Unassociated Document
As
filed with the Securities and Exchange Commission on March 14,
2008
Registration
No. 333-
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
F-3
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ORIGIN
AGRITECH LIMITED
(Exact
name of Registrant as specified in its charter)
Not
Applicable
(Translation
of Registrant’s name into English)
|
British
Virgin Islands
|
|
0100
|
|
N/A
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer
Identification
Number)
|
No.
21 Sheng Ming Yuan Road
Changping
District
Beijing
102206
People’s
Republic of China
8610-5890-7588
(Address
and telephone number of Registrant’s principal executive
offices)
CT
Corporation System
111
Eighth Avenue
New
York, NY 10011
Telephone:
(212) 894-8940
(Name,
address, and telephone number of agent for service)
With
copies to:
Howard
Zhang, Esq.
O’Melveny
& Myers LLP
37th
Floor, Yin Tai Centre, Office Tower
No.
2 Jianguomenwai Avenue
Beijing
100022, China
8610-6563-4200
Approximate
date of commencement of proposed sale to the public:
From
time to time after the effective date of this registration
statement.
If
the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. o
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the
following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a registration statement pursuant to General Instruction I.C. or a
post-effective amendment thereto that shall become effective
upon filing with the Commission pursuant to Rule 462(e) under the Securities
Act, check the following box. o
If
this
Form is a post-effective amendment to a registration statement filed pursuant
to
General Instruction I.C. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. o
CALCULATION
OF REGISTRATION FEE
|
Title of each Class of Securities to be Registered
|
|
Amount To Be
Registered
|
|
Proposed Maximum
Offering Price Per
Unit
|
|
Proposed Maximum
Aggregate
Offering Price (1)
|
|
Amount of
Registration Fee
|
|
|
Ordinary
Shares, no par value
|
|
|
3,478,260 shares
|
(2)
|
$
|
5.53
|
(3)
|
$
|
19,234,777.80
|
|
$
|
755.93
|
|
| (1) |
Estimated
solely for the purpose of calculating the registration fee pursuant
to
Rule 457(a) under the Securities Act of 1933, as amended (the “Securities
Act”).
|
| (2) |
This
number represents the number of ordinary shares that are initially
issuable upon conversion of the 1.0% guaranteed senior secured convertible
notes due 2012, or the notes. For purposes of estimating the amount
of
ordinary shares to be registered upon conversion of the notes, the
Registrant calculated the number of shares issuable upon conversion
of the
notes based on an initial conversion rate of approximately 8,695
shares
per $100,000 principal amount of the notes at the initial conversion
price
of $11.50 per share. In addition to the shares set forth in the table,
pursuant to Rule 416 under the Securities Act of 1933, the amount
to be
registered includes an indeterminate number of shares of ordinary
shares
issuable upon the conversion of the notes, as this amount may be
adjusted
as a result of stock splits, stock dividends and the anti-dilution
provisions applicable to the notes.
|
| (3) |
Estimated
solely for the purpose of calculating the registration fee pursuant
to
Rule 457(c) under the Securities Act, based on the average of the
high and
low prices for the registrant’s common stock as reported on the NASDAQ
Global Select Market on March 12, 2008.
|
Each
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 Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. The selling
shareholder may not sell these securities until the registration statement
filed
with the Securities and Exchange Commission is effective. This prospectus is
not
an offer to sell these securities and it is not soliciting an offer to buy
these
securities in any jurisdiction where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED MARCH 14, 2008
Origin
Agritech Limited
3,478,260
Shares of Ordinary Stock
This
prospectus relates to the offers and sales from time to time of 3,478,260
ordinary shares issuable by us upon conversion of our 1.0% guaranteed senior
secured convertible notes due 2012, or the notes, by the selling shareholder
named in this prospectus or selling shareholders named in any prospectus
supplements. We are not selling any shares of ordinary stock under this
prospectus and will not receive any of the proceeds from the sale of shares
of
ordinary stock offered pursuant to this prospectus.
We
sold
an aggregate principal amount of $40,000,000 of the notes directly to the
selling shareholder in a private placement in July 2007 that was exempt from
the
registration requirements of the United States federal securities laws. The
notes are convertible into our ordinary shares at an initial conversion price
of
$11.50 per share. The conversion price is subject to adjustment on a semi-annual
basis, beginning on December 31, 2008, and upon the occurrence of certain
dilutive events, in each case subject to certain conditions.
The
securities covered by this prospectus may be sold at fixed prices, prices that
may be changed, market prices prevailing at the time of sale, prices related
to
those prevailing market prices or negotiated prices that may vary.
Our
ordinary shares are traded on the NASDAQ Global Select Market under the symbol
“SEED.” On March 12, 2008, the last reported sale price of our ordinary shares
was $5.60 per share.
Investing
in our securities involves a high degree of risk. See “Risk Factors” beginning
on page 3.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus
is
.
You
should rely only on the information contained in or incorporated by reference
in
this prospectus. We have not authorized anyone to provide you with any other
information. This document may be used only where it is legal to sell
securities. This document is not an offer to sell, or solicitation of an offer
to buy, in any state where the offer or sale is prohibited. You should not
assume that the information contained in this prospectus is accurate as of
any
date other than the date of this prospectus, or that information contained
in
any document incorporated or deemed to be incorporated by reference is accurate
as of any date other than the date of that document. Furthermore, you may not
imply from the delivery of this prospectus, nor from a sale made under this
prospectus, that our affairs are unchanged since the date of this prospectus.
This document may only be used where it is legal to sell these
securities.
The
distribution of this prospectus in some jurisdictions may be restricted by
law.
Persons who receive this prospectus should inform themselves about and observe
any such restrictions. This prospectus does not constitute, and may not be
used
in connection with, an offer or solicitation by anyone in any jurisdiction
in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not authorized or in which the person making
such
offer or solicitation is not qualified to do so or to any person to whom it
is
unlawful to make such offer or solicitation.
Table
of Contents
| |
Page
|
|
Prospectus
Summary
|
1
|
|
Risk
Factors
|
3
|
|
Forward-Looking
Statements and Certain Considerations
|
26
|
|
Use
of Proceeds
|
28
|
|
Dividend
Policy
|
29
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|
Capitalization
and Indebtedness
|
30
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Enforceability
of Civil Liabilities
|
31
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|
The
July 2007 Private Placement
|
33
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|
Selling
Shareholder
|
36
|
|
Description
of Share Capital
|
38
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Taxation
|
43
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|
Plan
of Distribution
|
44
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|
Expenses
|
47
|
|
Legal
Matters
|
48
|
|
Experts
|
49
|
|
Where
You Can Find More Information
|
50
|
|
Incorporation
by Reference
|
51
|
The
information contained in this prospectus is accurate only as of the date of
this
prospectus, regardless of the time of delivery of this prospectus or of any
sale
by the selling shareholder of the shares of our ordinary stock issuable upon
conversion of the notes. In this prospectus, unless the context requires
otherwise, references to
| |
·
|
“Origin,”
“we,” “us,” “our,” “the Company,” and “our company” refer to Origin
Agritech Limited and its consolidated subsidiaries, but not the selling
shareholder;
|
| |
·
|
“China”
or “PRC” refer to the People’s Republic of China and do not include the
Hong Kong Special Administrative Region, the Macau Special Administrative
Region, or Taiwan;
|
| |
·
|
“Companies
Act” refer to the BVI Business Companies Act
2004;
|
| |
·
|
“$”
and “U.S. dollars” are to the legal currency of the United States;
and
|
| |
·
|
“RMB”
and “Renminbi” are
to
the legal currency of China.
|
About
This Prospectus
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, or SEC, using a “shelf” registration process. Under
this shelf registration process, the selling shareholder may offer and sell,
from time to time, ordinary shares issuable upon conversion of the notes, in
one
or more offerings and at prices and on terms that it determines at the time
of
the offering. This prospectus provides you with a general description of these
securities that are offered or may be offered in the future. From time to time
when the selling shareholder sells such securities, we may provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplements may add, update or change information
contained in this prospectus. This prospectus, together with the applicable
prospectus supplement, includes the material information related to the
offering. To the extent that any statement we make in a prospectus supplement
is
inconsistent with statements made in this prospectus, the statements made in
this prospectus will be deemed modified or superseded by those made in the
prospectus supplement. You should carefully read this prospectus and any
prospectus supplement together with the additional information described under
the heading “Where You Can Find More Information.”
The
selling shareholder may sell the securities described herein to or through
underwriters, brokers, dealers or agents or directly to purchasers. The selling
shareholder and its agents reserve the sole right to accept and to reject in
whole or in part any proposed purchase of such securities. A prospectus
supplement, which we may provide, if required, in connection with a sale of
securities by the selling shareholder, will provide the names of any
underwriters, dealers, or agents involved in the sale of securities, and any
applicable fee, commission or discount arrangements with them.
Prospectus
Summary
The
following summary may not contain all the information that may be important
to
you. You should rely on the entire prospectus, as well as the information to
which we refer you and the information incorporated by reference before making
an investment decision.
Origin
Agritech Limited
We
are
one of the largest crop seed companies in China. We conduct our business
operations mainly through our subsidiary companies in China, which specialize
in
the research and development, production and sales and marketing of crop seeds.
Our four principal seed products are corn, rice, cotton and canola. While the
majority of our revenues result from the distribution and sale of seeds that
we
produce under licenses from third parties, we also develop and sell proprietary
crop seed products. We began to develop proprietary hybrid seeds in 1998. To
date, we have internally developed 12 corn seed products, 12 rice seed products
and 2 canola seed products, all of which we produce and distribute. Over the
past three years, the number of corn, cotton, rice and canola varieties we
have
sold (both licensed and proprietary) has increased significantly in the
aggregate.
Our
company is a British Virgin Islands corporation formed in 2005. Our principal
executive offices are located at No. 21 Sheng Ming Yuan Road, Changping
District, Beijing 102206, China, and our telephone number is (8610) 5890-7588.
Our
Internet website address is www.originagritech.com. Information available on
our
website is not incorporated by reference in, and is not deemed a part of, this
prospectus.
The Offering
|
Issuer
|
|
Origin
Agritech Limited.
|
| |
|
|
|
Selling
shareholder
|
|
Citadel
Equity Fund Ltd.
|
| |
|
|
|
Securities
offered
|
|
3,478,260
shares of ordinary stock, no par value (issuable upon conversion
of 1.0%
guaranteed senior secured notes due
2012).
|
|
Offer
Price
|
|
The
selling shareholder may sell the shares being offered by it from
time to
time on the NASDAQ Global Select Market, or any other exchange,
market or
trading facility on which the shares are traded or in private
transactions, and at fixed prices or prices that may be changed,
at market
prices prevailing at the time of sale, at prices related to those
prevailing market prices or at negotiated prices that may
vary.
|
| |
|
|
|
Use
of Proceeds
|
|
We
will not receive any proceeds from the selling shareholder’s sale of our
ordinary stock issuable upon conversion of the notes.
|
| |
|
|
|
Listing
and Trading
|
|
The
shares of our ordinary stock are listed and traded on the NASDAQ
Global
Select Market.
|
| |
|
|
|
Risk
Factors
|
|
For
a discussion of some of the factors that you should carefully consider
before investing in our ordinary shares, see “Risk
Factors.”
|
| |
|
|
|
Exchange
Rate Information
|
|
The
conversion of Renminbi into U.S. dollars in this prospectus is
based on
the noon buying rate in the city of New York for cable transfers
of
Renminbi as certified for customs purposes by the Federal Reserve
Bank of
New York. Unless otherwise noted, for years ended December 31,
2003, 2004
and 2005, the nine months ended September 30, 2005 and 2006 and
the twelve
months ended September 30, 2006 and 2007, all translations from
Renminbi
to U.S. dollars in this prospectus were made at RMB8.2767, RMB8.2765,
RMB8.0702, RMB8.092, RMB7.904, RMB7.904 and RMB7.4928 per US $1.00,
respectively, which were the prevailing year or period end rates
for those
three years, the nine months ended September 30, 2005 and 2006
and the
twelve month periods ended September 30, 2006 and 2007. We make
no
representation that any Renminbi or U.S. dollar amounts could have
been,
or could be, converted into U.S. dollars or Renminbi, as the case
may be,
at any particular rate, the rates stated below, or at all. The
PRC
government imposes controls over its foreign currency reserves
in part
through direct regulation of the conversion of Renminbi into foreign
exchange and through restrictions on foreign
trade.
|
Risk
Factors
An
investment in our ordinary shares issuable upon conversion of the notes involves
various material risks. Prior to any investment, and in consultation with your
own financial and legal advisors, you should carefully consider, among other
matters, the risk factors described below and incorporated by reference from
our
Annual Report on Form 20-F under the heading “Risk Factors” and other filings we
may make from time to time with the SEC. These risks are not the only ones
we
face. Additional risks not presently known to us or our subsidiaries or that
are
currently deemed immaterial could also materially and adversely affect our
financial condition, results of operations, business and prospects. The trading
price of our ordinary shares for which the notes, under certain circumstances,
are convertible could decline due to any of these risks, and you may lose all
or
part of your investment.
We
are
experiencing the transition from conventional seed company to agricultural
biotechnology company. However, the GM product is controversial, and it has
not
been widely accepted in many regions of the world, including China. Since the
Chinese government approved the commercial planting of GM cotton in 1997, the
government no longer approves any GM crops commercial cultivation. The
uncertainty in the government regulation of genetic technology could have
adverse effect on our business and results of operations.
The
successful development and commercialization of our biotech pipeline products
will be necessary for our growth.
We
have
commenced our own research and development efforts for genetically modified
seeds, and we have entered into agreements with the Chinese Academy of Science
and the China Agricultural Academy of Science in the PRC working on genetic
modifications that give us 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. Commercial success frequently depends on being the
first company to enter the market. The length of time and the risk associated
with the breeding and biotech pipelines are similar and interlinked because
both
are required as a package for commercial success in markets where biotech traits
are approved for growers. Regulatory requirements affect the development of
our
biotech products, including the GM crop testing of seeds containing the biotech
traits, which could harm our business and results of operations. The testing
can
be lengthy and costly, with no guarantee of success. It could have an adverse
effect on our operations if our genetically modified products are unable to
pass
the safety evaluation of genetically modified agricultural
organisms.
There
has
been a worldwide increase in the development and application of genetically
modified agricultural products to increase the quality and quantity of crop
yields. However, the production and commercial sale of genetically modified
corn
seeds is not currently allowed in China, and we still rely upon traditional
methods of creating crop seed hybrids to develop new products. If government
policies change to allow genetically modified corn seeds, demand may develop
for
these products, and we expect that we will need to produce genetically modified
products to meet customer demands. There is a risk that our current steps to
respond to the potential competitive threat posed by genetically modified
agricultural products, including our research and development activities with
respect to genetically modified crop seeds, may not allow us to compete
successfully.
The
global competition in biotechnology will affect our
business.
We
believe we are a leader in biotechnology in China since we initiated our own
biotechnology research program many years ago and we have built the first
internal biotech research center among Chinese companies. However, when
multinational corporations engaged in the seed business expand into the
agricultural market in China in the future, they may have more advanced
technology or may market genetically modified seed more successfully than us.
The major multinational competitors have a long operating history in the
research and commercialization of the genetically modified crop seeds and have
strong intellectual property estates supporting the use of biotechnology to
enhance products. They are making considerable investments in new biotechnology
products. These significant competitive advantages could cause our existing
or
candidate products to become less competitive, adversely affecting our
operations.
The
degree of public acceptance or perceived public acceptance of our biotechnology
products can affect our operations.
Although
all of the genetically modified products should go through rigorous testing,
some opponents of the technology actively raise public concern about the
potential for adverse effects of our products on human or animal health, other
plants and the environment. The potential for adventitious presence of
commercial biotechnology traits in conventional seed, or in the grain or
products produced from conventional or organic crops, is another factor that
could affect general public acceptance of these traits. Public concern can
affect the timing of, and whether we are able to obtain, government approvals.
Even after approvals are granted, public concern may lead to increased
regulation or legislation, which could affect our business and operations,
and
may adversely affect sales of our products to farmers, due to their concerns
about available markets for the sale of crops or other products derived from
biotechnology.
We
are currently dependent on licensed seed products for the majority of our
revenues, and if we lose the right to produce and sell licensed seeds, we will
lose substantial revenues and suffer substantial losses.
The
following table sets forth the amount and percentage of our revenues resulting
from licensed hybrid seeds as compared to our internally developed proprietary
hybrid seeds for the periods listed:
|
|
|
Year
Ended
December
31,
2004
|
|
Year
Ended
December
31,
2005
|
|
Twelve
Months
Ended
September 30,
2006
|
|
Year
Ended
September 30,
2007
|
|
|
Revenue
resulting from licensed hybrid seeds
|
|
$
|
35,933,245
|
|
$
|
24,314,206
|
|
$
|
58,572,673
|
|
$
|
52,052,737
|
|
|
Percentage
of our total seed revenue resulting from licensed hybrid
seeds
|
|
|
98.97
|
%
|
|
93.97
|
%
|
|
88.52
|
%
|
|
79.7
|
%
|
|
Revenue
resulting from internally developed proprietary hybrid
seeds
|
|
$
|
375,929
|
|
$
|
1,558,883
|
|
$
|
7,596,282
|
|
$
|
13,260,433
|
|
|
Percentage
of our total seed revenue resulting from internally developed proprietary
hybrid seeds
|
|
|
1.03
|
%
|
|
6.03
|
%
|
|
11.48
|
%
|
|
20.3
|
%
|
We
sell a
majority of seeds developed and produced under our license agreements with
the
Corn Research Institute Li County, Hebei Province (now Shijiazhuang Liyu
Technology Development Co., Ltd.) and the Henan Agricultural University, which
we collectively refer to as the significant licensors, as set forth in the
table
below.
|
|
|
Year
Ended
December
31,
2004
|
|
Year
Ended
December
31,
2005
|
|
Twelve
Months
Ended
September 30,
2006
|
|
Year
Ended
September 30,
2007
|
|
|
Revenue
resulting from hybrid seeds developed and produced under our license
agreements with the significant licensors
|
|
$
|
26,171,886
|
|
$
|
17,006,688
|
|
$
|
22,510,678
|
|
$
|
17,101,856
|
|
|
Percentage
of our total seed revenue resulting from hybrid seeds developed and
produced under our license agreements with the significant
licensors
|
|
|
71.84
|
%
|
|
66.21
|
%
|
|
34.02
|
%
|
|
26.18
|
%
|
If
we are
not able to develop and produce the licensed seed products or if the current
license agreements are terminated or if we are unable to renew some of these
license agreements on commercially reasonable terms or at all, we will suffer
a
substantial loss of revenue and will suffer substantial losses, and our
financial condition and results of operations may be adversely
affected.
If
we do not manage our growth successfully, our growth and chances for
profitability may be hindered or impeded.
We
have
expanded our operations rapidly during the last several years, and we plan
to
further our expansion efforts with new seed products and increased and enhanced
distribution channels. This expansion has created significant demands on our
corporate administrative, operational and financial personnel and other human
resources and our need for working capital. Additional expansion into existing
or new markets and new lines of business could strain these resources and
increase our further need for capital, which may result in cash flow shortages.
Our current resources may not be adequate to support further expansion.
Consequently, industry factors such as overproduction or governmental policy
changes may hinder our cash flow, which did, in fact, occur during our 2007
fiscal year.
We
have a limited operating history and are subject to the risks of any new
enterprise, any one of which could limit our growth and our product and market
development.
Our
limited operating history makes it difficult to predict how our businesses
will
develop. Accordingly, we face all of the risks and uncertainties encountered
by
early stage companies, such as:
| |
·
|
uncertain
market acceptance for our product extensions and our services;
|
| |
·
|
the
evolving nature of the crop seed industry in the PRC, where significant
consolidation is likely to occur, leading to the formation of companies
which are better able to compete with us than is currently the case;
|
| |
·
|
changing
competitive conditions, technological changes or evolving customer
preferences could harm sales of our products or
services.
|
| |
·
|
maintaining
our competitive position in the PRC and competing with Chinese and
international companies, many of which have longer operating histories
and
greater financial resources than
us;
|
| |
·
|
continuing
to offer commercially successful products to attract and retain a
larger
base of direct customers and ultimate
users;
|
| |
·
|
retaining
access to the farmland we currently use for production of our products
and
obtaining access to additional farmland for
expansion;
|
| |
·
|
continuing
our existing arrangements with production farms that grow our seed
products and entering into new arrangements with additional production
farms;
|
| |
·
|
maintaining
effective control of our costs and expenses;
and
|
| |
·
|
retaining
our management and skilled technical staff and recruiting additional
key
employees.
|
If
we are
not able to meet the challenge of building our businesses and managing our
growth, the likely result will be slowed growth, lower margins, additional
operational costs and lower income.
