The
information in this prospectus is not complete and may be changed. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold 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 state or other
jurisdiction where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS SUPPLEMENT
|
SUBJECT
TO COMPLETION, DATED APRIL 28,
2010
|
(to
prospectus dated February 9, 2010)
Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-164810
1,243,000
Shares of Common Stock
This is a
firm commitment public offering of 1,243,000 shares of our common
stock.
Shares of
our common stock are currently traded on the NASDAQ Global Market under the
symbol “CAGC.” On April 28, 2010, the closing sale price of our common stock was
$17.12 per share.
The
information contained or incorporated in this prospectus supplement is accurate
only as of its respective date, regardless of the time of delivery of this
prospectus supplement or any sale of our securities.
INVESTING
IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” ON PAGE
S-12 OF THIS PROSPECTUS SUPPLEMENT.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
|
|
Per Share
|
|
|
Total
|
|
Public
Offering Price
|
|
$
|
|
|
|
$
|
|
|
Underwriting
Discount
|
|
$
|
|
|
|
$
|
|
|
Proceeds,
before expenses, to us
(1)
|
|
$
|
|
|
|
$
|
|
|
(1) We
estimate the total expenses of this offering, excluding the underwriting
discounts and commissions, will be approximately $500,000, including a
non-accountable expense allowance equal to 1% of the gross proceeds of this
offering, or $[ ].
The
underwriters may also purchase up to an additional 186,450 shares of our
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments, if any, within 45 days of the date
of this prospectus.
We expect
to deliver the shares of our common stock to purchasers on or about
, 2010.
Rodman
& Renshaw, LLC
The date
of this prospectus supplement is ,
2010
CHINA
AGRITECH, INC.
TABLE
OF CONTENTS
Prospectus supplement
|
Page
|
ABOUT
THIS PROSPECTUS SUPPLEMENT
|
S-2
|
PROSPECTUS
SUMMARY
|
S-3
|
THE
OFFERING
|
S-8
|
SELECTED
FINANCIAL DATA
|
S-9
|
FORWARD-LOOKING
STATEMENTS
|
S-11
|
RISK
FACTORS
|
S-12
|
USE
OF PROCEEDS
|
S-14
|
PRICE
RANGE OF COMMON STOCK
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S-15
|
DIVIDEND
POLICY
|
S-15
|
CAPITALIZATION
|
S-16
|
UNDERWRITING
|
S-17
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MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
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S-25
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MATERIAL
PRC INCOME TAX CONSIDERATIONS
|
S-30
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LEGAL
MATTERS
|
S-33
|
EXPERTS
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S-33
|
WHERE
YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
|
S-33
|
Base
Prospectus
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Page
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ABOUT
THIS PROSPECTUS
|
2
|
PROSPECTUS
SUMMARY
|
2
|
THE
OFFERING
|
3
|
OUR
COMPANY
|
4
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RISK
FACTORS
|
9
|
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
|
17
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USE
OF PROCEEDS
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18
|
RATIO
OF EARNINGS TO FIXED CHARGES
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18
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PLAN
OF DISTRIBUTION
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19
|
DESCRIPTIONS
OF THE SECURITIES WE MAY OFFER
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21
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CAPITAL
STOCK
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21
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WARRANTS
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23
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DEBT
SECURITIES
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25
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UNITS
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31
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LITIGATION
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32
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LEGAL
MATTERS
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32
|
EXPERTS
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32
|
WHERE
YOU CAN FIND MORE INFORMATION ABOUT US
|
32
|
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
|
33
|
You
should rely only on the information contained in this prospectus supplement, the
accompanying prospectus and any free writing prospectus that we have authorized
to be distributed to you, or information incorporated by reference herein. We
have not, and the underwriters have not, authorized anyone else to provide you
with additional or different information. We are offering to sell, and seeking
offers to buy, common stock only in jurisdictions where offers and sales are
permitted. You should not assume that the information in this prospectus
supplement or the accompanying prospectus is accurate as of any date other than
the date on the front of those documents or that any document incorporated by
reference is accurate as of any date other than its filing date.
No
action is being taken in any jurisdiction outside the United States to permit a
public offering of the common stock or possession or distribution of this
prospectus supplement or the accompanying prospectus in that jurisdiction.
Persons who come into possession of this prospectus supplement or the
accompanying prospectus in jurisdictions outside the United States are required
to inform themselves about and to observe any restrictions as to this offering
and the distribution of this prospectus supplement and the accompanying
prospectus applicable to that jurisdiction.
ABOUT
THIS PROSPECTUS SUPPLEMENT
On
February 9, 2010, we filed with the SEC a registration statement on Form S-3
(File No. 333-164810) utilizing a shelf registration process relating to the
securities described in this prospectus supplement, which registration statement
was declared effective on February 25, 2010. Under this shelf registration
process, we may, from time to time, sell up to $100 million in the aggregate of
common stock, preferred stock, debt securities, warrants and/or units of our
securities.
This
document is in two parts. The first part is this prospectus supplement, which
describes the specific terms of this offering of common stock, including the
price, the number of shares of common stock being offered, the risks relating to
an investment in our common stock and the underwriting arrangements and also
adds to and updates information contained in the accompanying prospectus and the
documents incorporated by reference into the prospectus. The second part, the
accompanying prospectus, gives more general information, some of which, such as
the section titled “Plan of Distribution” and descriptions of unissued
securities other than our common stock, does not apply to this
offering.
If the
description of the offering varies between this prospectus supplement and the
accompanying prospectus, you should rely on the information contained in this
prospectus supplement. However, if any statement in one of these documents is
inconsistent with a statement in another document having a later date — for
example, a document incorporated by reference in this prospectus supplement and
the accompanying prospectus — the statement in the document having the later
date modifies or supersedes the earlier statement. We are not incorporating by
reference any information submitted under Item 2.02 or Item 7.01 of any Current
Report on Form 8-K into any filing under the Securities Act or the Exchange Act
or into this prospectus supplement or the accompanying prospectus.
Any
statement contained in a document incorporated by reference, or deemed to be
incorporated by reference, into this prospectus supplement or the accompanying
prospectus will be deemed to be modified or superseded for purposes of this
prospectus supplement or the accompanying prospectus to the extent that a
statement contained herein, therein or in any other subsequently filed document
which also is incorporated by reference in this prospectus supplement or the
accompanying prospectus modifies or supersedes that statement. Any such
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus supplement or the
accompanying prospectus.
We
further note that the representations, warranties and covenants made by us in
any agreement that is filed as an exhibit to any document that is incorporated
by reference in this prospectus supplement and the accompanying prospectus were
made solely for the benefit of the parties to such agreement, including, in some
cases, for the purpose of allocating risk among the parties to such agreements,
and should not be deemed to be a representation, warranty or covenant to you.
Moreover, such representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties and covenants
should not be relied on as accurately representing the current state of our
affairs.
Unless we
have indicated otherwise, or the context otherwise requires, references in this
prospectus supplement and the accompanying prospectus to “China Agritech,”
“Company,” “we,” “us,” and “our” refer to China Agritech, Inc. and its wholly
owned subsidiaries.
PROSPECTUS SUMMARY
Unless
otherwise mentioned or unless the context requires otherwise, when used in this
prospectus, the terms “China Agritech,” “Company,” “we,” “us,” and “our” refer
to China Agritech, Inc. and its wholly owned subsidiaries. “China” and the “PRC”
refer to the People’s Republic of China. References to “$” are to the legal
currency of the United States.
The share
information contained herein gives retroactive effect to the 2-for-1 forward
stock split effected on February 1, 2010.
We will
provide to each person, including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus. You may
request a copy of these filings, excluding the exhibits to such filings which we
have not specifically incorporated by reference in such filings, at no cost, by
writing us at the following address: China Agritech, Inc., Room 3F No. 11
Building, Zhonghong International Business Garden, Future Business Center,
Chaoyang North Road, Chaoyang District, Beijing, PRC 100024 and our telephone
number is +86 10-59621278.
Our
Company
We
manufacture and sell organic liquid compound fertilizers, organic granular
compound fertilizers and related agricultural products in the PRC through our
direct and indirect subsidiaries: Anhui Agritech Development Co. Ltd.
(“Anhui Agritech”), Agritech Fertilizer Limited (“Beijing Agritech”), China
Tailong Holdings Company Limited (“Tailong”), Pacific Dragon Fertilizer Co. Ltd.
(“Pacific Dragon”), and Xinjiang Agritech Agriculture Resources Co., Ltd
(“Xinjiang Agritech”).
Our main
products include spray, water-flush, dip and granular fertilizer products and
other customized, crop specific fertilizers that are tailored to our customers’
specific requirements. Our liquid fertilizer products can be applied on a
widespread basis via spraying by machine or aircraft. Our products have
been recognized for their quality and effectiveness by leading industry
associations and have been certified by the PRC government at the national
level, which is an endorsement of the effectiveness of the products in all
regions of the PRC.
Our
products:
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·
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promote photosynthesis, root
system growth and transmission of nutrients to
seeds;
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equilibrate absorption of
nutrients to speed a plant’s
maturity;
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eliminate the damage of harmful
radicals to plants;
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increase protein and vitamin
content levels;
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·
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accelerate the accumulation of
photosynthesis materials and cell
concentration;
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·
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increase plants’ reservation
ability to resist drought, resistance and the utilization rate of basic
fertility; and
|
|
·
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foster the development of plant
life along with neutral or acidic
pesticides.
|
We
believe that our brand reputation and ability to tailor our products to meet the
requirements of various regions of the PRC affords us a competitive advantage.
We purchase the majority of our raw materials from suppliers located in the PRC
and use suppliers that are located in close proximity to our manufacturing
facilities, which helps us to contain our cost of revenue.
The
demand for our products has steadily increased. Our annual production capacity
as of December 31, 2009 was approximately 13,000 metric tons of organic liquid
compound fertilizers whereas our annual production capacity for granular
fertilizers as of December 31, 2009 was approximately 200,000 metric tons,
consisting of 100,000 metric tons in Anhui, 50,000 metric tons in Harbin, and
50,000 tons in our newly completed plant in Xinjiang.
We
currently plan to build and operate approximately 10 and 45 branded
large-scale distribution centers in central and eastern provinces in 2010 and
2011, respectively, to sell our own organic fertilizers and third party sourced
products, including seeds, pesticides, and other agricultural products to
franchised retail stores, and intend to expand into southern and western
provinces starting 2012. We anticipate that each distribution center will cost
approximately $1million to build and can cover 80 to 100 franchised retail
stores in its geographic area. Because we do not expect that the distribution
centers will sell products on a retail basis, we intend to initially engage our
current distributors to become the franchisees of such retail
stores. We will not own the retail stores and will not receive any
franchise fee from the stores, but we will provide product sourcing, training,
expertise and logistic services to our franchisees In return, the
retail stores will be required to commit to sell our organic fertilizers,
together with third party products sourced by us. We believe that our
planned distribution centers and franchised retail stores in the PRC could
enable us to introduce farmers, especially individual farmers, to our
products, educate them about the benefits of organic fertilizer over chemical
fertilizer, and teach them how to properly use our products in a more cost
effective manner. We believe that these franchised stores could also introduce
our products to a vast network of farmers who otherwise operate outside of our
existing distribution network and outside of the reach of traditional
advertising media.
Our
anticipated schedule of building and operating these branded distribution
centers relies on a variety of factors, many of which are outside of our
control. Accordingly, this suggested schedule and our ability to open up the
anticipated number of stores, if any, may change.
The net
proceeds of this offering are not enough to complete the build-out of all of the
anticipated distribution centers described above. If we cannot fund
the remaining distribution centers from working capital, we will need to seek
additional capital from other sources, which may not be possible on terms
favorable to us, if at all.
China is
the principal market for our products, which are primarily sold to farmers
through distributors in 28 provinces in China: Hainan, Anhui, Hubei, Jiangsu,
Jiangxi, Guangxi, Liaoning, Shanxi, Heilongjiang, Hebei, Jilin, Shandong, Inner
Mongolia, Henan, Sichuan, Guangdong, Xinjiang, Yunnan, Chongqing, Beijing,
Shanghai, Tianjin, Ningxia, Shan'xi, Hunan, Fujian, Zhejiang and
Guizhou.
Our
Growth Strategy
We
believe that our increased capacity to produce organic granular compound
fertilizer products, which have a lower price point and greater market appeal
than our premier organic liquid compound fertilizer products, makes us well
positioned to expand sales and increase revenues. We have focused on the
expansion of our granular production because the market for organic granular
fertilizer is almost ten times larger than the current market for
organic liquid fertilizer due to the familiarity and tradition of farmers’ using
granular fertilizers. In addition, the per unit amount of granular fertilizer
used for sowing coverage is much higher than the amount used for liquid
fertilizer.
Our goal
is to further expand our products’ market share throughout the PRC by
establishing our own distribution centers, together with franchised
retail chain stores which will sell our own branded products (e.g., organic
fertilizers) and international and local sourced products (e.g., seeds,
pesticides and other agricultural products). Our growth strategy includes the
following strategies:
Continue Organic Growth
Initiatives
. We believe that the current fertilizer market is fragmented
and represents an excellent opportunity for us to gain additional market share
from our competitors, mainly chemical fertilizer manufacturers. We intend to
establish branded chain stores by converting our current offices into a flagship
store and distribution center and inviting our current distributors to join in
our line as franchisees to operate chain stores under our brand. We also intend
to leverage our strong brand, quality customer services and quality of our
products to gain incremental business in the fertilizer market. Finally, we
strongly believe that as we continue to grow, economies of scale and enforced
brand awareness will allow us to continue to be profitable.
Expand the lines of our
products
. Beside our current organic fertilizers, we will source, either
internally or locally, other agricultural products, like seeds, pesticides,
agricultural equipments and tools to expand the lines of our products to meet
all the necessities of farmers in the PRC. All these products will be sold
through our branded chain stores directly to farmers, who are the end
customers.
Capitalize upon Strong Industry
Dynamics in the PRC
. Continued economic growth in the PRC, coupled
with evolving government policy on preservation of farmlands by promoting use of
organic fertilizers on one hand and improvement of farmers’ incomes on another
hand, present us with significant future growth opportunities. We believe
that with continued strong government commitment, we will continue to benefit
from it.
Execute Strategic
Acquisitions
. We intend to acquire certain domestic targets that
are accretive and synergistic to our growth strategy.
Competitive
Advantages
We
believe we are well-positioned to continue to be the largest manufacturer of
organic compound fertilizers in the PRC and to become a leading distributor of
organic compound fertilizers in the PRC and beyond. We believe we have
several competitive advantages, including the following:
|
·
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Well
established brand name products;
|
|
·
|
Established
distribution channel in northern and eastern provinces of the PRC;
and
|
|
·
|
Food
grown with our products may be eligible to receive a AA Green Food
rating.
|
Our
Competitive Strengths
We
believe that the following competitive strengths enable us to compete
effectively in the fertilizer market in the PRC:
|
·
|
Strong
Market Position
. We are a leading manufacturer of
fertilizer products and, more specifically, organic fertilizer products in
liquid form, in the PRC.
|
|
·
|
Recognized
and Certified Product Offerings
. Our Tailong liquid brand of
fertilizer products was favorably recognized by the China Association for
Quality Supervision and the China Quality Standard Research Center in 2006
for product quality, brand reputation and customer loyalty. Our
fertilizer products also have been certified by the Ministry of
Agriculture.
|
|
·
|
Established
Distribution Network
. We sell the majority of our
fertilizer products through an extensive distribution network of regional
factories, which help us to establish a local presence in each community
we serve with multi-level sales support and to educate local retailers and
farmers on the benefits of our fertilizer products. Since 2007 we
have sold our Green Vitality products to a subsidiary
of
Sinofert Holdings Limited,
the PRC’s largest integrated
agricultural company, which utilizes its own distribution network to
distribute our products.
|
|
·
|
Efficient
Infrastructure
. We have created a flexible and
responsive infrastructure, which allows us to efficiently manufacture and
deliver high-quality fertilizer products within a short delivery
time.
|
|
·
|
Broad
Customer Base
. We developed a diversified customer base
of farmers and retailers located throughout the PRC and are not dependent
on, or heavily concentrated in, any single customer or customer
base.
|
Our
Strategy
We
believe that our strong competitive position, our ability to meet customer
demands and our well-regarded product offerings will enable us to benefit from
the anticipated growth in the PRC fertilizer market. We are committed to
enhancing our sales, profitability and cash flows through the following
strategies:
|
·
|
Capitalize
on our brand reputation to increase sales of new and existing
products
. We intend to leverage the favorable
reputation of our fertilizer products through collaboration with academic
and governmental institutions which can attest to the quality of our
current product offerings. We plan to develop new compounds to
better meet the changing needs of the PRC’s agricultural communities by
tailoring our product offerings to meet the local needs of the farmers and
to create greater reliability of fertilizer products nationwide. Over the
past year we added an organic granular compound fertilizer to our product
lines and constructed a granular fertilizer line near each of our existing
factories, located in Harbin, Beijing and
Xinjiang.
|
|
·
|
Expand Our
Domestic Operation
. We intend to build or acquire additional
organic granular fertilizer factories in strategic locations in the PRC to
serve new agricultural areas in Hebei and Sichuan provinces. Our recently
completed Xinjian facility commenced commercial production in 2010,
bringing our organic granular compound fertilizer production capacity to
approximately 200,000 metric tons.
|
|
·
|
Build &
Operate Franchised Retail Stores in the PRC
.
We
currently plan to build and operate approximately 10 and 45 branded
large-scale distribution centers in central and eastern provinces in 2010
and 2011, respectively, to sell our own organic fertilizers and third
party sourced products, including seeds, pesticides, and other
agricultural products to franchised retail stores, and intend to expand
into southern and western provinces starting 2012. We anticipate that each
distribution center will cost approximately $1 million to build
and can cover 80 to 100 franchised retail stores in its geographic
area. Because we do not expect that the distribution centers will sell
products on a retail basis, we intend to initially engage our current
distributors to become the franchisees of such retail
stores. We will not own the retail stores and will not receive
any franchise fee from the stores, but we will provide product sourcing,
training, expertise and logistic services to our franchisees In
return, the retail stores will be required to commit to sell our organic
fertilizers, together with third party products sourced by
us. We believe that our planned distribution centers and
franchised retail stores in the PRC could enable us to
introduce farmers, especially individual farmers, to our
products, educate them about the benefits of organic fertilizer over
chemical fertilizer, and teach them how to properly use our products in a
more cost effective manner. We believe that these franchised stores could
also introduce our products to a vast network of farmers who otherwise
operate outside of our existing distribution network and outside of the
reach of traditional advertising media.
Our
anticipated schedule of building and operating these branded distribution
centers relies on a variety of factors, many of which are outside of our
control. Accordingly, this suggested schedule and our ability to open up
the anticipated number of stores, if any, may change.
The
net proceeds of this offering are not enough to complete the build-out of
all of the anticipated distribution centers described above. If
we cannot fund the remaining distribution centers from working capital, we
will need to seek additional capital from other sources, which may not be
possible on terms favorable to us, if at
all.
|
|
·
|
Enhance
Brand Awareness
. Our core future focus will be to build and
enhance brand awareness of our “Lvlingbao” and “Tailong” products, as well
as our “Green Vitality” product line and organic granular compound
fertilizer by launching an extensive advertising campaign to educate
retailers and farmers on the benefits of our liquid organic compound
products. We expect to combine these marketing efforts with our
planned retail store expansion into markets within the PRC that have
little or no current exposure to our products. We believe that this
strategy will allow us to expand our distribution and sales outside of our
traditional base in northeast regions of the PRC and capture a larger
market share.
|
|
·
|
Increase
Sales into Select Foreign Markets
. We plan to leverage
our product offerings and brand reputation to expand our product sales
into select markets outside of the PRC. We are currently
negotiating with Odyssey International (Trading) Group Ltd., a Hong
Kong corporation (“Odyssey”) to define the specific terms and
conditions of the exclusive marketing and distribution rights we granted
them for the Company’s Lvlingbao series of organic liquid compound
fertilizers in certain target markets, including, but not limited to,
Central and South America, South Africa and Asian countries. In the
event that the terms are not finalized the Company will have to seek
to terminate the agreement and find a new third party distributor to
market our products outside the
PRC.
|
Recent
Private Placement
On
October 19, 2009, we issued (i) an aggregate of 2,785,536 shares of common stock
(the “Investor Shares”) and (ii) warrants to purchase up to an aggregate of
1,857,024 shares of common stock (the “Warrant Shares”) at an initial
exercise price of approximately $5.38 per share, subject to adjustment, to
Carlyle Asia Growth Partners IV, L.P. and CAGP IV Co-Investment, L.P.
(collectively, the “Carlyle Investors”) for a purchase price of $15,000,000. The
exercise price of the warrants has a floor of $1.5329 per share, and if the
warrants were exercised at that price, we would have issue an additional
4,666,663 shares (the “Additional Warrant Shares”) for an aggregate of 6,523,691
shares issued pursuant to the warrants. The warrants issued to the Carlyle
Investors will become exercisable on April 19, 2010 and expire April 19,
2012.
Additional
Warrant Shares were only required to be issued if we failed to meet a
predetermined net income target. The Company has met the net income target
for 2009 and thus, the exercise price of the warrants issued to the Carlyle
Investors is fixed at approximately $5.38 per share, subject to customary
adjustment provisions for stock dividends and split, merger or consolidation or
other similar corporate events.
Pursuant
to the Purchase Agreement, we would have been obligated to issue up to 7,000,000
shares of common stock to the Carlyle Investors in the event that the
Company failed to meet the net income target referenced above.
We
granted the Carlyle Investors a one-year right of participation in future
offerings by us of shares of our common stock, debt or equity securities
convertible, exercisable or exchangeable into common stock, or debt securities.
The right of participation was granted individually, on a pro rata basis based
upon each investor’s original subscription amount, and collectively no less than
$5 million and no more than $10 million. At the Company’s request the Carlyle
Investors waived their right to participate in this offering. In addition,
we granted the Carlyle Investors the right to collectively designate one person
to serve as a member of our board of directors, and the Carlyle Investors agreed
to allow the Company to appoint an additional independent member of the board.
On December 23, 2009, we appointed Carlyle’s designee, Zheng “Anne” Wang, to
serve as a member of our board of directors. On January 8, 2010, the board of
directors also appointed Charles Law to serve as a member of our board of
directors. The board of directors determined that Mr. Law was an “independent
director” as that term is defined and determined in accordance with Rule
5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market, LLC and Section
10A(m)(3) of the Securities Exchange Act of 1934, as amended.
In
connection with the transaction, we entered into a registration rights
agreement, pursuant to which the Company agreed to prepare and file a
registration statement covering the resale of the Investor Shares and Warrant
Shares, and in the event they are issued, the Make-Good Shares and the
Additional Warrant Shares (collectively, the “Registrable Securities”) no later
than January 31, 2010. On February 1, 2010, we agreed with the Carlyle
Investors to extend the deadline for filing such registration statement until
March 15, 2010. The registration of 2,785,536 of the shares of common
stock was filed on March 12, 2010 and was declared effective on April 22,
2010.
