Prospectus
Supplement
Filed
Pursuant to Rule 424(b)(5)
File
Number 333-166236
PROSPECTUS
SUPPLEMENT
To
Prospectus dated June 11, 2010
2,000,000
Ordinary Shares
ORIGIN AGRITECH
LIMITED
This
prospectus supplement relates to the issuance and sale of up to 2,000,000
ordinary shares of Origin Agritech Limited through our sales agent,
Rodman & Renshaw, LLC. These sales, if any, will be made pursuant to
the terms of a Continuous Offering Program Agreement entered into between us and
our sales agent, the form of which was filed with the Securities and Exchange
Commission under a Current Report on Form 6-K filed December 16, 2010, and is
incorporated herein by reference. Our sales agreement with Rodman &
Renshaw, LLC is limited to the sale of 2,000,000 ordinary shares.
Our
ordinary shares are traded on the NASDAQ Capital Market under the symbol “SEED.”
On January 3, 2011, the last reported sales price was $10.84 per share. Sales of
shares under this prospectus supplement, if any, may be made (i) in sales
deemed to be an “at the market” offering as defined in Rule 415 under the
Securities Act of 1933, which includes sales made directly on the NASDAQ Capital
Market, the existing trading market for our ordinary shares, or sales made to or
through a market maker, (ii) by privately negotiated transactions, and/or
(iii) any other method permitted by law. Consistent with instructions that
may be delivered from time to time by us, the sales agent will make all sales
using commercially reasonable efforts consistent with its normal trading and
sales practices.
The
commission we will pay to our sales agent for sales of our ordinary shares sold
pursuant to the Continuous Offering Program Agreement will be 1.8% of the gross
proceeds of the sales. The net proceeds that we receive will depend on the
number of shares actually sold and the offering price for such shares. If all
2,000,000 shares are sold at the January 3, 2011, at the current last sales
price stated above, we will receive $21,168,000 in gross proceeds, or
$21,029,600 in aggregate net proceeds, assuming a sales agent fee of 1.8% and
other expenses of 1.2% of the gross proceeds.
In
connection with the sale of our ordinary shares on our behalf, the sales agent
may be deemed an “underwriter” within the meaning of the Securities Act of 1933,
as amended, and the compensation of the sales agent may be deemed to be
underwriting commissions or discounts. We have agreed to provide indemnification
and contribution to the sales agent against certain liabilities, including
liabilities under the Securities Act of 1933.
The
aggregate market value of the 15,813,555 outstanding ordinary shares held by
non-affiliates on January 3, 2011, was $171,418,947. During the 12 calendar
months prior to and including the date hereof, we have not sold any ordinary
shares. In the future we will report sales of our ordinary shares from time to
time in either a Current Report on Form 6-K or in the Annual Report on Form 20-F
or update this Prospectus.
Investing
in our securities involves a high degree of risk. See the section entitled “Risk
Factors” in this prospectus supplement and in the documents we incorporate by
reference in this prospectus. You should carefully consider these risk factors,
as well as the information contained in this prospectus supplement and the
accompanying prospectus, before you invest.
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.
Rodman & Renshaw,
LLC
The date
of this Prospectus Supplement is January 5, 2011.
TABLE
OF CONTENTS
Prospectus
Supplement
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Page
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About
this Prospectus Supplement
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ii
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Prospectus
Supplement Summary
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S-1
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Our
Company
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S-1
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The
Offering
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S-1
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Risk
Factors
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S-2
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Forward-Looking
Statements
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S-22
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Use
of Proceeds
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S-22
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Plan
of Distribution
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S-22
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Experts
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S-24
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Legal
Matters
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S-24
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Where
You Can Find More Information
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S-24
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Prospectus
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About
This Prospectus
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1
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Business
Description
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1
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Risk
Factors
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2
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Forward-Looking
Statements
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3
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Use
of Proceeds
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4
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Ratio
of Earnings to Fixed Charges
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4
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Capitalization
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4
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Description
of Share Capital
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4
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Description
of Warrants
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5
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Description
of Units
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6
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Plan
of Distribution
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7
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Expenses
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9
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Legal
Matters
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10
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Experts
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10
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Where
You Can Find More Information
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10
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Information
Incorporated by Reference
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10
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Enforcement
of Civil Liabilities
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11
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You
should rely only on the information incorporated by reference or provided in
this prospectus supplement, the accompanying prospectus and the documents
incorporated herein and therein by reference. We have not authorized anyone else
to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not making an
offer to sell these securities in any state where the offer or sale is not
permitted. You should assume that the information in this prospectus supplement
and the accompanying prospectus, or incorporated by reference, is accurate only
as of the dates of those documents. Our business, financial condition, results
of operations and prospects may have changed since those dates.
We are
providing this information to you about this offering of securities in two
parts. The first part is this prospectus supplement, which provides the specific
details regarding the ordinary shares that we are selling in this offering and
also adds to and updates information contained in or incorporated by reference
into the accompanying prospectus. The second part is the base prospectus dated
June 11, 2010, included in our registration statement on Form F-3, as amended
(SEC File No. 333-166236), which provides a general description of the
securities we may offer from time to time under that registration statement.
This prospectus supplement and the accompanying prospectus are part of a “shelf”
registration statement that we filed with the U.S. Securities and Exchange
Commission. Under the shelf registration
process, we may offer from time to time our ordinary shares up to an aggregate
amount of $150,000,000, of which this offering is a part. To the extent there is
a conflict between information contained in this prospectus supplement, on the
one hand, and information contained in the accompanying prospectus or any
document incorporated by reference, on the other hand, the information in this
prospectus supplement shall control.
The
registration statement we filed with the SEC includes exhibits that provide more
detail of the matters discussed in this prospectus supplement and the
accompanying prospectus. You should read this prospectus supplement, the
accompanying prospectus and the related exhibits filed with the SEC, together
with the additional information described under the heading “Where You Can Find
More Information,” before making your investment decision.
Unless
the context otherwise requires, references in this prospectus and the
accompanying prospectus supplement to “Origin Agritech,” “the Company,” “we,”
“us” and “our” refer to Origin Agritech Limited and its subsidiaries.
PROSPECTUS
SUPPLEMENT SUMMARY
This
summary contains basic information about us and this offering. Because it is a
summary, it does not contain all of the information that you should consider
before investing. Before you decide to invest in our securities, you should read
this entire prospectus supplement and the accompanying prospectus carefully,
including the section entitled “Risk Factors,” and our consolidated financial
statements and the related notes and other documents incorporated by reference
in the accompanying prospectus.
We are a technology-focused crop seed
company serving mainland China. We have sought to broaden our usage and market
penetration of our innovative plant breeding techniques, modern biotechnology,
and innovative information and research management to develop and deliver
high-yield seeds to the Chinese farming customer. Our goal is to lead the
industry by providing farmers with unique enabling technology and services,
producing higher crop yields. Our activities include the specialization in the
research and development, production, and sales and marketing of crop seeds
(corn, rice, cotton and rapeseed) throughout China. We have pursued research
into genetically modified seeds, and in November 2009, we received the
Bio-Safety Certificate from the Ministry of Agriculture as a final approval for
commercial use of the world’s first genetically modified phytase corn. This is
the first approved genetically modified corn seed product in China. We are also
actively pursuing the approval of other genetically modified seed products
including glyphosate resistant corn and Bt Corn. Our focus remains in the
production of higher quality seed products, whether proprietary or
licensed.
During the last several years, we
continued the development of our established plant genetic engineering
technology platforms, including transforming herbicide tolerance, insect
resistance, nitrogen efficiency, and drought stress tolerance traits into corn
inbred lines. Of note, we made significant strides in developing our exclusive
insect resistance and phytase products. We continue to seek to further
effectively utilize modern biotechnology in China and hope to further expand
beyond China in the future.
We plan to use China’s emerging
technology base to take advantage of operating within China. In particular, from
time to time, we enter into cooperative agreements with publicly funded research
institutions in China. In exchange for providing funding to these institutions,
we receive rights, which are frequently exclusive rights, to market any seeds
developed by these institutions. When a seed is ready to be marketed, we
negotiate an arrangement by which we sell the newly developed seeds in exchange
for the payment of certain fees to the institution. We believe that these
cooperative ventures allow us to access new products without expending
substantial costs for our own research and development of new seed
products.
Our business model draws from existing
and new technologies by utilizing both conventional breeding and advances in
biotechnology. We aim to build upon our current hybrid base where we have
accumulated parental seeds with advantageous traits optimized to local soil
conditions. We have roughly 100 total products, both licensed and proprietary,
in the market. We began to develop our own proprietary hybrid seed varieties in
1998, and, as of January 2010, we have 23 proprietary corn seed products, 18
proprietary rice seed products, 3 proprietary cotton seed products
and 3 proprietary rapeseed products that are in commercial production and
distribution.
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Ordinary
shares offered
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Up
to 2,000,000 shares
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Ordinary
shares outstanding after this offering
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Up
to 25,791,268 shares
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Use
of proceeds
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We
intend to use the net proceeds for general corporate purposes.
See “Use of Proceeds.”
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Risk
factors
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See
the “Risk Factors” section of this prospectus supplement for factors to
consider before deciding to purchase our securities.
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NASDAQ
listing
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The
ordinary shares are listed on the NASDAQ Capital Market under the symbol
“SEED.”
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The number of ordinary shares issued
and outstanding after the offering is based on 23,791,268 shares outstanding as
of January 3, 2011, excluding 498,851 treasury shares and 149,200 shares
issuable upon the exercise of outstanding options.
RISK
FACTORS
Investing
in our securities involves a high degree of risk. You should consider the
following risk factors, as well as other information contained or incorporated
by reference in this prospectus supplement and accompanying prospectus, before
deciding to invest in our securities. The following factors affect our business
and the industry in which we operate. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known or which we currently consider immaterial may also have an
adverse effect on our business. If any of the matters discussed in the following
risk factors were to occur, our business, financial condition, results of
operations, cash flows, or prospects could be materially adversely affected, the
market price of our ordinary shares could decline and you could lose all or part
of your investment.
Risks relating to our
business
If
we do not manage our ongoing growth successfully, our growth and chances for
profitability may be hindered or impeded.
We continue to be a growth orientated
company. We expanded our operations during the last several years,
and we plan further expansion with new crop seed, biotechnology, and chemical
products and increase and enhancement of our distribution channels and expansion
into existing or new markets and new lines of business. Expansion is expected to
create significant demands on our corporate administrative, operational and
financial personnel and other human resources and on our cash flow needs and the
requirement for additional working capital. Our current resources may not be
adequate to support further expansion and diversification. These demands and
ongoing industry factors such as overproduction or governmental policy changes
may hinder our cash flow as our margins and sales may be adversely
affected.
We
require short-term financing to fund our working capital, especially due to the
seasonal nature of our business.
The nature of the agricultural seed
production industry involves expenses and revenue cycles that are seasonal in
nature. In our fiscal year third quarter, we may face costs that are in excess
of our cash flow sources. The advance payments made to our seed producing
farmers may exceed the amount of deposits received from our customers, the
distributors and end users. The exact timing of these deposit payments is
dependent on the Chinese lunar calendar, which varies from one calendar year to
the next. As a result, we have customarily relied upon short term bridge loans
to cover our expenses pending receipt of payment from farmers at the time of
seed purchases. Although historically we have had access to
sufficient financing to manage our cash flow cycles, we cannot be certain that
we will be able to obtain sufficient debt financing on terms that are
satisfactory to us to maintain consistent operating results given changing
credit conditions worldwide and internal PRC policies. Downgrades in our credit
rating, tightening of related credit facilities or financial markets or other
limitations on our ability to access short-term financing would increase our
interest costs and adversely affect our operating results and
operations.
Because
of the nature of our business, which has seasonal variation, it is likely that
our future financial performance will fluctuate from period to
period.
Our operating results likely will
fluctuate due to a number of factors, many of which are beyond our control. Our
quarterly and annual revenues and costs and expenses as a percentage of our
revenues may be significantly different from our historical rates. Our operating
results in future quarters may fall below expectations. The industry in which we
operate is seasonal in nature. The sales season of corn, rice, and cotton seed
lasts from October to June; the sales season of canola seed lasts from July to
September. We generally do not have significant sales revenue from July to
September, which results in cyclical changes of our cash flow and operating
activities. As a result, if we are unable to generate sufficient working capital
from cash flow from operations and working capital facilities, we may encounter
liquidity difficulties from the period of July through September, which may harm
our operations. The seasonal nature of our business causes our operating results
to fluctuate from quarter to quarter. Any unexpected seasonal or other
fluctuations could cause the price of our common shares to fall. As a result,
you may not rely on comparisons of our quarterly operating results as an
indication of our future performance.
In
addition, the future achievement and growth of our profits depends on our
ability to secure sufficient orders from customers coupled with securing
sufficient seed production from the seed production farms. An adverse change in
market conditions may have material and adverse effects on our operating results
if we cannot adjust our operating and marketing strategy to respond to such
changes. Our results of operations may be adversely affected by reduced orders
and profit margins in the event of a slowdown in market demand, constraint on
the market supply, an increase in business competition, a decrease in government
subsidies to farmers, increased costs, or for other reasons. As such, there is a
risk that we will not be able to achieve or maintain profitability or our
historical results.
Aged
inventory may result in an increase of our expenses and cause operating
losses.
Due to the nature of the seed industry,
we normally produce seeds according to our annualized production plan at least
one entire year before we deliver the seeds to our customers. If our production
plan is too aggressive, we could produce more seeds than the market demands
resulting in aged seeds. We may decide not to sell the aged seeds as crop seed
products, taking into account factors, such as the quality of the seeds and
commodity pricing. In that case, the aged inventory may be sold as common feed
products at greatly reduced prices. Aged inventory could result in asset
impairment risk, in which case we would suffer a loss and incur an increase in
our cost of revenue and a decrease in gross profit.
If
we are unable to match our production requirement to the demand of our direct
customers, our business, financial condition and results of operations may be
adversely affected.
We normally produce seeds according to
an annualized production plan based on estimated customer demand that is
developed before we sell and deliver crop seeds to distributors, which are our
direct customers. Chinese farmers, the end users of our crop seed, generally
make purchasing decisions for our products based on market prices, economic and
weather conditions and other factors that we and our distributors may not be
able to fully or accurately anticipate in advance, which is usually more than
one to two years before the sales period. If we fail to accurately estimate the
volume and types of products sought by farmers and otherwise adequately manage
production amounts, which may also be adversely affected by weather conditions,
we may produce more seeds than we are able to sell resulting in excess inventory
and aged seeds. On the other hand, if we underestimate demand, we may not be
able to satisfy demand for our crop seeds, and thus damage our customer
relations and end-user loyalty. Our failure to estimate farmers’ future needs
and to match our production to the demand of our direct customers may adversely
affect our business, financial condition and results of operations. In addition,
inadequate distributor liquidity could affect distributors’ ability to pay for
our products and, therefore, affect our sales or our ability to collect on our
receivables.
The
successful development and commercialization of our biotech pipeline products
will be necessary for our growth.