Due
to our size and limited operating history, we substantially depend on a few
key
personnel who, if not retained, could cause declines in productivity and
operational results and loss of our strategic guidance, all of which would
diminish our business prospects and value to
investors.
Due
to
our size and limited operating history, our success depends to a large extent
upon the continued service of a few executive officers and key employees,
including:
| |
·
|
Dr.
Gengchen Han, our Chairman and Co-Chief Executive Officer;
|
| |
·
|
Yasheng
Yang, our Vice Chairman; and
|
| |
·
|
Liang
Yuan, our Co-Chief Executive Officer and
President.
|
The
loss
of the services of one or more of these key employees could have an adverse
effect on us and our PRC operating subsidiaries, as each of these individuals
played and continues to play a significant role in developing and executing
our
overall 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 to our business.
We believe that our overall future success depends in large part upon our
ability to attract and retain highly skilled managerial and marketing personnel.
There is no assurance that we will be successful in attracting and retaining
such personnel on terms acceptable to them. Inadequate personnel will limit
our
growth, and will be seen as a detriment to our prospects, leading potentially
to
a loss in value for investors.
We
or our licensors may be subject to intellectual property infringement claims,
which may force us to incur substantial legal expenses and, if determined
adversely against us or our licensors, may materially disrupt our
business.
We
cannot
be certain that our licensed or self-developed proprietary seed products do
not
or will not infringe upon intellectual property rights held by third parties.
We, or any of our licensors, may become subject to legal proceedings and claims
from time to time relating to the intellectual property of others. If we, or
any
of our licensors, are found to have violated the intellectual property rights
of
others, we may be required to pay damages and be enjoined from using such
intellectual property, and we may incur new or additional licensing fees if
we
wish to continue using the infringing products, or be forced to develop or
license alternatives. In addition, we may incur substantial expenses in
defending against these third party infringement claims, regardless of their
merit.
Efforts
to protect our intellectual property rights and to defend against claims against
us can increase our costs and will not always succeed. Any failures could
adversely affect our sales and results of operations or restrict our ability
to
conduct our business.
Intellectual
property rights are crucial to our business. We endeavor to obtain and protect
our intellectual property rights where our products are produced. However,
we
may be unable to obtain protection for our intellectual property. Even if
protection is obtained, competitors, growers or others in the chain of commerce
may raise legal challenges to our rights or illegally infringe on our rights,
including through means that may be difficult to prevent, detect or defend.
In
addition, because of the rapid pace of technological change and the
confidentiality of patent applications in some jurisdictions, competitors may
be
issued patents from applications that were unknown to us prior to issuance.
These patents could reduce the value of our commercial or pipeline products
or,
to the extent they cover key technologies on which we have unknowingly relied,
require that we seek to obtain licenses at a financial cost to us or cease
using
the technology, no matter how valuable the patents may be to our business.
We
cannot assure you we would be able to obtain such licenses on acceptable terms.
Also, litigation may be necessary to enforce our intellectual property rights,
protect our trade secrets or determine the validity and scope of the proprietary
rights of others. There is a risk that the outcome of such potential litigation
will not be in our favor. Such litigation may be costly and may divert
management attention as well as expend other resources which could otherwise
have been devoted to our business. An adverse determination in any such
litigation will impair our intellectual property rights and may harm our
business, prospects and reputation. In addition, we have no insurance coverage
against litigation costs and would have to bear all costs arising from such
litigation to the extent we are unable to recover such costs from other parties.
The occurrence of any of the foregoing may harm our business, results of
operations and financial condition.
Finally,
implementation of PRC intellectual property-related laws has historically been
lacking, primarily because of ambiguities in the PRC laws and difficulties
in
enforcement. Accordingly, intellectual property rights and confidentiality
protections in China may not be as effective as in the United States or other
countries, which increases the risk that we may not be able to adequately
protect our intellectual property.
Our
business will not be able to be profitable if we do not continue to find and
market products considered valuable by our customers.
The
ability of our seed business to be profitable depends on recurring and sustained
reorders by farmers in China. Reorder rates are inherently uncertain due to
several factors, many of which are outside our control. These include changing
customer preferences, competitive price pressures, failure to develop acceptable
new products, development of higher quality products by competitors and general
economic conditions.
Our
single business line of crop seed development and production does not permit
us
to spread our business risks among different business segments and, thus, a
disruption in our seed production or the industry would harm us more immediately
and directly.
We
operate mainly in the crop seed business. Without business line diversity,
we
will not be able to spread the risk of our operations. Therefore, our business
opportunities, revenues and income could be more immediately and directly
affected by disruptions from such things as drought and disease or widespread
problems affecting the industry, such as limited farmer credit, payment
disruptions and customer rejection of modified crop seeds. If there is a
disruption as described above, our revenues and income will be reduced, and
our
business operations may have to be scaled back.
We
are particularly dependent on revenue from our corn seed products and are
vulnerable to market factors and, therefore, our operating results could be
disproportionately and negatively impacted if we are unable to sell a sufficient
amount of corn seed at satisfactory margins.
For
the
fiscal year ended September 30, 2007, corn seed sales constituted
approximately 74.36% of our revenues, as compared to 65.03% for the twelve
months ended September 30, 2006 (unaudited). Our dependence on the corn
seed market makes us particularly vulnerable to negative market changes that
may
occur in this product line. In particular, if demand for our corn seed generally
decreases or if industry supply exceeds demand, prices will be driven downward
and our margins will be negatively impacted, which would have an adverse effect
on our business, results of operations and financial condition.
Failure
to develop and market new products could impact the company’s competitive
position and have an adverse effect on the company’s financial
results.
The
company’s operating results are largely dependent on its ability to renew its
pipeline of new products and services and to bring those products and services
to market. This ability could be adversely affected by difficulties or delays
in
product development such as the inability to identify viable new products,
greater than anticipated development costs, technical difficulties, regulatory
obstacles, competition, lack of demand, insufficient intellectual property
protection, or lack of market acceptance of new products and services. Due
to
the lengthy development process, technological challenges and intense
competition, there can be no assurance that any of the products the company
is
currently developing, or could begin to develop in the future, will achieve
substantial commercial success. Consequently, if we are not able to fund
extensive research and development activities and deliver new products to the
markets we serve on a timely basis, our growth and operations will be harmed.
In
addition, sales of the company’s new products could replace sales of some of its
current products, offsetting the benefit of even a successful product
introduction.
If
we fail to introduce and commercialize new seed varieties, we will not be able
to recover research, development and other costs associated with such activities
and, thus, our future sales will be harmed.
We
cannot
guarantee that the performance of our new seed varieties, whether licensed
or
proprietary, will meet our and our customers’ expectations, or that we will be
able to introduce and commercialize specific seed varieties. Reorder rates
are
uncertain due to several factors, many of which are beyond our control. These
include changing customer preferences, competitive price pressures, our failure
to develop new products to meet the evolving demands of farmers in China, the
development of higher-quality products by our competitors, and general economic
conditions. In addition, farmers generally need time to learn about new seed
varieties. Their traditional planting experience may also make it difficult
for
them to adapt to the new varieties. The process for new products to gain market
recognition and acceptance is long and has uncertainties. If we fail to
introduce and commercialize a new seed variety that meets the demand of farmers
in China, if our competitors develop products that are favored by farmers in
China, or if we are unable to produce our existing products in sufficient
quantities, our growth prospects may be materially and adversely affected and
our revenues may decline.
One
or more of our distributors could engage in activities that are harmful to
our
brand and to our business.
Our
crop
seed products are sold primarily through distributors, and those distributors
are responsible for ensuring that our products have the appropriate licenses
to
be sold to farmers in the PRC provinces. If those distributors do not apply
for
and receive the appropriate licenses, their sales of our products in those
provinces may be illegal, and we may be subject to government sanctions,
including confiscation of illegal revenues and a fine of between two and three
times the amount of such illegal revenues. Unlicensed sales in a province may
also cause a delay for our other distributors in receiving a license from the
authorities for that province, which could further adversely impact our sales
in
that province. In addition, distributors may sell our products under another
brand that is licensed in a particular province if our product is not licensed
there. If our products are sold under another brand, the purchasers will not
be
aware of our brand name, and we will be unable to cross-market other crop seed
varieties or other products as effectively to these purchasers. Moreover, our
ability to provide appropriate customer service to these purchasers will be
negatively affected, and we may be unable to develop our local knowledge of
the
needs of these purchasers and their environment. Furthermore, if any of our
distributors sell inferior crop seeds produced by other companies under our
brand name, our brand and reputation could be harmed, which could make marketing
of our branded crop seeds more difficult.
We
rely on multiple distribution agreements for the sale and distribution of our
products in the PRC provinces; if these agreements expire and we are unable
to
obtain new distribution agreements on similar terms, our future sales and
results of operations would be adversely affected.
We
have
established a network of over 3,800 first-level distributors and over 65,000
second-level distributors and some retailers. Our distributors sell our seed
products to retailers and the retailers in turn sell them to farmers. This
distribution network covers almost all of the provinces of the PRC, excluding
Qinghai and Tibet. The terms of our distribution agreements provide for
territorial exclusivity on a designated seed product, usually on a county-wide
basis and are one year in length. These distribution agreements are generally
only for a term of one year and will expire next year. Although no single
distributor accounts for more than 1% of our total sales, if we are unable
to
enter into new distribution agreements on substantially similar terms with
a
sufficient number of distributors each year, we will not have the distribution
channels upon which we rely to market and sell our products, and our business
and financial position could be adversely affected.
We
may be exposed to product quality claims, which may cause us to incur
substantial legal expenses and, if determined adversely against us, may cause
us
to pay significant damage awards.
The
performance of our seeds depends on climate, geographical areas, cultivation
method, farmers’ degree of knowledge and other factors in addition to genetic
traits and the quality of our seeds. Natural disasters may also affect the
performance of our seeds, particularly when farmers are not able to timely
and
effectively respond to those disasters. Furthermore, the cultivability of some
farmland is deteriorating by toxic and hazardous materials due to farmers’
overuse of chemical herbicide. These factors generally result in
underproduction. However, farmers generally attribute underproduction to seed
quality. We may be subject to legal proceedings and claims from time to time
relating to our seed quality. The defense of these proceedings and claims can
be
both costly and time consuming and may significantly divert efforts and
resources of our management personnel. An adverse determination in any such
proceeding could subject us to significant liability and damage our market
reputation and prevent us from achieving increased sales and market share.
Protracted litigation could also result in our customers or potential customers
deferring or limiting their purchase of our products.
Our
revenues depend on the ability of a large number of small farmers to buy seed
for cash because financing for purchases of this size and type is not available;
therefore, if a substantial number of our customers become unable to pay for
seed, our sales, revenues and operating results will
decline.
We
have a
large and diversified customer base, with no single customer representing more
than 1% of our revenues. The large customer base provides some protection to
us
against a loss of revenues due to the inability of a significant number of
our
customers to pay for seed that has been previously ordered. However, the
unavailability of credit for farmers in the PRC reduces the ability of those
farmers to withstand the effects of difficult economic times. The lack of credit
could prevent farmers from fulfilling their purchasing commitments to us with
the result that our revenues and results of operations would be reduced.
Fluctuations
in commodity prices can increase our costs and decrease our
sales.
We
purchase our seed inventories from production growers at market prices and
retain the seed in inventory until it is sold. These purchases onstitute a
significant portion of the manufacturing costs for our seeds. We use hedging
strategies to mitigate the risk of short-term changes in these prices but are
unable to avoid the risk of medium- and long-term changes. Accordingly,
increases in commodity prices may negatively affect our cost of goods sold
or
cause us to increase seed prices, which could adversely affect our sales.
Farmers’ incomes are also affected by commodity prices; as a result, commodity
prices could have a negative effect on their ability to purchase
our products.
Price
increases for energy costs and raw materials could have a significant impact
on
our ability to sustain and grow earnings.
Our
production and distribution processes consume significant amounts of energy
and
raw materials, the costs of which are subject to worldwide supply and demand
as
well as other factors beyond the control of the company. Significant variations
in the cost of energy, which primarily reflect market prices for oil and raw
materials affect the company’s operating results from period to period. When
possible, the company purchases raw materials through negotiated long-term
contracts to minimize the impact of price fluctuations. The company has taken
actions to offset the effects of higher energy and raw material costs through
selling price increases, productivity improvements and cost reduction programs.
Success in offsetting higher raw material costs with price increases is largely
influenced by competitive and economic conditions and could vary significantly
depending on the market served. If the company is not able to fully offset
the
effects of higher energy and raw material costs, it could have a significant
impact on the company’s financial results.
If
we are unable to estimate our customers future needs accurately and to match
our
production to the demand of our direct customers, our business, financial
condition and results of operations may be adversely affected.
Due
to
the nature of the crop seed industry, we normally produce seeds according to
our
production plan before we sell and deliver crop seeds to distributors, which
are
our direct customers. Chinese farmers, the end users of our crop seed, generally
make purchasing decisions for our products based on market prices, economic
and
weather conditions and other factors that we and our distributors may not be
able to anticipate accurately in advance. If we fail to accurately estimate
the
volume and types of products sought by farmers, we may produce more seeds that
are not in demand by our distributors resulting in aged seeds. In the event
we
decide not to sell the aged seeds due to our concerns about the quality of
these
seeds, the aged inventory could eventually be sold as crop for end uses at
greatly reduced prices than seeds. Aged inventory could result in asset
impairment, in which case we would suffer a loss and incur an increase in our
operating expenses. On the other hand, if we underestimate demand, we may not
able to satisfy our distributors’ demand for crop seeds, and thus damage our
customer relations and end-user loyalty. Our failure to estimate farmers’ future
needs and to match our production to the demand of our direct customers may
adversely affect our business, financial condition and results of operations.
In
addition, inadequate distributor liquidity could affect distributors’ ability to
pay for our products and, therefore, affect our sales or our ability to collect
on our receivables.
There
are difficulties in managing our storage system, which may result in damage
to
our seeds in storage and, thus, operating losses.
Seed
storage entails significant risks, including difficulties in management of
moisture, temperature and humidity of storage condition, any failure of which
may result in damage to our seeds in storage and, thus, operating
losses.
It
is difficult to predict our future performance because our revenues and
operating results fluctuate significantly from period to period due in part
to
the nature of our business.
Our
operating results may fluctuate due to a number of factors, many of which are
beyond our control. Our quarterly and annual revenues and costs and expenses
as
a percentage of our revenues may be significantly different from our historical
rates. Our operating results in future quarters may fall below expectations.
The
industry in which we operate is seasonal in nature. The sales season of corn,
rice and cotton seed lasts from October to June; the delivery of canola lasts
from July to September. We generally do not have sales revenue from July to
September, which results in cyclical changes of our cash flow and operating
activities. As a result, if we are unable to generate sufficient working capital
from our cash flow from operations and working capital facilities, we may
encounter liquidity difficulties from the period of July through September,
which may harm our operations. The seasonal nature of our business causes our
operating results to fluctuate from quarter to quarter. Any unexpected seasonal
or other fluctuations could cause the price of our common stock to fall. As
a
result, you may not rely on comparisons of our quarterly operating results
as an
indication of our future performance.
In
addition, the future achievement and growth of our profits depends on our
ability to secure sufficient orders from customers. An adverse change in market
conditions may have material and adverse effects on our operating results if
we
cannot adjust our operating and marketing strategy to respond to such changes.
Our results of operations may be adversely affected by reduced orders and profit
margins in the event of a slowdown in market demand, an increase in business
competition, a decrease in government subsidies to farmers, increased costs,
or
for other reasons. As such, there is a risk that we will not be able to achieve
or maintain profitability or our historical results.
Aged
inventory may result in an increase of our administrative expenses and cause
operating losses.
Due
to
the nature of the seed industry, we normally produce seeds according to our
production plan before we deliver the seeds to our customers. Our production
plan could be too aggressive and, therefore, we could produce more seeds than
demanded by the market which could result in aged seeds. We may decide not
to
sell the aged seeds if we take into account factors such as the quality of
the
seeds. In that case, the aged inventory could eventually be sold as common
feed
products at greatly reduced prices. Aged inventory could result in assets
impairment risk, in which case we would suffer a loss and incur an increase
of
cost of revenue and a decrease in gross profit.
As
a
result of the measurement in the market value of inventory, last year we wrote
off a significant portion of our seed inventory of RMB77.24 million (US$ 10.31
million), 90.02% of which derived from the inventory of Denong Zhengcheng Seed
Limited, or Denong.
We
have limited business insurance coverage in
China.
The
insurance industry in China is still at an early stage of development. In
particular, PRC insurance companies do not offer extensive business insurance
products. As a result, we have very limited business liability, disruption
insurance, or product liability coverage for our operations in China. We have
determined that the difficulties associated with acquiring such insurance on
commercially applicable terms and the nature of the industry makes it
impractical for us to obtain such coverage. Any business disruption, litigation
or natural disaster could result in our incurring substantial costs and the
diversion of our resources, which could adversely affect our operations and
financial condition.
We
rely on our network of approximately 110,000 farmers for the production of
our
seeds. Although our relationship with those farmers has been stable in the
past,
there are no assurances that those relationships will remain stable in the
future. Instability of this kind could limit the amount of seed products
available to us for sale to customers and threaten customer
loyalty.
We
believe we maintain a favorable relationship with the farmers in our seed
production network. In addition, the fact that we rely on a large number of
farmers to produce crop seeds means that no one or even several farmers can,
acting independently, adversely affect our business. However, events such as
a
shift in pricing caused by an increase in the value of commodity food crops
other 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
we obtain, adversely affecting supply and thereby lowering revenues. Such
disruption could also damage our distributor relationships and farmer loyalty
to
us if we cannot supply the quantity of seed expected by them.
We
rely on license and technical service agreements which have imminent expiration
dates and there is no assurance that we will be able to renew these agreements.
We
have
multiple license agreements for designated seed products in relation to
exclusive production and marketing within China. Our license agreements with
Hubei Province Shiyan Agricultural Sciences Institute and Handan Agricultural
Academy each have terms expiring on January 10, 2008 and July 1, 2011,
respectively. In addition, under the technical service agreements dated December
25, 2004, Beijing Origin State Harvest Biotechnology Limited, or Origin
Biotechnology will
provide technical research, production and distribution services. In return,
Beijing Origin Seed Limited, or Beijing Origin is required to pay Origin
Biotechnology a service fee calculated according to the weight of corn, rice
and
cotton seeds sold by the Beijing Origin. The initial term of each of these
technical services agreements is three years and either party has the right
to
terminate the agreement if it does not desire to renew the provisions thereof
at
the expiration of the term. There is no guarantee that any of these agreement
upon which we or our subsidiaries depend for licensing and technical services
will be renewed. Moreover, there is no assurance that any steps we have already
taken or might take in the future will ensure the successful renewal of any
or
all our rights or the granting of further new rights or that the terms of any
renewals of our rights would not be significantly less favorable to us than
the
terms of our current rights under these agreements.
Agreements
between our subsidiaries may not reflect terms that would have resulted from
arm’s length negotiations among unaffiliated third parties.
Agreements
between our subsidiaries that have been entered into, including the technical
services agreements, by and among Beijing Origin, Changchun Origin Seed
Technology Development Limited, or Changchun Origin, Henan Origin Cotton
Technology Development Limited, or Henan Origin and Origin Biotechnology, may
not reflect terms that would have resulted from arm’s-length negotiations among
unaffiliated third parties. These agreements relate to, among other things,
the
transfer of intellectual property rights and the provision of technical
research, production and distribution services.