The
Company received a letter from the Financial Industry Regulatory Authority
("FINRA") dated March 11, 2010 informing the Company that it is conducting a
review of the trading in the Company's common stock surrounding the October 20,
2009 announcement of the private placement investment made by the Carlyle
Investors. FINRA has indicated that its inquiry should not be construed as an
indication that it has determined any violations of FINRA rules or NASD rules or
federal securities laws have occurred. The Company is in the process of
responding to the letter.
Corporate
Structure
China
Agritech, Inc. is a holding company with no operations. We are the parent
company to our operating subsidiaries, Pacific Dragon, Anhui Agritech, Beijing
Agritech and Xinjiang Agritech, which are located in the PRC (collectively, the
“PRC Operating Companies”). We also have a 100% equity interest in CAI
Investment Inc. (“CAI”), a California corporation, and Tailong, a Hong Kong
corporation, each of which is a holding company with no
operations.
Our
executive offices are located in the PRC at Room 3F No. 11 Building, Zhonghong
International Business Garden, Future Business Center, Chaoyang North Road,
Chaoyang District, Beijing, PRC 100024 and our telephone number is +86
10-59621278. Our English language website address is
www.chinaagritechinc.com.
The
Offering
Common
stock offered by us
|
|
1,243,000
shares of common stock
|
|
|
|
Common
Stock to be outstanding after this offering
|
|
18,722,769
shares of common stock
|
|
|
|
Use
of proceeds
|
|
We
estimate that the net proceeds from this offering, after deducting
underwriting discounts and commissions and before offering expenses
payable by us, will be approximately $ million. We intend to
use the net proceeds from this offering for the establishment of branded,
large-scale distribution centers in 2010 and 2011 and the
remainder of the net proceeds, if any, for working capital and
general corporate purposes. See “Use of
Proceeds.”
|
|
|
|
Risk
factors
|
|
See
“Risk Factors” beginning on page S-12 for a discussion of factors you
should consider carefully before deciding to invest in our common
stock.
|
|
|
|
NASDAQ
Global Market symbol
|
|
“CAGC”
|
Unless
otherwise stated, all information contained in the prospectus supplement assumes
no exercise of the over-allotment option granted to the
underwriters.
Selected
Financial Data
The
following table sets forth our summary consolidated financial data for the
periods indicated. The summary consolidated statement of operations data for
each of the years ended December 31, 2009 and 2008 have been derived from
our audited financial statements, which are incorporated by reference into this
prospectus supplement and accompanying prospectus. You should read this
selected consolidated financial data with the sections entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
our consolidated financial statements and the related notes, each incorporated
by reference into this prospectus supplement and accompanying prospectus. These
historical operating results and other historical data included in and
incorporated by reference into the is prospectus supplement and the accompanying
prospectus are not necessarily indicative of our operating results for any
future period.
Statements
of Operations Data:
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Income
Statement Data:
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
76,129,839
|
|
|
$
|
45,240,212
|
|
Cost
of revenues
|
|
$
|
(47,244,887
|
)
|
|
$
|
(24,889,387
|
)
|
Gross
Profit
|
|
$
|
28,884,952
|
|
|
$
|
20,350,825
|
|
Total
operating expenses
|
|
$
|
(7,928,645
|
)
|
|
$
|
(6,635,418
|
)
|
Income
from operations
|
|
$
|
20,956,307
|
|
|
$
|
13,715,407
|
|
Unrealized
loss on derivatives
|
|
$
|
(9,894,409
|
)
|
|
|
—
|
|
Income
before income taxes
|
|
$
|
11,078,573
|
|
|
$
|
13,982,552
|
|
Net
income
|
|
$
|
6,171,099
|
|
|
$
|
9,830,770
|
|
Net
income attributable to non-controlling interests
|
|
$
|
(481,452
|
)
|
|
$
|
(1,189,029
|
)
|
Net
income attributable to China Agritech stockholders
|
|
$
|
5,689,647
|
|
|
$
|
8,641,741
|
|
Weighted
average shares outstanding*
|
|
$
|
14,039,152
|
|
|
$
|
12,349,808
|
|
Earnings
per share attributable to China Agritech common
stockholders*:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
|
$
|
0.70
|
|
Diluted
|
|
$
|
0.40
|
|
|
$
|
0.70
|
|
Impact
of Noncash Charge
The
following table shows statement of income data without reflecting the impact of
the noncash charge due to the unrealized loss on derivatives incurred as a
result of the increase in the fair value of the warrants after the issuance of
warrants to certain investors in October 2009. Management believes that
the presentation of this non-GAAP financial measure is warranted and useful to
its shareholders because it provides an additional analytical tool for
understanding the Company’s financial performance by excluding certain items
that may obscure trends in the core operating performance of the Company’s
business. The accompanying table has more details on the reconciliations
between GAAP financial measures that are most directly comparable to non-GAAP
financial measures. The adjusted net income attributable to China Agritech
stockholders and earnings per share information should not be considered an
alternative to, or more meaningful than, net income attributable to China
Agritech common stockholders and earnings per share attributable China Agritech
common stockholders as determined in accordance with GAAP, since it omits the
impact of the unrealized loss on derivatives.
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Adjusted
net income attributable to China Agritech stockholders excluding noncash
charge
|
|
$
|
15,584,356
|
|
|
$
|
8,641,741
|
|
Noncash
charge for unrealized loss on derivatives
|
|
$
|
(9,894,409
|
)
|
|
|
—
|
|
Net
income attributable to China Agritech stockholders
|
|
$
|
5,689,647
|
|
|
$
|
8,641,741
|
|
Weighted
average shares outstanding*
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,039,152
|
|
|
|
12,349,808
|
|
Diluted
|
|
|
14,228,943
|
|
|
|
12,349,808
|
|
Earnings
per share attributable to China Agritech common stockholders adjusted for
noncash charge:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.11
|
|
|
$
|
0.70
|
|
Diluted
|
|
$
|
1.10
|
|
|
$
|
0.70
|
|
*
Retroactively adjusted for the 1-for-4
reverse stock split on September 8, 2009 and the 2-for-1 forward stock split on
February 1, 2010.
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
20,313,089
|
|
|
$
|
11,952,235
|
|
Accounts
receivable, net
|
|
$
|
39,256,098
|
|
|
$
|
34,773,115
|
|
Advances
to suppliers
|
|
$
|
25,348,687
|
|
|
$
|
10,795,357
|
|
Total
Assets
|
|
$
|
100,613,398
|
|
|
$
|
72,665,066
|
|
Total
Equity
|
|
$
|
77,302,891
|
|
|
$
|
67,726,934
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
100,613,398
|
|
|
$
|
72,665,066
|
|
FORWARD-LOOKING
STATEMENTS
This
prospectus supplement and the accompanying prospectus and the documents we have
filed with the SEC that are incorporated by reference into this prospectus
supplement and the accompanying prospectus contain forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, that involve risk and uncertainties. Any
statements contained, or incorporated by reference, in this prospectus
supplement and the accompanying prospectus that are not statements of historical
fact may be forward-looking statements. When we use the words “anticipate,”
“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “continue,”
“possible,” “will” and other similar terms and phrases, including references to
assumptions, we are identifying forward-looking statements. Forward-looking
statements involve risks and uncertainties which may cause our actual results,
performance or achievements to be materially different from those expressed or
implied by forward-looking statements.
A variety
of factors, some of which are outside our control, may cause our operating
results to fluctuate significantly. They include:
|
·
|
the
availability and cost of products from our
suppliers;
|
|
·
|
changes
in user demand for our products;
|
|
·
|
general
and cyclical economic and business conditions, domestic or
foreign;
|
|
·
|
our
ability to manage and integrate the establishment of retail
operations;
|
|
·
|
changes
in our pricing policies or the pricing policies of our competitors or
suppliers;
|
|
·
|
our
ability to compete effectively with our current and future
competitors;
|
|
·
|
our
ability to manage our growth effectively, including possible growth
through acquisitions;
|
|
·
|
our
ability to expand our
geographically;
|
|
·
|
our
implementation of share-based compensation
plans;
|
|
·
|
changes
in the favorable tax incentives enjoyed by the PRC Operating
Companies;
|
|
·
|
foreign
currency exchange rates
fluctuations;
|
|
·
|
adverse
changes in the securities markets;
|
|
·
|
legislative
or regulatory changes in China; and
|
the
factors set forth more fully in and incorporated by reference into this
prospectus supplement and the accompanying prospectus, including those described
under “Risk Factors” of this prospectus supplement and under “Risk Factors” of
our Annual Report on Form 10-K for the year ended December 31,
2009.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as may be required by law, we do not intend to update
any of the forward-looking statements for any reason after the date of this
prospectus supplement to conform such statements to actual results or if new
information becomes available.
All
forward-looking statements attributable to us, or to persons acting on our
behalf, are expressly qualified in their entirety by these cautionary
statements.
RISK
FACTORS
You
should carefully consider the risk factors incorporated by reference to our most
recent Annual Report on Form 10-K and the other information contained in this
prospectus, as updated by our subsequent filings under the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and the risk factors and other
information contained in any applicable prospectus supplement before investing
in our common stock. The occurrence of any of these risks might cause you
to lose all or part of your investment in the offered securities. Please
also refer to the section above entitled “Forward-Looking
Statements.”
The
following is a summary of certain material risks facing our business and common
stock that should be carefully considered along with the other information
contained or incorporated by reference in this prospectus supplement and the
accompanying base prospectus. If any other material risks of which we are
unaware later occur or become material, our business, financial condition, and
operating results, and the price of and trading market for out stock, could be
materially harmed.
Risks
Related to this Offering
Management
will have broad discretion as to the use of the proceeds from this offering, and
we may not use the proceeds effectively.
Although
we plan to use all of the net proceeds from this offering to build new product
distribution facilities, our management still has broad discretion as to the
application of the net proceeds from this offering and could use them for
purposes other than those contemplated at the time of this offering. Our
shareholders may not agree with the manner in which our management chooses to
allocate and spend the net proceeds. Moreover, our management may use the net
proceeds for corporate purposes that may not increase our profitability or
market value.
You
will experience immediate dilution in the book value per share of the common
stock you purchase.
Because
the price per share of our common stock being offered is substantially higher
than the book value per share of our common stock, you will suffer substantial
dilution in the net tangible book value of the common stock you purchase in this
offering. Based on public offering price of $[ ] per share and the
net tangible book value of the common stock of
$[ ]
per share as of December
31, 2009, if you purchase shares of common stock in this offering, you will
suffer dilution of $[ ] per share in the net tangible book value of
the common stock.
A
large number of shares may be sold in the market following this offering, which
may depress the market price of our common stock.
A large
number of shares may be sold in the market following this offering, which may
depress the market price of our common stock. Sales of a substantial number of
shares of our common stock in the public market following this offering could
cause the market price of our common stock to decline. If there are more shares
of common stock offered for sale than buyers are willing to purchase, then the
market price of our common stock may decline to a market price at which buyers
are willing to purchase the offered shares of common stock and sellers remain
willing to sell the shares. All of the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, as amended.
After
the completion of this offering, one shareholder will continue to own a large
percentage of our outstanding stock and could significantly influence the
outcome of our corporate matters.
Currently,
Yu Chang, our Chairman and CEO, beneficially owns approximately 40.5 % of our
outstanding common stock. Upon the completion of this offering, his ownership
interest would decrease to approximately [ ]%. As a result, he would
maintain substantial power to elect members of our Board of Directors and to
control substantially all corporate actions and decisions for an indefinite
period of time.
There
may be future sales or other dilution of the Company’s equity, which may
adversely affect the market price of our common stock.
The
Company is not generally restricted from issuing additional common stock, or any
securities that are convertible into or exchangeable for, or that represent the
right to receive, common stock. The issuance of any additional common stock or
preferred stock or securities convertible into, exchangeable for or that
represent the right to receive common stock or the exercise of such securities
could be substantially dilutive to holders of our common stock. The market price
of our common stock could decline as a result of this offering, sales of our
common stock made after this offering or the perception that such sales could
occur. Because our decision to issue securities in any future offering will
depend on market conditions and other factors beyond its control, we cannot
predict or estimate the amount, timing or nature of future offerings. Thus, our
stockholders bear the risk of future offerings reducing the market price of our
common stock and diluting their shareholdings in us.
We
do not anticipate paying cash dividends on our common stock. Investors in this
offering may never obtain a return on their investment.
You
should not rely on an investment our common stock to provide dividend income, as
we have not paid any cash dividends on our common stock and do not plan to pay
any in the foreseeable future. Accordingly, investors must rely on sales of
their common stock after price appreciation, which may never occur, as the only
way to realize any return on their investment.
Additional
Risks
The
license agreement covering the core technology for the Company’s fertilizer
products expires in three years (with a one time three year renewal period) and
if it is not renewed by Mr. Chang thereafter, the Company will not have the
rights to use the technology necessary to manufacture its current core
products.
The PRC Operating
Companies recently entered into a license agreement with Yu Chang, our Chairman,
CEO and President, pursuant to which Mr. Chang granted the PRC
Operating Companies an exclusive license to use the know-how to enable us
to manufacture the Tailong and Green Vitality organic liquid compound
fertilizer on a royalty-free basis. The initial term of the license
agreement is three years, with an automatic renewal period for another
three years. The failure to renew this agreement will have a material adverse
impact on the financial condition and operations of the Company.
The
Company is still in the process of negotiating the final terms and
conditions with our exclusive marketing agent outside the PRC and to the extent
that the agreement is not finalized, this may negatively impact the Company’s
ability to sell it products overseas.
In June
2009 we entered into a six-year marketing and distribution agreement with
Odyssey pursuant to which Odyssey was granted the exclusive marketing and
distribution rights for the Company’s Lvlingbao series of organic liquid
compound fertilizers in certain target markets, including, but not limited to,
Central and South America, South Africa and Asian countries. However, prior
to the commencement of the marketing in any such named geographical
location, we will need to define the specific terms and conditions of the
agreement and the responsibilities of the parties thereunder with respect to
such market. In the event that we cannot negotiate the final terms
and conditions of the agreement, we will have to terminate the agreement in a
manner so as not to adversely affect the Company and find another third party to
market our products outside of the PRC. There is no assurance that the
terms and conditions of any agreement will be negotiated
successfully. Our inability to successfully negotiate such terms and
conditions could adversely effect our ability to market our products outside the
PRC. Because of the exclusivity we granted to Odyssey, in the event we are
unable to negotiate terms with Odyssey and unable to terminate the agreement, we
may be unable to market our products outside the PRC.
Application
of guidance related to the Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock has negatively impacted the Company’s statement of operations for the year
ended December 31, 2009 and is expected to continue to negatively
impact the statement of operations of the Company.
In the
Company’s Form 10–K for the year ended December 31, 2009, the Company reported
an unrealized loss on derivatives in the consolidated statements of operations
of $9,894,409 as a result of the issuance of warrants to purchase up to an
aggregate of 1,857,024 shares of common stock to the Carlyle Investors in
October 2009. The Company anticipates that in the first quarter of
2010, it will also recognize a significant unrealized loss related to the
changes in fair value of such warrants and that total and per share net income
attributable to the Company’s stockholders compared to the prior comparable
quarter will decrease. The Company’s net income attributable to the Company’s
stockholders will continue to be adversely impacted by such warrants as long as
the fair value of the warrants that remain outstanding continue to increase.
Management believes that as of the current date, April 28, 2010, that year to
date total and per share net income attributable to the Company’s
stockholders is continuing to be negatively impacted by such warrants resulting
in lower total and per share net income than compared to the comparable period
in 2009.
USE
OF PROCEEDS
We expect
to receive net proceeds of approximately $[ ] million from the sale
of 1,243,000 shares of common stock in this offering, or approximately
$[ ] million if the underwriters exercise their over-allotment option in
full, after deducting the underwriting discounts and commissions and before
expenses related to this offering payable by us.
We intend
to use approximately $[ ] of the net proceeds of this offering to
establish approximately [ ] branded,
large-scale distribution centers for our products in the central and
eastern provinces of the PRC, as described further below. Any funds not
used for such purposes will be used for working capital and general corporate
purposes.
We
currently plan to build and operate approximately 10 and 45 branded
large-scale distribution centers in central and eastern provinces in 2010 and
2011, respectively, to sell our own organic fertilizers and third party sourced
products, including seeds, pesticides, and other agricultural products to
franchised retail stores, and intend to expand into southern and western
provinces starting 2012. We anticipate that each distribution center will cost
approximately $1million to build and can cover 80 to 100 franchised retail
stores in its geographic area. Because we do not expect that the distribution
centers will sell products on a retail basis, we intend to initially engage our
current distributors to become the franchisees of such retail
stores. We will not own the retail stores and will not receive any
franchise fee from the stores, but we will provide product sourcing, training,
expertise and logistic services to our franchisees In return, the
retail stores will be required to commit to sell our organic fertilizers,
together with third party products sourced by us. We believe that our
planned distribution centers and franchised retail stores in the PRC could
enable us to introduce farmers, especially individual farmers, to our
products, educate them about the benefits of organic fertilizer over chemical
fertilizer, and teach them how to properly use our products in a more cost
effective manner. We believe that these franchised stores could also introduce
our products to a vast network of farmers who otherwise operate outside of our
existing distribution network and outside of the reach of traditional
advertising media.
Our
anticipated schedule of building and operating these branded distribution
centers relies on a variety of factors, many of which are outside of our
control. Accordingly, this suggested schedule and our ability to open up the
anticipated number of stores, if any, may change.
The net
proceeds of this offering are not enough to complete the build-out of all of the
anticipated distribution centers described above. If we cannot fund
the remaining distribution centers from working capital, we will need to seek
additional capital from other sources, which may not be possible on terms
favorable to us, if at all.
Our
management will have broad discretion to allocate the net proceeds from this
offering. Pending application of the net proceeds as described above, we may
initially invest the net proceeds in short-term, investment-grade,
interest-bearing securities.
PRICE
RANGE OF COMMON STOCK
Our
common stock, is quoted on the NASDAQ Global Market under the symbol “CAGC.” Our
common stock began trading on the NASDAQ Global Market on September 21, 2009.
Prior to that time, our common stock was traded on the OTC Bulletin Board
(“OTCBB”). The table below sets forth, for the calendar quarters indicated, the
high and low bid prices for the common stock as reported on the OTCBB, and since
September 21, 2009, the high and low sales prices for the common stock as
reported on the NASDAQ Global Market, in U.S. dollars. OTCBB
quotations reflect inter-dealer prices, without markup, markdown or commissions,
and may not represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
6.24
|
|
|
$
|
3.70
|
|
Second
Quarter
|
|
|
6.52
|
|
|
|
4.06
|
|
Third
Quarter
|
|
|
4.66
|
|
|
|
2.12
|
|
Fourth
Quarter
|
|
|
2.42
|
|
|
|
1.12
|
|
2009
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
2.74
|
|
|
|
1.61
|
|
Second
Quarter
|
|
|
3.96
|
|
|
|
2.24
|
|
Third
Quarter – September 21
|
|
|
6.46
|
|
|
|
3.20
|
|
September
21 – 30
|
|
|
7.90
|
|
|
|
6.32
|
|
Fourth
Quarter
|
|
|
15.72
|
|
|
|
6.00
|
|
2010
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
30.75
|
|
|
|
13.26
|
|
Second
Quarter through April 28
|
|
|
25.40
|
|
|
|
17.00
|
|
At April
28, 2010, there were 17,479,769 shares of our common stock outstanding. Our
shares of common stock are held by approximately 951 stockholders of record. The
number of record holders was determined from the records of our transfer agent
and does not include beneficial owners of common sock whose shares are held in
the names of various security brokers, dealers, and registered clearing
agencies.
DIVIDEND
POLICY
We have
not paid any cash dividends on shares of our common stock and do not plan to do
so in the near future. We currently plan to retain future earnings to fund the
development and growth of our business. Any future determination related to our
dividend policy will be made at the discretion of our Board of
Directors.
CAPITALIZATION
The
following table sets forth our consolidated capitalization as of December 31,
2009 on an actual basis and on a pro forma as adjusted basis to give effect to
(i) the sale by us of [ ] shares of our common stock in this
offering after deducting underwriting discounts and commissions and estimated
offering expenses payable by us and assuming no exercise of the underwriters’
over-allotment option and (ii) the initial application of the proceeds of this
offering. You should read this table in conjunction with our consolidated
financial statements and the related notes thereto, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and the other
financial information included in or incorporated by reference into this
prospectus supplement.
|
|
As of December 31, 2009
|
|
|
|
Actual
(audited)
|
|
|
As Adjusted
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
20,313,089
|
|
|
$
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Warrant
liabilities
|
|
$
|
20,157,869
|
|
|
$
|
|
|
Total
current liabilities
|
|
$
|
23,310,507
|
|
|
$
|
|
|
Total
long-term debt
|
|
$
|
0
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value: 100,000,000 shares authorized, 17,002,542* shares
issued and outstanding
|
|
$
|
17,003
|
|
|
|
|
|
Additional
paid-in capital – Common stock
|
|
$
|
34,698,079
|
|
|
|
|
|
Retained
earnings
|
|
$
|
34,668,726
|
|
|
|
|
|
Total
Equity
|
|
$
|
77,302,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
100,613,398
|
|
|
$
|
|
|
*
Retroactively adjusted for
the 2-for-1 forward stock split on February 1, 2010.
UNDERWRITING
Subject
to the terms and conditions of an underwriting agreement, dated April
[ ], 2010, we have agreed to sell to Rodman & Renshaw,
LLC (the “underwriter”) and the underwriter has agreed to purchase on a firm
commitment basis from us, the number of shares offered in this offering set
forth opposite the underwriter’s name below, at the public offering price, less
the underwriting discount set forth on the cover page of this prospectus
supplement.
|
|
|
|
Rodman
& Renshaw, LLC
|
|
|
1,243,000
|
|
|
|
|
|
|
Total
|
|
|
|
|
The
underwriting agreement provides that the obligation of the underwriter to pay
for and accept delivery of the shares of common stock offered by this prospectus
supplement, are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriter is obligated to take
and pay for all of the shares of common stock offered by this prospectus
supplement if any such shares are taken. However, the underwriter is not
required to take or pay for the shares of common stock covered by the
underwriter’s over-allotment option. Furthermore, the underwriter’s obligations
are subject to the continued listing on NASDAQ of our shares of common stock and
to various other customary conditions, representations and warranties contained
in the underwriting agreement, such as receipt by the underwriters of officers’
certificates and legal opinions of our counsel. We have granted the
underwriter an irrevocable right for a period of six months from the
consummation of this offering to purchase for its account or sell for our
account, any of our securities that we may seek to sell in any subsequent
financing.
Over-allotment
Option
We have
granted the underwriters an option, exercisable for 45 days after this offering,
to purchase up to an additional 15% of the shares of common stock sold in the
offering (186,450 additional shares of common stock) at the public offering
price less the underwriting discount, solely to cover over-allotments, if any,
made in connection with the offering of the shares of common stock offered by
this prospectus supplement.
