SEC Comment Letter for Origin Agritech LTD (SEED) (CIK 0001321851) (SEED) — Jun 8, 2005
Origin Agritech LTD (SEED) (CIK 0001321851)
Date: June 8, 2005 · CIK: 0001321851 · Accession: 0000000000-05-028625
AI Filing Summary & Sentiment
File numbers found in text: 333-124709
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<TYPE>LETTER
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Mail Stop 3561
June 8, 2005
Mr. Kerry Propper, President
Origin Agritech Limited
625 Broadway, Suite 1111
San, Diego CA 92101
Re: Origin Agritech Limited
Registration Statement on Form S-4
Filed on May 6, 2005
File No. 333-124709
Dear Mr. Propper:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. We note the preliminary proxy statement on Schedule 14A filed
by
Chardan China on February 11, 2005. Please advise regarding your
plans for this filing.
2. Pursuant to Item 301 of Regulation S-K, in a table designed to
facilitate comparison, please present historical and pro forma per
share data of Origin and historical and equivalent pro forma per
share date of Chardan for the following Items:
* book value per share as of the date for which financial data is
presented;
* cash dividends declared per share for the periods for which
financial data is presented; and
* income (loss) per share from continuing operations for the
periods
for which financial data is presented.
See Item 3 of Form S-4.
3. Please provide the disclosure required by Rule 14a-5(e) as
required by Item 1(c) of Schedule 14A. See Item 18(a)(1) of Form
S-
4.
4. Please provide the dealer prospectus delivery obligation on the
outside back cover of the prospectus. See Item 502(b) of
Regulation
S-K.
5. Please provide the disclosure required by Item 510 of
Regulation
S-K.
6. We note that the shares to be issued to acquire the Origin
Companies will be through a private placement. Please advise
regarding the exemption you plan to rely upon and the facts
supporting your reliance upon the exemption.
Registration Fee Table
7. Please explain why you are registering 4.9 million shares of
common stock underlying the units, when there are only 4.025
million
units and each unit consists of only one common stock and two
warrants. Also, please explain supplementally the calculation of
the
proposed maximum aggregate offering price for the shares of common
stock underlying the warrants included in the units or revise.
Prospectus Cover Page
8. Please disclose the title and amount of securities being
registered. See Item 501(b)(2) of Regulation S-K.
9. Unless the listing on Nasdaq will occur concurrent with the
effectiveness of this registration statement, please remove or
relocate the disclosure regarding your application for listing on
Nasdaq.
10. Please include the cross-reference to the risk factors
section,
as required by Item 501(b)(5) of Regulation S-K.
11. We note the statement that the board of directors believes
each
action being voted on is in the best interests of the
shareholders.
Please clearly indicate whether you have obtained a fairness
opinion.
Inside Front and Outside Back Cover Page of Prospectus
12. Please include the information required by Item 2 of Form S-4.
Questions and Answers about the Meeting, page v
13. In the first question and answer, we note the disclosure of
the
four operating companies being Beijing Origin Seed Limited, Henan
Origin Seed Cotton Technology Development Limited, Changchun
Origin
Seed Technology Development Limited and Beijing Origin State
Harvest
Technology Limited. Please reconcile this disclosure with the
companies in "Information about the Origin Parties" on page 70,
the
MD&A section on page 79 and Note 1 to the consolidated financial
statements of State Harvest Holdings Limited.
14. In the second question, in regards to why Chardan is proposing
the redomestication merger, we note the answer that "Chardan is
proposing the reincorporation of itself into a company formed
under
the laws of British Virgin Islands to attempt to secure future tax
benefits for the stockholders." Please clarify the tax benefit to
the company or the stockholders.
15. On page vi, in the answer to the question "How will the
redomestication merger be accomplished," please further explain
the
last sentence in your answer that "[y]our ownership interest of
Agritech will be reduced by the issuance of shares in the
acquisition
of the Origin Operating Companies."
Summary, page 1
The Companies - Chardan, page 1
16. Please advise us whether the underwriter`s over allotment
option
was fully exercised.
17. On page one, please explain the $714,000 to be used by Chardan
to
pay expenses incurred in its pursuit of a business combination.
