survive without limitation as to time and the representations and
warranties set forth in Section 3.06 shall survive until the expiration of the
statute of limitations with respect to each respective Tax.
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ARTICLE IV
REPRESENTATION AND WARRANTS OF THE ORIGIN SUBSIDIARIES
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Origin and the Origin Stockholders, jointly and severally, represent and
warrant to CCAC and Chardan Sub as of the Closing, as follows:
SECTION 4.01 The Origin Subsidiary Stock.
(a) Ownership. Origin, either directly or through the Stock Consignment
Agreements and/or the Technology Service Agreement set forth in Section 2.03 is
the actual controller of the shares of the Origin Subsidiary Stock, free and
clear of all Lien which, except for 2.04% of each of Beijing Origin and Henan
Company owned by other parties, shares constitute all of the outstanding shares
of capital stock of the Origin Subsidiaries. Except as indicated in the
preceding sentence, there are no consignment, operational contracts and/or
equity transfer arrangements, options, warrants or other contractual rights
(oral or written), trusts or other arrangements of any nature which give any
Person (other than Origin) the right to acquire or control any capital stock of
the Origin Subsidiaries, whether or not such rights are presently exercisable.
Except as indicated in the preceding sentence, there are no operational
contracts and/or equity transfer arrangements, options, warrants or other
contractual rights (oral or written), trusts or other arrangements of any nature
which give any Person (other than Origin) the right to any asset, income,
dividend, distribution, property interest or direct or beneficial interest in
any, or from any, of the Origin Subsidiaries.
(b) Capitalization. The authorized capital stock of each Origin Subsidiary
is set forth on Schedule A. Except for Beijing Origin State Harvest
Biotechnology Limited, the capital of which will be paid in the amount of
$1,000,000 at closing by CCAC or Chardan Sub but for which the capital is
committed, all of the outstanding shares of capital stock of each Origin
Subsidiary are validly issued, fully paid and non-assessable.
SECTION 4.02 Organization of the Origin Subsidiaries. Each Origin
Subsidiary is a corporate entity duly organized, validly existing and in good
standing under the law of its jurisdiction of incorporation as set forth on
Schedule 4.02. Each Origin Subsidiary is duly qualified to do business in each
of the jurisdictions in which the property owned, leased or operated by such
Origin Subsidiary or the nature of the business which it conducts requires
qualification (which jurisdictions are listed in Schedule 4.02), or if not so
qualified, such failure or failures, in the aggregate, would not have an Origin
Material Adverse Effect. No Origin Subsidiary owns, directly or indirectly, any
capital stock or any other securities of any issuer or any equity interest in
any other entity and is not a party to any agreement to acquire any such
securities or interest, except as set forth on Schedule 4.02. Each Origin
Subsidiary has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and as presently
contemplated to be conducted.
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SECTION 4.03 Authority and Corporate Action; No Conflict.
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(a) Each Origin Subsidiary has all necessary power and authority to enter
into the Transaction Documents to which it is a party and to consummate the
transactions contemplated thereby. All action, corporate and otherwise,
necessary to be taken by each Origin Subsidiary to authorize the execution,
delivery and performance of the Transaction Documents in connection with the
Origin Stock Purchase has been duly and validly taken. The Transaction Documents
have been duly executed and delivered by each Origin Subsidiary party to such
agreements and constitute the valid, binding, and enforceable obligation of each
of them, enforceable in accordance with their terms, except (i) as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws of general
application now or hereafter in effect affecting the rights and remedies of
creditors and by general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity) and (ii) as enforceability of any
indemnification provision may be limited by the law and public policy of the
PRC.
(b) Neither the execution nor delivery of the Transaction Documents or any
of the other documents contemplated thereby by any Origin Subsidiary nor the
consummation of the transactions contemplated thereby will (i) except as set
forth in Schedule 4.03, conflict with, result in a breach or violation of or
constitute (or with notice of lapse of time or both constitute) a default under,
(A) the charter documents of any Origin Subsidiary or (B) any law, statute,
regulation, order, judgment or decree or any instrument, contract or other
agreement to which any Origin Subsidiary is a party or by which any of them (or
any of the properties or assets of Origin) is subject or bound; (ii) result in
the creation of, or give any party the right to create, any lien, charge,
option, security interest or other encumbrance upon the assets of such Origin
Subsidiary; (iii) terminate or modify, or give any third party the right to
terminate or modify, the provisions or terms of any contract to which any Origin
Subsidiary is a party, or (iv) result in any suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, qualification, authorization or
approval applicable to any Origin Subsidiary.
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SECTION 4.04 Consents and Approvals. Except as listed and described on
Schedule 4.04, the execution and delivery of the Transaction Documents by each
Origin Subsidiary do not, and the performance of the Transaction Documents by
each of them will not, require any consent, approval, authorization or other
action by, or filing with or notification to, any Governmental Authority, except
where failure to obtain such consents, approvals, authorizations or actions, or
to make such filings or notifications, would not prevent any of them from
performing any of their material obligations under the Transaction Documents and
would not cause an Origin Material Adverse Effect.
SECTION 4.05 Financial Statements. Prior to the execution of this
Agreement, Origin has delivered to CCAC consolidated balance sheets as at
December 31, 2001, 2002 and 2003, and related consolidated statements of income
and source and application of funds for the three years ended December 31, 2003,
audited by Origin's Accountants, and the notes, comments, schedules, and
supplemental data therein (collectively, the "2003 Financial Statements") and an
interim consolidated balance sheet as of September 30, 2004, and related
consolidated statements of income and source and application of funds for the
nine months then ended, reviewed by Origin's accountants (collectively, the
"September Financial Statements"). The 2003 Financial Statements and September
Financial Statements will be prepared in accordance with PRC GAAP reconciled to
US GAAP or prepared in accordance with US GAAP throughout the periods indicated
and fairly present the consolidated financial condition of Origin at their
respective dates and the consolidated results of the operations of Origin for
the periods covered thereby in accordance with PRC GAAP reconciled to US GAAP or
in accordance with US GAAP. The 2003 Financial Statements and September
Financial Statements are included in Schedule 4.05 to this Agreement.
SECTION 4.06 No Undisclosed Liabilities. No Origin Subsidiary has any
liabilities, whether known or unknown, absolute, accrued, contingent or
otherwise, except (a) as and to the extent reflected or reserved against on the
September Financial Statements, and (b) those since September 30, 2004, incurred
in the ordinary course of business and consistent with prior practice. The
September Financial Statements and Schedule 4.06 together contain an accurate
and complete list and description and all liabilities of the Origin Subsidiaries
whether or not reflected or reserved against on the September Financial
Statements which individually exceeds US $75,000 or, if related liabilities,
exceed $75,000 (or the equivalent of US $75,000).
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SECTION 4.07 Real Property. The September Financial Statements and
Schedule 4.07 together contain an accurate and complete list and description of
all real estate owned by each Origin Subsidiary as well as any other real estate
that is in the possession of or leased by each Origin Subsidiary and the
improvements (including buildings and other structures) located on such real
estate (collectively, the "Real Property"), and lists and accurately describes
any leases under which any such Real Property is possessed (the "Real Estate
Leases"). No Origin Subsidiary is in default under any of the Real Estate
Leases, and no Origin Subsidiary is aware of any default by any of the lessors
thereunder.
SECTION 4.08 Certain Personal Property. The September Financial Statements
and Schedule 4.08 together contain an accurate and complete list and description
of the material fixed assets of each Origin Subsidiary specifying the location
of all material items of tangible personal property of each Origin Subsidiary
that were included in its respective September Financial Statements.
SECTION 4.09 Non-Real Estate Leases. The September Financial Statements
and Schedule 4.09 together contain an accurate and complete list and description
of all assets and property (other than Real Property and Real Estate Leases)
that are used as of the date of this Agreement in the operation of the Business
and that are possessed by any Origin Subsidiary under an existing lease. All of
such leases are referred to herein as the "Non-Real Estate Leases." No Origin
Subsidiary is in default under any of the Non-Real Estate Leases, and no Origin
Subsidiary is aware of any default by any of the lessors hereunder.
SECTION 4.10 Accounts Receivable. The accounts receivable of each Origin
Subsidiary reflected on the September Financial Statements and created after
September 30, 2004, are bona fide accounts receivable, created in the ordinary
course of business and subject to historical rates of uncollected liabilities,
as reserved against on the Origin financial statements, are good and collectible
within periods of time normally prevailing in the industry at the aggregate
recorded amounts thereof.
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SECTION 4.11 Inventory. The inventory of each Origin Subsidiary consists
of items of quality and quantity useable or saleable in the ordinary course of
business at regular sales prices, subject to (a) changes in price levels as a
result of economic and market conditions and (b) reserves reflected in the
respective September Financial Statements for spoiled and discontinued items.
Schedule 4.11 sets forth an estimate of the inventory of each Origin Subsidiary
as of the date of this Agreement, but it is understood that any material or
intentional inaccuracy in the Schedule 4.11 estimates will not be a breach of
this representation and warranty.
SECTION 4.12 Contracts, Obligations and Commitments. Except as set forth
in the September Financial Statements and on Schedule 4.12 together, other than
the Real Estate Leases and the Non-Real Estate Leases, no Origin Subsidiary has
any existing contract, obligation or commitment (written or oral) of any nature
(other than obligations involving payments of less than $150,000 individually or
$150,000 in the aggregate), including without limitation the following:
(a) Employment, bonus, severance or consulting agreements,
retirement, stock bonus, stock option, or similar plans;
(b) Loans or other agreements, notes, indentures or instruments
relating to or evidencing indebtedness for borrowed money or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of the assets of Origin or such Origin Subsidiary or
any agreement or instrument evidencing any guaranty by Origin or such
Origin Subsidiary of payment or performance by any other Person;
(c) Agreements of any kind relating to employment matters such as
labor agreements or agreements providing for benefits under any plan;
(d) Any contract or series of contracts with the same Person for the
furnishing or purchase of equipment, goods or services, except for
purchase and sales orders in the ordinary course of business;
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(e) Any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which the Origin Subsidiary
is a party or by which it is bound;
(f) Agreements which limit the freedom of any Origin Subsidiary to
compete in any line of business or in any geographic area or with any
Person;
(g) Agreements providing for disposition of the assets, businesses
or a direct or indirect ownership interest in Origin or any Origin
Subsidiary;
(h) Any contract, commitment or arrangement not made in the ordinary
course of business of such Origin Subsidiary; or
(i) Agreements with any Governmental Authority.
Except as set forth on Schedule 4.12, each Contract to which any Origin
Subsidiary is a party is a valid and binding obligation of such Origin
Subsidiary and, to the best of the knowledge of each Origin Subsidiary and the
Origin Stockholders, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by any applicable bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law), and is in full force and effect (except for any Contracts which by their
terms expire after the date hereof or are terminated after the date hereof in
accordance with the terms thereof, provided, however, that no Origin Subsidiary
will terminate any Contract after the date hereof without the prior written
consent of CCAC, which consent shall not be unreasonably withheld or delayed),
and no Origin Subsidiary has breached any material provision of, nor is in
default in any material respect under the terms of any of the Contracts.
SECTION 4.13 Licenses, Permits, Etc. Schedule 4.13 contains an accurate
and complete list and description of all material Permits used in or necessary
for the ownership and operation of the Business, and true, complete and accurate
copies of all Permits previously have been delivered to CCAC. Each Origin
Subsidiary possesses all Permits necessary, in all material respects, to own and
operate its portion of the Business. All such Permits are in full force and
effect and each Origin Subsidiary and the officers, directors and employees of
such Origin Subsidiary have complied and each Origin Subsidiary will comply, and
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each Origin Subsidiary shall cause its respective officers, directors and
employees to comply, in all material respects with all terms of such Permits and
will take any and all actions necessary to ensure that all such Permits remain
in full force and effect and that the terms of such Permits are not violated
through the Closing Date. No Origin Subsidiary is in default in any material
respect under any of such Permits and no event has occurred and no condition
exists which, with the giving of notice, the passage of time, or both, would
constitute a default thereunder. Neither the execution and delivery of this
Agreement, the Transaction Documents or any of the other documents contemplated
hereby nor the consummation of the transactions contemplated hereby or thereby
nor compliance by any Origin Subsidiary with any of the provisions hereof or
thereof will result in any suspension, revocation, impairment, forfeiture or
nonrenewal of any Permit applicable to the Business.
SECTION 4.14 Intellectual Property Rights.
(a) Intellectual Property. Schedule 4.14(a) contains an accurate and
complete list and description of all Intellectual Property used by each Origin
Subsidiary in connection with the Business, specifying as to each (i) the nature
of such right, (ii) the ownership thereof, (iii) the Governmental Authority that
has issued or recorded a registration or certificate or similar document with
respect thereto or with which an application for such a registration,
certificate or similar document is pending and (iv) any applicable registration,
certificate or application number. Each Origin Subsidiary has provided CCAC with
complete and accurate copies of all registered Intellectual Property of such
Origin Subsidiary relating to the Business.
(b) Other Intellectual Property Rights. Schedule 4.14(b) includes an
accurate and complete list and description of all material inventions and trade
secrets that each Origin Subsidiary has formally documented and that are owned,
used, controlled, authorized for use or held by, or licensed to, such Origin
Subsidiary that relate to or are necessary to the Business, including as
conducted at or prior to Closing or as proposed to be conducted by each Origin
Subsidiary, together with a designation of the ownership thereof.
(c) Software. Schedule 4.14(c) includes an accurate and complete list and
description of all Software used by each Origin Subsidiary in connection with
the Business, including as conducted at or prior to Closing or as proposed to be
conducted by each Origin Subsidiary, together with a designation of ownership.
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(d) Out-Bound Licenses. Schedule 4.14(d) includes an accurate and complete
list and description of all licenses, sublicenses, and other Contracts pursuant
to which (i) any Person is authorized to use any Intellectual Property rights
used in connection with the Business or (ii) any right of any Origin Subsidiary
in, or such Origin Subsidiary's use of, any Intellectual Property right used in
connection with the Business is otherwise materially affected.
(e) In-Bound Licenses. Schedule 4.14(e) includes an accurate and complete
list and description of all licenses, sublicenses, and other Contracts pursuant
to which each Origin Subsidiary is authorized to use, or can be authorized to
use (through, for example, the grant of a sublicense), any Intellectual Property
owned by any other Person (including any rights enjoyed by any Origin Subsidiary
by reason of its relationship with one of its affiliates) in connection with the
Business.
(f) Ownership. As of the date hereof, each Origin Subsidiary owns, and at
the Closing Date, will own all right, title and interest in and to all
Intellectual Property rights used in connection with the Business, and those
Intellectual Property rights were developed and created solely by employees of
such Origin Subsidiary acting within the scope of their employment or by third
parties (all of which employees and third parties have validly and irrevocably
assigned all of their rights therein to such Origin Subsidiary) and each Origin
Subsidiary is duly and validly licensed to use all other Intellectual Property
used in connection with the Business, free and clear of royalties (except as
otherwise set forth in Schedule 4.14(g)). No Origin Subsidiary has assigned or
transferred ownership of, agreed to so assign or transfer ownership of, or
granted any exclusive license of or exclusive right to use, any Intellectual
Property used in connection with the Business.
(g) Royalties. Except for licenses listed and accurately and completely
described on the September Financial Statements or Schedule 4.14(g) as
royalty-bearing, there are (and will be upon Closing) no royalties, honoraria,
fees, or other payments payable by any Origin Subsidiary to any Person by reason
of the ownership, use, license, sale, or disposition of any Intellectual
Property used in connection with the Business.
(h) Infringement. The Intellectual Property used in connection with the
Business by each Origin Subsidiary does not infringe or misappropriate any
Intellectual Property rights of any Person under the laws of any jurisdiction.
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To the best of its knowledge, no notice, claim or other communication (in
writing or otherwise) has been received from any Person: (A) asserting any
ownership interest in any material Intellectual Property used in connection with
the Business; (B) of any actual, alleged, possible or potential infringement,
misappropriation or unauthorized use or disclosure of any Intellectual Property
used in connection with the Business, defamation of any Person, or violation of
any other right of any Person (including any right to privacy or publicity) by
any Origin Subsidiary or relating to the Intellectual Property used in
connection with the Business; or (C) suggesting or inviting any Origin
Subsidiary to take a license or otherwise obtain the right to use any
Intellectual Property in connection with the Business. To the best of its
knowledge, no Person is infringing, misappropriating, using or disclosing in an
unauthorized manner any Intellectual Property used in connection with the
Business owned by, exclusively licensed to, held by or for the benefit of, or
otherwise controlled by such Origin Subsidiary.
(i) Proceedings. Except as set forth on Schedule 4.14(i), there are no
current or, to the best of its knowledge, threatened Proceedings (including but
not limited to any interference, reexamination, cancellation, or opposition
proceedings) arising out of a right or claimed right of any person before any
Governmental Authority anywhere in the world related to any Intellectual
Property used in connection with the Business owned by, exclusively licensed to,
held by or for the benefit of, or otherwise controlled by any Origin Subsidiary.
SECTION 4.15 Title to and Condition of Assets.
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(a) Each Origin Subsidiary has good and marketable title to all the
properties and assets owned by it. Except as set forth in the September
Financial Statements and Schedule 4.15 together, none of such properties and
assets is subject to any Lien, option to purchase or lease, easement,
restriction, covenant, condition or imperfection of title or adverse claim of
any nature whatsoever, direct or indirect, whether accrued, absolute, contingent
or otherwise.
(b) To the best of its knowledge, except as set forth in Schedule 4.15,
all buildings, structures, improvements, fixtures, facilities, equipment, all
components of all buildings, structures and other improvements included within
the Real Property, including but not limited to the roofs and structural
elements thereof and the heating, ventilation, air conditioning, plumbing,
electrical, mechanical, sewer, waste water, storm water, paving and parking
equipment, systems and facilities included therein conform in all material
respects to all applicable Laws of every Governmental Authority having
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jurisdiction over any of the Real Property, and every instrumentality or agency
thereof. There are no unsatisfied requests for any repairs, restorations or
improvements to the Real Property from any Person, including without limitation
any Governmental Authority, except such requests of employees as have been
denied in the exercise of prudent business and operational practices. There are
no outstanding contracts made by any Origin Subsidiary for any improvements to
the Real Property which have not been fully paid for. No person, other than each
Origin Subsidiary, owns any equipment or other tangible assets or properties
situated on the Real Property or necessary to the operation of the Business,
except for leased items disclosed in Schedule 4.09 hereto.
(c) To the best of its knowledge, the use and operation of the Real
Property is in full compliance in all material respects with all Laws,
covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the Real Property and, effective as of the Closing,
each Origin Subsidiary shall have the right under all Laws to continue the use
and operation of the Real Property in the conduct of the Business. No Origin
Subsidiary has received any notice of any violation (or claimed violation) of or
investigation regarding any Laws.
(d) To the best its knowledge, none of the buildings, structures and other
improvements located on the Real Property, the appurtenances thereto or the
equipment therein or the operation or maintenance thereof violates any
restrictive covenant or encroaches on any property owned by others or any
easement, right of way or other encumbrance or restriction affecting or
burdening such Real Property in any manner which would have an Origin Material
Adverse Effect on the condition (financial or otherwise), assets, operations or
results of operations of such Origin Subsidiary, nor does any building or
structure of any third party encroach upon the Real Property or any easement or
right of way benefiting the Real Property. To the best its knowledge, the Real
Property and its continued use, occupancy and operation as used, occupied and
operated in the conduct of the Business does not constitute a nonconforming use
under any Law.
(e) No Origin Subsidiary has received written notice of, or otherwise had
knowledge of, any condemnation, fire, health, safety, building, environmental,
hazardous substances, pollution control, zoning or other land use regulatory
proceedings, either instituted or planned to be instituted, which would have an
effect on the ownership, use and operation of any portion of the Real Property
for its intended purpose or the value of any material portion of the Real
Property, nor has any Origin Subsidiary received written notice of any special
assessment proceedings affecting any of the Real Property.
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(f) To the best of its knowledge, all water, sewer, gas, electric,
telephone and drainage facilities, and all other utilities required by any
applicable law are installed to the property lines of the Real Property, are
connected pursuant to valid permits to municipal or public utility services or
proper drainage facilities to permit full compliance with the requirement of all
Laws. To the best its knowledge, no fact or condition exists which could result
in the termination or reduction of the current access from the Real Property to
existing roads or to sewer or other utility services presently serving the Real
Property.
(g) All Permits, certificates, easements and rights of way, including
proof of dedication, required from all governmental entities having jurisdiction
over the Real Property for the use and operation of the Real Property in the
conduct of the Business and to ensure vehicular and pedestrian ingress to and
egress from the Real Property have been obtained.
(h) No Origin Subsidiary has received written notice and has any knowledge
of any pending or threatened condemnation proceeding affecting the Real Property
or any part thereof or of any sale or other disposition of the Real Property or
any part thereof in lieu of condemnation.
(i) No portion of the Real Property has suffered any material damage by
fire or other casualty which has not heretofore been completely repaired and
restored to its original condition.
(j) There are no encroachments or other facts or conditions affecting the
Real Property that would be revealed by an accurate survey thereof which would,
individually or in the aggregate, interfere in any material respect with the
use, occupancy or operation thereof as used, occupied and operated in the
conduct of the Business.
SECTION 4.16 Taxes, Tax Returns and Audits. Except as specifically set
forth in the September Financial Statements or Schedule 4.16, (a) each Origin
Subsidiary has filed on a timely basis (taking into account any extensions
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received from the relevant taxing authorities) all returns and reports
pertaining to all Taxes that are or were required to be filed by such Origin
Subsidiary with the appropriate taxing authorities in all jurisdictions in which
such returns and reports are or were required to be filed, and all such returns
and reports are true, correct and complete in all material respects, (b) all
Taxes that are due from or may be asserted against each Origin Subsidiary
(including deferred Taxes) in respect of or attributable to all periods ending
on or before the Closing Date have been or will be fully paid, deposited or
adequately provided for on the books and financial statements of each Origin
Subsidiary or are being contested in good faith by appropriate proceedings, (c)
no issues have been raised (or are currently pending) by any taxing authority in
connection with any of the returns and reports referred to in clause (a) which
might be determined adversely to any Origin Subsidiary and which could have an
Origin Material adverse effect, (d) no Origin Subsidiary has given or requested
to give waivers or extensions of any statute of limitations with respect to the
payment of Taxes and (e) no tax liens which have not been satisfied or
discharged by payment or concession by the relevant taxing authority or as to
which sufficient reserves have not been established on the books and financial
statements of each Origin Subsidiary are in force as of the date hereof.
Schedule 4.16 sets forth all accurate and complete list of each taxing authority
to which the Origin Subsidiaries are required or may be required to file
notices, returns or payments, with a brief description of the tax or exemption
applicable to the Origin Subsidiary.
SECTION 4.17 Absence of Certain Changes. Except as set forth on Schedule
4.17 or agreed by CCAC in advance and incurred in ordinary business in
compliance with past practice, no Origin Subsidiary has, since September 30,
2004:
(a) issued, delivered or agreed to issue or deliver any stock, bonds or
other corporate securities (whether authorized and unissued or held in the
treasury), or granted or agreed to grant any options (including employee stock
options), warrants or other rights for the issue thereof;
(b) borrowed or agreed to borrow any funds exceeding $200,000 (or other
currency equivalent) except current bank borrowings not in excess of the amount
thereof shown on the September Financial Statements;
(c) incurred any obligation or liability, absolute, accrued, contingent or
otherwise, whether due or to become due exceeding $200,000 (or other currency
equivalent), except current liabilities for trade obligations incurred in the
ordinary course of business and consistent with prior practice;
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(d) discharged or satisfied any encumbrance exceeding $200,000 (or other
currency equivalent) other than those then required to be discharged or
satisfied, or paid any obligation or liability other than current liabilities
shown on the September Financial Statements and liabilities incurred since
September 30, 2004 in the ordinary course of business and consistent with prior
practice;
(e) sold, transferred, leased to others or otherwise disposed of any
assets exceeding $100,000 (or other currency equivalent), except for inventories
sold in the ordinary course of business and assets no longer used or useful in
the conduct of its business, or canceled or compromised any debt or claim, or
waived or released any right of substantial value;
(f) received any notice of termination of any Contract, Lease or other
agreement, or suffered any damage, destruction or loss exceeding $100,000 (or
other currency equivalent) (whether or not covered by insurance) which, in any
case or in the aggregate, has had, or might reasonably be expected to have, an
Origin Material Adverse Effect;
(g) had any material change in its relations with its employees or agents,
clients or insurance carriers which has had or might reasonably be expected to
have an Origin Material Adverse Effect;
(h) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any Intellectual Property or
modified any existing rights with respect thereto;
(i) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to any
shareholder of any Origin Subsidiary or any affiliate of any shareholder of any
Origin Subsidiary, or purchased or redeemed, or agreed to purchase or redeem,
any of its capital stock, or made or agreed to make any payment to any
shareholder of any Origin Subsidiary or any affiliate of any shareholder of any
Origin Subsidiary, whether on account of debt, management fees or otherwise;
(j) suffered any other material adverse effect in its assets, liabilities,
financial condition, results of operations or business; or
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(k) entered into any agreement or made any commitment to take any of the
types of action described in any of the foregoing clauses (other than clauses
(f), (g) or (j)).
SECTION 4.18 Employee Plans; Labor Matters. The September Financial
Statements and Schedule 4.18 together contain an accurate and complete list and
description of all employee benefits, including without limitation pension,
medical insurance, work related injury insurance, birth and nursery insurance,
unemployment insurance and educational benefits, which the Origin Subsidiaries
are obligated to pay, including amounts and recipients of such payments. Except
as disclosed in the September Financial Statements or Schedule 4.18, each Origin
Subsidiary has complied with all applicable Laws relating to employment
benefits, including, without limitation, pension, medical insurance,
work-related injury insurance, birth and nursery insurance, unemployment
insurance and educational benefits. All contributions or payments required to be
made by each Origin Subsidiary with respect to employee benefits have been made
on or before their due dates. Except as disclosed in the September Financial
Statements or Schedule 4.18, all such contributions and payments required to be
made by any employees of any Origin Subsidiary with respect to the employee
benefits have been fully deducted and paid to the relevant Governmental
Authorities on or before their due dates, and no such deductions have been
challenged or disallowed by any Governmental Authority or any employee of any
Origin Subsidiary.
SECTION 4.19 Compliance with Law. To the best of its knowledge, the
Business has been conducted, and is now being conducted, by each Origin
Subsidiary in compliance in all material respects with all applicable Laws. No
Origin Subsidiary and no officers, directors and employees of any Origin
Subsidiary (i) is, and during the past five years was, in violation of, or not
in compliance with, in any material respect all such applicable Laws with
respect to the conduct of the Business; and (ii) has received any notice from
any Governmental Authority, and to the best of its knowledge, no Action is
threatened which alleges that such Origin Subsidiary has violated, or not
complied with, any of the above.
SECTION 4.20 No Illegal or Improper Transactions. No Origin Subsidiary nor
any other officer, director, employee, agent or affiliate of any Origin
Subsidiary has offered, paid or agreed to pay to any Person or entity (including
any governmental official) or solicited, received or agreed to receive from any
such Person or entity, directly or indirectly, in any manner which is in
violation of any applicable policy of such Origin Subsidiary, ordinance,
regulation or law, any money or anything of value for the purpose or with the
intent of (i) obtaining or maintaining business for such Origin Subsidiary, (ii)
facilitating the purchase or sale of any product or service, or (iii) avoiding
the imposition of any fine or penalty.
25
SECTION 4.21 Related Transactions. Except as set forth in the September
Financial Statements or Schedule 4.21, and except for compensation to employees
for services rendered, no Origin Subsidiary and no other current or former
director, officer, employee or shareholder or any associate (as defined in the
rules promulgated under the Exchange Act) of any Origin Subsidiary is presently,
or during the last three fiscal years has been, (a) a party to any transaction
with any Origin Subsidiary (including, but not limited to, any Contract
providing for the furnishing of services by, or rental of real or personal
property from, or otherwise requiring payments to, any such director, officer,
employee or shareholder or such associate), or (b) the direct or indirect owner
of an interest in any corporation, firm, association or business organization
which is a present (or potential) competitor, supplier or customer of any Origin
Subsidiary nor does any such Person receive income from any source other than
such Origin Subsidiary which relates to the business of, or should properly
accrue to, such Origin Subsidiary.
SECTION 4.22 Records. The books of account, minute books, stock
certificate books and stock transfer ledgers of each Origin Subsidiary are
complete and correct in all material respects, and there have been no material
transactions involving any Origin Subsidiary which are required to be set forth
therein and which have not been so set forth.
SECTION 4.23 Insurance. The September Financial Statements and Schedule
4.23 together set forth a complete list and complete and accurate description of
all insurance policies maintained by each Origin Subsidiary which are in force
as of the date hereof and the amounts of coverage thereunder. During the past
three years, no Origin Subsidiary has been refused insurance in connection with
the Business, nor has any claim in excess of $10,000 been made in respect of any
such agreements or policies, except as set forth in the September Financial
Statements and Schedule 4.23 hereto. Such insurance is adequate to protect each
Origin Subsidiary and its financial condition against the risks involved in the
conduct of the Business.
SECTION 4.24 Litigation. Except as set forth in Schedule 4.24, there are
no Actions by any Governmental Authority or Person by or against any Origin
Subsidiary, nor to the best of its knowledge, any threatened Action by any
Governmental Authority or Person against any Origin Subsidiary. No Origin
Subsidiary or any of their respective property is subject to any Action by a
Governmental Authority or Person which would cause an Origin Material Adverse
Effect.
26
SECTION 4.25 Settled Litigation. Schedule 4.25 sets forth a description of
all threatened, withdrawn, settled or litigated claims against the Origin
Subsidiaries during the last three years.
SECTION 4.26 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of any Origin Subsidiary or Origin Stockholder.
SECTION 4.27 Disclosure. No representation or warranty by any Origin
Subsidiary or Origin Stockholder contained in this Agreement and no information
contained in any Schedule or other instrument furnished or to be furnished to
CCAC pursuant to this Agreement or in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained therein not misleading.
