Introduction
We are a blank check company incorporated
in the British Virgin Islands as a business company with limited liability (meaning that our shareholders have no liability, as
members of our company, for the liabilities of our company over and above the amount already paid for their shares) and formed
for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, purchasing all or substantially
all of the assets of, entering into contractual arrangements with, or engaging in any other similar business combination with one
or more businesses or entities, which we refer to throughout this Report as our initial business combination.
Business Strategy
Our efforts in identifying prospective target
businesses are not limited to a particular country, although we focus on businesses that have their primary operations located
in China. We believe that we will add value to these businesses primarily by providing them with access to the U.S. capital markets.
We seek to capitalize on the strength of
our management team. Our team consists of experienced financial services and accounting professionals and senior operating executives
of companies in China. Collectively, our officers and directors have decades of experience in mergers and acquisitions, and operating
companies in China. We believe we benefit from their accomplishments, and specifically their current activities in China market,
in identifying attractive acquisition opportunities. However, there is no assurance that we will complete a business combination.
There is no restriction in the geographic
location of targets we can pursue, although our initial priority is China. We seek to identify targets that are likely to provide
attractive financial returns through business combinations. We have yet to determine a time frame, an investment amount or any
other criteria, which would trigger our search for business opportunities outside of China.
We seek to capitalize on the comprehensive
industry experience and network of our executive officers in consummating an initial business combination in sectors that we believe
have strategic significance to the Chinese economy, including but not limited to the new technology-enabled service sector (“TES”)
sector in China, a key growth sector within China’s shifting economy.
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We focus on target companies with the following characteristics:
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mid-market companies with a market value between $150
million and $250 million and high growth potential;
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companies that have strategic significance to the Chinese
economy;
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companies that we believe can leverage favorable demographic,
political, and economic trends;
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companies operating in a competitive landscape without
a dominant State-Owned-Enterprise presence in China;
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companies with strategic financial backers;
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companies that intend to expand their businesses overseas;
and
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companies with a management team that has a history of
strong corporate governance and ambition to pursue a disciplined growth.
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We leverage our management team’s strong
background in the technology industry in China and the U.S. and their broad network to identify the most valuable target companies
among what we believe will be a large pool of potential acquisition candidates. Our experienced management team conducts careful
technology and business diligence on potential target companies. We believe that we can provide in-depth management and technology
expertise to guide a target company in streamlining its operations and enhance its product development and service offerings. In
addition, we believe we can provide capital market support to assist a target company to improve the company’s transparency
in the capital markets and guide the company in raising sufficient fund to support its growth.
Investment Criteria
Our management team intends to focus on creating
shareholder value by leveraging its experience in the management, operation and financing of businesses to improve the efficiency
of operations while implementing strategies to scale revenue organically and/or through acquisitions. In addition to the factors
listed above, we have identified the following general criteria and guidelines, which we believe are important in evaluating prospective
target businesses. While we use these criteria and guidelines in evaluating prospective businesses, we may deviate from these criteria
and guidelines should we see justification to do so.
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Middle-Market Growth Business
. We primarily seek to acquire one or more growth businesses with a total enterprise value of between $150,000,000 and $250,000,000. We believe that there are a substantial number of potential target businesses within this valuation range that can benefit from new capital for scalable operations to yield significant revenue and earnings growth. We currently do not intend to acquire either a start-up company (a company that has not yet established commercial operations) or a company with negative cash flow.
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Companies in Business Segments that are Strategically Significant to China
. In addition to the TES sector, we seek to acquire those businesses that are currently strategically significant in China. Such sectors include: Internet and high technology, clean energy, health care, consumer and retail, energy and resources, food processing, manufacturing and education.
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Business with Revenue and Earnings Growth Potential.
We seek to acquire one or more businesses that have the potential for significant revenue and earnings growth through a combination of both existing and new product development, increased production capacity, expense reduction and synergistic follow-on acquisitions resulting in increased operating leverage.
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Companies with Potential for Strong Free Cash Flow Generation.
We seek to acquire one or more businesses that have the potential to generate strong, stable and increasing free cash flow. We focus on one or more businesses that have predictable revenue streams and definable low working capital and capital expenditure requirements. We may also seek to prudently leverage this cash flow in order to enhance shareholder value.
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Benefit from Being a Public
Company.
We intend to only acquire a business or businesses that will benefit from being publicly traded and
which can effectively utilize access to broader sources of capital and a public profile that are associated with being a
publicly traded company.
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These criteria are not intended to be exhaustive.
Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these
general guidelines as well as other considerations, factors and criteria that our sponsor and management team may deem relevant.
In the event that we decide to enter into an initial business combination with a target business that does not meet the above criteria
and guidelines, we will disclose that the target business does not meet the above criteria in our shareholder communications related
to our initial business combination, which, would be in the form of proxy solicitation or tender offer materials, as applicable,
that we would file with the United States Securities and Exchange Commission, or the SEC. In evaluating a prospective target business,
we conduct a due diligence review which may encompass, among other things, meetings with incumbent ownership, management and employees,
document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information
which will be made available to us.
Significant
Activities Since Inception
On
July 27, 2018, we consummated our initial public offering of 4,400,000 units, including a partial exercise by the
underwriters of their over-allotment option in the amount of 400,000 units. Each unit consists of one ordinary share, no par
value, one warrant to purchase one-half of one ordinary share and one right to receive one-tenth of one ordinary share upon
the consummation of our initial business combination, pursuant to a registration statement on Form S-1 (File No. 333-226001).
Each whole warrant is exercisable for one ordinary share at an exercise price of $11.50 per share. The units were sold in
our initial public offering at an offering price of $10.00 per unit, generating gross proceeds of $44,000,000 (before
underwriting discounts and commissions and offering expenses).
Simultaneously
with the consummation of our initial public offering, we completed a private placement of 282,000 units, issued to our sponsor
and Chardan, generating gross proceeds of $2,820,000.
$44,000,000
of the net proceeds from our initial public offering (including the over-allotment) and the private placement were deposited in
a trust account established for the benefit of our public stockholders.
Our
units began trading on July 25, 2018 on the Nasdaq Capital Market under the symbol “GLACU.” Commencing on August 8, 2018, the securities
comprising the units began separate trading. The units, ordinary shares, warrants and rights are trading on the Nasdaq Capital
Market under the symbols “GLACU,” “GLAC,” “GLACW” and “GLACR,” respectively.
Effecting
our initial business combination
General
We
are not presently engaged in, and we will not engage in, any operations until the consummation of our initial business combination.
We intend to effectuate our initial business combination using cash from the proceeds of our initial public offering and the private
placement of the private units, our shares, new debt, or a combination of these, as the consideration to be paid in our initial
business combination. We may seek to consummate our initial business combination with a company or business that may be financially
unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies
and businesses, although we will not be permitted to effectuate our initial business combination with another blank check company
or a similar company with nominal operations.
If
our initial business combination is paid for using shares or debt securities, or not all of the funds released from the trust
account are used for payment of the purchase price in connection with our business combination or used for redemptions of purchases
of our ordinary shares, we may apply the cash released to us from the trust account that is not applied to the purchase price
for general corporate purposes, including for maintenance or expansion of operations of acquired businesses, the payment of principal
or interest due on indebtedness incurred in consummating our initial business combination, to fund the purchase of other companies
or for working capital.