Commissions
and Discounts
The
following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriter’s option to
purchase a total of 1,429,450 shares of common stock.
|
|
Without
Over-allotment
|
|
|
With
Over-allotment
|
|
Per
Share
|
|
$
|
|
|
|
$
|
|
|
Underwriting
discounts and commissions
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
The
estimated offering expenses payable by us, excluding the underwriting discounts
and commissions and any exercise of the underwriter’s over-allotment option,
will be approximately $[ ], which includes a
non-accountable expense allowance equal to 1.0% of the gross proceeds
of this offering (or $[ ]), as well various other fees
associated with listing the shares of common stock.
Notwithstanding
the above, the maximum commission or discount to be received by any FINRA member
or independent broker-dealer will not be greater than 8% in connection with the
sale of any securities offered by means of this prospectus or any related
prospectus supplement, exclusive of any non-accountable expense
allowance.
We have
granted Rodman & Renshaw LLC a right of first refusal to act as, at the
option of the Company, lead underwriter or co-manager of any underwriting
group or co-placement agent of any proposed financing for one future public or
private equity or public debt offering during the three months following
the date of this prospectus (if such an offering actually occurs). Rodman
shall be entitled to receive as its compensation 50% of the compensation payable
to the underwriting or placement agent group when serving as co-manager or
co-placement agent and 33% of the compensation payable to the underwriting or
placement agent group when serving as co-manager or co-placement agent with
respect to a proposed financing in which there are three co-managing or lead
underwriters or co-placement agents.
Pricing
of Securities
The
public offering price for the shares was determined by negotiation between us
and the underwriter. The principal factors considered in determining the public
offering price of the shares included:
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•
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the
information in this prospectus supplement and the accompanying base
prospectus and otherwise available to the
underwriter;
|
|
•
|
the
history and the prospects for the industry in which we will
compete;
|
|
•
|
the
valuation of our company based on, among other factors, the offering
prices of our recent private
offerings;
|
|
•
|
our
current financial condition and the prospects for our future cash flows
and earnings;
|
|
•
|
the
general condition of the economy and the securities markets at the time of
this offering;
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|
•
|
the
recent market prices of, and the demand for, publicly-traded securities of
generally comparable companies; and
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|
•
|
the
public demand for our securities in this
offering.
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The
underwriting agreement will be included as an exhibit to a Current Report on
Form 8-K that will be filed with the SEC in connection with this
offering.
Listing
Our
common stock is traded on the Nasdaq Global Market under the symbol
“CAGC.”
Stabilization
In order
to facilitate the offering of shares of common stock, the underwriter may engage
in transactions that stabilize, maintain or otherwise affect the price of the
shares of common stock. Specifically, the underwriter may sell more shares of
common stock than it is obligated to purchase under the underwriting agreement,
creating a short position. A short sale is covered if the short position is no
greater than the number of shares of common stock available for purchase by the
underwriter under the over-allotment option. The underwriter can close out a
covered short sale by exercising the over-allotment option or purchasing shares
of common stock in the open market. In determining the source of shares of
common stock to close out a covered short sale, the underwriter will consider,
among other things, the open market price of shares of common stock compared to
the price available under the over-allotment option. The underwriter may also
sell shares of common stock in excess of the over-allotment option, creating a
naked short position. The underwriter must close out any naked short position by
purchasing shares of common stock in the open market. A naked short position is
more likely to be created if the underwriter is concerned that there may be
downward pressure on the price of the shares of common stock in the open market
after pricing that could adversely affect investors who purchase in this
offering. As an additional means of facilitating this offering, the underwriter
may bid for, and purchase, shares of common stock in the open market to
stabilize the price of the shares of common stock.
The
underwriter also may impose a penalty bid. Penalty bids permit the underwriters
to reclaim a selling concession from a syndicate member if the underwriter
repurchases shares of common stock originally sold by that syndicate member in
order to cover syndicate short positions or make stabilizing
purchases.
Any of
these activities may raise or maintain the market price of the shares of common
stock above independent market levels or prevent or retard a decline in the
market price of the shares of common stock. The underwriter is not required to
engage in these activities, which may be effected on NASDAQ or otherwise and, if
commenced, may end any of these activities at any time.
Lock-ups
All of
our officers, directors and shareholders holding more than 5% of the outstanding
common stock other than the Carlyle Investors have agreed that, for a
period of 6 months from the effective date of the registration statement of
which this prospectus forms a part, they will not sell, contract to sell, grant
any option for the sale or otherwise dispose of any of our equity securities, or
any securities convertible into or exercisable or exchangeable for our equity
securities, without the consent of the underwriter except for exercise or
conversion of currently outstanding warrants, options and convertible
debentures, as applicable; and exercise of options under an acceptable stock
incentive plan. The underwriter may consent to an early release from the lock-up
periods if, in its opinion, the market for the common stock would not be
adversely impacted by sales and in cases of a financial emergency of an officer,
director or other stockholder. The underwriter has agreed to allow 366,000
shares of common stock to be sold by certain officers and directors of the
Company pursuant to a registration statement declared effective by the
Commission on April 22, 2010 and has agreed that lock-up period applicable to
the securities held by the Carlyle Investors is three months instead of six
months.
This
prospectus supplement and the accompanying base prospectus may be made available
in electronic format on Internet sites or through other online services
maintained by the underwriters participating in the offering or by their
affiliates. In those cases, prospective investors may view offering terms online
and prospective investors may be allowed to place orders online. Other than the
prospectus supplement and the accompanying base prospectus in electronic format,
the information on the underwriters’ or our website and any information
contained in any other website maintained by the underwriters or by us is not
part of the prospectus supplement, the accompanying base prospectus or the
registration statement of which this prospectus supplement and the accompanying
base prospectus form a part, has not been approved and/or endorsed by us or the
underwriters in their capacity as an underwriter and should not be relied upon
by investors.
Indemnification
We and
the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the underwriter may be required to make in respect of those
liabilities.
This
prospectus supplement in electronic format may be made available on the websites
maintained by Rodman & Renshaw, LLC and Rodman & Renshaw, LLC
may distribute prospectuses and prospectus supplements
electronically.
Foreign
Regulatory Restrictions on Purchase of the Common Stock
No action
may be taken in any jurisdiction other than the United States that would permit
a public offering of the common stock or the possession, circulation or
distribution of this prospectus in any jurisdiction where action for that
purpose is required. Accordingly, the common stock may not be offered or sold,
directly or indirectly, and neither the prospectus nor any other offering
material or advertisements in connection with the common stock may be
distributed or published in or from any country or jurisdiction except under
circumstances that will result in compliance with any applicable rules and
regulations of any such country or jurisdiction.
In
addition to the public offering of the shares in the United States, the
underwriters may, subject to the applicable foreign laws, also offer the common
shares to certain institutions or accredited persons in the following
countries:
Notices
to Non-United States Investors
United Kingdom.
No
offer of shares of common stock has been made or will be made to the public in
the United Kingdom within the meaning of Section 102B of the Financial Services
and Markets Act 2000, as amended, or FSMA, except to legal entities which are
authorized or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to invest in
securities or otherwise in circumstances which do not require the publication by
us of a prospectus pursuant to the Prospectus Rules of the Financial Services
Authority, or FSA. Each underwriter: (i) has only communicated or caused to be
communicated and will only communicate or cause to be communicated an invitation
or inducement to engage in investment activity (within the meaning of Section 21
of FSMA) to persons who have professional experience in matters relating to
investments falling within Article 19(5) of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005 or in circumstances in which Section
21 of FSMA does not apply to us; and (ii) has complied with, and will comply
with all applicable provisions of FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the United
Kingdom.
European Economic
Area.
In relation to each member state of the European
Economic Area which has implemented the Prospectus Directive, which we refer to
as a Relevant Member State, with effect from and including the date on which the
Prospectus Directive is implemented in that Relevant Member State, which we
refer to as the Relevant Implementation Date, no offer of common stock has been
made and or will be made to the public in that Relevant Member State prior to
the publication of a prospectus in relation to the common stock which has been
approved by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that, with effect from and including the Relevant
Implementation Date, an offer of common stock may be made to the public in that
Relevant Member State at any time: (a) to legal entities which are authorized or
regulated to operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in securities; (b) to any
legal entity which has two or more of (i) an average of at least 250 employees
during the last financial year; (ii) a total balance sheet of more than
€43,000,000 and (iii) an annual net turnover of more than €50,000,000, as shown
in its last annual or consolidated accounts; or (c) in any other circumstances
which do not require the publication by us of a prospectus pursuant to Article 3
of the Prospectus Directive. For the purposes of this provision, the expression
an “offer of ordinary shares to the public” in relation to any common stock in
any Relevant Member State means the communication in any form and by any means
of sufficient information on the terms of the offer and the common stock to be
offered so as to enable an investor to decide to purchase or subscribe the
common stock, as the same may be varied in that Relevant Member State by any
measure implementing the Prospectus Directive in that Relevant Member State and
the expression Prospectus Directive means Directive 2003/71/ EC and includes any
relevant implementing measure in each Relevant Member State.
Germany.
Any offer
or solicitation of common stock within Germany must be in full compliance with
the German Securities Prospectus Act
(Wertpapierprospektgesetz — WpPG). The offer and solicitation of
securities to the public in Germany requires the approval of the prospectus by
the German Federal Financial Services Supervisory Authority (Bundesanstalt fr
Finanzdienstleistungsaufsicht — BaFin). This prospectus has not been
and will not be submitted for approval to the BaFin. This prospectus does not
constitute a public offer under the German Securities Prospectus Act
(Wertpapierprospektgesetz). This prospectus and any other document relating to
the common stock, as well as any information contained therein, must therefore
not be supplied to the public in Germany or used in connection with any offer
for subscription of the common stock to the public in Germany, any public
marketing of the common stock or any public solicitation for offers to subscribe
for or otherwise acquire the common stock. The prospectus and other offering
materials relating to the offer of the common stock are strictly confidential
and may not be distributed to any person or entity other than the designated
recipients hereof.
Greece.
This
prospectus has not been approved by the Hellenic Capital Markets Commission or
another EU equivalent authority and consequently is not addressed to or intended
for use, in any way whatsoever, by Greek residents. The common stock have not
been offered or sold and will not be offered, sold or delivered directly or
indirectly in Greece, except to (i) “qualified investors” (as defined in article
2(f) of Greek Law 3401/2005) and/or to (ii) less than 100 individuals or legal
entities, who are not qualified investors (article 3, paragraph 2(b) of Greek
Law 3401/2005), or otherwise in circumstances which will not result in the offer
of the new common stock being subject to the Greek Prospectus requirements of
preparing a filing a prospectus (under articles 3 and 4 of Greek Law
3401/2005).
Italy.
This
offering of the common stock has not been cleared by Consob, the Italian Stock
Exchanges regulatory agency of public companies, pursuant to Italian securities
legislation and, accordingly, no common stock may be offered, sold or delivered,
nor may copies of this prospectus or of any other document relating to the
common stock be distributed in Italy, except (1) to professional investors
(operatori qualificati); or (2) in circumstances which are exempted from the
rules on solicitation of investments pursuant to Decree No. 58 and Article 33,
first paragraph, of Consob Regulation No. 11971 of May 14, 1999, as amended. Any
offer, sale or delivery of the common stock or distribution of copies of this
prospectus or any other document relating to the common stock in Italy under (1)
or (2) above must be (i) made by an investment firm, bank or financial
intermediary permitted to conduct such activities in Italy in accordance with
the Decree No. 58 and Legislative Decree No. 385 of September 1, 1993, or the
Banking Act; and (ii) in compliance with Article 129 of the Banking Act and the
implementing guidelines of the Bank of Italy, as amended from time to time,
pursuant to which the issue or the offer of securities in Italy may need to be
preceded and followed by an appropriate notice to be filed with the Bank of
Italy depending, inter alia, on the aggregate value of the securities issued or
offered in Italy and their characteristics; and (iii) in compliance with any
other applicable laws and regulations.
Cyprus.
Each of
the Underwriters has agreed that (i) it will not be providing from or within
Cyprus any “Investment Services”, “Investment Activities” and “Non-Core
Services” (as such terms are defined in the Investment Firms Law 144(I) of 2007,
(the “IFL”) in relation to the common stock, or will be otherwise providing
Investment Services, Investment Activities and Non-Core Services to residents or
persons domiciled in Cyprus. Each underwriter has agreed that it will not be
concluding in Cyprus any transaction relating to such Investment Services,
Investment Activities and Non-Core Services in contravention of the IFL and/or
applicable regulations adopted pursuant thereto or in relation thereto; and (ii)
it has not and will not offer any of the common stock other than in compliance
with the provisions of the Public Offer and Prospectus Law, Law
114(I)/2005.
Switzerland.
This
document does not constitute a prospectus within the meaning of Art. 652a of the
Swiss Code of Obligations. The common stock may not be sold directly or
indirectly in or into Switzerland except in a manner which will not result in a
public offering within the meaning of the Swiss Code of Obligations. Neither
this document nor any other offering materials relating to the common stock may
be distributed, published or otherwise made available in Switzerland except in a
manner which will not constitute a public offer of the common stock of in
Switzerland.
Norway.
This
prospectus has not been approved or disapproved by, or registered with, the Oslo
Stock Exchange, the Norwegian Financial Supervisory Authority (Kredittilsynet)
nor the Norwegian Registry of Business Enterprises, and the common stock are
marketed and sold in Norway on a private placement basis and under other
applicable exceptions from the offering prospectus requirements as provided for
pursuant to the Norwegian Securities Trading Act.
Botswana.
The company hereby
represents and warrants that it has not offered for sale or sold, and will not
offer or sell, directly or indirectly the common stock to the public in the
Republic of Botswana, and confirms that the offering will not be subject to any
registration requirements as a prospectus pursuant to the requirements and/or
provisions of the Companies Act, 2003 or the Listing Requirements of the
Botswana Stock Exchange.
Hong Kong.
The
common stock may not be offered or sold by means of any document other than (i)
in circumstances which do not constitute an offer to the public within the
meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
“professional investors” within the meaning of the Securities and Futures
Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii)
in other circumstances which do not result in the document being a “prospectus”
within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and
no advertisement, invitation or document relating to the common stock may be
issued or may be in the possession of any person for the purpose of issue (in
each case whether in Hong Kong or elsewhere), which is directed at, or the
contents of which are likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the laws of Hong Kong) other than with
respect to common stock which are or are intended to be disposed of only to
persons outside Hong Kong or only to “professional investors” within the meaning
of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any
rules made thereunder.
Colombia.
The
common shares may not be offered or sold in the Republic of
Colombia.
Costa Rica.
The
common shares described in this prospectus have not been registered with the
Superintendencia General de Valores de Costa Rica, nor any other regulatory body
of Costa Rica. This Prospectus is intended to be for your personal use only, and
is not intended to be a Public Offering of Securities, as defined under Costa
Rican law.
Panama.
The common
shares have not been registered with the National Securities Commission, nor has
the offer, sale or transactions thereof been registered. The common shares are
not under the supervision of the National Securities Commission.
Singapore.
This
prospectus has not been registered as a prospectus with the Monetary Authority
of Singapore. Accordingly, this prospectus and any other document or material in
connection with the offer or sale, or invitation for subscription or purchase,
of the common stock may not be circulated or distributed, nor may the common
stock be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to persons in
Singapore other than (i) to an institutional investor under Section 274 of the
Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a
relevant person, or any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA or (iii) otherwise
pursuant to, and in accordance with the conditions of, any other applicable
provision of the SFA. Where the common stock are subscribed or purchased under
Section 275 by a relevant person which is: (a) a corporation (which is not an
accredited investor) the sole business of which is to hold investments and the
entire share capital of which is owned by one or more individuals, each of whom
is an accredited investor; or (b) a trust (where the trustee is not an
accredited investor) whose sole purpose is to hold investments and each
beneficiary is an accredited investor, shares, debentures and units of shares
and debentures of that corporation or the beneficiaries’ rights and interest in
that trust shall not be transferable for 6 months after that corporation or that
trust has acquired the common stock under Section 275 except: (i) to an
institutional investor under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA; (ii) where no consideration is given for
the transfer or (iii) by operation of law.
People’s Republic of
China.
This prospectus has not been and will not be circulated
or distributed in the PRC, and common stock may not be offered or sold, and will
not be offered or sold to any person for re-offering or resale, directly or
indirectly, to any resident of the PRC except pursuant to applicable laws and
regulations of the PRC. For the purpose of this paragraph only, the PRC does not
include Taiwan and the special administrative regions of Hong Kong and
Macau.
Israel.
This
Prospectus does not constitute an offer to sell the common stock to the public
in Israel or a prospectus under the Israeli Securities Law, 5728-1968 and the
regulations promulgated thereunder, or the Israeli Securities Law, and has not
been filed with or approved by the Israel Securities Authority. In Israel,
pursuant to an exemption afforded under the Israeli Securities Law, this
Prospectus may be distributed only to, and may be directed only at, investors
listed in the first addendum to the Israeli Securities Law, or the Addendum,
consisting primarily of certain mutual trust and provident funds, or management
companies thereto, banks, as defined under the Banking (Licensing) Law,
5741-1981, except for joint service companies purchasing for their own account
or for clients listed in the Addendum, insurers, as defined under the
Supervision of Financial Services Law (Insurance), 5741-1981, portfolio managers
purchasing for their own account or for clients listed in the Addendum,
investment advisers purchasing for their own account, Tel Aviv Stock Exchange
members purchasing for their own account or for clients listed in the Addendum,
underwriters purchasing for their own account, venture capital funds, certain
corporations which primarily engage in the capital market and fully-owned by
investors listed in the Addendum and corporations whose equity exceeds NIS250
Million, collectively referred to as institutional investors. Institutional
investors may be required to submit written confirmation that they fall within
the scope of the Addendum.
United Arab
Emirates.
This document has not been reviewed, approved or
licensed by the Central Bank of the United Arab Emirates (the “UAE”), Emirates
Securities and Commodities Authority or any other relevant licensing authority
in the UAE including any licensing authority incorporated under the laws and
regulations of any of the free zones established and operating in the territory
of the UAE, in particular the Dubai International Financial Services Authority
(the “DFSA”), a regulatory authority of the Dubai International Financial Centre
(the “DIFC”). The issue of common stock does not constitute a public offer of
securities in the UAE, DIFC and/or any other free zone in accordance with the
Commercial Companies Law, Federal Law No. 8 of 1984 (as amended), DFSA Offered
Securities Rules and the Dubai International Financial Exchange Listing Rules,
accordingly, or otherwise. The common stock may not be offered to the public in
the UAE and/or any of the free zones including, in particular, the DIFC. The
common stock may be offered and this document may be issued, only to a limited
number of investors in the UAE or any of its free zones (including, in
particular, the DIFC) who qualify as sophisticated investors under the relevant
laws and regulations of the UAE or the free zone concerned. Management of the
company, and the representatives represent and warrant that the common stock
will not be offered, sold, transferred or delivered to the public in the UAE or
any of its free zones including, in particular, the DIFC.
Oman.
For the
attention of the residents of Oman:
The
information contained in this memorandum neither constitutes a public offer of
securities in the Sultanate of Oman (“Oman”) as contemplated by the Commercial
Companies Law of Oman (Sultani Decree 4/74) or the Capital Market Law of Oman
(Sultani Decree 80/98), nor does it constitute an offer to sell, or the
solicitation of any offer to buy non-Omani securities in Oman as contemplated by
Article 6 of the Executive Regulations to the Capital Market Law of Oman (issued
vide Ministerial Decision No 4/2001), and nor does it constitute a distribution
of non-Omani securities in Oman as contemplated under the Rules for Distribution
of Non-Omani Securities in Oman issued by the Capital Market Authority of Oman
(“CMA”). Additionally, this memorandum is not intended to lead to the conclusion
of any contract of whatsoever nature within the territory of Oman. This
memorandum has been sent at the request of the investor in Oman, and by
receiving this memorandum, the person or entity to whom it has been issued and
sent understands, acknowledges and agrees that this memorandum has not been
approved by the CMA or any other regulatory body or authority in Oman, nor has
any authorization, license or approval been received from the CMA or any other
regulatory authority in Oman, to market, offer, sell, or distribute the common
stock within Oman. No marketing, offering, selling or distribution of any
financial or investment products or services has been or will be made from
within Oman and no subscription to any securities, products or financial
services may or will be consummated within Oman. The Underwriters are neither
companies licensed by the CMA to provide investment advisory, brokerage, or
portfolio management services in Oman, nor banks licensed by the Central Bank of
Oman to provide investment banking services in Oman. The Underwriters do not
advise persons or entities resident or based in Oman as to the appropriateness
of investing in or purchasing or selling securities or other financial products.
Nothing contained in this memorandum is intended to constitute Omani investment,
legal, tax, accounting or other professional advice. This memorandum is for your
information only, and nothing herein is intended to endorse or recommend a
particular course of action. You should consult with an appropriate professional
for specific advice on the basis of your situation. Any recipient of this
memorandum and any purchaser of the common stock pursuant to this memorandum
shall not market, distribute, resell, or offer to resell the common stock within
Oman without complying with the requirements of applicable Omani law, nor copy
or otherwise distribute this memorandum to others.
Canada.
Resale
Restrictions
The
distribution of our securities in Canada is being made only on a private
placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of our securities are made. Any resale of our securities in Canada must
be made under applicable securities laws that will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of our securities.
Representations of
Purchasers
By
purchasing our securities in Canada and accepting a purchase confirmation a
purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
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the
purchaser is entitled under applicable provincial securities laws to
purchase our securities without the benefit of a prospectus qualified
under those securities laws;
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•
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where
required by law, that the purchaser is purchasing as principal and not as
agent;
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•
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the
purchaser has reviewed the text above under Resale Restrictions;
and
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•
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the
purchaser acknowledges and consents to the provision of specified
information concerning its purchase of our securities to the regulatory
authority that by law is entitled to collect the
information.
|
Further
details concerning the legal authority for this information are available on
request.
Rights
of Action — Ontario Purchasers Only
Under
Ontario securities legislation, certain purchasers who purchase a security
offered by this prospectus during the period of distribution will have a
statutory right of action for damages, or while still the owner of our
securities, for rescission against us in the event that this prospectus contains
a misrepresentation without regard to whether the purchaser relied on the
misrepresentation. The right of action for damages is exercisable not later than
the earlier of 180 days from the date the purchaser first had knowledge of the
facts giving rise to the cause of action and three years from the date on which
payment is made for our securities. The right of action for rescission is
exercisable not later than 180 days from the date on which payment is made for
our securities. If a purchaser elects to exercise the right of action for
rescission, the purchaser will have no right of action for damages against us.
In no case will the amount recoverable in any action exceed the price at which
our securities were offered to the purchaser and if the purchaser is shown to
have purchased the securities with knowledge of the misrepresentation, we will
have no liability. In the case of an action for damages, we will not be liable
for all or any portion of the damages that are proven to not represent the
depreciation in value of our securities as a result of the misrepresentation
relied upon. These rights are in addition to, and without derogation from, any
other rights or remedies available at law to an Ontario purchaser. The foregoing
is a summary of the rights available to an Ontario purchaser. Ontario purchasers
should refer to the complete text of the relevant statutory
provisions.