SECTION 4.28 Survival of Representations and Warranties. The
representations and warranties of each Origin Subsidiary set forth in this
Agreement shall survive the Closing for a period of four years, except that the
representations and warranties set forth in Sections 4.01, 4.02 and 4.03 shall
survive without limitation as to time and the representations and warranties set
forth in Section 4.16 shall survive until the expiration of the statute of
limitations with respect to each respective Tax.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CCAC
--------------------------------------
CCAC represents and warrants to Origin, each Origin Subsidiary and each
Origin Stockholder as follows: SECTION 5.01 Organization. CCAC is a corporation
duly organized, validly existing and in good standing under the law of Delaware
and Chardan Sub will be organized under the laws of the BVI, respectively.
27
SECTION 5.02 Capitalization.
(a) Capitalization.
(i) The authorized capital stock of CCAC includes 20,000,000 shares
of common stock and 1,000,000 shares of preferred stock of which 4,906,000
shares of common stock are issued and outstanding and no shares of
preferred stock are issued and outstanding. There are 8,050,000 warrants
outstanding to purchase up to 8,050,000 shares of common stock at a
current exercise price of $5.00 per share (the number and price subject to
adjustment), expiring March 22, 2009 and 350,000 warrants exercisable at
$9.90 to purchase 350,000 shares of common stock and 700,000 underlying
warrants, each exercisable for one share at $6.40 per underlying warrant.
Except as set forth on Schedule 5.02(a), there are no other options,
warrants or rights (other than as contemplated by this Agreement) to
acquire any capital stock of CCAC.
(ii) The authorized capital stock of Chardan Sub will include
20,000,000 shares of common stock and 1,000,000 shares of preferred stock,
of which 100 shares of common stock will be issued and outstanding solely
to CCAC and no shares of preferred stock will be issued and outstanding.
There will be no options, warrants or rights (other than as contemplated
by this Agreement) to acquire any capital stock of Chardan Sub.
(iii) Upon the merger of CCAC with and into Chardan Sub, for the
purpose of re-domestication into the BVI, (i) there will be issued
4,906,000 shares of common stock to the current shareholders of CCAC, and
the existing 100 shares of Chardan Sub Stock issued and outstanding shares
of Chardan Sub Stock will be extinguished as a contribution to capital and
(ii) there will be assumed the obligation to issue up to 9,100,000 shares
of common stock upon exercise of the currently outstanding CCAC warrants
and options set forth herein and on Schedule 5.02(a).
(iv) Upon the acquisition of Origin as contemplated by this
Agreement, there will be issued the shares of Chardan Sub Stock as set
forth elsewhere in this Agreement.
28
(b) Ownership. CCAC will be the registered and sole beneficial owner of
all the currently issued and outstanding shares of Chardan Sub Stock,
aggregating 100 shares.
(c) Disputes. There are no disputes, arbitrations or litigation
proceedings involving CCAC with respect to the common stock and outstanding
warrants, options and other rights relating to the capital stock of CCAC.
(d) Issuances. Except for the issuance of common stock, warrants and
options as set forth in the SEC Reports of Chardan and the Registration
Statement on Form SB-2, SEC Registration Statement No. 333-111970, there have
not been any issuances of capital securities or options, warrants or rights to
acquire the capital securities of CCAC.
SECTION 5.03 Authority and Corporate Action; No Conflict.
--------------------------------------------
(a) CCAC has all necessary corporate power and authority to enter this
Agreement and, subject to the requirement to obtain stockholder approval, to
consummate the transactions contemplated hereby. Except for the actions required
to redomesticate CCAC in the British Virgin Islands, all board of directors
action necessary to be taken by CCAC to authorize the execution, delivery and
performance of this Agreement, the Transaction Documents and all other
agreements delivered in connection with this transaction has been duly and
validly taken. This Agreement has been duly executed and delivered by CCAC and
constitutes the valid, binding, and enforceable obligation of CCAC, enforceable
in accordance with its terms, except (i) as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws of general application now or hereafter in effect
affecting the rights and remedies of creditors and by general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity), (ii) as enforceability of any indemnification provision may be limited
by federal and state securities laws and public policy and (iii) as
enforceability may be limited by the absence of stockholder approval.
(b) Neither the execution and delivery of this Agreement or any of the
other documents contemplated hereby by CCAC nor (assuming receipt of stockholder
approval) the consummation of the transactions contemplated hereby or thereby
will (i) conflict with, result in a breach or violation of or constitute (or
with notice of lapse of time or both constitute) a default under, (A) the
Certificate of Incorporation or By-Laws of CCAC or (B) any law, statute,
regulation, order, judgment or decree or any instrument contract or other
29
agreement to which CCAC is a party or by which CCAC (or any of the properties or
assets of CCAC) is subject or bound; (ii) result in the creation of, or give any
party the right to create, any lien, charge, option, security interest or other
encumbrance upon the assets of CCAC; (iii) terminate or modify, or give any
third party the right to terminate or modify, the provisions or terms of any
contract to which CCAC is a party; or (iv) result in any suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, qualification,
authorization or approval applicable to CCAC.
SECTION 5.04 Consents and Approvals. Other than the requirement to obtain
stockholder approval, satisfy the redomestication and merger requirements of
Delaware and the British Virgin Islands or as set forth on Schedule 5.04, the
execution and delivery of this Agreement and the Transaction Documents by CCAC
does not, and the performance of this Agreement and the Transaction Documents by
each will not, require any consent, approval, authorization or other action by,
or filing with or notification to, any Governmental Authority, except where
failure to obtain such consents, approvals, authorizations or actions, or to
make such filings or notifications, would not prevent it from performing any of
its material obligations under this Agreement and the Transaction Documents.
SECTION 5.05 Valid Issuance of Chardan Sub Stock. At the Closing, the
shares of Chardan Sub Stock to be issued to the Origin Stockholders hereunder
will be duly and validly authorized and, when issued and delivered in accordance
with the terms hereof for the consideration provided for herein, will be validly
issued and will constitute legally binding obligations of Chardan Sub in
accordance with their terms and will have been issued in compliance with all
applicable federal and state securities laws.
SECTION 5.06 Financial Statements.
(a) The audited consolidated financial statements and the unaudited
consolidated financial statements of CCAC included in CCAC's Annual Report on
Form 10-KSB and its Quarterly Reports on Form 10-QSB that are referred to in
Section 5.06 fairly present in conformity with GAAP applied on a consistent
basis the financial position and assets and liabilities of CCAC as of the dates
thereof and CCAC's results of operations and cash flows for the periods then
ended (subject, in the case of any unaudited interim financial statement, to
normal, recurring year-end adjustments which were not or are not expected to be
material in amount). The balance sheet of CCAC as of September 30, 2004 that is
included in such financial statements is referred to herein as "CCAC's Balance
Sheet."
30
(b) Attached hereto as Schedule 5.06(b) is an unaudited, unreviewed
balance sheet prepared by management of CCAC as of a date within seven days
prior to the date of this Agreement of CCAC, prepared in accordance with GAAP,
applied on a consistent basis with prior practice of CCAC.
SECTION 5.07 SEC Reports.
(a) CCAC has delivered to Origin or there have been available by public
means (i) CCAC's Annual Report on Form 10-KSB for the period ended December 31,
2003, (ii) CCAC's Quarterly Reports on Form 10-QSB for the quarters ended March
31, 2004 and June 30, 2004 and September 30,2004 (iii) CCAC's prospectus, dated
March 16, 2004, relating to its initial public offering of securities, and (iv)
all other reports filed by CCAC under the Exchange Act (all of such materials,
together with any amendments thereto and documents incorporated by reference
therein, are referred to herein as the "SEC Reports").
(b) As of its filing date or, if applicable, its effective date, each SEC
Report complied in all material respects with the requirements of the Laws
applicable to CCAC for such SEC Report, including the Securities Act and the
Exchange Act.
(c) Each SEC Report as of its filing date and the prospectus referred to
in clause (iii) of Section 5.07(a), as of its effective date, did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. CCAC has filed all
reports under the Exchange Act that were required to be filed as of the date
hereof and will have filed all such reports required to have been filed through
the Closing Date and has otherwise materially complied with all requirements of
the Securities Act and the Exchange Act.
SECTION 5.08 Trust Fund. As of the date hereof and at the Closing Date,
CCAC has and will have no less than $20,527,500 invested in Government
Securities in a trust account with JPMorgan Chase NY Bank, administered by
Continental Stock Transfer & Trust Company, less such amounts, if any, as CCAC
is required to pay to stockholders who elect to have their shares redeemed in
accordance with the provisions of CCAC's Certificate of Incorporation.
31
SECTION 5.09 No Undisclosed Liabilities. CCAC does not have any
liabilities, debts or cash contingencies, pledges in any form, obligations,
undertakings or arrangements, whether known or unknown, absolute, accrued,
contingent or otherwise, except (a) as and to the extent reflected or reserved
against on CCAC's Balance Sheet; and (b) those incurred since September 30, 2004
in the ordinary course of business and consistent with prior practice.
SECTION 5.10 Absence of Certain Changes. Except as set forth on Schedule
5.10 or as contemplated by this Agreement and those incurred in ordinary
business consistent with past practice, CCAC has not, since September 30, 2004:
(a) issued, delivered or agreed to issue or deliver any stock, bonds or
other corporate securities (whether authorized and unissued or held in the
treasury), or granted or agreed to grant any options (including employee stock
options), warrants or other rights for the issue thereof;
(b) been removed from trading on the OTC-BB because of a breach or
violation of any applicable laws, or received notice by any security supervisory
agencies warning or punishing CCAC due to a violation of exchange market rules
or receive notice of termination or suspension in trading on the OTC-BB, except
for suspensions for trading in normal situations;
(c) borrowed or agreed to borrow any funds exceeding $200,000, except
current bank borrowings not in excess of the amount thereof shown on the Balance
Sheet;
(d) incurred any obligation or liability, absolute, accrued, contingent or
otherwise, whether due or to become due exceeding $200,000, except current
liabilities for trade obligations incurred in the ordinary course of business
and consistent with prior practice;
(e) discharged or satisfied any encumbrance exceeding $200,000 other than
those then required to be discharged or satisfied, or paid any obligation or
liability other than current liabilities shown on the Balance Sheet and
liabilities incurred since September 30, 2004 in the ordinary course of business
and consistent with prior practice;
(f) sold, transferred, leased to others or otherwise disposed of any
assets exceeding $100,000, except for inventories sold in the ordinary course of
business and assets no longer used or useful in the conduct of its business, or
canceled or compromised any debt or claim, or waived or released any right of
substantial value;
32
(g) received any notice of termination of any Contract, Lease or other
agreement, or suffered any damage, destruction or loss exceeding $100,000
(whether or not covered by insurance) which, in any case or in the aggregate,
has had, or might reasonably be expected to have, an CCAC Material Adverse
Effect;
(h) had any material change in its relations with its employees or agents,
clients or insurance carriers which has had or might reasonably be expected to
have an CCAC Material Adverse Effect;
(i) suffered any other serious material adverse effect in its assets,
liabilities, financial condition, results of operations or business; or
(j) entered into any agreement or made any commitment to take any of the
types of action described in any of the foregoing clauses (other than clauses
(f), (g) or (i)).
SECTION 5.11 Compliance with Law. The business of CCAC has been conducted,
and is now being conducted, in compliance in all material respects with all
applicable Laws. CCAC and its officers, directors and employees (i) are not, and
during the periods of CCAC's existence were not, in violation of, or not in
compliance with, in any material respect all such applicable Laws with respect
to the conduct of the businesses of CCAC; and (ii) have not received any notice
from any Governmental Authority, and to the best of the knowledge of CCAC none
is threatened, alleging that CCAC has violated, or not complied with, any of the
above.
SECTION 5.12 Litigation. There are no actions, suits, arbitrations or
other proceedings pending or, to the best of the knowledge of CCAC, threatened
against CCAC at law or in equity before any Governmental Authority. Neither CCAC
nor any of their property is subject to any order, judgment, injunction or
decree that would have a material adverse effect on the business or financial
condition of CCAC.
SECTION 5.13 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transaction contemplated by this Agreement based upon arrangements made by or on
behalf of CCAC.
33
SECTION 5.14 Survival of Representations and Warranties. The
representations and warranties of CCAC set forth in this Agreement shall survive
the Closing for a period of four years, except that the representations in
Section 5.02 shall survive without limitation as to time.
SECTION 5.15 Records. The books of account, minute books, stock
certificate books and stock transfer ledgers of CCAC are complete and correct in
all material respects, and there have been no material transactions involving
CCAC which are required to be set forth therein and which have not been so set
forth.
SECTION 5.16 Disclosure. No representation or warranty by CCAC contained
in this Agreement and no information contained in any Schedule or other
instrument furnished or to be furnished to Origin Stockholders or any Origin
Subsidiaries pursuant to this Agreement or in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained therein not misleading.
ARTICLE VI
COVENANTS OF ORIGIN, THE ORIGIN SUBSIDIARIES
AND THE ORIGIN STOCKHOLDERS
---------------------------
SECTION 6.01 Conduct of the Business. Origin, each Origin Subsidiary and
each Origin Stockholder covenants and agrees that, from the date hereof through
the Closing Date, except as otherwise set forth in this Agreement or with the
prior written consent of CCAC, they shall, and shall use their best efforts to
cause Origin each Origin Subsidiary to:
(a) conduct the Business only in the ordinary course and in a manner
consistent with the current practice of the Business, except as required to
reorganize for the purpose of satisfying Section 6.14 hereof, to preserve
substantially intact the business organization of each Origin Subsidiary, to
keep available the services of the current employees of each Origin Subsidiary,
to preserve the current relationships of each Origin Subsidiary with customers
and other persons with which each Origin Subsidiary has significant business
relations and to comply with all Laws;
(b) except as required to reorganize for the purpose of satisfying Section
6.14 hereof, not pledge, sell, transfer, dispose or otherwise encumber or grant
any rights or interests to others of any kind with respect to all or any part of
the Origin Stock or Origin Subsidiary Stock, or enter into any discussions or
negotiations with any other party to do so;
34
(c) except as required to reorganize for the purpose of satisfying Section
6.14 hereof, not pledge, sell, lease, transfer, dispose of or otherwise encumber
any property or assets of any Origin Subsidiary, other than consistent with past
practices and in the ordinary course of business of each Origin Subsidiary or
enter into any discussions or negotiations with any other party to do so;
(d) except as required to reorganize for the purpose of satisfying Section
6.14 hereof, not issue any shares of capital stock of Origin or any Origin
Subsidiary or any other class of securities, whether debt (other than debt
incurred in the ordinary course of business and consistent with past practice)
or equity, of Origin or any Origin Subsidiary or any options therefor or any
securities convertible into or exchangeable for capital stock of Origin or any
Origin Subsidiary or enter into any agreements in respect of the ownership or
control of such capital stock;
(e) not declare any dividend or make any distribution in cash, securities
or otherwise on the outstanding shares of capital stock of Origin or any Origin
Subsidiary or directly or indirectly redeem, purchase or in any other manner
whatsoever advance, transfer (other than in payment for goods received or
services rendered in the ordinary course of business), or distribute to any of
their affiliates or otherwise withdraw cash or cash equivalents in any manner
inconsistent with established cash management practices, except to pay existing
indebtedness of any Origin Subsidiary;
(f) not make, agree to make or announce any general wage or salary
increase or enter into any employment contract or, unless provided for on or
before the date of this Agreement, increase the compensation payable or to
become payable to any officer or employee of any Origin Subsidiary or adopt or
increase the benefits of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement, except for those increases, consistent with past
practices, normally occurring as the result of regularly scheduled salary
reviews and increases, and except for increases directly or indirectly required
as a result of changes in applicable law or regulations;
35
(g) not to amend the Memorandum and Articles of Association (or other
organizational documents) of Origin or any Origin Subsidiary;
(h) except as required to reorganize for the purpose of satisfying Section
6.14, not to merge or consolidate with, or acquire all or substantially all the
assets of, or otherwise acquire any business operations of, any Person;
(i) not to make any payments outside the ordinary course of business; and
(j) not make any capital expenditures, except in accordance with prudent
business and operational practices consistent with prior practice.
SECTION 6.02 Access to Information.
(a) Between the date of this Agreement and the Closing Date, Origin, each
Origin Subsidiary and each Origin Stockholder will (i) permit CCAC and its
Representatives reasonable access to all of the books, records, reports and
other related materials, offices and other facilities and properties of Origin,
each Origin Subsidiary and the Business; (ii) permit CCAC and its
Representatives to make such inspections thereof as CCAC may reasonably request;
and (iii) furnish CCAC and its Representatives with such financial and operating
data (including without limitation the work papers of Origin's Accountants) and
other information with respect to Origin and each Origin Subsidiary and the
Business as CCAC may from time to time reasonably request.
(b) Between the date of this Agreement and the Closing Date, CCAC shall be
permitted to meet with and interview all employees of each Origin Subsidiary.
SECTION 6.03 Insurance. Through the Closing Date, Origin and each Origin
Stockholder shall cause Origin and each Origin Subsidiary to maintain insurance
policies providing insurance coverage for the Business and the assets of Origin
and each Origin Subsidiary of the kinds, in the amounts and against the risks as
are commercially reasonable for the businesses and risks covered.
SECTION 6.04 Protection of Confidential Information; Non-Competition.
--------------------------------------------------------
(a) Confidential Information. Each Origin Stockholder acknowledges that:
36
(i) As a result of their stock ownership of and employment by the
Origin Subsidiaries, they have obtained secret and confidential
information concerning the Business including, without limitation,
financial information, trade secrets and "know-how," customers, and
certain methodologies ("Confidential Information").
(ii) The Origin Subsidiaries will suffer substantial damage which
will be difficult to compute if they should divulge Confidential
Information or enter a business competitive with that of the Origin
Subsidiaries.
(iii) The provisions of this Section are reasonable and necessary
for the protection of the Business.
(b) Maintain Confidentiality. Each Origin Stockholder agrees to not at any
time after the date hereof divulge to any person or entity any Confidential
Information obtained or learned as a result of stock ownership of Origin or any
Origin Subsidiary and employment by Origin or any Origin Subsidiary except (i)
with the express written consent of CCAC on or before the Closing Date and of
Chardan Sub's Board of Directors thereafter; (ii) to the extent that any such
information is in the public domain other than as a result of a breach of any
obligations hereunder; or (iii) where required to be disclosed by court order,
subpoena or other government process. If any Origin Stockholder shall be
required to make disclosure pursuant to the provisions of clause (iii) of the
preceding sentence, it will promptly, but in no event more than 72 hours after
learning of such subpoena, court order, or other government process, notify, by
personal delivery or by electronic means, confirmed by mail, Origin or the
relevant Origin Subsidiary and, at Origin or the relevant Origin Subsidiary's
expense, shall: (i) take all reasonably necessary steps required by Origin or
the relevant Origin Subsidiary to defend against the enforcement of such
subpoena, court order or other government process, and (ii) permit Origin or the
relevant Origin Subsidiary to intervene and participate with counsel of its
choice in any proceeding relating to the enforcement thereof.
(c) Records. At the Closing, each Origin Stockholder will promptly deliver
to Origin and each Origin Subsidiary all original memoranda, notes, records,
reports, manuals, formula and other documents relating to the Business and all
property associated therewith, which they then possess or have under their
control; provided, however, that they shall be entitled to retain copies of such
documents reasonably necessary to document their financial relationship with
Origin and Origin Subsidiary.
37
(d) Non-Compete. During the Non-Competition Period, no Origin Stockholder,
without the prior written permission of Origin, shall, anywhere in the PRC, Hong
Kong and Taiwan, directly or indirectly, (i) enter into the employ of or render
any services to any person, firm or corporation engaged in any business which is
a "Competitive Business" (as defined below); (ii) engage in any Competitive
Business for his own account; (iii) become associated with or interested in any
Competitive Business as an individual, partner, shareholder, creditor, director,
officer, principal, agent, employee, trustee, consultant, advisor or in any
other relationship or capacity; (iv) employ or retain, or have or cause any
other person or entity to employ or retain, any person who was employed or
retained by Origin, any Origin Subsidiary or any other Origin Stockholder in the
six-month period prior to the date that all relationships of such person
terminates with Origin, any Origin Subsidiary or other Origin Stockholder; or
(v) solicit, interfere with, or endeavor to entice away from Origin, any Origin
Subsidiary or any Origin Stockholder, for the benefit of a Competitive Business,
any of its customers or other persons with whom Origin, any Origin Subsidiary or
any Origin Stockholder has a business relationship. However, nothing in this
Agreement shall preclude them from investing their personal assets in the
securities of any corporation or other business entity which is engaged in a
Competitive Business if such securities are traded on a national stock exchange
or in the over-the-counter market and if such investment does not result in
their beneficially owning, at any time, more than 1% of the publicly-traded
equity securities of such Competitive Business.
(e) Injunctive Relief. If any Origin Stockholder breaches, or threatens to
breach, any of the provisions of Sections 6.04 (b), (c) or (d), Origin and each
Origin Subsidiary shall have the right and remedy to have the provisions of this
Section 6.04 specifically enforced by any Governmental Authority, it being
acknowledged and agreed by each Origin Stockholder that any such breach or
threatened breach will cause irreparable injury to Origin and the Origin
Subsidiaries and that money damages will not provide an adequate remedy.
(f) Modification of Scope. If any provision of Sections 6.04 (b), (c) or
(d) is held to be unenforceable because of the scope, duration or area of its
applicability, the Governmental Authority making such determination shall have
the power to modify such scope, duration, or area, or all of them, and such
provision or provisions shall then be applicable in such modified form.
38
(g) Competitive Business. As used in this Agreement,
(i) "Competitive Business" means any business which operates in any
aspect of the Business; and
(ii) "Non-Competition Period" means the period beginning on the
Closing Date and ending on the later of five years from the Closing Date
or two years after the date all relationships between an Origin
Stockholder and Origin or an Origin Subsidiary have been terminated,
including relationships as a consultant or employee.
SECTION 6.05 Post-Closing Assurances. Origin and each Origin Subsidiary
from time to time after the Closing, at CCAC's request, will take such other
actions and execute and deliver such other documents, certifications and further
assurances as CCAC may reasonably require in order to manage and operate Origin
and the Origin Subsidiaries and the Business, including but not limited to
executing such certificates as may be reasonably requested by CCAC's Accountants
in connection with any audit of the financial statements of Origin and any
Origin Subsidiary for any period through the Closing Date.
SECTION 6.06 No Other Negotiations. Until the earlier of the Closing or
the termination of this Agreement, neither any Origin Stockholder nor Origin nor
any Origin Subsidiary shall (a) solicit, encourage, directly or indirectly, any
inquiries, discussions or proposals for, (b) continue, propose or enter into any
negotiations or discussions looking toward, or (c) enter into any agreement or
understanding providing for any acquisition of any capital stock of Origin, any
Origin Subsidiary or of any part of their respective assets or the Business (in
whole or in part), nor shall any Origin Stockholder or Origin Subsidiary provide
any information to any Person for the purpose of evaluating or determining
whether to make or pursue any such inquiries or proposals with respect to any
such acquisition. Origin, each Origin Stockholder and each Origin Subsidiary
shall immediately notify CCAC of any such inquiries or proposals or requests for
information for such purpose.
SECTION 6.07 No Securities Transactions. No Origin Stockholder nor any of
their affiliates, directly or indirectly, shall engage in any transactions
involving the securities of CCAC prior to the time of the making of a public
announcement of the transactions contemplated by this Agreement. Each Origin
Subsidiary shall use its best efforts to require each of its officers,
directors, employees, agents and Representatives to comply with the foregoing
requirement.
39
SECTION 6.08 Fulfillment of Conditions. Each Origin Stockholder and each
Origin Subsidiary shall use their best efforts to fulfill the conditions
specified in Article IX to the extent that the fulfillment of such conditions is
within their control. The foregoing obligation includes (a) the execution and
delivery of documents necessary or desirable to consummate the transactions
contemplated hereby and (b) taking or refraining from such actions as may be
necessary to fulfill such conditions (including using their best efforts to
conduct the Business in such manner that on the Closing Date the representations
and warranties of Origin, each Origin Subsidiary and each Origin Stockholder
contained herein shall be accurate as though then made, except as contemplated
by the terms hereof).
SECTION 6.09 Disclosure of Certain Matters. From the date hereof through
the Closing Date, Origin, each Origin Subsidiary and each Origin Stockholder
shall give CCAC prompt written notice of any event or development that occurs
that (a) had it existed or been known on the date hereof would have been
required to be disclosed under this Agreement, (b) would cause any of the
representations and warranties of Origin, each Origin Subsidiary and each Origin
Stockholder contained herein to be inaccurate or otherwise misleading, (c) gives
Origin, each Origin Subsidiary and each Origin Stockholder any reason to believe
that any of the conditions set forth in Article IX will not be satisfied, (d) is
of a nature that is or may be materially adverse to the operations, prospects or
condition (financial or otherwise) of any Origin Subsidiary or (e) would require
any amendment or supplement to the Proxy Statement.
SECTION 6.10 Regulatory and Other Authorizations; Notices and Consents.
----------------------------------------------------------
(a) Origin, each Origin Subsidiary and each Origin Stockholder shall use
their commercially reasonable efforts to obtain all authorizations, consents,
orders and approvals of all Governmental Authorities and officials that may be
or become necessary for their execution and delivery of, and the performance of
their obligations pursuant to, this Agreement and the Transaction Documents and
will cooperate fully with CCAC in promptly seeking to obtain all such
authorizations, consents, orders and approvals.
40
(b) Origin, each Origin Subsidiary and each Origin Stockholder shall give
promptly such notices to third parties and use its or their best efforts to
obtain such third party consents and estoppel certificates as CCAC may in its
reasonable discretion deem necessary or desirable in connection with the
transactions contemplated by this Agreement.
(c) CCAC shall cooperate and use all reasonable efforts to assist Origin,
each Origin Subsidiary and each Origin Stockholder in giving such notices and
obtaining such consents and estoppel certificates; provided, however, that CCAC
shall have no obligation to give any guarantee or other consideration of any
nature in connection with any such notice, consent or estoppel certificate or to
consent to any change in the terms of any agreement or arrangement which CCAC in
its sole discretion may deem adverse to the interests of CCAC, the Origin
Subsidiaries or the Business.
SECTION 6.11 Use of Intellectual Property. Each Origin Stockholder
acknowledges that from and after the Closing, all the Intellectual Property of
any kind related to or used in connection with the Business shall be owned by
Origin or an Origin Subsidiary, that no Origin Stockholder nor any of their
affiliates shall have any rights in the Intellectual Property and that no Origin
Stockholder nor any of their affiliates will contest the ownership or validity
of any rights of Chardan Sub, Origin or any Origin Subsidiary in or to the
Intellectual Property.
SECTION 6.12 Related Tax. Each Origin Stockholder covenants and agrees to
pay any tax and duties assessed on the part of such Origin Stockholder in
connection with, or as a result of the issuance of the Chardan Sub Stock and
other consideration received pursuant to this Agreement required by any
Governmental Authority.
SECTION 6.13 Origin Acquisition. Origin, each Origin Subsidiary and each
Origin Stockholder shall do all things necessary in order to effectuate and
consummate the Origin Acquisition.
SECTION 6.14 Origin Merger Reorganization. Prior to the Closing, Origin
and the Origin Subsidiaries will be prepared to be reorganized such that at the
Closing there will be a parent holding corporation formed under British Virgin
Islands law with the wholly and beneficially owned or controlled companies as
set forth on Schedule A.
41
SECTION 6.15 Origin Proxy Information. As a condition to CCAC calling and
holding the Stockholder Meeting (as hereinafter defined), Origin, the Origin
Subsidiaries and the Origin Stockholders will furnish to CCAC such information
as is reasonably required by CCAC for the preparation of the Proxy Statement (as
hereinafter defined) in accordance with the requirements of the Commission (as
hereinafter defined), including full and accurate descriptions of the Business,
material agreements affecting the Business, Origin and the Origin Subsidiaries
and the reorganization of Origin and the Origin Subsidiaries, the Origin
Stockholders and the audited consolidated financial statements of Origin and the
Origin Subsidiaries for each of the three years ended December 31, 2003, which
financial statements will include a balance sheet, statement of operations and
statement of cash flows, prepared in accordance with either PRC GAAP reconciled
to US GAAP or entirely in US GAAP, together with footnotes and interim
consolidated quarterly financial statements for the quarter ended September 30,
2004, as required by the rules and regulations of the Commission for combination
proxy statement disclosure (collectively, "Origin Proxy Information"). The
Origin Proxy Information will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
in the Origin Proxy Information not misleading.
SECTION 6.16 Interim Financial Information. From the date of this
Agreement until the Closing, Origin and the Origin Subsidiaries shall provide to
CCAC a copy of (i) the monthly internal management report of financial
information concerning Origin and the Origin Subsidiaries on an individual and
consolidated basis, and (ii) a monthly pro forma balance sheet and income
statement on an individual and consolidated basis for Origin and the Origin
Subsidiaries. The above interim financial information shall be delivered to CCAC
within twenty-five (25) days after each monthly anniversary of the date of this
Agreement. Origin and the Origin Subsidiaries will prepare the above financial
information in good faith in accordance with PRC GAAP.