Subject
to the requirement that, so long as our securities are listed on Nasdaq, our initial business combination must be with one or
more target businesses or assets having an aggregate fair market value of at least 80% of the value of the trust account (less
any deferred underwriting commissions and taxes payable on interest earned and less any interest earned thereon that is released
to us for taxes) at the time of the agreement to enter into such initial business combination, we have virtually unrestricted
flexibility in identifying and selecting one or more prospective target businesses. Accordingly, there is no current basis for
investors to evaluate the possible merits or risks of the target business with which we may ultimately complete our initial business
combination. Although our management assesses these risks inherent in a particular target business with which we may combine,
this assessment may not result in our identifying all risks that a target business may encounter. Furthermore, some of those risks
may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely
impact a target business.
We
may seek to raise additional funds through a private offering of debt or equity securities in connection with the consummation
of our initial business combination, and we may effectuate our initial business combination using the proceeds of such offering
rather than using the amounts held in the trust account. Subject to compliance with applicable securities laws, we would consummate
such financing only simultaneously with the consummation of our business combination. In the case of an initial business combination
funded with assets other than the trust account assets, our tender offer documents or proxy materials disclosing the business
combination would disclose the terms of the financing and, only if required by law or the rules of Nasdaq, we would seek shareholder
approval of such financing. There are no prohibitions on our ability to raise funds privately or through loans in connection with
our initial business combination.
Sources
of Target Businesses
We
believe that there are numerous acquisition candidates available. Target business candidates are brought to our attention from
various unaffiliated sources, including investment bankers, venture capital funds, private equity funds, leveraged buyout funds,
management buyout funds and other members of the financial community. Target businesses may be brought to our attention by such
unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to target
businesses they think we may be interested in on an unsolicited basis, since many of these sources will have read our public filings
and know what types of businesses we are targeting.
Our
officers and directors, as well as their respective affiliates, also bring to our attention target business candidates that they
become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well
as attending trade shows or conventions. We have engaged, and may continue to engage, firms or other individuals that specialize
in business acquisitions, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined
in an arm’s length negotiation based on the terms of the transaction. In no event, however, will any of our existing officers
or directors, or any entity with which they are affiliated, be paid any finder’s fee, consulting fee or other compensation
prior to, or for any services they render in order to effectuate, the consummation of a business combination (regardless of the
type of transaction).
We
are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers
or directors. In the event we seek to complete our initial business combination with a target that is affiliated with our sponsor,
officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent accounting firm,
or independent investment banking firm that our initial business combination is fair to our company from a financial point of
view.
If
any of our officers or directors becomes aware of a business combination opportunity that falls within the line of business of
any entity to which he or she has pre-existing fiduciary or contractual obligations, he may be required to present such business
combination opportunity to such entity prior to presenting such business combination opportunity to us. None of our officers and
directors currently has any relevant pre-existing fiduciary duties or contractual obligations that would conflict with our company’s
objectives.
Our
officers have agreed not to become involved with another publicly listed blank check company with a class of securities registered
under the Securities Exchange Act of 1934, as amended, prior to us announcing an agreement to acquire our initial business combination,
or the expiration of the period for us to announce and/or complete our initial business combination.
Selection
of a Target Business and Structuring of a Business Combination
Subject
to the requirement that, so long as our securities are listed on Nasdaq, our initial business combination must be with one or
more target businesses or assets having an aggregate fair market value of at least 80% of the value of the trust account (less
any deferred underwriting commissions and taxes payable on interest earned and less any interest earned thereon that is released
to us for taxes) at the time of the agreement to enter into such initial business combination, our management will have virtually
unrestricted flexibility in identifying and selecting one or more prospective target businesses, although we will not be permitted
to effectuate our initial business combination with another blank check company or a similar company with nominal operations.
In any case, we will only consummate an initial business combination in which we become the majority shareholder of the target
(or control the target through contractual arrangements in limited circumstances for regulatory compliance purposes as discussed
below) or are otherwise not required to register as an investment company under the Investment Company Act. There is no basis
for investors to evaluate the possible merits or risks of any target business with which we may ultimately complete our initial
business combination. To the extent we effect our initial business combination with a company or business that may be financially
unstable or in its early stages of development or growth, we may be affected by numerous risks inherent in such company or business.
Although our management will endeavor to evaluate the risks inherent in a particular target business, we may not properly ascertain
or assess all significant risk factors.
In
evaluating a prospective target business, we conduct an extensive due diligence review which encompasses, among other things,
meetings with incumbent management and inspection of facilities, as well as review of financial and other information which is
made available to us. This due diligence review is conducted either by our management or by unaffiliated third parties we may
engage.
The
time and costs required to select and evaluate a target business and to structure and complete the business combination cannot
presently be ascertained with any degree of certainty. Any costs incurred with respect to the identification and evaluation of
a prospective target business with which a business combination is not ultimately completed will result in a loss to us and reduce
the amount of capital available to otherwise complete a business combination.
Alternative
structures to comply with regulations in certain Chinese industries
We
may need to adopt alternative structures in the event that we elect to acquire a target company in certain Chinese industries.
The Chinese government has restricted or limited direct foreign ownership of certain kinds of assets and companies operating in
a wide variety of industries, including certain aspects of telecommunications, advertising, food production, and heavy equipment
manufacturers. The Chinese government may apply these restrictions in other industries in the future. In addition, there can be
restrictions on the foreign ownership of businesses that are determined from time to time to be in “important industries”
that may affect the national economic security or having “famous Chinese brand names” or “well established Chinese
brand names.” Subject to the review requirements of the Ministry of Commerce and other relevant agencies as discussed elsewhere
for acquisitions of assets and companies in China and subject to the various percentage ownership limitations that exist from
time to time, acquisitions involving foreign investors and parties in the various restricted categories of assets and industries
may nonetheless sometimes be consummated using contractual arrangements with permitted Chinese parties which could, for example,
result in a structure where, in exchange for our payment of the acquisition consideration, the target business would be majority
or wholly owned by Chinese residents whom we designate, and the target business would continue to hold the requisite licenses
necessary to operate its business. To the extent such agreements are employed, they may be for control of specific assets such
as intellectual property or control of blocks of the equity ownership interests of a company. The agreements would be designed
to secure for us economic benefits and to assume risk of losses and control over the subject assets or equity interests similar
to the rights of full ownership, while leaving the technical ownership in the hands of Chinese parties.
For
example, these contracts could result in a structure where, in exchange for our payment of the acquisition consideration: (i)
the target company would be majority owned by Chinese residents whom would be likely designated by us and the target company would
continue to hold the requisite licenses for the target business and (ii) we would establish a new subsidiary in China which would
provide technology, technical support, consulting and related services to the target company in exchange for fees, which would
transfer to us substantially all of the economic benefits of ownership of the target company.
These
contractual arrangements would be designed to provide the following:
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Our exercise of effective
control over the target company;
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We will assume economic benefits and risk of
losses of the target company that are substantially similar to full ownership;
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The shareholders of the target company would
grant us a pledged interest in all of the issued and outstanding interests of the target company, including the right to vote
such shares, as security for the performance of the target company’s obligations under the contractual arrangements;
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The shareholders of the target company would
grant us an irrevocable proxy for the maximum period permitted by law, to vote the shareholders’ shares in the target
company in such manner and for or against such proposals as we may determine; and
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We, or our designee, would have an exclusive
option to purchase all or part of the equity interests in the target company owned by the Chinese residents whom we designate,
or all or part of the assets of the target company, in each case when and to the extent permitted by Chinese regulations.