Enforcement
of Legal Rights
All of
our directors and officers as well as the experts named herein may be located
outside of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon us or those persons.
All or a substantial portion of our assets and the assets of those persons may
be located outside of Canada and, as a result, it may not be possible to satisfy
a judgment against us or those persons in Canada or to enforce a judgment
obtained in Canadian courts against us or those persons outside of
Canada.
Taxation
and Eligibility for Investment
Canadian
purchasers of our securities should consult their own legal and tax advisors
with respect to the tax consequences of an investment in our securities in their
particular circumstances and about the eligibility of our securities for
investment by the purchaser under relevant Canadian legislation.
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
The
following is a summary of the material U.S. federal income tax consequences to
an investor of the acquisition, ownership and disposition of our common stock
purchased by the investor pursuant to this offering. As used in this discussion,
references to “we”, “our” and “us” refer only to China Agritech,
Inc.
The
discussion below of the U.S. federal income tax consequences to “U.S. Holders”
will apply to a beneficial owner of our common stock that is for U.S. federal
income tax purposes:
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an
individual citizen or resident of the United
States;
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a
corporation (or other entity treated as a corporation) that is created or
organized (or treated as created or organized) in or under the laws of the
United States, any state thereof or the District of
Columbia;
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an
estate whose income is includible in gross income for U.S. federal income
tax purposes regardless of its source;
or
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a
trust if (i) a U.S. court can exercise primary supervision over the
trust’s administration and one or more U.S. persons are authorized to
control all substantial decisions of the trust, or (ii) it has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
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If a
beneficial owner of our common stock is not described as a U.S. Holder and is
not an entity treated as a partnership or other pass-through entity for U.S.
federal income tax purposes, such owner will be considered a “Non-U.S. Holder.”
The material U.S. federal income tax consequences applicable to Non-U.S. Holders
is described below under the heading “Non-U.S. Holders.”
This
summary is based on the Internal Revenue Code of 1986, as amended, or the
“Code,” its legislative history, Treasury regulations promulgated thereunder,
published rulings and court decisions, all as currently in effect. These
authorities are subject to change or differing interpretations, possibly on a
retroactive basis.
This
discussion does not address all aspects of U.S. federal income taxation that may
be relevant to any particular holder based on such holder’s individual
circumstances. In particular, this discussion considers only holders that own
our common stock as capital assets within the meaning of Section 1221 of the
Code, and does not address the potential application of the Medicare
contribution tax on certain unearned income or the alternative minimum tax. In
addition, this discussion does not address the U.S. federal income tax
consequences to holders that are subject to special rules,
including:
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financial
institutions or financial services
entities;
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taxpayers
who are subject to the mark-to-market accounting rules under Section 475
of the Code;
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governments
or agencies or instrumentalities
thereof;
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regulated
investment companies;
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real
estate investment trusts;
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certain
expatriates or former long-term residents of the United
States;
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persons
that actually or constructively own 5 percent or more of our voting
stock;
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persons
that acquired our common stock pursuant to an exercise of employee stock
options, in connection with employee stock incentive plans or otherwise as
compensation;
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persons
that hold our common stock as part of a straddle, constructive sale,
hedging, conversion or other integrated transaction;
or
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persons
whose functional currency is not the U.S.
dollar.
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This
discussion does not address any aspect of U.S. federal non-income tax laws, such
as gift or estate tax laws, state, local or non-U.S. tax laws or, except as
discussed herein, any tax reporting obligations of a holder of our common stock.
This discussion assumes that any distributions made (or deemed made) by us on
our common stock and any consideration received (or deemed received) by a holder
in consideration for the sale or other disposition of our common stock will be
in U.S. dollars. Additionally, the discussion does not consider the tax
treatment of partnerships or other pass-through entities or persons who hold our
common stock through such entities. If a partnership (or other entity classified
as a partnership for U.S. federal income tax purposes) is the beneficial owner
of our common stock, the U.S. federal income tax treatment of a partner in the
partnership will generally depend on the status of the partner and the
activities of the partnership.
We have
not sought, and will not seek, a ruling from the Internal Revenue Service
(“IRS”) or an opinion of counsel as to any U.S. federal income tax consequence
described herein. The IRS may disagree with the description herein, and its
determination may be upheld by a court. Moreover, there can be no assurance that
future legislation, regulations, administrative rulings or court decisions will
not adversely affect the accuracy of the statements in this
discussion.
THIS
DISCUSSION IS ONLY A SUMMARY OF CERTAIN MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK.
IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR IN OUR COMMON STOCK IS URGED TO
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO
SUCH INVESTOR OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX
LAWS, AS WELL AS U.S. FEDERAL TAX LAWS, AND ANY APPLICABLE TAX
TREATIES.
U.S.
Holders
Taxation
of Distributions
A U.S.
Holder generally will be required to include in gross income as ordinary income
the amount of any cash dividend paid on the shares of our common stock. A cash
distribution on such shares generally will be treated as a dividend for U.S.
federal income tax purposes to the extent the distribution is paid out of our
current or accumulated earnings and profits (as determined under U.S. federal
income tax principles). Such cash distribution in excess of such earnings and
profits generally will constitute a return of capital that will be applied
against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in
our common stock. Any remaining excess generally will be treated as gain from
the sale or other disposition of the common stock and will be treated as
described under “—Taxation on the Disposition of Common Stock”
below.
Any
dividends we pay to a U.S. Holder that is treated as a taxable corporation for
U.S. federal income tax purposes generally will qualify for the dividends
received deduction if the applicable holding period and other requirements are
satisfied. With certain exceptions, if the applicable holding period and other
requirements are satisfied, dividends we pay to a non-corporate U.S. Holder
generally will constitute “qualified dividends” that will be subject to U.S.
federal income tax at the maximum regular tax rate accorded to long-term
capital gains for tax years beginning on or before December 31, 2010, after
which the regular U.S. federal income tax rate applicable to dividends is
scheduled to return to the regular U.S. federal income tax rate generally
applicable to ordinary income.
If a PRC
tax applies to any dividends paid to a U.S. Holder on our common stock, such tax
should be treated as a foreign tax eligible for a deduction from such holder’s
U.S. federal taxable income or a foreign tax credit against such holder’s U.S.
federal income tax liability (subject to applicable conditions and limitations).
In addition, such U.S. Holder should be entitled to certain benefits under the
a
greement
between the Government of the United States of America and the Government of the
People’s Republic of China for the Avoidance of Double Taxation and the
Prevention of Tax Evasion with Respect to Taxes on
Income
(the “U.S.-PRC Tax Treaty”), if such holder is
considered a resident of the United States for purposes of the U.S.-PRC Tax
Treaty. U.S. Holders should consult their own tax advisors regarding the
deduction or credit for any such PRC tax and their eligibility for the benefits
of the U.S.-PRC Tax Treaty.
Taxation
on the Disposition of Common Stock
Upon a
sale or other taxable disposition of our common stock, a U.S. Holder generally
will recognize capital gain or loss in an amount equal to the difference between
the amount realized and the U.S. Holder’s adjusted tax basis in the common
stock.
The
regular U.S. federal income tax rate on capital gains recognized by U.S. Holders
generally is the same as the regular U.S. federal income tax rate on ordinary
income, except that long-term capital gains recognized by non-corporate U.S.
Holders are generally subject to U.S. federal income tax at a maximum regular
rate of 15 percent for taxable years beginning before January 1, 2011 (and 20
percent thereafter). Capital gain or loss will constitute long-term capital gain
or loss if the U.S. Holder’s holding period for the common stock exceeds one
year. The deductibility of capital losses is subject to various
limitations.
If a PRC
tax applies to any gain from the disposition of our common stock by a U.S.
Holder, such tax should be treated as a foreign tax eligible for a deduction
from such holder’s U.S. federal taxable income or a foreign tax credit against
such holder’s U.S. federal income tax liability (subject to applicable
conditions and limitations). In addition, such U.S. Holder should be entitled to
certain benefits under the U.S.-PRC Tax Treaty, if such holder is considered a
resident of the United States for purposes of the U.S.-PRC Tax Treaty. U.S.
Holders should consult their own tax advisors regarding the deduction or credit
for any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax
Treaty.
Non-U.S.
Holders
Taxation
of Distributions
Any cash
distribution we make to a Non-U.S. Holder of shares of our common stock, to the
extent paid out of our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles), generally will constitute
a dividend for U.S. federal income tax purposes. Unless we are treated as an
“80/20 company” for U.S. federal income tax purposes, as described below, any
such dividend paid to a Non-U.S. Holder with respect to shares of our common
stock that is not effectively connected with the Non-U.S. Holder’s conduct of a
trade or business within the United States, as described below, generally will
be subject to U.S. federal withholding tax at a rate of 30 percent of the gross
amount of the dividend, unless such Non-U.S. Holder is eligible for a reduced
rate of withholding tax under an applicable income tax treaty and provides
proper certification of its eligibility for such reduced rate (usually on an IRS
Form W-8BEN). In satisfying the foregoing withholding obligation with respect to
a cash distribution, we may withhold up to 30 percent of either (i) the gross
amount of the entire distribution, even if the amount of the distribution is
greater than the amount constituting a dividend, as described above, or (ii) the
amount of the distribution we project will be a dividend, based upon a
reasonable estimate of both our current and our accumulated earnings and profits
for the taxable year in which the distribution is made. If U.S. federal income
tax is withheld on the amount of a distribution in excess of the amount
constituting a dividend, the Non-U.S. Holder may obtain a refund of all or a
portion of the excess amount withheld by timely filing a claim for refund with
the IRS. Any such distribution not constituting a dividend generally will be
treated, for U.S. federal income tax purposes, first as reducing the Non-U.S.
Holder’s adjusted tax basis in its shares of our common stock (but not below
zero) and, to the extent such distribution exceeds the Non-U.S. Holder’s
adjusted tax basis, as gain from the sale or other disposition of the common
stock, which will be treated as described under “—Taxation on the Disposition of
Common Stock” below.
There is
a possibility that we may qualify as an “80/20 company” for U.S. federal income
tax purposes. In general, a U.S. corporation is an 80/20 company if at least 80
percent of its gross income earned directly or from subsidiaries during an
applicable testing period is “active foreign business income.” The 80 percent
test is applied on a periodic basis. If we qualify as an 80/20 company, a
percentage of any dividend paid by us generally will not be subject to U.S.
federal withholding tax. A Non-U.S. Holder should consult with its own tax
advisors regarding the amount of any such dividend subject to withholding tax in
this circumstance.
Cash
dividends we pay to a Non-U.S. Holder that are effectively connected with such
Non-U.S. Holder’s conduct of a trade or business within the United States (and,
if certain income tax treaties apply, are attributable to a U.S. permanent
establishment or fixed base maintained by the Non-U.S. Holder) generally will
not be subject to U.S. federal withholding tax, provided such Non-U.S. Holder
complies with certain certification and disclosure requirements (usually by
providing an IRS Form W-8ECI). Instead, such dividends generally will be subject
to U.S. federal income tax, net of certain deductions, at the same graduated
individual or corporate tax rates applicable to U.S. persons. If the Non-U.S.
Holder is a corporation, such dividends that are effectively connected income
may also be subject to a “branch profits tax” at a rate of 30 percent (or such
lower rate as may be specified by an applicable income tax treaty).
Taxation
on the Disposition of Common Stock
A
Non-U.S. Holder generally will not be subject to U.S. federal income tax in
respect of gain recognized on a sale, exchange or other disposition of our
common stock, unless:
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the
gain is effectively connected with the conduct of a trade or business by
the Non-U.S. Holder within the United States (and, under certain income
tax treaties, is attributable to a U.S. permanent establishment or fixed
base maintained by the Non-U.S.
Holder);
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the
Non-U.S. Holder is an individual who is present in the United States for
183 days or more in the taxable year of disposition and certain other
conditions are met; or
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we
are or have been a “United States real property holding corporation”
(“USRPHC”) for U.S. federal income tax purposes at any time during the
shorter of the five year period ending on the date of disposition or the
Non-U.S. Holder’s holding period for the common stock disposed of, and,
generally, in the case where our common stock is regularly traded on an
established securities market, the Non-U.S. Holder has owned, directly or
indirectly, more than 5 percent of our common stock at any time during the
shorter of the five year period ending on the date of disposition or the
Non-U.S. Holder’s holding period for the common stock disposed of. There
can be no assurance that our common stock will be treated as regularly
traded on an established securities market for this
purpose.
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Unless an
applicable tax treaty provides otherwise, gain described in the first and third
bullet points above generally will be subject to U.S. federal income tax, net of
certain deductions, at the same tax rates applicable to U.S. persons. Any gains
described in the first bullet point above of a Non-U.S. Holder that is a foreign
corporation may also be subject to an additional “branch profits tax” at a 30
percent rate (or a lower applicable tax treaty rate). Any U.S. source capital
gain of a Non-U.S. Holder described in the second bullet point above (which may
be offset by U.S. source capital losses during the taxable year of the
disposition) generally will be subject to a flat 30 percent U.S. federal income
tax rate (or a lower applicable tax treaty rate).
In
connection with the third bullet point above, we generally will be classified as
a USRPHC if (looking through certain subsidiaries) the fair market value of our
“United States real property interests” equals or exceeds 50 percent of the sum
of the fair market value of our worldwide real property interests plus our other
assets used or held for use in a trade or business, as determined for U.S.
federal income tax purposes. Based on the current composition of the assets of
us and our subsidiaries, we believe that we currently are not a USRPHC, and we
do not anticipate becoming a USRPHC (although no assurance can be given that we
will not become a USRPHC in the future). Non-U.S. Holders, particularly those
Non-U.S. Holders that could be treated as actually or constructively holding
more than 5 percent of our common stock, should consult their own tax advisors
regarding the U.S. federal income tax consequences of owning and disposing of
our common stock.
Information
Reporting and Backup Withholding
We
generally must report annually to the IRS and to each holder the amount of
dividends and certain other distributions we pay to such holder on our common
stock and the amount of tax, if any, withheld with respect to those
distributions. In the case of a Non-U.S. Holder, copies of the information
returns reporting those distributions and withholding may also be made available
to the tax authorities in the country in which the Non-U.S. Holder is a resident
under the provisions of an applicable income tax treaty or agreement.
Information reporting is also generally required with respect to proceeds from
the sales and other dispositions of our common stock to or through the U.S.
office (and in certain cases, the foreign office) of a broker.
In
addition, backup withholding of U.S. federal income tax, currently at a rate of
28 percent, generally will apply to distributions made on our common stock to,
and the proceeds from sales and other dispositions of our common stock by, a
non-corporate U.S. Holder who:
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fails
to provide an accurate taxpayer identification
number;
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is
notified by the IRS that backup withholding is required;
or
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in
certain circumstances, fails to comply with applicable certification
requirements.
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A
Non-U.S. Holder generally may eliminate the requirement for information
reporting (other than with respect to distributions, as described above) and
backup withholding by providing certification of its foreign status, under
penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise
establishing an exemption.
Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S.
Holder’s U.S. federal income tax liability and may entitle such holder to a
refund, provided that certain required information is timely furnished to the
IRS. Holders are urged to consult their own tax advisors regarding the
application of backup withholding and the availability of and procedure for
obtaining an exemption from backup withholding in their particular
circumstances.
MATERIAL
PRC INCOME TAX CONSIDERATIONS
The
following discussion summarizes the material PRC income tax considerations
relating to the acquisition, ownership and disposition of our common stock
purchased by an investor pursuant to this offering. As used in this discussion,
“we”, “our” and “us” refer only to China Agritech, Inc.
Resident
Enterprise Treatment
On March
16, 2007, the Fifth Session of the Tenth National People’s Congress passed the
Enterprise Income Tax Law of the PRC (“EIT Law”), and on December 6, 2007, the
State Council passed the implementing rules of the EIT Law. Both the
EIT Law and its implementing rules became effective on January 1, 2008. Under
the EIT Law, enterprises are classified as “resident enterprises” and
“non-resident enterprises.” Pursuant to the EIT Law and its implementing rules,
enterprises established outside China whose “de facto management bodies” are
located in China are considered “resident enterprises” and subject to the
uniform 25 percent enterprise income tax rate on worldwide income. According to
the implementing rules of the EIT Law, “de facto management body” refers to a
managing body that in practice exercises overall management control over the
production and business, personnel, accounting and assets of an
enterprise.
Given the
short history of the EIT Law and lack of applicable legal precedent, it remains
unclear how the PRC tax authorities will determine the PRC tax resident
treatment of a company organized under the laws of a foreign (non-PRC)
jurisdiction, such as us, CAI and/or Tailong. If the PRC tax
authorities determine that we, CAI and/or Tailong is a “resident enterprise” for
PRC enterprise income tax purposes, a number of tax consequences could follow.
First, we, CAI and/or Tailong could be subject to the enterprise income tax at a
rate of 25 percent on our, CAI’s and/or Tailong’s worldwide taxable income.
Second, the EIT Law provides that dividend income between “qualified resident
enterprises” is exempt from income tax. However, since the definition of
qualified resident enterprises is unclear and the PRC tax authorities 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, it is unclear whether the dividends paid from the PRC Operating
Companies directly to us (or to us through Tailong or CAI) may constitute
dividend income between “qualified resident enterprises” and therefore qualify
for tax exemption.
As of the
date of this prospectus supplement, there has not been a definitive
determination as to the “resident enterprise” or “non-resident enterprise”
status of us, CAI or Tailong. However, since it is not anticipated that we, CAI
and/or Tailong would receive dividends or generate other income in the near
future, we, CAI and Tailong are not expected to have any income that would be
subject to the 25 percent enterprise income tax on worldwide income in the near
future. We, CAI and Tailong will make any necessary tax payment if we, CAI
and/or Tailong (based on future clarifying guidance issued by the PRC), or
the PRC tax authorities, determine that we, CAI or Tailong is a resident
enterprise under the EIT Law, and if we, CAI or Tailong were to have income in
the future.
Dividends
From the PRC Operating Companies
If
neither Tailong nor CAI is treated as a resident enterprise under the EIT Law,
then dividends that Tailong or CAI receive from the PRC Operating Companies may
be subject to PRC withholding tax. The EIT Law and the implementing rules of the
EIT Law provide that (A) an income tax rate of 25 percent will normally be
applicable to investors that are “non-resident enterprises” (“non-resident
investors”) which (i) have an establishment or place of business inside the
PRC, and (ii) have income in connection with their establishment or place
of business that is sourced from the PRC or is earned outside the PRC but has
actual connection with their establishment or place of business inside the PRC,
and (B) a PRC withholding tax at a rate of 10 percent will normally be
applicable to dividends payable to non-resident investors which (i) do not
have an establishment or place of business in the PRC or (ii) have an
establishment or place of business in the PRC, but the relevant income is not
effectively connected with such establishment or place of business, to the
extent such dividends are derived from sources within the PRC.
As
described above, the PRC tax authorities may determine the resident enterprise
status of entities organized under the laws of a foreign jurisdiction on a
case-by-case basis. We, CAI and Tailong are holding companies and substantially
all of our income and that of CAI and Tailong may be derived from dividends
from the PRC Operating Companies. Thus, if we, CAI and/or Tailong are
considered as a “non-resident enterprise” under the EIT Law and the dividends
paid to us, CAI and/or Tailong are considered income sourced within the PRC,
such dividends received may be subject to PRC withholding tax as described in
the foregoing paragraph.
The State
Council of the PRC or a tax treaty between China and the jurisdiction in which
the non-PRC investor resides may reduce such income or withholding tax, with
respect to a non-resident investor. Pursuant to the Arrangement between the
Mainland of China and the Hong Kong Special Administrative Region for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income (the “PRC-Hong Kong Tax Treaty”), if the Hong Kong resident
enterprise that is not deemed to be a conduit by the PRC tax authorities owns
more than 25 percent of the equity interest in a company in China, the 10
percent PRC withholding tax on the dividends the Hong Kong resident enterprise
receives from such company in China is reduced to 5 percent. We are a U.S.
holding company, and we own a 100 percent equity interest in Anhui Agritech, a
PRC company, which in turn owns a 25 percent equity interest in Xinjiang
Agritech, a PRC company. We also own a 100 percent equity interest in
CAI, a California corporation, which in turn owns a 100 percent equity interest
in Beijing Agritech, a PRC company, which in turn owns a 25 percent equity
interest in Xinjiang Agritech. We also own a 100 percent equity interest in
Tailong, a Hong Kong company, which in turn owns a 100 percent equity interest
in Pacific Dragon, a PRC company. As a result, if Tailong were treated as a PRC
“non-resident enterprise” under the EIT Law, then dividends that Tailong
receives from Pacific Dragon (assuming such dividends were considered
sourced within the PRC) (i) may be subject to a 5 percent PRC withholding tax,
if the PRC-Hong Kong Tax Treaty were applicable, or (ii) if such treaty does not
apply (i.e., because the PRC tax authorities may deem Tailong to be a conduit
not entitled to treaty benefits), may be subject to a 10 percent PRC withholding
tax. Similarly, if we were treated as a PRC “non-resident enterprise”
under the EIT Law, and CAI or Tailong were treated as a PRC “resident
enterprise” under the EIT Law, then dividends that we receive from CAI or
Tailong (assuming such dividends were considered sourced within the PRC) may be
subject to a 10 percent PRC withholding tax. A similar situation may
arise if we were treated as a PRC “non-resident enterprise” under the EIT Law,
and we were to receive dividends directly from Anhui Agritech. Any
such taxes on dividends could materially reduce the amount of dividends, if any,
we could pay to our shareholders.
As of the
date of this prospectus, there has not been a definitive determination as to the
“resident enterprise” or “non-resident enterprise” status of us, CAI or Tailong.
As indicated above, however, the PRC Operating Companies are not expected to pay
any dividends in the near future. We, CAI and Tailong will make any
necessary tax withholding if, in the future, the PRC Operating Companies were to
pay any dividends and we, CAI or Tailong (based on future
clarifying guidance issued by the PRC), or the PRC tax authorities, determine
that we, CAI or Tailong are a non-resident enterprise under the EIT
Law.
Dividends
That Non-Resident Investors Receive From Us; Gain on the Sale or
Transfer of Our Common Stock
If
dividends payable to (or gains recognized by) our non-resident
investors are treated as income derived from sources within the PRC, then
the dividends that non-resident investors receive from us and any such gain on
the sale or transfer of our common stock, may be subject to taxes under PRC tax
laws.
Under the
EIT Law and the implementing rules of the EIT Law, PRC withholding tax at the
rate of 10 percent is generally applicable to dividends payable to non-resident
investors, which (i) do not have an establishment or place of business in
the PRC or (ii) have an establishment or place of business in the PRC but
the relevant income is not effectively connected with the establishment or place
of business, to the extent that such dividends have their sources within the
PRC. Similarly, there is a possibility that the relevant PRC tax authorities may
take the view that the purpose of us is holding the PRC Operating Companies, and
thus any gain realized on the transfer of our common stock by such investors is
also subject to 10 percent PRC income tax because such gain may be regarded as
income derived from sources within the PRC.