ARTICLE VII
COVENANTS OF CCAC
-----------------
SECTION 7.01 Conduct of the Business. CCAC covenants and agrees that, from
the date hereof through the Closing Date, except (i) in the context of an
unsolicited, bona fide written proposal for a superior transaction or
consummation of a superior transaction, (ii) as otherwise set forth in this
Agreement or (iii) with the prior written consent of Origin, it shall:
42
(a) conduct its business only in the ordinary course and in a manner
consistent with the current practice of their business, except as required to
reorganize for the purpose of redomestication, to preserve substantially intact
the business organization of each CCAC and Chardan Sub (when established), to
preserve the current relationships of CCAC and Chardan Sub with customers and
other persons with which they have has significant business relations and to
comply with all Laws;
(b) except as required to reorganize for the purpose of redomestication,
not pledge, sell, transfer, dispose or otherwise encumber or grant any rights or
interests to others of any kind with respect to all or any part of the capital
securities of CCAC or Chardan Sub (when established);
(c) except as required to reorganize for the purpose of redomestication,
not pledge, sell, lease, transfer, dispose of or otherwise encumber any property
or assets of CCAC and Chardan Sub (when established), other than consistent with
past practices and in the ordinary course of business of CCAC and Chardan Sub
(when established);
(d) except as required to reorganize for the purpose of redomestication,
not issue any shares of capital stock of CCAC and Chardan Sub (when established)
or any other class of securities, whether debt (other than debt incurred in the
ordinary course of business and consistent with past practice) or equity, of
CCAC and Chardan Sub (when established) or any options therefor or any
securities convertible into or exchangeable for capital stock of CCAC and
Chardan Sub (when established) or enter into any agreements in respect of the
ownership or control of such capital stock;
(e) not declare any dividend or make any distribution in cash, securities
or otherwise on the outstanding shares of capital stock of CCAC and Chardan Sub
(when established) or directly or indirectly redeem, purchase or in any other
manner whatsoever advance, transfer (other than in payment for goods received or
services rendered in the ordinary course of business), or distribute to any of
their affiliates or otherwise withdraw cash or cash equivalents in any manner
inconsistent with established cash management practices, except to pay existing
indebtedness of CCAC and Chardan Sub (when established);
43
(f) not make, agree to make or announce any general wage or salary
increase or enter into any employment contract or, unless provided for on or
before the date of this Agreement, increase the compensation payable or to
become payable to any officer or employee of CCAC and Chardan Sub (when
established) or adopt or increase the benefits of any bonus, insurance, pension
or other employee benefit plan, payment or arrangement, except for those
increases, consistent with past practices, normally occurring as the result of
regularly scheduled salary reviews and increases, and except for increases
directly or indirectly required as a result of changes in applicable law or
regulations;
(g) except as required to reorganize for the purpose of redomestication,
not to amend the Certificate of Incorporation or By-laws or Memorandum and
Articles of Association (or other organizational documents) of CCAC and Chardan
Sub (when established);
(h) except as required to reorganize for the purpose of redomestication,
not to merge or consolidate with, or acquire all or substantially all the assets
of, or otherwise acquire any business operations of, any Person;
(i) not to make any payments outside the ordinary course of business; and
(j) not make any capital expenditures, except in accordance with prudent
business and operational practices consistent with prior practice.
SECTION 7.02 Stockholder Meeting. CCAC shall cause a meeting of its
stockholders (the "Stockholder Meeting") to be duly called and held as soon as
reasonably practicable for the purpose of voting on the adoption of this
Agreement as required by CCAC's certificate of incorporation. The directors of
CCAC shall recommend to its stockholders that they vote in favor of the adoption
of such matter. In connection with such meeting, CCAC (a) will file with the
Securities and Exchange Commission ("Commission") as promptly as practicable a
proxy statement meeting the requirements of the Exchange Act ("Proxy Statement")
and all other proxy materials for such meeting, (b) upon receipt of approval
from the Commission, will mail to its stockholders the Proxy Statement and other
proxy materials, (c) will use its best efforts to obtain the necessary approvals
by its stockholders of this Agreement and the transactions contemplated hereby,
and (d) will otherwise comply with all legal requirements applicable to such
meeting. As a condition to the filing and distribution to the CCAC stockholders
of the Proxy Statement, CCAC will have received the Origin Proxy Information.
44
SECTION 7.03 Fulfillment of Conditions. From the date hereof to the
Closing Date, CCAC shall use its best efforts to fulfill the conditions
specified in Article IX to the extent that the fulfillment of such conditions is
within its control. The foregoing obligation includes (a) the execution and
delivery of documents necessary or desirable to consummate the transactions
contemplated hereby, and (b) taking or refraining from such actions as may be
necessary to fulfill such conditions (including conducting the business of CCAC
in such manner that on the Closing Date the representations and warranties of
CCAC contained herein shall be accurate as though then made).
SECTION 7.04 Disclosure of Certain Matters. From the date hereof through
the Closing Date, CCAC shall give Origin, the Origin Subsidiaries and the Origin
Stockholders prompt written notice of any event or development that occurs that
(a) had it existed or been known on the date hereof would have been required to
be disclosed under this Agreement, (b) would cause any of the representations
and warranties of CCAC contained herein to be inaccurate or otherwise
misleading, (c) gives CCAC any reason to believe that any of the conditions set
forth in Article IX will not be satisfied, (d) is of a nature that is or may be
materially adverse to the operations, prospects or condition (financial or
otherwise) of CCAC, or (e) would require any amendment or supplement to the
Proxy Statement.
SECTION 7.05 Chardan Sub Incorporation. CCAC will cause Chardan Sub to be
incorporated and duly organized, to adopt the Plan of Merger, to effectuate the
Chardan Merger, to issue the Chardan Sub Stock and to do all other things as are
necessary for it to do as a constituent corporation to the Chardan Merger. The
Board of Directors of Chardan Sub following the Closing shall consist of seven
directors, five of whom shall be appointed by the Origin Stockholders and two of
whom shall be appointed by CCAC.
SECTION 7.06 Post-Closing Assurances. CCAC and Chardan Sub from time to
time after the Closing, at Origin or Origin Stockholders' request, will take
such other actions and execute and deliver such other documents, certifications
and further assurances as Origin or Origin Stockholders may reasonably require
in order to manage and operate CCAC and Chardan Sub and the Business, including
but not limited to executing such certificates as may be reasonably requested by
Origin or Origin Stockholders' Accountants in connection with any audit of the
financial statements of CCAC and Chardan Sub for any period through the Closing
Date.
45
SECTION 7.07 Regulatory and Other Authorizations; Notices and Consents.
----------------------------------------------------------
(a) CCAC and Chardan Sub (when established) shall use their commercially
reasonable efforts to obtain all authorizations, consents, orders and approvals
of all Governmental Authorities and officials that may be or become necessary
for their execution and delivery of, and the performance of their obligations
pursuant to, this Agreement and the Transaction Documents and will cooperate
fully with Origin, Origin Subsidiary or Origin Stockholders in promptly seeking
to obtain all such authorizations, consents, orders and approvals.
(b) CCAC and Chardan Sub (when established) shall give promptly such
notices to third parties and use its or their best efforts to obtain such third
party consents and estoppel certificates as Origin, Origin Subsidiary or Origin
Stockholders may in their reasonable discretion deem necessary or desirable in
connection with the transactions contemplated by this Agreement.
SECTION 7.08 Books and Records.
(a) On and after the Closing Date, CCAC will cause Chardan Sub (when
established) to permit the Origin Stockholders and their Representatives, during
normal business hours, to have access to and to examine and make copies of all
books and records of the Origin Subsidiaries which are delivered to CCAC
pursuant to this Agreement and which relate to the Business or the Origin
Subsidiaries or to events occurring prior to the Closing Date or to transactions
or events occurring subsequent to the Closing Date which arise out of
transactions or events occurring prior to the Closing Date to the extent
reasonably necessary to the Origin Stockholders in connection with preparation
of any Tax returns, Tax audits, government or regulatory investigations,
lawsuits or any other matter in which the Origin Stockholders are a party to the
proceeding or in which they have a reasonable business interest.
(b) CCAC will cause Chardan Sub to preserve and keep all books and records
with respect to the Origin Subsidiaries and the Business for a period of at
least seven years from the Closing Date. After such seven year period, before
Chardan Sub (when established) shall dispose of any such books and records, at
least 90 days' prior written notice to such effect shall be given by Chardan Sub
to the Origin Stockholders and the Origin Stockholders shall be given an
opportunity, at their cost and expense, to remove and retain all or any part of
such books or records as they may select.
46
ARTICLE VIII
ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
SECTION 8.01 Other Information. If in order to properly prepare documents
required to be filed with any Governmental Authority or financial statements of
the Origin Subsidiaries, it is necessary that either Party be furnished with
additional information relating to such Origin Subsidiaries or the Business, and
such information is in the possession of the other Party, such Party agrees to
use its best efforts to furnish such information in a timely manner to such
other Party, at the cost and expense of the Party being furnished such
information.
SECTION 8.02 Mail Received After Closing.
(a) If Chardan Sub or any Origin Subsidiary receives after the Closing any
mail or other communications addressed to any Origin Stockholder, Chardan Sub
may open such mail or other communications and deal with the contents thereof in
its discretion to the extent that such mail or other communications and the
contents thereof relate to the Origin Subsidiaries. Chardan Sub will deliver
promptly or cause to be delivered to the Origin Stockholders all other mail
addressed to them and the contents thereof which does not relate to the Origin
Subsidiaries or the Business.
(b) If any Origin Stockholder receives after the Closing Date mail or
other communications addressed to them which relate to Origin or the Origin
Subsidiaries, they shall promptly deliver or cause to be delivered all such mail
and the contents thereof to Chardan Sub and Origin.
SECTION 8.03 Further Action. Each of the Parties shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Upon the terms and subject to the conditions hereof, each
of the Parties shall use its best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement.
47
SECTION 8.04 Schedules. The Parties shall have the obligation to
supplement or amend the Schedules being delivered concurrently with the
execution of this Agreement and annexed hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. The obligations of the Parties to amend or supplement the Schedules
being delivered herewith shall terminate on the Closing Date. Notwithstanding
any such amendment or supplementation, for purposes of Section 8.02(a), the
representations and warranties of the Parties shall be made with reference to
the Schedules as they exist at the time of execution of this Agreement.
SECTION 8.05 Execution of Agreements. On or before the Closing Date, CCAC,
Origin, each Origin Subsidiary and each Origin Stockholder shall execute and
deliver each Transaction Document which it is a party to.
SECTION 8.06 Confidentiality. Origin, each Origin Subsidiary and each
Origin Stockholder, on the one hand, and CCAC and, on and after the Closing
Date, Chardan Sub, on the other hand, shall hold and shall cause their
respective Representatives to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all documents and information concerning the other Party furnished it by such
other Party or its Representatives in connection with the transactions
contemplated by this Agreement (except to the extent that such information can
be shown to have been (a) previously known by the Party to which it was
furnished, (b) in the public domain through no fault of such Party or (c) later
lawfully acquired from other sources, which source is not the agent of the other
Party, by the Party to which it was furnished), and each Party shall not release
or disclose such information to any other person, except its Representatives in
connection with this Agreement. Each Party shall be deemed to have satisfied its
obligations to hold confidential information concerning or supplied by the other
Party if it exercises the same care as it takes to preserve confidentiality for
its own similar information.
48
SECTION 8.07 Public Announcements. From the date of this Agreement until
Closing or termination, CCAC, Origin, each Origin Subsidiary and each Origin
Stockholder shall cooperate in good faith to jointly prepare all press releases
and public announcements pertaining to this Agreement and the transactions
governed by it, and none of the foregoing shall issue or otherwise make any
public announcement or communication pertaining to this Agreement or the
transaction without the prior consent of CCAC (in the case of Origin, each
Origin Subsidiary and each Origin Stockholder) or Origin (in the case of CCAC),
except as required by any legal requirement or by the rules and regulations of,
or pursuant to any agreement of a stock exchange or trading system. Each party
will not unreasonably withhold approval from the others with respect to any
press release or public announcement. If any party determines with the advice of
counsel that it is required to make this Agreement and the terms of the
transaction public or otherwise issue a press release or make public disclosure
with respect thereto, it shall at a reasonable time before making any public
disclosure, consult with the other party regarding such disclosure, seek such
confidential treatment for such terms or portions of this Agreement or the
transaction as may be reasonably requested by the other party and disclose only
such information as is legally compelled to be disclosed. This provision will
not apply to communications by any party to its counsel, accountants and other
professional advisors.
SECTION 8.08 Board of CCAC - Chardan Sub.
(a) The board of directors of CCAC or Chardan Sub after the Closing
(whichever is the public company) will consist of 9 persons. The Proxy Statement
will present the following persons as nominees for election as directors for a
period of one year after the Closing, or until their successor is elected and
take office: Kerry Propper, one additional member of the CCAC team, and 5
members from Origin. In addition, the membership of the board of directors will
comply with the requirements in Article X hereof for the existence of the
Independent Committee.
(b) For a period of three years after the Closing, each non-employee
director of CCAC or Chardan Sub after the Closing will receive options to
purchase shares of common stock issued on his election, exercisable at the
market price of the common stock on the date of issuance, vesting immediately
and exercisable for five years in such number as to be determined in good faith
negotiations between CCAC and Origin prior to the Closing. The options will be
issued under a stock option plan approved by the board of directors and
stockholder and the underlying common stock will be registered for issuance upon
exercise. The non-employee directors will be reimbursed their expenses and paid
such amount as to be determined in good faith negotiations between CCAC and
Origin prior to the Closing for attendance at each meeting of the board and
committee on which they serve.
49
SECTION 8.09 Nominations of Directors. Origin, the Origin Stockholders,
CCAC and Chardan Sub (after the Closing) agree that for a period of three years
after the Closing, they and any persons over which they have influence, shall
use their best efforts to nominate Kerry Propper and one additional person for
election as directors of CCAC and Chardan Sub after the Closing, subject to any
obligations imposed by law, rule or regulation on any nominating committee.
SECTION 8.10 CCAC or Chardan Sub. After the Closing, CCAC or Chardan Sub
shall be responsible for payment of the $1,000,000 capital contribution for
Beijing Origin State Harvest Biotechnology Limited, and to the extent such
capital is paid by Dr. Han to take such action as to fully reimburse him for any
advances of the capital contribution.
ARTICLE IX
CONDITIONS TO CLOSING
---------------------
SECTION 9.01 Conditions to Each Party's Obligations. The respective
obligations of each Party to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions.
(a) Approval by CCAC's Stockholders. This Agreement and the transactions
contemplated hereby shall have been approved by a majority-in-interest of the
common stockholders of CCAC in accordance with CCAC's certificate of
incorporation and the aggregate number of shares of CCAC's Common Stock held by
stockholders of CCAC (other than the Initial Stockholders) who exercise their
right to convert the shares of common stock of CCAC owned by them into cash in
accordance with CCAC's certificate of incorporation shall not constitute 20% or
more of the number of shares of CCAC's Common Stock outstanding as of the date
of this Agreement and owned by Persons other than the Initial Stockholders.
(b) Litigation. No order, stay, judgment or decree shall have been issued
by any Governmental Authority preventing, restraining or prohibiting in whole or
50
in part, the consummation of the transactions contemplated hereby or
instrumental to the consummation of the transactions contemplated hereby, and no
action or proceeding by any governmental authority shall be pending or
threatened (including by suggestion through investigation) by any person, firm,
corporation, entity or Governmental Authority, which questions, or seeks to
enjoin, modify, amend or prohibit (a) the reorganization of Origin and Origin
Subsidiaries, (b) the ownership of Origin and the Origin Subsidiaries, (c) the
purchase and sale and issuance of the Chardan Sub Stock, (d) the Plan of Merger,
(e) the Chardan Merger, (f) the Stockholders Meeting and use of the Proxy
Statement by CCAC, or (g) the conduct or ownership (direct or indirect or
beneficial) in any material respect the Business as a whole or any material
portion of the Business conducted or to be conducted by an Origin Subsidiary or
Origin Stockholder.
(c) Transaction Documents. Each of the Transaction Documents shall have
been executed and delivered to each Party.
SECTION 9.02 Conditions to Obligations of Origin, the Origin Subsidiaries
and the Origin Stockholders. The obligations of Origin, each Origin Subsidiary
and each Origin Stockholder to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Deliveries. Chardan Sub shall have delivered the Chardan Sub Stock and
made the payments specified in Section 2.02 and the Origin Stockholders shall
have received confirmations of the payment of the cash portion thereof and such
other documents, certificates and instruments as may be reasonably requested by
Origin, the Origin Subsidiaries and Origin Stockholders.
(b) Representations and Warranties; Covenants. Without supplementation
after the date of this Agreement, the representations and warranties of CCAC
contained in this Agreement shall be with respect to those representations and
warranties qualified by any materiality standard, true and correct as of the
Closing, and with respect to all the other representations and warranties, true
and correct in all material respects as of the Closing, with the same force and
effect as if made as of the Closing, and all the covenants contained in this
Agreement to be materially complied with by CCAC on or before the Closing shall
have been materially complied with, and CCAC shall have delivered a certificate
signed by a duly authorized officer thereof to such effect.
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(c) Legal Opinion. Origin, the Origin Subsidiaries and the Origin
Stockholders shall have received from Graubard Miller, counsel to CCAC, a legal
opinion addressed to Origin, the Origin Subsidiaries and the Origin Stockholders
and dated the Closing Date.
(d) Chardan Sub. The Chardan Sub will be an existing company under the
laws of the British Virgin Islands with the name Origin Agritech Limited.
(e) Consents. CCAC and Chardan Sub shall have obtained and delivered to
Origin, the Origin Subsidiaries and the Origin Stockholders consents of all
third parties, as appropriately required for the consummation of the
transactions contemplated by this Agreement.
(f) Performance of Agreements. All covenants, agreements and obligations
required by the terms of this Agreement to be performed by CCAC at or prior to
the Closing shall have been duly and properly performed or fulfilled in all
material respects.
(g) No Adverse Changes. At the Closing, there shall have been no material
adverse change in the assets, liabilities or financial condition of CCAC and
Chardan Sub from that shown in the CCAC Balance Sheet and related statements of
income. Between the date of this Agreement and the Closing Date, there shall not
have occurred an event which, in the reasonable opinion of Origin, would have
had a material adverse effect on the operations, financial condition or
prospects of CCAC and Chardan Sub.
(h) Supplemental Disclosure. If CCAC or Chardan Sub shall have
supplemented or amended any schedule pursuant to their obligations set forth in
Section 8.04 in any material respect, Origin, the Origin Subsidiaries and the
Origin Stockholders shall give notice to CCAC that as a result of information
provided to Origin, the Origin Subsidiaries and the Origin Stockholders in
connection with any or all of such amendments or supplements, Origin, the Origin
Subsidiaries and the Origin Stockholders have determined not to proceed with the
consummation of the transactions contemplated hereby.
(i) Necessary Proceedings. All proceedings, corporate or otherwise, to be
taken by CCAC and Chardan Sub in connection with the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken, and copies of all documents, resolutions and certificates incident
thereto, duly certified by CCAC and Chardan Sub, as appropriate, as of the
Closing, shall have been delivered to Origin, the Origin Subsidiaries and the
Origin Stockholders.
52
(j) Employment and Option Agreements. Origin will have entered into,
effective as of the Closing, the employment agreements provided for in Section
9.03(k) of this Agreement.
(k) Trustee Notice. CCAC (or Chardan Sub), simultaneously with the
Closing, will deliver to the trustee of the trust account of CCAC (or Chardan
Sub) instructions to disburse the funds therein to Origin or its designees and
to CCAC.
(l) Resignations. Effective as of the Closing, the directors of CCAC who
are not continuing directors and the officers of CCAC (or as the case may be,
Chardan Sub) will have resigned and that they have no claim for employment
compensation in any form from CCAC.
SECTION 9.03 Conditions to Obligations of CCAC. The obligations of CCAC to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Deliveries. The Origin Stockholders shall have delivered the Origin
Stock and the Stock Consignment and Technology Service Agreements listed below
and confirmations of receipt of payments specified in Section 2.02, and Chardan
Sub shall have received the same and such other documents, certificates and
instruments as may be reasonably requested by CCAC and the Chardan Sub;
(i) The table below lists the parties to the stock consignment
agreement and the ratio of the stock consigned under the agreements.
53
Parties to the Agreement Ratio of Stock
----------------------------------------------- Consigned
Under this Agreement
--------------------------------------
Mr. Han Gengchen State Harvest Holding Limited 34.4% of Beijing Origin shares
Mr. Yang Yasheng State Harvest Holding Limited 28.675% of Beijing Origin shares
Mr. Yuan Liang State Harvest Holding Limited 25.8% of Beijing Origin shares Ms.
Zhao Yuping State Harvest Holding Limited 3.995% of Beijing Origin shares Mr.
Zhang Weidong State Harvest Holding Limited 3.13% of Beijing Origin shares Mr.
Chen Weicheng State Harvest Holding Limited 1.96% of Beijing Origin shares
Beijing Origin State Harvest Holding Limited 99% of Beijing Origin shares Mr.
Han Gengchen State Harvest Holding Limited 1% of Beijing Origin shares Beijing
Origin State Harvest Holding Limited 90% of Beijing Origin shares Ms. Zhang
Yingli State Harvest Holding Limited 4.1% of Beijing Origin shares Mr. Yang
Yasheng State Harvest Holding Limited 3.86% of Beijing Origin shares
(ii) The table below lists the parties to the technology service agreement.
Parties to the Agreement
--------------------------------------------------------------------------------
Party A Party B
Beijing Origin Seed Limited Beijing Origin State Harvest
Biotechnology Limited
Henan Origin Cotton Technology Beijing Origin State Harvest
Development Limited Biotechnology Limited
Changchun Origin Seed Technology Beijing Origin State Harvest
Development Limited Biotechnology Limited
(b) Representations and Warranties; Covenants. Without supplementation
after the date of this Agreement, the representations and warranties of Origin,
each Origin Subsidiary and each Origin Stockholder contained in this Agreement
shall be with respect to those representations and warranties qualified by any
materiality standard, true and correct in all respects as of the Closing, and
with respect to all the other representations and warranties, true and correct
in all material respects as of the Closing, with the same force and effect as if
made as of the Closing, and all the covenants contained in this Agreement to be
materially complied with by Origin, each Origin Subsidiary and each Origin
Stockholder on or before the Closing shall have been materially complied with,
and CCAC shall have received a certificate of Origin, each Origin Subsidiary and
each Origin Stockholder to such effect;
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(c) Legal Opinion. CCAC shall have received from Origin's assigned
counsel, the Origin Subsidiaries and the Origin Stockholders, a legal opinion
addressed to CCAC, dated the Closing Date;
(d) Consents. Origin, each Origin Subsidiary and each Origin Stockholder
shall have obtained and delivered to CCAC consents of all third parties required
by the Contracts and Permits set forth in Schedule 9.03(e);
(e) Regulatory Approvals. Any Governmental Authority whose approval or
consent is required each shall have unconditionally approved of the transactions
contemplated by this Agreement and CCAC shall have received written confirmation
thereof;
(f) Performance of Agreements. All covenants, agreements and obligations
required by the terms of this Agreement to be performed by Origin, each Origin
Subsidiary and each Origin Stockholder at or prior to the Closing shall have
been duly and properly performed or fulfilled in all material respects;
(g) No Adverse Change. At the Closing, there shall have been no material
adverse change in the assets, liabilities, financial condition or prospects of
Origin, the Origin Subsidiaries or Business from that shown or reflected in the
September Financial Statements and as described in the Proxy Statement. Between
the date of this Agreement and the Closing Date, there shall not have occurred
an event which, in the reasonable opinion of CCAC, would have an Origin Material
Adverse Effect;
(h) Supplemental Disclosure. If Origin, any Origin Subsidiary or any
Origin Stockholder shall have supplemented or amended any Schedule pursuant to
their obligations set forth in Section 8.04 in any material respect, CCAC shall
notice Origin that, as a result of information provided to CCAC in connection
with any or all of such amendments or supplements, CCAC has determined not to
proceed with the consummation of the transactions contemplated hereby; and
(i) Necessary Proceedings. All proceedings, corporate or otherwise, to be
taken by Origin, each Origin Subsidiary and each Origin Stockholder in
connection with the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken, and copies of all documents,
resolutions and certificates incident thereto, duly certified by Origin, each
Origin Subsidiary and each Origin Stockholder, as appropriate, as of the
Closing, shall have been delivered to CCAC.
55
(j) Origin Proxy Information. The Origin Proxy Information, at the time of
distribution of the Proxy Statement and at Closing, will accurately reflect the
Business, Origin, the Origin Subsidiaries, and the Origin Stockholders, and the
Origin Proxy Information will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
in the Origin Proxy Information not misleading.
(k) Employment Agreements and Option Agreements. Each of Han Gengchen,
Yuan Liang, Yang Yasheng, and any other "key " employees designated by Dr. Han
will enter into employment agreements in form of Schedules I, J and K with
Origin. These agreements generally are to provide employment terms of three
years, at current compensation levels and include Intellectual Property
assignment and non-competition provisions for not less than two years after
termination of employment.
(l) Minimum Assets. At the Closing, Origin and the Origin Subsidiaries
will certify to CCAC that on a consolidated basis, immediately prior to closing,
Origin will have not less than US $10,000,000 in cash assets and will only have
short- and long-term debt arising in the ordinary course. In addition, Origin
will certify that the fair market value of the consolidated Origin entities
represents at least 80% of CCAC's net assets at the date of Closing.
(m) Voting Agreements. Each of Gengchen Han, Yasheng Yang and Leong Yuen,
recipients of Chardan Sub Stock, will have entered into voting agreements with
Chardan Sub, to be delivered at the Closing, that provide that they will vote
all the shares of Chardan Sub Stock over which they have direct or beneficial
ownership and right to vote in favor of Kerry Propper and one other designee as
director of CCAC or Chardan Sub after the Closing, for a period of three years
after the Closing.
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ARTICLE X
INDEMNIFICATION
---------------
SECTION 10.01 Indemnification by Origin Stockholders. Subject to the
limitations set forth in Section 10.04, each of the Origin Stockholders shall
indemnify and hold harmless CCAC (or Chardan Sub after the Closing) from and
against, and shall reimburse CCAC (or Chardan Sub after the Closing) for, any
Damages which may be sustained, suffered or incurred by them, whether as a
result of any Third Party Claim or otherwise, and which arise from or in
connection with or are attributable to the breach of any of the representations
or warranties or covenants of Origin, the Origin Subsidiaries or the Origin
Stockholders contained in this Agreement. Indemnification pursuant to this
Section 10.01 shall be the sole remedy of CCAC (or Chardan Sub after the
Closing) with respect to any breach of the representations and warranties or
covenants of Origin, any Origin Subsidiary or any Origin Stockholder contained
in this Agreement. This indemnity shall survive the Closing for a period of four
years after the Closing Date with respect to Claims arising under the foregoing
clause (i) other than Claims arising as a result of a breach of the
representations and warranties in Sections 3.01, 3.02, 3.03, 4.01, 4.02, 4.03,
4.14 and 4.15, as to which it shall survive without limitation as to time, and
(ii) Claims arising as a result of a breach of the representations and
warranties in Sections 3.06, 4.16, 4.18 and 4.20, as to which it shall survive
for a period of six months after the expiration of the statute of limitations.
Each Origin Stockholder shall give prompt written notice to CCAC (or Chardan Sub
after the Closing) of any Third Party Claims or other facts and circumstances
known to them which may entitle CCAC (or Chardan Sub after the Closing) to
indemnification under this Section 10.01.
SECTION 10.02 Indemnification by CCAC. Subject to the limitations set
forth in Section 10.04, CCAC (and Chardan Sub after the Closing) shall indemnify
and hold harmless each Origin Stockholder from and against, and shall reimburse
each Origin Stockholder for, any Damages which may be sustained, suffered or
incurred by such Origin Stockholder, whether as a result of Third Party Claims
or otherwise, and which arise or result from or in connection with or are
attributable to the breach of any of CCAC's representations or warranties or
covenants contained in this Agreement. The indemnity in the foregoing clause (a)
shall survive the Closing for a period of four years after the Closing Date.
CCAC (or Chardan Sub after the Closing) shall give each Origin Stockholder
prompt written notice of any Third Party Claims or other facts and circumstances
known to it which may entitle them to indemnification under this Section 10.02.
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SECTION 10.03 Notice, Etc. A Party required to make an indemnification
payment pursuant to this Agreement ("Indemnifying Party") shall have no
liability with respect to Third Party Claims or otherwise with respect to any
covenant, representation, warranty, agreement, undertaking or obligation under
this Agreement unless the Party entitled to receive such indemnification payment
("Indemnified Party") gives notice to the Indemnifying Party specifying (i) the
covenant, representation or warranty, agreement, undertaking or obligation
contained herein which it asserts has been breached, (ii) in reasonable detail,
the nature and dollar amount of any Claim the Indemnified Party may have against
the Indemnifying Party by reason thereof under this Agreement, and (iii) whether
or not the Claim is a Third Party Claim. With respect to Third Party Claims, an
Indemnified Party (i) shall give the Indemnifying Party prompt notice of any
Third Party Claim, (ii) prior to taking any action with respect to such Third
Party Claim, shall consult with the Indemnifying Party as to the procedure to be
followed in defending, settling, or compromising the Third Party Claim, (iii)
shall not consent to any settlement or compromise of the Third Party Claim
without the written consent of the Indemnifying Party (which consent shall not
be unreasonably withheld or delayed), and (iv) shall permit the Indemnifying
Party, if it so elects, to assume the exclusive defense of such Third Party
Claim (including, except as provided in the penultimate sentence of this
Section, the compromise or settlement thereof) at its own cost and expense. If
the Indemnifying Party shall elect to assume the exclusive defense of any Third
Party Claim pursuant to this Agreement, it shall notify the Indemnified Party in
writing of such election, and the Indemnifying Party shall not be liable
hereunder for any fees or expenses of the Indemnified Party's counsel relating
to such Third Party Claim after the date of delivery to the Indemnified Party of
such notice of election. The Indemnifying Party will not compromise or settle
any such Third Party Claim without the written consent of the Indemnified Party
(which consent shall not be unreasonably withheld or delayed) if the relief
provided is other than monetary damages or such relief would have a material
adverse effect on the Indemnified Party. Notwithstanding the foregoing, if the
Indemnifying Party elects to assume the defense with respect to any Third Party
Claim, the Indemnifying Party shall have the right to compromise or settle for
solely monetary damages such Third Party Claim, provided such settlement will
not result in or have a material adverse effect on the Indemnified Party.
Notwithstanding the foregoing, the Party which defends any Third Party Claim
shall, to the extent required by any insurance policies of the Indemnified
Party, share or give control thereof to any insurer with respect to such Claim.