If
our rights to lease land from farmers were subject to a dispute, or if their
legality or validity were challenged, our operations could be disrupted.
PRC
law
provides for the registration of land ownership and land-use rights and for
the
issuance of certificates evidencing land ownership or the right to use land.
However, the administrative system for registration of land ownership and
land-use rights is not well-developed in rural areas where most of our crop
seed
production bases are located. As a result, we are generally not able to verify
through the land registry system the ownership or land-use rights of the parties
from whom we have leased land. Despite our efforts to obtain representations
from the farmers that they own the land, possess land-use rights or have the
right to sub-contract the land-use right on behalf of the holder of such rights,
there is nevertheless a risk that they have not legally and validly granted
the
right to use the land to us. Moreover, there is a risk that farmers may, in
breach of the terms of the applicable leases, enter into leases with other
third
parties in respect of land-use rights which they have previously granted to
us,
or that they have not entered into leases with third parties before entering
into leases with us.
There
is
a risk that the legality or validity of our leases will be subject to dispute
or
challenge in the future. If our leases become subject to a dispute or challenge,
our operations on such land, especially our research and development on crop
breeding, could be suspended and we could lose our rights to use such land
which
could adversely affect our business, financial condition and results of
operations.
In
the course of preparing our consolidated financial statements for the twelve
months ended September 30, 2007, a material weakness in our internal
control over financial reporting was noted. If we fail to implement, achieve
and
maintain an effective system of internal controls, and as a result of this
material weakness, we may be unable to accurately report our financial results,
and investor confidence and the market price of our shares may be adversely
impacted.
We
became
subject to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in
the
fiscal year ended September 30, 2007, which requires us to set out a management
report containing an assessment of our internal controls over financial
reporting in our Annual Report. It also requires an independent registered
public accounting firm to attest to and report on the effectiveness of our
internal controls over financial reporting. In preparing our consolidated
financial statements, a material weakness in our internal control over financial
reporting were identified, as defined in the standards established by the U.S.
Public Company Accounting Oversight Board. The material weakness identified
primarily related to the application of derivative accounting in accordance
with
Financial Accounting Standard 133-Accounting for Derivative Instruments and
Hedging Activities. Our management concluded that we did not maintain an
effective control environment with respect to the accounting for derivative
as
at September 30, 2007. As a result, this control deficiency resulted in a
material adjustment in the our annual consolidated financial statements.
Therefore, we concluded that we did not have effective internal control over
financial reporting for the twelve months ended September 30,
2007.
We
are
planning for the complete remediation of the above issue in 2008 by seeking
people with expertise in this aspect. We cannot be certain that this measure
will resolve our control deficiency, and, if we fail to timely achieve and
maintain the adequacy of our internal controls, we may continue to be unable
to
conclude that we have effective internal controls over financial reporting.
Moreover, effective internal controls over financial reporting are necessary
for
us to produce reliable financial reports and are important to help prevent
fraud. As a result, our failure to achieve and maintain effective internal
controls over financial reporting could result in the loss of investor
confidence in the reliability of our financial statements, which in turn could
harm our business and negatively impact the market price of our ordinary shares.
Furthermore, we anticipate that we will incur considerable costs and use
significant management time and other resources in an effort to comply with
Section 404.
Any
diversion of management attention to matters related to acquisitions or any
delays or difficulties encountered in connection with integrating acquired
operations may have an adverse effect on our business, results of operations,
and/or financial condition.
We
have
completed several acquisitions involving seed companies and may complete other
acquisitions in the near further. These transactions are designed to contribute
to our long-term growth. We must fit such acquisitions into our growth
strategies to generate sufficient value to justify their cost. Acquisitions
also
present other challenges, including geographical coordination, personnel
integration and retention of key management personnel, systems integration
and
the reconciliation of corporate cultures. Those operations could divert
management’s attention from our business or cause a temporary interruption of or
loss of momentum in our business and the loss of key personnel from the acquired
companies. In addition, proposed acquisitions which are not consummated will
cause us to incur substantial costs, none of which are generally
recoverable.
We
require short-term financing to fund our working capital, especially due to
the
seasonal nature of our business.
The
nature of the agricultural seed production industry involves expenses and
revenue cycles that seasonal in nature. In our fiscal year third quarter, we
may
face costs that are in excess of our cash flow sources during that given period.
The advanced payments made to our seed producing farmers may exceed the amount
of deposits received from our customers. The exact timing of these deposit
payments is dependant on the Chinese lunar calendar, which varies from one
calendar year to the next. As a result, we have customarily relied upon short
term bridge loans to cover our expenses pending receipt of cash payment from
farmers at the time of seed purchases. For example, our short-term debt
increased from RMB253 million ($32.01 million) on September 30, 2006 to
RMB268.40 million (US$35.82 million) on September 30, 2007. Although we have
historically had access to sufficient financing to manage these cash flow
cycles, we cannot be certain that we will be able to obtain sufficient debt
financing on terms that are satisfactory to us to maintain consistent operating
results. Downgrades in our credit rating, tightening of related financing
markets or other limitations on our ability to access short-term financing
would
increase our interest costs and adversely affect our operating
results.
Certain
of our credit agreements contain restrictive covenants that may impair our
ability to conduct our business.
Certain
of our outstanding credit agreements contain financial and operating covenants
that limit our management’s discretion with respect to certain business matters.
Among other things, these covenants require us to maintain certain financial
ratios, restrict our ability and our subsidiaries’ ability to incur additional
debt, create liens or other encumbrances, change the nature of our business,
pay
dividends, sell or otherwise dispose of assets, and merge or consolidate with
other entities. Any failure by us or our subsidiaries to comply with these
agreements could harm our business, financial condition and operating results.
Risks
relating to our industry
The
Chinese agricultural market is highly competitive and our growth and results
of
operations may be adversely affected if we are unable to compete effectively.
The
agricultural market in China is highly fragmented, largely regional and
competitive and we expect competition to increase and intensify within the
sector. We face significant competition in our crop seed business. Our
competitors may have greater financial, research and development resources
than
we have. Competition may also develop from consolidation or other market forces
within the crop seed industry in China, and the privatization of crop seed
producers that are currently operated by the local governments in China.
According to the Opinion on Enhancement of Market Supervision regarding Seed
Administration Reform issued by the General Office of the PRC State Council
in
May 2006, the agricultural administrative offices of local government were
required to separate their governmental administrative functions from seed
production activities by the end of June 2007 and, therefore, there may be
more
privately-owned seed companies in the future. Our competitors may be better
able
to take advantage of industry consolidation and acquisition opportunities than
us. The reform and restructuring of state-owned equity in seed enterprises
will
likely lead to the reallocation of market share in the seed industry, and our
competitors may increase their market share by participating in the
restructuring of the state-owned seed companies. Such privatization would likely
mean that these producers will need to develop more efficient and commercially
viable business models in order to survive. In addition, the PRC government
currently restricts foreign ownership of any domestic seed development and
production business to no more than 50%. When and if such restrictions are
lifted, multinational corporations engaged in the seed business may expand
into
the agricultural market in China. These companies have significantly greater
financial, technological and other resources than us and may become our major
competitors in China. In particular, our industry was affected by a widespread
overproduction during the last year. As a result, supply of certain of our
products exceeded demand for those products and, as a result, market prices
were
reduced and our margins and revenues were negatively impacted. If this trend
continues in future years, we may be unable to successfully compete in our
industry, especially if our competitors can produce and distribute seeds at
a
lower cost than us. As competition intensifies, our margins may continue to
be
compressed by more competitive pricing in the short term and may also to be
compressed in the long term and we may lose our market share and experience
a
negative impact on our margins, revenues and results of operations.
Natural
or man-made disasters could damage seed production, which would cause us to
suffer production losses and material reduction of revenues; there is no
agriculture insurance in the PRC to cover the loss of seed
crops.
We
produce our seeds using a network of approximately 110,000 farmers, who 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 our seeds is subject to all of
the
risks associated with any agricultural enterprise, including natural disasters
such as widespread drought, flood, snowstorm, pestilence, plant diseases and
insect pests, and man-made disasters such as environmental contamination. Other
man-made incidents may damage our products, such as arson or other acts that
may
adversely affect our crop seed inventory in the winter storage season.
Furthermore, natural or man-made disasters may cause farmers to migrate from
the
farmland, which would decrease the number of end users of our products. While
the use of such a large number of farmers provides some protection against
a
widespread failure of any particular crop, the majority of our seed production
farmers are located in Gansu, Sichuan, and Hunan provinces, making them subject
to risks that are somewhat local in nature. We have attempted to manage this
risk by obligating ourselves to pay the farmers who produce our seeds only
for
the quantity of seeds that they produce, thus limiting our expenses somewhat.
We
have also set up a storage system since 2003 attempting to manage this risk.
However, in the event of a widespread failure of the crop seed, we would likely
sustain substantial operating losses, due to both the fact that a significant
portion of our expenses are fixed overhead and that the loss of a large portion
of a crop seed would limit our revenues significantly. Although insurance to
protect against such a risk is available in many jurisdictions, such insurance
is not available in the PRC.
Our
results of operations and financial condition may be adversely affected by
extreme weather conditions.
Our
supply of crop seeds is subject to the risk of extreme weather conditions which
may adversely affect the farmers producing crop seeds for us. In turn, the
quality, cost and volumes of crop seeds that our farmers supply to us could
be
affected, thereby harming our sales and profitability. Extreme weather
conditions could also affect our production facilities, or those of our
suppliers or customers, which could affect our costs and our ability to meet
supply.
We
primarily rely on arrangements with farmers to produce our crop seed products.
If we were unable to continue these arrangements or enter into new arrangements
with other farmers, our total land acreage devoted to crop seed production
would
decrease and our growth would be inhibited.
We
have
access to approximately 6,500 hectares of farmland in fourteen provinces mainly
through contractual arrangements with farmers. As we are legally prohibited
from
owning farmland, we typically enter into a seed production agreement with such
farmer. These production agreements to produce crop seeds are typically one
year
in length, covering one growing season. In the event that prices for other
crops
increase, these farmers may decide to farm other crops in breach of our seed
production agreements with them. If we are unable to find new villages
collectives willing to produce crop seeds for us, our business and results
of
operations would be materially and adversely affected. Any of these disruptions
could materially and adversely affect our supply of crop seeds and our revenues.
Such disruptions could also damage distributor relationships and farmer loyalty
if we cannot supply them with the quantities and varieties of seeds that they
expect.
Crop
seed prices and sales volumes may decrease in any given year with a
corresponding reduction in sales, margins and results of
operations.
During
most of our limited operating history, the crop seed market has been stable
in
the PRC, however, in the past, it was marked by periods of instability, as
in
the case of fiscal year 2007. In the future, there may be prolonged periods
of
instability during which commodity prices and sales volume might fluctuate
greatly. Commodities can continue to be affected by general economic conditions,
weather, disease and aspects of demand such as financing, competition and trade
restrictions. Although we have followed a branded product strategy to
differentiate our 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 we are able to demand for our seeds is somewhat dependent on the size
of
the supply of our seeds and the seeds of other producers. Therefore, the
potential exists for fluctuation in supply and, consequently, in price, in
our
own markets, even in the absence of significant external events that might
cause
volatility. As a result, the amount of revenue that we receive 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 we will have too much or not enough
product available, each with the attendant impact on revenues, margins and
results of operations.
In
recent years, prices of our crop seed products in China have been declining.
The
ability of our operations to be profitable is affected by the selling prices
of
our products. We benchmark the prices of our crop seed products against the
prevailing domestic market prices of crop seed products of similar quality
and
attributes. Historically, prices of crop seed products in China have been
volatile, primarily due to fluctuations in supply and demand. In the past four
years, prices of our crop seed products in China have been declining. If the
prices for such products continue to decline in the future, and we are unable
sell more products and/or reduce our cost of sales, our revenues will decrease
and our ability to generate operating results at historical levels will be
adversely affected.
We
may face increased regulatory risks with respect to our recent expansion into
Vietnam.
In
connection with certain of our recent acquisition and seed approval activities,
including particular investments in rice seed varieties applicable to the soil
conditions in Southeast Asia, we have begun to do limited business with farmers
in Vietnam who purchase our rice hybrid products. We expect to continue to
expand our business into Vietnam in the future. We may face material financial,
business, and legal risks with respect to our expansion into Vietnam given
that
our business and operating results may be adversely affected by changes in
the
political and social conditions in Vietnam and by changes in Vietnamese
government policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods
taxation, among other things.
Technological
change in creating seed hybrids could harm our business, causing a loss in
business opportunities, market share and revenues.
We
currently rely upon traditional methods of creating crop seed hybrids to develop
new products. While these methods are highly effective, there has been an
increase in the development of genetically modified agricultural products in
an
effort 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 the PRC. However, as the ability to use genetic
modification to produce seeds that are superior to or less costly than those
that we produce by traditional methods increases, the threat of competition
from
this source becomes more realistic. A number of factors those are currently
difficult to predict, including a shift in farmer and consumer attitudes
regarding the acceptability of genetic technology affect the extent to which
this potential threat could affect our business prospects.
Risks
relating to our business organization and structure
Three
of our PRC operating subsidiaries are controlled subsidiaries through stock
consignment agreements rather than by direct ownership of shares, the terms
of
which may have to be enforced, which would require us to incur extra costs,
create uncertainty as to ownership of the operating businesses involved and
risk
the possible loss of rights.
Under
PRC
law, foreign entities are not currently permitted to own more than 49% of a
seed
production company. In order to address those restrictions, Origin, a
non-Chinese entity that cannot directly own the shares of three of our PRC
operating subsidiaries, namely, Beijing Origin, Changchun Origin and Henan
Origin, will instead hold the right to control such 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
to
us for no additional consideration.
There
is
the risk, however, that a consigning shareholder will not fulfill its
obligations under the stock consignment agreement. In that event, we may need
to
resort to the PRC courts to have our rights under the applicable agreement
enforced. Such enforcement will cause us to incur legal expenses. In addition,
while a case is pending there will be uncertainty regarding our rights as to
the
three PRC operating subsidiaries involved. In addition, a PRC court may decide
not to enforce the agreements in whole or in part. To the extent these
agreements are neither observed nor enforced as intended, the three PRC
operating subsidiaries and Denong, which is approximately 98% owned by Beijing
Origin, will not be controlled by us as intended, which will affect our value
and restrict our ability to obtain the income and other rights of ownership
associated with the consigned stock. It may also prevent the consolidation
of
our financial statements with the three PRC operating subsidiaries, which would
reduce the reported earnings of the consolidated companies. The uncertainty
of
ownership may also adversely affect our market value.
Whether
or not a stock consignment agreement is terminated depends on the consensus
of
our board and the consignees. Any such termination could result in a possible
loss of certain rights or assets held by us without receiving fair value in
return.
The
stock
consignment agreements relating to our control of the stock of three of our
PRC
operating subsidiaries (not including Origin Biotechnology) may be terminated
after three years upon mutual agreement between us and the consignees. Three
of
the consignees, Messrs. Han, Yang and Yuan, also serve as our officers and/or
directors. These three persons own, in the aggregate, 8,662,350 shares of our
ordinary stock, or about 37% of our issued and outstanding ordinary stock.
Holding this amount of stock will allow these officers to control or greatly
influence the selection of directors and matters submitted to a vote of our
shareholders, including voting to terminate the stock consignment agreements.
There
are
corporate protections in place designed to protect our interests, such as an
independent board of directors, an audit committee comprised of independent
directors that must approve insider transactions, a code of conduct requiring
fair dealing with the company, and the British Virgin Islands statutory
provision that a disposition of more than 50% of the assets of a company must
be
approved by a majority of the shareholders. Moreover, if consigned stock is
transferred to us as provided in the stock consignment agreements when the
restrictions under PRC law are lifted, that stock will no longer be subject
to
the stock consignment agreements, and the termination of the stock consignment
agreements would then have no effect on the ownership of that stock. However,
if
the stock consignment agreements are terminated, then we would lose our rights
with respect to the consigned stock and the profits from the issuing
corporation. Such a loss would impair the value of the company and would reduce
our ability to generate revenue.
The
impact from the integration of our subsidiary Denong into Origin has increased
our costs and might continue to have an adverse effect on our operating
results.
From
January 2006 through December 2006, we acquired, in multiple transactions,
approximately 97.62% interest in Denong, a developer, producer and marketer
of
rice, corn, canola and cotton in the southwest region of China. To integrate
Denong into our growth strategies, we invested considerable financial and human
resources, which increased our operating costs. Furthermore, the integration
process diverted our management’s attention from our business, which might have
a further adverse effect on our core operating results. We cannot be certain
that we will achieve a favorable return on our investment.
Our
executive officers have entered into employment agreements with us which provide
that they may be entitled to certain rights upon a change of control.
The
following executive officers have entered into employment agreements which
provide that they may terminate their respective employment agreements with
us
as a result of a change of control:
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Dr.
Gengchen Han, our Chairman and Co-Chief Executive Officer;
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Yasheng
Yang, our Vice Chairman; and
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Liang
Yuan, our Co-Chief Executive Officer and
President
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A
change
of control includes if any person other than us and/or any our officers or
directors as of the date of the employment agreement acquires our securities
other than from the executive or his affiliates (in one or more transactions),
having 51% or more of the total voting power of all of our securities then
outstanding. If the executive terminates his employment agreement due to a
change of control, we must continue to pay the executive all payments,
compensation and benefits pursuant to the terms of his employment agreement
upon
the earlier of two years from the date of termination or through the term of
the
employment agreement (each employment agreement has a term of three years
commencing on January 1, 2005).
Risks
relating to doing business in China
If
we do not comply with PRC regulations, we may not be able to operate our
business or we may be fined, both of which would adversely affect our business,
operations and revenues.
The
PRC
has many regulations relating to the seed business, including obtaining and
maintaining operating licenses and permits. Seed products must be licensed
and
undergo a stringent review process before they may be sold in the PRC. We
believe we currently have all the necessary licenses necessary for our business,
and that we are in compliance with applicable laws and regulations. If we are
not in compliance, we may be fined or lose the ability to sell a particular
seed
or operate our business altogether. If the fines are substantial or if our
ability to sell or operate is withdrawn, this will result in additional costs
or
the loss of revenues and could prevent us from continuing as an operating
business.
If
we do not comply with applicable government regulations, we may be prohibited
from continuing some or all of our operations, resulting in a reduction of
growth and ultimately market share due to loss of competitive position.
Our
revenue depends on receiving approval from the PRC government to market new
seed
hybrids that we are developing and will develop. In addition, there may be
circumstances under which the governmental approvals granted are subject to
change without substantial advance notice, and it is possible that we could
fail
to obtain the approvals that we require to expand our business as we intend
to
do. The failure to obtain or to maintain such approvals would limit the number
and quality of products that we 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 the loss of market share from the competitive
pressures of seeds developed by others that would likely be better than our
products.
The
reform and restructuring of local agricultural administrative offices and
state-owned seed enterprises may harm our future business.
The
General Office of the PRC State Council issued an opinion in May 2006, requiring
that the agricultural administrative offices of the local governments stop
engaging in the seed production and distribution business by the end of June,
2007. The opinion also provides that the agricultural administrative offices
of
the local governments should sever their ties with their affiliated state-owned
seed companies. We believe such reform and restructuring of state-owned seed
companies will likely lead to reallocation of the seed market share and, thus,
our competitors may be able to increase their market share by participating
in
the restructuring of the state-owned seed companies. As competition intensifies,
our margins may be compressed by more competitive pricing in the short term
and
may continue to be compressed in the long term and we may lose our market share
and experience a reduction in our revenues and results of
operations.
The
technical services agreements between Origin Biotechnology and the other three
operating subsidiaries may be subject to scrutiny by the PRC tax authorities
for
transfer pricing adjustments.