The
dividends paid by us to non-resident investors with respect to our common
stock, or gain non-resident investors may realize from the sale or transfer of
our common stock, may be treated as PRC-sourced income and, as a result, may be
subject to PRC tax at a rate of 10 percent. In January, 2009, the State
Administration of Taxation (“SAT”) promulgated the Provisional Measures for the
Administration of Withholding of Enterprise Income Tax for Non-Resident
Enterprises (“Measures”), pursuant to which, the entities which have the direct
obligation to make the following payments to a non-resident investor shall be
the relevant tax withholders for such non-resident investors: income from an
equity investment (including dividends and other returns on such investment),
interest, rents, royalties, income from an assignment of property and other
income subject to enterprise income tax received by a non-resident investor
in China. As a result, we may be required to withhold a 10 percent
PRC tax on any dividends paid to non-resident investors. In addition,
non-resident investors in our common stock may be responsible for paying PRC tax
at a rate of 10 percent on any gain realized from the sale or transfer of our
common stock if such non-resident investors and the gain satisfy the
requirements under the EIT Law and its implementing rules. However, under the
EIT Law and its implementing rules, we would not have an obligation to withhold
PRC income tax in respect of the gains that non-resident investors (including
U.S. investors) may realize from the sale or transfer of our common
stock.
If we
were to pay any dividends in the future, and if we (based on future clarifying
guidance issued by the PRC), or the PRC tax authorities, determine that we must
withhold PRC tax on any dividends payable by us under the EIT Law, we will make
any necessary tax withholding on dividends payable to our non-resident
investors. If non-resident investors as described under the EIT Law (including
U.S. investors) realize any gain from the sale or transfer of our common stock
and if such gain were considered as PRC-sourced income, such non-resident
investors would be responsible for paying 10 percent PRC income tax on the gain
from the sale or transfer of our common stock. As indicated above, under the EIT
Law and its implementing rules, we would not have an obligation to withhold PRC
income tax in respect of the gains that non-resident investors (including U.S.
investors) may realize from the sale or transfer of our common
stock.
On
December 15, 2009, the SAT released Circular Guoshuihan No. 698 (“Circular
698”) that reinforces the taxation of non-listed equity transfers by
non-resident enterprises through overseas holding vehicles. Circular 698
addresses indirect share transfers as well as other issues. Circular
698 is retroactively effective from January 1 2008. According to
Circular 698, where a non-resident investor who indirectly holds shares in a PRC
resident enterprise through a non-PRC offshore holding company indirectly
transfers equity interests in a PRC resident enterprise by selling the shares of
the offshore holding company, and the latter is located in a country or
jurisdiction where the effective tax burden is less than 12.5 percent or where
the offshore income of his, her, or its residents is not taxable, the
non-resident investor is required to provide the PRC tax authority in charge of
that PRC resident enterprise with certain relevant information within 30 days of
the transfer. The tax authorities in charge will evaluate the offshore
transaction for tax purposes. In the event that the tax authorities determine
that such transfer is abusing forms of business organization and a reasonable
commercial purpose for the offshore holding company other than the avoidance of
PRC income tax liability is lacking, the PRC tax authorities will have the power
to re-assess the nature of the equity transfer under the doctrine of substance
over form. A reasonable commercial purpose may be established when the overall
international (including U.S.) offshore structure is set up to comply with the
requirements of supervising authorities of international (including U.S.)
capital markets. If the SAT’s challenge of a transfer is successful, it will
deny the existence of the offshore holding company that is used for tax planning
purposes and subject the seller to PRC tax on the capital gain from such
transfer. Since Circular 698 has a short history, there is uncertainty as to its
application. We (or a non-resident investor) may become at risk of being taxed
under Circular 698 and may be required to expend valuable resources to comply
with Circular 698 or to establish that we (or such non-resident investor) should
not be taxed under Circular 698, which could have a material adverse effect on
our financial condition and results of operations (or such non-resident
investor’s investment in us).
Penalties
for Failure to Pay Applicable PRC Income Tax
Non-resident
investors in us may be responsible for paying PRC tax at a rate of 10 percent on
any gain realized from the sale or transfer of our common stock if such
non-resident investors and the gain satisfy the requirements under the EIT Law
and its implementing rules, as described above.
According
to the EIT Law and its implementing rules, the PRC Tax Administration Law (the
“Tax Administration Law”) and its implementing rules, the Provisional Measures
for the Administration of Withholding of Enterprise Income Tax for Non-Resident
Enterprises (the “Administration Measures”) and other applicable PRC laws or
regulations (collectively the “Tax Related Laws”), where any gain derived by a
non-resident investor from the sale or transfer of our common stock is subject
to any income tax in the PRC, and such non-resident investor fails to file any
tax return or pay tax in this regard pursuant to the Tax Related Laws, such
investor may be subject to certain fines, penalties or punishments, including
without limitation: (1) if a non-resident investor fails to file a tax
return and present the relevant information in connection with tax payments, the
competent tax authorities shall order it to do so within the prescribed time
limit and may impose a fine up to RMB 2,000, and in egregious cases, may impose
a fine ranging from RMB 2,000 to RMB 10,000; (2) if a non-resident investor
fails to file a tax return or fails to pay all or part of the amount of tax
payable, the non-resident investor shall be required to pay the unpaid tax
amount payable, a surcharge on overdue tax payments (the daily surcharge is 0.05
percent of the overdue amount, beginning from the day the deferral begins), and
a fine ranging from 50 percent to 500 percent of the unpaid amount of the tax
payable; (3) if a non-resident investor fails to file a tax return or pay
the tax within the prescribed time limit according to the order by the PRC tax
authorities, the PRC tax authorities may collect and check information about the
income items of the non-resident investor in the PRC and other payers (the
“Other Payers”) who will pay amounts to such non-resident investor, and send a
“Notice of Tax Issues” to the Other Payers to collect and recover the tax
payable and impose overdue fines on such non-resident investor from the amounts
otherwise payable to such non-resident investor by the Other Payers; (4) if
a non-resident investor fails to pay the tax payable within the prescribed time
limit as ordered by the PRC tax authorities, a fine may be imposed on the
non-resident investor ranging from 50 percent to 500 percent of the unpaid tax
payable, and the PRC tax authorities may, upon approval by the director of the
tax bureau (or sub-bureau) of, or higher than, the county level, take the
following compulsory measures: (i) notify in writing the non-resident
investor’s bank or other financial institution to withhold from the account
thereof for payment of the amount of tax payable, and (ii) detain, seal
off, or sell by auction or on the market the non-resident investor’s
commodities, goods or other property in a value equivalent to the amount of tax
payable; or (5) if the non-resident investor fails to pay all or part of
the amount of tax payable or surcharge for overdue tax payment, and can not
provide a guarantee to the tax authorities, the tax authorities may notify the
frontier authorities to prevent the non-resident investor or its legal
representative from leaving the PRC.
LEGAL
MATTERS
Certain
legal matters governed by the laws of the State of New York and of Delaware with
respect to the validity of the offered securities will be passed upon for us by
Loeb & Loeb LLP, New York, New York. Blank Rome LLP is acting as
counsel for the underwriters in this offering.
EXPERTS
The
consolidated balance sheets of China Agritech, Inc. and subsidiaries as of
December 31, 2009 and 2008 and the related consolidated income statements,
stockholders’ equity and comprehensive income, and cash flows for the years then
ended appearing in the registration statement of which this prospectus
supplement forms a part have been included herein in reliance on
the report of Crowe Horwath LLP, independent registered public accounting
firm, given on the authority of such firm as experts in accounting and
auditing.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have
filed a registration statement on Form S-3 with the SEC for the securities we
are offering by this prospectus supplement. This prospectus supplement does not
include all of the information contained in the registration statement. You
should refer to the registration statement and its exhibits for additional
information. We are required to file annual and quarterly reports, special
reports, proxy statements, and other information with the SEC. We
will make these documents available upon oral or written request, free of
charge. Any requests for this information should be made by calling
or sending a letter to the Secretary of the Company, c/o China Agritech, Inc.,
at the Company’s office located Room 3F No. 11 Building, Zhonghong International
Business Garden, Future Business Center, Chaoyang North Road, Chaoyang District,
Beijing, China 100024 People’s Republic of China (86) 10-59621278.
You can
also read our SEC filings, including the registration statement, on the SEC’s
website at http://www.sec.gov. You also may read and copy any
document we file with the SEC at its public reference facility at Public
Reference Room, 100 F Street N.E., Washington, DC 20549. You can request copies
of these documents by writing to the SEC and a fee for the copying
cost. Please call the SEC at 1-800-732-0330 for further information
on the operation of the public reference facilities.
CHINA
AGRITECH, INC.
$100,000,000
Common
Stock
Preferred
Stock
Debt
Securities
Warrants
Units
We may
offer and sell, from time to time in one or more offerings, any combination of
common stock, preferred stock, debt securities, warrants, or units having a
maximum aggregate offering price of $100,000,000. When we decide to sell a
particular class or series of securities, we will provide specific terms of the
offered securities in a prospectus supplement.
The
prospectus supplement may also add, update or change information contained in or
incorporated by reference into this prospectus. However, no prospectus
supplement shall offer a security that is not registered and described in this
prospectus at the time of its effectiveness. You should read this
prospectus and any prospectus supplement, as well as the documents incorporated
by reference or deemed to be incorporated by reference into this prospectus,
carefully before you invest.
This
prospectus may not be used to offer or sell our securities unless accompanied by
a prospectus supplement relating to the offered securities. Our common stock is
traded on The NASDAQ Global Market under the symbol “CAGC.” Each
prospectus supplement will contain information, where applicable, as to our
listing on The NASDAQ Global Market or any other securities exchange of the
securities covered by the prospectus supplement.
These
securities may be sold directly by us, through dealers or agents designated from
time to time, to or through underwriters or through a combination of these
methods. See “Plan of Distribution” in this prospectus. We may also describe the
plan of distribution for any particular offering of our securities in a
prospectus supplement. If any agents, underwriters or dealers are involved in
the sale of any securities in respect of which this prospectus is being
delivered, we will disclose their names and the nature of our arrangements with
them in a prospectus supplement. The net proceeds we expect to receive from any
such sale will also be included in a prospectus supplement.
Investing
in our securities involves various risks. See “Risk Factors” on page 3 for
more information on these risks. Additional risks, if any, will be described in
the prospectus supplement related to a potential offering under the heading
“Risk Factors”. You should review that section of the related prospectus
supplement for a discussion of matters that investors in such securities should
consider.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities, or passed upon the adequacy or
accuracy of this prospectus or any accompanying prospectus supplement. Any
representation to the contrary is a criminal offense.
The date
of this Prospectus is February 25, 2010
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission (the “SEC”) using a “shelf” registration process. Under
this shelf registration process, we may offer from time to time securities
having a maximum aggregate offering price of $100,000,000. Each time we offer
securities, we will prepare and file with the SEC a prospectus supplement that
describes the specific amounts, prices and terms of the securities we offer. The
prospectus supplement also may add, update or change information contained in
this prospectus or the documents incorporated herein by reference. You should
read carefully both this prospectus and any prospectus supplement together with
additional information described below under the caption “Where You Can Find
More Information.”
This
prospectus does not contain all the information provided in the registration
statement we filed with the SEC. For further information about us or our
securities offered hereby, you should refer to that registration statement,
which you can obtain from the SEC as described below under “Where You Can Find
More Information.”
You
should rely only on the information contained or incorporated by reference in
this prospectus or a prospectus supplement. We have not authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. This
prospectus is not an offer to sell securities, and it is not soliciting an offer
to buy securities, in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus or any
prospectus supplement, as well as information we have previously filed with the
SEC and incorporated by reference, is accurate as of the date of those documents
only. Our business, financial condition, results of operations and prospects may
have changed since those dates.
We may
sell securities through underwriters or dealers, through agents, directly to
purchasers or through a combination of these methods. We and our agents reserve
the sole right to accept or reject in whole or in part any proposed purchase of
securities. The prospectus supplement, which we will prepare and file with the
SEC each time we offer securities, will set forth the names of any underwriters,
agents or others involved in the sale of securities, and any applicable fee,
commission or discount arrangements with them. See “Plan of
Distribution.”
Unless
otherwise mentioned or unless the context requires otherwise, when used in this
prospectus, the terms “China Agritech”, “Company”, “we”, “us”, and “our” refer
to China Agritech, Inc. and its wholly-owned subsidiaries. “China” and the “PRC”
refer to the People’s Republic of China.
The share
information contained herein, gives retroactive effect to the Company’s 2-for-1
forward stock split effective as of February 1, 2010.
PROSPECTUS
SUMMARY
The
following summary, because it is a summary, may not contain all the information
that may be important to you. This prospectus incorporates important business
and financial information about the Company that is not included in, or
delivered with this prospectus. Before making an investment, you
should read the entire prospectus carefully. You should also carefully read the
risks of investing discussed under “Risk Factors” and the financial statements
included in our other filings with the SEC, including in our Annual Report on
Form 10-K, which we filed with the SEC on March 31, 2009, and in our
Quarterly Reports on Form 10-Q which we filed with the SEC on May 14, 2009,
August 14, 2009, and November 12, 2009, respectively. This information is
incorporated by reference into this prospectus, and you can obtain it from the
SEC as described below under the headings “Where You Can Find Additional
Information About Us” and “Incorporation of Certain Documents by
Reference.”
We will
provide to each person, including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus. You may
request a copy of these filings, excluding the exhibits to
such filings which we have not specifically incorporated by reference
in such filings, at no cost, by writing us at the following address: China
Agritech, Inc., Room 3F No. 11 Building, Zhonghong International Business
Garden, Future Business Center, Chaoyang North Road, Chaoyang District, Beijing,
PRC 100024 and our telephone number is +86
10-59621278.
The
Offering
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission (the “SEC”) utilizing a shelf registration process.
Under this shelf registration process, we may sell any combination
of:
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debt securities, in
one or more series;
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warrants to purchase any of the
securities listed above;
and/or
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units consisting of one or more
of the foregoing.
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in one or
more offerings up to a total dollar amount of $100,000,000. This prospectus
provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
specific offering and include a discussion of any risk factors or other special
considerations that apply to those securities. The prospectus supplement may
also add, update or change information contained in this prospectus. You should
read both this prospectus and any prospectus supplement together with the
additional information described under the heading “Where You Can Find
Additional Information About Us.”
Our
Company
We
manufacture and sell organic liquid compound fertilizers, organic granular
compound fertilizers and related agricultural products in the People’s Republic
of China (the “PRC”) through our direct and indirect subsidiaries: Anhui
Agritech Development Co. Ltd.
(“Anhui Agritech”),
Agritech Fertilizer Limited (“Beijing Agritech”), China Tailong Holdings Company
Limited (“Tailong”), Pacific Dragon Fertilizer Co. Ltd. (“Pacific Dragon”), and
Xinjiang Agritech Agriculture Resources Co., Ltd (“Xinjiang
Agritech”). For the nine months ended September 30, 2009,
approximately 65% of our revenues were derived from the sale of our liquid
organic fertilizer products, while approximately 35% of our revenues were
derived from the sale of our granular organic fertilizer products.
Our main
products include spray, water-flush, dip and granular fertilizer products and
other customized, crop specific fertilizers that are tailored to our customers’
specific requirements. Our liquid fertilizer products can be applied on a
widespread basis via spraying by machine or aircraft. Our products
have been recognized for their quality and effectiveness by leading industry
associations and have been certified by the PRC government at the national
level, which is an endorsement of the effectiveness of the products in all
regions of the PRC.
Our
products:
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promote
photosynthesis, root system growth and transmission of nutrients to
seeds;
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equilibrate
absorption of nutrients to speed a plant’s
maturity;
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eliminate
the damage of harmful radicals to
plants;
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increase
protein and vitamin content levels;
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accelerate
the accumulation of photosynthesis materials and cell
concentration;
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increase
plants’ reservation ability to resist drought, resistance and the
utilization rate of basic fertility;
and
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foster
the development of plant life along with neutral or acidic
pesticides.
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We
believe that our brand reputation and ability to tailor our products to meet the
requirements of various regions of the PRC affords us a competitive advantage.
We purchase the majority of our raw materials from suppliers located in the PRC
and use suppliers that are located in close proximity to our manufacturing
facilities, which helps us to contain our cost of revenue.
The
demand for our products has steadily increased. Our annual production capacity
as of September 30 2009 was approximately 13,000 metric tons of organic liquid
compound fertilizers whereas our annual production capacity for granular
fertilizers as of September 30, 2009 was approximately 200,000 metric tons,
consisting of 100,000 metric tons in Anhui, 50,000 metric tons in Harbin, and
50,000 tons in our newly completed plant in Xinjiang.
We plan
to build and open between 30 and 50 branded large-scale distribution centers in
central and eastern provinces in 2010 to sell our own organic fertilizers and
third party sourced products, including seeds, pesticides, and other
agricultural products throughout the PRC, and hope to expand into southern and
western provinces in 2011. Each distribution center can cover 80 to
100 franchised retail stores under our management. We hope to use these
locations and franchised stores to introduce small individual farmers to our
products, educate them about the benefits of organic fertilizer over chemical
fertilizer, and teach them how to properly use our products. We believe that
these franchised stores will introduce our products to a vast network of farmers
who otherwise operate outside of our existing distribution network and outside
of the reach of traditional advertising media.
Our
Growth Strategy
We
believe that our increased capacity to produce organic granular compound
fertilizer products, which have a lower price point and greater market appeal
than our premier organic liquid compound fertilizer products, makes us well
positioned to expand sales and increase revenues. We have focused on
the expansion of our granular production because the market for organic granular
fertilizer is larger than the current market for organic liquid fertilizer due
to the familiarity and tradition of farmers’ using granular fertilizers. In
addition, the per unit amount of granular fertilizer used for sowing coverage is
much higher than the amount used for liquid
fertilizer.
Our goal
is to further expand our product’s market share throughout the PRC by
establishing branded chain stores which will sell our own branded
products (e.g., organic fertilizers) and international and local sourced
products (e.g., seeds, pesticides and other agricultural
products). Our growth strategy includes the following
strategies;
Continue Organic Growth
Initiatives.
We believe that the current fertilizer market is
fragmented and represents an excellent opportunity for us to gain additional
market share from our competitors, mainly chemical fertilizer
manufacturers. We intend to establish branded chain stores by
converting our current offices into a flagship store and distribution center and
inviting our current distributors to join in our line as franchisees to operate
chain stores under our brand. We also intend to leverage our strong
brand, quality customer services and quality of our products to gain incremental
business in the fertilizer market. Finally, we strongly believe that
as we continue to grow, economies of scale and enforced brand awareness will
bring strong profitability to us.
Expand the lines of our
products.
Beside our current organic fertilizers, we
will source, either internally or locally, other agricultural products, like
seeds, pesticides, agricultural equipments and tools to expand the lines of our
products to meet all the necessities of farmers in the PRC. All these
products will be sold through our branded chain stores directly to farmers, who
are the end customers.
Capitalize upon Strong Industry
Dynamics in the PRC
. Continued economic growth in the PRC,
coupled with evolving government policy on preservation of farmlands by
promoting use of organic fertilizers on one hand and improvement of farmer’s
income on another hand, present us with significant future growth
opportunities. We believe that with continued strong government
commitment, we will continue to benefit from it.
Execute Strategic
Acquisitions.
We intend to acquire certain domestic targets
that are accretive and synergistic to our growth strategy.
Competitive
Advantages
We
believe we are well-positioned to continue to be the largest manufacturer of
organic compound fertilizers in the PRC and to become a leading distributor of
organic compound fertilizers in the PRC and beyond. We believe we
have several competitive advantages, including the following:
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Well
established brand name products;
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Established
distribution channel in northern and eastern provinces of the
PRC; and
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Food
grown with our products may be eligible to receive a AA Green Food
rating.
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Our
Competitive Strengths
We
believe that the following competitive strengths enable us to compete
effectively in the fertilizer market in the PRC:
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Strong
Market Position.
We are a leading manufacturer of
fertilizer products and, more specifically, organic fertilizer products in
liquid form, in the PRC.
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Recognized
and Certified Product Offerings
. Our Tailong liquid
brand of fertilizer products was favorably recognized by the China
Association for Quality Supervision and the China Quality Standard
Research Center in 2006 for product quality, brand reputation and customer
loyalty. Our fertilizer products also have been certified by
the Ministry of
Agriculture.
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Established
Distribution Network.
We sell the majority of our
fertilizer products through an extensive distribution network of regional
factories, which help us to establish a local presence in each community
we serve with multi-level sales support and to educate local retailers and
farmers on the benefits of our fertilizer products. Since 2007
we have sold our Green Vitality products to Sinochem Fertilizer Co., Ltd,
the PRC’s largest integrated agricultural company, which utilizes its own
distribution network to distribute our
products.
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Efficient
Infrastructure.
We have created a flexible and
responsive infrastructure, which allows us to efficiently manufacture and
deliver high-quality fertilizer products within a short delivery
time.
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Broad
Customer Base.
We developed a diversified customer base
of farmers and retailers located throughout the PRC and are not dependent
on, or heavily concentrated in, any single customer or customer
base.
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Our
Strategy
We
believe that our strong competitive position, our ability to meet customer
demands and our well-regarded product offerings will enable us to benefit from
the anticipated growth in the PRC fertilizer market. We are committed
to enhancing our sales, profitability and cash flows through the following
strategies:
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Capitalize
on our brand reputation to increase sales of new and existing
products
. We intend to leverage the favorable
reputation of our fertilizer products through collaboration with academic
and governmental institutions which can attest to the quality of our
current product offerings. We plan to develop new compounds to
better meet the changing needs of the PRC’s agricultural communities by
tailoring our product offerings to meet the local needs of the farmers and
to create greater reliability of fertilizer products nationwide. Over the
past year we added an organic granular compound fertilizer to our product
lines and constructed a granular fertilizer line near each of our existing
factories, located in Harbin, Beijing and
Xinjiang.
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Expand Our
Domestic Operation
. We intend to build or acquire
additional organic granular fertilizer factories in strategic locations in
the PRC to serve new agricultural areas in Hebei and Sichuan provinces.
When our recently completed Xinjian facility commences commercial
production in early 2010 our organic granular compound fertilizer
production capacity will reach 200,000 metric
tons.
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Build &
Operate Franchized Retail Stores in the PRC
. We plan to
open between 30 and 50 large-scale distribution centers throughout the
PRC’s central provinces in 2010, and hope to expand into eastern and
western provinces in 2011. Each distribution center could cover
up to 100 franchised retail chain stores. We hope to use the
franchised retail chain stores to introduce small provincial farmers to
our products, educate them about the benefits of organic fertilizer over
chemical fertilizer, and teach them how to properly use our
products. We believe that these chain stores will
introduce our products to a vast network of farmers who otherwise operate
outside of our existing distribution network and outside of the reach of
traditional advertising media.
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Enhance
Brand Awareness
. Our core future focus will be to build
and enhance brand awareness of our “Lvlingbao” and “Tailong” products, as
well as our “Green Vitality” product line and organic granular compound
fertilizer by launching an extensive advertising campaign to educate
retailers and farmers on the benefits of our liquid organic compound
products. We expect to combine these marketing efforts with our
planned retail store expansion into locations that have little or no
current exposure to our products. We believe that this strategy will allow
us to expand our distribution and sales outside of our traditional base in
northeast regions of the PRC and capture a larger market
share.