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SECTION 10.04 Limitations.
(a) No Origin Stockholder or Origin Stockholders shall be required to
indemnify CCAC under Section 10.01 unless the aggregate of all amounts for which
indemnity would otherwise be due against them exceeds $50,000, but then the
Origin Stockholders will be liable for the full amount of Damages.
(b) CCAC (or Chardan Sub after Closing) shall not be required to indemnify
any Origin Stockholder under Section 10.02 unless the aggregate of all amounts
for which indemnity would otherwise be due against it exceeds $50,000, but then
CCAC (or Chardan Sub after Closing) will be liable for the full amount of
Damages.
(c) If a Third Party Claim subject to indemnification by any Origin
Stockholder is brought against Origin or any Origin Subsidiary and Origin and/or
the Origin Subsidiary prevails in the defense thereof, such Origin Stockholder
shall not be required to indemnify such Origin Subsidiary or CCAC (or Chardan
Sub after Closing) with respect to the costs of such defense, including
attorneys' fees.
SECTION 10.05 Adjustment to Purchase Price; Setoff.
(a) Purchase Price. Any indemnification payments made pursuant to Sections
10.01 and 10.02 shall be deemed to be an adjustment to the Purchase Price. To
the extent that any Origin Stockholder is obligated to indemnify CCAC or the
Chardan Sub after Closing under the provisions of the Article X for Damages
reduced to a monetary amount, CCAC or Chardan Sub after Closing shall have the
right to adjust any amount due and owing or to be due and owing under any
agreement with the Origin Stockholder, whether under this Agreement or any other
agreement between the Origin Stockholder and any of CCAC's or Chardan Sub's
affiliates, subsidiaries or controlled persons or entities. To the extent that
CCAC or Chardan Sub is obligated to indemnify Origin or any Origin Stockholders
after Closing under the provisions of this Article X for Damages reduced to a
monetary amount, Origin or any Origin Stockholders after Closing shall have the
right to decrease any amount due and owing or to be due and owing under any
agreement with CCAC or Chardan Sub, whether under this Agreement or any other
agreement between the Origin or Origin Stockholder and any of CCAC's or Chardan
Sub's affiliates, subsidiaries or controlled persons or entities.
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(b) Holdback Amount. Notwithstanding the foregoing, CCAC, and Chardan Sub
after the Closing, may apply all or a portion of the Holdback Amount to satisfy
any Claim for indemnification pursuant to this Article X. CCAC, and Chardan Sub
after the Closing, will hold the Holdback Amount until final resolution of the
Claim or dispute. The Holdback Amount is security for the indemnification
obligations of the Origin Stockholders and is not a limitation on the Damages
recoverable or liquidated damages and such security does not limit any other
right of set off or recovery under this Agreement or at law, whether pursuant to
this Agreement or any other agreement of the Origin Stockholders.
SECTION 10.06 Claims on behalf or in right of CCAC and Chardan Sub.
Pursuant to the provisions of this Article X, if any Claim for indemnification
is to be brought against the Origin Stockholders on behalf of or by right of
CCAC, or Chardan Sub after the Closing, such claims will be determined by the
Independent Committee of the Board of Directors. Any settlement of a Claim for
indemnification brought on behalf of or by right of CCAC, or Chardan Sub after
the Closing, shall be determined and approved by the Independent Committee of
the Board of Directors. The Independent Committee of the Board of Directors of
CCAC, or Chardan Sub after the Closing, will consist of two persons, none of
which are officers or employees of CCAC, or Chardan Sub after the Closing, or
any of their operating subsidiary companies or are direct or beneficial owners
of 5% or more of the voting capital stock of CCAC, or Chardan Sub after the
Closing. For a period of not less than four years after the Closing or until
final resolution of Claims under this Section X brought by or by right of CCAC,
or Chardan Sub after the Closing, the board of directors of CCAC, or Chardan Sub
after the Closing, will maintain a sufficient number of directors such that it
will be able to maintain the Independent Committee.
ARTICLE XI
TERMINATION AND ABANDONMENT
---------------------------
SECTION 11.01 Methods of Termination. The transactions contemplated herein
may be terminated and/or abandoned at any time but not later than the Closing:
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(a) by mutual written consent of CCAC and Origin;
(b) (i) by CCAC if Origin, any Origin Subsidiary or any Origin Stockholder
amends or supplements any Origin, Origin Subsidiary or Origin Stockholder
schedule hereto in accordance with Section 8.04 hereof and such amendment or
supplement reflects a material adverse change in the condition (financial or
other), operations or prospects of Origin or any Origin Subsidiary or the
Business, as a whole or in part, after the date hereof, or (ii) by Origin if
CCAC amends or supplements any CCAC Schedule hereto in accordance with Section
8.04 hereof and such amendment or supplement reflects a material adverse change
in the condition (financial or other) or operations of CCAC.
(c) by either CCAC or Origin, if the Closing has not occurred by May 31,
2005 (or such other date as may be extended from time to time by written
agreement of CCAC and Origin); provided, however, that the right to terminate
this Agreement under this Section 11.01(c) shall not be available to any Party
that is then in breach of any of its covenants, representations or warranties in
this Agreement;
(d) by Origin, (i) if CCAC shall have breached any of its covenants in
Articles VII or VIII hereof in any respect or (ii) if the representations and
warranties of CCAC contained in this Agreement shall not be true and correct in
all material respects, at the time made, or (iii) if such representations and
warranties shall not be true and correct at and as of the Closing Date as though
such representations and warranties were made again at and as of the Closing
Date, except to the extent that such representations are made herein as of a
specific date prior to the Closing Date, and in any such event, if such breach
is subject to cure, CCAC has not cured such breach within 10 Business Days of
Origin's notice of an intent to terminate;
(e) by CCAC, (i) if Origin, any Origin Subsidiary or any Origin
Stockholder shall have breached any of the covenants in Articles VI or VIII
hereof in any respect or (ii) if the representations and warranties of Origin,
any Origin Subsidiary or any Origin Stockholder contained in this Agreement
shall not be true and correct in all material respects, at the time made, or
(iii) if such representations and warranties shall not be true and correct at
and as of the Closing Date as though such representations and warranties were
made again at and as of the Closing Date, except to the extent that such
representations are made herein as of a specific date prior to the Closing Date,
and in any such event, if such breach is subject to cure, Origin, such Origin
Subsidiary or Origin Stockholder have not cured such breach within 10 Business
Days of CCAC's notice of an intent to terminate;
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(f) by Origin, if the Board of Directors of CCAC (or any committee
thereof) at the time of the signing of this Agreement shall have failed to
recommend or withdrawn or modified in a manner adverse to Origin its approval or
recommendation of this Agreement and any of the transactions contemplated
hereby;
(g) by CCAC if the Board of Directors of CCAC shall have determined in
good faith, based upon the advice of outside legal counsel, that failure to
terminate this Agreement is reasonably likely to result in the Board of
Directors breaching its fiduciary duties to stockholders under applicable law by
reason of the pendency of an unsolicited, bona fide written proposal for a
superior transaction;
(h) by either CCAC or Origin, if, at CCAC's Stockholder Meeting (including
any adjournments thereof), this Agreement and the transactions contemplated
thereby shall fail to be approved and adopted by the affirmative vote of the
holders of CCAC's common stock required under its certificate of incorporation,
or 20% or more of the number of shares of CCAC's common stock outstanding as of
the date of the record date of the stockholders meeting held by Persons other
than the Initial Stockholders exercise their rights to convert the shares of
CCAC's common stock held by them into cash in accordance with CCAC's certificate
of incorporation.
SECTION 11.02 Effect of Termination.
(a) In the event of termination and abandonment by CCAC or by Origin, or
both, pursuant to Section 11.01 hereof, written notice thereof shall forthwith
be given to the other Party, and except as set forth in this Section 11.02, all
further obligations of the Parties shall terminate, no Party shall have any
right against the other Party hereto, and each Party shall bear its own costs
and expenses.
(b) Consequence of Termination. If the transactions contemplated by this
Agreement are terminated and/or abandoned as provided herein:
(i) each Party hereto will return all documents, work papers and
other material (and all copies thereof) of the other Party relating to the
transactions contemplated hereby, whether so obtained before or after the
execution hereof, to the Party furnishing the same; and
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(ii) all confidential information received by either Party hereto
with respect to the business of the other Party, or in the case of the
Origin Stockholders, of the Origin Subsidiaries, hereto shall be treated
in accordance with Section 8.06 hereof, which shall survive such
termination or abandonment.
(c) Termination Recovery and Fee. If this Agreement is terminated by CCAC
under Section 11.01(b)(i) or (e), then CCAC will be entitled to $1,000,000 due
and payable immediately upon termination of this Agreement as liquidated damages
and not as a penalty amount, and in lieu of any other right or remedy that CCAC
may have against the other parties to this Agreement for such breach. If this
Agreement is terminated by Origin under Section 11.01(b)(ii), (d) or (f), then
Origin will be entitled to $1,000,000 due and payable from Richard Propper,
Kerry Propper, Jiangnan Huang, Li Zhang, Dan Beharry and Steven Urbach
(collectively, the "CCAC Initial Stockholders"), pro rata among such individuals
in relation to their initial ownership in CCAC, immediately upon termination of
this Agreement as liquidated damages and not as a penalty amount, and in lieu of
any other right or remedy that Origin may have against the other parties to this
Agreement for such breach.
SECTION 11.03 No Claim Against Trust Fund. It is understood by Origin, the
Origin Subsidiaries and the Origin Stockholders that in the event of breach of
this Agreement or any of the Transactional Documents by CCAC and Chardan Sub,
that they have no right to Damages, including the termination fees set forth in
Sectoin11.02(c) from CCAC or Chardan Sub. In addition, Origin, the Origin
Subsidiaries and the Origin Stockholders agree that they have no right to any
amount held in the trust fund referred to in Section 5.07 and they will not make
any claim against CCAC and Chardan Sub that would adversely affect the business,
operations or prospects of CCAC and Chardan Sub or the amount of the funds held
in the trust fund referred to in Section 5.07.
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ARTICLE XII
DEFINITIONS
-----------
SECTION 12.01 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Actions" means any claim, action, suit, litigation, arbitration, inquiry,
proceeding or investigation by or pending before any Governmental Authority.
"Business" means the combined and several operations and proposed combined
and several operations of Origin, the Origin Subsidiaries and their respective
affiliates, contract parties and nominees (or beneficial owners) as a breeder,
developer, producer and marketer of top-quality seeds to customers.
"Business Day" means a day of the year on which banks are not required or
authorized to be closed in the City of New York.
"Claim" means any claim, demand, suit, proceeding or action.
"Company's Accountants" means Deloitte & Touche.
"Contracts" mean any contract, agreement, arrangement, plan, lease,
license or similar instrument.
"Copyrights" shall mean all copyrights, including rights in and to works
of authorship and all other rights corresponding thereto throughout the world,
whether published or unpublished, including rights to prepare, reproduce,
perform, display and distribute copyrighted works and copies, compilations and
derivative works thereof.
"Damages" means the dollar amount of any loss, damage, expense or
liability, including, without limitation, reasonable attorneys' fees and
disbursements incurred by an Indemnified Party in any action or proceeding
between the Indemnified Party and the Indemnifying Party or between the
Indemnified Party and a third party, which is determined (as provided in Article
X) to have been sustained, suffered or incurred by a Party or the Company and to
have arisen from or in connection with an event or state of facts which is
subject to indemnification under this Agreement; the amount of Damages shall be
the amount finally determined by a court of competent jurisdiction or
appropriate governmental administrative agency (after the exhaustion of all
appeals) or the amount agreed to upon settlement in accordance with the terms of
this Agreement, if a Third Party Claim, or by the Parties, if a Direct Claim.
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"Direct Claim" means any claim other than a Third Party Claim.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles, consistently
applied in the United States.
"Government Securities" means any Treasury Bill issued by the United
States having a maturity of one hundred and eighty days or less.
"Governmental Authority" means any PRC or non-PRC national, supranational,
state, provincial, local or similar government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal or
judicial or arbitral body.
"Governmental Order" means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
"Intellectual Property" means any intellectual property rights, including,
without limitations, Patents, Copyrights, service marks, moral rights, Trade
Secrets, Trademarks, designs and Technology, together with (a) all registrations
and applications for registration therefore and (b) all rights to any of the
foregoing (including (i) all rights received under any license or other
arrangement with respect to the foregoing, (ii) all rights or causes of action
for infringement or misappropriation (past, present or future) of any of the
foregoing, (iii) all rights to apply fore or register any of the foregoing),
(iv) domain names and URL's of or relating to the Acquired Assets and variations
of the domain names and URL's, (vi) Contracts which related to any of the
foregoing, including invention assignment, intellectual property assignment,
confidentiality, and non-competition agreements, and (vii) goodwill of any of
the foregoing.
"Initial Stockholders" means all of the shares of common stock of CCAC
issued and outstanding prior to March 16, 2004 held by various Persons.
"Laws" means all statutes, rules, regulations, ordinances, orders, writs,
injunctions, judgments, decrees, awards and restrictions, including, without
limitation, applicable statutes, rules, regulations, orders and restrictions
relating to zoning, land use, safety, health, environment, hazardous substances,
pollution controls, employment and employment practices and access by the
handicapped.
65
"Lien" means any lien, claim, contingent interest, security interest,
charge, restriction or encumbrance.
"Party" means CCAC, on the one hand, and Origin, each Origin Subsidiary
and each Origin Stockholder, on the other hand (collectively, "Parties").
"Patents" means all United States and foreign patents and utility models
and applications therefore and all reissues, divisions, re-examinations,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof, and equivalent or similar rights anywhere in the world in inventions
and discoveries.
"Permits" means all governmental registrations, licenses, permits,
authorizations and approvals.
"Person" means an individual, partnership, corporation, joint venture,
unincorporated organization, cooperative or a governmental entity or agency
thereof.
"PRC GAAP" means PRC Accounting Standards for Business Enterprises in
effect from time to time applied consistently throughout the periods involved.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
"Representatives" of either Party means such Party's employees,
accountants, auditors, actuaries, counsel, financial advisors, bankers,
investment bankers and consultants.
"Securities Act" means the Securities Act of 1933, as amended.
"Software" means all software, in object, human-readable or source code,
whether previously completed or now under development, including programs,
applications, databases, data files, coding and other software, components or
elements thereof, programmer annotations, and all versions, upgrades, updates,
enhancements and error corrections of all of the foregoing.
"Stockholder Meeting" has the meaning specified in Section 7.01.
"Tax" or "Taxes" means all income, gross receipts, sales, stock transfer,
excise, bulk transfer, use, employment, social security, franchise, profits,
property or other taxes, tariffs, imposts, fees, stamp taxes and duties,
assessments, levies or other charges of any kind whatsoever (whether payable
directly or by withholding), together with any interest and any penalties,
additions to tax or additional amounts imposed by any government or taxing
authority with respect thereto.
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"Technology" means any know-how, confidential or proprietary information,
name, data, discovery, formulae, idea, method, process, procedure, other
invention, record of invention, model, research, Software, technique,
technology, test information, market survey, website, or information or material
of a like nature, whether patentable or unpatentable and whether or not reduced
to practice.
"Third Party Claim" means a Claim by a person, firm, corporation or
government entity other than a party hereto or any affiliate of such party.
"Trade Secrets" means all trade secrets under applicable law and other
rights in know-how and confidential or proprietary information, processing,
manufacturing or marketing information, including new developments, inventions,
processes, ideas or other proprietary information that provides advantages over
competitors who do not know or use it and documentation thereof (including
related papers, blueprints, drawings, chemical compositions, formulae, diaries,
notebooks, specifications, designs, methods of manufacture and data processing
software and compilations of information) and all claims and rights related
thereto.
"Trademarks" means any and all United States and foreign trademarks,
service marks, logos, trade names, corporate names, trade dress, Internet domain
names and addresses, and all goodwill associated therewith throughout the world.
ARTICLE XIII
GENERAL PROVISIONS
------------------
SECTION 13.01 Expenses. Except as otherwise provided herein, all costs and
expenses, including, without limitation, fees and disbursements of
Representatives, incurred in connection with the preparation of this Agreement
and the transactions contemplated hereby shall be paid by the Party incurring
such costs and expenses, whether or not the Closing shall have occurred.
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SECTION 13.02 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or by
nationally recognized courier or mailed by registered mail (postage prepaid,
return receipt requested) or by telecopy to the Parties at the following
addresses (or at such other address for a Party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
(a) If to Origin or to Dr. Han Gengchen, Mr. Yang Yasheng, Mr. Yuan Liang,
Ms. Zhao Yuping, Mr. Zhang Weidong or Mr. Chen Weicheng:
State Harvest Holdings Limited
c/o Beijing Origin Seed Technology Inc.
E201 Zhongguanchen Development Building
12 Shangdi Xinxi, Haidan District
Beijing, China 100085
with a copy to:
GuanTao Law Firm
6/F, Tower B, Tong Tai Plaza
No. 33 Finance Street
Xicheng District
Beijing 10032
(b) If to CCAC or the CCAC Initial Stockholders:
Chardan China Acquisition Corp.
625 Broadway
Suite 1111
San Diego, California 92101
Attention: Dr. Richard D. Propper
Telecopier No.: (858) 847-9090
with a copy to:
Graubard Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
Telecopier No.: 212-818-8181
SECTION 13.03 Amendment. This Agreement may not be amended or modified
except by an instrument in writing signed by the Parties.
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SECTION 13.04 Waiver. At any time prior to the Closing, either Party may
(a) extend the time for the performance of any of the obligations or other acts
of the other Party, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the Party to be bound thereby.
SECTION 13.05 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 13.06 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any Party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 13.07 Entire Agreement. This Agreement and the Schedules and
Exhibits hereto constitute the entire agreement and supersede all prior
agreements and undertakings, both written and oral, between Origin, any Origin
Subsidiary, any Origin Stockholder and CCAC with respect to the subject matter
hereof and, except as otherwise expressly provided herein, are not intended to
confer upon any other person any rights or remedies hereunder.
SECTION 13.08 Benefit. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Parties.
SECTION 13.09 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.
69
SECTION 13.10 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original but all of which when
taken together shall constitute one and the same agreement.
70
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the date first written above.
CHARDAN CHINA ACQUISITION CORP.
By: /s/ Richard Propper, MD
---------------------------------------
Name: Richard Propper, MD
Title: Chairman
/s/ Kerry Propper
----------------------------------------------
Kerry Propper
(Solely with respect to Section 11.02(c))
/s/ Dr. Richard Propper
----------------------------------------------
Kerry Propper
(Solely with respect to Section 11.02(c))
/s/ Jiangnan Huang
----------------------------------------------
Jiangnan Huang
(Solely with respect to Section 11.02(c))
/s/ Li Zhang
----------------------------------------------
Li Zhang
(Solely with respect to Section 11.02(c))
/s/ Dan Beharry
----------------------------------------------
Dan Beharry
(Solely with respect to Section 11.02(c))
/s/ Steven Urbach
----------------------------------------------
Steven Urbach
(Solely with respect to Section 11.02(c))
71
STATE HARVEST HOLDINGS LIMITED
By or Designed by:/s/ Han Gengchen
----------------------------
Name: Han Gengchen, PhD
Title: CEO
By or Designed by:/s/ Yang Yasheng
----------------------------
Name: Yang Yasheng
By or Designed by:/s/ Yuan Liang
----------------------------
Name: Yuan Liang
By or Designed by:/s/ Zhao Yuping
----------------------------
Name: Zhao Yuping
By or Designed by:/s/ Zhang Wiedong
----------------------------
Name: Zhang Wiedong
By or Designed by:/s/ Chen Weicheng
----------------------------
Name: Chen Weicheng
By or Designed by:/s/ Bo Luxia
----------------------------
Name: Bo Luxia
By or Designed by:/s/ Huang Xilin
----------------------------
Name: Huang Xilin
By or Designed by:/s/ Huo Qingtao
----------------------------
Name: Huo Qingtao
72
FIRST MODIFICATION TO STOCK PURCHASE
AGREEMENT DATED DECEMBER 20, 2004
First Modification Agreement to that certain Stock Purchase Agreement
dated December 20, 2004 ("Agreement"), by and among Chardan China Acquisition
Corp., Dr. Richard D. Propper, Mr. Kerry Propper, Mr. Jiangnan Huang, Mr. Li
Zhang, Mr. Dan Beharry, Mr. Steven Urbach, State Harvest Holdings Limited, Dr.
Han Gengchen, Mr. Yang Yasheng, Mr. Yuan Liang, Ms. Zhao Yuping, Mr. Zhuang
Weigong, Mr. Chen Weicheng, Ms. Bo Luxia, Mr. Huang Xilin, and Mr. Huo Qingtao
made as of April 18, 2005.
The above parties hereby desire to amend and extend the termination
provision set forth in Section 11.01(c) of the Agreement to change the date in
that section from May 31, 2005 to August 1, 2005.
The Agreement in all other respects is affirmed and shall continue in full
force and effect.
It is agreed by the signatories to this modification agreement that
executed the Agreement as to Section 11.02(c) that they are continuing to be
obligated pursuant to Section 11.02(c) as their obligations may be extended
thereunder in time.
This modification agreement may be executed in counterpart and by
facsimile, all of which counterparts taken together may be considered one
agreement, binding upon all the signatories thereto, whether by facsimile or
original signature.
73
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the date first written above.
CHARDAN CHINA ACQUISITION CORP.
By:/s/ Richard D. Propper
-------------------------------------------
Name: Richard D. Propper, MD
Title: Chairman
/s/ Kerry Propper
----------------------------------------------
Kerry Propper
(Solely with respect to Section 11.02(c))
/s/ Dr. Richard D. Propper
----------------------------------------------
Dr. Richard D.
Propper (Solely
with respect to
Section 11.02(c))
/s/ Jiangnan Huang
----------------------------------------------
Jiangnan Huang
(Solely with respect to Section 11.02(c))
/s/ Li Zhang
----------------------------------------------
Li Zhang
(Solely with respect to Section 11.02(c))
/s/ Dan Beharry
----------------------------------------------
Dan Beharry
(Solely with respect to Section 11.02(c))
/s/ Steven Urbach
----------------------------------------------
Steven Urbach
(Solely with respect to Section 11.02(c))
74
STATE HARVEST HOLDINGS LIMITED
By or Designated by:/s/ Han Gengchen
--------------------------
Name:Han Gengchen, PhD
Title:CEO
By or Designated by:/s/ Yang Yasheng
--------------------------
Name: Yang Yasheng
By or Designated by:/s/ Yuan Liang
--------------------------
Name:Yuan Liang
By or Designated by:/s/ Zhao Yuping
--------------------------
Name: Zhao Yuping
By or Designated by:/s/ Zhang Wiedong
--------------------------
Name: Zhang Weidong
By or Designated by:/s/ Chen Weicheng
--------------------------
Name: Chen Weicheng
By or Designated by:/s/ Bo Luxia
--------------------------
Name: Bo Luxia
By or Designated by:/s/ Huang Xilin
--------------------------
Name: Huang Xilin
By or Designated by:/s/ Huo Qingtao
--------------------------
Name: Huo Qingtao
76
SECOND MODIFICATION TO STOCK PURCHASE
AGREEMENT DATED DECEMBER 20, 2004
Second Modification Agreement to that certain Stock Purchase Agreement
dated December 20, 2004 ("Agreement"), by and among Chardan China Acquisition
Corp., Dr. Richard D. Propper, Mr. Kerry Propper, Mr. Jiangnan Huang, Mr. Li
Zhang, Mr. Dan Beharry, Mr. Steven Urbach, State Harvest Holdings Limited, Dr.
Han Gengchen, Mr. Yang Yasheng, Mr. Yuan Liang, Ms. Zhao Yuping, Mr. Zhuang
Weigong, Mr. Chen Weicheng, Ms. Bo Luxia, Mr. Huang Xilin, and Mr. Huo Qingtao
made as of June 16, 2005.
The Agreement is hereby modified to substitute the phrase "10,000,000
shares of Chardan Sub's common stock, no par value per share ("Chardan Sub
Stock")" for "10,200,000 shares of Chardan Sub's common stock, par value $0.0001
per share ("Chardan Sub Stock")" for the purpose of reducing the stock component
of the consideration under the Agreement, such change to be considered made
throughout the Agreement and to correct the par value per share to no par value
pursuant to the Memorandum of Association of Chardan Sub.
Schedule C to the Agreement is amended to delete the allocation to Best of
the Best Investment Limited.
The Agreement is modified to substitute the words "follow-on offering" for
the words "secondary offering" set forth in Section 1.02(b)(ii)(a)(2) of the
Agreement.
The Agreement in all other respects is affirmed and shall continue in full
force and effect.
This modification agreement may be executed in counterpart and by
facsimile, all of which counterparts taken together may be considered one
agreement, binding upon all the signatories thereto, whether by facsimile or
original signature.
77
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the date first written above.
CHARDAN CHINA ACQUISITION CORP.
By:/s/ Richard D. Propper
-------------------------------------------
Name: Richard D. Propper, MD
Title: Chairman
/s/ Kerry Propper
----------------------------------------------
Kerry Propper
(Solely with respect to Section 11.02(c))
/s/ Dr. Richard D. Propper
----------------------------------------------
Dr. Richard D.
Propper (Solely
with respect to
Section 11.02(c))
/s/ Jiangnan Huang
----------------------------------------------
Jiangnan Huang
(Solely with respect to Section 11.02(c))
/s/ Li Zhang
----------------------------------------------
Li Zhang
(Solely with respect to Section 11.02(c))
/s/ Dan Beharry
----------------------------------------------
Dan Beharry
(Solely with respect to Section 11.02(c))
/s/ Steven Urbach
----------------------------------------------
Steven Urbach
(Solely with respect to Section 11.02(c))
78
STATE HARVEST HOLDINGS LIMITED
By or Designated by:/s/ Han Gengchen
--------------------------
Name: Han Gengchen, PhD
Title: CEO
By or Designated by:/s/ Yang Yasheng
--------------------------
Name: Yang Yasheng
By or Designated by:/s/ Yuan Liang
--------------------------
Name:Yuan Liang
By or Designated by:/s/ Zhao Yuping
--------------------------
Name: Zhao Yuping
By or Designated by:/s/ Zhang Wiedong
--------------------------
Name: Zhang Weidong
By or Designated by:/s/ Chen Weicheng
--------------------------
Name: Chen Weicheng
By or Designated by:/s/ Bo Luxia
--------------------------
Name: Bo Luxia
By or Designated by:/s/ Huang Xilin
--------------------------
Name: Huang Xilin
By or Designated by:/s/ Huo Qingtao
--------------------------
Name: Huo Qingtao
Annex B
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
MEMORANDUM OF ASSOCIATION
OF
ORIGIN AGRITECH LIMITED
NAME
1. The name of the Company is Origin Agritech Limited.
REGISTERED OFFICE
2. The registered office of the Company will be situated at P.O. Box 173,
Kingston Chambers, Road Town, Tortola, British Virgin Islands.
REGISTERED AGENT
3. The registered agent of the Company will be Maples Finance BVI Limited of
P.O. Box 173, Kingston Chambers, Road Town, Tortola, British Virgin
Islands.
GENERAL OBJECTS AND POWERS
4. (1) The object of the Company is to engage in any act or activity that
is not prohibited under any law for the time being in force in the
British Virgin Islands.
(2) The Company may not:
(a) carry on business with persons resident in the British Virgin
Islands;
(b) own an interest in real property situated in the British
Virgin Islands, other than a lease referred to in paragraph
(e) of sub clause (3);
(c) carry on banking or trust business unless it is licensed to do
so under the Banks and Trust Companies Act, l990;
(d) carry on business as an insurance or reinsurance company,
insurance agent or insurance broker, unless it is licensed
under an enactment authorizing it to carry on that business;
(e) carry on the business of company management, unless it is
licensed under the Company Management Act, l990;
(f) carry on the business of providing the registered office or
the registered agent for companies incorporated in the British
Virgin Islands.
1
(3) For purposes of paragraph (a) of sub clause (2), the Company shall
not be treated as carrying on business with persons resident in the
British Virgin Islands if
(a) it makes or maintains deposits with a person carrying on
banking business within the British Virgin Islands;
(b) it makes or maintains professional contact with solicitors,
barristers, accountants, book-keepers, trust companies,
administration companies, investment advisers or other similar
persons carrying on business within the British Virgin
Islands;
(c) it prepares or maintains books and records within the British
Virgin Islands;
(d) it holds, within the British Virgin Islands, meetings of its
directors or members;
(e) it holds a lease of property for use as an office from which
to communicate with members or where books and records of the
Company are prepared or maintained;
(f) it holds shares, debt obligations or other securities in a
company incorporated under the International Business
Companies Act or under the Companies Act; or
(g) shares, debt obligations or other securities in the Company
are owned by any person resident in the British Virgin Islands
or by any company incorporated under the International
Business Companies Act or under the Companies Act.
(4) The Company shall have all such powers as are permitted by law for
the time being in force in the British Virgin Islands, irrespective
of corporate benefit, to perform all acts and engage in all
activities necessary or conducive to the conduct, promotion or
attainment of the object of the Company.
CURRENCY
5. Shares in the Company shall be issued in the currency of the United States
of America.
AUTHORIZED CAPITAL
6. The Company shall have no authorized capital but shall be authorized to
issue 61,000,000 shares.
CLASSES, NUMBER AND PAR VALUE OF SHARES
7. The Company is authorized to issue two classes of shares as follows:
2
(a) 60,000,000 shares in one series of $.0001 par value each ("Ordinary
Shares"); and
(b) 1,000,000 preference shares in one series of $.0001 par value each
("Preferred Stock").
DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES
8. (1) Ordinary Shares
All Ordinary Shares shall
(a) have one vote each;
(b) be subject to redemption, purchase or acquisition by the
Company for fair value; and
(c) have the same rights with regard to dividends and
distributions upon liquidation of the Company.