We conduct our own research and
development efforts for genetically modified seeds, and we have entered into
agreements with the Chinese Academy of Science and the China Agricultural
Academy of Science in the PRC working on genetic modifications and other
biotechnology that give us the right to market the seeds and technologies they
develop. We are also seeking other development and marketing arrangements with
other entities, in China and elsewhere. There can be no assurance
that these efforts will produce improved seed varieties and resistant seeds.
Commercial success frequently depends on being the first company to enter a
particular market. The length of time and the risk associated with the breeding
and biotech pipelines are similar and interlinked because both are required as a
package for commercial success in markets where biotech traits are approved for
growers. Regulatory requirements affect the development of our biotech products,
including the GM crop testing of seeds containing the biotech traits, which
could harm our business and results of operations if regulations are not
satisfied. The testing procedures can be lengthy and costly, with no guarantee
of success. It could have an adverse effect on our operations if our genetically
modified products are unable to pass the safety evaluation of genetically
modified agricultural organisms.
There has been a worldwide increase in
the development and application of genetically modified agricultural products to
increase the quality and quantity of crop yields. The production and
commercial sale of genetically modified corn and rice seeds only recently has
been allowed in China. Therefore, we still will rely primarily upon
traditional methods of creating crop seed hybrids to develop new
products. As government policies change to allow more genetically
modified corn seeds and demand develops for these products, we expect that we
will produce more genetically modified products to meet customer demand to the
extent we are able. There is a risk that our current steps to respond to the
potential competitive threat posed by genetically modified agricultural
products, including our research and development activities with respect to
genetically modified crop seeds, may not enable us to compete
successfully.
The
potential for uncertainty in the government regulation of genetic technology and
genetically modified, or GM, agricultural products could have an adverse effect
on our business.
We continue to undertake a transition
from a conventional hybrid seed company to an agricultural biotechnology
company. However, genetically modified seed products are controversial, and
genetic modification has not yet been widely accepted in many regions of the
world, including China. Since the Chinese government approved the commercial
planting of GM cotton in 1997, the government has only just begun to approve GM
crops for commercial cultivation. The relative newness and the potential for
uncertainty in the government regulation of genetic technology could have an
adverse effect on our business development strategy and our ability to develop
new seeds that may provide us with better margins.
The
global competition in biotechnology will affect our business.
We believe we are a leader in
biotechnology in China since we initiated our own biotechnology research program
many years ago and we have built the first internal biotech research center
among Chinese companies. However, if and when multinational corporations engaged
in the crop seed business expand into the agricultural market in China in the
future, they may have a greater portfolio of seed products and more advanced
technologies. The major multinational competitors have a long operating history
in the research and commercialization of their products, sophisticated marketing
capabilities and strong intellectual property estates, all of which may give
them competitive advantage over us. Any of these competitive advantages could
cause our existing or candidate products to become less competitive or outdated,
and adversely affect our product acceptance in the market place and our results
of operations.
The
degree of public acceptance or perceived public acceptance of our biotechnology
products can affect our operations.
Although all of the genetically
modified products must go through rigorous testing, some opponents of the
technology actively raise public concern about the potential for adverse effects
of our products on human or animal health, other plants and the environment. The
potential for adventitious presence of commercial biotechnology traits in
conventional seed, or in the grain or products produced from conventional or
organic crops, is another factor that could affect general public acceptance of
these traits. Public concern can affect the timing of, and whether we are able
to obtain, government approvals. Even after approvals are granted, public
concern may lead to increased regulation or legislation, which could affect our
business and operations, and may adversely affect sales of our products to
farmers, due to their concerns about available markets for the sale of crops or
other products derived from biotechnology.
We
are currently dependent on licensed seed products for the majority of our
revenues, and if we lose the right to produce and sell licensed seeds, we will
lose substantial revenues and suffer substantial losses.
If we are not able to develop and
produce the licensed seed products or if the current license agreements are
terminated or if we are unable to renew some of these license agreements on
commercially reasonable terms or at all, we will suffer a substantial loss of
our product offerings and consequently our revenues will be substantially
limited and our financial condition and results of operations may be adversely
affected.
We
have a relatively short operating history and are subject to the risks of any
growing enterprise, any one of which could limit our growth and our product and
market development.
As an expanding company and one that
does not have a long operating history, it is difficult to predict how our
businesses will develop over the long term. Accordingly, we face all of the
risks and uncertainties encountered by companies in the earlier stages of
development and expansion, such as:
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uncertain and continued market
acceptance for our product extensions and our
services;
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the evolving nature of the crop
seed industry in the PRC, where significant consolidation may occur,
leading to the formation of companies which may be better able to compete
with us than is currently the
case;
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changing competitive conditions,
technological advances or customer preferences could harm sales of our
products or services.
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maintaining our competitive
position in the PRC and competing with Chinese and international
companies, many of which have longer operating histories and greater
financial resources than us;
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maintaining our current licensing
arrangements and entering into new ones to expand our product
offerings;
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continuing to offer commercially
successful products to attract and retain a larger base of direct
customers and ultimate
users;
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retaining access to the farmland
we currently use for production of our products and obtaining access to
additional farmland for
expansion;
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continuing our existing
arrangements with production farms that grow our seed products and
entering into new arrangements with additional production
farms;
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maintaining effective control of
our costs and expenses; and
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retaining our management and
skilled technical staff and recruiting additional key
employees.
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If we are
not able to meet the challenge of building our businesses and managing our
growth, the likely result will be slowed growth, lower margins, additional
operational costs and lower income.
We
substantially depend on a few key personnel who, if not retained, could cause
declines in productivity and operational results and loss of our strategic
guidance, all of which would diminish our business prospects and value to
investors.
Our success depends to a large extent
upon the continued service of a few executive officers and key employees,
including:
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Dr. Gengchen Han, our Chairman of
the Board; and
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Liang Yuan, our Chief Executive
Officer and President.
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The loss of the services of one or more
of these key employees would have an adverse effect on us and our PRC operating
subsidiaries, as each of these individuals played and continues to play a
significant role in developing and executing our overall business plan and
maintaining customer relationships and proprietary technology systems. While
none of these key personnel is irreplaceable, the loss of the services of any of
these individuals would be disruptive to our business. We believe that our
overall future success depends in large part upon our ability to attract and
retain highly skilled managerial and marketing personnel. There is no assurance
that we will be successful in attracting and retaining such personnel on terms
acceptable to them. Inadequate personnel will limit our growth, and will be seen
as a detriment to our prospects, leading potentially to a loss in value for
investors.
We
or our licensors may be subject to intellectual property infringement claims,
which may force us to incur substantial legal expenses and, if determined
adversely against us or our licensors, may materially disrupt our
business.
We cannot be certain that our licensed
or self-developed proprietary seed or chemical products do not or will not
infringe upon intellectual property rights held by third parties. We, or any of
our licensors, may become subject to legal proceedings and claims from time to
time relating to the intellectual property of others. If we, or any of our
licensors, are found to have violated the intellectual property rights of
others, we may be required to pay damages and be enjoined from using such
intellectual property, and we may incur new or additional licensing fees if we
wish to continue using the infringing products, or be forced to develop or
license alternatives. In addition, we may incur substantial expenses in
defending against these third party infringement claims, regardless of their
merit.
Efforts
to protect our intellectual property rights and to defend against claims against
us can increase our costs and will not always succeed. Any failures could
adversely affect our sales and results of operations or restrict our ability to
conduct our business.
Intellectual property rights are
important to our business. We endeavor to obtain and protect our intellectual
property rights where our products are produced. However, we may be unable to
obtain protection for our intellectual property. Even if protection is obtained,
competitors, growers or others in the chain of commerce may raise legal
challenges to our rights or illegally infringe on our rights, including through
means that may be difficult to prevent, detect or defend. In addition, because
of the rapid pace of technological change and the confidentiality of patent
applications in some jurisdictions, competitors may be issued patents from
applications that were unknown to us prior to issuance. These patents could
reduce the value of our commercial or pipeline products or, to the extent they
cover key technologies on which we have unknowingly relied, require that we seek
to obtain licenses at a financial cost to us or cease using the technology, no
matter how valuable the patents may be to our business. We cannot assure you we
would be able to obtain such licenses on acceptable terms. Also, litigation may
be necessary to enforce our intellectual property rights, protect our trade
secrets or determine the validity and scope of the proprietary rights of others.
There is a risk that the outcome of such potential litigation will not be in our
favor. Such litigation may be costly and may divert management attention as well
as expend other resources which could otherwise have been devoted to our
business. An adverse determination in any such litigation will impair our
intellectual property rights and may harm our business, prospects and
reputation. In addition, we have no insurance coverage against litigation costs
and would have to bear all costs arising from such litigation to the extent we
are unable to recover such costs from other parties. The occurrence of any of
the foregoing may harm our business, results of operations and financial
condition.
Finally, implementation of PRC
intellectual property-related laws has historically been lacking, primarily
because of ambiguities in the PRC laws and difficulties in enforcement.
Accordingly, intellectual property rights and confidentiality protections in
China may not be as effective as in the United States or other countries, which
increases the risk that we may not be able to adequately protect our
intellectual property.
Our
business will not be able to be profitable if we do not continue to find and
market products considered valuable by our customers.
To be profitable, our crop seed and
chemical business depends on recurring and sustained reorders by farmers in
China. Reorder rates are inherently uncertain due to several factors, many of
which are outside our control. These include changing customer preferences,
competitive price pressures, failure to develop acceptable new products,
development of higher quality products by competitors, weather conditions and
general economic conditions.
Our
business focus on crop seed development and production does not permit us to
spread our business risks among different businesses and, thus, a disruption in
our seed production or the industry would harm us more immediately and
directly.
Our crop seed business is the principal
business activity of the company. Our venture into the chemical business expands
our options but without a large amount of business diversity, we will
not be able to spread the risk of our operations. Therefore, our business
opportunities, revenues and income could be more immediately and directly
affected by disruptions from such things as drought and disease or widespread
problems affecting the crop seed industry, such as limited farmer credit,
payment disruptions or customer rejection of genetically modified crop seeds,
among other things. If there is a disruption as described above, our revenues
and income will be reduced, and our business operations may have to be scaled
back.
We
are dependent on revenue from our corn seed products and, therefore, our
operating results could be disproportionately and negatively impacted if we are
unable to sell a sufficient amount of corn seed at satisfactory
margins.
Corn seed represents the principal
source of revenue for the company. Our dependence on the corn seed
market makes us particularly vulnerable to any negative market changes that
might occur in this product line. In particular, if demand for our corn seed
products generally decreases or if industry supply exceeds demand, prices will
be driven downward and our margins will be negatively impacted, which would have
an adverse effect on our business, results of operations and financial
condition.
Failure
to develop and market new products could impact the company’s competitive
position and have an adverse effect on the company’s financial
results.
The company’s operating results are
largely dependent on its ability to renew its pipeline of new products and
services and to bring those products and services to market. This ability could
be adversely affected by difficulties or delays in product development such as
the inability to identify viable new products, greater than anticipated
development costs, technical difficulties, regulatory obstacles, competition,
lack of demand, insufficient intellectual property protection, or lack of market
acceptance of new products and services. Due to the lengthy development process,
technological challenges and intense competition, there can be no assurance that
any of the products the company is currently developing, or could begin to
develop in the future, will achieve substantial commercial success.
Consequently, if we are not able to fund extensive research and development
activities and deliver new products to the markets we serve on a timely basis,
our growth and operations will be harmed. In addition, sales of the company’s
new products could replace sales of some of its current products, offsetting the
benefit of even a successful product introduction.
If
we fail to introduce and commercialize new crop seed and chemical varieties, we
will not be able to recover research, development and cover our other
costs.
We cannot guarantee the development and
performance of new crop seed and chemical varieties, whether licensed or
proprietary, or that they will meet our and our customers’
expectations. Farmers generally need time to learn about new seed
varieties and how to plant and tend them. Their traditional planting experience
may make it difficult for them to adapt to the new varieties. The process for
new seed and chemical products to gain market recognition and acceptance is long
and has uncertainties. If we fail to introduce and commercialize a new seed or
chemical variety that meets the demand of farmers in China and to provide the
proper education about them to the distributors, farmers and public, we may not
be able to generate sufficient sales to cover our costs or generate a financial
return on our investment.
One
or more of our distributors could engage in activities that are harmful to our
brand and to our business.
Our crop seed and chemical products are
sold primarily through distributors. The distributors are responsible
for ensuring that our products have the appropriate licenses to be sold to
farmers in the PRC provinces. If the distributors do not apply for and receive
the appropriate licenses, their sales of our products in those provinces may be
illegal, and we may be subject to government sanctions, including confiscation
of illegal revenues and a fine of between two and three times the amount of such
illegal revenues. Unlicensed sales in a province may also cause a delay for our
other distributors in receiving a license from the authorities for that
province, which could further adversely impact our sales in that province. In
addition, distributors may sell our products under another brand that is
licensed in a particular province if our product is not licensed there. If our
products are sold under another brand, the purchasers will not be aware of our
brand name, and we will be unable to cross-market other crop seed varieties or
other products as effectively to these purchasers. Moreover, our ability to
provide appropriate customer service to these purchasers will be negatively
affected, and we may be unable to develop our local knowledge of the needs of
these purchasers and their environment. If any of our distributors sell inferior
crop seeds or chemicals produced by other companies under our brand name, our
brand and reputation could be harmed, which could make marketing of our branded
crop seeds or chemicals more difficult.
As
we expand into agricultural chemical products, we will be subject to
environmental regulation and regulation relating to the purchase, storing,
packaging and distribution of chemicals, which if violated will result in fines
or cessation orders, and may have an adverse impact on our expansion and
business.
We are expanding into agricultural
chemical products, which initially involve the purchase of active pesticide
ingredients which we formulate and mix for agricultural use. These
products are distributed through our distribution chain. The
purchase, storage, packaging and distribution of agricultural chemicals is
subject to various regulations, including environmental regulation and
permitting requirements. The failure to obtain required licenses or
the failure to conduct our business in compliance with applicable laws may
result in fines, clean up costs or cessation orders, any of which would have an
adverse impact on our expansion into this area of products and may have an
adverse impact on our financial condition and results of
operations.
We
may be exposed to product quality claims, which may cause us to incur
substantial legal expenses and, if determined adversely against us, may cause us
to pay significant damage awards.
The performance of our seeds depends on
climate, geographical areas, cultivation method, farmers’ degree of knowledge
and other factors in addition to genetic traits and the quality of our seeds.
Natural disasters may also affect the performance of our seeds, particularly
when farmers are not able to timely and effectively respond to those disasters.
Furthermore, the cultivability of some farmland is deteriorating because of
toxic and hazardous materials resulting from farmers’ overuse of chemical
herbicides and pesticides . These factors generally cause underproduction, but
farmers generally attribute underproduction to seed quality. We may be subject
to legal proceedings and claims from time to time relating to our seed quality.
The defense of these proceedings and claims can be both costly and time
consuming and may significantly divert efforts and resources of our management
personnel. An adverse determination in any such proceeding could subject us to
significant liability and damage our market reputation and prevent us from
achieving increased sales and market share. Protracted litigation could also
result in our customers or potential customers deferring or limiting their
purchase of our products.