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Increase
Sales into Select Foreign Markets
. We plan to leverage
our product offerings and brand reputation to expand our product sales
into select markets outside of the PRC. In June 2009 we entered
into a 6-year marketing and distribution agreement with Odyssey
International (Trading) Group Ltd., a Hong Kong corporation ("Odyssey")
that provides for Odyssey to have the exclusive marketing and distribution
rights for the Company's Lvlingbao series of organic liquid compound
fertilizers in certain target markets, including, but not limited to,
Central and South America, South Africa, Asian countries. and
overseas markets.
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Recent
Private Placement
On
October 19, 2009 we issued (i) an aggregate of 2,785,536 shares of common stock
and (ii) warrants to purchase up to an aggregate of 1,857,028 shares of common
stock at an initial exercise price of approximately $5.38 per share, subject to
adjustment, to Carlyle Asia Growth Partners IV, L.P. and CAGP IV Co-Investment,
L.P. (collectively, the “Carlyle Investors”) for a purchase price of
$15,000,000. The exercise price of the warrants has a floor of approximately
$1.3285 per share, and in the event that the warrants are exercised at that
price, we would issue an additional 2,333,331 shares (the “Additional Warrant
Shares”). We are obligated to issue up to 7,000,000 shares of common
stock (the “Make-Good Shares”) to the Carlyle Investors in the event that we
fail to meet a predetermined net income target of $11.5 million for the fiscal
year ending December 31, 2009. If we meet the net income target we
will not issue any additional shares upon exercise of the warrants or any
Make-Good Shares. The warrants issued to the Carlyle Investors will
become exercisable on April 19, 2010 and expire April 19, 2012.
We
granted the Carlyle Investors a one-year right of participation in future
offerings by us of shares of our common stock, debt or equity securities
convertible, exercisable or exchangeable into common stock, or debt
securities. The right of participation was granted individually, on a
pro rata basis based upon each investor’s original subscription amount, and
collectively no less than $5 million and no more than $10 million. In
addition, we granted the Carlyle Investors the right to collectively designate
one person to serve as a member of our board of directors. On
December 23, 2009, we appointed Carlyle’s designee, Zheng “Anne” Wang, to serve
as a member of our Board of directors. On January 8, 2010, the board
of directors also appointed Charles Law to serve as a member of our board of
directors. The board of directors determined that Mr. Law was an
“independent director” as that term is defined and determined in accordance with
Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market, LLC and
Section 10A(m)(3) of the Securities Exchange Act of 1934, as
amended.
In
connection with the transaction, we entered into a registration rights
agreement, pursuant to which the Company agreed to prepare and file a
registration statement covering the resale of the 1,392,768 shares and the
warrants to purchase up to an aggregate of 928,514 shares of common stock
(collectively, the “Registrable Securities”) no later than January 31,
2010. On February 1, 2010, we agreed with Carlyle to extend the
deadline for filing such registration statement until March 1,
2010.
Corporate
Structure
China
Agritech, Inc. is a holding company with no operations other than acting as a
holding company for its PRC wholly owned subsidiaries, Pacific Dragon, Anhui
Agritech, Beijing Agritech and Xinjiang Agritech.
Our
executive offices are located in the PRC at Room 3F No. 11 Building, Zhonghong
International Business Garden, Future Business Center, Chaoyang North Road,
Chaoyang District, Beijing, PRC 100024 and our telephone number is
+86 10-59621278. Our website address is
www.chinaagritechinc.com.
RISK
FACTORS
Investing
in our securities involves risk. The prospectus supplement applicable to a
particular offering of securities will contain a discussion of the risks
applicable to an investment in China Agritech and to the particular types of
securities that we are offering under that prospectus supplement. Before making
an investment decision, you should carefully consider the risks described below
and the risks described under “Risk Factors” in the applicable prospectus
supplement, or risks any updated in our Quarterly Reports on Form 10-Q, together
with all of the other information appearing in or incorporated by reference into
this prospectus and any applicable prospectus supplement, in light of your
particular investment objectives and financial circumstances. Our business,
financial condition or results of operations could be materially adversely
affected by any of these risks. The trading price of our securities could
decline due to any of these risks, and you may lose all or part of your
investment.
Risks
Related To Our Business
If
we fail to effectively expand our current operations and capacity to satisfy
demand for our granular fertilizer products, our results of operations and
business prospects could be impaired.
We
believe that over the next year demand for our granular fertilizer products will
outgrow our present production capacity of 200,000 metric tons. Our future
success depends on our ability to expand our business to address the growth in
demand for our granular fertilizer products. Because our industry is highly
competitive, if we are unable to increase our production capabilities to meet
increased demand for our products, we may lose existing customers, as well as
potential additional customers, to competitors with greater production
capacities. If we lose our existing customers our revenues could
decrease and accordingly our overall financial performance could be
significantly impaired. In addition, we currently rely on
distributors to distribute our products to multiple end users.
Our
ability to add production capacity and increase output is subject to significant
risks and uncertainties, including:
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the
availability of additional funding to build manufacturing facilities and
purchase raw materials on favorable terms or at
all;
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our
management and minimization of delays and cost overruns caused by problems
with our suppliers of raw materials and third-party vendors;
and
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our
receipt of any necessary government approvals or permits that may be
required to expand our operations in a timely manner or at
all.
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If we
cannot successfully implement additional production capacity increases
efficiently and cost-effectively, we will be unable to satisfy any increased
demand for our granular fertilizers, which could significantly impair our
financial performance.
If our
projections regarding the future market demand for our products are inaccurate,
our operating results and our overall business may suffer.
We have
made significant capital investments in anticipation of rapid growth in the
organic compound fertilizer market in the PRC. The expansion of our internal
manufacturing capabilities has required significant up-front fixed costs.
Additionally, we plan on allocating future working capital to build branded
chain stores in 2010 in order to add new distribution channels to sell our
products in new markets throughout the PRC. If market demand for our products
does not increase as quickly as we have anticipated and align with our expanded
manufacturing capacity, we may be unable to offset these costs and to achieve
economies of scale, and our operating results may be adversely affected as a
result of high operating expenses, reduced margins and underutilization of
capacity. Our ability to meet such excess customer demand could also depend on
our ability to raise additional capital and effectively scale our manufacturing
operations.
If
we cannot protect the proprietary formula and manufacturing processes for our
concentrated organic liquid and granular compound fertilizer it could increase
our competition and cause our operating results to suffer.
Our
success will depend in part on our ability to protect our proprietary formula
and manufacturing process for organic liquid and granular compound fertilizer
products. We rely on trade secrets to protect our proprietary formulas and
manufacturing processes. We have not applied for patents for our
technology and formulas because we believe an application for such patents would
result in public knowledge of our proprietary technology and formulas and could
lead competitors to attempt to copy our products, thereby increasing
competition. Only certain of our key employees have knowledge of our proprietary
technology and formulas. This could in turn result in a decrease of our market
share and hurt our operating results.
In
December 2005, our subsidiary Pacific Dragon entered into a license agreement
with Mr. Yu Chang, our Chairman CEO and President, under which Mr. Chang granted
us an exclusive license to use his know-how in manufacturing Tailong organic
liquid compound fertilizer on a royalty-free basis. Under the license agreement,
Mr. Chang has the obligation to maintain the confidentiality of this technology
and is prohibited from licensing this technology to any third party or using the
technology for his own benefit.
Despite
these precautions, the legal regime protecting intellectual property rights in
the PRC is weak. If we are not able to enforce our licensing agreement with Mr.
Chang and fully protect our proprietary trade secrets, if our employees
unintentionally or willfully disclose our confidential technology or know-how to
competitors, or if our competitors independently develop similar or superior
products, our competitors may be able to more effectively offer products similar
to ours and/or produce products with a cost structure similar to ours, if not
better, and we may thereby lose any competitive advantage that we currently
have. If we are forced to take legal action to protect our proprietary formulas
and processes, we will incur significant expense and further could not guarantee
a favorable outcome.
In
addition, our competitors may counterfeit our products and use our trademark.
These counterfeit products could damage our reputation and create confusion for
our customers. Our financial results would be negatively impacted by the lost
sales to the fake and/or competitive product or by lost sales from a damaged
reputation.
Our
proprietary fertilizer formulas may become obsolete which could materially
adversely affect the competitiveness of our future fertilizer
products.
The
production of our fertilizer products is based on our proprietary fertilizer
formulas. Our future success will depend upon our ability to address the
increasingly sophisticated needs of our customers by supporting existing and
emerging humic acid fertilizer products and by developing and introducing
enhancements to our existing products and new products on a timely basis that
keep pace with evolving industry standards and changing customer requirements.
If our proprietary formula becomes obsolete as our competitors develop better
products than ours, our future business and financial results could be adversely
affected.
We
may be subject to more stringent governmental regulation on our
products.
The
manufacture and sale of our agricultural products in the PRC is regulated by the
PRC Ministry of Agriculture and the local government of the Provinces in which
our factories are situated. The legal and regulatory regime governing our
industry is evolving, and we may become subject to different, including more
stringent, requirements than those currently applicable to us. While we believe
a more stringent standard will have more of an adverse impact on those
manufacturers with poor quality products, we cannot assure you any regulatory
change will not adversely affect our business.
Potential
environmental liability could have a material adverse effect on our operations
and financial condition.
To our
knowledge, neither the production nor the sale of our products constitutes
activities, or generate materials that create any environmental hazards or
violate the current PRC environmental laws. Although it has not been alleged by
PRC government officials that we have violated any current environmental
regulations, we cannot assure you that the PRC government will not amend the
current PRC environmental protection laws and regulations in a way that could
adversely impact us. Our business and operating results may be materially and
adversely affected if we were to be held liable for violating existing
environmental regulations or if we were to increase expenditures to comply with
environmental regulations affecting our operations.
If
we fail to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results. As a
result, current and potential investors could lose confidence in our financial
reporting, which could harm our business and have an adverse effect on our stock
price.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to
annually furnish a report by our management on our internal control over
financial reporting. Such report must contain, among other matters, an
assessment by our principal executive officer and our principal financial
officer on the effectiveness of our internal control over financial reporting,
including a statement as to whether or not our internal control over financial
reporting is effective as of the end of our fiscal year. This assessment must
include disclosure of any material weakness in our internal control over
financial reporting identified by management. In addition, under current SEC
rules, we will be required to obtain an attestation from our independent
registered public accounting firm as to our internal control over financial
reporting for our annual report on Form 10-K for our fiscal year ending December
31, 2010. Performing the system and process documentation and evaluation needed
to comply with Section 404 is both costly and challenging. During the course of
our testing we may identify deficiencies which we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act of 2002 for
compliance with the requirements of Section 404. In addition, if we fail to
maintain the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we
can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of
2002. Failure to achieve and maintain an effective internal control environment
could also cause investors to lose confidence in our reported financial
information, which could have a material adverse effect on the price of our
common stock.
As
of September 30, 2009, we had approximately $40.6 million of accounts
receivable for our liquid fertilizers, or 42.5% of our total
assets
We sell
approximately 80% of our organic liquid fertilizer in northern provinces of the
PRC. In these provinces, we typically extend our customers credit for
their purchase of our products to allow them to use the proceeds of their
harvests to repay us for their purchase of our products, which typically spans
from six to nine months. As of September 30, 2009, liquid organic fertilizers
made up approximately 65.1% of our revenue. As of September 30,
2009, we had approximately $40.6 million of accounts receivable from customers
of liquid fertilizers, or 42.5% of our total assets. If customers
responsible for a significant amount of accounts receivable were to become
insolvent or otherwise unable to pay for products and services, or to make
payments in a timely manner, our business, results of operations or financial
condition could be materially adversely affected. A natural disaster, such as a
wildfire, flood or drought, or an economic or industry downturn could materially
adversely affect the collection of these accounts receivable, which could result
in longer payment cycles, increased collection costs and defaults in excess of
management's expectations. A significant deterioration in our ability to collect
on accounts receivable could also impact the cost or availability of financing
available to us. Working capital management, including prompt and diligent
billing and collection, is an important factor in our results of operations and
liquidity. We cannot assure you that natural disasters, system problems,
industry trends or other issues will not extend our collection period, adversely
impact our working capital.
We
depend heavily on Mr. Yu Chang, our CEO, President, Secretary and director, and
without his services our prospects would be severely limited.
Our
future business and results of operations depend in significant part upon the
continuing contribution of Mr. Yu Chang, our CEO, President, Secretary and
Chairman. Mr. Chang has extensive experience in the organic compound fertilizer
industry and is directly involved in all of our business operations. Mr. Chang
has an employment agreement with our subsidiary, Pacific Dragon, which
automatically renewed on January 5, 2008 for a term of 3 years. We
currently have no employment agreement with Mr. Chang and Mr. Chang is not
obligated to devote any specified number of hours to working for
us. There can be no assurance that we will be able to reach an
agreement with Mr. Chang on terms favorable to us, if at all. If Mr.
Chang ceases to be employed by us, we may have difficulty finding a suitable
replacement with equal leadership and industry experience, and our business
would suffer because we will not have the leadership needed to capitalize on
market opportunities and to direct our growth, leading to a possible decrease in
revenues and inappropriate capital investments in projects that may not benefit
our long-term growth. Mr. Chang has both sales contacts in the Agricultural
industry and know-how to produce our products, making his expertise both unique
and valuable to us. We do not maintain key-person insurance on any of
our executive officers.
We
depend heavily on skilled research and development personnel, and any loss of
such personnel, or the failure to continue to attract such personnel in the
future, could harm our business.
The
agricultural chemicals business is specialized and requires the employment of
personnel with significant scientific and operational experience in the
industry. Accordingly, we must attract, recruit and retain a sizeable workforce
of technically and scientifically competent employees. Our ability to
effectively implement our business strategy will depend upon, among other
factors, the successful recruitment and retention of additional management and
other key personnel that have the necessary scientific, technical and
operational skills and experience with the fertilizer industry. These
individuals are difficult to find in the PRC and we may not be able to retain
such skilled employees. If we are unable to hire individuals with the requisite
experience we may not be able to produce enough products to optimize profits,
research and development initiatives may be delayed and we may encounter
disruptions in production and research which will negatively impact our
financial condition.
We
currently rely on a small number of third parties to supply the key raw
materials we use to produce our products.
Our
business depends upon the availability of key raw materials, including humic
acid, nitrogen, phosphorus, kalium, and other supplementary material. We rely on
only a few external suppliers for these raw materials and we have only
non-binding supply agreements. In fiscal year 2008, we purchased approximately
14.8% of our humic acid from Harbin Hai Heng Chemical Distriution Co. Ltd.,
approximately 33.8% of our nitrogen, phosphorus and kalium from Beijing Zhongxin
Chemical Technology Development Co., and approximately 27.1% of our other
supplementary material from Shenzhen Hongchou Technology Company. Our
purchases through September 30, 2009 were from similar sources and in similar
amounts, and for the 2010 fiscal year we expect that our raw materials suppliers
will be substantially similar to past years and the amount of raw materials will
increase commensurate with the increase in the demand for our fertilizer
products. We have entered into written agreements with all of these suppliers,
each under supply agreements that expire in December 2010. If any of our major
suppliers were to default or become unable to deliver the raw materials in
sufficient quantities, we may be unable to purchase these raw materials from
alternative sources on the same or similar terms, which could result in a
significant increase in our operating costs. When these supply agreements expire
in December 2010, we may be unable to negotiate new agreements with these
suppliers on terms favorable to us, or at all. In addition, any
disruption in the supply of our raw materials could cause delay in the delivery
of our products which would be harmful to our sales reputation and business. If
supply is disrupted the increased amount we have to pay for raw materials could
negatively impact our margins, cause us to delay deliveries which may cause us
to breach contracts or damage customer relationships or cause us to cease
production if an alternate supplier cannot be found. If we were unable to
procure replacement supplies, our inability to meet the production demands of
our customers could cause the loss of customers and/or market share. Our
financial results could be negatively impacted by the lost sales or decreased
margins.
We
rely on a limited number of products to achieve most of our
revenues.
We derive
a substantial percentage of our revenues from a limited number of products, and
we expect these products to continue to account for a large percentage of our
revenues in the near term. For example, our liquid organic fertilizer accounted
for 91.0% and 65.1% of our revenue for the year ended December 31, 2008 and for
the nine months ended September 30, 2009, respectively, while granular
fertilizer accounted for 9.0% and 34.9% of our revenue for the year ended
December 31, 2008 and September 30, 2009, respectively. Continued
market acceptance of these products is, therefore, critical to our future
success. Our business, operating results, financial condition, and cash flows
could therefore be adversely affected by: a decline in demand for even a limited
number of our products; a failure to achieve continued market acceptance of our
key products; export restrictions or other regulatory or legislative actions
which could limit our ability to sell those products to key customer or market
segments; an improved version of products being offered by a competitor in the
market in which we participate; increased pressure from competitors that offer
broader product lines; technological change that we are unable to address with
our products; or a failure to release new or enhanced versions of our products
on a timely basis. This may impact our ability to maintain or expand
our business with certain customers.
Our
liquid and granular fertilizer sales have seasonal variations and adverse
weather conditions could reduce demand for our products.
We
experience seasonal variations in our revenues and our operating costs. The peak
selling season for our liquid fertilizer products is from April through
September. Periods of cold weather may delay the application of the liquid
fertilizer, or render it unnecessary, thereby reducing demand for such
fertilizer products. During the fiscal year ended December 31, 2008,
approximately 64.9% of our annual liquid fertilizer sales volume came from the
second and third fiscal quarters, when demand for our liquid fertilizer products
typically peaks during planting season and prior to harvest. We believe that the
peak selling season for our granular fertilizer products is from October through
March. Although the peak selling seasons for our liquid and
granular do not overlap, we may still experience seasonal variations,
and we cannot assure you that sales of our granular fertilizer products will
mitigate the seasonal impact of liquid fertilizer sales.
If
we are unable to design, manufacture, and market products in a timely and
efficient manner, we may not remain as competitive.
Some of
our products are characterized by continuing technological advancement, changes
in customer requirements, and evolving product
standards. Accordingly, we devote a substantial amount of resources
to product development. To compete successfully, we must develop and offer new
and/or improved products that provide increasingly higher levels of performance
and reliability. New technologies may be untested or unproven. In
some instances, product requirements or specifications may be
modified. As a result, we may experience technological and other
performance difficulties, which may result in delays, setbacks and cost
overruns. Product development is highly uncertain and we cannot
assure you that we will successfully develop new products. Our inability to
develop and offer new and/or improved products or to achieve customer acceptance
of these products could limit our ability to compete in the market or to grow
revenues at desired rates of growth.
Our
ability to attract new customers in the PRC depends on the continued transition
from the use of less expensive chemical fertilizers to organic fertilizers that
we sell.
We
estimate that approximately 90% of the fertilizer products used in the PRC today
are chemical fertilizers, rather than organic fertilizers. Farmers in
the PRC have been using chemical fertilizers for decades, and we believe that
our growth depends on our ability to convince these farmers to switch to organic
fertilizers, such as our products, despite the increased cost of such
products. Many prospective customers are rural farmers that are
isolated and, we believe, lack an understanding of the environmental and health
benefits of our organic fertilizer products. Even if these potential
customers are aware of the benefits of our products, we believe that the
increased cost of our products as compared to chemical fertilizers may be
prohibitive for some rural farmers. While we may take steps, though
our distributors, to educate users of chemical fertilizers about the benefits of
our products, we believe that it will be difficult to convince significant
numbers of small farmers, some of who use no fertilizer at all, to purchase our
products. If we cannot continue to drive the transition to organic
fertilizer products in the provinces that we serve, our sales will stagnate and
our financial results will suffer.
Our
entry into foreign markets exposes us to changes in foreign regulations and
other risks inherent to international business, any of which could effect our
results of operations.
In June
2009, we granted exclusive marketing and distribution rights for certain of our
Lvlingbao liquid organic fertilizer products to Odyssey International (Trading)
Group Ltd. (“Odyssey”), which plans to market our products in Central and South
America, South Africa and certain Southeast Asian
countries. Distributing our products in these markets presents risks
including:
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volatility
in general economic, social and political
conditions;
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differing
tax rates, tariffs, exchange controls or other similar
restrictions;
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changes
in currency rates;
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inability
to repatriate income or capital;
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changes
in, and compliance with, domestic and foreign laws and regulations which
impose a range of restriction on operations, trade practices, trade
partners and investment decisions;
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seizure
of our products by foreign
governments
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boycotts
and embargoes that may be imposed by the international community on
countries in which we operate;
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disruptions
due to civil war, election outcomes, shortages of commodities, power
interruptions or inflation; the imposition of unexpected taxes or other
payments on revenues; and
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Any of
these risks could limit our ability to operate or have a negative impact on our
profitability.
We
have granted exclusive rights to market and distribute our Lvlingbao line of
liquid organic compound fertilizers to Odyssey International
(Trading) Group Ltd. (“Odyssey”) and their efforts to market and distribute our
products are outside of our control.
In June
2009 we granted Odyssey the exclusive right to market and distribute our
Lvlingbao III liquid organic compound fertilizers in Guangdong, Guangxi and
Hainan provinces within the PRC, as well as Central and South America, South
Africa and certain Southeast Asian countries. The revenue we earn
from the sale of our products under the agreement depends heavily on Odyssey’s
efforts. Odyssey has significant discretion in determining the efforts and
resources it applies to the marketing and sale of our products, and Odyssey has
a significant number of other clients whose products it distributes.
Furthermore, regardless of the effort and resources they invest, Odyssey may not
be effective in distributing or marketing our products. A
disagreement between us and Odyssey could lead to lengthy and expensive dispute
resolution proceedings as well as to extensive financial and operational
consequences to us, and have a material adverse effect on our business, results
of operations and financial condition. If our relationship with Odyssey were to
terminate, we may not be able to enter into another distribution and marketing
agreement with a company with similar resources to distribute our products and
perform on acceptable terms or at all. As a result, we could experience delays
in our ability to distribute our products and increased expenses, all of which
would have a material adverse affect on our business, results of operations and
financial condition.
Our
operating results will suffer if the price of raw materials increases and we
cannot pass the increased cost through to our customers.
The
primary raw materials included in our products are humic acid, nitrogen,
phosphorus, kalium and other supplementary material. The prices for these raw
materials are subject to market forces largely beyond our control, including
energy costs, organic chemical feedstock, market demand, and freight costs. The
prices for these raw materials may fluctuate significantly based upon changes in
these forces. Our operating results may be seriously harmed if we are unable to
pass any raw material price increases through to our customers due to lower
margins from our sales. If we are forced to increase prices of our products due
to increases in the prices of raw materials, the demand for our products could
decrease, which could materially harm our operations and financial
results.
If
we cannot renew our fertilizer registration certificate, which expires in 2012,
we will be unable to sell some of our products which will cause our sales
revenues to significantly decrease.