Please discuss elsewhere in the prospectus the anticipated use of
proceeds not held in trust as stated in the Form S-1 by Chardan
and
then discuss the actual use of proceeds not held in trust. Please
explain the reason for any difference in the actual use of
proceeds
from the anticipated use of proceeds. We may have further
comment.
The Origin Parties, page 1
18. Please describe whether Origin currently has control of the
stock
of the four Origin Operating Companies. Please explain when
Origin
received control over the companies or when Origin will receive
control over the companies. Please explain how Origin will "own"
the
stock of the four Origin Operating Companies. In this section, it
may be helpful to explain the validity of this arrangement under
Chinese law. Please see our comment under "Stock Consignment
Agreement."
19. Please name the individual that will own the remaining 2.04%
of
Henan Origin Cotton Technology Development Limited.
20. Please provide the basis for the statement that the corn seeds
sold by the Origin Operating Companies "represent roughly 3.75% of
the total corn seed market in China."
21. Please describe the principal terms of the Technology Service
Agreements in this section or in another appropriate section. The
agreements may need to be filed as exhibits.
The Business Combination, page 2
22. In the first sentence of page three, please describe their
"designees."
Appraisal Rights, page 5
23. Please include a cross-reference to the information provided
pursuant to Item 18 or 19 of this Form, as required by Item 3(j)
of
Form S-4.
Interests of Chardan Directors and Officers in the Stock Purchase,
page 6
24. Please describe the principal terms of the agreement between
Origin and Chardan Capital LLC. Please describe the services that
Chardan Capital will provide and include the total value of the
contract to Chardan. Also, explain if the only business of
Chardan
Capital LLC is to provide these services to Origin. In addition,
please describe the negotiations of this agreement. Please file
the
agreement as an exhibit.
25. Please describe the amount of the termination fee payable to
the
Origin Stockholders.
Conditions to the Completion of the Stock Purchase, page 6
26. We note the disclosure that a condition of the stock purchase
is
that management must determine that the fair market value of
Origin
is at least 80% of the net assets of Chardan. Please disclose
whether this determination has been made and how this was made.
If a
third party opinion was obtained regarding the value of Origin,
please disclose. We may have further comment.
27. We note another condition that there must not be less than $20
million in Chardan`s trust account. Please disclose the percent
of
investors who could seek return of their money from escrow that
would
result in this condition not being met. If is it less than the
20%
discussed elsewhere, consider revising the disclosure to discuss
this
condition, each time you refer to the 20% requirement.
Market Price Information, page 15
28. Please explain the reference to December 31, 2005. Also,
please
provide the closing price on the last trading day before the
announcement of the stock purchase agreement.
Risk Factors, page 16
29. The subheadings of several of your risk factors merely state
facts or uncertainties and do not adequately reflect the risks
that
follow. Please revise your subheadings to succinctly state the
risks
you discuss in the text. For example, please refer to risk
factors
5, 11, 13 and 22.
30. To the extent possible, please avoid the generic conclusions
you
reach in several of your risk factors that the risk discussed
could
"negatively affect," "adversely affect" or have an "adverse
affect"
on business, revenues or other similar matters. Instead, replace
this language with more specific disclosure of how your financial
condition would be affected and place the risk in context by
making
the magnitude of the risk clear. For instance, see risk factors
2,
5, 6, 8, 9, 10, 12, 14, 15, 16, and 21. Please describe
specifically
the impact that the risks mentioned might have on your business.
31. In risk factor 11, we note that the company makes many
assertions
regarding market conditions. Please provide us with reasonable
support for the assertions and summarize the support later in the
prospectus. If a third party is the source of the information,
please name the third party and the publication where the
information
can be found. If the information is not readily available to the
public, please file the third party`s consent to being named in
the
prospectus and to the summary contained in the disclosure.
32. In risk factor 17, it appears that the risk described in the
narrative that the stock consignment agreements may be
unenforceable
is a separate risk from the risk described in the subheading that
the
stock assignment agreements may require enforcement action by
Origin
to assert its rights. Please separate the risks and expand to
discuss the risk to investors should the stock assignment
agreement
be unenforceable. Also it appears that this is an important risk
that could be discussed at the beginning of the Risk Factor
section.
Please revise.