Our
revenues depend on the ability of a large number of small farmers to buy seed
for cash because financing for purchases of this size and type is not available;
therefore, if a substantial number of our customers become unable to pay for
seed, our sales, revenues and operating results will decline.
We have a large and diversified
customer base, with no single customer representing more than 1% of our
revenues. The large customer base provides some protection to us against a loss
of revenues due to the inability of a significant number of our customers to pay
for seed that has been previously ordered. The unavailability of credit for
farmers in the PRC, however, reduces the ability of those farmers to withstand
the effects of difficult economic times. The lack of credit could prevent
farmers from fulfilling their purchasing commitments to us with the result that
we may suffer a lower amount of recognized revenues or our revenues and results
of operations may be reduced.
Fluctuations
in commodity prices can increase our costs and decrease our sales.
We purchase our seed inventories from
production growers at market prices and retain the seed in inventory until it is
sold. We also purchase our active ingredients from chemical manufacturers at
market prices. These purchases constitute a significant portion of
the manufacturing costs for our seeds and chemicals. We use hedging strategies
to mitigate the risk of short-term changes in these prices, but we are unable to
avoid the risk of medium and long-term changes. Accordingly, increases in
commodity prices may negatively affect our cost of goods sold or cause us to
increase seed or chemical prices, which could adversely affect our sales.
Farmers’ incomes are also affected by commodity prices; as a result, commodity
prices could have a negative effect on their ability to purchase
our products.
Price
increases for energy costs and raw materials could have a significant impact on
our ability to sustain and grow earnings.
Our production and distribution
processes consume significant amounts of energy and raw materials, especially in
transportation the costs of which are subject to worldwide supply and demand and
other factors beyond the control of the company. Significant variations in the
cost of energy, which primarily reflect market prices for oil and raw materials
may affect the company’s operating results from period to period though this has
not been a factor. When possible, the company purchases raw materials through
negotiated long-term contracts to minimize the impact of price fluctuations. The
company has taken actions to offset the effects of higher energy and raw
material costs through selling price increases, productivity improvements and
cost reduction programs. Success in offsetting higher raw material costs with
price increases is largely influenced by competitive and economic conditions and
could vary significantly depending on the market served. If the company is not
able to fully offset the effects of higher energy and raw material costs, it
could have a significant impact on the company’s financial
results.
There
are difficulties in managing our storage system, which may result in damage to
our seeds in storage and, thus, operating losses.
Seed storage entails significant risks,
including difficulties in management of moisture, temperature and humidity of
storage condition, any failure of which may result in damage to our
seeds in storage and, thus, an impairment of our inventory and possible
operating losses.
We
have limited business insurance coverage in China.
PRC insurance companies do not offer
extensive business insurance products. As a result, we have very limited
business liability, business disruption insurance, or product liability coverage
for our operations in China. We have determined that the difficulties associated
with acquiring such insurance on commercially acceptable terms makes it
impractical for us to obtain such coverage. Most likely we would bear the
effects of any business disruption, litigation or natural disaster resulting in
our incurring substantial costs and the diversion of our resources, and could
adversely affect our operations and financial condition.
We
rely on our network of over 100,000 farmers for the production of our
crop seed products of which the vast majority has been operating with us for a
long period of time. Although our relationship with those farmers has been
stable in the past, there are no assurances that those relationships will remain
stable in the future. Instability of this kind could limit the amount of seed
products available to us for sale to customers and threaten customer
loyalty.
We believe we maintain a favorable
relationship with the farmers in our seed production network. In addition, the
fact that we rely on a large number of farmers to produce crop seeds means that
not one or even several farmers can, acting independently, adversely affect our
business. However, events such as a shift in pricing caused by an increase in
the value of commodity food crops other than seed crops, increase in land prices
or competition could disrupt our chain of supply. Any of these disruptions could
limit the supply of seeds that we obtain in any given year, adversely affecting
supply and thereby lowering revenues in the subsequent marketing season. Such
disruption could also damage our distributor relationships and farmer loyalty to
us if we cannot supply the quantity of seed expected by them.
We
rely on license and technical service agreements, and there is no assurance that
we will be able to renew these agreements.
We have multiple license agreements for
designated seed products in relation to exclusive production and marketing
within China. Our license agreements with Hubei Province Shiyan Agricultural
Sciences Institute and Handan Agricultural Academy each have terms expiring on
July 1, 2011, respectively. Origin Biotechnology will provide technical
research, production and distribution services to our several subsidiaries. In
return, Beijing Origin and the other subsidiaries are required to pay Origin
Biotechnology a service fee calculated according to the weight of corn, rice,
and cotton seeds sold. The initial term of the technical services agreements is
three years and either party has the right to terminate the agreement if it does
not desire to renew the provisions thereof at the expiration of the term. There
is no guarantee that any of the agreements upon which we or our subsidiaries
depend for licensing and technical services will be renewed. Moreover, there is
no assurance that any steps we have already taken or might take in the future
will ensure the successful renewal of any or all our rights or the granting of
further new rights or that the terms of any renewals of our rights would not be
significantly less favorable to us than the terms of our current rights under
these agreements.
Agreements
between our subsidiaries may not reflect terms that would have resulted from
arm’s length negotiations among unaffiliated third parties.
Agreements between our subsidiaries
that have been entered into, including the technical services agreements, by and
among Beijing Origin, Changchun Origin, Henan Origin and Origin Biotechnology,
may not reflect terms that would have resulted from arm’s-length negotiations
among unaffiliated third parties. These agreements relate to, among other
things, the transfer of intellectual property rights and the provision of
technical research, production and distribution services.
If
our rights to lease land from farmers were subject to a dispute, or if their
legality or validity were challenged, our operations could be
disrupted.
PRC law provides for the registration
of land ownership and land-use rights and for the issuance of certificates
evidencing land ownership or the right to use land. The administrative system
for registration of land ownership and land-use rights, however, is not
well-developed in rural areas where most of our crop seed production bases are
located. As a result, we generally are not able to verify through the land
registry system the ownership or land-use rights of the parties from whom we
have leased land. Despite our efforts to obtain representations from the farmers
that they own the land, possess land-use rights or have the right to
sub-contract the land-use right on behalf of the holder of such rights, there is
nevertheless a risk that they have not legally and validly granted the right to
use the land to us. Moreover, there is a risk that farmers may, in breach of the
terms of the applicable leases, enter into leases with other third parties in
respect of land-use rights which they have previously granted to us, or that
they have not entered into leases with third parties before entering into leases
with us.
There is a risk that the legality or
validity of our leases will be subject to dispute or challenge in the future. If
our leases become subject to a dispute or challenge, our operations on such
land, especially our research and development on crop breeding, could be
suspended and we could lose our rights to use such land which could adversely
affect our business, financial condition and results of operations.
Any diversion of
management attention to matters related to acquisitions or any delays or
difficulties encountered in connection with integrating acquired operations may
have an adverse effect on our business, results of operations, and/or financial
condition.
We have completed several acquisitions
involving seed companies and may complete other acquisitions in the near future.
These transactions are designed to contribute to our long-term growth. We must
fit such acquisitions into our growth strategies to generate sufficient value to
justify their cost. Acquisitions also present other challenges, including
geographical coordination, personnel integration and retention of key management
personnel, systems integration and the reconciliation of corporate cultures.
Those operations could divert management’s attention from our business or cause
a temporary interruption of or loss of momentum in our business and the loss of
key personnel from the acquired companies. In addition, proposed acquisitions
which are not consummated will cause us to incur substantial costs, none of
which are generally recoverable.
Certain
of our credit agreements contain restrictive covenants that may impair our
ability to conduct our business.
Certain of our current outstanding
credit agreements contain financial and operating covenants that limit our
management’s discretion with respect to certain business matters. Among other
things, these covenants require us to restrict our ability and our
subsidiaries’ ability to incur additional debt, create liens or other
encumbrances, change the nature of our business, pay dividends, sell or
otherwise dispose of assets, and merge or consolidate with other entities. Any
failure by us or our subsidiaries to comply with these agreements could harm our
business, financial condition and operating results.
Risks
relating to our industry
The
Chinese agricultural market is highly competitive and our growth and results of
operations may be adversely affected if we are unable to compete
effectively.
The agricultural market in China is
highly fragmented, largely regional and competitive, and we expect competition
to increase and intensify within the sector. We face significant competition in
our crop seed business. Our competitors may have greater financial, research and
development resources than we have. Competition may also result from
consolidation or other market forces within the crop seed industry in China and
the privatized crop seed producers that were operated by the local governments
in China. Our competitors may be better able to take advantage of industry
consolidation and acquisition opportunities than us. The reform and
restructuring of the previously state-owned equity in seed enterprises will
likely lead to the reallocation of market share in the seed industry, and our
competitors may increase their market share by participating in the
restructuring of the state-owned seed companies. Privatization will likely mean
that these producers will need to develop more efficient and commercially viable
business models in order to survive. In addition, the PRC government currently
restricts foreign ownership of any domestic seed development and production
business to no more than 49%. When and if such restrictions are lifted,
multinational corporations engaged in the seed business may expand into the
agricultural market in China. These companies have significantly greater
financial, technological and other resources than us and may become our major
competitors in China. In particular, our industry was affected by a widespread
overproduction during 2007. As a result, supply of certain of our products
exceeded demand for those products and, as a result, market prices were reduced
and our margins and revenues were negatively impacted in 2007 and
2008. However, this was not the case in 2009 and 2010, but similar
changes in supply and demand pressure may result in similar trends in upcoming
years. If these trends occur, we may be unable to successfully compete in our
industry, especially if our competitors can produce and distribute seeds at a
lower cost than us. If competition intensifies, our margins may continue to be
compressed by more competitive pricing in the short term and may also to be
compressed in the long term, and we may lose our market share and experience a
negative impact on our margins, revenues and results of operations.
China’s
commitments to the World Trade Organization may intensify
competition.
In connection with its accession to the
World Trade Organization, China made many commitments including opening its
markets to foreign products, allowing foreign companies to conduct distribution
businesses within China, and reducing customs duties. Although the impact of
these commitments in our business segment has not been significant to date,
foreign manufacturers may begin to manufacture competing seeds, both
non-genetically modified and genetically modified and ship their products or
establish manufacturing facilities in China. Competition from foreign companies
may reduce our current profit margins, and hence our business results may
suffer.
Natural
or man-made disasters could damage seed production, which would cause us to
suffer production losses and material reduction of revenues.
We produce our seeds using a network of
over 100,000 farmers who plant the crops and harvest the seeds for use as crop
seeds for the next growing season. As a result, the source of supply for our
seeds is subject to all of the risks associated with any agricultural
enterprise, including natural disasters such as widespread drought, flood,
snowstorm, pestilence and plant diseases, and man-made disasters such as
environmental contamination. Other man-made incidents may damage our products,
such as arson or other acts that may adversely affect our crop seed inventory in
the winter storage season. Furthermore, natural or man-made disasters may cause
farmers to migrate from the farmland, which would decrease the number of end
users of our products. While our use of a large number of farmers provides some
protection against a widespread failure of any particular crop, the majority of
our seed production farmers are located in Gansu, Sichuan, and Hunan provinces,
making them subject to risks that are somewhat local in nature. We have
attempted to manage this risk by obligating ourselves to pay the farmers who
produce our seeds only for the quantity of seeds that they produce, thus
limiting our expenses somewhat. We have also set up a storage system since 2003
attempting to manage this risk. However, in the event of a widespread failure of
the crop seed in these areas, we would likely sustain substantial operating
losses, due to both the fact that a significant portion of our expenses are
fixed overhead and that the loss of a large portion of a crop seed would limit
our revenues significantly.
We
primarily rely on arrangements with farmers to produce our crop seed products.
If we were unable to continue these arrangements or enter into new arrangements
with other farmers, our total land acreage devoted to crop seed production would
decrease and our growth would be inhibited.
We have access to over 3,800 hectares
of farmland in several provinces mainly through contractual arrangements with
farmers for seed production. These production agreements to produce crop seeds
are typically one year in length, covering one growing season. In the event that
prices for other crops increase, these farmers may decide to farm other crops in
breach of our seed production agreements with them. If we are unable to find new
village collectives willing to produce crop seeds for us, our business and
results of operations would be materially and adversely affected. Any of these
disruptions could materially and adversely affect our supply of crop seeds and
our revenues. Such disruptions could also damage distributor relationships and
farmer loyalty if we cannot supply them with the quantities and varieties of
seeds that they expect.
Crop
seed prices and sales volumes may decrease in any given year with a
corresponding reduction in sales, margins and results of
operations.
Previously, there has been some
elements of instability in seed production in China as a result of the
privatization of state crop seed producers and because of the worldwide economic
situation. There may be other periods of instability in the future during which
commodity prices and sales volumes fluctuate greatly. Commodities can be
affected by general economic conditions, weather, disease and aspects of demand
such as financing, competition and trade restrictions. Although we follow a
branded product strategy to differentiate our products from those of other crop
seed producers, the crop seed market continues to behave as a commodity market.
As a result, the price that we are able to demand for our seeds is somewhat
dependent on the size of the supply of our seeds and the seeds of other
producers. Therefore, the potential exists for fluctuation in supply and,
consequently, in price, in our own markets, even in the absence of significant
external events that might cause volatility. As a result, the amount of revenue
that we receive in any given year is subject to change. Because decisions are
made regarding the level of production prior to the time that the volume of
orders and the market price for those orders is known, it is possible that we
will have too much or not enough product available, each with the attendant
impact on revenues, margins and results of operations.
Historically,
prices of crop seed products in China have fluctuated due to changes in supply
and demand.
The ability of our operations to be
profitable is affected by the selling prices of our products. We benchmark the
prices of our crop seed products against the prevailing domestic market prices
of crop seed products of similar quality and attributes. During the past five
years, crop seed products in China have experienced price declines though
selling prices have increased in the recent years. If the general prices for
such products decline at a faster rate than our cost of sales, our profits will
decrease and our ability to generate operating results at historical levels will
be adversely affected. This may be caused by any number of circumstances
including poor production by the farmer, adverse weather conditions, theft,
inventory spoilage, increase in the cost of production either via storage cost,
drying cost, purchase cost, or any other such increase in the cost of
sales.
We
may face increased regulatory risks with respect to our recent expansion into
Southeast Asia.
In connection with certain of our
recent acquisition and seed approval activities, including particular
investments in rice seed varieties applicable to the soil conditions in the
region, we have begun to develop a limited market among farmers in Southeast
Asia for our rice hybrid products. We expect to continue to expand our business
into Southeast Asia in the future. We may face material financial, business, and
legal risks with respect to our expansion into Vietnam given that our business
and operating results may be adversely affected by changes in the political and
social conditions in Southeast Asia and by changes in local government policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods taxation, among other
things.
Technological
change in creating seed hybrids could harm our business, causing a shift in
business opportunities, market share, and revenues.
For the most part, we rely upon
traditional methods of creating crop seed hybrids to develop new products. While
these methods are highly effective, there has been an increase in the
development of genetically modified agricultural products in an effort to
increase the quality and quantity of crop yields, in which we also engage.