We
could
face adverse tax consequences if the PRC tax authorities determine that our
technical service agreements between Origin Biotechnology and the other three
PRC operating subsidiaries, namely, Beijing Origin, Changchun Origin and Henan
Origin, were not entered into based on arm’s length negotiations. If the PRC tax
authorities determine that these agreements were not entered into on an arm’s
length basis, they may adjust our income and expenses for PRC tax purposes
in
the form of a transfer pricing adjustment. A transfer pricing adjustment could
result in a reduction, for PRC tax purposes, of deductions recorded by the
three
PRC operating subsidiaries, which could adversely affect us by:
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increasing
the three PRC operating subsidiaries’ tax liability without reducing
Origin Biotechnology’s tax liability, which could further result in late
payment fees and other penalties to our PRC operating subsidiaries
for
under-paid taxes; or
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limiting
Origin Biotechnology’s ability to maintain preferential tax treatment and
government financial incentives, which, if the transfer pricing adjustment
is significant, could result in Origin Biotechnology failing to qualify
for those preferential tax treatments and government financial
incentives.
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As
a
result, any transfer pricing adjustment could have an adverse impact on our
financial condition.
Deficient
railway transportation capacity in Northwestern China and the oil price hike
may
result in the increase of our transportation-related costs and thus adversely
affect our business.
Our
major
production base is located at Linze County, Gansu Province, China. Seeds
produced in that geography are transported throughout China each year by means
of railway, which we believe is currently the most cost-efficient means. With
economic development and the frequent flow of material, we believe the Northwest
railway is deficient in terms of its transportation capability. As our volume
of
freight increases year by year, the seeds may have to be transported by other
means if the railway cannot guarantee the increasingly larger volume of freight
for instance, by car. In such event, the production costs will increase
correspondingly with the increase in transportation costs, which may adversely
affect our business.
Our
business benefits from certain PRC government subsidies. Expiration of, or
changes to, these incentives could have a material adverse effect on our
operating results.
The
PRC
government has in recent years reduced taxes and increased subsidies and other
support across the agricultural industry. For instance, the government
subsidizes farmers for their seed purchases, and has increased spending on
rural
infrastructure. Sales of agricultural products from producers to intermediaries
or to farmers are exempt from PRC value-added tax. The discontinuance of
preferential treatments granted by the Chinese government to the seed industry,
could adversely affect our earnings.
In
addition, subsidy policies may have an adverse effect on our ability to market
our products. Farmers can buy crop seeds designated as “high-quality” at
subsidized prices, but the designation of seeds as “high-quality” is at the
discretion of the local government, companies owned by the local government
and
local private seed companies. It is possible that this policy could result
in
preferential treatment for local seed producers, with locally produced seeds
being designated as “high-quality” while ours are not designated as such. If
such preferential treatment were to occur, the price for our seeds to farmers
in
those provinces would be higher than the subsidized local seeds, and our sales
in that province could suffer, which could adversely affect our results of
operations.
The
discontinuation of any of the preferential tax treatments currently available
to
our PRC subsidiaries could materially increase our tax liabilities.
Prior
to
January 1, 2008, under applicable PRC tax laws, companies established in China
were generally subject to a state and local enterprise income tax, or EIT,
at
rates of 30% and 3%, respectively. In addition, an enterprise qualified as
a
“high and new technology enterprise,” including agricultural companies, located
in certain specified high-tech zones was entitled to a preferential state EIT
rate of 15% and could enjoy an exemption from the state EIT for the first three
years since its establishment and a 50% reduction of the state EIT for the
succeeding three years. The qualification of a “high and new technology
enterprise” was subject to an annual or biennial evaluation by the relevant
government authority in China. For example, Origin Biotechnology is entitled
to
a preferential tax rate of 15% as a new technology company, and was exempted
from income tax for 2006 and 2007. Also Beijing Origin has been approved as
a
new technology enterprise and enjoys the reduced enterprise income tax rate
of
15%.
In
March
2007, the National People’s Congress, enacted the Enterprise Income Tax Law, or
the EIT Law, and in December 2007, the State Council promulgated the
implementing rules of the New EIT Law, both of which became effective on January
1, 2008. The New EIT Law significantly curtails tax incentives granted to
foreign-invested enterprises under the previous tax law. The New EIT Law,
however, (i) reduces the top rate of enterprise income tax from 33% to 25%,
(ii)
permits companies to continue to enjoy their existing tax incentives, subject
to
certain transitional phase-out rules, and (iii) introduces new tax incentives,
subject to various qualification criteria. Under the phase-out rules,
enterprises established before the promulgation date of the New EIT Law and
which were granted preferential EIT treatment under the then effective tax
laws
or regulations may continue to enjoy their tax holidays until their expiration
and will gradually transition to the uniform 25% EIT rate over a five-year
transition period. In addition, the new technology enterprise qualification
of
our PRC subsidiaries is subject to a biennial re-assessment by the relevant
PRC
government authority. In the event the preferential tax treatment for our PRC
subsidiaries is discontinued, the affected entity will become subject to the
standard PRC enterprise income tax rate. There is no assurance that the local
tax authorities will not, in the future, change their position and discontinue
any of our preferential tax treatments, potentially with retroactive effect.
The
discontinuation of any of our preferential tax treatments could materially
increase our tax obligations.
Under
China’s New Enterprise Income Tax Law, we may be classified as a “resident
enterprise” of China. Such classification could result in unfavorable tax
consequences to us and our non-PRC shareholders.
Under
the
New Enterprise Income Tax Law, or the New EIT Law, an enterprise established
outside of China with “de facto management bodies” within China is considered a
“resident enterprise,” meaning that it can be treated in a manner similar to a
Chinese enterprise for enterprise income tax purposes. The implementing rules
of
the New EIT Law define de facto management as “substantial and overall
management and control over the production and operations, personnel,
accounting, and properties” of the enterprise. Currently no official
interpretation or application of this new “resident enterprise” classification
is available, therefore it is unclear how tax authorities will determine tax
residency based on the facts of each case. If the PRC tax authorities determine
that our British Virgin Islands holding company is a “resident enterprise” for
PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences
could follow. First, we may be subject to enterprise income tax at a rate of
25%
on our worldwide taxable income as well as PRC enterprise income tax reporting
obligations. Second, although under the New EIT Law and its implementing rules
dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt
income,” we cannot guarantee that such dividends will not be subject to a 10%
withholding tax, as the PRC foreign exchange control authorities, which enforce
the withholding tax, have not yet issued guidance with respect to the processing
of outbound remittances to entities that are treated as resident enterprises
for
PRC enterprise income tax purposes. Finally, it is possible that future guidance
issued with respect to the new “resident enterprise” classification could result
in a situation in which a 10% withholding tax is imposed on dividends we pay
to
our non-PRC shareholders and with respect to gains derived by our non-PRC
shareholders from transferring our shares. The “resident enterprise” rule could
be applied to our British Virgin Islands sub-holding company with similar
consequences.
In
addition to the uncertainty in how the new “resident enterprise” classification
could apply, it is also possible that the rules may change in the future,
possibly with retroactive effect. We are actively monitoring the possibility
of
“resident enterprise” treatment for the 2008 tax year and are evaluating
appropriate organizational changes to avoid this treatment.
Adverse
changes in political and economic policies of the PRC, including its policy
of
reforming its economic system, could have an adverse effect on the growth of
private businesses in the PRC such as ours.
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 to one that uses
market forces to influence deployment of economic resources, labor and capital
and to determine business endeavors. We cannot 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 reimposition of planned economy regulation or similar kinds of
restrictions could reduce the freedom of private businesses to operate in a
profitable manner, restrict inflows of capital or stifle investor willingness
to
participate in the PRC economy. To the extent we need additional capital, any
restrictions on foreign ownership, foreign investment and repatriation of
profits will hamper our ability to find capital outside of the PRC.
The
economy of China has been experiencing unprecedented growth, leading to some
inflation. If the government tries to control inflation by traditional means
of
monetary policy or returns to planned economic techniques, our business will
suffer a reduction in sales growth and expansion
opportunities.
The
rapid
growth of the PRC economy has historically resulted in high 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
slowdown could have an adverse effect on our sales and may increase our costs.
If inflation is allowed to proceed unchecked, our costs would likely increase,
and there can be no assurance that we would be able to increase our prices
to an
extent that would offset the increase in our expenses.
A
return to profit repatriation controls may limit our ability to pay dividends
and expand our business, and may reduce the attractiveness of investing in
PRC
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, or
SAFE.
SAFE regulations require extensive documentation and reporting, some of which
is
burdensome and slows payments. If there is a return to payment restrictions
and
reporting, the ability of a PRC company to attract investors will be reduced.
Also,
our
investors may not be able to obtain the benefits of the profits of the business
generated in the PRC for other reasons. Relevant PRC laws and regulations permit
payment of dividends only from accumulated profits, if any, determined in
accordance with PRC accounting standards and regulations. Each of our
subsidiaries and our affiliated entities in China is required to set aside
at
least 10% of its after-tax profits each year, if any, to fund a statutory
reserve until such reserve reaches 50% of its registered capital, and to further
set aside a portion of its after-tax profits to fund the employee welfare fund
at the discretion of the shareholders’ meeting or the board. These reserves are
not distributable as cash dividends. In addition, the PRC tax authorities may
require us to adjust our taxable income under the contractual arrangements
we
currently have in place in a manner that would materially and adversely affect
our subsidiary’s ability to pay dividends and other distributions to us. Any
limitation on the ability of our subsidiary and our affiliated entity to
distribute dividends or other payments to us could materially limit our ability
to grow, make investments or acquisitions that could be beneficial to our
businesses, or otherwise fund and conduct our business.
Pursuant
to the new PRC enterprise income tax law to be effective on January 1,
2008, dividends payable by a foreign-invested enterprise, or FIE, including
Origin Biotechnology, its foreign investors will be subject to a 10% withholding
tax, unless any such foreign investor’s jurisdiction of incorporation has a tax
treaty with China that provides for a different withholding arrangement. Prior
to 2008, dividend payments to foreign investors made by FIEs were exempted
from
PRC withholding tax.
Any
fluctuations in exchange rates may adversely affect your investment.
The
value
of the Renminbi against the U.S. dollar and other currencies may fluctuate
and
is affected by, among other things, changes in political and economic
conditions. Because our earnings and cash from operations are denominated in
Renminbi, fluctuations in exchange rates between U.S. dollars and Renminbi
will
affect our balance sheet and earnings per share in U.S. dollars. In addition,
appreciation or depreciation in the value of the Renminbi relative to the U.S.
dollar would affect our financial results reported in U.S. dollar terms without
giving effect to any underlying change in our business or results of operations.
The People’s Bank of China sets and publishes a daily base exchange rate. Prior
to July 21, 2005, the People’s Bank of China set this rate with reference
primarily to the supply and demand of Renminbi against the U.S. dollar in the
market during the prior day. Effective from July 21, 2005, the Renminbi is
no
longer pegged solely to the U.S. dollar. Instead, it is pegged to a basket
of
currencies determined by the People’s Bank of China, against which it can rise
or fall by as much as 0.3% each day. For example, on July 21, 2005, the Renminbi
was revalued against the US dollar to approximately RMB8.11 to the US dollar,
representing an upward revaluation of 2.1% of the Renminbi against the US
dollar, as compared to the exchange rate on the previous day. On September
23,
2005, the PRC government widened the daily trading band for Renminbi against
non-US dollar currencies from 1.5% to 3% to improve the flexibility of the
new
foreign exchange system. The exchange rate may become volatile, the Renminbi
may
be revalued further against the US dollar or other currencies or the Renminbi
may be permitted to enter into a full or limited free float, which may result
in
an appreciation or depreciation in the value of the Renminbi against the US
dollar or other currencies. This change in policy resulted in an approximately
8.0% appreciation in Renminbi against the US dollar between July 21, 2005 and
June 30, 2007. Fluctuations in the exchange rate will affect the relative value
of any dividend we issue which will be exchanged into U.S. dollars, the value
of
any U.S. dollar denominated investments we make in the future and any earnings
on such investments.
There
are government regulations that limit or prohibit foreign investment in the
PRC,
which may restrict our growth.
Notwithstanding
the general restriction on foreign investment in the seed industry in the PRC,
our corporate structure currently enables us to receive foreign investment.
Our
continued ability to receive foreign investment may be important to our ability
to continue to expand our business rapidly and to manage that expansion
effectively. We cannot be certain that a change in the regulations allowing
us
to receive foreign investment will not occur. In the event of such a change,
our
plan to expand our business could be disrupted.
Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.
Substantially
all our revenues and expenses are denominated in Renminbi. We may need to
convert a portion of our revenues into other currencies to meet our foreign
currency obligations, including, among others, payment of dividends declared,
if
any, in respect of our ordinary shares. Under China’s existing foreign exchange
regulations, the PRC Operating Companies may not pay dividends in foreign
currencies, without prior approval from SAFE, unless they comply with certain
procedural requirements. The PRC government may also take measures in the future
to restrict access to foreign currencies for current account transactions.
Foreign
exchange transactions under the capital account continue to be subject to
significant foreign exchange controls and require the approval of PRC
governmental authorities, including the SAFE. If the PRC Operating Companies
borrow in foreign currency from us or other foreign lenders, these loans must
be
registered with the SAFE, and if we finance the PRC Operating Companies means
of
additional capital contributions, these capital contributions must be approved
by certain government authorities, including the Ministry of Commerce or its
local counterparts. These limitations could adversely affect the ability of
the
PRC Operating Companies to obtain foreign exchange through debt or equity
financing, which could harm our ability to fund our operations or cause us
to
seek additional financing on terms that may not be favorable.
PRC
regulations relating to offshore investment activities by PRC residents may
increase the administrative burden we face and create regulatory uncertainties
that could restrict our overseas and cross-border investment activity. Failure
by our shareholders who are PRC residents to make any required applications
and
filings pursuant to such regulations may prevent us from being able to
distribute profits, if any, and could expose us and our PRC resident
shareholders to liability under PRC law.
In
October 2005, SAFE promulgated regulations that require registration with local
SAFE offices in connection with direct or indirect offshore investment by PRC
residents, including PRC individual residents and PRC corporate entities. These
regulations apply to our shareholders who are PRC residents and also apply
to
our prior and future offshore acquisitions. In particular, the SAFE regulations
require PRC residents to file with competent SAFE offices information about
offshore companies in which they have directly or indirectly invested and to
make follow-up filings in connection with certain material transactions
involving such offshore companies, such as increases or decreases in investment
amount, transfers or exchanges of shares, mergers or divisions, long-term equity
or debt investments, or external guarantees or other material events that do
not
involve return investment.
The
SAFE
regulations required registration by March 31, 2006 of direct or indirect
investments previously made by PRC residents in offshore companies. If a PRC
resident with a direct or indirect stake in an offshore parent company fails
to
make the required SAFE registration, the PRC subsidiaries of such offshore
parent company may be prohibited from making distributions of profit to the
offshore parent and from paying the offshore parent proceeds from any reduction
in capital, share transfer or liquidation in respect of the PRC subsidiaries.
Further, failure to comply with various SAFE registration requirements described
above could result in liability under PRC law for foreign exchange evasion.
We
believe our major shareholders who are PRC residents, or whose shares are
beneficially owned by PRC residents, have completed foreign exchange
registration with the local foreign exchange bureau according to these SAFE
regulations. However, as these regulations are relatively new and there is
uncertainty concerning the reconciliation of the new regulations with other
approval requirements, it is unclear how the regulations, and any future
legislation concerning offshore or cross-border transactions, will be
interpreted, amended and implemented by the relevant government authorities.
We
cannot assure you that all of our shareholders who are PRC residents will comply
with our request to make or obtain any applicable registrations or approvals
required by the regulations or other related legislation. The failure or
inability of our PRC resident shareholders to receive any required approvals
or
make any required registrations may subject us to fines and legal sanctions,
restrict our overseas or cross-border investment activities, limit our PRC
subsidiary to make distributions or pay dividends or affect our ownership
structure. As a result, our business operations and our ability to distribute
a
dividend to you could be adversely affected.
The
PRC legal system has inherent uncertainties that could limit the legal
protections available to you.
Nearly
all of our assets and all of our operations are in the PRC. The PRC legal system
is based on written statutes. Prior court decisions may be cited for reference
but are not binding on subsequent cases and have limited precedential value.
Since 1979, the PRC legislative bodies have promulgated laws and regulations
dealing with such economic matters as foreign investment, corporate organization
and governance, commerce, taxation and trade. However, because these laws and
regulations are relatively new, and because of the limited volume of published
decisions and their non-binding nature, the interpretation and enforcement
of
these laws and regulations involve uncertainties. The laws in the PRC differ
from the laws in the United States and may afford less protection to our
shareholders.
You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in the PRC based on United States
judgments against us, our subsidiaries, officers and
directors.
We
are
incorporated in the British Virgin Islands and our PRC operating subsidiaries
are formed under PRC law. Substantially all of our assets are located in the
PRC. In addition, most of our directors and executive officers reside within
the
PRC, and substantially all of the assets of these persons are located within
the
PRC. It may not be possible to effect service of process within the United
States or elsewhere outside the PRC upon our directors, or executive officers
and experts, including effecting service of process with respect to matters
arising under United States federal securities laws or applicable state
securities laws. The PRC does not have treaties providing for the reciprocal
recognition and enforcement of judgments of courts with the United States and
many other countries. As a result, recognition and enforcement in the PRC of
judgments of a court in the United States or many other jurisdictions in
relation to any matter, including securities laws, may be difficult or
impossible. Furthermore, an original action may be brought in the PRC against
our assets and our subsidiaries, our directors and executive officers and
experts only if the actions are not required to be arbitrated by PRC law and
only if the facts alleged in the complaint give rise to a cause of action under
PRC law. In connection with any such original action, a PRC court may award
civil liability, including monetary damages.
The
recurrence of SARS in China, the potential outbreak of avian flu in China,
similar adverse public health developments, concerns over the spread of these
diseases, or acts of terrorism, in China and elsewhere may materially and
adversely affect our business and operating results.
From
December 2002 to June 2003, China and certain other countries experienced an
outbreak of a new and highly contagious form of atypical pneumonia now known
as
severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health
Organization declared that the SARS outbreak had been contained. Since September
2003, however, a number of isolated new cases of SARS have been reported, most
recently in central China in April 2004. During May and June of 2003, many
businesses in China were closed by the PRC government to prevent transmission
of
SARS. Recently, concerns have been raised with respect to the spread of avian
flu in various regions in China. Any recurrence of the SARS outbreak, outbreak
of avian flu, or the development of a similar health hazard in China, may
adversely affect our business and operating results. For instance, a recurrence
of SARS, outbreak of avian flu or any other epidemic may lead to health or
other
government regulations requiring temporary closure of our business, or the
businesses of our suppliers or customers. In addition, terrorist attacks, such
as those that took place on September 11, 2001, geopolitical uncertainty and
international conflicts, could have an adverse effect on our business
operations. Any of these events could adversely affect China’s economy and cause
an immediate and prolonged drop in consumer demand. An immediate and prolonged
drop in consumer demand could severely disrupt our business operations and
adversely affect our results of operations.
Risk
relating to tax matters
We
may be subject to contingent tax liabilities.
On
December 20, 2004, Chardan China Acquisition Corp., or Chardan, entered into
a
stock purchase agreement with State Harvest Holdings Limited, or State Harvest,
and all the shareholders of State Harvest for Chardan’s acquisition of State
Harvest. In connection with the acquisition, Chardan formed its wholly-owned
subsidiary, Origin. On November 8, 2005, Chardan merged with and into Origin
for
the purpose of redomestication out of the United States. The redomestication
merger was achieved by a one-for-one exchange of all the outstanding common
stock of Chardan for ordinary stock of Origin, and the assumption of all the
rights and obligations of Chardan by Origin. Immediately after the
redomestication merger, Origin acquired all the common stock of State Harvest
by
the issuance of shares and payments of cash consideration to the shareholders
of
State Harvest or their designee. We may be subject to contingent tax liabilities
in connection with the above share exchange transaction. As of September 30,
2007, such contingent tax liabilities could be in the range of RMB39.06 million
to RMB64.22 million.
We
may become a passive foreign investment company, or PFIC, which could result
in
adverse U.S. tax consequences to U.S. investors.