(2) Preferred Stock
The Board of Directors of the Company is authorized, subject to
limitations prescribed by law and the provisions of this Clause 8,
to amend the Company's Memorandum of Association to provide for the
creation from time to time of one or more classes of shares of
Preferred Stock, and pursuant to such amendment, to establish the
number of shares and series to be included in each such class, and
to fix the designation, relative rights, preferences, qualifications
and limitations of the shares of each such class. The authority of
the Board of Directors with respect to each class shall include, but
not be limited to, determination of the following:
(a) the number of shares and series constituting that class and
the distinctive designation of that class;
(b) the dividend rate on the shares of that class, whether
dividends shall be cumulative, and, if so, from which date or
dates, and whether they shall be payable in preference to, or
in another relation to, the dividends payable on any other
class or classes of stock;
(c) whether that class shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of
such voting rights;
(d) whether that class shall have conversion or exchange
privileges, and, if so, the terms and conditions of such
conversion or exchange, including provision for adjustment of
the conversion or exchange rate in such events as the Board of
Directors shall determine;
(e) whether or not the shares of that class shall be redeemable,
and, if so, the terms and conditions of such redemption,
including the manner of selecting shares for redemption if
less than all shares are to be redeemed, the date or dates
upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
3
(f) whether that class shall be entitled to the benefit of a
sinking fund to be applied to the purchase or redemption of
shares of that class, and, if so, the terms and amounts of
such sinking fund;
(g) the right of the shares of that class to the benefit of
conditions and restrictions upon the creation of indebtedness
of the Company or any subsidiary, upon the issue of any
additional stock (including additional shares of such class of
any other class) and upon the payment of dividends or the
making of other distributions on, and the purchase, redemption
or other acquisition by the Company or any subsidiary of any
outstanding stock of the Company;
(h) the right of the shares of that class in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Company and whether such rights shall be in
preference to, or in another relation to, the comparable
rights of any other class or classes of stock; and
(i) any other relative, participating, optional or other special
rights, qualifications, limitations or restrictions of that
class.
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
9. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed to
be varied by the creation or issue of further shares ranking pari passu
therewith.
REGISTERED SHARES
10. Shares in the Company may be issued as registered shares only.
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION
11. The Company may only amend its Memorandum of Association and Articles of
Association by a resolution of members or by a resolution of directors.
DEFINITIONS
12. The meanings of words in this Memorandum of Association are as defined in
the Articles of Association.
4
We, Maples Finance BVI Limited of P.O. Box 173, Kingston Chambers, Road Town,
Tortola, British Virgin Islands for the purpose of incorporating an
International Business Company under the laws of the British Virgin Islands
hereby subscribe our name to this Memorandum of Association dated this 10th day
of February, 2005 in the presence of:
/s/ Aiko Stevens /s/ Carl Seymour
---------------- ----------------
Witness: Subscriber:
Aiko Stevens Carl Seymour
P.O. Box 173 Maples Finance BVI Limited
Kingston Chambers P.O. Box 173
Road Town, Tortola Kingston Chambers
British Virgin Islands Road Town, Tortola
British Virgin Islands
5
COMPANY NO. 641792
EXTRACT FROM THE RESOLUTION
OF THE FIRST DIRECTOR
OF
Origin Agritech Limited
HELD ON 10 June 2005
AMENDMENT TO THE COMPANY'S MEMORANDUM OF ASSOCIATION
IT WAS RESOLVED that Clause 7 of the Company's Memorandum of Association be
deleted in its entirety and the following Clause be substituted in lieu
thereof:-
"7. CLASSES, NUMBER AND PAR VALUE OF SHARES
The Company is authorized to issue two classes of shares as follows:
(a) 60,000,000 shares in one series of no par value ("Ordinary
Shares"); and
(b) 1,000,000 preference shares in one series of no par value
("Preferred Stock").
CERTIFIED AS A TRUE EXTRACT
/s/ Aiko Stevens
----------------
For and on behalf of
Maples Finance BVI Limited
Registered Agent
Annex C
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
ARTICLES OF ASSOCIATION
OF
ORIGIN AGRITECH LIMITED
PRELIMINARY
1. In these Articles, if not inconsistent with the subject or context, the
words and expressions standing in the first column of the following table
shall bear the meanings set opposite them respectively in the second
column thereof.
Words Meaning
----- -------
capital The sum of the
aggregate par value
of all outstanding
shares with par
value of the
Company and shares
with par value held
by the Company as
treasury shares
plus
(a) the aggregate
of the amounts
designated as
capital of all
outstanding
shares without
par value of
the Company
and shares
without par
value held by
the Company as
treasury
shares, and
(b) the amounts as
are from time
to time
transferred
from surplus
to capital by
a resolution
of directors.
member A person who holds shares
in the Company.
person An individual, a
corporation, a trust, the
estate of a deceased
individual, a partnership
or an unincorporated
association of persons.
1
resolution of directors (a) a resolution approved
at a duly convened
directors and
constituted meeting
of directors of the
Company or of a
committee of
directors of the
Company by the
affirmative vote of
a simple majority of
the directors present
at the meeting who
voted and did not
abstain; or
(b) a resolution consented
to in writing by
a simple majority of
the directors or of a
simple majority of
the members of the
committee of directors
, as the case may be.
(c) The foregoing
resolutions or
consents may include
the actions of
director alternates.
meeting of directors With respect to calling
a meeting of directors, a
resolution consented to in
writing by any one director
and notified to all other
directors.
resolution of members A resolution approved at
a duly convened and
constituted meeting of the
members of the Company by
the affirmative vote of
(a) a simple majority of
the votes of the
shares entitled to
vote thereon which
were present at the
meeting and were voted
and not abstained, or
(b) a simple majority of
the votes of each
class or series of
shares which were
present at the meeting
and entitled to vote
thereon as a class or
series and were voted
and not abstained and
of a simple majority
of the votes of the
remaining shares
entitled to vote
thereon which were
present at the
meeting and were
voted and not abstain.
securities Shares and debt obligations
of every kind, and options,
warrants and rights to
shares, or debt
obligations.
surplus The excess, if any, at the
time of the determination
of the total assets of the
Company over the aggregate
of its total liabilities,
as shown in its books of
account, plus the Company's
capital.
2
the Act The International Business
Companies Act (Cap 291)
including any modification,
extension, re-enactment or
renewal thereof and any
regulations made
thereunder.
the Memorandum The Memorandum of
Association of the Company
as originally framed or as
from time to time amended.
the Seal Any Seal which has been
duly adopted as the Seal
of the Company.
these Articles These Articles of
Association as originally
framed or as from time to
time amended.
treasury shares Shares in the
Company that were
previously issued but were
repurchased, redeemed or
otherwise acquired by the
Company and not cancelled.
2. "Written" or any term of like import includes words typewritten, printed,
painted, engraved, lithographed, photographed or represented or reproduced
by any mode of reproducing words in a visible form, including telex,
facsimile, telegram, cable or other form of writing produced by electronic
communication.
3. Save as aforesaid any words or expressions defined in the Act shall bear
the same meaning in these Articles.
4. Whenever the singular or plural number, or the masculine, feminine or
neuter gender is used in these Articles, it shall equally, where the
context admits, include the others.
5. A reference in these Articles to voting in relation to shares shall be
construed as a reference to voting by members holding the shares except
that it is the votes allocated to the shares that shall be counted and not
the number of members who actually voted and a reference to shares being
present at a meeting shall be given a corresponding construction.
6. A reference to money in these Articles is, unless otherwise stated, a
reference to the currency in which shares in the Company shall be issued
according to the provisions of the Memorandum, currently United States
dollars.
REGISTERED SHARES
7. Every member holding registered shares in the Company shall be entitled to
a certificate signed by a director or officer of the Company or under the
Seal of the Company. The certificate shall specify the share or shares
held by the member and shall
3
(a) be signed by two directors or two officers of the Company, or by one
director and one officer; or
(b) be under the Seal of the company, with or without the signature of
any director or officer of the company and the signature of the
director(s) or officer(s) and/or the Seal may be facsimiles.
8. If several persons are registered as joint holders of any shares, any one
of such persons may give an effectual receipt for any dividend payable in
respect of such shares.
SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS
9. Subject to the provisions of these Articles and any resolution of members,
the unissued shares of the Company shall be at the disposal of the
directors who may, without limiting or affecting any rights previously
conferred on the holders of any existing shares or class or series of
shares, offer, allot, grant options over or otherwise dispose of shares to
such persons, at such times and upon such terms and conditions as the
Company may by resolution of directors determine.
10. No share in the Company may be issued until the consideration in respect
thereof is fully paid as provided in the Act, and when issued the share is
for all purposes fully paid and non-assessable save that a share issued
for a promissory note or other written obligation for payment of a debt
may be issued subject to forfeiture in the manner prescribed in these
Articles.
11. Shares in the Company may be issued for money, services rendered, personal
property, an estate in real property, a promissory note or other binding
obligation to contribute money or property or any combination of the
foregoing as shall be determined by a resolution of directors.
12. Shares in the Company may be issued for such amount of consideration as
the directors may from time to time by resolution of directors determine,
except that in the case of shares with par value, the amount shall not be
less than the par value, and in the absence of fraud the decision of the
directors as to the value of the consideration received by the Company in
respect of the issue is conclusive unless a question of law is involved.
The consideration in respect of the shares constitutes capital to the
extent of the par value and the excess constitutes surplus.
13. A share issued by the Company upon conversion of, or in exchange for,
another share or a debt obligation or other security in the Company, shall
be treated for all purposes as having been issued for money equal to the
consideration received or deemed to have been received by the Company in
respect of the other share, debt obligation or security.
14. Treasury shares may be disposed of by the Company on such terms and
conditions (not otherwise inconsistent with these Articles) as the Company
may by resolution of directors determine.
15. The Company may issue fractions of a share and a fractional share shall
have the same corresponding fractional liabilities, limitations,
preferences, privileges, qualifications, restrictions, rights and other
attributes of a whole share of the same class or series of shares.
4
16. Upon the issue by the Company of a share without par value, if an amount
is stated in the Memorandum to be authorized capital represented by such
shares then each share shall be issued for no less than the appropriate
proportion of such amount which shall constitute capital, otherwise the
consideration in respect of the share constitutes capital to the extent
designated by the directors and the excess constitutes surplus, except
that the directors must designate as capital an amount of the
consideration that is at least equal to the amount that the share is
entitled to as a preference, if any, in the assets of the Company upon
liquidation of the Company.
17. The Company may purchase, redeem or otherwise acquire and hold its own
shares but only out of surplus or in exchange for newly issued shares of
equal value.
18. Subject to provisions to the contrary in
(a) the Memorandum or these Articles;
(b) the designations, powers, preferences, rights, qualifications,
limitations and restrictions with which the shares were
issued; or
(c) the subscription agreement for the issue of the shares, the
Company may not purchase, redeem or otherwise acquire its own
shares without the consent of members whose shares are to be
purchased, redeemed or otherwise acquired.
19. No purchase, redemption or other acquisition of shares shall be made
unless the directors determine that immediately after the purchase,
redemption or other acquisition the Company will be able to satisfy its
liabilities as they become due in the ordinary course of its business and
the realizable value of the assets of the Company will not be less than
the sum of its total liabilities, other than deferred taxes, as shown in
the books of account, and its capital and, in the absence of fraud, the
decision of the directors as to the realizable value of the assets of the
Company is conclusive, unless a question of law is involved.
20. A determination by the directors under the preceding Regulation is not
required where shares are purchased, redeemed or otherwise acquired
(a) pursuant to a right of a member to have his shares redeemed or to
have his shares exchanged for money or other property of the
Company;
(b) by virtue of a transfer of capital pursuant to Regulation 47;
(c) by virtue of the provisions of Section 83 of the Act; or
(d) pursuant to an order of the Court.
21. Shares that the Company purchases, redeems or otherwise acquires pursuant
to the preceding Regulation may be cancelled or held as treasury shares
except to the extent that such shares are in excess of 80 percent of the
issued shares of the Company in which case they shall be cancelled but
they shall be available for reissue.
22. Where shares in the Company are held by the Company as treasury shares or
are held by another company of which the Company holds, directly or
indirectly, shares having more than 50 percent of the votes in the
election of directors of the other company, such shares of the Company are
not entitled to vote or to have dividends paid thereon and shall not be
treated as outstanding for any purpose except for purposes of determining
the capital of the Company.
5
23. The Company may by a resolution of directors include in the computation of
surplus for any purpose the unrealised appreciation of the assets of the
Company, and, in the absence of fraud, the decision of the directors as to
the value of the assets is conclusive, unless a question of law is
involved.
MORTGAGES AND CHARGES OF REGISTERED SHARES
24. Members may pledge, hypothecate, mortgage or charge their registered
shares in the Company and upon satisfactory evidence thereof the Company
shall give effect to the terms of any valid pledge, hypothecation,
mortgage or charge except insofar as it may conflict with any requirements
herein contained for consent to the transfer of shares.
25. In the case of the pledge, hypothecate, mortgage or charge of registered
shares there may be entered in the share register of the Company at the
request of the registered holder of such shares
(a) a statement that the shares are pledged, hypothecated, mortgaged or
charged;
(b) the name of the pledge, mortgagee or chargee; and
(c) the date on which the aforesaid particulars are entered in the share
register.
26. Where particulars of a pledge, hypothecation, mortgage or charge are
registered, such particulars shall be cancelled
(a) with the consent of the named pledgee, mortgagee or chargee or
anyone authorized to act on his behalf; or
(b) upon evidence satisfactory to the directors of the discharge of the
liability secured by the pledge, hypothecation, mortgage or charge
and the issue of such indemnities as the directors shall consider
necessary or desirable.
27. Whilst particulars of a pledge, hypothecation, mortgage or charge are
registered, no transfer of any share comprised therein shall be effected
without the written consent of the named mortgagee or chargee or anyone
authorized to act on his behalf.
FORFEITURE
28. When shares issued for a promissory note or other written obligation for
payment of a debt have been issued subject to forfeiture, the following
provisions shall apply.
29. Written notice specifying a date for payment to be made and the shares in
respect of which payment is to be made shall be served on the member who
defaults in making payment pursuant to a promissory note or other written
obligations to pay a debt.
30. The written notice specifying a date for payment shall
6
(a) name a further date not earlier than the expiration of 14 days from
the date of service of the notice on or before which payment
required by the notice is to be made; and
(b) contain a statement that in the event of non-payment at or before
the time named in the notice the shares, or any of them, in respect
of which payment is not made will be liable to be forfeited.
31. Where a written notice has been issued and the requirements have not been
complied with within the prescribed time, the directors may at any time
before tender of payment forfeit and cancel the shares to which the notice
relates.
32. The Company is under no obligation to refund any moneys to the member
whose shares have been forfeited and cancelled pursuant to these
provisions. Upon forfeiture and cancellation of the shares the member is
discharged from any further obligation to the Company with respect to the
shares forfeited and cancelled.
LIEN
33. The Company shall have a first and paramount lien on every share issued
for a promissory note or for any other binding obligation to contribute
money or property or any combination thereof to the Company, and the
Company shall also have a first and paramount lien on every share standing
registered in the name of a member, whether singly or jointly with any
other person or persons, for all the debts and liabilities of such member
or his estate to the Company, whether the same shall have been incurred
before or after notice to the Company of any interest of any person other
than such member, and whether the time for the payment or discharge of the
same shall have actually arrived or not, and notwithstanding that the same
are joint debts or liabilities of such member or his estate and any other
person, whether a member of the Company or not. The Company's lien on a
share shall extend to all dividends payable thereon. The directors may at
any time either generally, or in any particular case, waive any lien that
has arisen or declare any share to be wholly or in part exempt from the
provisions of this Regulation.
34. In the absence of express provisions regarding sale in the promissory note
or other binding obligation to contribute money or property, the Company
may sell, in such manner as the directors may by resolution of directors
determine, any share on which the Company has a lien, but no sale shall be
made unless some sum in respect of which the lien exists is presently
payable nor until the expiration of twenty-one days after a notice in
writing, stating and demanding payment of the sum presently payable and
giving notice of the intention to sell in default of such payment, has
been served on the holder for the time being of the share.
35. The net proceeds of the sale by the Company of any shares on which it has
a lien shall be applied in or towards payment of discharge of the
promissory note or other binding obligation to contribute money or
property or any combination thereof in respect of which the lien exists so
far as the same is presently payable and any residue shall (subject to a
like lien for debts or liabilities not presently payable as existed upon
the share prior to the sale) be paid to the holder of the share
immediately before such sale. For giving effect to any such sale the
directors may authorize some person to transfer the share sold to the
purchaser thereof. The purchaser shall be regihstered as the holder of the
share and he shall not be bound to see to the application of the purchase
money, nor shall his title to the share be affected by any irregularity or
invalidity in the proceedings in reference to the sale.
7
TRANSFER OF SHARES
36. Subject to any limitations in the Memorandum, registered shares in the
Company may be transferred by a written instrument of transfer signed by
the transferor and containing the name and address of the transferee, but
in the absence of such written instrument of transfer the directors may
accept such evidence of a transfer of shares as they consider appropriate.
37. The Company shall not be required to treat a transferee of a registered
share in the Company as a member until the transferee's name has been
entered in the share register.
TRANSMISSION OF SHARES
38. The executor or administrator of a deceased member, the guardian of an
incompetent member or the trustee of a bankrupt member shall be the only
person recognized by the Company as having any title to his share but they
shall not be entitled to exercise any rights as a member of the Company
until they have proceeded as set forth in the next following three
Regulations.
39. The production to the Company of any document which is evidence of probate
of the will, or letters of administration of the estate, or confirmation
as executor, of a deceased member or of the appointment of a guardian of
an incompetent member or the trustee of a bankrupt member shall be
accepted by the Company even if the deceased, incompetent or bankrupt
member is domiciled outside the British Virgin Islands if the document
evidencing the grant of probate or letters of administration, confirmation
as executor, appointment as guardian or trustee in bankruptcy is issued by
a foreign court which had competent jurisdiction in the matter. For the
purpose of establishing whether or not a foreign court had competent
jurisdiction in such a matter the directors may obtain appropriate legal
advice. The directors may also require an indemnity to be given by the
executor, administrator, guardian or trustee in bankruptcy.
40. Any person becoming entitled by operation of law or otherwise to a share
or shares in consequence of the death, incompetence or bankruptcy of any
member may be registered as a member upon such evidence being produced as
may reasonably be required by the directors. An application by any such
person to be registered as a member shall for all purposes be deemed to be
a transfer of shares of the deceased, incompetent or bankrupt member and
the directors shall treat it as such.
41. Any person who has become entitled to a share or shares in consequence of
the death, incompetence or bankruptcy of any member may, instead of being
registered himself, request in writing that some person to be named by him
be registered as the transferee of such share or shares and such request
shall likewise be treated as if it were a transfer.
42. What amounts to incompetence on the part of a person is a matter to be
determined by the court having regard to all the relevant evidence and the
circumstances of the case.
8
REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL
43. The Company may by a resolution of directors or a resolution of members
amend the Memorandum to increase or reduce its authorized capital and in
connection therewith the Company may in respect of any unissued shares
increase or reduce the number of such shares, increase or reduce the par
value of any such shares or effect any combination of the foregoing.
44. Subject to the requirements of the Memorandum, the Company may by either a
resolution of members or a resolution of directors amend the Memorandum to
(a) increase or reduce its authorized capital and in connection
therewith the Company may in respect of any unissued shares increase
or reduce the number of such shares, increase or reduce the par
value of any such shares or effect any combination of the foregoing;
(b) increase the number of its shares having no par value;
(c) increase its capital constituted by shares of no par value by
transferring reserves or profits to the capital, with or without a
distribution of shares; ( d) combine and divide all or any part of
its share capital into shares of larger amount than its existing
shares or combine and reduce the number of the issued no par value
shares;
(e) increase the number of its issued no par value shares without an
increase of its capital; (f) subdivide its shares, or any of them,
into shares of smaller amount than is fixed by the Memorandum; (g)
convert any shares having a par value into shares of no par value;
(h) convert any shares of no par value into shares having a par
value; or (i) convert any of its shares, whether issued or not, into
shares of another class.
45. The Company may by a resolution of directors or a resolution of members
amend the Memorandum to
(a) divide the shares, including issued shares, of a class or series
into a larger number of shares of the same class or series; or
(b) combine the shares, including issued shares, of a class or series
into a smaller number of shares of the same class or series,
provided, however, that where shares are divided or combined under (a)
or (b) of this Regulation, the aggregate par value of the new shares
must be equal to the aggregate par value of the original shares.
9
46. The capital of the Company may by a resolution of directors be increased
by transferring an amount of the surplus of the Company to capital.
47. Subject to the provisions of the two next succeeding Regulations, the
capital of the Company may by resolution of directors be reduced by
transferring an amount of the capital of the Company to surplus.
48. No reduction of capital shall be effected that reduces the capital of the
Company to an amount that immediately after the reduction is less than the
aggregate par value of all outstanding shares with par value and all
shares with par value held by the Company as treasury shares and the
aggregate of the amounts designated as capital of all outstanding shares
without par value and all shares without par value held by the Company as
treasury shares that are entitled to a preference, if any, in the assets
of the Company upon liquidation of the Company.
49. No reduction of capital shall be effected unless the directors determine
that immediately after the reduction the Company will be able to satisfy
its liabilities as they become due in the ordinary course of its business
and that the realizable assets of the Company will not be less than its
total liabilities, other than deferred taxes, as shown in the books of the
Company and its remaining capital, and, in the absence of fraud, the
decision of the directors as to the realizable value of the assets of the
Company is conclusive, unless a question of law is involved.
MEETINGS AND CONSENTS OF MEMBERS
50. Any action required or permitted to be taken by the members must be
effected at a duly called meeting (as described in Regulations 52 and 53)
of the members entitled to vote on such action and may not be effected by
written resolution.
51. Meetings of members shall be held at such places as may be fixed from time
to time by the directors.
52. An annual meeting of members for election of directors and for such other
business as may come before the meeting shall be held each year at such
date and time as may be determined by the directors.
53. Special meetings of members (being all meetings of members which are not
annual meetings) may be called only by the directors pursuant to a
resolution of directors to that effect or upon the written request of
members holding more than 50 percent of the votes of the outstanding
voting shares in the Company.
54. Written notice of all meetings of members, stating the time, place and
purposes thereof, shall be given not fewer than seven days before the date
of the proposed meeting to those persons whose names appear as members in
the share register of the Company on the date of the notice and are
entitled to vote at the meeting.
55. The directors may fix the date notice is given of a meeting of members as
the record date for determining those shares that are entitled to vote at
the meeting.
56. A meeting of members may be called on short notice:
(a) if members holding not less than 90 percent of the total number of
shares entitled to vote on all matters to be considered at the
meeting, or 90 percent of the votes of each class or series of
shares where members are entitled to vote thereon as a class or
series together with not less than a 90 percent majority of the
remaining votes, have agreed to short notice of the meeting, or
10
(b) if all members holding shares entitled to vote on all or any matters
to be considered at the meeting have waived notice of the meeting
and for this purpose presence at the meeting shall be deemed to
constitute waiver. 57. The inadvertent failure of the directors to
give notice of a meeting to a member, or the fact that a member has
not received notice, does not invalidate the meeting.
58. A member may be represented at a meeting of members by a proxy who may
speak and vote on behalf of the member.
59. The instrument appointing a proxy shall be produced at the place appointed
for the meeting before the time for holding the meeting at which the
person named in such instrument proposes to vote.
60. An instrument appointing a proxy shall be in substantially the following
form or such other form as the Chairman of the meeting shall accept as
properly evidencing the wishes of the member appointing the proxy:
(Name of Company)
I/We
----------------------------------------------------------------------------
being a member of the above Company with. shares
---------------------------------
HEREBY APPOINT
------------------------------------------------------------------
of
------------------------------------------------------------------------------
or failing him.
-----------------------------------------------------------------
of to be
-------------------------------------------------------------------------
my/our proxy to vote for me/us at the meeting of members to be held on the
day of.
---------------- ---------------------------------------------------------
and at any adjournment thereof.
[Any restrictions on voting to be inserted here]
Signed this. day of.
------------------ -------------------------------------------
/s/
------------------------------
Member
61. The following shall apply in respect of joint ownership of shares:
(a) if two or more persons hold shares jointly each of them may be
present in person or by proxy at a meeting of members and may speak
as a member;
(b) if only one of the joint owners is present in person or by proxy he
may vote on behalf of all joint owners, and (c) if two or more of
the joint owners are present in person or by proxy they must vote as
one. 62. A member shall be deemed to be present at a meeting of
members if he participates by telephone or other electronic means
and all members participating in the meeting are able to hear each
other.
11
63. A meeting of members is duly constituted if, at the commencement of the
meeting, there are present in person or by proxy not less than 50 percent
of the votes of the shares or class or series of shares entitled to vote
on resolutions of members to be considered at the meeting. If a quorum be
present, notwithstanding the fact that such quorum may be represented by
only one person then such person may resolve any matter and a certificate
signed by such person accompanied where such person be a proxy by a copy
of the proxy form shall constitute a valid resolution of members.
64. If within two hours from the time appointed for the meeting a quorum is
not present, the meeting, if convened upon the requisition of members,
shall be dissolved; in any other case it shall stand adjourned to the next
business day at the same time and place or to such other time and place as
the directors may determine, and if at the adjourned meeting there are
present within one hour from the time appointed for the meeting in person
or by proxy not less than one third of the votes of the shares or each
class or series of shares entitled to vote on the resolutions to be
considered by the meeting, those present shall constitute a quorum but
otherwise the meeting shall be dissolved.
65. At any meeting of members, only such business shall be conducted as shall
have been brought before such meeting:
(a) by or at the direction of the Chairman of the Board of Directors; or
(b) by any member who is a holder of record at the time of the giving of
the notice provided for in Regulation 54 who is entitled to vote at
the meeting and who complies with the procedures set out in
Regulation 66.
66. For business to be properly brought to the annual
meeting of members by a member, the member must have given timely
written notice thereof, either by personal delivery or by prepaid
registered post to the Secretary of the Company (the "Secretary") at
the principal executive offices of the Company. To be timely, a
member's notice must be delivered not less than 60 days nor more
than 90 days prior to the anniversary date of the prior year's
annual meeting; provided, however, that in the event that the date
of the annual meeting changed by more than 30 days from such
anniversary date, in order to be timely, notice by the member must
be so received not later than the close of business on the tenth day
following the day on which public disclosure is first made of the
date of the annual meeting. For the purposes of this Regulation 66,
any adjournment(s) or postponement(s) of the original meeting
whereby the meeting will reconvene within 30 days from original date
shall be deemed, for purposes of notice, to be a continuation of the
original meeting and no business may be brought before any
reconvened meeting unless such timely notice of such business was
given to the Secretary for the meeting as originally scheduled. A
member's notice to the Secretary shall set out as to each matter
that the member wishes to be brought before the meeting of members:
12
(i) a brief description of the business desired to be brought
before the meeting;
(ii) the name and address of record of the member proposing such
business;
(iii) the class and number of shares of the Company which are
beneficially owned by such member;
(iv) any material interest of such member in such business; and
(v) if the member intends to solicit proxies in support of such
member's proposal, a representation to that effect
(b) Notwithstanding the aforegoing, nothing in this Regulation 66 shall
be interpreted or construed to require the inclusion of information
about any such proposal in any proxy statement distributed by, at
the direction of, or on behalf of, the directors. The chairman of a
meeting of members shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before
the meeting in accordance with the provisions of this Regulation 66
and, if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall
not be transacted. However, the notice requirements set out in this
Regulation 66 shall be deemed satisfied by a member if the member
has notified the Company of his intention to present a proposal at a
meeting of members and such member's proposal has been included in a
proxy statement that has been distributed by, at the direction of,
or on behalf of, the directors to solicit proxies for such meeting;
provided that, if such member does not appear or send a qualified
representative, as determined by the chairman of the meeting, to
present such proposal at such meeting, the Company need not present
such proposal for a vote at such meeting notwithstanding that
proxies in respect of such vote may have been received by the
Company.
67. At every meeting of members, the Chairman of the Board of Directors shall
preside as chairman of the meeting. If there is no Chairman of the Board
of Directors or if the Chairman of the Board of Directors is not present
at the meeting, the chief executive officer shall be the chairman. In the
absence of the chief executive officer, such person as shall be selected
by the Board of Directors shall act as chairman of the meeting.
68. The chairman may, with the consent of the meeting, adjourn any meeting
from time to time, and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
69. At any meeting of the members the chairman shall be responsible for
deciding in such manner as he shall consider appropriate whether any
resolution has been carried or not and the result of his decision shall be
announced to the meeting and recorded in the minutes thereof. If the
chairman shall have any doubt as to the outcome of any resolution put to
the vote, he shall cause a poll to be taken of all votes cast upon such
resolution, but if the chairman shall fail to take a poll then any member
present in person or by proxy who disputes the announcement by the
chairman of the result of any vote may immediately following such
announcement demand that a poll be taken and the chairman shall thereupon
cause a poll to be taken. If a poll is taken at any meeting, the result
thereof shall be duly recorded in the minutes of that meeting by the
chairman.
13
70. Any person other than an individual shall be regarded as one member and
subject to the specific provisions hereinafter contained for the
appointment of representatives of such persons the right of any individual
to speak for or represent such member shall be determined by the law of
the jurisdiction where, and by the documents by which, the person is
constituted or derives its existence. In case of doubt, the directors may
in good faith seek legal advice from any qualified person and unless and
until a court of competent jurisdiction shall otherwise rule, the
directors may rely and act upon such advice without incurring any
liability to any member.
71. Any person other than an individual which is a member of the Company may
by resolution of its directors or other governing body authorize such
person as it thinks fit to act as its representative at any meeting of the
Company or of any class of members of the Company, and the person so
authorized shall be entitled to exercise the same powers on behalf of the
person which he represents as that person could exercise if it were an
individual member of the Company.
72. The chairman of any meeting at which a vote is cast by proxy or on behalf
of any person other than an individual may call for a notarially certified
copy of such proxy or authority which shall be produced within 7 days of
being so requested or the votes cast by such proxy or on behalf of such
person shall be disregarded.