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While
we cannot predict the terms of any such contract that we will be able to negotiate, at a minimum, any contractual arrangement
would need to provide us with effective control over the target’s operations and management either directly through board
control or through affirmative and/or negative covenants and veto rights with respect to matters such as entry into material agreements,
management changes and issuance of debt or equity securities, among other potential control provisions. We have not, however,
established specific provisions which must be in an agreement in order to meet the definition of business combination.
These
agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted under Chinese
law and regulation. If we choose to effect our initial business combination that employs the use of these types of control arrangements,
we may have difficulty in enforcing our rights. Therefore, these contractual arrangements may not be as effective in providing
us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership through
a merger or shares exchange. For example, if the target business or any other entity fails to perform its obligations under these
contractual arrangements, we may have to incur substantial costs and expend substantial resources to enforce such arrangements,
and rely on legal remedies under Chinese law, including seeking specific performance or injunctive relief, and claiming damages,
which we cannot assure you will be sufficient to off-set the cost of enforcement and may adversely affect the benefits we expect
to receive from the business combination.
While
we believe under such contractual arrangement, we will be considered the primary beneficiary and be able to consolidate financial
results of the target company in our consolidated financial statements. In the event that in the future generally accepted accounting
principles in the United States and the SEC accounting regulations change and we are deemed not to be the primary beneficiary
by controlling the target company through such contractual arrangement, we would not be able to consolidate line by line the target
company’s financial results in our consolidated financial statements.
Moreover,
we expect that the contractual arrangements upon which we would be relying would be governed by Chinese law and would be the only
basis of providing resolution of disputes which may arise through either arbitration or litigation in China. Accordingly, these
contracts would be interpreted in accordance with Chinese law and any disputes would be resolved in accordance with Chinese legal
procedures. Uncertainties in the Chinese legal system could limit our ability to enforce these contractual arrangements. In the
event we are unable to enforce these contractual arrangements, we may not be able to exert the effective level of control over
the target business.
We
are unable to determine at this time what form an acquisition of a target business will take.
Fair
market value of target business or businesses
So
long as our securities are listed on Nasdaq, the target business or businesses or assets with which we effect our initial business
combination must have a collective fair market value equal to at least 80% of the value of the trust account (less any deferred
underwriting commissions and taxes payable on interest earned and less any interest earned thereon that is released to us for
taxes) at the time of the agreement to enter into such initial business combination. So long as our securities are listed on Nasdaq,
if we acquire less than 100% of one or more target businesses in our initial business combination, the aggregate fair market value
of the portion or portions we acquire must equal at least 80% of the value of the trust account (less any deferred underwriting
commissions and taxes payable on interest earned and less any interest earned thereon that is released to us for taxes) at the
time of the agreement to enter into such initial business combination. However, we will always acquire at least a controlling
interest in a target business. The fair market value of a portion of a target business or assets will likely be calculated by
multiplying the fair market value of the entire business by the percentage of the target we acquire. We may seek to consummate
our initial business combination with an initial target business or businesses with a collective fair market value in excess of
the balance in the trust account. In order to consummate such an initial business combination, we may issue a significant amount
of debt, equity or other securities to the sellers of such business and/or seek to raise additional funds through a private offering
of debt, equity or other securities (although our memorandum and articles of association provides that we may not issue securities
that can vote with ordinary shareholders on matters related to our pre-initial business combination activity). If we issue securities
in order to consummate such an initial business combination, our shareholders could end up owning a minority of the combined company’s
voting securities as there is no requirement that our shareholders own a certain percentage of our company (or, depending on the
structure of the initial business combination, an ultimate parent company that may be formed) after our business combination.
We have not entered into any such arrangement to issue our debt or equity securities.
We
anticipate structuring our initial business combination to acquire 100% of the equity interest or assets of the target business
or businesses. We may, however, structure our initial business combination to acquire less than 100% of such interests or assets
of the target business, but we will only consummate such business combination if we will become the majority shareholder of the
target (or control the target through contractual arrangements in limited circumstances for regulatory compliance purposes) or
are otherwise not required to register as an “investment company” under the Investment Company Act of 1940, as amended,
or the Investment Company Act. Even though we will own a majority interest in the target, our shareholders prior to the business
combination may collectively own a minority interest in the post business combination company, depending on valuations ascribed
to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial
number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling
interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately
prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business
combination.
The
fair market value of a target business or businesses or assets will be determined by our board of directors based upon standards
generally accepted by the financial community, such as actual and potential gross margins, the values of comparable businesses,
earnings and cash flow, book value and, where appropriate, upon the advice of appraisers or other professional consultants. If
our board of directors is not able to independently determine that the target business or assets has a sufficient fair market
value to meet the threshold criterion, we will obtain an opinion from an unaffiliated, independent investment banking firm or
an independent accounting firm with respect to the satisfaction of such criterion. Notwithstanding the foregoing, unless we consummate
a business combination with an affiliated entity, we are not required to obtain an opinion from an independent investment banking
firm or an independent accounting firm that the price we are paying is fair to our shareholders.
Lack
of business diversification
For
an indefinite period of time after consummation of our initial business combination, the prospects for our success may depend
entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations
with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations
and mitigate the risks of being in a single line of business. By consummating our initial business combination with only a single
entity, our lack of diversification may:
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subject
us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on
the particular industry in which we operate after our initial business combination, and
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cause
us to depend on the marketing and sale of a single product or limited number of products or services.
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Limited
ability to evaluate the target’s management team
Although
we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting
our initial business combination with that business, our assessment of the target business’ management may not prove to
be correct. The future role of members of our management team, if any, in the target business cannot presently be stated with
any certainty. Consequently, members of our management team may not become a part of the target’s management team, and the
future management may not have the necessary skills, qualifications or abilities to manage a public company. Further, it is also
not certain whether one or more of our directors will remain associated in some capacity with us following our initial business
combination. Moreover, members of our management team may not have significant experience or knowledge relating to the operations
of the particular target business. Our key personnel may not remain in senior management or advisory positions with the combined
company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time
of our initial business combination.
Following
our initial business combination, we may seek to recruit additional managers to supplement the incumbent management of the target
business. We may not have the ability to recruit additional managers, or that additional managers will have the requisite skills,
knowledge or experience necessary to enhance the incumbent management.
Shareholders
may not have the ability to approve our initial business combination
Although
we may seek shareholder approval before we effect our initial business combination, we may not do so for business or legal reasons
(so long as such transaction does not require shareholder approval under the Companies Act or the rules of Nasdaq). Presented
in the table below is a graphic explanation of the types of initial business combinations we may consider and whether we expect
shareholder approval would be required under the Companies Act for each such transaction.
Type
of Transaction
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Whether
Shareholder
Approval is
Required
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Purchase of assets
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No
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Purchase of stock of target not involving a
merger with the company
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No
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Merger of target with a subsidiary of the company
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No
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Merger of the company with a target
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Yes
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Entering into contractual agreements with a
target to obtain control
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No
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Additionally,
under NASDAQ’s listing rules, shareholder approval would be required for our initial business combination if, for example:
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we issue ordinary shares that will be equal
to or in excess of 20% of the number of ordinary shares then outstanding (other than in a public offering);
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any of our directors, officers or substantial
shareholders (as defined by NASDAQ rules) has a 5% or greater interest (or such persons collectively have a 10% or greater
interest), directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential
issuance of ordinary shares could result in an increase in outstanding ordinary shares or voting power of 5% or more; or
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the issuance or potential issuance of ordinary
shares will result in our undergoing a change of control.