Depending
upon the value of our shares and the composition of our assets and income
over time, we could be classified as a passive foreign investment company,
or
PFIC, by the United States Internal Revenue Service, or IRS, for U.S. federal
income tax purposes. If we were classified as a PFIC in any taxable year in
which you hold our shares and you are a U.S. investor, you would generally
be
taxed at higher ordinary income rates, rather than lower capital gain
rates, when you dispose of those shares at a gain in a later year, even if
we are not a PFIC in that year. In addition, a portion of the tax imposed on
your gain would be increased by an interest charge. Moreover, if we were
classified as a PFIC in any taxable year, you would not be able to benefit
from
any preferential tax rate with respect to any dividend distribution that you
may
receive from us in that year or any later year. Finally, you would
also be subject to special U.S. tax reporting requirements.
We
believe that we were not a PFIC for the taxable years 2006 or
2007. However, there can be no assurance that we will not be a PFIC for the
taxable year 2008 and/or later taxable years, as PFIC status is re-tested
each year and depends on the facts in such year. For example, we would be a
PFIC
for the taxable year 2008 if the sum of our average market capitalization,
which is our share price multiplied by the total number of our outstanding
shares, and our liabilities over that taxable year is not more than twice the
value of our cash, cash equivalents, and other assets that produce, or are
held
for the production of, passive income. We could also be a PFIC for any taxable
year if the gross income that we and our subsidiaries earn from passive
investments is substantial in comparison with the gross income from our business
operations.
While
we
will continue to examine our PFIC status, we cannot assure you that we will
not
be a PFIC for any future taxable year. For more information on the U.S. tax
consequences to you of the acquisition, ownership and disposition of our
ordinary shares, please see the section of our Annual Report on Form
20-F for the period ended September 30, 2007 entitled “Additional
Information — Taxation — United States federal income taxation.”
We
may have to take actions that are contrary to our business objectives to avoid
being deemed an investment company under the US Investment Company Act of
1940.
We
are
engaged in the research, development, production, sale and distribution of
hybrid crop seeds through our PRC operating subsidiaries in China, and we do
not
engage in minority investments except on a selective basis as a component of
our
strategy to expand our business. Currently, we own substantial minority
investments in Biocentury Transgene (China) Co., Ltd., or Biocentury,
Shijiazhuang Liyu Technology Development Co., Ltd., or Liyu and Jilin Changrong
High-tech Seed Limited, or Jilin Changrong. We believe we are not an investment
company within the meaning of Section 3(a)(1)(C) the Investment Company Act
of
1940, or the US Investment Company Act, however, as a result of these and other
investments, we could be deemed an investment company within the meaning of
Section 3(a)(1)(C). We will monitor our assets on a quarterly basis and take
all
necessary steps in order to seek to ensure that we are not deemed an investment
company within the meaning of Section 3(a)(1)(C) or otherwise are required
to
register as an investment company under the US Investment Company Act in the
future. The steps we may need to take could include selling all or part of
our
minority investments in those companies, investing in a greater proportion
of
tangible assets relative to our total assets or acquiring control (as such
term
is defined in the US Investment Company Act) over those companies. Depending
on
timing and other factors, taking one or more of these steps may divert us from
our strategy of expanding our business. If we are unable to take the necessary
steps to avoid being inadvertently deemed an investment company or otherwise
being required to register under the US Investment Company Act, we would not
be
able to offer our securities in the United States until we were no longer deemed
an investment company under the US Investment Company Act. We could also be
subject to other adverse consequences as a result thereof.
Risks
related to our shares
If
certain financial or financing objectives are achieved, the former State Harvest
shareholders will be entitled to receive additional amounts of our ordinary
shares as contingent consideration for the acquisition of their shares, which
would result in dilution and might have an adverse effect on the market price
of
our ordinary shares.
Under
the
stock purchase agreement among Chardan, State Harvest and all the shareholders
of State Harvest, the former State Harvest shareholders are entitled to receive
additional ordinary shares if certain financial performance or financing targets
are achieved. There is no obligation to register the shares after issuance.
However, after being held for appropriate periods, the ordinary shares will
be
eligible for resale under Rule 144. If the additional shares are earned, it
will
significantly increase the number of ordinary shares outstanding. The issuance
of these additional shares will have a dilutive effect on the shares already
outstanding and may cause a reduction in the trading price of our ordinary
shares in the public market.
Voting
control by executive officers, directors and other of our affiliates may limit
investors’ ability to influence the outcome of director elections and other
matters requiring shareholder approval.
Three
of
our executive officers and directors, Messrs. Han, Yang and Yuan, own
approximately 37% of our issued and outstanding ordinary shares. These three
major shareholders may maintain significant control over the outcome of some
corporate transactions or other matters submitted to our shareholders for
approval, 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 an adverse effect
on the market price of our ordinary shares or prevent shareholders from
realizing a premium over the market price for their ordinary shares. In
addition, if these major shareholders choose to dispose of a material portion
of
our ordinary shares they hold, the prevailing market price of our securities
may
decline.
Certain
provisions in our organizational documents may discourage our acquisition by
a
third party, which could limit your opportunity to sell your shares at a
premium.
Our
memorandum and articles of association include provisions that could limit
the
ability of others to acquire control of us. Under those provisions, our board
of
directors has the power to issue preferred shares with such rights attaching
to
them as they decide and this power could be used in a manner that would delay,
defer or prevent a change of control of us. These provisions could have the
effect of depriving you of an opportunity to sell your shares at a premium
over
prevailing market prices by discouraging third parties from seeking to acquire
control of us in a tender offer or similar transactions.
As
a result of the merger of Chardan with and into Origin, a British Virgin Islands
company, and the issuance of shares in the acquisition of State Harvest, we
qualify as a foreign private issuer and as a result are subject to reduced
requirements with respect to the reporting of financial statements and other
material events to our shareholders and the SEC.
As
a
foreign private issuer, we are obligated to file an Annual Report with audited
financial statements and Form 6-K reports with the United States Securities
and
Exchange Commission, or the SEC, at such times as we release information to
the
public either voluntarily or pursuant to the laws of the British Virgin Islands
or the PRC. Therefore, the regularity of financial and other information will
be
less than would be applicable to a domestic United States registered company
under the rules and regulations of the SEC. Investors may not receive
information on a timely basis, which could increase their risk of investment
in
us.
We
reported a net loss for the fiscal year ended September 30,
2007.
As
described in this Annual Report and our audited financial statements, we
reported a net loss for the fiscal year ended September 30, 2007. Our
reported results may reduce the market price of our ordinary shares. This may
lead to an activation of material contractual clauses triggered under Origin’s
loan and/or credit agreements, which may harm Origin’s ability to access further
necessary financing.
Certain
insiders and major shareholders have substantial control over the company,
and
they could delay or prevent a change in our corporate control, even if our
other
shareholders wanted such a change to occur which may limit your ability to
influence shareholder matters.
As
of
September 30, 2007, our executive officers, directors and principal shareholders
and their affiliates beneficially owned 9,478,000 ordinary shares, or 40.38%
of
the outstanding shares of our ordinary stock. These shareholders will be able
to
exercise significant control over all matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of our company and some transactions
may be more difficult or impossible without the support of these shareholders.
Furthermore, the interests of these major shareholders may conflict with those
of other shareholders. We also conduct transactions with businesses in which
our
principal shareholders maintain interests. We believe that these transactions
have been conducted on an arm’s length basis, but we cannot assure you that
these transactions would have the same terms if conducted with unrelated third
parties.
Risks
related to the July 2007 private placement
If
we fail to satisfy our obligations under the registration rights agreement,
we
will be subject to substantial penalties.
Under
the
terms of the registration rights agreement we entered into in connection with
the July 2007 private placement of our convertible notes, as amended in October
2007, and on December 21, 2007 and February 6, 2008, we agreed to
secure the registration of the ordinary shares issuable upon conversion of
the
notes by a certain date. If we fail to achieve effectiveness by the required
date, or maintain the effectiveness of the registration statement required
under
the registration rights agreement, we will be subject to significant penalties,
including the payment of additional interest in respect of the notes. We cannot
guarantee we will successfully secure effectiveness of the registration
statement or, if it is secured, that we will be able to maintain such
effectiveness. Failure to meet these obligations will cause us to incur
substantial penalties in the form of additional interest and could, given the
passage of time, lead to an event of default under the notes. Payment of
additional interest will have an adverse effect on our financial condition
and
results of operation.
Under
the
terms of the registration rights agreement, we also agreed to satisfy similar
registration obligations for the convertible notes and the related guarantees
of
the notes if the selling shareholder requests that we undertake such a
registration. Such a registration statement would involve challenging legal
issues and could be significantly delayed due to review by the SEC. If the
selling shareholder exercises these rights and we fail to satisfy our
obligations, we will be subject to significant penalties similar to those
described above. In light of the challenges associated with this process, we
may
not be able to file a registration statement and have it declared effective
by
the SEC within the time periods specified in the registration rights agreement.
If we are unable to comply, we may be subject to substantial penalties under
the
registration rights agreement and the related indenture, including the accrual
of additional interest and an eventual event of default, either of which would
have an adverse effect on our financial condition and results of
operation.
If
we are required for any reason to repay our outstanding notes, we would be
required to deplete our working capital and/or raise additional funds. Our
failure to repay our notes, if required, could result in legal action against
us.
The
notes
are due and payable on July 25, 2012, unless sooner converted into ordinary
shares. The trigger of the repurchase or redemption requirements or any event
of
default under the indenture could require the principal amount of all notes,
together with accrued interest thereon, to be immediately due and payable.
If,
prior to the maturity date, we are required to repay the notes in full, we
would
be required to use our working capital and/or raise additional funds. If we
were
unable to repay the notes when required, the holders could commence legal action
against us to recover the amounts due. Any such action would have an adverse
effect on our financial condition and results of operations.
Certain
provisions in the indenture governing our notes could discourage an acquisition
of us or an investment in us by a third party, even if the acquisition or
investment would be favorable to you.
If
we are
a party to an “asset sale” or “change of control” (as defined in the indenture),
the holders of the notes have the right to require us to redeem the notes at
their election shortly after they are notified of such a change. Any redemption
under these circumstances may be at a premium of the outstanding principal
amount of the notes, plus all accrued and unpaid interest. The restrictions
on
the types of transactions we can engage in and the participation rights we
may
have to offer in future financings may operate to discourage third parties
from
engaging in these transactions with us, even if those transactions would be
beneficial to us and our shareholders.
Leverage
and debt service obligations may adversely affect our cash
flows.
In
connection with our sale of convertible notes in July 2007, we incurred new
indebtedness of $40,000,000. As a result of this indebtedness, we incurred
significant principal and interest payment obligations. The degree to which
we
are leveraged could, among other things:
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require
us to dedicate a substantial portion of our future cash flows from
operations and other capital resources to debt service, especially
if the
notes are not converted into ordinary
shares;
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make
it difficult for us to obtain necessary financing in the future for
working capital, acquisitions or other purposes on favorable terms,
if at
all;
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make
it more difficult for us to be
acquired;
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make
us more vulnerable to industry downturns and competitive pressures;
and
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limit
our flexibility in planning for, or reacting to changes in, our
business.
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Our
ability to meet our debt service obligations will depend upon our future
performance, which will be subject to financial, business and other factors
affecting our operations, many of which are beyond our control.
The
issuance of shares upon conversion of the notes may result in substantial
dilution and may depress the market price of our ordinary stock.
As
of
September 30, 2007, we had 22,974,059
ordinary shares issued and outstanding and 498,851 ordinary
shares held by us as treasury stock, the convertible notes issued in our 2007
private placement that are currently convertible into 3,478,260 ordinary shares
(and up to 4,692,234 ordinary shares that may be issued in certain circumstances
under the terms of the indenture, which additional number of shares would
increase in the event that we obtain shareholder approval of the issuance of
all
of the ordinary shares potentially issuable under the terms of the indenture),
and options to acquire 974,000 ordinary shares. If these convertible notes
are
exercised or converted, and the ordinary shares issued upon such exercise or
conversion are sold, our ordinary shareholders may experience substantial
dilution and the market price of our shares of ordinary stock could decline.
Further, the perception that such convertible securities might be exercised
or
converted could adversely affect the market price of our shares of ordinary
stock. In addition, holders of our options are likely to exercise them when,
in
all likelihood, we could obtain additional capital on terms more favorable
to us
than those provided by the options. Further, during the time that the foregoing
convertible securities are outstanding, they may adversely affect the terms
on
which we could obtain additional capital.
Future
sales by us or our existing shareholders could depress the market price of
our
ordinary shares.
If
we or
our existing shareholders sell a large number of shares of our ordinary stock,
or if we sell additional securities that are convertible into ordinary stock,
the market price of our ordinary stock could decline significantly. Further,
even the perception in the public market that we or our existing shareholders
might sell shares of ordinary stock could depress the market price of our
ordinary stock.
Restrictions
contained in the notes may limit the manner we conduct our business operations,
including the payment of dividends to our shareholders.
The
notes
contain restrictions on major corporate actions that may limit the manner in
which we conduct our business. Under the indenture governing the notes, neither
we nor any of our subsidiaries are permitted to make, directly or indirectly,
any of the following payments if at the time of, and after giving effect to,
a
default or event of default has occurred under the indenture:
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any
dividend or distribution with respect to any shares of our capital
stock
or the capital stock of our subsidiaries, except for any dividend
or
distribution that is made only to us or one of our subsidiaries or
any
dividend or distribution payable solely in shares of our capital
stock;
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the
redemption of any of our capital stock or the capital stock of our
subsidiaries or any securities exchangeable into any such capital
stock;
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the
redemption for value, prior to the date for any scheduled maturity,
sinking fund or amortization, or other installment payment, of any
debt
subordinate in right of repayment to the notes or applicable guarantee;
or
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any
direct or indirect loan, advance or other extension of credit or
capital
contribution to, or incurrence of a guarantee of any obligation of,
or
purchase or acquisition of capital stock or other securities or evidence
of debt issued by, any other
person.
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Forward-Looking
Statements and Certain Considerations
This
prospectus and the documents incorporated by reference into this prospectus
contain forward-looking statements that are based on our current expectations,
assumptions, estimates, and projections about our company and industry. All
statements other than statements of historical fact in this prospectus are
forward-looking statements. These statements relate to events that involve
known
and unknown risks, uncertainties and other factors, including those listed
or
incorporated by reference under the heading “Risk Factors,” which may cause our
actual results, performance or achievements to be materially different from
any
future results, performances or achievements expressed or implied by the
forward-looking statements.
In
some
cases, these forward-looking statements can be identified by words or phrases
such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,”
“plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar
expressions. We have based these forward-looking statements largely on our
current expectations and projections about future events and financial trends
that we believe may affect our financial condition, results of operations,
business strategy and financial needs. These forward-looking statements include,
among others, statements relating to:
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our
goals and strategies, including how we implement our goals and
strategies;
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our
expectations for our future business and product development, business
prospects, results of business operations and current financial
condition;
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expected
changes in our margins and certain costs or
expenditures;
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our
future pricing strategies or pricing
policies;
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our
ability to successfully anticipate market demand for crop seeds in
our
market and plan our volume and product
mix;
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our
plans for development of seed or technology internally, including
our
ability to successfully develop, produce, receive approval for and
distribute proprietary seed
products;
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our
expectations regarding our need to produce seeds under licenses from
third
parties;
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the
future development of agricultural biotechnology as a
whole;
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our
plans to license or co-develop any seed product or
technology;
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our
plans regarding any future business
combination;
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the
impact of genetically modified crop seeds on our industry and the
policies
and regulation regarding these products, and our ability to receive
the
necessary approvals and to develop, produce, market and distribute
genetically modified crop seeds;
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the
likelihood of recurrence of accounting charges or
impairments;
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the
adequacy of our facilities for our future operations;
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our
plans to expand our business level or corporate level operations
and
product offerings;
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expected
changes in the respective component shares of our revenues stream
from our
business operations or other
sources;
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competition
in the crop seed industry in China and other international
markets;
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the
future development of the crop seed industry in China and other
international markets;
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our
plans for current staffing requirements, research and development
and
regional business focus;
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PRC
and other international governmental policies and regulations relating
to
the crop seed industry; and
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other
“forward-looking” information.
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We
believe it is important to communicate our expectations to our shareholders.
However, there may be certain events in the future that we are not able to
predict with accuracy or over which we have no certain control. The risk factors
and cautionary language discussed in this prospectus provide examples of risks,
uncertainties and events that may cause actual results to differ materially
from
the expectations in these forward-looking statements, including among other
things:
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changing
interpretations of generally accepted accounting
principles;
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outcomes
of the PRC and other international government reviews, inquiries,
investigations and related
litigation;
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continued
compliance with the PRC and other international government
regulations;
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legislative
and regulatory environments, requirements or changes adversely affecting
the businesses in which we and our PRC operating companies are
engaged;
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fluctuations
in the PRC or international customer
demand;
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management
of rapid growth of our business;
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intensity
of competition from other providers of crop seeds in the PRC or other
international markets;
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timing
of approval and market acceptance of new
products;
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general
economic conditions in the PRC and worldwide;
and
|
| |
·
|
geopolitical
events and regulatory changes.
|
These
forward-looking statements involve various risks, assumptions and uncertainties.
Although we believe that our expectations expressed in these forward-looking
statements are reasonable, we cannot be certain that our expectations will
materialize. Our actual results could be materially different from and worse
than our expectations. Important risks and factors that could cause our actual
results to be materially different from our expectations are generally set
forth
in the “Risk Factors” section and elsewhere in this prospectus and the documents
incorporated by reference into this prospectus.
This
prospectus also contains information relating to the crop seed market. These
market data include projections that are based on a number of assumptions.
The
crop seed market may not grow at the rates we project or at all. The failure
of
this market to grow at the projected rates may have a material adverse effect
on
our business and the market price of our shares. In addition, the relatively
new
and rapidly changing nature of the genetically modified crop seed industry
subjects any projections or estimates relating to the growth prospects or future
condition of our markets to significant uncertainties. Furthermore, if any
one
or more of the assumptions underlying the market data turns out to be incorrect,
actual results may differ from the projections based on these
assumptions.
The
forward-looking statements made in this prospectus relate only to events or
information as of the date on which the statements are made in this prospectus.
Readers should read these statements in conjunction with the “Risk Factors”
section of this prospectus.
All
forward-looking statements included herein attributable to us or other parties
or any person acting on our 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, we undertake no
obligations to update these forward-looking statements to reflect events or
circumstances after the date of this prospectus or to reflect the occurrence
of
unanticipated events.
Use
of Proceeds
The
proceeds from the sale of securities offered pursuant to this prospectus are
solely for the account of the selling shareholder. Accordingly, we will not
receive any proceeds from the sale of the securities offered by this
prospectus.
Dividend
Policy
We
have
never declared or paid any dividends, nor do we have any present plan to
pay any
cash dividends on our ordinary shares in the foreseeable future. We currently
intend to retain most, if not all, of our available funds and any future
earnings to finance operations and expand our business.
Our
board
of directors may by resolution authorize payment of dividends on our ordinary
shares if the directors are satisfied that we will, immediately after the
distribution of dividends, satisfy the solvency test as stipulated in Section
56
of the Companies Act. Even if our board of directors decides to pay dividends,
the form, frequency and amount will depend upon our future operations and
earnings, capital requirements and surplus, general financial condition,
contractual restrictions and other factors that the board of directors may
deem
relevant. The documents governing the notes also impose certain restrictions
on
our ability to pay dividends. See “The July 2007 Private
Placement.”