73. Directors of the Company may attend and speak with members of the Company
and at any separate meeting of the holders of any class or series of
shares in the Company.
74. No business of the Company shall be conducted at a meeting of members
except in accordance with the provisions of these Regulations 50 to 73.
DIRECTORS
75. The initial number of directors shall be one until such time as the
Company merger with its parent corporation when the number of directors
shall be increased to nine. Subject to the requirements of the Memorandum,
the directors may by a resolution of directors, amend this Regulation 75
to change the number of directors.
76. Subject to Regulation 75 to change the number of directors, the continuing
directors may act, notwithstanding any casual vacancy in their body, so
long as there remain in office not less than the prescribed minimum number
of directors duly qualified to act, but if the number falls below the
prescribed minimum, the remaining directors shall not act except for the
purpose of filling such vacancy.
77. The shareholding qualification for directors may be fixed, and from time
to time varied, by a resolution of members and unless and until so fixed
no qualification shall be required. A director must be an individual.
78. The directors may, by a resolution of directors, fix the emoluments of
directors with respect to services to be rendered in any capacity to the
Company.
14
APPOINTMENT AND RETIREMENT OF DIRECTORS
79. The first directors of the Company shall be appointed by the subscribers
to the Memorandum, and thereafter, directors shall hold office until the
next annual meeting of shareholders or until such director's earlier
resignation, removal from office, death or incapacity.
80. Any vacancy on the Board of Directors resulting from death, resignation,
removal or other cause and any newly created directorship resulting from
any increase in the authorized number of directors between meetings of
members shall be filled only by the affirmative vote of a majority of all
the directors then in office (even if less than a quorum).
81. (a) Nominations of persons for election to the Board of Directors shall
be made only at a meeting of members and only
(i) by or at the direction of the directors; or
(ii) by a member entitled to vote for the election of directors who
complies with the notice procedures set out below.
(b) Such nominations, other than those made by or at the direction of
the directors, shall be made pursuant to timely notice in writing to
the Secretary. To be timely, a members' notice shall be delivered to
or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the
anniversary date of the prior year's annual meeting; provided,
however, that in the event that the date of the annual meeting
changed by more than 30 days from such anniversary date, notice by
the member to be timely must be so received not later than the close
of business on the tenth day following the day on which public
disclosure is first made of the date of the annual meeting. For the
purposes of this Regulation, any adjournment or postponement of the
original meeting whereby the meeting will reconvene within 30 days
from the original date shall be deemed for the purposes of this
notice to be a continuation of the original meeting and no
nominations by a member of persons to be elected directors of the
Company may be made at any such reconvened meeting unless pursuant
to a notice which was timely for the meeting on the date originally
scheduled. Each such notice shall set out
(i) the name and address of the member who intends to make the
nomination and of the persons to be nominated;
(ii) a representation that the member is a holder of record of
shares in the Company entitled to vote at such meeting and
that he intends to appear in person or by a proxy at the
meeting to nominate the persons specified in the notice;
(iii) a description of all arrangements or understandings between
the member and each nominee and any other person (naming such
person) pursuant to which the nominations are to be made by
the member;
15
(iv) such other information regarding each nominee proposed by such
member as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the United
States Securities and Exchange Commission, had each nominee
been nominated, or intended to be nominated, by the directors;
(v) the consent of each nominee to serve as a director of the
Company if so elected; and
(vi) if the member intends to solicit proxies in support of such
member's nominees, a representation to that effect. 82. The
chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the
aforegoing procedure detailed in Regulation 81. Only such
persons as are nominated in accordance with the procedures set
out in Regulation 81 shall be eligible to serve as directors
of the Company. If at any meeting of members at which an
election of directors ought to take place, the place of any
retiring director is not filled, he shall, if willing,
continue in office until the dissolution of the annual meeting
of members in the next year, and so on from year to year until
his place is filled, unless it shall be determined at such
meeting not to fill such vacancy.
83. The appointment of a director shall take effect upon compliance with the
requirements of the Act.
DISQUALIFICATION AND REMOVAL OF DIRECTORS
84. Subject to the provisions of the Act, a director shall cease to hold
office as such only:
(a) if he becomes of unsound mind; or
(b) if (unless he is not required to hold a share qualification) he has
not duly qualified himself within two months of his appointment or
if he ceases to hold the required number of shares to qualify him
for office; or
(c) if he is absent from meetings of the directors for six consecutive
months without leave of the board of directors, provided that the
directors shall have power to grant any director leave of absence
for any or an indefinite period; or
(d) if he dies; or
(e) one month or, with the permission of the directors earlier, after he
has given notice in writing of his intention to resign; or
(f) if he shall, pursuant to the provisions of the Act, be disqualified
or cease to hold office or be prohibited from acting as director; or
(g) if he is removed from office by a resolution signed by all the other
directors; or
(h) if he is removed from office for cause by a resolution of members.
For the purposes hereof, cause means the willful and continuous
failure by a director to substantially perform his duties to the
Company (other than any such failure resulting from incapacity due
to physical or mental illness) or the willful engaging by the
director in gross misconduct materially and demonstrably injurious
to the Company; or
16
(i) if he is removed from office without cause by a resolution of the
majority of the members of the Company, being for the purposes of
this Regulation 84(i) only, an affirmative vote of the holders of
662/3 percent or more of the outstanding votes of the shares
entitled to vote thereon.
REGISTER OF DIRECTORS
85. The Company may determine by resolution of directors to keep a register of
directors containing:
(a) the names and addresses of the persons who are directors of the
Company;
(b) the date on which each person whose name is entered in the register
was appointed as director of the Company; and
(c) the date on which each person named as a director ceased to be a
director of the Company.
86. If the directors determine to maintain a register of directors, a copy
thereof shall be kept at the registered office of the Company and the
Company may determine by resolution of directors to register a copy of the
register with the Registrar of Companies.
MANAGING DIRECTORS
87. The directors may from time to time and by resolution of directors appoint
one or more of their number to be a managing director or joint managing
director and may, subject to any contract between him or them and the
Company, from time to time terminate his or their appointment and appoint
another or others in his or their place or places.
88. A director appointed in terms of the provisions of Regulation 87 to the
office of managing director of the Company may be paid, in addition to the
remuneration payable in terms of Regulation 78, such remuneration not
exceeding a reasonable maximum in each year in respect of such office as
may be determined by a disinterested quorum of the directors.
89. The directors may from time to time, by resolution of directors, entrust
and confer upon a managing director for the time being such of the powers
and authorities vested in them as they think fit, save that no managing
director shall have any power or authority with respect to the matters
requiring a resolution of directors under the Act.
POWERS OF DIRECTORS
90. The business and affairs of the Company shall be managed by the directors
who may exercise all such powers of the Company as are not by the Act or
by the Memorandum or these Articles required to be exercised by the
members of the Company, subject to any delegation of such powers as may be
authorized by these Articles and to such requirements as may be prescribed
by a resolution of members; but no requirement made by a resolution of
members shall prevail if it be inconsistent with these Articles nor shall
such requirement invalidate any prior act of the directors which would
have been valid if such requirement had not been made.
17
91. The directors may, by a resolution of directors, appoint any person,
including a person who is a director, to be an officer or agent of the
Company. The resolution of directors appointing an agent may authorize the
agent to appoint one or more substitutes or delegates to exercise some or
all of the powers conferred on the agent by the Company.
92. Every officer or agent of the Company has such powers and authority of the
directors, including the power and authority to affix the Seal, as are set
forth in these Articles or in the resolution of directors appointing the
officer or agent, except that no officer or agent has any power or
authority with respect to the matters requiring a resolution of directors
under the Act.
93. The directors may authorize the payment of such donations by the Company
to such religious, charitable, public or other bodies, clubs, funds or
associations or persons as may seem to them advisable in the interests of
the Company.
94. The directors may by resolution of directors exercise all the powers of
the Company to borrow money and to mortgage or charge its undertakings and
property or any part thereof, to issue debentures, debenture stock and
other securities whenever money is borrowed or as security for any debt,
liability or obligation of the Company or of any third party.
95. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for moneys paid to the Company,
shall be signed, drawn, accepted, endorsed or otherwise executed, as the
case may be, in such manner as shall from time to time be determined by
resolution of directors.
96. The Company may determine by resolution of directors to maintain at its
registered office a register of mortgages, charges and other encumbrances
in which there shall be entered the following particulars regarding each
mortgage, charge and other encumbrance:
(a) the sum secured;
(b) the assets secured;
(c) the name and address of the mortgagee, chargee or other
encumbrancer;
(d) the date of creation of the mortgage, charge or other encumbrance;
and
(e) the date on which the particulars specified above in respect of the
mortgage, charge or other encumbrance are entered in the register.
97. The Company may further determine by a resolution of directors to register
a copy of the register of mortgages, charges or other encumbrances with
the Registrar of Companies.
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PROCEEDINGS OF DIRECTORS
98. The directors of the Company or any committee thereof may meet at such
times and in such manner and places within or outside the British Virgin
Islands as the directors may determine to be necessary or desirable.
99. A director shall be deemed to be present at a meeting of directors if he
participates by telephone or other electronic means and all directors
participating in the meeting are able to hear each other.
100. A director shall be given not less than 3 days notice of meetings of
directors, but a meeting of directors held without 3 days notice having
been given to all directors shall be valid if all the directors entitled
to vote at the meeting who do not attend, waive notice of the meeting and
for this purpose, the presence of a director at a meeting shall constitute
waiver on his part. The inadvertent failure to give notice of a meeting to
a director, or the fact that a director has not received the notice, does
not invalidate the meeting.
101. A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person not less than
one-half of the total number of directors, unless there are only 2
directors in which case the quorum shall be 2.
102. At every meeting of the directors the Chairman of the Board of Directors
shall preside as chairman of the meeting. If there is no Chairman of the
Board of Directors or if the Chairman of the Board of Directors is not
present at the meeting the Vice-Chairman of the Board of Directors shall
preside. If there is no Vice-Chairman of the Board of Directors or if the
Vice-Chairman of the Board of Directors is not present at the meeting the
directors present shall choose some one of their number to be chairman of
the meeting.
103. An action that may be taken by the directors or a committee of directors
at a meeting may also be taken by a resolution of directors or a committee
of directors consented to in writing or by telex, telegram, cable,
facsimile or other written electronic communication by three quarters of
the directors or three quarters of the members of the committee as the
case may be, provided that a copy of the proposed resolution will have
been sent to all of the directors or the members of the committee, for
their consent. The consent may be in the form of counterparts, each
counterpart being signed by one or more directors.
104. The directors shall cause the following corporate records to be kept:
(a) minutes of all meetings of directors, members, committees of
directors, committees of officers and committees of members;
(b) copies of all resolutions consented to by directors, members,
committees of directors, committees of officers and committees of
members; and
(c) such other accounts and records as the directors by resolution of
directors consider necessary or desirable in order to reflect the
financial position of the Company.
105. The books, records and minutes shall be kept at the registered office of
the Company, its principal place of business or at such other place as the
directors determine.
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COMMITTEES
106. The directors may, by resolution of directors, designate one or more
committees, each consisting of one or more directors.
107. Each committee of directors has such powers and authorities of the
directors, including the power and authority to affix the Seal, as are set
forth in the resolution of directors establishing the committee, except
that no committee has any power or authority to amend the Memorandum or
these Articles, to appoint directors or fix their emoluments, or to
appoint officers or agents of the Company.
108. The meetings and proceedings of each committee of directors consisting of
2 or more directors shall be governed mutatis mutandis by the provisions
of these Articles regulating the proceedings of directors so far as the
same are not superseded by any provisions in the resolution establishing
the committee.
OFFICERS
109. The Company may by resolution of directors appoint officers of the Company
at such times as shall be considered necessary or expedient. Such officers
may consist of a Chief Executive Officer or one or more Joint Chief
Executive Officers, a Chairman of the Board of Directors, a Vice-Chairman
of the Board of Directors, a President or one or more Joint Presidents, a
Chief Operating Officer and one or more Vice-Presidents, Secretaries and
Treasurers and such other holders of any other executive office in the
Company or officers as may from time to time be deemed desirable. Any
number of offices may be held by the same person.
110. The officers shall perform such duties as shall be prescribed at the time
of their appointment subject to any modification in such duties as may be
prescribed thereafter by resolution of directors or resolution of members,
but in the absence of any specific allocation of duties it shall be the
responsibility of the Chairman of the Board of Directors to preside at
meetings of directors and members, the Vice-Chairman to act in the absence
of the Chairman, the President to manage the day to day affairs of the
Company, the Vice-Presidents to act in order of seniority in the absence
of the President but otherwise to perform such duties as may be delegated
to them by the President, the Secretaries to maintain the share register,
minute books and records (other than financial records) of the Company and
to ensure compliance with all procedural requirements imposed on the
Company by applicable law, and the Treasurer to be responsible for the
financial affairs of the Company.
111. The emoluments of all officers shall be fixed by resolution of directors.
112. The officers of the Company shall hold office until their successors are
duly elected and qualified, but any officer elected or appointed by the
directors may be removed at any time, with or without cause, by resolution
of directors. Any vacancy occurring in any office of the Company may be
filled by resolution of directors.
CONFLICT OF INTERESTS
113. No agreement or transaction between the Company and one or more of its
directors or any person in which any director has a financial interest or
to whom any director is related, including as a director of that other
person, is void or voidable for this reason only or by reason only that
the director is present at the meeting of directors or at the meeting of
the committee of directors that approves the agreement or transaction or
that the vote or consent of the director is counted for that purpose if
the material facts of the interest of each director in the agreement or
transaction and his interest in or relationship to any other party to the
agreement or transaction are disclosed in good faith or are known by the
other directors.
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114. A director who has an interest in any particular business to be considered
at a meeting of directors or members may be counted for purposes of
determining whether the meeting is duly constituted.
INDEMNIFICATION
115. To the full extent permitted by the Act or any other applicable laws
presently or hereafter in effect, no director of the Company shall be
personally liable to the Company or its members for or with respect to any
acts or omissions in the performance of his or her duties as a director of
the Company. Any repeal or modification of this Regulation 115 by a
resolution of members shall not adversely affect the right or protection
of a director of the Company existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.
116. Subject to the limitations hereinafter provided the Company may indemnify
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred in connection
with legal, administrative or investigative proceedings any person who
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact
that the person is or was a director, an officer or a liquidator of
the Company; or
(b) is or was, at the request of the Company, serving as a director,
officer or liquidator of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or other
enterprise.
117. The Company may only indemnify a person if the person acted honestly and
in good faith with a view to the best interests of the Company and, in the
case of criminal proceedings, the person had no reasonable cause to
believe that his conduct was unlawful.
118. The decision of the directors as to whether the person acted honestly and
in good faith and with a view to the best interests of the Company and as
to whether the person had no reasonable cause to believe that his conduct
was unlawful is, in the absence of fraud, sufficient for the purposes of
these Articles, unless a question of law is involved.
119. The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself, create
a presumption that the person did not act honestly and in good faith and
with a view to the best interests of the Company or that the person had
reasonable cause to believe that his conduct was unlawful.
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120. If a person to be indemnified has been successful in defence of any
proceedings referred to above, the person is entitled to be indemnified
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred by the person
in connection with the proceedings.
121. The Company may purchase and maintain insurance in relation to any person
who is or was a director, an officer or a liquidator of the Company, or
who at the request of the Company is or was serving as a director, an
officer or a liquidator of, or in any other capacity is or was acting for,
another company or a partnership, joint venture, trust or other
enterprise, against any liability asserted against the person and incurred
by the person in that capacity, whether or not the Company has or would
have had the power to indemnify the person against the liability as
provided in these Articles.
SEAL
122. The Company may have more than one Seal and references herein to the Seal
shall be references to every Seal which shall have been duly adopted by
resolution of directors. The directors shall provide for the safe custody
of the Seal and for an imprint thereof to be kept at the Registered
Office. Except as otherwise expressly provided herein the Seal when
affixed to any written instrument shall be witnessed and attested to by
the signature of a director or any other person so authorized from time to
time by resolution of directors. Such authorization may be before or after
the Seal is affixed, may be general or specific and may refer to any
number of sealings. The Directors may provide for a facsimile of the Seal
and of the signature of any director or authorized person which may be
reproduced by printing or other means on any instrument and it shall have
the same force and validity as if the Seal had been affixed to such
instrument and the same had been signed as hereinbefore described.
DIVIDENDS
123. The Company may by a resolution of directors declare and pay dividends in
money, shares, or other property, but dividends shall only be declared and
paid out of surplus. In the event that dividends are paid in specie the
directors shall have responsibility for establishing and recording in the
resolution of directors authorizing the dividends, a fair and proper value
for the assets to be so distributed.
124. The directors may from time to time pay to the members such interim
dividends as appear to the directors to be justified by the profits of the
Company.
125. The directors may, before declaring any dividend, set aside out of the
profits of the Company such sum as they think proper as a reserve fund,
and may invest the sum so set aside as a reserve fund upon such securities
as they may select.
126. No dividend shall be declared and paid unless the directors determine that
immediately after the payment of the dividend the Company will be able to
satisfy its liabilities as they become due in the ordinary course of its
business and the realizable value of the assets of the Company will not be
less than the sum of its total liabilities, other than deferred taxes, as
shown in its books of account, and its capital. In the absence of fraud,
the decision of the directors as to the realizable value of the assets of
the Company is conclusive, unless a question of law is involved.
22
127. Notice of any dividend that may have been declared shall be given to each
member in manner hereinafter mentioned and all dividends unclaimed for 3
years after having been declared may be forfeited by resolution of
directors for the benefit of the Company.
128. No dividend shall bear interest as against the Company and no dividend
shall be paid on treasury shares or shares held by another company of
which the Company holds, directly or indirectly, shares having more than
50 percent of the vote in electing directors.
129. A share issued as a dividend by the Company shall be treated for all
purposes as having been issued for money equal to the surplus that is
transferred to capital upon the issue of the share.
130. In the case of a dividend of authorized but unissued shares with par
value, an amount equal to the aggregate par value of the shares shall be
transferred from surplus to capital at the time of the distribution.
131. In the case of a dividend of authorized but unissued shares without par
value, the amount designated by the directors shall be transferred from
surplus to capital at the time of the distribution, except that the
directors must designate as capital an amount that is at least equal to
the amount that the shares are entitled to as a preference, if any, in the
assets of the Company upon liquidation of the Company.
132. A division of the issued and outstanding shares of a class or series of
shares into a larger number of shares of the same class or series having a
proportionately smaller par value does not constitute a dividend of
shares.
ACCOUNTS AND AUDIT
133. The Company may by resolution of members call for the directors to prepare
periodically a profit and loss account and a balance sheet. The profit and
loss account and balance sheet shall be drawn up so as to give
respectively a true and fair view of the profit and loss of the Company
for the financial period and a true and fair view of the state of affairs
of the Company as at the end of the financial period.
134. The Company may by resolution of members call for the accounts to be
examined by auditors.
135. The first auditors of the Company and subsequent auditors shall be
appointed by resolution of directors.
136. The auditors may be members of the Company but no director or other
officer shall be eligible to be an auditor of the Company during his
continuance in office.
137. The remuneration of the auditors of the Company
(a) in the case of auditors appointed by the directors, may be fixed by
resolution of directors; and
(b) subject to the foregoing, shall be fixed by resolution of members or
in such manner as the Company may by resolution of members
determine.
138. The auditors shall examine each profit and loss account and balance sheet
required to be served on every member of the Company or laid before a
meeting of the members of the Company and shall state in a written report
whether or not
23
(a) in their opinion the profit and loss account and balance sheet give
a true and fair view respectively of the profit and loss for the
period covered by the accounts, and of the state of affairs of the
Company at the end of that period; and
(b) all the information and explanations required by the auditors have
been obtained.
139. The report of the auditors shall be annexed to the accounts and shall be
read at the meeting of members at which the accounts are laid before the
Company or shall be served on the members.
140. Every auditor of the Company shall have a right of access at all times to
the books of account and vouchers of the Company, and shall be entitled to
require from the directors and officers of the Company such information
and explanations as he thinks necessary for the performance of the duties
of the auditors.
141. The auditors of the Company shall be entitled to receive notice of, and to
attend any meetings of members of the Company at which the Company's
profit and loss account and balance sheet are to be presented.
NOTICES
142. Any notice, information or written statement to be given by the Company to
members may be served in the case of members holding registered shares in
any way by which it can reasonably be expected to reach each member or by
mail addressed to each member at the address shown in the share register.
143. Any summons, notice, order, document, process, information or written
statement to be served on the Company may be served by leaving it, or by
sending it by registered mail addressed to the Company, at its registered
office, or by leaving it with, or by sending it by registered mail to, the
registered agent of the Company.
144. Service of any summons, notice, order, document, process, information or
written statement to be served on the Company may be proved by showing
that the summons, notice, order, document, process, information or written
statement was delivered to the registered office or the registered agent
of the Company or that it was mailed in such time as to admit to its being
delivered to the registered office or the registered agent of the Company
in the normal course of delivery within the period prescribed for service
and was correctly addressed and the postage was prepaid.
PENSION AND SUPERANNUATION FUNDS
145. The directors may establish and maintain or procure the establishment and
maintenance of any non-contributory or contributory pension or
superannuation funds for the benefit of, and give or procure the giving of
donations, gratuities, pensions, allowances or emoluments to, any persons
who are or were at any time in the employment or service of the Company or
any company which is a subsidiary of the Company or is allied to or
associated with the Company or with any such subsidiary, or who are or
were at any time directors or officers of the Company or of any such other
company as aforesaid or who hold or held any salaried employment or office
in the Company or such other company, or any persons in whose welfare the
Company or any such other company as aforesaid is or has been at any time
interested, and to the wives, widows, families and dependents of any such
person, and may make payments for or towards the insurance of any such
persons as aforesaid, and may do any of the matters aforesaid either alone
or in conjunction with any such other company as aforesaid. Subject always
to the proposal being approved by resolution of members, a director
holding any such employment or office shall be entitled to participate in
and retain for his own benefit any such donation, gratuity, pension
allowance or emolument.
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VOLUNTARY WINDING UP AND DISSOLUTION
146. The Company may voluntarily commence to wind up and dissolve by a
resolution of members but if the Company has never issued shares it may
voluntarily commence to wind up and dissolve by resolution of director.
CONTINUATION
147. The Company may by resolution of members or by a resolution passed
unanimously by all directors of the Company continue as a company
incorporated under the laws of a jurisdiction outside the British Virgin
Islands in the manner provided under those laws.
We, Maples Finance BVI Limited of P.O. Box 173, Kingston Chambers, Road Town,
Tortola, British Virgin Islands for the purpose of incorporating an
International Business Company under the laws of the British Virgin Islands
hereby subscribe our name to these Articles of Association this 10th day of
February 2005 in the presence of:
/s/ Aiko Stevens /s/ Carl Seymour
---------------- ----------------
Witness: Subscriber:
Aiko Stevens Carl Seymour
P.O. Box 173 Maples Finance BVI Limited
Kingston Chambers P.O. Box 173
Road Town, Tortola Kingston Chambers
British Virgin Islands Road Town, Tortola
British Virgin Islands
Annex D
Approved by Board of Directors on December 7, 2004
Approved by Stockholders on _________, 2005
CHARDAN CHINA ACQUISITION CORP.
2005 Performance Equity Plan
Section 1. Purpose; Definitions.
1.1. Purpose. The purpose of the 2005 Performance Equity Plan ("Plan") is
to enable the Company to offer to its employees, officers, directors and
consultants whose past, present and/or potential contributions to the Company
and its Subsidiaries have been, are or will be important to the success of the
Company, an opportunity to acquire a proprietary interest in the Company. The
various types of long-term incentive awards that may be provided under the Plan
will enable the Company to respond to changes in compensation practices, tax
laws, accounting regulations and the size and diversity of its businesses.
1.2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Agreement" means the agreement between the Company and the
Holder, or such other document as may be determined by the Committee, setting
forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(d) "Committee" means the Stock Option Committee of the Board or any
other committee of the Board that the Board may designate to administer the Plan
or any portion thereof. If no Committee is so designated, then all references in
this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, par value
$.0001 per share.
(f) "Company" means Chardan China Acquisition Corp., a corporation
organized under the laws of the State of Delaware.
(g) "Deferred Stock" means Common Stock to be received under an
award made pursuant to Section 8, below, at the end of a specified deferral
period.
(h) "Disability" means physical or mental impairment as determined
under procedures established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 12.1,
below.
(j) "Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means, as of any
given date: (i) if the Common Stock is listed on a national securities exchange
or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the last sale
price of the Common Stock in the principal trading market for the Common Stock
on such date, as reported by the exchange or Nasdaq, as the case may be; (ii) if
the Common Stock is not listed on a national securities exchange or quoted on
the Nasdaq National Market or Nasdaq SmallCap Market, but is traded in the
over-the-counter market, the closing bid price for the Common Stock on such
date, as reported by the OTC Bulletin Board or the National Quotation Bureau,
Incorporated or similar publisher of such quotations; and (iii) if the fair
market value of the Common Stock cannot be determined pursuant to clause (i) or
(ii) above, such price as the Committee shall determine, in good faith.
(k) "Holder" means a person who has received an award under the
Plan.
(l) "Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment with
the Company or any Subsidiary on or after such age which may be designated by
the Committee as "retirement age" for any particular Holder. If no age is
designated, it shall be 65.
(o) "Other Stock-Based Award" means an award under Section 9, below,
that is valued in whole or in part by reference to, or is otherwise based upon,
Common Stock.
(p) "Parent" means any present or future "parent corporation" of the
Company, as such term is defined in Section 424(e) of the Code.
(q) "Plan" means the Chardan China Acquisition Corp. 2005
Performance Equity Plan, as hereinafter amended from time to time.
(r) "Repurchase Value" shall mean the Fair Market Value in the event
the award to be settled under Section 2.2(h) or repurchased under Section 10.2
is comprised of shares of Common Stock and the difference between Fair Market
Value and the Exercise Price (if lower than Fair Market Value) in the event the
award is a Stock Option or Stock Appreciation Right; in each case, multiplied by
the number of shares subject to the award.
(s) "Restricted Stock" means Common Stock received under an award
made pursuant to Section 7, below, that is subject to restrictions under said
Section 7.
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(t) "SAR Value" means the excess of the Fair Market Value (on the
exercise date) over the exercise price that the participant would have otherwise
had to pay to exercise the related Stock Option, multiplied by the number of
shares for which the Stock Appreciation Right is exercised.
(u) "Stock Appreciation Right" means the right to receive from the
Company, on surrender of all or part of the related Stock Option, without a cash
payment to the Company, a number of shares of Common Stock equal to the SAR
Value divided by the Fair Market Value (on the exercise date).
(v) "Stock Option" or "Option" means any option to purchase shares
of Common Stock which is granted pursuant to the Plan.
(w) "Stock Reload Option" means any option granted under Section 5.3
of the Plan.
(x) "Subsidiary" means any present or future "subsidiary
corporation" of the Company, as such term is defined in Section 424(f) of the
Code.
(y) "Vest" means to become exercisable or to otherwise obtain
ownership rights in an award.
Section 2. Administration.
2.1. Committee Membership. The Plan shall be administered by the Board or
a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
The Committee members, to the extent possible and deemed to be appropriate by
the Board, shall be "non-employee directors" as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and "outside directors" within the meaning of Section 162(m) of the Code.
2.2. Powers of Committee. The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) to select the officers, employees, directors and consultants of
the Company or any Subsidiary to whom Stock Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Reload Stock Options and/or Other Stock-Based
Awards may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not limited
to, number of shares, share exercise price or types of consideration paid upon
exercise of such options, such as other securities of the Company or other
property, any restrictions or limitations, and any vesting,
3
exchange, surrender, cancellation, acceleration, termination, exercise or
forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards granted
hereunder are to operate on a tandem basis and/or in conjunction with or apart
from other equity awarded under this Plan and cash and non-cash awards made by
the Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the Plan
under such rules and procedures as the Committee may establish, including the
payment or crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Common Stock;
(f) to determine the extent and circumstances under which Common
Stock and other amounts payable with respect to an award hereunder shall be
deferred that may be either automatic or at the election of the Holder;
(g) to substitute (i) new Stock Options for previously granted Stock
Options, which previously granted Stock Options have higher option exercise
prices and/or contain other less favorable terms, and (ii) new awards of any
other type for previously granted awards of the same type, which previously
granted awards are upon less favorable terms; and
(h) to make payments and distributions with respect to awards (i.e.,
to "settle" awards) through cash payments in an amount equal to the Repurchase
Value.
Notwithstanding anything to the contrary, the Committee shall not
grant to any one Holder in any one calendar year awards for more than 300,000
shares in the aggregate.
2.3. Interpretation of Plan.
(a) Committee Authority. Subject to Section 11, below, the Committee
shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall from time to time deem
advisable to interpret the terms and provisions of the Plan and any award issued
under the Plan (and to determine the form and substance of all agreements
relating thereto), and to otherwise supervise the administration of the Plan.
Subject to Section 11, below, all decisions made by the Committee pursuant to
the provisions of the Plan shall be made in the Committee's sole discretion and
shall be final and binding upon all persons, including the Company, its
Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive Stock
Options (including but not limited to Stock Reload Options or Stock Appreciation
rights granted in conjunction with an Incentive Stock Option) or any Agreement
providing for Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so
4
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
Section 3. Stock Subject to Plan.
3.1. Number of Shares. The total number of shares of Common Stock reserved
and available for issuance under the Plan shall be 1,500,000 shares. Shares of
Common Stock under the Plan ("Shares") may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares of Common Stock
that have been granted pursuant to a Stock Option cease to be subject to a Stock
Option, or if any shares of Common Stock that are subject to any Stock
Appreciation Right, Restricted Stock award, Deferred Stock award, Reload Stock
Option or Other Stock-Based Award granted hereunder are forfeited or any such
award otherwise terminates without a payment being made to the Holder in the
form of Common Stock, such shares shall again be available for distribution in
connection with future grants and awards under the Plan. If a Holder pays the
exercise price of a Stock Option by surrendering any previously owned shares
and/or arranges to have the appropriate number of shares otherwise issuable upon
exercise withheld to cover the withholding tax liability associated with the
Stock Option exercise, then the number of shares available under the Plan shall
be increased by the lesser of (i) the number of such surrendered shares and
shares used to pay taxes; and (ii) the number of shares purchased under such
Stock Option.