Genetic technology is controversial, and it has not been widely accepted in many
regions of the world, including the PRC. However, as the ability to use genetic
modification to produce seeds that are superior to or less costly than those
that we produce by traditional methods increases, the threat of competition from
this source becomes more realistic. A number of factors that are currently
difficult to predict, including a shift in farmer and consumer attitudes
regarding the acceptability of genetic technology, affect the extent to which
this potential threat could affect our business prospects as we deploy more
resources into genetically modified crop seeds.
Risks
relating to our business organization and structure
Three
of our PRC operating subsidiaries are controlled subsidiaries through stock
consignment agreements rather than by direct ownership of shares, the terms of
which may have to be enforced, which would require us to incur extra costs,
create uncertainty as to ownership of the operating businesses involved and risk
the possible loss of rights.
Under PRC law, foreign entities are not
currently permitted to own more than 49% of a seed production company. In order
to address those restrictions, Origin, a non-Chinese entity that cannot directly
own the shares of our PRC operating subsidiaries, namely, Beijing Origin,
Changchun Origin and Henan Origin, will instead hold the right to control such
shares in all respects, including voting, dividends, nomination of directors,
and corporate management, through stock consignment agreements executed by the
owners of the stock of these companies. In addition, if we engage in the sale of
genetically modified seed products, then foreign entities are not currently
permitted to own any portion of the seed production
company. Moreover, if we engage in the research and development of
genetically modified seed products, then foreign entities are not currently
permitted to own any of the seed production company.
There is the risk, however, that a
consigning shareholder will not fulfill its obligations under the stock
consignment agreement. In that event, we may need to resort to the PRC courts to
have our rights under the applicable agreement enforced. Such enforcement will
cause us to incur legal expenses. In addition, while a case is pending there
will be uncertainty regarding our rights as to the three PRC operating
subsidiaries involved. In addition, a PRC court may decide not to enforce the
agreements in whole or in part. To the extent these agreements are neither
observed nor enforced as intended, the PRC operating subsidiaries and Denong,
which is approximately 97.87% (acquired in portions of
52.21%, 42.24%, 2.99%, and 0.25%) owned by Beijing Origin, will not be
controlled by us as intended, which will affect our enterprise value and
restrict our ability to obtain the income and other rights of ownership
associated with the consigned stock. It may also prevent the consolidation of
our financial statements with the PRC operating subsidiaries, which would reduce
the reported earnings of the consolidated companies. The uncertainty of
ownership may also adversely affect the market value of our ordinary
shares.
Whether
or not a stock consignment agreement is terminated depends on the consensus of
our board and the consignees. Any such termination could result in a possible
loss of certain rights or assets held by us without receiving fair value in
return.
The stock consignment agreements
relating to our control of the stock of our PRC operating subsidiaries (not
including Origin Biotechnology) may be terminated or extended after three years
upon mutual agreement between us and the consignees. Three of the Southeast Asia
consignees, Messrs. Han, Yuan and Yang, also serve as our officers and/or
directors. These three persons own, in the aggregate, 7,968,380 shares of our
ordinary stock, or about 33.5% of our issued and outstanding ordinary stock.
Holding this amount of stock will allow these officers to control or greatly
influence the selection of directors and matters submitted to a vote of our
shareholders, including voting to terminate the stock consignment
agreements.
There are corporate protections in
place designed to protect our interests, such as an independent board of
directors, an audit committee comprised of independent directors that must
approve insider transactions, a code of conduct requiring fair dealing with the
company, and the British Virgin Islands statutory provision that a disposition
of more than 50% of the assets of a company must be approved by a majority of
the shareholders. Moreover, if consigned stock is transferred to us as provided
in the stock consignment agreements when the restrictions under PRC law are
lifted, that stock will no longer be subject to the stock consignment
agreements, and the termination of the stock consignment agreements would then
have no effect on the ownership of that stock. However, if the stock consignment
agreements are terminated, then we would lose our rights with respect to the
consigned stock and the profits from the issuing corporation. Such a loss would
impair the value of the company and would reduce our ability to generate
revenue.
Our
executive officers have entered into employment agreements with us which provide
that they may be entitled to certain rights upon a change of
control.
The
following executive officers have entered into employment agreements which
provide that they may terminate their respective employment agreements with us
as a result of a change of control:
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Dr. Gengchen Han, our Chairman of
the Board; and
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Liang Yuan, our Chief Executive
Officer and
President.
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A change of control includes if any
person other than us and/or any our officers or directors as of the date of the
employment agreement acquires our securities other than from the executive or
his affiliates (in one or more transactions), having 51% or more of the total
voting power of all of our securities then outstanding. If the executive
terminates his employment agreement due to a change of control, we must continue
to pay the executive all payments, compensation and benefits pursuant to the
terms of his employment agreement upon the earlier of two years from the date of
termination or through the term of the employment agreement (each employment
agreement has a term of three years commencing on January 1,
2009).
Risks
relating to doing business in China
If
we do not comply with PRC regulations, we may not be able to operate our
business or we may be fined, both of which would adversely affect our business,
operations and revenues.
The PRC has many regulations relating
to the seed business and businesses involved in chemicals that could be
considered pollutants, including obtaining and maintaining operating licenses
and permits. Seed products must be licensed and undergo a stringent review
process before they may be sold in the PRC. Environmental regulation is equally
as extensive with licensing and other compliance requirements. We believe we
currently have all the necessary licenses for our business, and that we are in
compliance with applicable laws and regulations. If we are not in compliance, we
may be fined or lose the ability to sell a particular seed or operate our
business altogether. If the fines are substantial or if our ability to sell or
operate is withdrawn, this will result in additional costs or the loss of
revenues and could prevent us from continuing as an operating
business.
If
we do not comply with applicable government regulations, we may be prohibited
from continuing some or all of our operations, resulting in a reduction of
growth and ultimately market share due to loss of competitive
position.
The majority of our revenue depends on
receiving approval from the PRC government to market new seed hybrids that we
are developing and will develop. In addition, there may be circumstances under
which the governmental approvals granted are subject to change without
substantial advance notice, and it is possible that we could fail to obtain the
approvals that we require to expand our business as we intend to do. The failure
to obtain or to maintain such approvals would limit the number and quality of
products that we would be able to offer. This reduction in product offerings
would cause a reduction in the growth previously experienced and over time would
result in the loss of market share from the competitive pressures of seeds
developed by others that would likely be better than our products.
The
technical services agreements between Origin Biotechnology and the other three
operating subsidiaries may be subject to scrutiny by the PRC tax authorities for
transfer pricing adjustments.
We could face adverse tax consequences
if the PRC tax authorities determine that our technical service agreements
between Origin Biotechnology and the other PRC operating subsidiaries, namely,
Beijing Origin, Changchun Origin and Henan Origin, were not entered into based
on arm’s length negotiations. If the PRC tax authorities determine that these
agreements were not entered into on an arm’s length basis, they may adjust our
income and expenses for PRC tax purposes in the form of a transfer pricing
adjustment. A transfer pricing adjustment could result in a reduction, for PRC
tax purposes, of deductions recorded by the three PRC operating subsidiaries,
which could adversely affect us by:
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increasing the PRC operating
subsidiaries’ tax liability without reducing Origin Biotechnology’s tax
liability, which could further result in late payment fees and other
penalties to our PRC operating subsidiaries for under-paid taxes;
or
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limiting Origin Biotechnology’s
ability to maintain preferential tax treatment and government financial
incentives, which, if the transfer pricing adjustment is significant,
could result in Origin Biotechnology failing to qualify for those
preferential tax treatments and government financial
incentives.
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As a result, any transfer pricing
adjustment could have an adverse impact on our financial
condition.
Deficient
railway transportation capacity in China, particularly in the Northwestern area,
may result in the increase of our transportation-related costs and thus
adversely affect our business.
Our seeds are transported throughout
China each year by railway, which we believe is currently the most
cost-efficient means. Much of our production is in the Northwest region of
China. With economic development throughout China, we believe the Chinese rails
system, and in particular the Northwest railway, may not be able to provide
sufficient capacity over time, at reasonable rates. As our volume of freight
increases year by year, the seeds may have to be transported by other means if
the railway cannot guarantee to carry the increasingly larger volume of freight.
We may experience higher rail rates or the higher transportation costs of
trucking our products. In such event, the production costs will increase
correspondingly with the increase in transportation costs, which may adversely
affect our business.
Our
business benefits from certain PRC government subsidies. Expiration of, or
changes to, these incentives could have a material adverse effect on our
operating results.
The PRC government has in recent years
reduced taxes and increased subsidies and other support across the agricultural
industry. For instance, the government subsidizes farmers for their seed
purchases, and has increased spending on rural infrastructure. Sales of
agricultural products from producers to intermediaries or to farmers are exempt
from PRC value-added tax. The discontinuance of preferential treatments granted
by the Chinese government to the seed industry, could adversely affect our
earnings.
In addition, subsidy policies may have
an adverse effect on our ability to market our products. Farmers can buy crop
seeds designated as “high-quality” at subsidized prices, but the designation of
seeds as “high-quality” is at the discretion of the local government, companies
owned by the local government and local private seed companies. It is possible
that this policy could result in preferential treatment for local seed
producers, with locally produced seeds being designated as “high-quality” while
ours are not designated as such. If such preferential treatment were to occur,
the price for our seeds to farmers in those provinces would be higher than the
subsidized local seeds, and our sales in that province could suffer, which could
adversely affect our results of operations.
The
discontinuation of any of the preferential tax treatments currently available to
our PRC subsidiaries could materially increase our tax liabilities.
Prior to January 1, 2008, under
applicable PRC tax laws, companies established in China were generally subject
to a state and local enterprise income tax, or EIT, at rates of 30% and 3%,
respectively . In addition, an enterprise qualified as a “high and new
technology enterprise,” including agricultural companies, located in certain
specified high-tech zones was entitled to a preferential state EIT rate of 15%
and could enjoy an exemption from the state EIT for the first three years since
its establishment and a 50% reduction of the state EIT for the succeeding three
years. The qualification of a “high and new technology enterprise” was subject
to an annual or biennial evaluation by the relevant government authority in
China. Beijing Origin and Jilin Changrong are entitled to a preferential tax
rate of 15% as a new technology company.
In 2007, the National People’s
Congress, enacted the Enterprise Income Tax Law, or the New EIT Law, and in
December 2007, the State Council promulgated the implementing rules of the EIT
Law, both of which became effective on January 1, 2008. The EIT Law
significantly curtails tax incentives granted to foreign-invested enterprises
under the previous tax law. The EIT Law, however, (i) reduces the top rate of
enterprise income tax to 25%, (ii) permits companies to continue to enjoy their
existing tax incentives, subject to certain transitional phase-out rules, and
(iii) introduces new tax incentives, subject to various qualification criteria.
Under the phase-out rules, enterprises established before the promulgation date
of the EIT Law and which were granted preferential EIT treatment under the then
effective tax laws or regulations may continue to enjoy their tax holidays until
their expiration and will gradually transition to the uniform 25% EIT rate over
a five-year transition period. In addition, the new technology enterprise
qualification of our PRC subsidiaries is subject to a biennial re-assessment by
the relevant PRC government authority. In the event the preferential tax
treatment for our PRC subsidiaries is discontinued, the affected entity will
become subject to the standard PRC enterprise income tax rate. There is no
assurance that the local tax authorities will not, in the future, change their
position and discontinue any of our preferential tax treatments, potentially
with retroactive effect. The discontinuation of any of our preferential tax
treatments could materially increase our tax obligations.
Under
China’s Enterprise Income Tax Law, we may be classified as a “resident
enterprise” of China. Such classification could result in unfavorable tax
consequences to us and our non-PRC shareholders.
Under the current Enterprise Income Tax
Law, or the New EIT Law, an enterprise established outside of China with “de
facto management bodies” within China is considered a “resident enterprise,”
meaning that it can be treated in a manner similar to a Chinese enterprise for
enterprise income tax purposes. The implementing rules of the EIT Law define de
facto management as “substantial and overall management and control over the
production and operations, personnel, accounting, and properties” of the
enterprise. However, it is unclear how tax authorities will determine
tax residency based on the facts of each case. If the PRC tax authorities
determine that our British Virgin Islands holding company is a “resident
enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC
tax consequences could follow. First, we may be subject to enterprise income tax
at a rate of 25% on our worldwide taxable income as well as PRC enterprise
income tax reporting obligations. Second, under the EIT Law and its implementing
rules dividends paid to holding companies outside of China which are “resident
enterprises will be
subject to a 10% withholding tax. It is possible that future guidance issued
with respect to the new “resident enterprise” classification could be applied to
our British Virgin Islands sub-holding company with similar
consequences. Therefore, any dividends paid by our PRC subsidiaries
may be subject to a 10% withholding obligation.
In addition to the uncertainty in how
the new “resident enterprise” classification could apply, it is also possible
that the rules may change in the future, possibly with retroactive
effect.
Adverse
changes in political and economic policies of the PRC, including its policy of
reforming its economic system, could have an adverse effect on the growth of
private businesses in the PRC such as ours.
Since the late 1970’s, the PRC has been
reforming its economic system and changing from a planned economy based on
governmental dictates and priorities to one that uses market forces to influence
deployment of economic resources, labor and capital and to determine business
endeavors. We cannot predict whether or not the government will continue to
encourage economic liberalization and further release its control over the
economy and encourage private enterprise. We also cannot predict the timing or
extent of future economic reforms that may be proposed. Any re-imposition of
planned economy regulation or similar kinds of restrictions could reduce the
freedom of private businesses to operate in a profitable manner, restrict
inflows of capital or stifle investor willingness to participate in the PRC
economy. To the extent we need additional capital; any restrictions on foreign
ownership, foreign investment and repatriation of profits will hamper our
ability to find capital outside of the PRC.
A
return to profit repatriation controls may limit our ability to pay dividends
and expand our business, and may reduce the attractiveness of investing in PRC
business opportunities.
PRC law allows enterprises owned by
foreign investors to remit their profits, dividends and bonuses earned in the
PRC to other countries, and the remittance does not require prior approval by
the State Administration of Foreign Exchange, or SAFE. SAFE regulations require
extensive documentation and reporting, some of which is burdensome and slows
payments. If there is a return to payment restrictions and reporting, the
ability of a PRC company to attract investors will be reduced.
Also, our investors may not be able to
obtain the benefits of the profits of the business generated in the PRC for
other reasons. Relevant PRC laws and regulations permit payment of dividends
only from accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. Each of our subsidiaries and our
affiliated entities in China is required to set aside at least 10% of its
after-tax profits each year, if any, to fund a statutory reserve until such
reserve reaches 50% of its registered capital, and to further set aside a
portion of its after-tax profits to fund the employee welfare fund at the
discretion of the shareholders’ meeting or the board. These reserves are not
distributable as cash dividends. In addition, the PRC tax authorities may
require us to adjust our taxable income under the contractual arrangements we
currently have in place in a manner that would materially and adversely affect
our subsidiary’s ability to pay dividends and other distributions to us. Any
limitation on the ability of our subsidiary and our affiliated entity to
distribute dividends or other payments to us could materially limit our ability
to grow, make investments or acquisitions that could be beneficial to our
businesses or otherwise fund and conduct our business.