Capitalization
and Indebtedness
The
table
below sets forth our capitalization and indebtedness as of September 30, 2007,
on an actual basis and gives effect to the issuance and sale of the notes on
July 25, 2007. You should read this table in conjunction with “Operating
and Financial Review and Prospects” and our consolidated financial statements
and the related notes included in our Annual Report on Form 20-F for the fiscal
year ended September 30, 2007, which are incorporated by reference herein.
| |
|
As
of September 30, 2007
|
|
|
|
|
RMB
|
|
USD
|
|
|
|
|
(in thousands , except
for share data)
|
|
|
Secured
Short term bank borrowings, including current portion of long-term
debt
|
|
¥
|
168,400
|
|
$
|
22,475
|
|
|
Guaranteed
Short term bank borrowings, including current portion of long-term
debt
|
|
¥ |
100,000
|
|
$
|
13,346
|
|
|
Long-term
debt, excluding current portion
|
|
¥ |
1,880
|
|
$
|
251
|
|
|
1.0%
guaranteed senior secured convertible notes due 2012
|
|
¥ |
173,669
|
|
$
|
23,178
|
|
|
Embedded
derivatives-redemption feature
|
|
¥ |
86,937
|
|
$
|
11,603
|
|
|
Shareholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred
stock (no par value; 1,000,000 authorized, none issued)
|
|
|
|
|
|
|
|
|
Ordinary
shares (no par value; 60,000,000 shares authorized, 22,974,059 shares
issued and outstanding)
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
¥ |
377,324
|
|
$
|
50,359
|
|
|
Accumulated
deficit
|
|
¥ |
(41,404
|
)
|
$ |
(5,526
|
)
|
|
Treasury
stock at cost (498,851 shares)
|
|
¥ |
(29,377
|
)
|
$ |
(3,921
|
)
|
|
Accumulated
other comprehensive loss
|
|
¥ |
(9,626
|
)
|
$ |
(1,285
|
)
|
|
Total
shareholders’ equity
|
|
¥ |
296,917
|
|
$
|
39,627
|
|
| |
|
|
|
|
|
|
|
|
Total
capitalization
|
|
¥ |
827,803
|
|
$
|
110,480
|
|
The
table
above does not include the issuance of 3,478,260 ordinary shares, subject to
adjustment in the event of certain dilutive events, issuable from time to time
upon the conversion of the notes.
As
of
September 30, 2007 and March 13, 2008, we held 498,851 of our ordinary shares
as
treasury stock, all of which was dedicated to serve stock purchase option plans,
shares under which may be purchased at a price of $8.75 per share (in accordance
with the terms of the option grants and our 2005 Performance Equity Plan)
pursuant to the exercise of options that were granted on November 8, 2005 and
are outstanding.
Enforceability
of Civil Liabilities
We
are
incorporated in the British Virgin Islands to take advantage of certain benefits
associated with being a British Virgin Islands exempted company, such as:
| |
·
|
political
and economic stability;
|
| |
·
|
an
effective judicial system;
|
| |
·
|
a
favorable tax system;
|
| |
·
|
the
absence of exchange control or currency restrictions; and
|
| |
·
|
the
availability of professional and support services.
|
However,
certain disadvantages accompany organization in the British Virgin Islands.
These disadvantages include:
| |
·
|
the
British Virgin Islands has a less developed body of securities laws
as
compared to the United States and provides significantly less protection
to investors; and
|
| |
·
|
British
Virgin Islands companies may not have standing to sue before the
federal
courts of the United States.
|
Our
organizational documents do not contain provisions requiring that disputes,
including those arising under the securities laws of the United States, between
us, our officers, directors and shareholders, be arbitrated.
Substantially
all of our current operations are conducted in China, and substantially all
of
our assets are located in China. The
majority of our directors and officers are nationals or residents of
jurisdictions other than the United States and a substantial portion of their
assets are located outside the United States. As
a
result, it may be difficult for a shareholder to effect service of process
within the United States upon such persons, or to enforce against us or them
judgments obtained in United States courts, including judgments predicated
upon
the civil liability provisions of the securities laws of the United States
or
any state in the United States.
We
have
appointed CT Corporation System, 111 Eighth Avenue, New York, New York 10011,
as
our agent to receive service of process in connection with our registration
statement of which this prospectus forms a part.
We
have
been informed by Maples and Calder, our counsel as to British Virgin Islands
law, that the United States and the British Virgin Islands do not have a treaty
providing for reciprocal recognition and enforcement of judgments of U.S. courts
in civil and commercial matters and that a final judgment for the payment of
money rendered by any general or state court in the United States based on
civil
liability, whether or not predicated solely upon the U.S. federal securities
laws, would not be automatically enforceable in the British Virgin Islands.
We
have also been advised by Maples and Calder that a final and conclusive judgment
obtained in U.S. federal or state courts under which a sum of money is payable
as compensatory damages (i.e., not being a sum claimed by a revenue authority
for taxes or other charges of a similar nature by a governmental authority,
or
in respect of a fine or penalty or multiple or punitive damages) may be the
subject of an action on a debt in the Supreme Court of the British Virgin
Islands under the common law doctrine of obligation. This type of action should
be successful upon proof that the sum of money is due and payable, without
having to prove the facts supporting the underlying judgment, as long as:
| |
·
|
the
foreign court issuing the judgment had jurisdiction in the matter
and we
either submitted to such jurisdiction or were resident or carrying
on
business within such jurisdiction and were duly served with process;
and
|
| |
·
|
the
judgment was not contrary to public policy in the British Virgin
Islands,
was not obtained by fraud or in proceedings contrary to the natural
justice of the British Virgin Islands, and was not based on an error
in
British Virgin Islands law.
|
A
British
Virgin Islands court may impose civil liability on us or our directors or
officers in a suit brought in the Supreme Court of the British Virgin Islands
against us or these persons with respect to a violation of U.S. federal
securities laws, provided that the facts surrounding any violation constitute
or
give rise to a cause of action under British Virgin Islands law.
The
recognition and enforcement of foreign judgments are provided for under the
PRC
Civil Procedures Law. PRC courts may recognize and enforce foreign judgments
in
accordance with the requirements of the PRC Civil Procedures Law based either
on
treaties between the PRC and the country where the judgment is made or on
reciprocity between jurisdictions. Please see “Risk Factors — Risks
relating to doing business in China” for a discussion of certain risks that may
be relevant in this respect.
The
July 2007 Private Placement
On
July
25, 2007, we issued and sold to the selling shareholder $40 million in aggregate
principal amount of the notes. We issued and sold the notes in a private
placement transaction that was exempt from the registration requirements of
the
Securities Act. On
July 25, 2007, our board of directors authorized the private placement and
the corresponding issuance and sale of the notes.
We have
filed copies of the Notes Purchase Agreement, Indenture (including the form
of
convertible note), Registration Rights Agreement, as amended, and Investor
Rights Agreement, entered into in connection with the July 2007 private
placement, as exhibits to our registration statement of which this prospectus
forms a part, or we have incorporated such documents by reference into our
registration statement. The summary description of those documents below is
qualified in its entirety by reference to those documents as filed as exhibits
to, or incorporated by reference into, our registration statement.
Brief
Description of the Notes
The
notes:
| |
·
|
are
in an aggregate principal amount of $40
million;
|
| |
·
|
bear
interest at the rate of 1% per annum, payable semi-annually on January
25
and July 25, beginning on January 25,
2008;
|
| |
·
|
bear
additional interest if we fail to fulfill our obligations described
below
under “—Registration Rights;”
|
| |
·
|
are
convertible into our ordinary shares at the initial conversion price
of
$11.50, subject to adjustment as set out in the Indenture dated
July 25, 2007, or the
Indenture;
|
| |
·
|
are,
upon the occurrence of certain conditions, required to be redeemed
by
us;
|
| |
·
|
are
subject to repurchase by us at the option of the holder upon the
occurrence of certain transactions,
and
|
| |
·
|
mature
on July 25, 2012.
|
The
Indenture governing the notes contains covenants that prevent or limit our
ability to, among other things, incur or guarantee additional indebtedness,
incur or create liens, amend our charter documents or pay
dividends.
In
addition, the Indenture contains default provisions, which include the
following: the failure to pay interest or principal upon any of the notes when
due and payable; the failure to provide an offer to purchase when required
in
connection with an asset sale, a change of control or if our ordinary shares
cease to be listed on a United States national or regional securities exchange;
the failure to satisfy our registration obligations under the Registration
Rights Agreement, as amended; our failure to deliver ordinary shares to note
holders upon conversion; and a default by us or any of our subsidiaries under
any debt that results in acceleration of the maturity of that debt or failure
to
pay that debt when due, in an aggregate amount greater than $2 million or its
foreign currency equivalent. Upon the occurrence of an event of default, unless
the principal of all of the notes has already become due and payable, either
the
trustee or the holders of not less than 25% in aggregate principal amount of
the
notes then outstanding may declare the principal amount of all the notes, and
the interest accrued on all the outstanding notes, to be immediately due and
payable.
The
notes
are guaranteed by State Harvest (and will be guaranteed in the future by certain
of our subsidiaries if and when permitted under PRC law) and are secured by
the
shares of certain of our subsidiaries. We are required to redeem the notes
on
July 25, 2012, the maturity date of the notes. The notes bear interest at a
rate
of 1.0% per annum from and including July 25, 2007, the issue date, or from
and
including the last interest payment date upon which interest has been paid
or
provided for, as the case may be, to, but excluding, the next interest payment
date or the maturity date, whichever comes first. Interest is payable
semi-annually in arrears on January 25 and July 25 of each year, beginning
on
January 25, 2008. Furthermore, at maturity date, we are required to redeem
any
outstanding principal at the redemption amount determined so that it represents
for the note holders a gross yield of 16% on a semi-annual basis. We may also
be
required to pay additional interest on the notes if we commit a registration
default under the Registration Rights Agreement, as amended. See “—
Registration Rights.”
Subject
to the conversion procedures set forth in the Indenture, we have agreed to
deliver fully paid and non-assessable ordinary shares to note holders, at their
option, upon the conversion of the notes. Each $100,000 principal amount of
the
notes is initially convertible into 8,695 ordinary shares at the initial
conversion price of $11.50 per share. The conversion rate is subject to
adjustment in certain circumstances, including a semi-annual reset of the
conversion price commencing from December 31, 2008 and upon the occurrence
of
certain dilutive events as set forth in the Indenture, including, but not
limited to, if we pay a dividend or distribution to all holders of the
outstanding ordinary shares in ordinary shares, if we issue rights or warrants
to all holders of our outstanding ordinary shares entitling them to subscribe
for or purchase ordinary shares at a price per share less than the current
market price immediately preceding the date such distribution is first publicly
announced by us, or if our outstanding ordinary shares are subdivided into
a
greater number of ordinary shares. However, unless we obtain shareholder
approval, the aggregate number of shares of our common stock issuable upon
the
conversion of any notes is limited to 19.99% of the number of shares of our
common stock outstanding on July 25, 2007. Upon conversion of a note, any
accrued but unpaid interest, to the conversion date, will be deemed to be paid
in full to the holder of the note through delivery of the ordinary shares
(together with any cash payment in lieu of fractional shares) in exchange for
the note being converted. The fair market value of such ordinary shares
(together with any such cash payment in lieu of fractional shares) shall be
treated as issued, first in exchange for and in satisfaction of our obligation
to pay the principal amount of the converted note and the accrued but unpaid
interest, through the conversion date and the balance, if any, of the fair
market value of the ordinary shares (and any cash payment) shall be treated
as
issued in exchange for and in satisfaction of the right to convert the note
being converted.
Registration
Rights
In
connection with the July 2007 private placement, we granted the selling
shareholder certain registration rights. Pursuant to the Registration Rights
Agreement, as amended, we will use our reasonable efforts to have the
registration statement of which this prospectus forms a part declared effective
by the SEC by approximately May 14, 2008, subject to our right to postpone
under certain circumstances.
Further,
we have agreed to use our reasonable efforts (subject to our limited rights
to
postpone) to keep the registration statement of which this prospectus forms
a
part effective until the earliest of:
| |
·
|
the
date that all of the ordinary shares covered by the registration
statement
have been sold by the selling
shareholder;
|
| |
·
|
the
date that all ordinary shares covered by the registration statement
may be
sold by non-affiliates pursuant to Rule 144;
or
|
| |
·
|
two
years from the date the registration statement is declared
effective.
|
In
the
event the registration statement of which this prospectus forms a part is not
declared effective within the timeframe described above or ceases to remain
continuously effective as set forth above, we must pay additional interest
on
the notes at a rate of 2.25% per annum, subject to increase of an additional
0.25% per annum under certain circumstances.
The
original Registration Rights Agreement contemplated that the notes and the
related guarantees would also be registered pursuant to this prospectus along
with the ordinary shares. However, on December 21, 2007, we and the selling
shareholder entered into an amendment of the Registration Rights Agreement
to
require only the registration of the ordinary shares in connection with this
prospectus. We also entered into other amendments of the Registration Rights
Agreement on October 24, 2007 and February 6, 2008, which amendments
generally changed the dates by which certain actions were required to be taken
under the Registration Rights Agreement, including the filing of the
registration statement and the date by which it must be declared effective
by
the SEC. The amendments also generally require us to further amend the
Registration Rights Agreement to add an obligation on our part to file a
registration statement providing for the registration and sale of the notes
and
guarantees within 90 calendar days after receiving a written request to do
so
from the selling shareholder and to use our reasonable efforts to have that
registration statement declared effective by the SEC. Therefore, although the
present prospectus only registers the ordinary shares, we will be obligated
to
proceed with the registration of the notes and guarantees if the selling
shareholder requests that we do so.
The
registration of our ordinary shares pursuant to this prospectus and the related
registration statement does not necessarily mean that any of those ordinary
shares will ultimately be offered for sale by the selling
shareholder.
We
have
agreed to indemnify the note holders for any losses they may incur as a result
of any untrue statement of material fact in the registration statement, any
prospectus or free writing prospectus, unless the loss is based on an untrue
statement in any such documents in reliance upon and in conformity with certain
information provided by a note holder to us.
Investor
Rights
In
connection with the July 2007 private placement, we also granted the selling
shareholder certain rights with respect to future securities offerings and/or
debt financing. Pursuant to the Investor Rights Agreement, until December 31,
2010, so long as the selling shareholder holds at least 20% of the notes then
outstanding and not converted, the selling shareholder is entitled to the
following rights:
| |
·
|
if
we issue or sell (other than the sale of securities by the filing
of the
registration statement on Form S-3) any securities to a purchaser
which is
not one of our affiliates, prior to the consummation of such issuance
or
sale of securities, we must offer such securities to the selling
shareholder upon the terms specified
therein;
|
| |
·
|
if
we issue or sell securities through a shelf registration, prior to
filing
a registration statement on Form S-3 relating to those securities,
we must
offer such securities to the selling shareholder by written notice,
and,
if a mutually satisfactory agreement is not reached with respect
to
alternative financing, following the date on which the shelf registration
statement is declared effective by the SEC, we must, by way of a
“take-down” under the shelf registration statement, offer such securities
to the selling shareholder by written notice; or
|
| |
·
|
if
we propose to obtain debt financing (other than working capital facilities
in an aggregate amount not exceeding US$25,000,000 or its equivalent)
from
a financier that is not one of our affiliates, prior to drawing down
any
amount under such a debt financing arrangement, we must offer the
selling
shareholder the opportunity to provide such debt financing by written
notice.
|
In
addition, the selling shareholder is not permitted to convert any portion of
the
notes for any number of our ordinary shares if, upon giving effect to such
conversion, the conversion would cause the aggregate number of our ordinary
shares owned by the selling shareholder and its affiliates to exceed 9.99%
of
our ordinary shares immediately after giving effect to the
conversion.
We
and
the major shareholders identified in the Investor Rights Agreement, jointly
and
severally, have agreed to indemnify the selling shareholder and its affiliates
against any losses which they may suffer as a result of any misrepresentation
or
breach of any representation, warranty, covenant or agreement made by us or
certain of our significant shareholders who are also parties to the Investor
Rights Agreement.
Selling
Shareholder
We
originally issued and sold the notes in a private placement in July 2007 to
the
selling shareholder. We are registering all the ordinary shares issuable upon
conversion of the notes and for payment of interest and other amounts that
may
be due on the notes described in this prospectus on behalf of the selling
shareholder named in the table below. The selling shareholder may from time
to
time offer and sell pursuant to this prospectus any or all of the ordinary
shares issuable upon conversion of the notes. The actual number of ordinary
shares covered by this prospectus, and included in the registration statement
of
which this prospectus is a part, includes additional ordinary shares that may
be
issued as a result of stock splits, stock dividends, or similar transactions.
When we refer to the “selling shareholder” in this prospectus, we mean the
person listed in the table below, as well as its transferees, pledgees, donees
or successors.
The
selling shareholder has informed us that it purchased the notes in the ordinary
course of business and, at the time of the purchase of the notes, it had no
agreements or understandings, directly or indirectly, with any person to
distribute the securities.
The
following table and related footnotes contain information as of March 13,
2008 with
respect to the selling shareholder and the number of shares the selling
shareholder may offer pursuant to this prospectus.
The
selling shareholder may offer, pursuant to this prospectus, all or a portion
of
the shares listed below (which are issuable upon the conversion of the notes
listed below); as a result, no estimate can be given as to the number of shares
that will be held by the selling shareholder upon consummation of any sales.
Beneficial ownership is determined in accordance with the rules of the SEC
and
includes voting or investment power with respect to securities, as well as
any
securities as to which the selling shareholder has the right to acquire
beneficial interest within 60 days after the date of this prospectus, through
the exercise or conversion of any stock option, warrant, or other right. To
the
best of our knowledge, the selling shareholder has not had any position, office
or other material relationship with us or any of our affiliates, except as
described in the registration statement of which this prospectus forms a
part.
To
the
extent the selling shareholder identified below is a broker-dealer, it may
be
deemed to be, under interpretations of the staff of the SEC, an “underwriter”
within the meaning of the Securities Act.
|
Selling
Shareholder
|
|
Principal Amount
of Notes
Beneficially
Owned(1)
|
|
Percentage of
Outstanding Notes
|
|
Ordinary Shares
Issuable upon
Conversion of the
Notes that May Be
Sold
|
|
Percentage of
Outstanding
Ordinary
Shares(2)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citadel Equity
Fund Ltd.(3)
|
|
$
|
40,000,000
|
|
|
100
|
%
|
|
3,478,260
(4
|
)
|
|
15.14%(4
|
)
|
(1)
The
notes and guarantees of the notes are not being offered pursuant to this
prospectus as a result of a December 21, 2007 amendment to the Registration
Rights Agreement. For additional information about the Registration Rights
Agreement, see “The July 2007 Private Placement.”
(2)
Based
upon a total of 22,974,059 ordinary shares issued and outstanding as of the
date
of this prospectus (which number does not include 498,851 ordinary shares held
by us as treasury stock).
(3)
According to a Schedule 13G filed by Citadel Equity Fund Ltd. with the SEC
on
February 13, 2008, Citadel Equity Fund Ltd. is a subsidiary of Citadel Holdings
Ltd., a Cayman Islands company, or CH, which in turn is a subsidiary of Citadel
Kensington Global Strategies Fund Ltd., a Bermuda company, or CKGSF. According
to that Schedule 13G, neither CKGSF nor CH has any control over the voting
or
disposition of securities held by Citadel Equity Fund Ltd. The address of
Citadel Equity Fund Ltd. is c/o Citadel Investment Group, L.L.C., 131 S.
Dearborn Street, 32nd Floor, Chicago, Illinois 60603.
(4)
According
to the Schedule 13G filed by Citadel Equity Fund Ltd. with the SEC on February
13, 2008, as of December 31, 2007, Citadel Equity Fund Ltd. beneficially
owned $40,000,000 in principal amount of the Company’s notes, collectively
convertible into 3,478,260 ordinary shares.
Notwithstanding the foregoing, the Schedule 13G stated that the number of
shares beneficially owned by Citadel Equity Fund Ltd. was equal
to 2,741,395, or 9.99% of the issued and outstanding ordinary shares of the
Company because, as set forth in the Investor Rights Agreement, Citadel Equity
Fund Ltd. was not entitled to convert any portion of the notes for any number
of
our ordinary shares that, upon giving effect to such conversion, would cause
the
aggregate number of our ordinary shares owned by Citadel Equity Fund Ltd. and
its affiliates to exceed 9.99% of our outstanding ordinary shares immediately
after giving effect to such conversion.
Although
Citadel Equity Fund Ltd. is subject to maximum ownership of 9.99% at any given
time, Citadel Equity Fund Ltd. may dispose of shares issued upon conversion
of
the notes from time to time before converting additional notes into shares,
thereby maintaining its beneficial ownership below the 9.99% cap, the maximum
number of shares that it may acquire in the aggregate by converting the notes
and selling the ordinary shares issuable upon conversion from time to time
is
3,478,260, subject to adjustment of the conversion price as set forth in the
Indenture. For additional information about Citadel Equity Funds Ltd.’s share
ownership limitations and the conversion procedures, see “The July 2007 Private
Placement.”