3.2. Adjustment Upon Changes in Capitalization, Etc. In the event of any
merger, reorganization, consolidation, common stock dividend payable on shares
of Common Stock, Common Stock split or reverse split, combination or exchange of
shares of Common Stock, or other extraordinary or unusual event which results in
a change in the shares of Common Stock of the Company as a whole, the Committee
shall determine, in its sole discretion, whether such change equitably requires
an adjustment in the terms of any award (including number of shares subject to
the award and the exercise price) or the aggregate number of shares reserved for
issuance under the Plan. Any such adjustments will be made by the Committee,
whose determination will be final, binding and conclusive.
Section 4. Eligibility.
Awards may be made or granted to employees, officers, directors and
consultants who are deemed to have rendered or to be able to render significant
services to the Company or its Subsidiaries and who are deemed to have
contributed or to have the potential to contribute to the success of the
Company. No Incentive Stock Option shall be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant. Notwithstanding
the foregoing, an award may be made or granted to a person in connection with
his hiring or retention, or at any time on or after the date he reaches an
agreement (oral or written) with the Company with respect to such hiring or
retention, even though it may be prior to the date the person first performs
services for the Company or its Subsidiaries; provided, however, that no portion
of any such award shall vest prior to the date the person first performs such
services.
5
Section 5. Stock Options.
5.1. Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Plan and the Code, as the Committee may from time to time approve. The
Committee shall have the authority to grant Incentive Stock Options or
Non-Qualified Stock Options, or both types of Stock Options which may be granted
alone or in addition to other awards granted under the Plan. To the extent that
any Stock Option intended to qualify as an Incentive Stock Option does not so
qualify, it shall constitute a separate Nonqualified Stock Option.
5.2. Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Option Term. The term of each Stock Option shall be fixed by the
Committee; provided, however, that an Incentive Stock Option may be granted only
within the ten-year period commencing from the Effective Date and may only be
exercised within ten years of the date of grant (or five years in the case of an
Incentive Stock Option granted to an optionee who, at the time of grant, owns
Common Stock possessing more than 10% of the total combined voting power of all
classes of voting stock of the Company ("10% Stockholder").
(b) Exercise Price. The exercise price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant, provided, however, that in no event may the exercise price per
share be less than $[.02] under any Stock Option.
(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by the
Committee and as set forth in Section 10, below. If the Committee provides, in
its discretion, that any Stock Option is exercisable only in installments, i.e.,
that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based
upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment, exercise
and waiting period provisions are applicable in a particular case, Stock Options
may be exercised in whole or in part at any time during the term of the Option
by giving written notice of exercise to the Company specifying the number of
shares of Common Stock to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, which shall be in cash or, if provided in
the Agreement, either in shares of Common Stock (including Restricted Stock and
other contingent awards under this Plan) or partly in cash and partly in such
Common Stock, or such other means which the Committee determines are consistent
with the Plan's purpose and applicable law. Cash payments shall be made by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; provided, however, that the Company shall not be required
to deliver certificates for shares of Common Stock with respect to which an
Option is exercised until the Company has confirmed the receipt of good and
available
6
funds in payment of the purchase price thereof (except that, in the case of an
exercise arrangement approved by the Committee and described in the last
sentence of this paragraph, payment may be made as soon as practicable after the
exercise). Payments in the form of Common Stock shall be valued at the Fair
Market Value on the date prior to the date of exercise. Such payments shall be
made by delivery of stock certificates in negotiable form that are effective to
transfer good and valid title thereto to the Company, free of any liens or
encumbrances. Subject to the terms of the Agreement, the Committee may, in its
sole discretion, at the request of the Holder, deliver upon the exercise of a
Nonqualified Stock Option a combination of shares of Deferred Stock and Common
Stock; provided, however, that, notwithstanding the provisions of Section 8 of
the Plan, such Deferred Stock shall be fully vested and not subject to
forfeiture. A Holder shall have none of the rights of a Stockholder with respect
to the shares subject to the Option until such shares shall be transferred to
the Holder upon the exercise of the Option. The Committee may permit a Holder to
elect to pay the Exercise Price upon the exercise of a Stock Option by
irrevocably authorizing a third party to sell shares of Common Stock (or a
sufficient portion of the shares) acquired upon exercise of the Stock Option and
remit to the Company a sufficient portion of the sale proceeds to pay the entire
Exercise Price and any tax withholding resulting from such exercise.
(e) Transferability. Except as may be set forth in the next sentence
of this Section or in the Agreement, no Stock Option shall be transferable by
the Holder other than by will or by the laws of descent and distribution, and
all Stock Options shall be exercisable, during the Holder's lifetime, only by
the Holder (or, to the extent of legal incapacity or incompetency, the Holder's
guardian or legal representative). Notwithstanding the foregoing, a Holder, with
the approval of the Committee, may transfer a Stock Option (i) (A) by gift, for
no consideration, or (B) pursuant to a domestic relations order, in either case,
to or for the benefit of the Holder's "Immediate Family" (as defined below), or
(ii) to an entity in which the Holder and/or members of Holder's Immediate
Family own more than fifty percent of the voting interest, in exchange for an
interest in that entity, subject to such limits as the Committee may establish
and the execution of such documents as the Committee may require, and the
transferee shall remain subject to all the terms and conditions applicable to
the Stock Option prior to such transfer. The term "Immediate Family" shall mean
any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including adoptive
relationships, any person sharing the Holder's household (other than a tenant or
employee), a trust in which these persons have more than fifty percent
beneficial interest, and a foundation in which these persons (or the Holder)
control the management of the assets.
(f) Termination by Reason of Death. If a Holder's employment by the
Company or a Subsidiary terminates by reason of death, any Stock Option held by
such Holder, unless otherwise determined by the Committee and set forth in the
Agreement, shall thereupon automatically terminate, except that the portion of
such Stock Option that has vested on the date of death may thereafter be
exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify in the Agreement) from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is shorter.
7
(g) Termination by Reason of Disability. If a Holder's employment by
the Company or any Subsidiary terminates by reason of Disability, any Stock
Option held by such Holder, unless otherwise determined by the Committee and set
forth in the Agreement, shall thereupon automatically terminate, except that the
portion of such Stock Option that has vested on the date of termination may
thereafter be exercised by the Holder for a period of one year (or such other
greater or lesser period as the Committee may specify in the Agreement) from the
date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is shorter.
(h) Other Termination. Subject to the provisions of Section 13.3,
below, and unless otherwise determined by the Committee and set forth in the
Agreement, if such Holder's employment or retention by, or association with, the
Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option shall thereupon automatically terminate, except
that if the Holder's employment is terminated by the Company or a Subsidiary
without cause or due to Normal Retirement, then the portion of such Stock Option
that has vested on the date of termination of employment may be exercised for
the lesser of three months after termination of employment or the balance of
such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case of an
Incentive Stock Option, the aggregate Fair Market Value (on the date of grant of
the Option) with respect to which Incentive Stock Options become exercisable for
the first time by a Holder during any calendar year (under all such plans of the
Company and its Parent and Subsidiaries) shall not exceed $100,000.
(j) Buyout and Settlement Provisions. The Committee may at any time,
in its sole discretion, offer to repurchase a Stock Option previously granted,
based upon such terms and conditions as the Committee shall establish and
communicate to the Holder at the time that such offer is made.
5.3. Stock Reload Option. If a Holder tenders shares of Common Stock to
pay the exercise price of a Stock Option ("Underlying Option") and/or arranges
to have a portion of the shares otherwise issuable upon exercise withheld to pay
the applicable withholding taxes, then the Holder may receive, at the discretion
of the Committee, a new Stock Reload Option to purchase that number of shares of
Common Stock equal to the number of shares tendered to pay the exercise price
and the withholding taxes (but only if such tendered shares were held by the
Holder for at least six months). Stock Reload Options may be any type of option
permitted under the Code and will be granted subject to such terms, conditions,
restrictions and limitations as may be determined by the Committee from time to
time. Such Stock Reload Option shall have an exercise price equal to the Fair
Market Value as of the date of exercise of the Underlying Option. Unless the
Committee determines otherwise, a Stock Reload Option may be exercised
commencing one year after it is granted and shall expire on the date of
expiration of the Underlying Option to which the Reload Option is related.
8
Section 6. Stock Appreciation Rights.
6.1. Grant and Exercise. The Committee may grant Stock Appreciation Rights
to participants who have been or are being granted Stock Options under the Plan
as a means of allowing such participants to exercise their Stock Options without
the need to pay the exercise price in cash. In the case of a Nonqualified Stock
Option, a Stock Appreciation Right may be granted either at or after the time of
the grant of such Nonqualified Stock Option. In the case of an Incentive Stock
Option, a Stock Appreciation Right may be granted only at the time of the grant
of such Incentive Stock Option.
6.2. Terms and Conditions. Stock Appreciation Rights shall be subject to
the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be exercisable
as shall be determined by the Committee and set forth in the Agreement, subject
to the limitations, if any, imposed by the Code with respect to related
Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate and
shall no longer be exercisable upon the termination or exercise of the related
Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of shares of Common Stock equal to
the SAR Value divided by the Fair Market Value on the date the Stock
Appreciation Right is exercised.
(d) Shares Affected Upon Plan. The granting of a Stock Appreciation
Right shall not affect the number of shares of Common Stock available under for
awards under the Plan. The number of shares available for awards under the Plan
will, however, be reduced by the number of shares of Common Stock acquirable
upon exercise of the Stock Option to which such Stock Appreciation Right
relates.
Section 7. Restricted Stock.
7.1. Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture ("Restriction Period"), the vesting schedule and
rights to acceleration thereof and all other terms and conditions of the awards.
7.2. Terms and Conditions. Each Restricted Stock award shall be subject to
the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be represented
by a stock certificate or certificates registered in the name of the Holder to
whom such Restricted Stock
9
shall have been awarded. During the Restriction Period, certificates
representing the Restricted Stock and any securities constituting Retained
Distributions (as defined below) shall bear a legend to the effect that
ownership of the Restricted Stock (and such Retained Distributions) and the
enjoyment of all rights appurtenant thereto are subject to the restrictions,
terms and conditions provided in the Plan and the Agreement. Such certificates
shall be deposited by the Holder with the Company, together with stock powers or
other instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock and any
securities constituting Retained Distributions that shall be forfeited or that
shall not become vested in accordance with the Plan and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The Holder will
have the right to vote such Restricted Stock, to receive and retain all regular
cash dividends and other cash equivalent distributions as the Board may in its
sole discretion designate, pay or distribute on such Restricted Stock and to
exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the Restriction
Period with respect to each award of Restricted Stock and the satisfaction of
any other applicable restrictions, terms and conditions (i) all or part of such
Restricted Stock shall become vested in accordance with the terms of the
Agreement, subject to Section 10, below, and (ii) any Retained Distributions
with respect to such Restricted Stock shall become vested to the extent that the
Restricted Stock related thereto shall have become vested, subject to Section
10, below. Any such Restricted Stock and Retained Distributions that do not vest
shall be forfeited to the Company and the Holder shall not thereafter have any
rights with respect to such Restricted Stock and Retained Distributions that
shall have been so forfeited.
Section 8. Deferred Stock.
8.1. Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of
10
shares of Deferred Stock to be awarded to any person, the duration of the period
("Deferral Period") during which, and the conditions under which, receipt of the
shares will be deferred, and all the other terms and conditions of the awards.
8.2. Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or the
Additional Deferral Period referred to in Section 8.2 (d) below, where
applicable), share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred Stock
shall not have any rights of a Stockholder by virtue of such award until the
expiration of the applicable Deferral Period and the issuance and delivery of
the certificates representing such Common Stock. The shares of Common Stock
issuable upon expiration of the Deferral Period shall not be deemed outstanding
by the Company until the expiration of such Deferral Period and the issuance and
delivery of such Common Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral Period
with respect to each award of Deferred Stock and the satisfaction of any other
applicable restrictions, terms and conditions all or part of such Deferred Stock
shall become vested in accordance with the terms of the Agreement, subject to
Section 10, below. Any such Deferred Stock that does not vest shall be forfeited
to the Company and the Holder shall not thereafter have any rights with respect
to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and the
Committee may at any time, defer the receipt of an award (or an installment of
an award) for an additional specified period or until a specified event
("Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
Section 9. Other Stock-Based Awards.
Other Stock-Based Awards may be awarded, subject to limitations under
applicable law, that are denominated or payable in, valued in whole or in part
by reference to, or otherwise based on or related to, shares of Common Stock, as
deemed by the Committee to be consistent with the purposes of the Plan,
including, without limitation, purchase rights, shares of Common Stock awarded
which are not subject to any restrictions or conditions, convertible or
exchangeable debentures, or other rights convertible into shares of Common Stock
and awards valued by reference to the value of securities of or the performance
of specified Subsidiaries. Other Stock-Based Awards may be awarded either alone
or in addition to or in tandem with any other awards under this Plan or any
other plan of the Company. Each other Stock-Based Award shall be subject to such
terms and conditions as may be determined by the Committee.
11
Section 10. Accelerated Vesting and Exercisability.
10.1. Non-Approved Transactions. If any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act of 1934, as amended ("Exchange
Act")), is or becomes the "beneficial owner" (as referred in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the Company's then
outstanding securities in one or more transactions, and the Board does not
authorize or otherwise approve such acquisition, then the vesting periods of any
and all Stock Options and other awards granted and outstanding under the Plan
shall be accelerated and all such Stock Options and awards will immediately and
entirely vest, and the respective holders thereof will have the immediate right
to purchase and/or receive any and all Common Stock subject to such Stock
Options and awards on the terms set forth in this Plan and the respective
agreements respecting such Stock Options and awards.
10.2. Approved Transactions. The Committee may, in the event of an
acquisition of substantially all of the Company's assets or at least 50% of the
combined voting power of the Company's then outstanding securities in one or
more transactions (including by way of merger or reorganization) which has been
approved by the Company's Board of Directors, (i) accelerate the vesting of any
and all Stock Options and other awards granted and outstanding under the Plan,
or (ii) require a Holder of any award granted under this Plan to relinquish such
award to the Company upon the tender by the Company to Holder of cash in an
amount equal to the Repurchase Value of such award or, in the event that an
outstanding award does not have any Repurchase Value, then the Board of
Directors may terminate the award on payment of $.01 per share that may be
acquired or vest under an award.
Section 11. Amendment and Termination.
The Board may at any time, and from time to time, amend alter, suspend or
discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made that would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent, except as set forth in this Plan.
Section 12. Term of Plan.
12.1. Effective Date. The Plan shall be effective as of December 7, 2004
subject to the approval of the Plan by the Company's stockholders within one
year after the Effective Date. Notwithstanding the foregoing, if the Plan is not
approved by the Company's stockholders, it will continue to be effective
provided that no Incentive Stock Options will be issued under the Plan Any
awards granted under the Plan prior to such approval shall be effective when
made (unless otherwise specified by the Committee at the time of grant), but
shall be conditioned upon, and subject to, such approval of the Plan by the
Company's stockholders and no awards shall vest or otherwise become free of
restrictions prior to such approval.
12.2. Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time as no further awards may be granted
and all awards granted
12
under the Plan are no longer outstanding. Notwithstanding the foregoing, grants
of Incentive Stock Options may be made only during the ten-year period following
the Effective Date.
Section 13. General Provisions.
13.1. Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of, the Agreement executed by
the Company and the Holder, or such other document as may be determined by the
Committee. The Committee may terminate any award made under the Plan if the
Agreement relating thereto is not executed and returned to the Company within 10
days after the Agreement has been delivered to the Holder for his or her
execution.
13.2. Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
13.3. Employees.
(a) Engaging in Competition With the Company; Solicitation of
Customers and Employees; Disclosure of Confidential Information. If a Holder's
employment with the Company or a Subsidiary is terminated for any reason
whatsoever, and within 12 months after the date thereof such Holder either (i)
accepts employment with any competitor of, or otherwise engages in competition
with, the Company or any of its Subsidiaries, (ii) solicits any customers or
employees of the Company or any of its Subsidiaries to do business with or
render services to the Holder or any business with which the Holder becomes
affiliated or to which the Holder renders services or (iii) discloses to anyone
outside the Company or uses any confidential information or material of the
Company or any of its Subsidiaries in violation of the Company's policies or any
agreement between the Holder and the Company or any of its Subsidiaries, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any Shares that was realized or obtained by such
Holder at any time during the period beginning on the date that is six months
prior to the date such Holder's employment with the Company is terminated. In
such event, Holder agrees to remit to the Company, in cash, an amount equal to
the difference between the Fair Market Value of the Shares on the date of
termination (or the sales price of such Shares if the Shares were sold during
such six month period) and the price the Holder paid the Company for such
Shares.
(b) Termination for Cause. The Committee may, if a Holder's
employment with the Company or a Subsidiary is terminated for cause, annul any
award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any Shares that was realized or obtained by such
Holder at any time during the period beginning on that date that is six months
prior to the date such Holder's employment with the Company is terminated. In
such event, Holder agrees to remit to the Company, in cash, an amount equal to
the difference between the Fair Market Value of the Shares on the date of
termination (or the sales price of such Shares if the
13
Shares were sold during such six month period) and the price the Holder paid the
Company for such Shares.
(c) No Right of Employment. Nothing contained in the Plan or in any
award hereunder shall be deemed to confer upon any Holder who is an employee of
the Company or any Subsidiary any right to continued employment with the Company
or any Subsidiary, nor shall it interfere in any way with the right of the
Company or any Subsidiary to terminate the employment of any Holder who is an
employee at any time.
13.4. Investment Representations; Company Policy. The Committee may
require each person acquiring shares of Common Stock pursuant to a Stock Option
or other award under the Plan to represent to and agree with the Company in
writing that the Holder is acquiring the shares for investment without a view to
distribution thereof. Each person acquiring shares of Common Stock pursuant to a
Stock Option or other award under the Plan shall be required to abide by all
policies of the Company in effect at the time of such acquisition and thereafter
with respect to the ownership and trading of the Company's securities.
13.5. Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of Common Stock and cash otherwise
than under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
13.6. Withholding Taxes. Not later than the date as of which an amount
must first be included in the gross income of the Holder for Federal income tax
purposes with respect to any Stock Option or other award under the Plan, the
Holder shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such amount. If
permitted by the Committee, tax withholding or payment obligations may be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditioned upon such payment or arrangements and the Company
or the Holder's employer (if not the Company) shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Holder from the Company or any Subsidiary.
13.7. Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Delaware (without regard to choice of law provisions); provided,
however, that all matters relating to or involving corporate law shall be
governed by the laws of the State of Delaware.
13.8. Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
14
13.9. Non-Transferability. Except as otherwise expressly provided in the
Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
13.10. Applicable Laws. The obligations of the Company with respect to all
Stock Options and awards under the Plan shall be subject to (i) all applicable
laws, rules and regulations and such approvals by any governmental agencies as
may be required, including, without limitation, the Securities Act of 1933 (the
"Securities Act"), as amended, and (ii) the rules and regulations of any
securities exchange on which the Common Stock may be listed.
13.11. Conflicts. If any of the terms or provisions of the Plan or an
Agreement conflict with the requirements of Section 422 of the Code, then such
terms or provisions shall be deemed inoperative to the extent they so conflict
with such requirements. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
Code, such provision shall be deemed to be incorporated herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein. If any of the terms or provisions of any Agreement conflict with
any terms or provisions of the Plan, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of the
Plan. Additionally, if any Agreement does not contain any provision required to
be included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
13.12. Non-Registered Stock. The shares of Common Stock to be distributed
under this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Common Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Common Stock on a national securities
exchange or any other trading or quotation system, including the Nasdaq National
Market and Nasdaq SmallCap Market.
15
Plan Amendments
Date Approved Initials of
by Attorney
Date Approved Stockholders, Sections Description of Effecting
by Board if necessary Amended Amendments Amendment
-------- ------------ ------- ---------- ---------
16
Annex E
Adopted by the Board of Directors and
Audit Committee on __________, 2005
AUDIT COMMITTEE CHARTER
OF
ORIGIN AGRITECH LIMITED
Purpose
The Audit Committee is appointed by the Board of Directors ("Board") of Origin
Agritech Limited. ("Company") to assist the Board in monitoring (1) the
integrity of the annual, quarterly and other financial statements of the
Company, (2) the independent auditor's qualifications and independence, (3) the
performance of the Company's independent auditors and (4) the compliance by the
Company with legal and regulatory requirements. The Audit Committee also shall
review and approve all related-party transactions.
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission ("Commission") to be included in the
Company's annual proxy statement.
Committee Membership
The Audit Committee shall consist of no fewer than three members, absent a
temporary vacancy. The members of the Audit Committee shall meet the
independence and experience requirements of the The Nasdaq Stock Market, Inc.,
Section 10A(m)(3) of the Securities Exchange Act of 1934 ("Exchange Act") and
the rules and regulations of the Commission.
The members of the Audit Committee shall be appointed by the Board. Audit
Committee members may be replaced by the Board.
Meetings
The Audit Committee shall meet as often as it determines, but not less than
quarterly. The Audit Committee shall meet periodically with management and the
independent auditor in separate executive sessions. The Audit Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent auditor to attend a meeting of the Audit Committee or to meet
with any members of or consultants to, the Audit Committee.
Committee Authority and Responsibilities
The Audit Committee shall have the sole authority to appoint or replace the
independent auditor. The Audit Committee shall be directly responsible for
determining the compensation and oversight of the work of the independent
auditor (including resolution of disagreements between management and the
independent auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work. The independent auditor
shall report directly to the Audit Committee.
The Audit Committee shall pre-approve all auditing services and permitted
non-audit services to be performed for the Company by its independent auditor,
including the fees and terms thereof (subject to the de minimus exceptions for
non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which
are approved by the Audit Committee prior to the completion of the audit). The
Audit Committee may form and delegate authority to subcommittees of the Audit
Committee consisting of one or more members when appropriate, including the
authority to grant pre-approvals of audit and permitted non-audit services,
provided that decisions of such subcommittee to grant pre-approvals shall be
presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain independent legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to (i) the independent auditor for the
purpose of rendering or issuing an audit report and (ii) any advisors employed
by the Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit Committee
shall review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. The Audit Committee annually
shall review the Audit Committee's own performance.
The Audit Committee shall:
Financial Statement and Disclosure Matters
1. Meet with the independent auditor prior to the audit to review the scope,
planning and staffing of the audit.
2. Review and discuss with management and the independent auditor the annual
audited financial statements, and recommend to the Board whether the
audited financial statements should be included in the Company's Form
10-K.
3. If requested by the Audit Committee, management or the independent
auditors, review and discuss with management and the independent auditor
the Company's quarterly financial statements prior to the filing of its
Form 10-Q, including the results of the independent auditor's review of
the quarterly financial statements.
4. Discuss with management and the independent auditor significant financial
reporting issues and judgments made in connection with the preparation of
the Company's financial statements, including:
(a) any significant changes in the Company's selection or application of
accounting principles;
2
(b) the Company's critical accounting policies and practices to be used;
(c) All alternative treatments of financial information within GAAP that
have been discussed with management, ramifications of the use of
such alternative disclosures and treatments, and the treatment
preferred by the independent auditor;
(d) any material written communications between the independent auditor
and management, such as any management letter or schedule of
unadjusted differences; and
(e) any major issues as to the adequacy of the Company's internal
controls and any special steps adopted in light of material control
deficiencies.
5. Discuss with management the Company's earnings press releases generally,
including the use of "pro forma" or "adjusted" non-GAAP information, and
financial information and earnings guidance provided to analysts and
rating agencies. Such discussion may be general and include the types of
information to be disclosed and the types to be presentations to be made.
6. Discuss with management and the independent auditor the effect on the
Company's financial statements of (i) regulatory and accounting
initiatives and (ii) off-balance sheet structures.
7. Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.
8. Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit, including any difficulties encountered in the course of the audit
work, any restrictions on the scope of activities or access to requested
information, and any significant disagreements with management.
9. Review disclosures made to the Audit Committee by the Company's CEO and
CFO during their certification process for the Form 10-Kand Form 10-Q
about any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management
or other employees who have a significant role in the Company's internal
controls.
Oversight of the Company's Relationship with the Independent Auditor
10. At least annually, obtain and review a report from the independent
auditor, consistent with Independence Standards Board Standard 1,
regarding (a) the independent auditor's internal quality-control
procedures, (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
3
investigation by governmental or professional authorities within the
preceding five years respecting one or more independent audits carried out
by the firm, (c) any steps taken to deal with any such issues and (d) all
relationships between the independent auditor and the Company. Evaluate
the qualifications, performance and independence of the independent
auditor, including whether the auditor's quality controls are adequate and
the provision of permitted non-audit services is compatible with
maintaining the auditor's independence, and taking into account the
opinions of management. The Audit Committee shall present its conclusions
with respect to the independent auditor to the Board.
11. Verify the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law. Consider whether, in order to
assure continuing auditor independence, it is appropriate to adopt a
policy of rotating the independent auditing firm on a regular basis.
12. Oversee the Company's hiring of employees or former employees of the
independent auditor who participated in any capacity in the audit of the
Company.
13. Be available to the independent auditors during the year for consultation
purposes.
Compliance Oversight Responsibilities
14. Obtain from the independent auditor assurance that Section 10A(b) of the
Exchange Act has not been implicated.
15. Review and approve all related-party transactions.
16. Inquire and discuss with management the Company's compliance with
applicable laws and regulations and with the Company's Code of Ethics, in
effect at such time, if any, and, where applicable, recommend policies and
procedures for future compliance.
17. Establish procedures (which may be incorporated in the Company's Code of
Ethics, in effect at such time, if any) for the receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, including procedures for
the confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing matters.
18. Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and any published reports that
raise material issues regarding the Company's financial statements or
accounting policies.
19. Discuss with the Company's General Counsel legal matters that may have a
material impact on the financial statements or the Company's compliance
policies.
4
Limitation of Audit Committee's Role
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor.
5
Annex F
Approved by the Board of Directors
_____________, 2005
Adopted by the Nominating Committee
_____________, 2005
ORIGIN AGRITECH LIMITED
Nominating Committee Charter
The Nominating Committee's responsibilities and powers as delegated by the
board of directors are set forth in this charter. Whenever the Committee takes
an action, it shall exercise its independent judgment on an informed basis that
the action is in the best interests of the Company and its stockholders.
I. PURPOSE
As set forth herein, the Committee shall, among other things, discharge
the responsibilities of the board of directors relating to the appropriate size,
functioning and needs of the board including, but not limited to, recruitment
and retention of high quality board members and committee composition and
structure.
II. MEMBERSHIP
The Committee shall consist of at least two members of the board of
directors as determined from time to time by the board. Each member shall be
"independent" in accordance with the listing standards of the Nasdaq Stock
Market, as amended from time to time.
The board of directors shall elect the members of this Committee at the
first board meeting practicable following the annual meeting of stockholders and
may make changes from time to time pursuant to the provisions below. Unless a
chair is elected by the board of directors, the members of the Committee shall
designate a chair by majority vote of the full Committee membership.
A Committee member may resign by delivering his or her written resignation
to the chairman of the board of directors, or may be removed by majority vote of
the board of directors by delivery to such member of written notice of removal,
to take effect at a date specified therein, or upon delivery of such written
notice to such member if no date is specified.
III. MEETINGS AND COMMITTEE ACTION
The Committee shall meet at such times as it deems necessary to fulfill
its responsibilities. Meetings of the Committee shall be called by the chairman
of the Committee upon such notice as is provided for in the by-laws of the
company with respect to meetings of the
1
board of directors. A majority of the members shall constitute a quorum. Actions
of the Committee may be taken in person at a meeting or in writing without a
meeting. Actions taken at a meeting, to be valid, shall require the approval of
a majority of the members present and voting. Actions taken in writing, to be
valid, shall be signed by all members of the Committee. The Committee shall
report its minutes from each meeting to the board of directors.
The chairman of the Committee shall establish such rules as may from time
to time be necessary or appropriate for the conduct of the business of the
Committee. At each meeting, the chairman shall appoint as secretary a person who
may, but need not, be a member of the Committee. A certificate of the secretary
of the Committee or minutes of a meeting of the Committee executed by the
secretary setting forth the names of the members of the Committee present at the
meeting or actions taken by the Committee at the meeting shall be sufficient
evidence at all times as to the members of the Committee who were present, or
such actions taken.
IV. COMMITTEE AUTHORITY AND RESPONSIBLITIES
o Developing the criteria and qualifications for membership on the
board.
o Recruiting, reviewing and nominating candidates for election to the
board of directors or to fill vacancies on the board of directors.
o Reviewing candidates proposed by stockholders, and conducting
appropriate inquiries into the background and qualifications of any
such candidates.
o Establishing subcommittees for the purpose of evaluating special or
unique matters.
o Monitoring and making recommendations regarding committee functions,
contributions and composition.
o Evaluating, on an annual basis, the Committee's performance.
VI. REPORTING
The Committee shall prepare a statement each year concerning its
compliance with this charter for inclusion in the Company's proxy statement.