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We
also may be required to obtain shareholder approval if we wish to take certain actions in connection with our initial business
combination such as adopting an incentive stock plan or amending our charter. So long as we obtain and maintain a listing of our
securities on Nasdaq, we will be required to comply with such rules.
Ability
to Extend Time to Complete Business Combination
We
will have until July 27, 2019 to consummate our initial business combination. However, if we anticipate that we may not be able
to consummate our initial business combination by July 27, 2019, we may, by resolution of our board if requested by our sponsor,
extend the period of time to consummate a business combination up to three times, each by an additional three months (until April
27, 2020), subject to the sponsor depositing additional funds into the trust account as set out below. Pursuant to the terms of
our memorandum and articles of association and the trust agreement to be entered into between us and Continental Stock Transfer
& Trust Company, in order for the time available for us to consummate our initial business combination to be extended, our
sponsor or its affiliates or designees, upon five days advance notice prior to the applicable deadline, must deposit into the
trust account $440,000 ($0.10 per unit), up to an aggregate of $1,320,000, or $0.30 per share, on or prior to the date of the
applicable deadline, for each three month extension. In the event that we receive notice from our sponsor five days prior to the
applicable deadline of its wish for us to effect an extension, we intend to issue a press release announcing such intention at
least three days prior to the applicable deadline. In addition, we intend to issue a press release the day after the applicable
deadline announcing whether or not the funds had been timely deposited. Our sponsor and its affiliates or designees are not obligated
to fund the trust account to extend the time for us to complete our initial business combination.
Redemption
rights for public shareholders upon consummation of our initial business combination
We
will provide our public shareholders with the opportunity to redeem all or a portion their shares upon the consummation of our
initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust
account, including interest (net of taxes payable), divided by the number of then outstanding public shares, subject to the limitations
described herein. The amount in the trust account as of January 31, 2018 is $10.11 per share (subject to increase of up to an
additional $0.30 per share in the event that our sponsor elects to extend the period of time to consummate a business combination,
as described in more detail in this Report). The per-share amount we will distribute to investors who properly redeem their shares
will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our initial shareholders and Chardan
have agreed to waive their right to receive liquidating distributions with respect to their founder shares and private units,
as applicable, if we fail to consummate our initial business combination within the requisite time period. However, if our initial
shareholders, Chardan or any of our officers, directors or affiliates acquires public shares in or after our initial public offering,
they will be entitled to receive liquidating distributions with respect to such public shares if we fail to consummate our initial
business combination within the required time period.
Manner
of Conducting Redemptions
We
will provide our public shareholders with the opportunity to redeem all or a portion of their public shares upon the completion
of our initial business combination either (i) in connection with a shareholder meeting called to approve the business combination
or (ii) by means of a tender offer.
We
intend to hold a shareholder vote in connection with our business combination. In such case, we will:
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conduct the redemptions in conjunction with
a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not
pursuant to the tender offer rules, and
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file proxy materials with the SEC.
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In
the event that we seek shareholder approval of our initial business combination, we will distribute proxy materials and, in connection
therewith, provide our public shareholders with the redemption rights described above upon consummation of the initial business
combination.
If we seek shareholder approval, we will consummate
our initial business combination only if a majority of the outstanding ordinary shares voted are voted in favor of the business
combination. In such case, our initial shareholders have agreed to vote their founder shares, private shares and any public shares
purchased during or after the offering in favor of our initial business combination and our officers and directors have also agreed
to vote any public shares purchased during or after the offering in favor of our initial business combination. As a result, we
would need only 1,531,001 of the 4,400,000 public shares, or approximately 34.8%, sold in our initial public offering to be voted
in favor of a transaction in order to have our initial business combination approved. Each public shareholder may elect to redeem
their public shares irrespective of whether they vote for or against the proposed transaction. In addition, our initial shareholders
and Chardan have agreed to waive their redemption rights with respect to their founder shares and private shares, as applicable,
and our initial shareholders have agreed to waive their redemption rights with respect to their public shares, in connection with
the consummation of our initial business combination.
In
no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon
the consummation of our initial business combination. Furthermore, the redemption threshold may be further limited by the terms
and conditions of our initial business combination. If too many public shareholders exercise their redemption rights so that we
cannot satisfy the net tangible asset requirement or any net worth or cash requirements, we would not proceed with the redemption
of our public shares and the related business combination, and instead may search for an alternate business combination.
Notwithstanding
the foregoing, if we do not decide to hold a shareholder vote in conjunction with their initial business combination for business
or other legal reasons (so long as shareholder approval is not required by the Companies Act or the rules of Nasdaq), we will
conduct redemptions pursuant to the tender offer rules of the SEC and our memorandum and articles of association. In such case,
we will:
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offer to redeem our public shares pursuant to
Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and
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file tender offer documents with the SEC prior
to consummating our initial business combination which will contain substantially the same financial and other information
about the initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act,
which regulates the solicitation of proxies, and we will not be permitted to consummate our initial business combination until
the expiration of the tender offer period.
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In
the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem shall remain open for at least 20 business
days, in accordance with Rule 14e-1(a) under the Exchange Act.
In connection with
the successful consummation of our business combination, we may redeem pursuant to a tender offer up to that number of ordinary
shares that would permit us to maintain net tangible assets of $5,000,001 upon the consummation of our initial business combination.
However, the redemption threshold may be further limited by the terms and conditions of our proposed initial business combination.
For example, the proposed business combination may require: (i) cash consideration to be paid to the target or members of its
management team, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the
allocation of cash to satisfy other conditions in accordance with the terms of the proposed business combination. In the event
the aggregate cash consideration we would be required to pay for all shares that are validly tendered plus any amount required
to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available
to us, we will not consummate the business combination, we will not purchase any shares pursuant to the tender offer and all shares
will be returned to the holders thereof following the expiration of the tender offer. Additionally, since we are required to maintain
net tangible assets of at least $5,000,001 upon the consummation of our initial business combination (which may be substantially
higher depending on the terms of our potential business combination), the chance that the holders of our ordinary shares electing
to redeem in connection with a redemption conducted pursuant to the proxy rules will cause us to fall below such minimum requirement
is increased.
When we conduct a tender offer to redeem our public
shares upon consummation of our initial business combination, in order to comply with the tender offer rules, the offer will be
made to all of our shareholders, not just our public shareholders. Our initial shareholders and Chardan have agreed to waive their
redemption rights with respect to their founder shares and private shares, as applicable, and our initial shareholders have agreed
to waive their redemption rights with respect to their public shares, in connection with any such tender offer.
Limitation
on redemption rights upon consummation of our initial business combination if we seek shareholder approval.
If
we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our business
combination pursuant to the tender offer rules, our memorandum and articles of association provides that a public shareholder,
individually or together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert
or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights
with respect to more than an aggregate of 15% of the shares sold in our initial public offering. We believe this restriction will
discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability
to exercise their redemption rights as a means to force us or our management to purchase their shares at a significant premium
to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than
an aggregate of 15% of the shares sold in our initial public offering could threaten to exercise its redemption rights if such
holder’s shares are not purchased by us or our management at a premium to the then-current market price or on other undesirable
terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in our initial public offering,
we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to consummate
our initial business combination, particularly in connection with our initial business combination with a target that requires
as a closing condition that we have a minimum net worth or a certain amount of cash. However, we would not be restricting our
shareholders’ ability to vote all of their shares (including all shares held by those shareholders that hold more than 15%
of the shares sold in our initial public offering) for or against our initial business combination. We will resolve any disputes
relating to whether a public shareholder is acting in concert or as a “group” either by requiring certifications under
the penalty of perjury to such effect by public shareholders or via adjudication in court.