Pursuant to PRC enterprise income tax
law, dividends payable by a foreign-invested enterprise, or FIE, including
Origin Biotechnology to its foreign investors are subject to a 10% withholding
tax, unless any such foreign investor’s jurisdiction of incorporation has a tax
treaty with China that provides for a different withholding arrangement. No such
treaty currently exists with the British Virgin Islands or the United
States. Prior to 2008, dividend payments to foreign investors made by
FIEs were exempted from PRC withholding tax.
Any
fluctuations in exchange rates may adversely affect your
investment.
The value of the Renminbi against the
U.S. dollar and other currencies may fluctuate and is affected by, among other
things, changes in political and economic conditions. Because our earnings and
cash from operations are denominated in Renminbi, as the reporting currency,
fluctuations in exchange rates between U.S. dollars and Renminbi will affect our
balance sheet and earnings per share when stated in U.S. dollars. The
translation of Renminbi amounts into United States dollar amounts has been made
for the convenience of the reader. Such translation amounts
should not be construed as representations that the Renminbi amounts could be
readily converted into United States dollar amounts at that rate or any other
rate. In addition, appreciation or depreciation in the value of the
Renminbi relative to the U.S. dollar would affect our financial results when
reported in U.S. dollar terms without giving effect to any underlying change in
our business or results of operations. The source of these rates is
the Federal Reserve Bank of New York until December 31,
2008. Starting from January 1, 2009, the source of rates is from the
State Administration of Foreign Exchange in China as the Federal Bank of New
York discontinued publication of foreign exchange rates. Effective
from July 21, 2005, the Renminbi is no longer pegged solely to the U.S. dollar.
Instead, it is pegged to a basket of currencies determined by the People’s Bank
of China. The Renminbi may be revalued further against the US dollar
or other currencies or the Renminbi may be permitted to enter into a full or
limited free float, which may result in an appreciation or depreciation in the
value of the Renminbi against the US dollar or other
currencies. Fluctuations in the exchange rate will affect the
relative value of any dividend we issue which will be exchanged into U.S.
dollars, the value of any U.S. dollar denominated investments we make in the
future and any earnings on such investments.
There
are government regulations that limit or prohibit foreign investment in the PRC,
which may restrict our growth.
Notwithstanding the general restriction
on foreign investment in the seed industry in the PRC, our corporate structure
currently enables us to receive foreign investment. Our continued ability to
receive foreign investment may be important to our ability to continue to expand
our business rapidly and to manage that expansion effectively. We cannot be
certain that a change in the regulations allowing us to receive foreign
investment will not occur. In the event of such a change, our plan to expand our
business could be disrupted.
Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.
Substantially all our revenues and
expenses are denominated in Renminbi. We may need to convert a portion of our
revenues into other currencies to meet our foreign currency obligations,
including, among others, payment of dividends declared, if any, in respect of
our ordinary shares. Under China’s existing foreign exchange regulations, the
PRC Operating Companies may not pay dividends in foreign currencies, without
prior approval from SAFE, unless they comply with certain procedural
requirements. The PRC government may also take measures in the future to
restrict access to foreign currencies for current account
transactions.
Foreign exchange transactions under the
capital account continue to be subject to significant foreign exchange controls
and require the approval of PRC governmental authorities, including the SAFE. If
the PRC Operating Companies borrow in foreign currency from us or other foreign
lenders, these loans must be registered with the SAFE, and if we finance the PRC
Operating Companies by means of additional capital contributions, these capital
contributions must be approved by certain government authorities, including the
Ministry of Commerce or its local counterparts. These limitations could
adversely affect the ability of the PRC Operating Companies to obtain foreign
exchange through debt or equity financing, which could harm our ability to fund
our operations or cause us to seek additional financing on terms that may not be
favorable.
PRC
regulations relating to offshore investment activities by PRC residents may
increase the administrative burden we face and create regulatory uncertainties
that could restrict our overseas and cross-border investment activity. Failure
by our shareholders who are PRC residents to make any required applications and
filings pursuant to such regulations may prevent us from being able to
distribute profits, if any, and could expose us and our PRC resident
shareholders to liability under PRC law.
SAFE promulgated regulations that
require registration with local SAFE offices in connection with direct or
indirect offshore investment by PRC residents, including PRC individual
residents and PRC corporate entities. These regulations apply to our
shareholders who are PRC residents and also apply to our prior and future
offshore acquisitions. In particular, the SAFE regulations require PRC residents
to file with competent SAFE offices information about offshore companies in
which they have directly or indirectly invested and to make follow-up filings in
connection with certain material transactions involving such offshore companies,
such as increases or decreases in investment amount, transfers or exchanges of
shares, mergers or divisions, long-term equity or debt investments, or external
guarantees or other material events that do not involve return
investment.
The SAFE regulations required prior
registration of direct or indirect investments previously made by PRC residents
in offshore companies. If a PRC resident with a direct or indirect stake in an
offshore parent company fails to make the required SAFE registration, the PRC
subsidiaries of such offshore parent company may be prohibited from making
distributions of profit to the offshore parent and from paying the offshore
parent proceeds from any reduction in capital, share transfer or liquidation in
respect of the PRC subsidiaries. Further, failure to comply with various SAFE
registration requirements described above could result in liability under PRC
law for foreign exchange evasion.
We believe our major shareholders who
are PRC residents, or whose shares are beneficially owned by PRC residents, have
completed foreign exchange registration with the local foreign exchange bureau
according to these SAFE regulations. However, with these regulations there is
uncertainty concerning the reconciliation of the new regulations with other
approval requirements, it is unclear how the regulations, and any future
legislation concerning offshore or cross-border transactions, will be
interpreted, amended and implemented by the relevant government authorities. We
cannot assure you that all of our shareholders who are PRC residents will comply
with our request to make or obtain any applicable registrations or approvals
required by the regulations or other related legislation. The failure or
inability of our PRC resident shareholders to receive any required approvals or
make any required registrations may subject us to fines and legal sanctions,
restrict our overseas or cross-border investment activities, limit our PRC
subsidiary to make distributions or pay dividends or affect our ownership
structure. As a result, our business operations and our ability to distribute a
dividend to you could be adversely affected.
The
PRC legal system has inherent uncertainties that could limit the legal
protections available to you.
Nearly all of our assets and all of our
operations are in the PRC. The PRC legal system is based on written statutes.
Prior court decisions may be cited for reference but are not binding on
subsequent cases and have limited precedential value. Since 1979, the PRC
legislative bodies have promulgated laws and regulations dealing with such
economic matters as foreign investment, corporate organization and governance,
commerce, taxation and trade. However, because these laws and regulations are
relatively new, and because of the limited volume of published decisions and
their non-binding nature, the interpretation and enforcement of these laws and
regulations involve uncertainties. The laws in the PRC differ from the laws in
the United States and may afford less protection to our non-PRC
shareholders.
You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in the PRC based on United States
judgments against us, our subsidiaries, officers and directors.
We are incorporated in the British
Virgin Islands and our PRC operating subsidiaries are formed under PRC law.
Substantially all of our assets are located in the PRC. In addition, most of our
directors and executive officers reside within the PRC, and substantially all of
the assets of these persons are located within the PRC. It may not be possible
to affect service of process within the United States or elsewhere outside the
PRC upon our directors, or executive officers and experts, including effecting
service of process with respect to matters arising under United States federal
securities laws or applicable state securities laws. The PRC does not have
treaties providing for the reciprocal recognition and enforcement of judgments
of courts with the United States and many other countries. As a result,
recognition and enforcement in the PRC of judgments of a court in the United
States or many other jurisdictions in relation to any matter, including
securities laws, may be difficult or impossible. Furthermore, an original action
may be brought in the PRC against our assets and our subsidiaries, our directors
and executive officers and experts only if the actions are not required to be
arbitrated by PRC law and only if the facts alleged in the complaint give rise
to a cause of action under PRC law. In connection with any such original action,
a PRC court may award civil liability, including monetary
damages.
Risk
relating to tax matters
We
may be subject to contingent tax liabilities.
On December 20, 2004, Chardan China
Acquisition Corp., or Chardan, entered into a stock purchase agreement with
State Harvest, and all the shareholders of State Harvest for Chardan’s
acquisition of State Harvest. In connection with the acquisition, Chardan formed
its wholly-owned subsidiary, Origin Agritech. On November 8, 2005, Chardan
merged with and into Origin Agritech for the purpose of re-domestication out of
the United States. The re-domestication merger was achieved by a one-for-one
exchange of all the outstanding common stock of Chardan for ordinary common
shares of Origin Agritech, and the assumption of all the rights and obligations
of Chardan by Origin Agritech. Immediately after the re-domestication merger,
Origin Agritech acquired all the common equity of State Harvest by the issuance
of shares and payments of cash consideration to the shareholders of State
Harvest or their designee. We may be subject to contingent tax liabilities in
connection with the above share exchange transaction. As of September 30, 2010,
such contingent tax liabilities could be within the range of RMB39.06 million to
RMB64.22 million. We do not expect to incur tax liabilities at the
high end of the range based on the annual assessment. Last year, we
began a fresh review of the contingent tax position by requesting and receiving
legal U.S. tax counsel on this matter. As of September 23, 2010, the
United States Internal Revenue Service, or IRS, had received and processed a
revised tax return regarding this tax liability. The IRS has
not responded to our filing either directly or with any paperwork as of the
date of this filing. While the timeline for the IRS to respond is generally
stated as three years and we believe we can resolve this matter in a shorter
time period, this matter may take a prolonged period of time to resolve
depending on the time for the IRS to respond and the necessity of appeals or
re-evaluation.
We
may become a passive foreign investment company, which could result in adverse
U.S. tax consequences to U.S. holders.
Depending upon the value of our shares
and the composition of our assets and income over time, we could be classified
as a passive foreign investment company, or PFIC, by the IRS, for U.S. federal
income tax purposes. If we were classified as a PFIC in any taxable year in
which you hold our shares and you are a U.S. investor, you would generally be
taxed at higher ordinary income rates, rather than lower capital gain rates,
when you dispose of those shares at a gain in a later year, even if we are not a
PFIC in that year. In addition, a portion of the tax imposed on your gain would
be increased by an interest charge. Moreover, if we were classified as a PFIC in
any taxable year, you would not be able to benefit from any preferential tax
rate with respect to any dividend distribution that you may receive from us in
that year or any later year. Finally, you would also be subject to special U.S.
tax reporting requirements.
Based on our understanding and current
assessment, we believe that we were not a PFIC for the taxable year 2010.
However, there can be no assurance that we will not be a PFIC for the taxable
year and/or later taxable years, as PFIC status is re-tested each year and
depends on the facts in such year. For example, we would be a PFIC for the
taxable year 2010 if the sum of our average market capitalization, which is our
share price multiplied by the total number of our outstanding shares, and our
liabilities over that taxable year is not more than twice the value of our cash,
cash equivalents, and other assets that produce, or are held for the production
of, passive income. We could also be a PFIC for any taxable year if the gross
income that we and our subsidiaries earn from passive investments is substantial
in comparison with the gross income from our business
operations. While we will continue to examine our PFIC status, we
cannot assure you that we will not be a PFIC for any future taxable
year.
Risks
related to our shares
Voting
control by executive officers, directors and other of our affiliates may limit
investors’ ability to influence the outcome of director elections and other
matters requiring shareholder approval.
Our executive officers and directors,
including Messrs. Han, Yang and Yuan, own approximately 33.5% of our issued and
outstanding ordinary shares. These shareholders are able to influence the
outcome of some corporate transactions or other matters submitted to our
shareholders for approval, including the election of directors and the approval
of other business transactions. This level of ownership could have the effect of
delaying or preventing a change in our control or discouraging a potential
acquirer from attempting to obtain control of us, which in turn could have an
adverse effect on the market price of our ordinary shares or prevent
shareholders from realizing a premium over the market price for their ordinary
shares. In addition, if these shareholders choose to dispose of a material
portion of our ordinary shares they hold, the prevailing market price of our
securities may decline.
Certain
provisions in our organizational documents may discourage our acquisition by a
third party, which could limit your opportunity to sell your shares at a
premium.
Our memorandum and articles of
association include provisions that could limit the ability of others to acquire
control of us. Under those provisions, our board of directors has the power to
issue preferred shares with such rights attaching to them as they decide and
this power could be used in a manner that would delay, defer or prevent a change
of control of us. These provisions could have the effect of depriving you of an
opportunity to sell your shares at a premium over prevailing market prices by
discouraging third parties from seeking to acquire control of us in a tender
offer or similar transactions.
We
qualify as a foreign private issuer and as a result are subject to reduced
requirements with respect to the reporting of financial statements and other
material events to our shareholders and the SEC.
As a foreign private issuer, we are
obligated to file with the United States Securities and Exchange Commission, or
SEC, an Annual Report with audited financial statements. During the
rest of the fiscal year, we are obligated to file current reports on Form 6-K
reports with the SEC only at such times as we release information to the public
either voluntarily or pursuant to the laws of the British Virgin Islands or the
PRC. Therefore, the regularity of financial and other information may be less
than would be applicable to a domestic United States registered company under
the rules and regulations of the SEC. Investors may not receive information they
consider relevant to their decision process on a timely basis, which could
increase their risk of investment in us.
Because
we are a foreign private issuer, we have elected to follow British Virgin
Islands law in connection with compliance under the NASDAQ Marketplace Rules,
which restrict the application of the NASDAQ corporate governance
requirements.
The NASDAQ Marketplace Rules permit
foreign private issuers to elect not to be governed by all the corporate
governance rules. We have elected to avail ourselves of the exemption
provided by NASDAQ, and we have elected to be governed by only the British
Virgin Island laws and the terms of our memorandum and articles, which for
example do not require us to hold an annual meeting each
year. Consequently, investors may not have the ability to express
their opinion on our business and the actions of directors through the voting
process. In other respects, we do follow the NASDAQ Marketplace Rules, such as
having a nominations and compensation committee, but these are voluntary and may
be eliminated at any time.
Leverage
and debt service obligations may adversely affect our cash flows and our ability
to borrow additional funds if and when needed..
From time to time, we maintain
substantial amounts of long term and short term borrowings. The
degree to which we are leveraged could, among other things:
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require us to dedicate a
substantial portion of our near term cash flows from operations and other
capital resources to debt service, especially if the notes are not
converted into ordinary
shares;
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make it difficult for us to
obtain necessary financing in the future for working capital, acquisitions
or other purposes on favorable terms, if at
all;
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make us more vulnerable to
industry downturns and competitive pressures;
and
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limit our flexibility in planning
for, or reacting to changes in, our
business.
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Our ability to meet our debt service
obligations will depend upon our future performance, which will be subject to
financial, business and other factors affecting our operations, many of which
are beyond our control.
Future
sales by us or our existing shareholders could depress the market price of our
ordinary shares.
If we or our existing shareholders sell
a large number of shares of our ordinary stock, or if we sell additional
securities that are convertible into ordinary shares, the market price of our
ordinary shares could decline significantly. Further, even the perception in the
public market that we or our existing shareholders might sell shares of ordinary
stock could depress the market price of our ordinary stock.