2
ORIGIN AGRITECH LIMTED
Board of Director Candidate Guidelines
The Nominating Committee of Origin Agritech Limited (the "Company") will
identify, evaluate and recommend candidates to become members of the Board of
Directors ("Board") with the goal of creating a balance of knowledge and
experience. Nominations to the Board may also be submitted to the Nominating
Committee by the Company's stockholders in accordance with the Company's policy,
a copy of which is attached hereto. Candidates will be reviewed in the context
of current composition of the Board, the operating requirements of the Company
and the long-term interests of the Company's stockholders. In conducting this
assessment, the Committee will consider and evaluate each director-candidate
based upon its assessment of the following criteria:
o Whether the candidate is independent pursuant to the requirements of the
Nasdaq Stock Market.
o Whether the candidate is accomplished in his or her field and has a
reputation, both personal and professional, that is consistent with the
image and reputation of the Company.
o Whether the candidate has the ability to read and understand basic
financial statements. The Nominating Committee also will determine if a
candidate satisfies the criteria for being an "audit committee financial
expert," as defined by the Securities and Exchange Commission.
o Whether the candidate has relevant experience and expertise and would be
able to provide insights and practical wisdom based upon that experience
and expertise.
o Whether the candidate has knowledge of the Company and issues affecting
the Company.
o Whether the candidate is committed to enhancing stockholder value.
o Whether the candidate fully understands, or has the capacity to fully
understand, the legal responsibilities of a director and the governance
processes of a public company.
o Whether the candidate is of high moral and ethical character and would be
willing to apply sound, objective and independent business judgment, and
to assume broad fiduciary responsibility.
o Whether the candidate has, and would be willing to commit, the required
hours necessary to discharge the duties of Board membership.
o Whether the candidate has any prohibitive interlocking relationships or
conflicts of interest.
3
o Whether the candidate is able to develop a good working relationship with
other Board members and contribute to the Board's working relationship
with the senior management of the Company.
o Whether the candidate is able to suggest business opportunities to the
Company.
4
Stockholder Recommendations for Directors
Stockholders who wish to recommend to the Nominating Committee a candidate
for election to the Board of Directors should send their letters to Origin
Agritech Limited, 625 Broadway, Suite 1111, San Diego, California 92101,
Attention: Nominating Committee. The Corporate Secretary will promptly forward
all such letters to the members of the Nominating Committee. Stockholders must
follow certain procedures to recommend to the Nominating Committee candidates
for election as directors. In general, in order to provide sufficient time to
enable the Nominating Committee to evaluate candidates recommended by
stockholders in connection with selecting candidates for nomination in
connection with the Company's annual meeting of stockholders, the Corporate
Secretary must receive the stockholder's recommendation no later than thirty
(30) days after the end of the Company's fiscal year.
The recommendation must contain the following information about the
candidate:
o Name;
o Age;
o Current business and residence addresses and telephone numbers, as
well as residence addresses for the past 20 years;
o Principal occupation or employment and employment history (name and
address of employer and job title) for the past 20 years (or such
shorter period as the candidate has been in the workforce);
o Educational background;
o Permission for the Company to conduct a background investigation,
including the right to obtain education, employment and credit
information;
o Three (3) character references and contact information;
o The number of shares of common stock of the Company beneficially
owned by the candidate;
o The information that would be required to be disclosed by the
Company about the candidate under the rules of the SEC in a Proxy
Statement soliciting proxies for the election of such candidate as a
director (which currently includes information required by Items
401, 404 and 405 of Regulation S-K); and
o A signed consent of the nominee to serve as a director of the
Company, if elected.
5
Annex G
Adopted by Board of Directors
___________, 2005
ORIGIN AGRITECH LIMITED
Code of Ethics
1. Introduction
The Board of Directors of Origin Agritech Limited has adopted this code of
ethics (the "Code"), which is applicable to all directors, officers and
employees to:
o promote honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal and
professional relationships;
o promote the full, fair, accurate, timely and understandable
disclosure in reports and documents that the Company files with, or
submits to, the SEC, as well as in other public communications made
by or on behalf of the Company;
o promote compliance with applicable governmental laws, rules and
regulations;
o deter wrongdoing; and
o require prompt internal reporting of breaches of, and accountability
for adherence to, this Code.
This Code may be amended only by resolution of the Company's Board of
Directors. In this Code, references to the "Company" means Origin Agritech
Limited and, in appropriate context, the Company's subsidiaries.
2. Honest, Ethical and Fair Conduct
Each person owes a duty to the Company to act with integrity. Integrity
requires, among other things, being honest, fair and candid. Deceit, dishonesty
and subordination of principle are inconsistent with integrity. Service to the
Company never should be subordinated to personal gain and advantage.
Each person must:
o Act with integrity, including being honest and candid while still
maintaining the confidentiality of the Company's information where
required or in the Company's interests.
o Observe all applicable governmental laws, rules and regulations.
o Comply with the requirements of applicable accounting and auditing
standards, as well as Company policies, in the maintenance of a high
standard of accuracy and completeness in the Company's financial
records and other business-related information and data.
1
o Adhere to a high standard of business ethics and not seek
competitive advantage through unlawful or unethical business
practices.
o Deal fairly with the Company's customers, suppliers, competitors and
employees.
o Refrain from taking advantage of anyone through manipulation,
concealment, abuse of privileged information, misrepresentation of
material facts or any other unfair-dealing practice.
o Protect the assets of the Company and ensure their proper use.
o Refrain from taking for themselves personally opportunities that are
discovered through the use of corporate assets or using corporate
assets, information or position for general personal gain outside
the scope of employment with the Company.
o Avoid conflicts of interest wherever possible. Anything that would
be a conflict for a person subject to this Code also will be a
conflict if it is related to a member of his or her family or a
close relative. Examples of conflict of interest situations include,
but are not limited to, the following:
o any significant ownership interest in any supplier or
customer;
o any consulting or employment relationship with any customer,
supplier or competitor;
o any outside business activity that detracts from an
individual's ability to devote appropriate time and attention
to his or her responsibilities with the Company;
o the receipt of any money, non-nominal gifts or excessive
entertainment from any company with which the Company has
current or prospective business dealings;
o being in the position of supervising, reviewing or having any
influence on the job evaluation, pay or benefit of any close
relative;
o selling anything to the Company or buying anything from the
Company, except on the same terms and conditions as comparable
officers or directors are permitted to so purchase or sell;
and
o any other circumstance, event, relationship or situation in
which the personal interest of a person subject to this Code
interferes - or even appears to interfere - with the interests
of the Company as a whole.
3. Disclosure
The Company strives to ensure that the contents of and the disclosures in
the reports and documents that the Company files with the Securities and
Exchange Commission (the "SEC")
2
and other public communications shall be full, fair, accurate, timely and
understandable in accordance with applicable disclosure standards, including
standards of materiality, where appropriate. Each person must;
o not knowingly misrepresent, or cause others to misrepresent, facts
about the Company to others, whether within or outside the Company,
including to the Company's independent auditors, governmental
regulators, self-regulating organizations and other governmental
officials, as appropriate; and
o in relation to his or her area of responsibility, properly review
and critically analyze proposed disclosure for accuracy and
completeness.
In addition to the foregoing, the Chief Executive Officer of Company and
each subsidiary of Company, the Chief Financial Officer of Parent and each
subsidiary, and each other person that typically is involved in the financial
reporting of the Company must familiarize himself or herself with the disclosure
requirements applicable to the Company as well as the business and financial
operations of the Company.
Each person must promptly bring to the attention of the Chairman of the
Audit Committee of the Company's Board of Directors any information he or she
may have concerning (a) significant deficiencies in the design or operation of
internal and/or disclosure controls which could adversely affect the Company's
ability to record, process, summarize and report financial data or (b) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the Company's financial reporting, disclosures or
internal controls.
4. Compliance
It is the Company's obligation and policy to comply with all applicable
governmental laws, rules and regulations. It is the personal responsibility of
each person to, and each person must, adhere to the standards and restrictions
imposed by those laws, rules and regulations, including those relating to
accounting and auditing matters.
5. Reporting and Accountability
The Audit Committee of the Board of Directors of the Company is
responsible for applying this Code to specific situations in which questions are
presented to it and has the authority to interpret this Code in any particular
situation. Any person who becomes aware of any existing or potential breach of
this Code is required to notify the Chairman of the Audit Committee promptly.
Failure to do so is itself a breach of this Code.
Specifically, each person must:
o Notify the Chairman of the Audit Committee promptly of any existing
or potential violation of this Code.
o Not retaliate against any other person for reports of potential
violations that are made in good faith.
The Company will follow the following procedures in investigating and
enforcing this Code and in reporting on the Code:
3
o The Audit Committee will take all appropriate action to investigate
any breaches reported to it.
o If the Audit Committee determines that a breach has occurred, it
will inform the Board of Directors.
o Upon being notified that a breach has occurred, the Board will take
or authorize such disciplinary or preventive action as it deems
appropriate, after consultation with the Audit Committee and General
Counsel, up to and including dismissal or, in the event of criminal
or other serious violations of law, notification of the SEC or other
appropriate law enforcement authorities.
No person following the above procedure shall, as a result of following
such procedure, be subject by the Company or any officer or employee thereof to
discharge, demotion suspension, threat, harassment or, in any manner,
discrimination against such person in terms and conditions of employment.
6. Waivers and Amendments
Any waiver (defined below) or an implicit waiver (defined below) from a
provision of this Code for the principal executive officer, principal financial
officer, principal accounting officer or controller, and persons performing
similar functions or any amendment (as defined below) to this Code is required
to be disclosed in the Company's Annual Report on Form 10-K or in a Current
Report on Form 8-K filed with the SEC.
A "waiver" means the approval by the Company's Board of Directors of a
material departure from a provision of the Code. An "implicit waiver" means the
Company's failure to take action within a reasonable period of time regarding a
material departure from a provision of the Code that has been made known to an
executive officer of the Company. An "amendment" means any amendment to this
Code other than minor technical, administrative or other non-substantive
amendments hereto.
All persons should note that it is not the Company's intention to grant or
to permit waivers from the requirements of this Code. The Company expects full
compliance with this Code.
7. Other Policies and Procedures
Any other policy or procedure set out by the Company in writing or made
generally known to employees, officers or directors of the Company prior to the
date hereof or hereafter are separate requirements and remain in full force and
effect.
8. Inquiries
All inquiries and questions in relation to this Code or its applicability
to particular people or situations should be addressed to the Director of
Administration.
4
Annex H
Adopted by the Audit Committee
________, 2005
ORIGIN AGRITECH LIMITED
Employee Complaint Procedures for Accounting and Auditing Matters
It is possible that an employee may have a concern about the accounting,
internal accounting controls or auditing matters relating to Origin Agritech
Limited or its subsidiaries ("Company"). Where the concern falls within the
scope of matters covered by this procedure statement, the employee is encouraged
to follow the reporting procedures set forth below. These procedures have been
established by the audit committee for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or auditing
matters and the confidential, anonymous submission of concerns regarding
questionable accounting or auditing matters.
Scope of Matters
These procedures relate to issues within or related to the following
areas, as they relate to the Company:
1) fraud or deliberate error in the preparation, evaluation, review or
audit of any financial statement;
2) fraud or deliberate error in the recording and maintaining of
financial records;
3) deficiencies in or noncompliance with internal accounting controls;
4) misrepresentation or false statement regarding a matter contained in
financial records, financial reports or audit reports; or
5) deviation from full and fair reporting of financial condition.
Procedure
To report a concern, you may send by email or otherwise a written
statement of the particulars of the issue to Kerry Propper, Director. If you are
uncomfortable with contacting M[r/s]. _______, you may send a written statement
or email to the chairman of the audit committee (currently _______________, at
________________. Letters need not be signed: The Company will accept anonymous
statements. Each expression of concern should provide as much specific
information as possible, including names, dates, places and events that took
place, the employee's perception of why the incident may be an issue of concern
and what action the employee recommends to be taken.
Treatment of Statements of Concern
Upon receipt, all statements of concern will be recorded in a company log
that will track their receipt, investigation and resolution. Each statement will
be evaluated by the appropriate persons at the Company to determine if it
relates to accounting functions or financial statements. Concerns about
non-accounting matters will be referred to the appropriate persons. Accounting
concerns will be investigated by the audit committee. Each review will be
conducted in a confidential manner to the fullest extent possible, consistent
with the need to conduct an adequate review. The audit committee will review the
company log each fiscal quarter. Prompt and appropriate corrective action will
be taken when and as warranted in the judgment of the audit committee.
The Company will not discharge, demote, suspend, threaten, harass or in
any manner discriminate against any employee based on the good faith reporting
of his or her concerns regarding the accounting, internal accounting controls or
auditing matters or financial statements of the Company.
2
Annex I
Section 262 of the Delaware General Corporation Law
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss. 228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss. 228 or ss.
253 of this title, then, either constituent corporation before the effective
date of the merger or consolidation, or the surviving or resulting corporation
within ten days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
PROXY
Chardan China Acquisition Corp.
625 Broadway, Suite 1111
San Diego, California 92101
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CHARDAN CHINA ACQUISITION CORP.
The undersigned appoints Richard Propper and Kerry Propper, as proxies,
and each of them with full power to act without the other, as proxies, each with
the power to appoint a substitute, and thereby authorizes either of them to
represent and to vote, as designated on the reverse side, all shares of common
stock of Chardan held of record by the undersigned on _________, 2005 at the
Special Meeting of Stockholders to be held on ___________, 2005, or any
postponement or adjournment thereof.
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED BY EXECUTING
THIS PROXY CARD, THE UNDERSIGNED AUTHORIZES THE PROXIES TO VOTE IN THEIR
DISCRETION TO ADOPT THE STOCK PURCHASE AGREEMENT AND THE PLAN OF MERGER IF THE
UNDERSIGNED HAS NOT SPECIFIED HOW HIS, HER OR ITS SHARES SHOULD BE VOTED.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL NUMBERS 1, 2, 3 & 4. THE CHARDAN BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSALS SHOWN ON THE REVERSE SIDE.
CHARDAN MAY POSTPONE THE SPECIAL MEETING TO SOLICIT ADDITIONAL VOTING
INSTRUCTIONS IN THE EVENT THAT A QUORUM IS NOT PRESENT OR UNDER OTHER
CIRCUMSTANCES IF DEEMED ADVISABLE BY THE CHARDAN BOARD OF DIRECTORS.
(Continued and to be signed on reverse side)
---------------------------------------------
VOTE BY TELEPHONE OR INTERNET
QUICK *** EASY *** IMMEDIATE
---------------------------------------------
Chardan China Acquisition Corp.
Voting by telephone or Internet is quick, easy and immediate. As a Chardan China
Acquisition Corp. shareholder, you have the option of voting your shares
electronically through the Internet or on the telephone, eliminating the need to
return the proxy card. Your electronic vote authorizes the named proxies to vote
your shares in the same manner as if you marked, signed, dated and returned the
proxy card. Votes submitted electronically over the Internet or by telephone
must be received by 11:59 p.m., Central Time, on _____________, 2005.
To Vote Your Proxy By Internet
------------------------------
It's fast, convenient, and your vote is immediately confirmed and posted. Follow
these four easy steps.
1. Read the accompanying Proxy Statement and Proxy Card.
2. Go to the Website http://www.proxyvote.com
3. Enter your 12-digit Control Number located on your Proxy Card above your
name.
4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT! http://www.proxyvote.com!
To Vote Your Proxy By Phone
---------------------------
It's fast, convenient, and immediate.
Call Toll-free on a Touch-Tone Phone (1-800-454-8683)
Follow these four easy steps:
1. Read the accompanying Proxy Statement and Proxy Card.
2. Call the toll-free number (1-800-454-8683)
3. Enter your 12-digit Control Number located on your Proxy Card above your
name.
4. Follow the recorded instructions. YOUR VOTE IS IMPORTANT! Call
1-800-454-8683!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
To Vote Your Proxy By Mail
--------------------------
Mark, sign and date your proxy card below, detach it and return it in the
postage-paid envelope provided.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
PROXY
THIS PROXY WILL BE VOTED AS DIRECTED, IF NO DIRECTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL NUMBERS 1, 2, 3 & 4. THE CHARDAN BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.
1. To adopt the Stock Purchase FOR AGAINST ABSTAIN
Agreement , dated as of December |_| |_| |_|
20, 2004, among Chardan, State
Harvest Holdings Limited and its
stockholders, and the transactions
contemplated by the stock purchase
agreement
Only if you voted "AGAINST"
Proposal Number 1 and you hold
shares of Chardan common stock
issued in the Chardan initial
public offering, you may exercise
your conversion rights and demand
that Chardan convert your shares
of common stock onto a pro rata
portion of the trust account by
marking the "Exercise Conversion
Rights" box below. If you exercise
your conversion rights, then you
will be exchanging your shares of
Chardan common stock for cash and
will no longer own these shares.
You will only be entitled to
receive cash for these shares if
the stock purchase is completed
and you continue to hold these
shares through the effective time
of the stock purchase and the
tender of your stock certificate
to the combined company.
EXERCISE CONVERSION RIGHTS |_|
FOR AGAINST ABSTAIN
2. To approve the reincorporation |_| |_| |_|
merger for redomestication
purposes by Chardan's merger into
Origin Agritech Limited,
incorporated under British Virgin
Islands law
3. To approve the Chardan 2005 |_| |_| |_|
Performance Equity Plan
4. To approve adjournment of the |_| |_| |_|
special meeting to a later date or
dates, if necessary, to permit
further solicitation of proxies in
the event there are not sufficient
votes at the time of the special
meeting to approve the stock
purchase agreement and
redomestication merger.
MARK HERE FOR ADDRESS CHANGE AND |_|
NOTE AT LEFT
PLEASE MARK, DATE AND RETURN THIS
PROXY PROMPTLY.
Signature_________________Signature_________________Date_____________________
Sign exactly as name appears on this proxy card. If shares are held jointly,
each holder should sign. Executors, administrators, trustees, guardians,
attorneys and agents should give their full titles. If stockholder is a
corporation, sign in full name by an authorized officer.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
PROXY
Chardan China Acquisition Corp.
625 Broadway, Suite 1111
San Diego, California 92101
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CHARDAN CHINA ACQUISITION CORP.
The undersigned appoints Richard Propper and Kerry Propper, as proxies,
and each of them with full power to act without the other, as proxies, each with
the power to appoint a substitute, and thereby authorizes either of them to
represent and to vote, as designated on the reverse side, all shares of common
stock of Chardan held of record by the undersigned on _________, 2005 at the
Special Meeting of Stockholders to be held on ___________, 2005, or any
postponement or adjournment thereof.
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED BY EXECUTING
THIS PROXY CARD, THE UNDERSIGNED AUTHORIZES THE PROXIES TO VOTE IN THEIR
DISCRETION TO ADOPT THE STOCK PURCHASE AGREEMENT AND THE PLAN OF MERGER IF THE
UNDERSIGNED HAS NOT SPECIFIED HOW HIS, HER OR ITS SHARES SHOULD BE VOTED.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL NUMBERS 1, 2, 3 & 4. THE CHARDAN BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSALS SHOWN ON THE REVERSE SIDE.
CHARDAN MAY POSTPONE THE SPECIAL MEETING TO SOLICIT ADDITIONAL VOTING
INSTRUCTIONS IN THE EVENT THAT A QUORUM IS NOT PRESENT OR UNDER OTHER
CIRCUMSTANCES IF DEEMED ADVISABLE BY THE CHARDAN BOARD OF DIRECTORS.
(Continued and to be signed on reverse side)
---------------------------------------------
VOTE BY TELEPHONE OR INTERNET
QUICK *** EASY *** IMMEDIATE
---------------------------------------------
Chardan China Acquisition Corp.
Voting by telephone or Internet is quick, easy and immediate. As a Chardan China
Acquisition Corp. shareholder, you have the option of voting your shares
electronically through the Internet or on the telephone, eliminating the need to
return the proxy card. Your electronic vote authorizes the named proxies to vote
your shares in the same manner as if you marked, signed, dated and returned the
proxy card. Votes submitted electronically over the Internet or by telephone
must be received by 11:59 p.m., Central Time, on _____________, 2005.
To Vote Your Proxy By Internet
------------------------------
It's fast, convenient, and your vote is immediately confirmed and posted. Follow
these four easy steps.
1. Read the accompanying Proxy Statement and Proxy Card.
2. Go to the Website http://www.proxyvote.com
3. Enter your 12-digit Control Number located on your Proxy Card above your
name.
4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT! http://www.proxyvote.com!
To Vote Your Proxy By Phone
---------------------------
It's fast, convenient, and immediate.
Call Toll-free on a Touch-Tone Phone (1-800-454-8683)
Follow these four easy steps:
1. Read the accompanying Proxy Statement and Proxy Card.
2. Call the toll-free number (1-800-454-8683)
3. Enter your 12-digit Control Number located on your Proxy Card above your
name.
4. Follow the recorded instructions. YOUR VOTE IS IMPORTANT! Call
1-800-454-8683!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
To Vote Your Proxy By Mail
--------------------------
Mark, sign and date your proxy card below, detach it and return it in the
postage-paid envelope provided.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
PROXY
THIS PROXY WILL BE VOTED AS DIRECTED, IF NO DIRECTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL NUMBERS 1, 2, 3 & 4. THE CHARDAN BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.
1. To adopt the Stock Purchase FOR AGAINST ABSTAIN
Agreement , dated as of December |_| |_| |_|
20, 2004, among Chardan, State
Harvest Holdings Limited and its
stockholders, and the transactions
contemplated by the stock purchase
agreement
Only if you voted "AGAINST"
Proposal Number 1 and you hold
shares of Chardan common stock
issued in the Chardan initial
public offering, you may exercise
your conversion rights and demand
that Chardan convert your shares
of common stock onto a pro rata
portion of the trust account by
marking the "Exercise Conversion
Rights" box below. If you exercise
your conversion rights, then you
will be exchanging your shares of
Chardan common stock for cash and
will no longer own these shares.
You will only be entitled to
receive cash for these shares if
the stock purchase is completed
and you continue to hold these
shares through the effective time
of the stock purchase and the
tender of your stock certificate
to the combined company.
EXERCISE CONVERSION RIGHTS |_|
FOR AGAINST ABSTAIN
2. To approve the reincorporation |_| |_| |_|
merger for redomestication
purposes by Chardan's merger into
Origin Agritech Limited,
incorporated under British Virgin
Islands law
3. To approve the Chardan 2005 |_| |_| |_|
Performance Equity Plan
4. To approve adjournment of the |_| |_| |_|
special meeting to a later date or
dates, if necessary, to permit
further solicitation of proxies in
the event there are not sufficient
votes at the time of the special
meeting to approve the stock
purchase agreement and
redomestication merger.
MARK HERE FOR ADDRESS CHANGE AND |_|
NOTE AT LEFT
PLEASE MARK, DATE AND RETURN THIS
PROXY PROMPTLY.
Signature_________________Signature_________________Date_____________________
Sign exactly as name appears on this proxy card. If shares are held jointly,
each holder should sign. Executors, administrators, trustees, guardians,
attorneys and agents should give their full titles. If stockholder is a
corporation, sign in full name by an authorized officer.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 57 of the International Companies Ordinance of 1984 generally
provides for indemnification and permits a company to obtain insurance. The
Memorandum of Association of the Registrant follows the statute. The Registrant
intends to obtain director and officer insurance at the consummation of the
acquisition of the Origin companies.
The following is a statement of Section 57 of the International
Companies Ordinance of 1984:
Indemnification.
(1) Subject to subsection (2) and any limitations in its Memorandum or
Articles, a company incorporated under this Ordinance may indemnify against all
expenses, including legal fees, and against all judgments, fines, and amounts
paid in settlement and reasonably incurred in connection with legal,
administrative or investigative proceedings any person who
(a) is or was a party or is threatened to be made a party to
any threatened, pending or completed proceedings, whether civil, criminal,
administrative or investigative, by reason of the fact that the person is or was
a director, an officer or a liquidator of the company; or
(b) is or was, at the request of the company, serving as a
director, officer or liquidator of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or other enterprise.
(2) Subsection (1) only applies to a person referred to in that
subsection if the person acted honestly and in good faith with a view to the
best interests of the company and, in the case of criminal proceedings, the
person had no reasonable cause to believe that his conduct was unlawful.
(3) The decision of the directors as to whether the person acted
honestly and in good faith and with a view to the best interests of the company
and as to whether the person had no reasonable cause to believe that his conduct
was unlawful is in the absence of fraud, sufficient for the purposes of this
section, unless a question of law is involved.
(4) The termination of any proceedings by any judgment, order,
settlement, conviction or the entering of a nolle prosequi does not, by itself,
create a presumption that the person did not act honestly and in good faith and
with a view to the best interests of the company or that the person had
reasonable cause to believe that his conduct was unlawful.
(5) If a person referred to in subsection (1) has been successful in
defense of any proceedings referred to in subsection (1), the person is entitled
to be indemnified against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
The following is a statement of Section 58 of the International
Companies Ordinance of 1984:
II-1
Insurance. A company incorporated under this Ordinance may purchase and
maintain insurance in relation to any person who is or was a director, an
officer or a liquidator of the company, or who at the request of the company is
or was serving as a director, an officer or a liquidator of, or in any other
capacity is or was acting for, another company or a partnership, joint venture,
trust or other enterprise, against any liability asserted against the person and
incurred by the person in that capacity, whether or not the company has or would
have had the power to indemnify the person against the liability under
subsection (1) of section 57.
Item 21. Exhibits and Financial Statement Schedules
Exhibit Description
2.1 Stock Purchase Agreement (Included in Annex A of the proxy
statement/prospectus)
2.2 Agreement and Plan of Merger between Chardan China Acquisition Corp.
and Registrant*
3.1 Memorandum of Association of Registrant (Included in Annex B of the
proxy statement/prospectus)
3.2 Articles of Association of Registrant (Included in Annex C of the
proxy statement/prospectus)
4.1 Specimen Unit Certificate of Registrant*
4.2 Specimen Common Stock Certificate of Registrant*
4.3 Specimen Warrant Certificate*
4.4 Form of Unit Purchase Option (Incorporated by reference from
Registration Statement 333-111970, Item 4.4)
4.5 Form of Warrant Agreement between American Stock Transfer & Trust
Company and Chardan China Acquisition Corp. (Incorporated by
reference from Registration Statement 333-111970, Item 4.5)
5.1 Opinion of Maples & Calder*
8.1 Tax Opinion of Graubard Miller*
10.1 Chardan/Agritech 2005 Performance Equity Plan (Included in Annex D
of the proxy statement/prospectus)
10.2 Letter Agreement among Chardan China Acquisition Corp.,
EarlyBirdCapital, Inc. and Dr. Richard D. Propper. (Incorporated by
reference from Registration Statement 333-111970, Item 10.1)
10.3 Letter Agreement among Chardan China Acquisition Corp.,
EarlyBirdCapital, Inc. and Kerry Jiangnan Huang. (Incorporated by
reference from Registration Statement 333-111970, Item 10.2)
10.4 Letter Agreement among Chardan China Acquisition Corp.,
EarlyBirdCapital, Inc. and Li Zhang. (Incorporated by reference from
Registration Statement 333-111970, Item 10.3)
II-2
10.5 Letter Agreement among Chardan China Acquisition Corp.,
EarlyBirdCapital, Inc. and Kerry Propper. (Incorporated by reference
from Registration Statement 333-111970, Item 10.4)
10.6 Letter Agreement among Chardan China Acquisition Corp.,
EarlyBirdCapital, Inc. and Michael Urbach. (Incorporated by
reference from Registration Statement 333-111970, Item 10.5)
10.7 Letter Agreement among Chardan China Acquisition Corp.,
EarlyBirdCapital, Inc. and Dan Beharry. (Incorporated by reference
from Registration Statement 333-111970, Item 10.6)
10.8 Letter Agreement among Chardan China Acquisition Corp.,
EarlyBirdCapital, Inc. and Steven Urbach. (Incorporated by reference
from Registration Statement 333-111970, Item 10.7)
10.9 Letter Agreement among Chardan China Acquisition Corp.,
EarlyBirdCapital, Inc. and Anthony D. Errico Jr. (Incorporated by
reference from Registration Statement 333-111970, Item 10.8)
10.10 Form of Investment Management Trust Agreement between Continental
Stock Transfer & Trust Company and Chardan China Acquisition Corp..
(Incorporated by reference from Registration Statement 333-111970,
Item 10.9)
10.11 Form of Stock Escrow Agreement between Chardan China Acquisition
Corp., Continental Stock Transfer & Trust Company and the Initial
Stockholders. (Incorporated by reference from Registration Statement
333-111970, Item 10.10)
10.12 Form of Registration Rights Agreement among Chardan China
Acquisition Corp. and the Initial Stockholders. (Incorporated by
reference from Registration Statement 333-111970, Item 10.13)
10.13 Letter amendment to Letter Agreements between Chardan China
Acquisition Corp., EarlyBirdCapital, Inc. and each of Dr. Richard D.
Propper, Jiangnan Huang, Li Zhang, Kerry Propper, Michael Urbach,
Dan Beharry, Steven Urbach and Anthony D. Errico Jr. (Incorporated
by reference from Registration Statement 333-111970, Item 10.16)
10.14 Technology Service Agreement between Origin Biotechnology and
Beijing Origin *
10.15 Technology Service Agreement between Origin Biotechnology and Henan
Origin
10.16 Technology Service Agreement between Origin Biotechnology and
Changchun Origin
10.17 Form of Stock Consignment Agreement*
10.18 List of Schedules to Stock Purchase Agreement*
10.19 Agreement to provide or file Schedules, Supplements and Exhibits to
Stock Purchase Agreement*
10.20 Employment Agreement between State Harvest and Dr. Han Gengchen*
10.21 Employment Agreement between State Harvest and Mr. Yang Yasheng*
10.22 Employment Agreement between State Harvest and Mr. Yuan Liang*
10.23 Consulting Agreement between Chardan and Best of the Best*
II-3
10.24 Form of Voting Agreement among Registrant and Dr. Han and Messrs.
Yang and Yuan*
23.1 Consent of Goldstein Golub Kessler LLP*
23.2 Consent of Deloitte Touche Tohmatsu CPA Ltd.*
23.3 Consent of Maples & Calder (included in Exhibit 5.1)*
----------
* Filed herewith.
** To be filed by amendment.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Item 8.A of form 20-F at the start
of any delayed offering or throughout a continuous offering.
II-4
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (1) that is filed
pursuant to the immediately preceding paragraph, or (2) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the 5th
day of July, 2005.
ORIGIN AGRITECH LIMITED
By: /s/ Kerry Propper
------------------------------------
Kerry Propper
President
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Name Date
Title
/s/ Kerry Propper President, Secretary and Treasurer July 5, 2005
----------------- (Principal Executive Officer and Chief
Kerry Propper Financial Officer) (Authorized
Representative in the United States)
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