Permitted
purchases of our securities by our affiliates
If
we seek shareholder approval of our business combination and we do not conduct redemptions in connection with our business combination
pursuant to the tender offer rules, our sponsor, directors, officers, advisors or their affiliates may purchase shares in privately
negotiated transactions or in the open market either prior to or following the consummation of our initial business combination.
Such a purchase would include a contractual acknowledgement that such shareholder, although still the record holder of our shares
is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our sponsor,
directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders
who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior
elections to redeem their shares. Although very unlikely, our initial shareholders, officers, directors and their affiliates could
purchase sufficient shares so that the initial business combination may be approved without the majority vote of public shares
held by non-affiliates. It is intended that purchases will comply with Rule 10b-18 under the Exchange Act, which provides a safe
harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases.
The
purpose of such purchases would be to (1) increase the likelihood of obtaining shareholder approval of the business combination
or (2) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain
amount of cash at the closing of the business combination, where it appears that such requirement would otherwise not be met.
This may result in the consummation of an initial business combination that may not otherwise have been possible.
As
a consequence of any such purchases, the public “float” of our ordinary shares may be reduced and the number of beneficial
holders of our securities may be reduced, which may make it difficult to maintain the listing or trading of our securities on
a national securities exchange following consummation of a business combination.
Tendering
share certificates in connection with a tender offer or redemption rights
We
will require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their
shares in “street name,” to either tender their certificates to our transfer agent prior to the expiration date set
forth in the tender offer documents mailed to such holders, or in the event we distribute proxy materials, up to two business
days prior to the vote on the proposal to approve the business combination, or to deliver their shares to the transfer agent electronically
using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. Accordingly,
a public shareholder would have from the time we send out our tender offer materials until the close of the tender offer period,
or up to two days prior to the vote on the business combination if we distribute proxy materials, as applicable, to tender its
shares if it wishes to seek to exercise its redemption rights. Given the relatively short exercise period, it is advisable for
shareholders to use electronic delivery of their public shares.
There
is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering
them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker
whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not
we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of
exercising redemption rights regardless of the timing of when such delivery must be effectuated.
The
foregoing is different from the procedures used by many blank check companies. In order to perfect redemption rights in connection
with their business combinations, many blank check companies would distribute proxy materials for the shareholders’ vote
on our initial business combination, and a holder could simply vote against a proposed business combination and check a box on
the proxy card indicating such holder was seeking to exercise his redemption rights. After the business combination was approved,
the company would contact such shareholder to arrange for him to deliver his certificate to verify ownership. As a result, the
shareholder then had an “option window” after the consummation of the business combination during which he could monitor
the price of the company’s shares in the market. If the price rose above the redemption price, he could sell his shares
in the open market before actually delivering his shares to the company for cancellation. As a result, the redemption rights,
to which shareholders were aware they needed to commit before the shareholder meeting, would become “option” rights
surviving past the consummation of the business combination until the redeeming holder delivered its certificate. The requirement
for physical or electronic delivery at or prior to the meeting ensures that a redeeming holder’s election to redeem is irrevocable
once the business combination is approved.
Any
request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the tender offer materials
or the date of the shareholder meeting set forth in our proxy materials, as applicable. Furthermore, if a holder of a public share
delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable
date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically
or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their
shares will be distributed promptly after the completion of our initial business combination.
If
the initial business combination is not approved or completed for any reason, then our public shareholders who elected to exercise
their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the trust account. In
such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares.
If
our initial proposed business combination is not consummated, we may continue to try to consummate our initial business combination
with a different target until July 27, 2019 or April 27, 2020 if we extend the period of time to consummate a business combination,
as described in more detail in this Report).
Redemption
of public shares and liquidation if no initial business combination
Our
sponsor, officers and directors have agreed that we must complete our initial business combination by July 27, 2019 (or April
27, 2020 if we extend the period of time to consummate a business combination, as described in more detail in this Report). We
may not be able to find a suitable target business and consummate our initial business combination within such time period. If
we are unable to consummate our initial business combination by July 27, 2019 (or April 27, 2020 if we extend the period of time
to consummate a business combination, as described in more detail in this Report), we will, as promptly as reasonably possible
but not more than five business days thereafter, distribute the aggregate amount then on deposit in the trust account (net of
taxes payable, and less up to $50,000 of interest to pay liquidation expenses), pro rata to our public shareholders by way of
redemption and cease all operations except for the purposes of winding up of our affairs. This redemption of public shareholders
from the trust account shall be effected as required by function of our memorandum and articles of association and prior to any
voluntary winding up, although at all times subject to the Companies Act.
Following
the redemption of public shares, we intend to enter “
voluntary liquidation
” which is the statutory process
for formally closing and dissolving a company under the laws of the British Virgin Islands. Given that we intend to enter voluntary
liquidation following the redemption of public shareholders from the trust account, we do not expect that the voluntary liquidation
process will cause any delay to the payment of redemption proceeds from our trust account. In connection with such a voluntary
liquidation, the liquidator would give notice to creditors inviting them to submit their claims for payment, by notifying known
creditors (if any) who have not submitted claims and by placing a public advertisement in at least one newspaper published in
the British Virgin Islands newspaper and in at least one newspaper circulating in the location where the company has its principal
place of business, and taking any other steps he considers appropriate to identify the company’s creditors, after which
our remaining assets would be distributed. As soon as the affairs of the company are fully wound-up, the liquidator must complete
his statement of account and make a notificational filing with the Registrar. We would be dissolved once the Registrar issues
a Certificate of Dissolution.
Our
initial shareholders and Chardan have agreed to waive their redemption rights with respect to their founder shares and private
units, as applicable, if we fail to consummate our initial business combination within the applicable period from the closing
of our initial public offering. However, if our initial shareholders, or any of our officers, directors or affiliates acquire
public shares in or after our initial public offering, they will be entitled to redemption rights with respect to such public
shares if we fail to consummate our initial business combination within the required time period.
There
will be no redemption rights or liquidating distributions with respect to our rights or warrants, which will expire worthless
in the event we do not consummate our initial business combination by July 27, 2019 (or April 27, 2020 if we extend the period
of time to consummate a business combination, as described in more detail in this Report).
We
will pay the costs of our liquidation from our remaining assets outside of the trust account or interest earned on the funds held
in the trust account. However, the liquidator may determine that he or she requires additional time to evaluate creditors’
claims (particularly if there is uncertainty over the validity or extent of the claims of any creditors). Also, a creditor or
shareholder may file a petition with the BVI court which, if successful, may result in our liquidation being subject to the supervision
of that court. Such events might delay distribution of some or all of our remaining assets.
Additionally,
in any liquidation proceedings of the company under British Virgin Islands law, the funds held in our trust account may be included
in our estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any
such claims deplete the trust account we may not be able to return to our public shareholders the liquidation amounts payable
to them.