Current
shareholders may experience dilution as a result of sales of ordinary shares
under the Continuous Offering Program Agreement.
The number of shares to be offered from
time to time through the Continuous Offering Program Agreement represents
approximately 8.5% of the current number of outstanding ordinary
shares. If we are able to sell all the shares under the program,
shareholders will experience numerical dilution, and depending on the price
obtained for any shares sold, there may be a price dilution in the book value of
the company shares.
If the price or
the trading volume of our ordinary shares is not at levels acceptable to the
Company and supporting of a sale of ordinary shares, the Company will not
utilize the Continuous
Offering Program Agreement to raise the intended capital.
Although there are no contractual
limits on sales that may be sought through the Continuous Offering Program
Agreement, as a practical matter, if the price or trading volume of our ordinary
shares is not at levels that would support a sale of securities, then we will
not use the program for capital raising. Therefore, the market
conditions for our ordinary shares is an important factor in whether or not we
are able to raise capital through this means. There can be no
assurance that we will sell any of the ordinary shares under the program and
raise capital at a time when needed, if at all. Any lack of needed
capital may have an impact on our overall financing requirements and cost of
operations if we need to replace sought after capital with bank loans or other
forms of financing.
The
existence of the Continuous Offering Program Agreement and our intention to sell
up to 2,000,000 ordinary shares, may have an adverse impact on the market price
of our ordinary shares.
Having in
place an ability to sell from time to time, at our election, up to 2,000,000
ordinary shares, which represent approximately 8.5% of our current outstanding
ordinary shares may cause downward pressure on the market price of our shares in
the public market. The perceived risk of dilution from these shares may cause
our shareholders to sell their shares, which would contribute to a downward
movement in the stock price of our ordinary shares. Moreover, the
perceived risk of dilution and the resulting downward pressure on our stock
price might encourage persons to engage in short sales of our ordinary shares,
which would further depress our stock price and increase the volume and
volatility of the market for our ordinary shares. In addition, from
time to time, we issue interim financial statements and guidance to analysts and
the financial community regarding our financial projections for future
periods. The dissemination of guidance may increase the volatility of
our stock price.
Our
ordinary shares, in the past, has experienced price and volume volatility, which
substantially increases the risk of loss to persons owning our ordinary
shares.
Because of the possible price and
volume volatility of our ordinary shares in the public market, shareholders may
not be able to sell their ordinary shares when desired. The inability to sell
shares in a declining market may substantially increase a shareholders risk of
loss.
FORWARD-LOOKING
STATEMENTS
When
used in this prospectus supplement, the accompanying prospectus and the
documents incorporated by referenced in this prospectus supplement, the words
“expects,” “believes,” “anticipates,” “estimates,” “may,” “could,” “intends,”
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements include statements in this prospectus
supplement under the headings “Our Company” and “Risk Factors.” These
forward-looking statements do not constitute guarantees of future performance.
Investors should consider the following factors when evaluating such
forward-looking statements: our goals and strategies; our expectations for our
future business and product development, business prospects, results of business
operations and current financial condition; expected changes in our margins and
certain costs or expenditures; our future pricing strategies or pricing
policies; our ability to successfully anticipate market demand for crop seeds in
our market and plan our volume and product mix; our plans for development of
seed or technology internally, including our ability to successfully develop,
produce, receive approval for and distribute proprietary seed products; our
expectations regarding our need to produce seeds and other bio-technology under
licenses from third parties; the future development of agricultural
biotechnology as a whole and the impact of genetically modified crop seeds in
our industry; the scope and impact of the policies and regulations regarding
genetically modified seed products in China, and our ability to apply for and
receive necessary approvals and to develop, produce, market and distribute
genetically modified crop seeds; our plans to license or co-develop any seed
product or technology; our plans regarding any future business combination or
business acquisition; PRC and other international governmental policies and
regulations relating to the crop seed industry; our plans to expand our business
level or corporate level operations and product offerings; development of the
crop seed industry and competition in the crop seed industry in China and other
international markets; our ability to successfully raise capital to accommodate
growing company needs under acceptable terms and at reasonable cost; and the
adequacy of our facilities for our future operations. There may be certain
events in the future that we are not able to predict with accuracy or over which
we have no control. The risk factors and cautionary language discussed in this
prospectus provide examples of risks, uncertainties and events that may cause
actual results to differ materially from the expectations in these
forward-looking statements, including among other things: changing
interpretations of generally accepted accounting principles and the adoption or
use of international accounting standards in the future; outcomes of PRC and
international government reviews, inquiries, investigations and related
litigation; continued compliance with the government regulations of the PRC and
other governments; legislative and regulatory environments, requirements or
changes adversely affecting the businesses in which we and our PRC operating
companies are engaged; fluctuations in the PRC or international customer demand;
management of the growth of our business and introduction of genetically
modified products; timing of approval and market acceptance of new products; and
general economic conditions in the PRC. These forward-looking statements speak
only as of the date of this prospectus supplement. We assume no obligation or
undertaking to update or revise any forward-looking statements contained herein
to reflect any changes in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based. You
should, however, review additional disclosures we make in our Annual Report on
Form 20-F and any other reports on Form 6-K that we file with the
SEC.
USE
OF PROCEEDS
If all
2,000,000 ordinary shares were sold at the January 3, 2011, closing sales price
of $10.84, we would receive $21,680,000 in gross proceeds, or $21,029,600 in
aggregate net proceeds, assuming a sales agent fee of 1.8% and other expenses of
1.2% of the gross proceeds.
However, there can be no assurance we
will sell any or all of the shares offered hereby. Because there is no minimum
offering amount required, we may sell less than all of the shares offered
hereby, which may significantly reduce the amount of proceeds received by
us.
We intend
to use the net proceeds from the sale of the ordinary shares offered by this
prospectus supplement and the accompanying prospectus for general corporate
purposes and for other working capital and operational purposes. General
corporate purposes may include additions to working capital, financing of
capital expenditures, repayment or redemption of existing indebtedness, and
future acquisitions and strategic investment opportunities, although we have no
current commitments for any such acquisition or investment. Our management will
retain broad discretion as to the allocation of the net proceeds from this
offering.
Until we
use the net proceeds of this offering, we intend to invest the funds in
short-term, interest bearing investments.
PLAN
OF DISTRIBUTION
We have
entered into a Continuous Offering Program Agreement, dated as of November 29,
2010, with Rodman & Renshaw, LLC, under which we may sell an aggregate
of 2,000,000 shares of our ordinary shares from time to
time. Rodman & Renshaw, LLC, will act as our agent for the
offer and sale of the ordinary shares. Based on the trading price of our
ordinary shares, we may not be able to sell all the 2,000,000 shares offered.
Consistent with instructions that may be delivered from time to time by us,
Rodman & Renshaw, LLC may sell the ordinary shares (i) in “at the
market” offerings as defined in Rule 415 of the Securities Act, including sales
made directly on the NASDAQ Capital Market, the existing trading market for the
ordinary shares, or sales made to or through a market maker, (ii) in
privately negotiated transactions, subject to our prior approval, or
(iii) by any other method permitted by law.
Each time
that we wish to issue and sell ordinary shares under the Continuous Offering
Program Agreement, we will provide Rodman & Renshaw, LLC with a
placement notice describing the number of shares to be issued, the time period
during which sales are requested to be made, any limitation on the number of
ordinary shares that may be sold in any one day, and any minimum price below
which sales may not be made.
Upon
receipt of a placement notice from us, and subject to the terms and conditions
of the Continuous Offering Program Agreement, Rodman & Renshaw, LLC has
agreed to use its commercially reasonable efforts, consistent with its normal
trading and sales practices, to sell such shares up to the amount specified on
such terms. The settlement between us and Rodman & Renshaw, LLC of our
ordinary shares will occur on the third trading day following the date on which
the sale was made. The obligation of Rodman & Renshaw, LLC under the
Continuous Offering Program Agreement to sell our ordinary shares pursuant to a
placement notice is subject to a number of conditions.
We will
pay Rodman & Renshaw, LLC a commission equal to 1.8% of the gross
proceeds of the sales price of all ordinary shares sold through it as the sales
agent under the Continuous Offering Program Agreement. We have also agreed to
reimburse certain of Rodman & Renshaw’s legal fees, up to a maximum of
$15,000. Additionally, we will pay to each of Chardan Capital
Markets, LLC and Global Hunter Securities, LLC, a fee equal to 0.60% of the
gross proceeds of the sales price of all the ordinary shares sold under the
Continuous Offering Program Agreement, pursuant to separate financial
services agreements with each of the Chardan Capital Markets, LLC and Global
Hunter Securities, LLC. Neither Chardan Capital Markets, LLC or
Global Hunter Securities, LLC is a sales agent under the Continuous Offering
Program Agreement.
Based on
the closing price of our ordinary shares on January 3, 2011, if all 2,000,000
ordinary under the Continuous Offering Program Agreement were sold, we would
receive $21,680,000 in gross proceeds, or $21,029,600 in aggregate net proceeds
after deducting the 1.8% fee payable to Rodman & Renshaw, LLC and the 0.60%
fees payable to Capital Markets, LLC and Global Hunter Securities, LLC. Because
there is no minimum offering amount required as a condition to the closing, the
actual total (if any) may be substantially less than the amount set forth
above.
In
connection with the sale of our ordinary shares contemplated in this prospectus
supplement, Rodman & Renshaw, LLC may be deemed to be an “underwriter”
within the meaning of the Securities Act of 1933, as amended, and the
compensation paid to Rodman & Renshaw, LLC may be deemed to be
underwriting commissions or discounts. We have agreed to indemnify
Rodman & Renshaw, LLC against certain civil liabilities, including
liabilities under the Securities Act of 1933.
Sales of
our ordinary shares as contemplated in this prospectus supplement will be
settled through the facilities of The Depository Trust & Clearing
Corporation or by such other means as we and Rodman & Renshaw, LLC may
agree upon.
The
offering of our ordinary shares pursuant to the Continuous Offering Program
Agreement will terminate on the earliest of (i) June 1, 2011, (ii) the
sale of all of our ordinary shares subject to the Continuous Offering Program
Agreement, or (iii) termination of the Continuous Offering Program
Agreement by us or Rodman & Renshaw, LLC. The Continuous Offering
Program Agreement may be terminated at any time by either us or
Rodman & Renshaw, LLC.
In
connection with this offering, Rodman & Renshaw, LLC has advised us
that they will not engage in stabilizing transactions.
This is a
brief summary of the material provisions of the Continuous Offering Program
Agreement and does not purport to be a complete statement of its terms and
conditions. The Continuous Offering Program Agreement has been included as an
exhibit to a Current Report on Form 6-K filed with the SEC in connection with
this offering and incorporated by reference into the registration statement of
which this prospectus supplement forms a part. See “Where You Can Find More
Information.”
Other
than the electronic formats of this prospectus supplement and the accompanying
prospectus made available by the sales agent, the information contained on, or
accessible through, either the sales agent’s website or any other website
maintained by it is not part of the prospectus supplement, the accompanying
prospectus or the registration statement of which this prospectus supplement and
the accompanying prospectus form a part, has not been approved or endorsed by us
and should not be relied upon by investors.
The
transfer agent for our ordinary shares is Continental Stock Transfer &
Trust Company, New York, New York.
Our
ordinary shares are listed on the NASDAQ Capital Market under the symbol
“SEED.”
EXPERTS
The
financial statements of Origin Agritech Origin and its subsidiaries and variable
interest entities as of September 30, 2008 and 2009 and the related consolidated
statements of operations, shareholders' equity and comprehensive income, and
cash flows for the years ended September 30, 2007, 2008 and 2009, have been
audited by BDO Limited, an independent registered public accounting firm, and
are incorporated by reference into this prospectus in reliance upon their report
dated January 14, 2010, given upon such firm’s authority as experts in auditing
and accounting.
LEGAL
MATTERS
The
validity of any securities offered by this prospectus supplement will be passed
upon for us by Maples and Calder, Roadtown, British Virgin Islands, and certain
other matters will be passed upon by Golenbock Eiseman Assor Bell & Peskoe
LLP, New York, New York.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed a registration statement on Form F-3 with the SEC under the Securities Act
of 1933. This prospectus supplement and the accompanying prospectus is part of
the registration statement but the registration statement includes and
incorporates by reference additional information and exhibits. We file annual
and current reports and other information with the SEC. You may read and copy
the registration statement and any document we file with the SEC at the public
reference room maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a web site that contains reports, proxy and information statements and
other information regarding companies, such as ours, that file documents
electronically with the SEC. The address of that site on the world wide web is
http://www.sec.gov. The information on the SEC’s web site is not part of this
prospectus, and any references to this web site or any other web site are
inactive textual references only.
The SEC
permits us to “incorporate by reference” the information contained in documents
we file with the SEC, which means that we can disclose important information to
you by referring you to those documents rather than by including them in this
prospectus supplement and the accompanying prospectus. Information that is
incorporated by reference is considered to be part of this prospectus supplement
and the accompanying prospectus and you should read it with the same care that
you read this prospectus supplement and the accompanying prospectus. Later
information that we file with the SEC will automatically update and supersede
the information that is either contained, or incorporated by reference, in this
prospectus supplement and the accompanying prospectus, and will be considered to
be a part of this prospectus supplement and the accompanying prospectus from the
date those documents are filed. We have filed with the SEC, and incorporate by
reference in this prospectus supplement and the accompanying
prospectus:
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our Annual Report on
Form 20-F for the fiscal year ended September 30,
2009;
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our Current Reports on Form 6-K
filed on the following dates: February 3, 2010, May 11, 2010, May 27,
2010, June 3, 2010, July 7, 2010, August 31, 2010, September 9, 2010,
September 22, 2010, and December 16, 2010;
and
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the description of our ordinary
shares contained in our Registration Statement on Form 8-A filed on
October 18, 2005.
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We also
incorporate by reference all additional documents that we file with the SEC
under the terms of Sections 13(a), 13(c), or 15(d) of the Exchange Act that
are made between the date of this prospectus supplement and the termination of
any offering of securities offered by this prospectus supplement or the
accompanying prospectus. We are not, however, incorporating, in each case, any
documents or information that we are deemed to furnish and not file in
accordance with SEC rules.
You may
request a copy of any or all of the documents incorporated by reference but not
delivered with this prospectus, at no cost, by writing or telephoning us at the
following address and number: Origin Agritech Limited, Attention - Irving Kau,
No. 21 Sheng Ming Yuan Road, Changping District, Beijing PRC or at the following
telephone numbers 949-726-8101 or 011.86.136.8108.0243. We will not, however,
send exhibits to those documents, unless the exhibits are specifically
incorporated by reference in those documents. We also maintain a website at
http://www.originagritech.com. However, the information on our website is not
part of this prospectus.
* *
*
PROSPECTUS
$150,000,000
ORIGIN
AGRITECH LIMITED
Ordinary
Shares, Warrants, Preferred Shares and Units
We may
from time to time sell any combination of securities described in this
prospectus, either individually or in units. The aggregate initial offering
price of all securities sold by us under this prospectus will not exceed
$150,000,000.