Description
of Share Capital
We
were
first incorporated under the International Business Companies Act, 1984 (as
amended) of the British Virgin Islands on February 10, 2005. We were then
re-registered on July 10, 2006 under the Companies Act, and are governed by
the
Companies Act.
We
have
no authorized capital. As of the date of this prospectus, we are authorized
to
issue (i) 60,000,000 ordinary shares, with no par value, of which 22,974,059
shares are issued and outstanding and 498,851
shares
are held by us as treasury stock; and (ii) 1,000,000 preference shares, with
no
par value, of which none are issued and outstanding. Additionally, as of the
date of this prospectus, we have also issued and unexercised options to purchase
up to 974,000 ordinary shares under our prior employee share option
grants.
There
is
no change in the number of shares outstanding at the beginning and end of our
fiscal year.
More
than
10% or more of our capital has been paid for with assets other than cash within
the past 5 years. For a description of our organizational history, please
see the section of our Annual Report on Form 20-F for the period ended
September 30, 2007 entitled “Financial Statements — Organization and
Principal Activities — The Share Exchange Transaction,” which is incorporated
herein by reference.
The
following discussion primarily concerns our shares and the rights of holders
of
our shares under (i) our memorandum and articles of association and (ii) the
Companies Act, insofar as they relate to the material terms of our
shares.
Objects
of Our Company
Under
our
memorandum and articles of association, our business purpose is unrestricted
and
we have the full power and authority to carry out any purpose not prohibited
by
the laws of the British Virgin Islands.
Ordinary
Shares
General
All
of
our outstanding ordinary shares are fully paid and non-assessable. Certificates
representing the ordinary shares are issued in registered form. Our shareholders
who are non-residents of the British Virgin Islands may freely hold and vote
their ordinary shares.
On
December 5, 2005, we sent out redemption notices to all of the holders of the
issued and outstanding callable common stock purchase warrants that were
originally issued by Chardan in March 2004. As a result of the merger of Chardan
into Origin, the warrants were exercisable into our ordinary shares. The
warrants were exercised for our ordinary shares at $5.00 per warrant.
Approximately 8,043,752 of the 8,050,000 warrants that were then issued and
outstanding were exercised at a price of $5.00 per warrant through the
redemption date of January 9, 2006. Holders of the few remaining warrants that
were not exercised were paid $0.01 per warrant and the warrants were
extinguished. The gross proceeds received from this redemption were
approximately $40 million, of which $15 million was used to satisfy our
outstanding obligations to the shareholders of State Harvest under the stock
purchase agreement dated December 20, 2004 between Chardan and State
Harvest, and the remainder was and will continue to be used as working capital
and for other corporate purposes, including future acquisitions. After
the
redemption of the warrants, we had approximately 23,472,910 ordinary shares
issued.
Voting
Rights
The
holders of ordinary shares are entitled to one vote for each share on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights.
Dividends
Subject
to the preferences and rights, if any, applicable to the preferred stock, the
holders of ordinary shares are entitled to receive dividends if and when
declared by the board of directors.
Liquidation
Subject
to the prior rights of the holders, if any, of preferred stock, the holders
of
ordinary shares are entitled to share ratably in any distribution of our assets
upon liquidation, dissolution or winding-up, after satisfaction of all debts
and
other liabilities.
Redemption
Our
ordinary shares are subject to redemption for fair value. Subject to the
Companies Act, our board of directors may on our behalf purchase, redeem or
otherwise acquire any of our ordinary shares for such consideration as it
considers fit, and either cancel or hold such shares as treasury
shares.
Preferred
Stock
Preferred
stock may be issued from time to time in one or more series and our board of
directors, without approval of the shareholders, is authorized to designate
series of preferred
stock
and fix
the rights, privileges, restrictions and conditions to be attached to each
such
series of preferred stock. The issuance of preferred 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 ordinary shares.
General
Meetings
Shareholders’
meetings are held annually and may be convened by our board of directors on
its
own initiative or upon a request by shareholders holding in aggregate more
than
50 percent of the votes of our outstanding voting shares. Advance notice of
at
least seven days is required for the convening of our annual general meeting
and
other shareholders meetings. Shareholders’ meetings will be held at such places
as may be fixed from time to time by our board of directors.
A
shareholders’ meeting may be called on short notice, if (i) shareholders 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 shareholders 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 (ii) 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.
Any
shareholder present in person or by proxy that represents not less than a
majority of our issued and outstanding voting shares will constitute a quorum.
No shareholder shall be entitled to vote or be counted toward a quorum, in
respect of any share, unless such shareholder is registered as our shareholder
at the applicable record date for that meeting and all calls or installments
due
by such shareholder to us have been paid.
A
resolution to be passed by the shareholders requires (i) 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 (ii) 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 abstained.
Transfer
of Shares
Subject
to the restrictions of our articles of association, any of our shareholders
may
transfer all or any of his or her shares by an instrument of
transfer.
Our
board
of directors may, in its absolute discretion, and without assigning any reason,
refuse to register a transfer of any share which is not fully paid up or on
which we have a lien. Our directors may also decline to register any transfer
of
any ordinary share unless
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·
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the
instrument of transfer is lodged with us, accompanied by the certificate
for the shares to which it relates and such other evidence as our
board of
directors may reasonably require to show the right of the transferor
to
make the transfer;
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·
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the
instrument of transfer is in respect of only one class of
shares;
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·
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the
instrument of transfer is properly stamped, if
required;
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·
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in
the case of a transfer to joint holders, the number of joint holders
to
whom the ordinary share is to be transferred does not exceed four;
or
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·
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the
shares transferred are free of any lien in favor of
us.
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If
our
directors refuse to register a transfer they shall, within two months after
the
date on which the instrument of transfer was lodged, send to each of the
transferor and the transferee notice of such refusal. The registration of
transfers may, on 14 days’ notice being given by advertisement in one or more
newspapers or by electronic means, be suspended and the register closed at
such
times and for such periods as our board of directors may from time to time
determine, provided, however, that the registration of transfers shall not
be
suspended nor the register closed for more than 30 days in any
year.
Calls
on Shares and Forfeiture of Shares
Our
board
of directors may from time to time make calls upon shareholders for any amounts
unpaid on their shares in a notice served to such shareholders at least 14
days
prior to the specified time of payment. The shares that have been called upon
and remain unpaid are subject to forfeiture.
Variations
of Rights of Shares
If
at any
time our shares are divided into different classes, the rights attached to
any
class may only be varied, whether or not we are in liquidation, with the consent
in writing of or by a resolution passed at a meeting by the holders of not
less
than 50 percent of the issued shares in that class.
Limitations
on the Right to Own Shares
There
are
no limitations on the right to own our shares.
Disclosure
of Shareholder Ownership
There
are
no provisions in our memorandum and articles of association governing the
ownership threshold above which shareholder ownership must be
disclosed.
Directors’
Power to Issue Shares
At
the
discretion of our board of directors, we may issue offer, allot, grant options
over or otherwise dispose of our unissued shares, whether forming part of the
original or any increased authorized shares, to such persons at such times
and
for such consideration, being not less than the par value of the shares being
disposed of, and upon such terms and conditions as the directors may
determine.
Corporate
Governance
Our
memorandum and articles of association do not prohibit a director from voting
in
respect of any contract or transaction in which he is interested. For so long
as
our shares are listed or quoted on the NASDAQ Global Select Market, we will
conduct an appropriate review of all material related party transactions on
an
ongoing basis and shall utilize the audit committee for the review and approval
of potential conflicts of interest situations.
Our
board
of directors may determine remuneration to be paid to the directors. The
directors may by resolution of directors exercise all the powers of our 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 our
company or of any third party.
There
is
no shareholding or age requirement for directors.
Differences
in Corporate Law
The
Companies Act is modeled after that of England but does not follow recent
English statutory enactments and differs from laws applicable to U.S.
corporations and their shareholders. Set forth below is a summary of the
significant differences between the provisions of the Companies Act applicable
to us and the laws applicable to companies incorporated in the United States
and
their shareholders.
Mergers
and Similar Arrangements
Under
the
laws of the British Virgin Islands, two or more companies may merge or
consolidate in accordance with Section 170 of the Companies Act. A merger means
the merging of two or more constituent companies into one of the constituent
companies, and a consolidation means the uniting of two or more constituent
companies into a new company. In order to merge or consolidate, the directors
of
each constituent company must approve a written plan of merger or consolidation
which must be authorized by a resolution of shareholders.
While
a
director may vote on the plan even if he has a financial interest in the plan,
in order for the resolution to be valid, the material facts of the interest
and
the director’s relationship to any party to the transaction must be disclosed
and the resolution approved.
Shareholders
not otherwise entitled to vote on the merger or consolidation may still acquire
the right to vote if the plan of merger or consolidation contains any provision
which, if proposed as an amendment to the memorandum or articles of association,
would entitle them to vote as a class or series on the proposed amendment.
In
any event, all shareholders must be given a copy of the plan of merger or
consolidation irrespective of whether they are entitled to vote at the meeting
or consent to the written resolution to approve the plan of merger or
consolidation.
The
shareholders of the constituent companies are not required to receive shares
of
the surviving or consolidated company but may receive debt obligations or other
securities of the surviving or consolidated company, or other assets, or a
combination thereof. Further, some or all of the shares of a class or series
may
be converted into a kind of asset while the other shares of the same class
or
series may receive a different kind of asset. As such, not all the shares of
a
class or series must receive the same kind of consideration.
After
the
plan of merger or consolidation has been approved by the directors and
authorized by a resolution of the shareholders, articles of merger or
consolidation are executed by each company and filed with the Registrar of
Corporate Affairs in the British Virgin Islands.
A
shareholder may dissent from a mandatory redemption of his shares, an
arrangement (if permitted by the court), a merger (unless the shareholder was
a
shareholder of the surviving company prior to the merger and continues to hold
the same or similar shares after the merger) and a consolidation. A shareholder
properly exercising his dissent rights is entitled to payment in cash of the
fair value of his shares.
A
shareholder dissenting from a merger or consolidation must object in writing
to
the merger or consolidation before the vote by the shareholders on the merger
or
consolidation, unless notice of the meeting was not given to the shareholder.
If
the merger or consolidation is approved by the shareholders, the company must
within 20 days give notice of this fact to each shareholder who gave written
objection, and to each shareholder who did not receive notice of the meeting.
Such shareholders then have 20 days to give to the company their written
election in the form specified by the Companies Act to dissent from the merger
or consolidation, provided that in the case of a merger, the 20 days starts
when
the plan of merger is delivered to the shareholder.
Upon
giving notice of his election to dissent, a shareholder ceases to have any
rights of a shareholder except the right to be paid the fair value of his
shares. As such, the merger or consolidation may proceed in the ordinary course
notwithstanding the dissent.
Within
seven days of the later of the delivery of the notice of election to dissent
and
the effective date of the merger or consolidation, the company must make a
written offer to each dissenting shareholder to purchase his shares at a
specified price that the company determines to be their fair value. The company
and the shareholder then have 30 days to agree upon the price. If the company
and a shareholder fail to agree on the price within the 30 days, then the
company and the shareholder shall each designate an appraiser and these two
appraisers shall designate a third appraiser. These three appraisers shall
fix
the fair value of the shares as of the close of business on the day before
the
shareholders approved the transaction without taking into account any change
in
value as a result of the transaction.
Shareholders’
Suits
As
of the
date of this prospectus, we are not aware of any reported class action having
been brought in a British Virgin Islands court. Reported derivative actions
against third parties have been brought unsuccessfully for technical reasons.
The court of the British Virgin Islands may, on the application of a shareholder
of a company, grant leave to that shareholder to bring proceedings in the name
and on behalf of that company, or intervene in proceedings to which the company
is a party for the purpose of continuing, defending or discontinuing the
proceedings on behalf of the company. In determining whether to grant leave,
the
High Court of the British Virgin Islands must take into account (i) whether
the
shareholder is acting in good faith; (ii) whether the derivative action is
in
the interests of the company taking account of the views of the company’s
directors on commercial matters; (iii) whether the proceedings are likely to
succeed; (iv) the costs of the proceedings in relation to the relief likely
to
be obtained; and (v) whether an alternative remedy to the derivative claim
is
available.
Leave
to
bring or intervene in proceedings may be granted only if the High Court of
the
British Virgin Islands is satisfied that (i) the company does not intend to
bring, diligently continue or defend, or discontinue the proceedings, as the
case may be, or (ii) it is in the interests of the company that the conduct
of
the proceedings should not be left to the directors or to the determination
of
the shareholders as a whole.
Indemnification
British
Virgin Islands law does not limit the extent to which a company’s articles of
association may provide for indemnification of officers and directors, except
to
the extent any such provision may be held by the British Virgin Islands courts
to be contrary to public policy, such as to provide indemnification against
civil fraud or the consequences of committing a crime.
Under
our
memorandum and articles of association, we may indemnify our directors,
officers, liquidators and agents against expenses (including, without
limitation, legal fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such persons in connection with legal,
administrative or investigative proceedings to which they are a party or are
threatened to be made a party by reason of their acting as our directors,
officers, liquidators or agents. To be entitled to indemnification, these
persons must have acted honestly and in good faith and in the best interest
of
our company, and, in the case of criminal proceedings, they must have had no
reasonable cause to believe their conduct was unlawful.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us under the foregoing
provisions, we have been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act
and
is therefore unenforceable.
Inspection
of Books and Records
Under
British Virgin Islands law, holders of our shares are entitled, upon giving
written notice to us, to inspect (i) the memorandum and articles of association,
(ii) the register of members, (iii) the register of directors, and (iv) minutes
of meetings and resolutions of members, and to make copies and take extracts
from the documents and records. However, our directors can refuse access if
they
are satisfied that to allow such access would be contrary to our company’s
interests.
Taxation
For
a
discussion of certain material U.S. federal income tax consequences of the
purchase, ownership and disposition of our ordinary shares, please see
“Taxation—United States federal income taxation” under Item 10 of our
Annual Report on Form 20-F for the year ended September 30, 2007, which is
incorporated herein by reference.
Plan
of Distribution
We
are
registering the ordinary shares issuable upon conversion of the notes to permit
the resale of these ordinary shares by the selling shareholder after the date
of
this prospectus. We will not receive any proceeds of the sale of the ordinary
shares covered by this prospectus. We will bear all fees and expenses incident
to our obligation to register the ordinary shares. The selling shareholder
and
any of its pledgees, donees, assignees and successors-in-interest may, from
time
to time, sell pursuant to this prospectus (which may include one or more
prospectus supplements), the ordinary shares covered by this prospectus, in
one
or more underwritten or other public offerings and at prices and on terms that
will be determined at the time of the offering. There can be no assurance,
however, that the selling shareholder will sell any or all of the securities
registered pursuant to the shelf registration statement, of which this
prospectus forms a part.
If
the
ordinary shares are sold through underwriters or broker-dealers, the selling
shareholders will be responsible for underwriting discounts or commissions
or
agent’s commissions. These sales may be effected in one or more of the following
transactions, which may involve crosses or block transactions:
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on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
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·
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in
the over-the-counter market;
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·
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in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
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·
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through
the writing of options, whether such options are listed on an options
exchange or otherwise;
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·
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in
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
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·
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through
purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
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·
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by
means of an exchange distribution in accordance with the rules of
the
applicable exchange;
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in
privately negotiated transactions;
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·
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in
short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
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·
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pursuant
to Rule 144 under the Securities
Act;
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in
which broker-dealers may agree with the selling shareholder to sell
a
specified number of the ordinary shares at a stipulated price per
ordinary
share;
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through
agents or underwriters;
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·
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through
a block trade in which the broker or dealer engaged to handle the
block
trade will attempt to sell the shares as agent, but may position
and
resell a portion of the block as principal to facilitate the
transaction;
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directly
to one or more purchasers (through a specific bidding or auction
process
or otherwise);
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through
a combination of any of these methods of sale; and
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through
any other method permitted pursuant to applicable
law.
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The
distribution of the ordinary
shares may
be
effected from time to time in one or more transactions either:
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at
a fixed price or prices that may be
changed;
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at
market prices prevailing at the time of
sale;
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at
prices relating to the prevailing market prices;
or
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The
selling shareholder may transfer the ordinary shares in ways not involving
market makers or established trading markets, including directly by gift,
distribution, or other transfer.
If
the
selling shareholder effects such transactions by selling the ordinary shares
to
or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling shareholder or commissions from
purchasers of the securities for whom they may act as agent or to whom they
may
sell as principal (which discounts, concessions or commissions as to particular
underwriters, broker-dealers or agents may be in excess of those customary
in
the types of transactions involved). In connection with sales of the securities
or otherwise, the selling shareholder may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the securities in
the
course of hedging in positions they assume.
If
the
selling shareholder offers and sells the ordinary shares through an underwriter
or underwriters, we and/or the selling shareholder will execute an underwriting
agreement with the underwriter or underwriters. The names of the specific
managing underwriter or underwriters, as well as any other underwriters, and
the
terms of the transactions, including compensation of the underwriters and
dealers, which may be in the form of discounts, concessions or commissions,
if
any, may be described in a prospectus supplement, if any, that, along with
this
prospectus, may be used by the underwriters to make resales of the ordinary
shares. If underwriters are used in the sale of any of the ordinary shares
in
connection with this prospectus, those ordinary shares will be acquired by
the
underwriters for their own account and may be resold from time to time in one
or
more transactions, including negotiated transactions, at fixed public offering
prices or at varying prices determined by the underwriters and the selling
shareholder at the time of sale. The ordinary shares may be offered to the
public either through underwriting syndicates represented by managing
underwriters or directly by one or more underwriters. If any underwriters are
used in the sale of the ordinary shares, unless otherwise indicated in a related
prospectus supplement, the underwriting agreement may provide that the
obligations of the underwriters will be subject to some conditions precedent
and
that, with respect to a sale of the ordinary shares, the underwriters may be
obligated to purchase all such ordinary shares if any are
purchased.
If
any
underwriters are involved in the offer and sale of the ordinary shares, they
will be permitted to engage in transactions that maintain or otherwise affect
the price of the ordinary shares or other securities of ours. These transactions
may include over-allotment transactions, purchases to cover short positions
created by an underwriter in connection with the offering and the imposition
of
penalty bids. If an underwriter creates a short position in the ordinary shares
in connection with the offering by selling more of the ordinary shares than
set
forth on the cover page of the applicable prospectus supplement, if any, the
underwriter may reduce that short position by purchasing our ordinary shares
in
the open market. In general, purchases of our ordinary shares to reduce a short
position could cause the price of the ordinary shares to be higher than it
might
be in the absence of such purchases. As noted above, underwriters may also
choose to impose penalty bids on other underwriters and/or selling group
members. This means that if underwriters purchase any of the ordinary shares
on
the open market to reduce their short position or to stabilize the price of
the
ordinary shares, they may reclaim the amount of the selling concession from
those underwriters and/or selling group members who sold such ordinary shares
as
part of the offering. The selling shareholder may also loan or pledge securities
to broker-dealers that in turn may sell such securities.
Broker-dealers
engaged by the selling shareholder may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling shareholder (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, which
commissions as to a particular broker or dealer may be in excess of customary
commissions to the extent permitted by applicable law.
The
selling shareholder and any broker-dealer participating in the distribution
of
the securities may be deemed to be “underwriters” within the meaning of the
Securities Act, and any commission paid, or any discounts or concessions allowed
to, any such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act. At the time a particular offering of the
securities is made, a prospectus supplement, if required, will be distributed
which will set forth the aggregate amount of securities being offered and the
terms of the offering, including the name or names of any broker-dealers or
agents, any discounts, commissions and other terms constituting compensation
from the selling shareholder and any discounts, commissions or concessions
allowed or reallowed or paid to broker-dealers.