If
we were to expend all of the net proceeds of our initial public offering, other than the proceeds deposited in the trust account,
and without taking into account interest, if any, earned on the trust account, the per-share redemption amount received by shareholders
upon our dissolution would be approximately $10.00. The proceeds deposited in the trust account could, however, become subject
to the claims of our creditors, which would have higher priority than the claims of our public shareholders. The actual per-share
redemption amount received by shareholders may be less than $10.00 per share.
Although
we have sought and will continue to seek to have all vendors, service providers, prospective target businesses or other entities
with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies
held in the trust account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements
or even if they execute such agreements that they would be prevented from bringing claims against the trust account including
but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging
the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including
the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held
in the trust account, our management will perform an analysis of the alternatives available to it and will only enter into an
agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would
be significantly more beneficial to us than any alternative. Examples of possible instances where we may engage a third party
that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed
by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where
management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities
will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements
with us and will not seek recourse against the trust account for any reason. In order to protect the amounts held in the trust
account, our sponsor agreed that it will be liable to us, if and to the extent any claims by a vendor for services rendered or
products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce
the amounts in the trust account to below $10.00 per share, except as to any claims by a third party who executed a waiver of
any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of
our initial public offering against certain liabilities, including liabilities under the Securities Act. In the event that an
executed waiver is deemed to be unenforceable against a third party, our sponsor will not be responsible to the extent of any
liability for such third party claims. However, our sponsor may not be able to satisfy those obligations. Other than as described
above, none of our other officers or directors will indemnify us for claims by third parties including, without limitation, claims
by vendors and prospective target businesses. We have not independently verified whether our sponsor has sufficient funds to satisfy
his indemnity obligations and believe that our sponsor’s only assets are securities of our company. We believe the likelihood
of our sponsor having to indemnify the trust account is limited because we will endeavor to have all vendors and prospective target
businesses as well as other entities execute agreements with us waiving any right, title, interest or claim of any kind in or
to monies held in the trust account.
In
the event that the proceeds in the trust account are reduced below $10.00 per share and our sponsor asserts that it is unable
to satisfy any applicable obligations or that it has no indemnification obligations related to a particular claim, our independent
directors would determine whether to take legal action against our sponsor to enforce its indemnification obligations. While we
currently expect that our independent directors would take legal action on our behalf against our sponsor to enforce its indemnification
obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so
in any particular instance. Accordingly, due to claims of creditors, the actual value of the per-share redemption price may be
less than $10.00 per share.
We
seek to reduce the possibility that our sponsor has to indemnify the trust account due to claims of creditors by endeavoring to
have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements
with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. Our sponsor will also
not be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities,
including liabilities under the Securities Act. We have access to up to approximately $645,000 (as of November 30, 2018) not placed
in the trust account with which to pay any such potential claims. In the event that we liquidate and it is subsequently determined
that the reserve for claims and liabilities is insufficient, shareholders who received funds from our trust account could be liable
for claims made by creditors.
If
we are deemed insolvent for the purposes of the Insolvency Act (i.e. (i) we fail to comply with the requirements of a statutory
demand that has not been set aside under section 157 of the Insolvency Act; (ii) execution or other process issued on a judgment,
decree or order of a British Virgin Islands Court in favor of a creditor of the company is returned wholly or partly unsatisfied;
or (iii) either the value of the company’s liabilities exceeds its assets, or the company is unable to pay its debts as
they fall due), then there are very limited circumstances where prior payments made to shareholders or other parties may be deemed
to be a “voidable transaction” for the purposes of the Insolvency Act. A voidable transaction would include, for these
purposes, payments made as “unfair preferences” or “transactions at an undervalue”. A liquidator appointed
over an insolvent company who considers that a particular transaction or payment is a voidable transaction under the Insolvency
Act could apply to the British Virgin Islands Courts for an order setting aside that payment or transaction in whole or in part.
Additionally,
if we enter insolvent liquidation under the Insolvency Act, the funds held in our trust account will likely be included in our
estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any insolvency
claims deplete the trust account you may not be able to return to our public shareholders the liquidation amounts due them.
Our
public shareholders will be entitled to receive funds from the trust account only (i) in the event of a redemption of the public
shares prior to any winding up in the event we do not consummate our initial business combination by July 27, 2019 (or April 27,
2020 if we extend the period of time to consummate a business combination, as described in more detail in this Report), (ii) if
they redeem their shares in connection with an initial business combination that we consummate or (iii) if they redeem their shares
in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the
substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination
by July 27, 2019 (or April 27, 2020 if we extend the period of time to consummate a business combination, as described in more
detail in this Report) or (B) with respect to any other provision relating to shareholders’ rights or pre-business combination
activity. In no other circumstances shall a shareholder have any right or interest of any kind to or in the trust account. In
the event we seek shareholder approval in connection with our initial business combination, a shareholder’s voting in connection
with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro
rata share of the trust account. Such shareholder must have also exercised its redemption rights described above.
Competition
In
identifying, evaluating and selecting a target business for our initial business combination, we have encountered, and may continue
to encounter, intense competition from other entities having a business objective similar to ours, including other blank check
companies, private equity groups, venture capital funds leveraged buyout funds, and operating businesses seeking strategic acquisitions.
Many of these entities are well established and have significant experience identifying and effecting business combinations directly
or through affiliates. Moreover, many of these competitors possess greater financial, technical, human and other resources than
us. Our ability to acquire larger target businesses is limited by our available financial resources. This inherent limitation
gives others an advantage in pursuing the acquisition of a target business. Furthermore, the requirement that, so long as our
securities are listed on Nasdaq, we acquire a target business or businesses having a fair market value equal to at least 80% of
the value of the trust account (less any deferred underwriting commissions and taxes payable on interest earned and less any interest
earned thereon that is released to us for taxes) at the time of the agreement to enter into the business combination, our obligation
to pay cash in connection with our public shareholders who exercise their redemption rights, and our outstanding rights, warrants
and unit purchase options and the potential future dilution they represent, may not be viewed favorably by certain target businesses.
Any of these factors may place us at a competitive disadvantage in successfully negotiating our initial business combination.
Employees
We
currently have three officers. These individuals are not obligated to devote any specific number of hours to our matters but they
devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The
amount of time they devote in any time period will vary based on whether a target business has been selected for our initial business
combination and the stage of the business combination process we are in. We do not intend to have any full time employees prior
to the consummation of our initial business combination.
Periodic
Reporting and Financial Information
We
registered our units, ordinary shares, rights and warrants under the Exchange Act and have reporting obligations, including the
requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange
Act, this Report contains financial statements audited and reported on by our independent registered public accountants.
We
will provide shareholders with audited financial statements of the prospective target business as part of the tender offer materials
or proxy solicitation materials sent to shareholders to assist them in assessing the target business. These financial statements
must be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America,
or GAAP, or International Financial Reporting Standard as issued by the International Accounting Standards Board, or IFRS, and
the historical financial statements must be audited in accordance with the standards of the Public Company Accounting Oversight
Board (United States), or PCAOB. These financial statement requirements may limit the pool of potential target businesses we may
acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance
with federal proxy rules and consummate our initial business combination by July 27, 2019 (or April 27, 2020).
We
are required to have our internal control procedures evaluated for the fiscal year ending November 30, 2019 required by the Sarbanes-Oxley
Act. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal
controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase
the time and costs necessary to complete any such acquisition.