This
prospectus provides a general description of the securities we may offer. Each
time we sell securities, we will provide the specific terms of the securities
offered in a supplement to this prospectus. The prospectus supplement may also
add, update or change information contained in this prospectus. You should read
this prospectus and the applicable prospectus supplement carefully before you
invest in any securities. This prospectus may not be used to consummate a sale
of securities unless accompanied by the applicable prospectus
supplement.
Our
ordinary shares are listed on the NASDAQ Global Select Market under the symbol
“SEED.” On June 10, 2010, the last reported sale price of our ordinary
shares, as reported on the NASDAQ Global Select Market, was $9.03 per share. The
applicable prospectus supplement will contain information, where applicable, as
to any other listing on the NASDAQ Global Select Market or any securities market
or other exchange of the securities, if any, covered by the prospectus
supplement. If any agents or underwriters are involved in the sale of any of
these securities, the applicable prospectus supplement will provide the names of
the agents or underwriters and any applicable fees, commissions or
discounts.
INVESTING IN OUR SECURITIES INVOLVES
A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 2, AS WELL AS THE
RISKS DISCUSSED UNDER THE CAPTION “RISK FACTORS” IN DOCUMENTS WE SUBSEQUENTLY FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION. 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.
The date
of this prospectus is June 11, 2010
TABLE
OF CONTENTS
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Page
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Business
Description
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1
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Risk
Factors
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2
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Special
Note Regarding Forward –Looking Statements
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3
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Use
of Proceeds
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4
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Ratio
of Earnings to Fixed Charges
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4
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Capitalization
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4
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Description
of Share Capital
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4
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Description
of Warrants
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5
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Description
of Units
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6
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Plan
of Distribution
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7
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Legal
Matters
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10
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Experts
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10
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Where
You Can Find More Information
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10
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Information
Incorporated Reference
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10
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Enforcement
of Civil Liabilities
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11
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ABOUT
THIS PROSPECTUS
In
this prospectus, unless we indicate otherwise, “we,” “us,” “our,” “the Company”
and “Origin” refer to Origin Agritech Limited.
This
prospectus is a part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, utilizing a “shelf” registration
process. Under this shelf registration process, we may sell any combination of
the securities described in this prospectus in one or more offerings up to a
total dollar amount of $150,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities under
this shelf registration, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. 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 additional information described under the heading “Where You Can
Find More Information.”
We have
not authorized any dealer, salesman or other person to give any information or
to make any representation other than those contained or incorporated by
reference in this prospectus and the accompanying supplement to this prospectus.
You must not rely upon any information or representation not contained or
incorporated by reference in this prospectus or the accompanying prospectus
supplement. This prospectus and the accompanying supplement to this prospectus
do not constitute an offer to sell or the solicitation of an offer to buy any
securities other than the registered securities to which they relate, nor do
this prospectus and the accompanying supplement to this prospectus constitute an
offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. You should not assume that the information
contained in this prospectus and the accompanying prospectus supplement is
accurate on any date subsequent to the date set forth on the front of the
document or that any information we have incorporated by reference is correct on
any date subsequent to the date of the document incorporated by reference, even
though this prospectus and any accompanying prospectus supplement is delivered
or securities sold on a later date.
BUSINESS
DESCRIPTION
We are a
technology-focused crop seed company serving mainland China. We have sought to
broaden our usage and market penetration of our innovative plant breeding
techniques, modern biotechnology, and innovative information and research
management to develop and deliver high-yield seeds to the Chinese farming
customer base. Our goal is to lead the industry by providing farmers with unique
enabling technology and services, producing higher crop yields. Our activities
include the specialization in the research and development, production, and
sales and marketing of crop seeds (corn, rice, cotton and rapeseed) throughout
China. We have pursued research into genetically modified seeds, and in November
2009, we received the Bio-Safety Certificate from the Ministry of Agriculture as
a final approval for commercial use of the world’s first genetically modified
phytase corn. This is the first approved genetically modified corn seed product
in China. We are also actively pursuing the approval of other genetically
modified seed products including glyphosate resistant corn and Bt Corn. Our
focus remains in the production of higher quality seed products, whether
proprietary or licensed.
During
the last several years, we continued to develop our established plant genetic
engineering technology platforms, including transforming herbicide tolerance,
insect resistance, nitrogen efficiency, and drought stress tolerance traits into
corn inbred lines. Of note, we made significant strides in developing our
exclusive insect resistance and phytase products. We continue to seek to further
effectively utilize modern biotechnology in China and hope to further expand
beyond China in the future
We plan
to use China’s emerging technology base to take advantage of operating within
China. In particular, from time to time, we enter into cooperative agreements
with publicly funded research institutions in China. In exchange for providing
funding to these institutions, we receive rights, which are frequently exclusive
rights, to market any seeds developed by these institutions. When a seed is
ready to be marketed, we negotiate an arrangement by which we sell the newly
developed seeds in exchange for the payment of certain fees to the institution.
We believe that these cooperative ventures allow us to access new products
without expending substantial costs for our own research and development of new
seed products.
Our
business model draws from existing and new technologies by utilizing both
conventional breeding and advances in biotechnology. We aim to build upon our
current hybrid base where we have accumulated parental seeds with advantageous
traits optimized to local soil conditions. We have roughly 100 total products,
both licensed and proprietary, in the market. We began to develop our own
proprietary hybrid seed varieties in 1998, and, as of January 2010, we have 23
proprietary corn seed products, 18 proprietary rice seed products, 3
proprietary cotton seed products and 3 proprietary rapeseed products that are in
commercial production and distribution.
We are
incorporated in the British Virgin Islands and are governed by the BVI Business
Companies Act, 2004 (“Companies Act”). Our principal executive offices are
located at No. 21 Sheng Ming Yuan Road, Changping District, Beijing 102206,
China, and our telephone number is (86-10) 5890-7588. We maintain a website at
http://www.originagritech.com.
Information contained on our website is not considered to be a part of, nor
incorporated by reference into, this prospectus.
RISK
FACTORS
An
investment in our securities involves risk. Before you invest in securities
issued by us, you should carefully consider the risks involved. Accordingly, you
should carefully consider:
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the information contained in or
incorporated by reference into this
prospectus;
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the information contained in or
incorporated by reference into any prospectus supplement relating to
specific offerings of
securities;
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the risks described in our Annual
Report on Form 20-F for our most recent fiscal year, which are
incorporated by reference into this prospectus;
and
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other risks and other information
that may be contained in, or incorporated by reference from, other filings
we make with the SEC, including in any prospectus supplement relating to
specific offerings of
securities.
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The
discussion of risks related to our business contained in or incorporated by
reference into this prospectus or into any prospectus supplement comprises the
material risks of which we are aware. If any of the events or developments
described actually occurs, our business, financial condition or results of
operations would likely suffer.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that are based on our current
expectations, assumptions, estimates and projections about our Company and
industry. All statements other than statements of historical fact in this
prospectus are forward-looking statements. These forward-looking statements can
be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,”
“estimate,” “plan,” “believe,” “is/are likely to” or other similar expressions.
The forward-looking statements included in this prospectus relate to, among
others:
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our goals and strategies,
including how we implement our goals and
strategies;
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our expectations for our future
business and product development, business prospects, results of business
operations and current financial
condition;
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expected changes in our margins
and certain costs or
expenditures;
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our future pricing strategies or
pricing policies;
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our ability to successfully
anticipate market demand for crop seeds in our market and plan our volume
and product mix;
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our plans for development of seed
or technology internally, including our ability to successfully develop,
produce, receive approval for and distribute proprietary seed
products;
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our expectations regarding our
need to produce seeds and other bio-technology under licenses from third
parties;
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the future development of
agricultural biotechnology as a whole and the impact of genetically
modified crop seeds in our
industry;
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the scope and impact of the
policies and regulations regarding genetically modified seed products in
China, and our ability to apply for and receive necessary approvals and to
develop, produce, market and distribute genetically modified crop
seeds;
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our plans to license or
co-develop any seed product or
technology;
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our plans regarding any future
business combination or business
acquisition;
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Chinese and other international
governmental policies and regulations relating to the crop seed
industry;
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our plans to expand our business
level and/or corporate level operations and product
offerings;
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the likelihood of recurrence of
accounting charges or
impairments;
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expected changes in our sources
of revenue from our business operations or other
sources;
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competition in the crop seed
industry in China and other international
markets;
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the future development of the
crop seed industry in China and other international
markets;
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our plans for current staffing
requirements, research and development and regional business
focus;
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our ability to successfully raise
capital to accommodate growing company needs under acceptable terms and at
reasonable cost; and
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the adequacy of our facilities
for our future operations.
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Many of
the above factors are beyond our control and almost all of them are difficult or
impossible to predict with accuracy. Therefore, we strongly caution each reader
of this prospectus to consider carefully these, as well as any other specific
factors discussed with each forward-looking statement in this prospectus and as
may be disclosed in the Company’s future filings with the SEC.
To the
extent that this prospectus or any prospectus supplement contains
forward-looking statements (as distinct from historical information), we desire
to take advantage of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995 and are therefore including this
statement for the express purpose of availing ourselves of the protections of
the safe harbor with respect to all forward-looking statements. Furthermore, we
do not assume any obligation to update any forward-looking statements contained
herein as a result of future events or otherwise, except as required by
law.
USE
OF PROCEEDS
Unless
otherwise provided in the applicable prospectus supplement, we intend to use the
net proceeds from the sale of the securities under this prospectus for general
corporate purposes, which may include, among other things, working capital,
acquisition or investments in our businesses and capital expenditures. Pending
the application of the net proceeds, we intend to invest the net proceeds in
short-term, investment grade, interest-bearing securities.
RATIO
OF EARNINGS TO FIXED CHARGES
The
Company’s ratio of earnings to fixed charges for each of the periods indicated
is set forth below. We have derived the ratios of earnings to fixed charges from
our historical consolidated financial statements. The ratios should be read in
conjunction with our consolidated financial statements, including the notes
thereto, and the other financial information included or incorporated by
reference herein.
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Year ended
September 30,
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Year ended
Dec 31
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2009
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2008
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2007
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2006*
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2005**
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Ratio of earnings to fixed charges
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0.45
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N/A
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N/A
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13.99
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8.16
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*The year
ended 2006 number represents a nine month ended September 30, 2006 figure as
this was a transition year for the company shifting from a December 31 fiscal
year end to September 30.
**The
year ended 2005 represents a 12 month ended December 31, 2005
figure.
We have
computed the ratios of earnings to fixed charges set forth above by dividing
earnings by fixed charges. For the purpose of determining the ratio of earnings
to fixed charges, earnings include pre-tax income from continuing operations
plus fixed charges. Fixed charges consist of interest expense and an
estimate of the interest within rental expense deemed by us to be representative
of the interest factor of rental expense, which we estimate to be 30% of such
expense.
CAPITALIZATION
Our
capitalization will be set forth in a prospectus supplement to this prospectus
or in a report on Form 6-K subsequently furnished to the SEC and specifically
incorporated herein by reference.
DESCRIPTION
OF SHARE CAPITAL
As of the
date of this prospectus, we are authorized to issue (i) 60,000,000 ordinary
shares, with no par value, of which 23,013,692 shares are issued and outstanding
and 498,851 shares are held by us as treasury stock; and (ii) 1,000,000
preferred shares, with no par value, of which none are issued and outstanding.
The following discussion primarily concerns our shares and the rights of holders
of our shares under (i) our Memorandum and Articles of Association and (ii) the
Companies Act, insofar as they relate to the material terms of our
shares.
Ordinary
Shares
All of
our outstanding ordinary shares are fully paid and non-assessable. Certificates
representing the ordinary shares are issued in registered form. Our shareholders
who are non-residents of the British Virgin Islands may freely hold and vote
their ordinary shares. The holders of ordinary shares are entitled to one vote
for each share on all matters submitted to a vote of shareholders and do not
have cumulative voting rights. Subject to the preferences and rights, if any,
applicable to the preferred stock, the holders of ordinary shares are entitled
to:
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receive dividends if and when
declared by the board of directors;
and
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share ratably in any distribution
of our assets upon liquidation, dissolution or winding-up, after
satisfaction of all debts and other
liabilities.
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Our
ordinary shares are subject to redemption for fair value. Subject to the
Companies Act, our board of directors may on our behalf purchase, redeem or
otherwise acquire any of our ordinary shares for such consideration as it
considers fit, and either cancel or hold such shares as treasury
shares
Preferred
Stock
Preferred
stock may be issued from time to time in one or more series. Our Board of
Directors, without approval of the shareholders, is authorized to designate
series of preferred stock and fix the rights, privileges, restrictions and
conditions to be attached to each such series of preferred stock. The issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of holders of ordinary shares.
DESCRIPTION
OF WARRANTS
The following description, together
with the additional information we may include in any applicable prospectus
supplements, summarizes the material terms and provisions of the warrants that
we may offer under this prospectus. While the terms we have summarized below
will apply generally to any warrants that we may offer under this prospectus, we
will describe the particular terms of any series of warrants in more detail in
the applicable prospectus supplement. The terms of any warrants offered under a
prospectus supplement may differ from the terms described below. However, no
prospectus supplement will fundamentally change the terms that are set forth in
this prospectus or offer a security that is not registered and described in this
prospectus at the time of its effectiveness.
We will
file as exhibits to the registration statement of which this prospectus is a
part, or will incorporate by reference from another report that we file with the
SEC, the form of warrant that describes the terms of the series of warrants we
are offering before the issuance of the related series of warrants. The
following summaries of material terms and provisions of the warrants are subject
to, and qualified in their entirety by reference to, all the provisions of the
warrant. We urge you to read the applicable prospectus supplements related to
the particular series of warrants that we sell under this prospectus, as well as
the complete warrant.
General
The
warrants may be issued under a warrant agreement independently or together with
any other securities offered by any prospectus supplement and may be attached to
or separate from such other offered securities. If warrants are offered, the
applicable prospectus supplement will describe the designation and terms of the
warrants, including:
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the offering price, if
any;
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the designation and terms of the
ordinary shares or preferred shares purchasable upon exercise of the
warrants;
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if applicable, the date on and
after which the warrants and the related offered securities will be
separately transferable;
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the number of ordinary shares or
preferred shares purchasable upon exercise of one warrant and the initial
price at which the shares may be purchased upon
exercise;
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the date on which the right to
exercise the warrants will commence and
expire;
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a discussion of certain United
States Federal income tax considerations, if
any;
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the call provisions, if
any;
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the currency, currencies or
currency units in which the offering price, if any, and exercise price are
payable;
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any antidilution provisions of
the warrants; and
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any other terms of the
warrants.
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The
ordinary shares or preferred shares issuable upon exercise of the warrants, when
issued in accordance with the warrant agreement, will be fully paid and
non-assessable.
Exercise
of Warrants
Warrants
may be exercised by surrendering the warrant to the warrant agent, which may be
the Company, with the form of election to purchase properly completed and signed
and by payment in full of the exercise price, as set forth in the applicable
prospectus supplement. Upon receipt of the exercise paperwork, the warrant agent
will requisition from the transfer agent the certificate for the ordinary shares
required for issuance and delivery to or upon the written order of the
exercising warrant holder. If less than all of the warrants evidenced by any
warrant are exercised, the warrant agent will deliver to the exercising warrant
holder a new warrant representing the unexercised warrants.