All
manufacturers of fertilizers produced in the PRC must be registered with the PRC
Ministry of Agriculture. No fertilizer can be manufactured without such
registration. There are two kinds of registrations: interim registration and
formal registration. The interim registration is valid for one year and applies
to fertilizers in the stages of in-the-field testing and test selling.
Fertilizers that have completed in-the-field testing and test selling must
obtain formal registration, which is valid for five years, and thereafter must
be renewed each five years. We have obtained a Formal Fertilizer Registration
Certificate covering all of our fertilizer products from the PRC Ministry of
Agriculture. Such certificate was issued on May 28, 2008 and will expire in
December 2012.
Our
belief is that the PRC Ministry of Agriculture generally will grant an
application for renewal in the absence of illegal activity by the applicant.
However, there is no guarantee that the PRC Ministry of Agriculture will grant
renewal of our Formal Fertilizer Registration Certificate. If we cannot obtain
the necessary renewal, we will not be able to manufacture and sell our
fertilizer products in China which will cause the termination of our commercial
operations.
The
markets in which we operate are highly competitive and fragmented and we may not
be able to maintain market share.
We
operate in highly competitive markets and compete with numerous local PRC
fertilizer manufacturers and we expect competition to persist and intensify in
the future. Our competitors are mainly domestic leaders in the fertilizer
markets in China. Our small local competitors may have better access in certain
local markets to customers and prospects, an enhanced ability to customize
products to a particular region or locality and more established local
distribution channels within a small region. We also compete with large PRC
national competitors who may have competitive advantages over us in certain
areas such as access to capital, technology, product quality, economies of scale
and brand recognition and may also be better positioned than us to develop
superior product features and technological innovations and to exploit and adapt
to market trends. Additionally, we may not be able to conduct in-depth research
and analysis on our current or new markets due to the lack of public or
third-party sources of competitive information available on our industry and
competitors in the PRC. Therefore, we may not have a clear estimate of the
current number of our direct competitor or such competitors' revenues or market
share.
In
addition, China's entry into the World Trade Organization may lead to increased
foreign competition for us. International producers and traders import products
into China that generally are of higher quality than those produced in the local
Chinese market. If they are localized and become recognized as the type of
fertilizer we produce, we may face additional competition. If we are not
successful in our marketing and advertising efforts to increase awareness of our
brands, our revenues could decline, which could have a material adverse effect
on our business, financial condition, results of operations and share price. We
cannot assure you that additional competitors will not enter our existing
markets, or that we will be able to compete successfully against existing or new
competition
We
do not presently maintain business disruption insurance. Any disruption of the
operations in our factories would damage our business and disrupt our production
and have a material adverse effect on our business, financial position on
results of operations.
Our
business could be materially and adversely affected by power shortages, natural
disasters, terrorist attacks or other events in the PRC. For example, in early
2008, parts of the PRC suffered a wave of strong snow storms that severely
impacted public transportation systems and the power supply in those areas. In
May 2008, Sichuan Province in the PRC suffered a strong earthquake measuring
approximately 8.0 on the Richter scale that caused widespread damage and
casualties. The May 2008 Sichuan earthquake may have a material adverse effect
on the general economic conditions in the areas affected by the earthquake. In
July 2008, explosive devices were detonated on several buses in Kunming, Yunnan
Province of the PRC, which resulted in disruptions to public transportation
systems in Kunming and casualties. Any future natural disasters, terrorist
attacks or other events in the PRC could cause a reduction in usage of, or other
severe disruptions to, public transportation systems and could have a material
adverse effect on our business and results of operations.
The
demand for our organic fertilizer products fluctuates significantly with weather
conditions, which may delay the application of the fertilizer or render it
unnecessary at all. If any natural disasters, such as flood, drought, hail,
tornado or earthquake, occur, demands for our products will be reduced. In
addition, in some cases, we allow our distributors to purchase our products
partially on credit. The distributors, in turn, may sell the fertilizer to
farmers on credit. If any natural disaster occurs, reduced crop yields may cause
farmers to default on their payments which could harm our cash flow and results
of operations. If we are unable to collect on our sales our cash flows will
decrease and we will have additional expenses from bad debts which will harm our
published financials results.
While we
have property damage insurance and automobile insurance, we do not carry
business disruption insurance, which is not readily available in the PRC. Any
disruption of the operations in our factories would have a significant negative
impact on our ability to manufacture and deliver products, which would cause a
potential diminution in sales, the cancellation of orders, damage to our
reputation and potential lawsuits.
The
fertilizer products that we manufacture pose safety risks and could expose us to
product liability claims.
Defects
in, or unknown harmful effects caused by, organic and inorganic chemical and
elements in our products could subject us to potential product liability claims
that our products cause some harm to the human body or to property. Although we
have adopted safety measures of industry standard in our research, development
and manufacturing processes, accidents may still occur. Any accident, either at
the manufacturing phase or during the use of our products, may subject us to
significant liabilities to persons harmed by these products. We have renewed
product liability insurance to cover claims from personal injuries or property
damage caused by our products for the period from July 11, 2009 to July 10,
2010. Our insurance coverage was limited to approximately $585,000 (RMB
4,000,000) and may not have been sufficient to cover potential
claims. A successful claim against us that is in excess of our
insurance coverage could significantly harm our business and financial
condition. Public perception that our products are not safe, whether justified
or not, could impair our reputation, involve us in litigation, damage our brand
names and our business. As of the filing of this prospectus, no product
liability claim has ever been brought against us. However, if we are involved in
litigation in the future the potential judgment or settlement along with the
litigation costs could harm our financial performance.
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
prospectus or any accompanying prospectus supplement, including the documents
that we incorporate by reference, may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Forward-looking statements include those that
express plans, anticipation, intent, contingency, goals, targets or future
development and/or otherwise are not statements of historical fact. Any
forward-looking statements are based on our current expectations and projections
about future events and are subject to risks and uncertainties known and unknown
that could cause actual results and developments to differ materially from those
expressed or implied in such statements.
In some
cases, you can identify forward-looking statements by terminology, such as
“expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,”
“may,” “should”, “could” or the negative of such terms or other similar
expressions. Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from those
expressed in them. Any forward-looking statements are qualified in their
entirety by reference to the risk factors described herein and those included in
any accompanying prospectus supplement or in any document incorporated by
reference into this prospectus.
You
should read this prospectus and any accompanying prospectus supplement and the
documents that we reference herein and therein and have filed as exhibits to the
registration statement, of which this prospectus is part, completely and with
the understanding that our actual future results may be materially different
from what we concurrently expect. You should assume that the information
appearing in this prospectus, any accompanying prospectus supplement and any
document incorporated herein by reference is accurate as of its date only.
Because the risk factors referred to above, as well as the risk factors referred
to on page 9 of this prospectus and incorporated herein by reference, could
cause actual results or outcomes to differ materially from those expressed in
any forward-looking statements made by us or on our behalf, you should not place
undue reliance on any forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for us to predict which factors will arise. In addition, we
cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. We qualify
all of the information presented in this prospectus, any accompanying prospectus
supplement and any document incorporated herein by reference, and particularly
our forward-looking statements, by these cautionary
statements.
USE
OF PROCEEDS
Except as
otherwise provided in the applicable prospectus supplement, we intend to use the
net proceeds from the sale of the securities covered by this prospectus for
general corporate purposes, which may include, but is not limited to, working
capital, capital expenditures, research and development expenditures,
acquisitions of new technologies or businesses and the establishment of branded
chain stores. The precise amount, use and timing of the application
of such proceeds will depend upon our funding requirements and the availability
and cost of other capital. Additional information on the use of net proceeds
from an offering of securities covered by this prospectus may be set forth in
the prospectus supplement relating to the specific offering.
RATIO
OF EARNINGS TO FIXED CHARGES
Not
applicable to smaller reporting companies.
PLAN
OF DISTRIBUTION
We may
sell the securities being offered pursuant to this prospectus to or through
underwriters, through dealers, through agents, or directly to one or more
purchasers or through a combination of these methods. The applicable prospectus
supplement will describe the terms of the offering of the securities,
including:
·
|
the name or names of any
underwriters, if, and if required, any dealers or
agents;
|
·
|
the purchase price of the
securities and the proceeds we will receive from the
sale;
|
·
|
any underwriting discounts and
other items constituting underwriters’
compensation;
|
·
|
any discounts or concessions
allowed or reallowed or paid to dealers;
and
|
·
|
any securities exchange or market
on which the securities may be listed or
traded.
|
We may
distribute the securities from time to time in one or more transactions
at:
·
|
a fixed price or prices, which
may be changed;
|
·
|
market prices prevailing at the
time of sale;
|
·
|
prices related to such prevailing
market prices; or
|
O
nly underwriters named in
the prospectus supplement are underwriters of the securities offered by the
prospectus supplement.
If
underwriters are used in an offering, we will execute an underwriting agreement
with such underwriters and will specify the name of each underwriter and the
terms of the transaction (including any underwriting discounts and other terms
constituting compensation of the underwriters and any dealers) in a prospectus
supplement. The securities may be offered to the public either through
underwriting syndicates represented by managing underwriters or directly by one
or more investment banking firms or others, as designated. If an underwriting
syndicate is used, the managing underwriter(s) will be specified on the cover of
the prospectus supplement. If underwriters are used in the sale, the offered
securities will be acquired by the underwriters for their own accounts and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Any public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time. Unless
otherwise set forth in the prospectus supplement, the obligations of the
underwriters to purchase the offered securities will be subject to conditions
precedent, and the underwriters will be obligated to purchase all of the offered
securities, if any are purchased.
We may
grant to the underwriters options to purchase additional securities to cover
over-allotments, if any, at the public offering price, with additional
underwriting commissions or discounts, as may be set forth in a related
prospectus supplement. The terms of any over-allotment option will be set forth
in the prospectus supplement for those securities.
If we use
a dealer in the sale of the securities being offered pursuant to this prospectus
or any prospectus supplement, we will sell the securities to the dealer, as
principal. The dealer may then resell the securities to the public at varying
prices to be determined by the dealer at the time of resale. The names of the
dealers and the terms of the transaction will be specified in a prospectus
supplement.
We may
sell the securities directly or through agents we designate from time to time.
We will name any agent involved in the offering and sale of securities and we
will describe any commissions we will pay the agent in the prospectus
supplement. Unless the prospectus supplement states otherwise, any agent will
act on a best-efforts basis for the period of its appointment.
We may
authorize agents or underwriters to solicit offers by institutional investors to
purchase securities from us at the public offering price set forth in the
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. We will describe the
conditions to these contracts and the commissions we must pay for solicitation
of these contracts in the prospectus supplement.
In
connection with the sale of the securities, underwriters, dealers or agents may
receive compensation from us or from purchasers of the securities for whom they
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell the securities to or through dealers, and those dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters or commissions from the purchasers for whom they may act
as agents. Underwriters, dealers and agents that participate in the distribution
of the securities, and any institutional investors or others that purchase
securities directly for the purpose of resale or distribution, may be deemed to
be underwriters, and any discounts or commissions received by them from us and
any profit on the resale of the common stock by them may be deemed to be
underwriting discounts and commissions under the Securities Act.
We may
provide agents, underwriters and other purchasers with indemnification against
particular civil liabilities, including liabilities under the Securities Act, or
contribution with respect to payments that the agents, underwriters or other
purchasers may make with respect to such liabilities. Agents and underwriters
may engage in transactions with, or perform services for, us in the ordinary
course of business.
To
facilitate the public offering of a series of securities, persons participating
in the offering may engage in transactions that stabilize, maintain, or
otherwise affect the market price of the securities. This may include
over-allotments or short sales of the securities, which involves the sale by
persons participating in the offering of more securities than have been sold to
them by us. In exercising the over-allotment option granted to those persons. In
addition, those persons may stabilize or maintain the price of the securities by
bidding for or purchasing securities in the open market or by imposing penalty
bids, whereby selling concessions allowed to underwriters or dealers
participating in any such offering may be reclaimed if securities sold by them
are repurchased in connection with stabilization transactions. The effect of
these transactions may be to stabilize or maintain the market price of the
securities at a level above that which might otherwise prevail in the open
market. Such transactions, if commenced, may be discontinued at any time. We
make no representation or prediction as to the direction or magnitude of any
effect that the transactions described above, if implemented, may have on the
price of our securities.
Unless
otherwise specified in the applicable prospectus supplement, any common stock
sold pursuant to a prospectus supplement will be eligible for listing on The
NASDAQ Global Market, subject to official notice of issuance. Any underwriters
to whom securities are sold by us for public offering and sale may make a market
in the securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice.
In order
to comply with the securities laws of some states, if applicable, the securities
offered pursuant to this prospectus will be sold in those states only through
registered or licensed brokers or dealers. In addition, in some states
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and complied with.
DESCRIPTIONS
OF THE SECURITIES WE MAY OFFER
The
descriptions of the securities contained in this prospectus, together with any
applicable prospectus supplement, summarize all the material terms and
provisions of the various types of securities that we may offer. We will
describe in the applicable prospectus supplement relating to a particular
offering the specific terms of the securities offered by that prospectus
supplement. We will indicate in the applicable prospectus supplement if the
terms of the securities differ from the terms we have summarized below. We will
also include in the prospectus supplement information, where applicable,
material United States federal income tax considerations relating to the
securities.
We may
sell from time to time, in one or more offerings:
·
|
shares of our common
stock;
|
·
|
shares of our preferred
stock;
|
·
|
debt
securities, in one or more series;
|
·
|
warrants
to purchase any of the securities listed above;
and/or
|
·
|
units
consisting of one or more of the
foregoing.
|
This
prospectus may not be used to consummate a sale of securities unless it is
accompanied by a prospectus supplement.
Capital
Stock
General
The
following description of common stock and preferred stock, together with the
additional information we include in any applicable prospectus supplement,
summarizes the material terms and provisions of the common stock and preferred
stock that we may offer under this prospectus, but is not complete. For the
complete terms of our common stock and preferred stock, please refer to our
certificate of incorporation, as may be amended from time to time, any
certificates of designation for our preferred stock, and our bylaws, as amended
from time to time. The Delaware General Corporation Law may also affect the
terms of these securities. While the terms we have summarized below will apply
generally to any future common stock or preferred stock that we may offer, we
will describe the specific terms of any series of these securities in more
detail in the applicable prospectus supplement. If we so indicate in a
prospectus supplement, the terms of any common stock or preferred stock we offer
under that prospectus supplement may differ from the terms we describe
below.
Common
Stock
We are
authorized to issue 100,000,000 shares of common stock, par value, $0.001 per
share. As of February 1, 2010, 17,329,142 shares of common stock are
outstanding, held by 951 holders of record. We have 83,680,958,
authorized and unissued shares of common stock which are available for future
issuance without additional stockholder approval, of which 1,800,000 shares of
common stock have been reserved for issuance under our 2008 Equity Incentive
Plan. While the additional shares are not designed to deter or
prevent a change of control, under some circumstances we could use them to
create voting impediments or to frustrate persons seeking to effect a takeover
or otherwise gain control, by, for example, issuing shares in private placements
to purchasers who might side with the board of directors in opposing a hostile
takeover bid.
Holders
of our common stock are entitled to one vote for each share they own on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Subject to the preferences and rights, if any, applicable to outstanding
preferred stock, holders of common stock are entitled to receive dividends if
and when declared by the board of directors. Subject to the prior rights of the
holders, if any, of preferred stock, holders of common stock 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.
On
February 1, 2010, we effected a 2 for 1 forward split of our common stock on the
basis of two shares for every one outstanding shares, so that every outstanding
share of common stock before the forward stock split was converted into two
shares of common stock after the forward stock split.
Our
common stock is listed on The NASDAQ Global Market under the symbol “CAGC.” The
transfer agent and registrar for our common stock is Securities Transfer
Corporation..
Preferred
Stock
Our board
of directors is authorized to issue up to the total of 10,000,000 shares of
preferred stock, par value $0.001 per share, without any further action by the
stockholders. Our board of directors may also divide the shares of preferred
stock into series and fix and determine the relative rights and preferences of
the preferred stock, such as the designation of series and the number of shares
constituting such series, dividend rights, redemption and sinking fund
provisions, liquidation and dissolution preferences, conversion or exchange
rights and voting rights, if any. Issuance of preferred stock by our board of
directors will result in such shares having dividend and/or liquidation
preferences senior to the rights of the holders of our common stock and could
dilute the voting rights of the holders of our common stock. Once
designated by our board of directors, each series of preferred stock will have
specific financial and other terms that will be described in a prospectus
supplement. The description of the preferred stock that is set forth in any
prospectus supplement is not complete without reference to the documents that
govern the preferred stock. These include our certificate of incorporation, as
amended, and any certificates of designation that our board of directors may
adopt. Prior to the issuance of shares of each series of preferred stock, the
board of directors is required by the Delaware General Corporation Law and our
certificate of incorporation to adopt resolutions and file a certificate of
designations with the Secretary of State of the State of Delaware. The
certificate of designations fixes for each class or series the designations,
powers, preferences, rights, qualifications, limitations and restrictions,
including, but not limited to, some or all of the following:
·
|
the number of shares constituting
that series and the distinctive designation of that series, which number
may be increased or decreased (but not below the number of shares then
outstanding) from time to time by action of the board of
directors;
|
·
|
the dividend rate and the manner
and frequency of payment of dividends on the shares of that series,
whether dividends will be cumulative, and, if so, from which
date;
|
·
|
whether that series will have
voting rights, in addition to any voting rights provided by law, and, if
so, the terms of such voting
rights;
|
·
|
whether that series will have
conversion privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the conversion rate in
such events as the board of directors may
determine;
|
·
|
whether or not the shares of that
series will be redeemable, and, if so, the terms and conditions of such
redemption;
|
·
|
whether that series will have a
sinking fund for the redemption or purchase of shares of that series, and,
if so, the terms and amount of such sinking
fund;
|
·
|
whether or not the shares of the
series will have priority over or be on a parity with or be junior to the
shares of any other series or class in any
respect;
|
·
|
the rights of the shares of that
series in the event of voluntary or involuntary liquidation, dissolution
or winding up of the corporation, and the relative rights or priority, if
any, of payment of shares of that series;
and
|
·
|
any other relative rights,
preferences and limitations of that
series.
|
All
shares of preferred stock offered hereby will, when issued, be fully paid and
nonassessable, including shares of preferred stock issued upon the exercise of
preferred stock warrants or subscription rights, if any.
Although
our board of directors has no intention at the present time of doing so, it
could authorize the issuance of a series of preferred stock that could,
depending on the terms of such series, impede the completion of a merger, tender
offer or other takeover attempt.
Options/Warrants
As of
February 1, 2010 we had outstanding options to purchase a total of
245,000 shares of our Common Stock and outstanding warrants to purchase a total
of 1,857,028 shares of our Common Stock.
|
·
|
On
October 19, 2009 we issued a warrant to purchase up to an aggregate of
1,857,028 shares of common stock at an initial exercise price of
approximately $5.38 per share, subject to adjustment, to Carlyle Asia
Growth Partners IV, L.P. and CAGP IV Co-Investment, L.P. The warrants
issued to the Carlyle Investors will become exercisable on April 19, 2010
and expire April 19, 2012. The exercise price of the warrants
has a floor of approximately $1.3285 per share, and in the event that the
warrants are exercised at that price, we would issue an additional
4,666,662 shares
|
Warrants
The
following description, together with the additional information we may include
in any applicable prospectus supplement, summarizes the material terms and
provisions of the warrants that we may offer under this prospectus and any
related warrant agreement and warrant certificate. While the terms summarized
below will apply generally to any warrants that we may offer, we will describe
the specific terms of any series of warrants in more detail in the applicable
prospectus supplement. If we indicate in the prospectus supplement, the terms of
any warrants offered under that prospectus supplement may differ from the terms
described below. Specific warrant agreements will contain additional important
terms and provisions and will be incorporated by reference as an exhibit to the
registration statement which includes this prospectus.
General
We may
issue warrants for the purchase of common stock, preferred stock and/or debt
securities in one or more series. We may issue warrants independently or
together with common stock, preferred stock and/or debt securities, and the
warrants may be attached to or separate from these securities.
We will
evidence each series of warrants by warrant certificates that we may issue under
a separate agreement. We may enter into a warrant agreement with a warrant
agent. Each warrant agent may be a bank that we select which has its principal
office in the United States and a combined capital and surplus of at least
$200,000,000. We may also choose to act as our own warrant agent. We will
indicate the name and address of any such warrant agent in the applicable
prospectus supplement relating to a particular series of warrants.
We will
describe in the applicable prospectus supplement the terms of the series of
warrants, including:
·
|
the
offering price and aggregate number of warrants
offered;
|
·
|
if applicable, the designation
and terms of the securities with which the warrants are issued and the
number of warrants issued with each such security or each principal amount
of such security;
|
·
|
if applicable, the date on and
after which the warrants and the related securities will be separately
transferable;
|
·
|
in the case of warrants to
purchase debt securities, the principal amount of debt securities
purchasable upon exercise of one warrant and the price at, and currency in
which, this principal amount of debt securities may be purchased upon such
exercise;
|
·
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in the case of warrants to
purchase common stock or preferred stock, the number or amount of shares
of common stock or preferred stock, as the case may be, purchasable upon
the exercise of one warrant and the price at which and currency in which
these shares may be purchased upon such
exercise;
|
·
|
the manner of exercise of the
warrants, including any cashless exercise
rights;
|
·
|
the warrant agreement under which
the warrants will be issued;
|
·
|
the effect of any merger,
consolidation, sale or other disposition of our business on the warrant
agreement and the warrants;
|
·
|
anti-dilution provisions of the
warrants, if any;
|
·
|
the terms of any rights to redeem
or call the warrants;
|
·
|
any provisions for changes to or
adjustments in the exercise price or number of securities issuable upon
exercise of the warrants;
|
·
|
the dates on which the right to
exercise the warrants will commence and expire or, if the warrants are not
continuously exercisable during that period, the specific date or dates on
which the warrants will be
exercisable;
|
·
|
the manner in which the warrant
agreement and warrants may be
modified;
|
·
|
the identities of the warrant
agent and any calculation or other agent for the
warrants;
|
·
|
federal income tax consequences
of holding or exercising the
warrants;
|
·
|
the terms of the securities
issuable upon exercise of the
warrants;
|
·
|
any securities exchange or
quotation system on which the warrants or any securities deliverable upon
exercise of the warrants may be listed or quoted;
and
|
·
|
any other specific terms,
preferences, rights or limitations of or restrictions on the
warrants.
|
Before
exercising their warrants, holders of warrants will not have any of the rights
of holders of the securities purchasable upon such exercise,
including:
·
|
in the case of warrants to
purchase debt securities, the right to receive payments of principal of,
or premium, if any, or interest on, the debt securities purchasable upon
exercise or to enforce covenants in the applicable indenture;
or
|
·
|
in the case of warrants to
purchase common stock or preferred stock, the right to receive dividends,
if any, or, payments upon our liquidation, dissolution or winding up or to
exercise voting rights, if
any.
|
Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in
the applicable prospectus supplement at the exercise price that we describe in
the applicable prospectus supplement. Unless we otherwise specify in the
applicable prospectus supplement, holders of the warrants may exercise the
warrants at any time up to 5:00 P.M. eastern time on the expiration date that we
set forth in the applicable prospectus supplement. After the close of business
on the expiration date, unexercised warrants will become
void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate
representing the warrants to be exercised together with specified information,
and paying the required exercise price by the methods provided in the applicable
prospectus supplement. We will set forth on the reverse side of the warrant
certificate, and in the applicable prospectus supplement, the information that
the holder of the warrant will be required to deliver to the warrant
agent.