We
are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As
such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other
public companies that are not “emerging growth companies” including, but not limited to, not being required to comply
with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute
payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active
trading market for our securities and the prices of our securities may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We
will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary
of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or
(c) in which we are deemed to be a large accelerated filer, which means the market value of our ordinary shares that are held
by non-affiliates exceeds $700 million as of the prior May 31, and (2) the date on which we have issued more than $1.0 billion
in non-convertible debt securities during the prior three-year period.
You
should carefully consider all of the risk factors and all the other information contained in this Report, including the financial
statements. If any of the following risks occur, our business, financial condition and/or results of operations may be materially
and adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your
investment. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation
with respect to us and our business.
We
are a recently formed early stage company with no operating history and no revenues, and you have no basis on which to evaluate
our ability to achieve our business objective.
We
are a recently formed early stage company with no operating results. Because we lack an operating history, you have no basis upon
which to evaluate our ability to achieve our business objective of completing our initial business combination with one or more
target businesses. We may be unable to complete our initial business combination. If we fail to complete our initial business
combination, we will never generate any operating revenues.
The
Nasdaq requirement that the target business or businesses that we acquire must collectively have a fair market value equal to
at least 80% of the balance of the funds in the trust account (less any deferred underwriting commissions and taxes payable on
interest earned and less any interest earned thereon that is released to us for taxes) at the time of the execution of a definitive
agreement for our initial business combination may limit the type and number of companies that we may complete such a business
combination with.
Pursuant
to the Nasdaq listing rules, the target business or businesses that we acquire must collectively have a fair market value equal
to at least 80% of the balance of the funds in the trust account (less any deferred underwriting commissions and taxes payable
on interest earned and less any interest earned thereon that is released to us for taxes) at the time of the execution of a definitive
agreement for our initial business combination. This restriction may limit the type and number of companies that we may complete
an initial business combination with. If we are unable to locate a target business or businesses that satisfy this fair market
value test, we may be forced to liquidate and you will only be entitled to receive your pro rata portion of the funds in the trust
account.
Our
public shareholders may not be afforded an opportunity to vote on our proposed business combination, which means we may consummate
our initial business combination even if a majority of our public shareholders do not support such a combination.
If
we do not decide to hold a shareholder vote in conjunction with our initial business combination for business or other legal reasons
(so long as shareholder approval is not required by the Companies Act or the rules of Nasdaq), we will conduct redemptions pursuant
to the tender offer rules of the SEC and our memorandum and articles of association. NASDAQ rules currently allow us to engage
in a tender offer in lieu of a shareholder meeting, provided that we were not seeking to issue more than 20% of our outstanding
shares to a target business as consideration in any business combination). Furthermore, shareholder approval would not be required
pursuant to the Companies Act if our initial business combination were structured as a purchase of assets, a purchase of stock
of the target not involving a merger with us, or a merger of the target into a subsidiary of our company, or if we otherwise entered
into contractual arrangements with a target to obtain control of such company. Accordingly, we may consummate our initial business
combination even if holders of a majority of our public shares do not approve of the business combination.
Our
sponsor controls a substantial interest in us and thus may exert a substantial influence on actions requiring a shareholder vote,
potentially in a manner that you do not support.
Our
initial shareholders own approximately 23.5% of our issued and outstanding ordinary shares. Accordingly, they may exert a substantial
influence on actions requiring a shareholder vote, potentially in a manner that you do not support, including amendments to our
memorandum and articles of association. If our sponsor purchases any additional ordinary shares in the aftermarket or in privately
negotiated transactions, this would increase their control. Neither our sponsor nor, to our knowledge, any of our officers or
directors, has any current intention to purchase additional securities. Factors that would be considered in making such additional
purchases would include consideration of the current trading price of our ordinary shares. In addition, our board of directors
is divided into two classes, each of which generally serves for a term of two years with only one class of directors being elected
in each year. It is possible that there will not be an annual meeting of shareholders to elect new directors prior to the consummation
of our initial business combination, in which case all of the current directors will continue in office until at least the consummation
of the business combination. If there is an annual meeting, as a consequence of our “staggered” board of directors,
only one-half of the board of directors will be considered for election and our sponsor, because of its ownership position, will
have considerable influence regarding the outcome. Accordingly, our sponsor will continue to exert control at least until the
consummation of our initial business combination.
Your
only opportunity to affect the investment decision regarding a potential business combination may be limited to the exercise of
your right to redeem your shares from us for cash.
At
the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of one
or more target businesses. Because our board of directors may consummate our initial business combination without seeking shareholder
approval, public shareholders may not have the right or opportunity to vote on the business combination. Accordingly, your only
opportunity to affect the investment decision regarding a potential business combination may be limited to exercising your redemption
rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our
public shareholders in which we describe our initial business combination.
The
ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential
business combination targets, which may make it difficult for us to enter into our initial business combination with a target.
We
may enter into a transaction agreement with a prospective target that requires as a closing condition that we have a minimum net
worth or a certain amount of cash. If too many public shareholders exercise their redemption rights, we may not be able to meet
such closing condition, and as a result, would not be able to proceed with such business combination. Furthermore, in no event
will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon the consummation
of our initial business combination or any greater net tangible asset or cash requirement which may be contained in the agreement
relating to our initial business combination. Our memorandum and articles of association requires us to provide all of our public
shareholders with an opportunity to redeem all of their shares in connection with the consummation of any initial business combination.
Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets to be less than $5,000,001
upon the consummation of our initial business combination, or such greater amount necessary to satisfy a closing condition as
described above, we would not proceed with such redemption and the related business combination and may instead search for an
alternate business combination. Prospective targets would be aware of these risks and, thus, may be reluctant to enter into our
initial business combination transaction with us.
The
ability of our public shareholders to exercise redemption rights with respect to a large number of our shares may not allow us
to consummate the most desirable business combination or optimize our capital structure.
In
connection with the successful consummation of our initial business combination, we may redeem up to that number of ordinary
shares that would permit us to maintain net tangible assets of $5,000,001 upon the consummation of our initial business
combination. If our initial business combination requires us to use substantially all of our cash to pay the purchase price,
the redemption threshold may be further limited. Alternatively, we may need to arrange third party financing to help fund our
business combination in case a larger percentage of shareholders exercise their redemption rights than we expect. If the
acquisition involves the issuance of our shares as consideration, we may be required to issue a higher percentage of our
shares to the target or its shareholders to make up for the failure to satisfy a minimum cash requirement. Raising additional
funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels.
This may limit our ability to effectuate the most attractive business combination available to us.
The
requirement that we maintain a minimum net worth or retain a certain amount of cash could increase the probability that our business
combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares.
If,
pursuant to the terms of our proposed business combination, we are required to maintain a minimum net worth or retain a certain
amount of cash in trust in order to consummate the business combination and regardless of whether we proceed with redemptions
under the tender or proxy rules, the probability that our business combination would be unsuccessful is increased. If our business
combination is unsuccessful, you would not receive your pro rata portion of the trust account until we liquidate. If you are in
need of immediate liquidity, you could attempt to sell your shares in the open market; however, at such time our shares may trade
at a discount to the pro rata amount per share in our trust account. In either situation, you may suffer a material loss on your
investment or lose the benefit of funds expected in connection with our redemption until we liquidate or you are able to sell
your shares in the open market.
The
requirement that we complete our initial business combination by July 27, 2019 (or April 27, 2020 if we extend the period of time
to consummate a business combination, as described in more detail in this Report) may give potential target businesses leverage
over us in negotiating our initial business combination and may limit the amount of time we have to conduct due diligence on potential
business combination targets as we approach our dissolution deadline, which could undermine our ability to consummate our initial
business combination on terms that would produce value for our shareholders.