Under
the
securities laws of some states, the securities may be sold in such states only
through registered or licensed brokers or dealers. In addition, in some states
the securities may not be sold unless such securities have been registered
or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
The
selling shareholder and any other person participating in such distribution
will
be subject to applicable provisions of the Securities Exchange Act of 1934,
as
amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the securities by the selling shareholder and
any
other participating person. Regulation M may also restrict the ability of any
person engaged in the distribution of the securities to engage in market-making
activities with respect to the securities. All of the foregoing may affect
the
marketability of the securities and the ability of any person or entity to
engage in market-making activities with respect to the securities.
We
will
pay all expenses of the registration of the ordinary shares pursuant to the
Registration Rights Agreement, including without limitation, SEC filing fees
and
expenses of compliance with state securities or “blue sky” laws; provided,
however, that the selling shareholder will pay all underwriting discounts and
selling commissions, if any.
The
shares may also be sold under Rule 144 under the Securities Act, if available,
rather than under this prospectus. The selling shareholder has the sole and
absolute discretion not to accept any purchase offer or make any sale of shares
if it deems the purchase price to be unsatisfactory at any particular time.
If
any of
the ordinary shares offered for sale pursuant to this prospectus are transferred
other than pursuant to a sale under this prospectus, then subsequent holders
may
be unable to sell pursuant to this prospectus until a post-effective amendment
or prospectus supplement naming such holders is filed. We offer no assurance
as
to whether the selling shareholder will sell all or any portion of the shares
offered under this prospectus.
We
and
the selling shareholder have agreed to indemnify one another against certain
losses, damages and liabilities arising in connection with this prospectus,
in
accordance with the Registration Rights Agreement.
The
aggregate proceeds to the selling shareholder from the sale of the ordinary
shares pursuant to this prospectus will be the purchase price paid for such
securities, less discounts and commissions, if any. Offers to purchase the
ordinary shares may be solicited by agents designated by the selling shareholder
from time to time. The selling shareholder may reserve the right to accept
and,
together with its agent from time to time, reject in whole or in part any
proposed purchase of the ordinary shares to be made directly or through an
agent. Any agent involved in the offer or sale of the ordinary shares may be
named, and any commissions payable by the selling shareholder to the agent
may
be described, in a prospectus supplement, if required. Unless otherwise
indicated in a prospectus supplement, if required, any such agent will be acting
on a best efforts basis for the period of its appointment. Any agent may be
deemed to be an underwriter, as such term is defined in the Securities Act,
of
any securities so offered and sold.
The
selling shareholder may enter into agreements with agents, underwriters and
dealers under which we may agree to indemnify the agents, underwriters and
dealers against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments they may be required to make with respect
to
these liabilities. The terms and conditions of this indemnification or
contribution may be described in a prospectus supplement, if
required.
Some
of
the agents, underwriters or dealers or their affiliates may be customers of,
engage in transactions with or perform services for us, the selling shareholder
or any of our or its affiliates in the ordinary course of business.
The
selling shareholder may authorize its agents or underwriters to solicit offers
to purchase the ordinary shares at the public offering price under delayed
delivery contracts. The terms of these delayed delivery contracts, including
when payment for and delivery of the ordinary shares sold will be made under
the
contracts and any conditions to each party’s performance set forth in the
contracts, may be described in a prospectus supplement, if required. The
compensation received by underwriters or agents soliciting purchases of our
ordinary shares under delayed delivery contracts may also be described in such
a
prospectus supplement.
From
time
to time, the selling shareholder may pledge or grant a security interest in
some
or all of the ordinary shares owned by them. If the selling shareholders default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell such ordinary shares from time to time by this prospectus.
The selling shareholder also may transfer and donate the ordinary shares owned
by it in other circumstances. The amount of the ordinary shares beneficially
owned by the selling shareholder will decrease as and when the selling
shareholder transfers or donates any of the securities owned by it or defaults
in performing obligations secured by such ordinary shares. The plan of
distribution for the ordinary shares offered and sold under this prospectus
will
otherwise remain unchanged, except that the transferees, donees, pledgees,
other
secured parties or other successors in interest will be the selling shareholders
for purposes of this prospectus.
Expenses
The
following table sets forth the costs and expenses estimated to be payable by
us
in connection with the issuance and distribution of the ordinary shares being
registered under this registration statement:
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SEC
registration fee
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$
|
107.72
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|
|
|
|
Legal
fees and expenses
|
|
$
|
300,000
|
|
| |
|
|
|
|
|
Accounting
fees and expenses
|
|
$
|
105,000
|
|
| |
|
|
|
|
|
Total
|
|
$
|
405,107.72
|
|
We
will
pay for all costs, expenses and fees in connection with the registration of
the
shares issuable upon conversion of the notes, as well as certain reasonable
fees
and expenses of counsel for the selling shareholder. In addition, we have agreed
to indemnify the selling shareholder against certain liabilities in connection
with the offering of the ordinary shares issuable upon conversion of the notes.
The selling shareholder will pay for all selling discounts and commissions,
if
any, on the ordinary shares it offers.
Legal
Matters
The
validity of the ordinary shares offered in this prospectus will be passed upon
for us by Maples and Calder, 1504 One International Finance Centre, 1
Harbour View Street, Hong Kong.
Experts
The
consolidated financial statements as of and for the fiscal year ended September
30, 2007 and the nine months ended September 30, 2006 and the effectiveness
of
internal control over financial reporting as of September 30, 2007, incorporated
by reference into this prospectus, have been audited by BDO McCabe Lo Limited,
an independent registered certified public accounting firm, to the extent
and
for the periods set forth in their reports (the report on the effectiveness
of
internal control over financial reporting expresses an adverse opinion on
the
effectiveness of the Company's internal control over financial reporting
as of
September 30, 2007) incorporated herein by reference, and are incorporated
by
reference in reliance upon such report given upon the authority of said firm
as
experts in auditing and accounting. The offices of BDO McCabe Lo Limited
are
located at 25th Floor, Wing on Center, 111 Connaught Road Central, Hong
Kong.
The
consolidated statements of operations, shareholders' equity and comprehensive
income, and cash flows for the year ended December 31, 2005 incorporated by
reference in this prospectus have been audited by Deloitte Touche Tohmatsu
CPA
Ltd., an independent registered public accounting firm, as stated in their
report, which is incorporated herein by reference (which
report expresses an unqualified opinion and includes an explanatory paragraph
relating to the consolidated financial statements for the nine months ended
September 30, 2005) and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing. The
offices of Deloitte Touche Tohmatsu CPA Ltd. are located at 8/F Office Tower
W2,
The Towers, Oriental Plaza, 1 East Chang An Avenue, Beijing, the People's
Republic of China.
Where
You Can Find More
Information
We
have
filed a registration statement on Form F-3 with the SEC regarding this offering.
This prospectus, which is part of the registration statement, does not contain
all of the information included in the registration statement, and you should
refer to the registration statement and its exhibits to read that information.
We are currently subject to periodic reporting and other informational
requirements of the Exchange Act as applicable to foreign private issuers.
Accordingly, we are required to file reports, including annual reports on Form
20-F, and other information with the SEC. As a foreign private issuer, we are
exempt from the rules of the Exchange Act prescribing the furnishing and content
of proxy statements to shareholders under the federal proxy rules contained
in
Sections 14(a), (b) and (c) of the Exchange Act, and our executive officers,
directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the Exchange
Act.
You
may
read and copy any document we file with the SEC at the SEC’s Public Reference
Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
You can also request copies of those documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The SEC also
maintains an Internet
site
that contains reports, proxy and information statements and other information
regarding issuers that file with the SEC. The site’s Internet address is
http://www.sec.gov. Certain information about our company may also be obtained
from our website at www.originagritech.com. Information contained on our website
or any other website does not constitute a part of this prospectus.
You
may
also request a copy of these filings, at no cost, by writing or telephoning
us
at:
No.
21
Sheng Ming Yuan Road
Changping District
Beijing
102206
People’s
Republic of China
8610-5890-7588
Incorporation
by Reference
We
are
“incorporating by reference” certain documents that we file with the SEC, which
means that such documents are considered part of this prospectus and that we
can
disclose important information to you by referring to those documents.
Information that we file in the future with the SEC, including all filings
filed
by us pursuant to the Exchange Act after the date of the initial registration
statement and prior to the effectiveness of the registration statement, will
automatically update and supersede earlier information in or incorporated by
reference in this prospectus. Any statement in a document incorporated by
reference into this prospectus will be deemed to be modified or superseded
to
the extent a statement contained in this prospectus or any subsequently filed
document that is incorporated by reference into this prospectus modified or
supersedes such statement. Any statement that is modified or superseded shall
not, except as so modified or superseded, constitute part of this
prospectus.
We
incorporate herein by reference the documents listed below and any other
information we file with the Securities and Exchange Commission under Sections
13(a), 13(c), 13 or 15(d) of the Exchange Act, including any filings after
the
date of this prospectus until the offering is completed:
| |
·
|
our
annual report on Form 20-F for the fiscal year ended September 30,
2007,
filed with the SEC on February 27,
2008.
|
| |
·
|
the
description of our ordinary shares contained under the heading
“Description of Securities” on pages 148-150 of Amendment No. 5 to
our Registration Statement on Form S-4 as filed with the SEC on September
27, 2005, including any amendments or reports filed for the purposes
of
updating such description.
|
In
addition, all documents we file under Sections 13(a), 13(c) and 15(d) of the
Exchange Act subsequent to the date hereof and before the termination of this
offering are incorporated by reference into this prospectus, including current
reports on Form 6-K that we furnish to or file with the SEC prior to the
termination of this offering that indicate they are being incorporated by
reference into this prospectus. If we have incorporated by reference any
statement or information in this prospectus and we subsequently modify that
statement or information with information contained in this prospectus or a
subsequent incorporated document, the statement or information previously
incorporated in this prospectus is also modified or superseded in the same
manner.
Notwithstanding
the foregoing, unless specifically stated to the contrary, none of the
information that we disclose under any current report on Form 6-K that we may
from time to time furnish to the SEC will be incorporated by reference into,
or
otherwise included in, this prospectus, unless we specifically indicate that
the
particular current report on Form 6-K (or any information contained in such
a
report) is being incorporated by reference into this prospectus.
You
may
not have some of the documents incorporated by reference, but we will provide
any of these documents without charge to any person (including any beneficial
owner) to whom this prospectus has been delivered, upon the oral or written
request of such person. Such requests should be directed to:
Origin
Agritech Limited
Attention:
Investor Relations
No.
21
Sheng Ming Yuan Road
Changping
District
Beijing
102206
People’s
Republic of China
8610-5890-7588
Exhibits
to any documents incorporated by reference in this prospectus will not be sent,
however, unless those exhibits have been specifically referenced in this
prospectus or are otherwise required to be included.
You
should rely only on the information in this prospectus or incorporated by
reference into this prospectus. No one has been authorized to provide you with
different information. You should not assume that the information contained
in
this prospectus is accurate as of any date other than the date on the front
page. We are not making any offer to sell (or soliciting any offer to buy)
any
securities, or soliciting any proxy, in any state where it is unlawful to do
so.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 8.
Indemnification of Directors and Officers.
British
Virgin Islands law does not limit the extent to which a company’s articles of
association may provide for indemnification of officers and directors, except
to
the extent any such provision may be held by the British Virgin Islands courts
to be contrary to public policy, such as to provide indemnification against
civil fraud or the consequences of committing a crime.
Under
our
memorandum and articles of association, we may indemnify our directors,
officers, liquidators and agents against expenses (including legal fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such persons in connection with legal, administrative or investigative
proceedings to which they are a party or are threatened to be made a party
by
reason of their acting as our directors, officers, liquidators or agents. To
be
entitled to indemnification, these persons must have acted honestly and in
good
faith and in the best interest of our company, and, in the case of criminal
proceedings, they must have had no reasonable cause to believe their conduct
was
unlawful.
Item 9. Exhibits.
|
Exhibit No.
|
|
Description
|
| |
|
|
|
4.1
|
|
Registrant’s
Specimen Certificate for Ordinary Shares*
|
| |
|
|
|
4.2
|
|
Indenture,
dated as of July 25, 2007, among the Registrant, the guarantor, and
the
trustee**
|
| |
|
|
|
4.3
|
|
Registration
Rights Agreement, dated as of July 25, 2007, among the Registrant,
the
guarantor, and the initial purchaser**
|
| |
|
|
|
4.4
|
|
Amendment
of Registration Rights Agreement, dated October 24, 2007, between
Origin,
State Harvest and Citadel**
|
| |
|
|
|
4.5
|
|
Second
Amendment of Registration Rights Agreement, dated December 21, 2007,
between Origin, State Harvest and Citadel**
|
| |
|
|
|
4.6
|
|
Third
Amendment of Registration Rights Agreement, dated February 6, 2008
between
Origin, State Harvest and Citadel**
|
| |
|
|
|
4.7
|
|
Investor
Rights Agreement, dated as of July 25, 2007, among the Registrant,
certain
major shareholders of the Registrant, and the initial
purchaser**
|
| |
|
|
|
4.8
|
|
Notes
Purchase Agreement, dated July 25, 2007, between Origin and
Citadel**
|
| |
|
|
|
5.1
|
|
Opinion
of Maples and Calder
|
| |
|
|
|
23.1
|
|
Consent
of BDO McCabe Lo Limited, Independent
Registered Public Accounting Firm
|
| |
|
|
|
23.2
|
|
Consent
of Deloitte Touche Tohmatsu CPA Ltd., Independent
Registered Public Accounting Firm
|
| |
|
|
|
23.3
|
|
Consent
of Maples and Calder (included in Exhibit 5.1)
|
| |
|
|
|
24.1
|
|
Power
of Attorney (included on signature page of Part II of this Registration
Statement)
|
| |
|
|
|
25.1
|
|
Statement
of Eligibility of Trustee
|
*
Previously filed with the Registrant’s registration statement on Amendment No. 2
to Form S-4 (File No. 333-124709-01) filed with the SEC on August 22,
2005.
**
Previously filed with the Registrant’s annual report on Form 20-F (File No.
000-51576) filed with the SEC on February 27, 2008.
Item 10. Undertakings.
(a) The
undersigned registrant hereby undertakes:
(1) To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
provided,
however,
that
paragraphs (a)(i)(i), (a)(i)(ii) and (a)(i)(iii) of this section do not apply
if
the information required to be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished to the Commission
by
the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus filed pursuant
to Rule 424(b) that is part of 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. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the prospectus, by means
of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, a post-effective amendment
need not be filed to include financial statements and information required
by
Section 10(a)(3) of the Act or Rule 3-19 of Regulation S-X if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(5) That,
for
the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(i) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed
to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(ii) Each
prospectus required to be filed pursuant to Rule 424(b)(ii), (b)(5), or (b)(7)
as part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose
of providing the information required by Section 10(a) of the Securities
Act of 1933 shall be deemed to be part of and included in the registration
statement as of the earlier of the date such form of prospectus is first used
after effectiveness or the date of the first contract of sale of securities
in
the offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date.
(6) That,
for
the purpose of determining liability of the registrant under the Securities
Act
of 1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities
of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if
the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating
to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free
writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other
communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(b) The
undersigned registrant hereby undertakes that, for purposes of determining
any
liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
(c) Insofar
as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers, and controlling persons of the registrant pursuant to
the
foregoing provisions, or otherwise, the registrant has been advised that in
the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies
it
has reasonable grounds to believe that it meets all of the requirements for
filing on Form F-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Beijing, the
People’s Republic of China on March 14, 2008.
|
ORIGIN
AGRITECH LIMITED
|
| |
|
|
By:
|
/S/
Gengchen Han
|
|
|
Gengchen
Han
Co-Chief
Executive Officer
|
POWER
OF ATTORNEY
Each
person whose signature appears below constitutes and appoints Gengchen Han
and
Veronica Jing Chen, and each of them, acting individually and without the other,
as his or her true and lawful attorneys-in-fact and agents, each with full
power
of substitution and re-substitution, for him or her and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments and other documents in connection
therewith) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their, his or his substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed below by the following persons in the capacities indicated
on
March 14, 2008.
|
Signature
|
|
Title
|
| |
|
|
|
/s/
Gengchen Han
|
|
Chairman
of the Board and Co-Chief
Executive
Officer
|
|
Gengchen
Han
|
|
|
| |
|
|
|
/s/
Liang Yuan
|
|
Director,
Co-Chief Executive Officer and
President
(Principal Executive Officer)
|
|
Liang
Yuan
|
|
|
| |
|
|
|
/s/
Veronica Jing Chen
|
|
Chief
Financial Officer
(Principal
Financial Officer and Principal
|
|
Veronica
Jing Chen
|
|
Accounting
Officer)
|
| |
|
|
|
/s/
Yasheng Yang
|
|
Director
|
|
Yasheng
Yang
|
|
|
| |
|
|
|
/s/
Bailiang Zhang
|
|
Director
|
|
Bailiang
Zhang
|
|
|
| |
|
|
|
/s/
Dafang Huang
|
|
Director
|
|
Dafang
Huang
|
|
|
| |
|
|
|
/s/
Kerry S.
Proper
|
|
Director
|
|
Kerry
S. Propper
|
|
|
| |
|
|
|
/s/
Steven
Urbach
|
|
Director
|
|
Steven
Urbach
|
|
|
| |
|
|
|
/s/
Michael W. Trimble
|
|
Director
|
|
Michael
W. Trimble
|
|
|
| |
|
|
|
/s/
Remo
Richli
|
|
Director
|
|
Remo
Richli
|
|
|
Signature
of authorized representative in the United States
Pursuant
to the Securities Act of 1933, the undersigned, the duly authorized
representative in the United States of America of Origin Agritech Limited
has
signed this registration statement in Los Angeles, California, United States
of
America on March 13,
2008.
|
|
/s/
Irving Kao
|
|
Name:
|
Irving
Kao
|
|
Title:
|
|
Index
To Exhibits
Pursuant
to Item 601(a)(2) of Regulation S-K, this exhibit index immediately precedes
the
exhibits.
The
following exhibits are included, or incorporated by reference, in this Form
F-3
(and are numbered in accordance with Item 601 of Regulation S-K).
|
Exhibit No.
|
|
Description
|
| |
|
|
|
4.1
|
|
Registrant’s
Specimen Certificate for Ordinary Shares*
|
| |
|
|
|
4.2
|
|
Indenture,
dated as of July 25, 2007, among the Registrant, the guarantor,
and the
trustee**
|
| |
|
|
|
4.3
|
|
Registration
Rights Agreement, dated as of July 25, 2007, among the Registrant,
the
guarantor, and the initial purchaser**
|
| |
|
|
|
4.4
|
|
Amendment
of Registration Rights Agreement, dated October 24, 2007, between
Origin,
State Harvest and Citadel**
|
| |
|
|
|
4.5
|
|
Second
Amendment of Registration Rights Agreement, dated December 21,
2007,
between Origin, State Harvest and Citadel**
|
| |
|
|
|
4.6
|
|
Third
Amendment of Registration Rights Agreement, dated February 6, 2008
between
Origin, State Harvest and Citadel**
|
| |
|
|
|
4.7
|
|
Investor
Rights Agreement, dated as of July 25, 2007, among the Registrant,
certain
major shareholders of the Registrant, and the initial
purchaser**
|
| |
|
|
|
4.8
|
|
Notes
Purchase Agreement, dated July 25, 2007, between Origin and
Citadel**
|
| |
|
|
|
5.1
|
|
Opinion
of Maples and Calder
|
| |
|
|
|
23.1
|
|
Consent
of BDO McCabe Lo Limited, Independent
Registered Public Accounting Firm
|
| |
|
|
|
23.2
|
|
Consent
of Deloitte Touche Tohmatsu CPA Ltd., Independent
Registered Public Accounting Firm
|
| |
|
|
|
23.3
|
|
Consent
of Maples and Calder (included in Exhibit 5.1)
|
| |
|
|
|
24.1
|
|
Power
of Attorney (included on signature page of Part II of this Registration
Statement)
|
| |
|
|
|
25.1
|
|
Statement
of Eligibility of Trustee
|
*
Previously filed with the Registrant’s registration statement on Amendment No. 2
to Form S-4 (File No. 333-124709-01) filed with the SEC on August 22,
2005.
**
Previously filed with the Registrant’s annual report on Form 20-F (File No.
000-51576) filed with the SEC on February 27, 2008.