Upon
receipt of the required payment and the warrant certificate properly completed
and duly executed at the corporate trust office of the warrant agent or any
other office indicated in the applicable prospectus supplement, we will issue
and deliver the securities purchasable upon such exercise. If fewer than all of
the warrants represented by the warrant certificate are exercised, then we will
issue a new warrant certificate for the remaining amount of
warrants.
Enforceability
of Rights By Holders of Warrants
Any
warrant agent will act solely as our agent under the applicable warrant
agreement and will not assume any obligation or relationship of agency or trust
with any holder of any warrant. A single bank or trust company may act as
warrant agent for more than one issue of warrants. A warrant agent will have no
duty or responsibility in case of any default by us under the applicable warrant
agreement or warrant, including any duty or responsibility to initiate any
proceedings at law or otherwise, or to make any demand upon us. Any holder of a
warrant may, without the consent of the related warrant agent or the holder of
any other warrant, enforce by appropriate legal action the holder’s right to
exercise, and receive the securities purchasable upon exercise of, its warrants
in accordance with their terms.
Warrant
Agreement Will Not Be Qualified Under Trust Indenture Act
No
warrant agreement will be qualified as an indenture, and no warrant agent will
be required to qualify as a trustee, under the Trust Indenture Act. Therefore,
holders of warrants issued under a warrant agreement will not have the
protection of the Trust Indenture Act with respect to their
warrants.
Governing
Law
Each
warrant agreement and any warrants issued under the warrant agreements will be
governed by New York law.
Calculation
Agent
Any
calculations relating to warrants may be made by a calculation agent, an
institution that we appoint as our agent for this purpose. The prospectus
supplement for a particular warrant will name the institution that we have
appointed to act as the calculation agent for that warrant as of the original
issue date for that warrant, if any. We may appoint a different institution to
serve as calculation agent from time to time after the original issue date
without the consent or notification of the holders. The calculation agent’s
determination of any amount of money payable or securities deliverable with
respect to a warrant will be final and binding in the absence of manifest
error.
Debt
Securities
The
following description, together with the additional information we include in
any applicable prospectus supplements, summarizes the material terms and
provisions of the debt securities that we may offer under this prospectus.
While the terms we have summarized below will generally apply to any future debt
securities we may offer under this prospectus, we will describe the particular
terms of any debt securities that we may offer in more detail in the applicable
prospectus supplement. The terms of any debt securities we offer under a
prospectus supplement may differ from the terms we describe
below. As of the date of this prospectus, we have no
outstanding registered debt securities.
We will
issue senior notes under a senior indenture, which we will enter into with the
trustee to be named in the senior indenture. We will issue subordinated
notes under a subordinated indenture, which we will enter into with the trustee
to be named in the subordinated indenture. We have filed forms of these
documents as exhibits to the registration statement of which this prospectus is
a part. We use the term “indentures” to refer to both the senior indenture
and the subordinated indenture.
The
indentures will be qualified under the Trust Indenture Act of 1939. We use
the term “debenture trustee” to refer to either the senior trustee or the
subordinated trustee, as applicable.
The
following summaries of material provisions of the senior notes, the subordinated
notes and the indentures are subject to, and qualified in their entirety by
reference to, all the provisions of the indenture applicable to a particular
series of debt securities. We urge you to read the applicable prospectus
supplements related to the debt securities that we sell under this prospectus,
as well as the complete indentures that contain the terms of the debt
securities. Except as we may otherwise indicate, the terms of the senior
and the subordinated indentures are identical.
General
The terms
of each series of debt securities will be established by or pursuant to a
resolution of our board of directors and set forth or determined in the manner
provided in an officers’ certificate or by a supplemental indenture. Debt
securities may be issued in separate series without limitation as to aggregate
principal amount. We may specify a maximum aggregate principal amount for the
debt securities of any series. The particular terms of each series of debt
securities will be described in a prospectus supplement relating to such series,
including any pricing supplement. The prospectus supplement will set
forth:
·
the title;
·
the principal amount being offered, and, if a series, the total amount
authorized and the total amount outstanding;
·
any limit on the amount that may be issued;
·
whether or not we will issue the series of debt securities in global form
and, if so, the terms and who the depositary will be;
·
the maturity date;
·
whether and under what circumstances, if any, we will pay additional
amounts on any debt securities held by a person who is not a U.S. person for tax
purposes, and whether we can redeem the debt securities if we have to pay such
additional amounts;
·
the annual interest rate, which may be fixed or variable, or the method
for determining the rate, the date interest will begin to accrue, the dates
interest will be payable and the regular record dates for interest payment dates
or the method for determining such dates;
·
whether or not the debt securities will be secured or unsecured, and the
terms of any secured debt;
·
the terms of the subordination of any series of subordinated
debt;
·
the place where payments will be payable;
·
restrictions on transfer, sale or other assignment, if any;
·
our right, if any, to defer payment of interest and the maximum length of
any such deferral period;
·
the date, if any, after which, the conditions upon which, and the price
at which we may, at our option, redeem the series of debt securities pursuant to
any optional or provisional redemption provisions, and any other applicable
terms of those redemption provisions;
·
the date, if any, on which, and the price at which we are obligated,
pursuant to any mandatory sinking fund or analogous fund provisions or
otherwise, to redeem, or at the holder’s option to purchase, the series of debt
securities and the currency or currency unit in which the debt securities are
payable;
·
whether the indenture will restrict our ability and/or the ability of our
subsidiaries to, among other things,:
·
incur additional indebtedness;
·
issue additional securities;
·
create liens;
·
pay dividends and make distributions in respect of our capital stock and
the capital stock of our subsidiaries;
·
redeem capital stock;
·
place restrictions on our subsidiaries’ ability to pay dividends, make
distributions or transfer assets;
·
make investments or other restricted payments;
·
sell or otherwise dispose of assets;
·
enter into sale-leaseback transactions;
·
engage in transactions with stockholders and affiliates;
·
issue or sell stock of our subsidiaries; or
·
effect a consolidation or merger;
·
whether the indenture will require us to maintain any interest coverage,
fixed charge, cash flow-based, asset-based or other financial
ratios;
·
a discussion of any material or special U.S. federal income tax
considerations applicable to the debt securities;
·
information describing any book-entry features;
·
provisions for a sinking fund purchase or other analogous fund, if
any;
·
whether the debt securities are to be offered at a price such that they
will be deemed to be offered at an “original issue discount” as defined in
paragraph (a) of Section 1273 of the Internal Revenue
Code;
·
the procedures for any auction and remarketing, if any;
·
the denominations in which we will issue the series of debt securities,
if other than denominations of $1,000 and any integral multiple
thereof;
·
if other than dollars, the currency in which the series of debt
securities will be denominated; and
·
any other specific terms, preferences, rights or limitations of, or
restrictions on, the debt securities, including any events of default that are
in addition to those described in this prospectus or any covenants provided with
respect to the debt securities that are in addition to those described above,
and any terms that may be required by us or advisable under applicable laws or
regulations or advisable in connection with the marketing of the debt
securities.
Conversion
or Exchange Rights
We will
set forth in the prospectus supplement the terms on which a series of debt
securities may be convertible into or exchangeable for common stock or other
securities of ours or a third party, including the conversion or exchange rate,
as applicable, or how it will be calculated, and the applicable conversion or
exchange period. We will include provisions as to whether conversion or
exchange is mandatory, at the option of the holder or at our option. We
may include provisions pursuant to which the number of our securities or the
securities of a third party that the holders of the series of debt securities
receive upon conversion or exchange would, under the circumstances described in
those provisions, be subject to adjustment, or pursuant to which those holders
would, under those circumstances, receive other property upon conversion or
exchange, for example in the event of our merger or consolidation with another
entity.
Consolidation,
Merger or Sale
The
indentures in the forms initially filed as exhibits to the registration
statement of which this prospectus is a part do not contain any covenant that
restricts our ability to merge or consolidate, or sell, convey, transfer or
otherwise dispose of all or substantially all of our assets. However, any
successor of ours or the acquirer of such assets must assume all of our
obligations under the indentures and the debt securities.
If the
debt securities are convertible for our other securities, the person with whom
we consolidate or merge or to whom we sell all of our property must make
provisions for the conversion of the debt securities into securities that the
holders of the debt securities would have received if they had converted the
debt securities before the consolidation, merger or sale.
Events
of Default Under the Indenture
The
following are events of default under the indentures in the forms initially
filed as exhibits to the registration statement with respect to any series of
debt securities that we may issue:
·
if we fail to pay interest when due and payable and our failure continues
for 90 days and the time for payment has not been extended or
deferred;
·
if we fail to pay the principal, sinking fund payment or premium, if any,
when due and payable and the time for payment has not been extended or
delayed;
·
if we fail to observe or perform any other covenant contained in the debt
securities or the indentures, other than a covenant specifically relating to
another series of debt securities, and our failure continues for 90 days after
we receive notice from the debenture trustee or holders of at least 25% in
aggregate principal amount of the outstanding debt securities of the applicable
series; and
·
if specified events of bankruptcy, insolvency or reorganization
occur.
If an
event of default with respect to debt securities of any series occurs and is
continuing, other than an event of default specified in the last bullet point
above, the debenture trustee or the holders of at least 25% in aggregate
principal amount of the outstanding debt securities of that series, by notice to
us in writing, and to the debenture trustee if notice is given by such holders,
may declare the unpaid principal of, premium, if any, and accrued interest, if
any, due and payable immediately. If an event of default specified in the
last bullet point above occurs with respect to us, the principal amount of and
accrued interest, if any, of each issue of debt securities then outstanding
shall be due and payable without any notice or other action on the part of the
debenture trustee or any holder.
The
holders of a majority in principal amount of the outstanding debt securities of
an affected series may waive any default or event of default with respect to the
series and its consequences, except defaults or events of default regarding
payment of principal, premium, if any, or interest, unless we have cured the
default or event of default in accordance with the indenture. Any waiver
shall cure the default or event of default.
Subject
to the terms of the indentures, if an event of default under an indenture shall
occur and be continuing, the debenture trustee will be under no obligation to
exercise any of its rights or powers under such indenture at the request or
direction of any of the holders of the applicable series of debt securities,
unless such holders have offered the debenture trustee reasonable
indemnity. The holders of a majority in principal amount of the
outstanding debt securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the debenture trustee, or exercising any trust or power conferred on the
debenture trustee, with respect to the debt securities of that series, provided
that:
·
the direction so given by the holder is not in conflict with any law or
the applicable indenture; and
·
subject to its duties under the Trust Indenture Act of 1939, the
debenture trustee need not take any action that might involve it in personal
liability or might be unduly prejudicial to the holders not involved in the
proceeding.
A holder
of the debt securities of any series will only have the right to institute a
proceeding under the indentures or to appoint a receiver or trustee, or to seek
other remedies if:
·
the holder has given written notice to the debenture trustee of a
continuing event of default with respect to that series;
·
the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made written request, and such
holders have offered reasonable indemnity, to the debenture trustee to institute
the proceeding as trustee; and
·
the debenture trustee does not institute the proceeding and does not
receive from the holders of a majority in aggregate principal amount of the
outstanding debt securities of that series other conflicting directions within
90 days after the notice, request and offer.
These
limitations do not apply to a suit instituted by a holder of debt securities if
we default in the payment of the principal, premium, if any, or interest on, the
debt securities.
We will
periodically file statements with the debenture trustee regarding our compliance
with specified covenants in the indentures.
Modification
of Indenture; Waiver
We and
the debenture trustee may change an indenture without the consent of any holders
with respect to specific matters, including:
·
to fix any ambiguity, defect or inconsistency in the
indenture;
·
to comply with the provisions described above under “
—
Consolidation, Merger or
Sale”;
·
to comply with any requirements of the SEC in connection with the
qualification of any indenture under the Trust Indenture Act of
1939;
·
to evidence and provide for the acceptance of appointment hereunder by a
successor trustee;
·
to provide for uncertificated debt securities and to make all appropriate
changes for such purpose;
·
to add to, delete from, or revise the conditions, limitations and
restrictions on the authorized amount, terms or purposes of issuance,
authorization and delivery of debt securities or any series, as set forth in the
indenture;
·
to provide for the issuance of and establish the form and terms and
conditions of the debt securities of any series as provided under “
—
General” to establish the
form of any certifications required to be furnished pursuant to the terms of the
indenture or any series of debt securities, or to add to the rights of the
holders of any series of debt securities;
·
to add to our covenants such new covenants, restrictions, conditions or
provisions for the protection of the holders, to make the occurrence, or the
occurrence and the continuance, of a default in any such additional covenants,
restrictions, conditions or provisions an event of default, or to surrender any
of our rights or powers under the indenture; or
·
to change anything that does not materially adversely affect the
interests of any holder of debt securities of any series.
In
addition, under the indentures, the rights of holders of a series of debt
securities may be changed by us and the debenture trustee with the written
consent of the holders of at least a majority in aggregate principal amount of
the outstanding debt securities of each series that is affected. However,
we and the debenture trustee may only make the following changes with the
consent of each holder of any outstanding debt securities affected:
·
extending the fixed maturity of the series of debt
securities;
·
reducing the principal
amount, reducing the rate of or extending the time of payment of interest, or
reducing any premium payable upon the redemption of any debt securities;
or
·
reducing the percentage of
debt securities, the holders of which are required to consent to any amendment,
supplement, modification or waiver.
Discharge
Each
indenture provides that we can elect to be discharged from our obligations with
respect to one or more series of debt securities, except that the following
obligations survive until the maturity date or the redemption date:
·
register the transfer or exchange of debt securities of the
series;
·
replace stolen, lost or mutilated debt securities of the
series;
·
maintain paying agencies;
·
hold monies for payment in trust; and
·
appoint any successor trustee;
and the
following obligations survive the maturity date or the redemption
date:
·
recover excess money held by the debenture trustee; and
·
compensate and indemnify the debenture trustee.
In order
to exercise our rights to be discharged, we must deposit with the debenture
trustee money or government obligations sufficient to pay all the principal of,
any premium, if any, and interest on, the debt securities of the series on the
dates payments are due.
Form,
Exchange and Transfer
We will
issue the debt securities of each series only in fully registered form without
coupons and, unless we otherwise specify in the applicable prospectus
supplement, in denominations of $1,000 and any integral multiple thereof.
The indentures provide that we may issue debt securities of a series in
temporary or permanent global form and as book-entry securities that will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York, known as DTC, or another depositary named by us and identified in a
prospectus supplement with respect to that series. See “Legal Ownership of
Securities” for a further description of the terms relating to any book-entry
securities.
At the
option of the holder, subject to the terms of the indentures and the limitations
applicable to global securities described in the applicable prospectus
supplement, the holder of the debt securities of any series can exchange the
debt securities for other debt securities of the same series, in any authorized
denomination and of like tenor and aggregate principal amount.
Subject
to the terms of the indentures and the limitations applicable to global
securities set forth in the applicable prospectus supplement, holders of the
debt securities may present the debt securities for exchange or for registration
of transfer, duly endorsed or with the form of transfer endorsed thereon duly
executed if so required by us or the security registrar, at the office of the
security registrar or at the office of any transfer agent designated by us for
this purpose. Unless otherwise provided in the debt securities that the
holder presents for transfer or exchange, we will make no service charge for any
registration of transfer or exchange, but we may require payment of any taxes or
other governmental charges.
We will
name in the applicable prospectus supplement the security registrar, and any
transfer agent in addition to the security registrar, that we initially
designate for any debt securities. We may at any time designate additional
transfer agents or rescind the designation of any transfer agent or approve a
change in the office through which any transfer agent acts, except that we will
be required to maintain a transfer agent in each place of payment for the debt
securities of each series.
If we
elect to redeem the debt securities of any series, we will not be required
to:
·
issue, register the transfer of, or exchange any debt securities of any
series being redeemed in part during a period beginning at the opening of
business 15 days before the day of mailing of a notice of redemption of any debt
securities that may be selected for redemption and ending at the close of
business on the day of the mailing; or
·
register the transfer of or exchange any debt securities so selected for
redemption, in whole or in part, except the unredeemed portion of any debt
securities we are redeeming in part.
Information
Concerning the Debenture Trustee
The
debenture trustee, other than during the occurrence and continuance of an event
of default under an indenture, undertakes to perform only those duties as are
specifically set forth in the applicable indenture. Upon an event of
default under an indenture, the debenture trustee must use the same degree of
care as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the debenture trustee is under no
obligation to exercise any of the powers given it by the indentures at the
request of any holder of debt securities unless it is offered reasonable
security and indemnity against the costs, expenses and liabilities that it might
incur.
Payment
and Paying Agents
Unless we
otherwise indicate in the applicable prospectus supplement, we will make payment
of the interest on any debt securities on any interest payment date to the
person in whose name the debt securities, or one or more predecessor securities,
are registered at the close of business on the regular record date for the
interest.
We will
pay principal of and any premium and interest on the debt securities of a
particular series at the office of the paying agents designated by us, except
that, unless we otherwise indicate in the applicable prospectus supplement, we
may make interest payments by check that we will mail to the holder or by wire
transfer to certain holders. Unless we otherwise indicate in a prospectus
supplement, we will designate the corporate office of the debenture trustee in
the City of New York as our sole paying agent for payments with respect to debt
securities of each series. We will name in the applicable prospectus
supplement any other paying agents that we initially designate for the debt
securities of a particular series. We will maintain a paying agent in each
place of payment for the debt securities of a particular series.
All money
we pay to a paying agent or the debenture trustee for the payment of the
principal of or any premium or interest on any debt securities that remains
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to us, and the holder of the debt security
thereafter may look only to us for payment thereof.
Governing
Law
The
indentures and the debt securities will be governed by and construed in
accordance with the laws of the State of New York, except to the extent that the
Trust Indenture Act of 1939 is applicable.
Subordination
of Subordinated Debt Securities
The
subordinated debt securities will be subordinate and junior in priority of
payment to certain of our other indebtedness to the extent described in a
prospectus supplement. The indentures in the forms initially filed as
exhibits to the registration statement of which this prospectus is a part do not
limit the amount of indebtedness that we may incur, including senior
indebtedness or subordinated indebtedness, and do not limit us from issuing any
other debt, including secured debt or unsecured debt.
Units
We may
issue units comprised of one or more of the other securities described in this
prospectus or in any prospectus supplement in any combination. Each unit will be
issued so that the holder of the unit is also the holder, with the rights and
obligations of a holder, of each security included in the unit. The unit
agreement under which a unit is issued may provide that the securities included
in the unit may not be held or transferred separately, at any time or at any
time before a specified date or upon the occurrence of a specified event or
occurrence.
The
applicable prospectus supplement will describe:
·
|
the designation and terms of the
units and of the securities comprising the units, including whether and
under what circumstances those securities may be held or transferred
separately;
|
·
|
any unit agreement under which
the units will be issued;
|
·
|
any provisions for the issuance,
payment, settlement, transfer or exchange of the units or of the
securities comprising the units;
and
|
·
|
whether the units will be issued
in fully registered or global
form.
|
LITIGATION
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. Litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from
time to time that may harm our business.
LEGAL
MATTERS
Certain
legal matters governed by the laws of the State of New York and of Delaware with
respect to the validity of the offered securities will be passed upon for us by
Loeb & Loeb LLP, New York, New York.
EXPERTS
The
consolidated balance sheet of China Agritech, Inc. and Subsidiaries as of
December 31, 2008, and the related consolidated income statements, stockholders’
equity, and cash flows for the year then ended included in this
registration statement have been so included in reliance on
the report of Crowe Horwath LLP, independent registered public
accounting firm, given on the authority of such firm as experts in accounting
and auditing.
The
consolidated balance sheet of China Agritech Inc. and Subsidiaries as of
December 31, 2007, and the related consolidated statements of income,
stockholders’ equity, and cash flows for the year ended December 31, 2007 have
been audited by Kabani & company, Inc. an independent registered public
accounting firm, as set forth in their report which is incorporated by
reference, and have been so incorporated in reliance upon the report of such
firm given on the authority of such firm as experts in accounting and
auditing.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have
filed a registration statement on Form S-3 with the SEC for the securities we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. We will
provide to each person, including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus. We
will provide this information upon oral or written request, free of
charge. Any requests for this information should be made by calling
or sending a letter to the Secretary of the Company, c/o China Agritech, Inc.,
at the Company’s office located Room 3F No. 11 Building, Zhonghong International
Business Garden, Future Business Center, Chaoyang North Road, Chaoyang District,
Beijing, China 100024 People’s Republic of China (86) 10-59621278.
.
We are
required to file annual and quarterly reports, current reports, proxy
statements, and other information with the SEC. We make these documents publicly
available, free of charge, on our website at www.bioaobo.com as soon as
reasonably practicable after filing such documents with the SEC. You can read
our SEC filings, including the registration statement, on the SEC’s website at
http://www.sec.gov. You also may read and copy any document we file with the SEC
at its public reference facility at:
Public
Reference Room
100 F
Street N.E.
Washington,
DC 20549.
Please
call the SEC at 1-800-732-0330 for further information on the operation of the
public reference facilities.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
following documents filed by us with the Securities and Exchange Commission are
incorporated by reference in this prospectus:
·
|
Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, filed on March 31,
2009;
|
·
|
Quarterly Reports on Form 10-Q
for the fiscal quarter ended March 31, 2009, filed on May 14,
2009, for the fiscal quarter ended June 30, 2009, filed on
August 14, 2009 and for the fiscal quarter ended September 30, 2009, filed
on November 12, 2009; and
|
·
|
Current Reports on Form 8-K or
8-K/A, filed on February 18, 2009, February 19, 2009, March 10, 2009,
March 19, 2009, May 7, 2009, May 15, 2009, May 21, 2009, June 9, 2009,
June 18, 2009, August 19, 2009, September 23, 2009, October 20, 2009,
November 18, 2009,December 30, 2009 and January 8, 2010;
and
|
·
|
The description of our Common
Stock set forth in our Registration Statement on Form 8-A (Registration
No. 001-34458) filed with the SEC on September 15, 2009,
including any amendments thereto or reports filed for the purpose of
updating such description.
|
All
documents subsequently filed with the Securities and Exchange Commission by us
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, after the
date of the initial registration statement (other than current reports or
portions thereof furnished under Items 2.02 or 7.01 of Form 8-K), prior to the
termination of this offering, shall be deemed to be incorporated by reference
herein and to be part of this prospectus from the respective dates of filing of
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes hereof or of the related prospectus supplement to the
extent that a statement in any other subsequently filed document which is
also incorporated or deemed to be incorporated herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
1,243,000 Shares
Common
Stock
CHINA
AGRITECH
,
INC.
PRELIMINARY
PROSPECTUS SUPPLEMENT DATED APRIL 28, 2010
Rodman & Renshaw, LLC
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