33. Please include risk factors regarding the large amount of
additional payments to be made to the Origin Stockholders under
the
stock purchase agreement and the possible dilution to shareholders
from the issuance of a large amount of shares issued to the Origin
Stockholders under the earn out agreement in the stock purchase
agreement.
34. It may be helpful to include a risk factor regarding any
difficulties in the repatriation of profits from companies located
in
China.
Forward-Looking Statements, page 23
35. Please clarify to disclose that the safe harbors for forward-
looking statements included in the Securities Act and Securities
Exchange Act do not apply to statements made in your Form S-4.
Votes Required, page 27
36. Please include the record date.
Background of the Stock Purchase, page 29
37. Please disclose the date the company or any affiliates of the
company had initial contact with Best of the Best or its
principals
to provide services for Chardan. Please describe the negotiations
between Best of the Best and Chardan or its affiliates in engaging
Best of the Best services including the timing of those
negotiations.
Please disclose when any agreements, preliminary or otherwise,
were
entered into between Best of the Best and Chardan or its
affiliates
and describe the principal terms of the agreements, including
fees.
Please file all agreements between Best of the Best and Chardan or
its affiliates as exhibits.
38. Please disclose when Best of the Best first began seeking
possible acquisition targets and when it first presented possible
acquisition companies to Chardan or its affiliates. Please
describe
the process, including dates, from when Best of the Best first
mentioned or presented any acquisition companies to Chardan or its
affiliates to when Chardan commenced negotiations with one
potential
target company in May 2004.
39. We note the disclosure "[i]n April 2004, Chardan commenced its
efforts to locate a company with which to effect a business
combination." Please describe in detail the efforts made by
Chardan.
40. On page 30, please disclose when Chardan or it affiliates
first
entered into discussions with Origin or its affiliates regarding a
business combination.
Board Consideration of Approval of Transaction, page 31
41. In the second paragraph under this section, please name the
consultants.
Chardan`s Reasons for the Stock Purchase and Recommendation of the
Chardan Board, page 32
42. We note the disclosure that "[t]hree of the directors are
currently principals in a strategic financial and management
consulting company that focuses on identifying attractive Chinese
companies and in structuring transactions involving those
companies."
Please identify the three directors and the management consulting
company. Also disclose any possible conflicts of interest.
43. On page 33, you state Origin "has experienced annual revenue
growth of greater than 40% for the past three years." However, we
note 2002 revenue increased only 32% over 2001. Also, it is not
clear what periods this statement refers to. Please revise to
clarify.
44. On pages 33 and 72, you discuss projected revenues for 2005.
As
discussed in Regulation S-K, Item 10(b), discussion of projections
of
future economic performance is encouraged as long as management
has a
reasonable basis and the projections are presented in an
appropriate
format. Please explain your basis for assessing future
performance,
including the key assumptions underlying the projections, or
revise
to eliminate the projections.
45. On page 33 you disclose that Origin devotes approximately 5%
of
annual revenue to research and development. Based on the research
and development costs presented on the income statement it appears
that less than 3% of revenues have been spent on research and
development for the years ended December 31, 2004 and 2003.
Please
advise or revise.
46. We note that parts of this section and the "Information about
the
Origins Parties" section appear promotional, rather than factual,
and
should be revised to remove all promotional statements. No
speculative information should be included, unless clearly labeled
as
the opinion of management of the company along with disclosure of
the
reasonable basis for such opinions or beliefs. For example we
note
the statements on page 34 such as "few of them are developing and
producing advanced hybrid seeds that offer the advantage that
Origin`s hybrid seeds do." Please provide reasonable support for
the
promotional statements in the prospectus. If a reasonable basis
cannot be provided, the statements should be removed.
47. On page 36, we note the disclosure that "[t]he board of
directors
also considered the restrictions on how a foreign company may own
and
control Chinese companies in restricted industries. They believed
that the restrictions and use of control agreements was an
acceptable
business strategy to obtain an acquisition opportunity in China."
Please describe this business strategy and discuss the validity of
this structuring of ownership under Chinese law. Please explain
whether the board of directors consulted with or received an
opinion
from attorneys that are licensed under Chinese law to base their
opinion that the control agreements were valid under Chinese law.
Also describe whether the board of directors received an opinion
from
the appropriate Chinese authorities that the control agreements
w