No
Rights as Stockholders
Holders
of warrants will not be entitled, by virtue of being such holders, to vote, to
consent, to receive dividends, to receive notice as stockholders with respect to
any meeting of stockholders for the election of our directors or any other
matter, or to exercise any rights whatsoever as our stockholders.
DESCRIPTION
OF UNITS
The
following description, together with the additional information we may include
in any applicable prospectus supplements, summarizes the material terms and
provisions of the units that we may offer under this prospectus. While the terms
we have summarized below will apply generally to any units that we may offer
under this prospectus, we will describe the particular terms of any series of
units in more detail in the applicable prospectus supplement. The terms of any
units offered under a prospectus supplement may differ from the terms described
below. However, no prospectus supplement will fundamentally change the terms
that are set forth in this prospectus or offer a security that is not registered
and described in this prospectus at the time of its effectiveness.
We will
file as exhibits to the registration statement of which this prospectus is a
part, or will incorporate by reference from another report that we file with the
SEC, the form of unit agreement, if any, that describes the terms of the series
of units we are offering, and any supplemental agreements, before the issuance
of the related series of units. The following summaries of material terms and
provisions of the units are subject to, and qualified in their entirety by
reference to, all the provisions of the unit agreement and any supplemental
agreements applicable to a particular series of units. We urge you to read the
applicable prospectus supplements related to the particular series of units that
we sell under this prospectus, as well as the complete unit agreement and any
supplemental agreements that contain the terms of the units.
General
We may
issue units comprised of ordinary shares, preferred stock and warrants in any
combination. Each unit will be issued so that the holder of the unit is also the
holder of each security included in the unit. Thus, the holder of a unit will
have the rights and obligations of a holder of each included security. 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.
We will
describe in the applicable prospectus supplement the terms of the series of
units, including:
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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;
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any provisions of the governing
unit agreement that differ from those described below;
and
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any provisions for the issuance,
payment, settlement, transfer or exchange of the units or of the
securities comprising the
units.
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The
provisions described in this section, as well as those described under
“Description of Share Capital” and “Description of Warrants” will apply to each
unit and to any ordinary shares, preferred stock or warrant included in each
unit, respectively.
Issuance
in Series
We may
issue units in such amounts and in numerous distinct series as we
determine.
Enforceability
of Rights by Holders of Units
Each unit
agent, if any, will act solely as our agent under the applicable unit agreement
and will not assume any obligation or relationship of agency or trust with any
holder of any unit. A single bank or trust company may act as unit agent for
more than one series of units. A unit agent will have no duty or responsibility
in case of any default by us under the applicable unit agreement or unit,
including any duty or responsibility to initiate any proceedings at law or
otherwise, or to make any demand upon us. Any holder of a unit may, without the
consent of the related unit agent or the holder of any other unit, enforce by
appropriate legal action its rights as holder under any security included in the
unit.
PLAN
OF DISTRIBUTION
Unless
otherwise set forth in a prospectus supplement accompanying this prospectus, we
may sell the offered securities in any one or more of the following ways from
time to time:
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to or through
underwriters;
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directly to purchasers;
or
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through remarketing
firms.
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The
prospectus supplement with respect to the offered securities will set forth the
terms of the offering of the offered securities, including:
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the name or names of any
underwriters, dealers or
agents;
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the purchase price of the offered
securities and the proceeds to us from such
sale;
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any underwriting discounts and
commissions or agency fees and other items constituting underwriters’ or
agents’ compensation;
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any initial public offering price
and any discounts or concessions allowed or re-allowed or paid to dealers;
and
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any securities exchange on which
such offered securities may be
listed.
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Any
initial public offering price, discounts or concessions allowed or re-allowed or
paid to dealers may be changed from time to time. The distribution of the
offered securities may be effected from time to time in one or more transactions
at a fixed price or prices, which may be changed, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices.
Offers to
purchase the offered securities may be solicited by agents designated by us from
time to time. Any agent involved in the offer or sale of the offered securities
will be named, and any commissions payable by us to such agent will be set
forth, in the applicable prospectus supplement. Unless otherwise indicated in
the prospectus supplement, the agent will be acting on a reasonable best efforts
basis for the period of its appointment.
If
underwriters are used in the sale of the offered securities, the offered
securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined by
the underwriters at the time of sale. The offered securities may be offered to
the public either through underwriting syndicates represented by managing
underwriters or directly by the managing underwriters. Unless otherwise
indicated in the applicable prospectus supplement, the underwriters are subject
to certain conditions precedent and will be obligated to purchase all the
offered securities of a series if they purchase any of the offered
securities.
If a
dealer is used in the sale of the offered securities, we will sell the offered
securities to the dealer as principal. The dealer may then resell the offered
securities to the public at varying prices to be determined by the dealer at the
time of resale. The name of the dealer and the terms of the transaction will be
set forth in the applicable prospectus supplement.
Offers to
purchase the offered securities may be solicited directly by us and the sale
thereof may be made by us directly to institutional investors or others. The
terms of any such sales will be described in the applicable prospectus
supplement.
The
offered securities may also be offered and sold by a remarketing firm in
connection with a remarketing arrangement upon their purchase. Remarketing firms
will act as principals for their own accounts or as agents for us. These
remarketing firms will offer or sell the offered securities pursuant to the
terms of the offered securities. Any remarketing firm will be identified and the
terms of its agreements, if any, with us and its compensation will be described
in the applicable prospectus supplement.
We may
authorize underwriters, dealers and agents to solicit from third parties offers
to purchase the offered securities under contracts providing for payment and
delivery on future dates. The applicable prospectus supplement will describe the
material terms of these contracts, including any conditions to the purchasers’
obligations, and will include any required information about commissions we may
pay for soliciting these contracts.
In
connection with the sale of the offered securities, agents, underwriters,
dealers or remarketing firms may receive compensation from us or from purchasers
of the offered securities for whom they act as agents in the form of discounts,
concessions or commissions. Underwriters may sell the offered 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. Agents, underwriters, dealers
and remarketing firms that participate in the distribution of the offered
securities, and any institutional investors or others that purchase offered
securities directly and then resell the securities, may be deemed to be
underwriters, and any discounts or commissions received by them from us and any
profit on the resale of the securities by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
The
maximum commission or discount to be received by any member of the Financial
Industry Regulatory Authority (“FINRA”) or independent broker-dealer will not be
greater than 8% of the initial gross proceeds received by us for the sale of any
securities being registered pursuant to SEC Rule 415.
Agents,
underwriters, dealers and remarketing firms may be entitled under relevant
agreements entered into with us to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act or to contribution
with respect to payments which the agents, underwriters or dealers may be
required to make.
Each
series of the offered securities will be a new issue and, other than the
ordinary shares which are listed on the NASDAQ Global Select Market, will have
no established trading market. Any underwriters to whom we sell the offered
securities 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. We may elect to list any series of offered
securities on an exchange, and in the case of common stock, on any additional
exchange, but, unless otherwise specified in the applicable prospectus
supplement, we will not be obligated to do so. We cannot predict the liquidity
of the trading market for any of the offered securities.
In
connection with an offering, the underwriters may purchase and sell the offered
securities in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
offered securities than they are required to purchase in an offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the offered
securities while an offering is in progress.
The
underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the underwriters have repurchased offered securities sold
by or for the account of that underwriter in stabilizing or short-covering
transactions.
These
activities by the underwriters may stabilize, maintain or otherwise affect the
market price of the offered securities. As a result, the price of the offered
securities may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on an exchange or
automated quotation system, if the offered securities are listed on that
exchange or admitted for trading on that automated quotation system, or in the
over-the-counter market or otherwise.
Underwriters,
dealers, agents and remarketing firms, or their affiliates, may be customers of,
engage in transactions with, or perform services for, us and our subsidiaries in
the ordinary course of business.
EXPENSES
The
following table sets forth the costs and expenses estimated to be payable by us
in connection with the issuance and distribution of the ordinary shares being
registered under this registration statement:
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SEC
registration fee
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$
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10,695
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Legal
fees and expenses
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$
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50,000
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Accounting
fees and expenses
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$
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10,000
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Total
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$
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70,695
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We will
pay for all costs, expenses and fees in connection with the registration of the
securities offered hereby. In addition, we will agreed to indemnify any selling
agent or any underwriter of the securities offered hereby against certain
liabilities in connection with the offering of the securities offered
hereby. We will pay such commissions and expenses of any selling agent or
any underwriters as we negotiate and are within the permissible limits of the
compensation rules of FINRA.
LEGAL
MATTERS
The
validity of the securities offered in this prospectus will be passed upon for us
by Maples and Calder, PO Box 173, Road Town, Tortola, VG1110, British
Virgin Islands.
EXPERTS
The
consolidated financial statements as of September 30, 2008 and 2009 and for the
fiscal years ended September 30, 2007, 2008 and 2009 incorporated by reference
into this prospectus have been audited by BDO Limited, an independent registered
public accounting firm, to the extent and for the periods set forth in their
report incorporated herein by reference, and are incorporated by reference in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
Federal
securities laws require us to file information with the SEC concerning our
business and operations. Accordingly, we file annual and current reports with
the SEC. You may read and copy any document we file at the SEC’s public
reference rooms, including those located at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on public
reference rooms. Our SEC filings are also available to the public from the SEC’s
web site at http://www.sec.gov.
We have
filed with the SEC a registration statement on Form F-3 under the Securities Act
with respect to the securities being offering under this prospectus. This
prospectus, which is a part of that registration statement, does not include all
the information contained in the registration statement and its exhibits. For
further information with respect to our Company and the securities, you should
consult the registration statement and its exhibits. Statements contained in
this prospectus concerning the provisions of any documents are summaries of
those documents, and we refer you to the document filed with the SEC for more
information. The registration statement and any of its amendments, including
exhibits filed as a part of the registration statement or an amendment to the
registration statement, are available for inspection and copying as described
above.
INFORMATION
INCORPORATED BY REFERENCE
The SEC
allows us to “incorporate by reference” certain information we file with them in
this prospectus. This means that we can disclose important information to you by
referring you to the other information we have filed with the SEC. The
information that we incorporate by reference is considered to be part of this
prospectus. Information that we file later with the SEC will automatically
update and supersede this information. Further, all filings we make under the
Exchange Act prior to the termination of the offering shall be deemed to be
incorporated by reference into this prospectus. The following documents filed by
us with the SEC and any future filings under Sections 13(a), 13(c) or 15(d)
of the Exchange Act made prior to the termination of this offering are
incorporated by reference:
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our Annual Report on Form 20-F
for the fiscal year ended September 30, 2009, filed on January 14, 2010;
and
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the description of the Ordinary
Shares contained in our Registration Statement on Form 8-A, filed on
October 18, 2005 (SEC File No. 000-51576), and any other amendment or
report filed for the purpose of updating such
description.
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This
prospectus may contain information that updates, modifies or is contrary to
information in one or more of the documents incorporated by reference in this
prospectus. Reports we file with the SEC after the date of this prospectus may
also contain information that updates, modifies or is contrary to information in
this prospectus or in documents incorporated by reference in this prospectus.
Investors should review these reports as they may disclose a change in our
business, prospectus, financial condition or other affairs after the date of
this prospectus.
We will
also provide electronic or paper copies of our filings free of charge upon
written or oral request. You can request a free copy of the above filings or any
filings subsequently incorporated by reference into this prospectus by writing
or calling us at:
Origin
Agritech Limited
Attention:
Investor Relations
No.
21 Sheng Ming Yuan Road
Changping
District
Beijing
102206
People’s
Republic of China
8610-5890-7588
ENFORCEMENT
OF CIVIL LIABILITIES
We are
incorporated in the British Virgin Islands to take advantage of certain benefits
associated with being a British Virgin Islands exempted company, such
as:
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political and economic
stability;
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an effective judicial
system;
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a favorable tax
system;
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the absence of exchange control
or currency restrictions;
and
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the availability of professional
and support services.
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However,
certain disadvantages accompany organization in the British Virgin Islands.
These disadvantages include:
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the British Virgin Islands has a
less developed body of securities laws as compared to the United States
and provides significantly less protection to investors;
and
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British Virgin Islands companies
may not have standing to sue before the federal courts of the United
States.
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Our
organizational documents do not contain provisions requiring that disputes,
including those arising under the securities laws of the United States, between
us, our officers, directors and shareholders, be arbitrated.
Substantially
all of our current operations are conducted in China, and substantially all of
our assets are located in China. The majority of our directors and officers are
nationals or residents of jurisdictions other than the United States and a
substantial portion of their assets are located outside the United States. As a
result, it may be difficult for a shareholder to effect service of process
within the United States upon such persons, or to enforce against us or them
judgments obtained in United States courts, including judgments predicated upon
the civil liability provisions of the securities laws of the United States or
any state in the United States.
We have
appointed CT Corporation System, 111 Eighth Avenue, New York, New York 10011, as
our agent to receive service of process in connection with our registration
statement of which this prospectus forms a part.
We have
been informed by Maples and Calder, our counsel as to British Virgin Islands
law, that the United States and the British Virgin Islands do not have a treaty
providing for reciprocal recognition and enforcement of judgments of U.S. courts
in civil and commercial matters and that a final judgment for the payment of
money rendered by any general or state court in the United States based on civil
liability, whether or not predicated solely upon the U.S. federal securities
laws, would not be automatically enforceable in the British Virgin Islands. We
have also been advised by Maples and Calder that a final and conclusive judgment
obtained in U.S. federal or state courts under which a sum of money is payable
as compensatory damages (i.e., not being a sum claimed by a revenue authority
for taxes or other charges of a similar nature by a governmental authority, or
in respect of a fine or penalty or multiple or punitive damages) may be the
subject of an action on a debt in the Supreme Court of the British Virgin
Islands under the common law doctrine of obligation. This type of action should
be successful upon proof that the sum of money is due and payable, without
having to prove the facts supporting the underlying judgment, as long
as:
● the
foreign court issuing the judgment had jurisdiction in the matter and we either
submitted to such jurisdiction or were resident or carrying on business within
such jurisdiction and were duly served with process; and
● the
judgment was not contrary to public policy in the British Virgin Islands, was
not obtained by fraud or in proceedings contrary to the natural justice of the
British Virgin Islands, and was not based on an error in British Virgin Islands
law.
A British
Virgin Islands court may impose civil liability on us or our directors or
officers in a suit brought in the Supreme Court of the British Virgin Islands
against us or these persons with respect to a violation of U.S. federal
securities laws, provided that the facts surrounding any violation constitute or
give rise to a cause of action under British Virgin Islands
law.
ORIGIN
AGRITECH LIMITED
$150,000,000
Ordinary
Shares
Preferred
Shares
Warrants
Units
PROSPECTUS
WE
HAVE NOT AUTHORIZED ANY DEALER, SALES PERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER OF THESE SECURITIES IN ANY STATE
WHERE AN OFFER IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS CURRENT
AS OF THE DATE OF THIS PROSPECTUS AND YOU SHOULD NOT ASSUME THAT THIS PROSPECTUS
IS ACCURATE AS OF ANY OTHER DATE.