Any
potential target business with which we enter into negotiations concerning our initial business combination will be aware that
we must consummate our initial business combination by July 27, 2019 (or by April 27, 2020 if we extend the period of time to
consummate a business combination, as described in more detail in this Report). Consequently, such target businesses may obtain
leverage over us in negotiating our initial business combination, knowing that if we do not complete our initial business combination
with that particular target business, we may be unable to complete our initial business combination with any target business.
This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due
diligence and may enter into our initial business combination on terms that we would have rejected upon a more comprehensive investigation.
We
may not be able to consummate our initial business combination within the required time period, in which case we would cease all
operations except for the purpose of winding up and we would redeem our public shares and liquidate.
Our
sponsor, officers and directors have agreed that we must complete our initial business combination by July 27, 2019 (or by April
27, 2020 if we extend the period of time to consummate a business combination, as described in more detail in this Report). We
may not be able to find a suitable target business and consummate our initial business combination within such time period. Our
ability to complete our initial business combination may be negatively impacted by general market conditions, volatility in the
capital and debt markets and the other risks described herein.
If
we are unable to consummate our initial business combination within the required time period, we will, as promptly as
reasonably possible but not more than five business days thereafter, distribute the aggregate amount then on deposit in the
trust account (net of taxes payable, and less up to $50,000 of interest to pay liquidation expenses), pro rata to our public
shareholders by way of redemption and cease all operations except for the purposes of winding up of our affairs, as further
described herein. This redemption of public shareholders from the trust account shall be effected as required by function of
our memorandum and articles of association and prior to any voluntary winding up.
Our
sponsor may decide not to extend the term we have to consummate our initial business combination, in which case we would cease
all operations except for the purpose of winding up and we would redeem our public shares and liquidate, and the warrants will
be worthless.
We
will have until July 27, 2019 to consummate our initial business combination. However, if we anticipate that we may not be able
to consummate our initial business combination by July 27, 2019, we may, by resolution of our board if requested by our sponsor,
extend the period of time to consummate a business combination up to three times, each by an additional three months (until April
27, 2020), subject to the sponsor depositing additional funds into the trust account as set out below. In order for the time available
for us to consummate our initial business combination to be extended, our sponsor or its affiliates or designees must deposit
into the trust account $440,000 ($0.10 per unit), up to an aggregate of $1,320,000, or $0.30 per share, on or prior to the date
of the applicable deadline, for each three month extension. Any such payments would be made in the form of a loan. The terms of
the promissory note to be issued in connection with any such loans have not yet been negotiated. Consequently, such loans might
not be made on the terms described in this Report. Our sponsor and its affiliates or designees are not obligated to fund the trust
account to extend the time for us to complete our initial business combination. If we are unable to consummate our initial business
combination within the applicable time period, we will, as promptly as reasonably possible but not more than five business days
thereafter, redeem the public shares for a pro rata portion of the funds held in the trust account and as promptly as reasonably
possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, dissolve
and liquidate, subject in each case to our obligations under British Virgin Islands law to provide for claims of creditors and
the requirements of other applicable law. In such event, the warrants and rights will be worthless.
If
we seek shareholder approval of our business combination, our sponsor, directors, officers, advisors and their affiliates may
elect to purchase shares from shareholders, in which case they may influence a vote in favor of a proposed business combination
that you do not support.
If
we seek shareholder approval of our business combination and we do not conduct redemptions in connection with our business combination
pursuant to the tender offer rules, our sponsor, directors, officers, advisors or their affiliates may purchase shares in privately
negotiated transactions or in the open market either prior to or following the consummation of our initial business combination.
Such a purchase would include a contractual acknowledgement that such shareholder, although still the record holder of our shares
is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our sponsor,
directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders
who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior
elections to redeem their shares.
The
purpose of such purchases would be to (1) increase the likelihood of obtaining shareholder approval of the business combination
or (2) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount
of cash at the closing of the business combination, where it appears that such requirement would otherwise not be met. This may
result in the consummation of an initial business combination that may not otherwise have been possible.
Purchases
of ordinary shares in the open market or in privately negotiated transactions by our sponsor, directors, officers, advisors or
their affiliates may make it difficult for us to maintain the listing of our ordinary shares on a national securities exchange
following the consummation of an initial business combination.
If
our sponsor, directors, officers, advisors or their affiliates purchase ordinary shares in the open market or in privately negotiated
transactions, the public “float” of our ordinary shares and the number of beneficial holders of our securities would
both be reduced, possibly making it difficult to maintain the listing or trading of our securities on a national securities exchange
following consummation of the business combination.
You
will not have any rights or interests in funds from the trust account, except under certain limited circumstances. To liquidate
your investment, therefore, you may be forced to sell your public shares, potentially at a loss.
Our
public shareholders shall be entitled to receive funds from the trust account only (i) in the event of a redemption to public
shareholders prior to any winding up in the event we do not consummate our initial business combination or our liquidation (ii)
if they redeem their shares in connection with an initial business combination that we consummate or (iii) if they redeem their
shares in connection with a shareholder vote to amend our memorandum and articles of association (A) to modify the substance or
timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination by July 27,
2019 (or by April 27,2020 if we extend the period of time to consummate a business combination, as described in more detail in
this Report) or (B) with respect to any other provision relating to shareholders’ rights or pre-business combination activity.
In no other circumstances will a shareholder have any right or interest of any kind to the funds in the trust account. Accordingly,
to liquidate your investment, you may be forced to sell your securities, potentially at a loss.
You
will not be entitled to protections normally afforded to investors of many other blank check companies.
Since
the net proceeds of our initial public offering are intended to be used to complete our initial business combination with a target
business that has not been identified, we may be deemed to be a “blank check” company under the United States securities
laws. However, since we had net tangible assets in excess of $5,000.000 upon the successful consummation of our initial public
offering and filed a Current Report on Form 8-K, including an audited balance sheet demonstrating this fact, we are exempt from
rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, investors are not afforded
the benefits or protections of those rules. Among other things, this means that our securities are tradable and we have a longer
period of time to complete our initial business combination than do companies subject to Rule 419. Moreover, offerings subject
to Rule 419 would prohibit the release of any interest earned on funds held in the trust account to us unless and until the funds
in the trust account were released to us in connection with our consummation of an initial business combination.
If
we seek shareholder approval of our business combination and we do not conduct redemptions pursuant to the tender offer rules,
and if you or a “group” of shareholders are deemed to hold in excess of 15% of our ordinary shares, you will lose
the ability to redeem all such shares in excess of 15% of our ordinary shares.
If
we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our business
combination pursuant to the tender offer rules, our memorandum and articles of association provides that a public shareholder,
individually or together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert
or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights
with respect to more than an aggregate of 15% of the shares sold in our initial public offering. Your inability to redeem more
than an aggregate of 15% of the shares sold in our initial public offering will reduce your influence over our ability to consummate
our initial business combination and you could suffer a material loss on your investment in us if you sell such excess shares
in open market transactions. As a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose
of such shares, you would be required to sell your shares in open market transaction, potentially at a loss.
If
the net proceeds of our initial public offering not being held in the trust account are insufficient to allow us to operate until
at least July 27 2019 (or April 27, 2020 if we extend the period of time to consummate a business combination, as described in
more detail in this Report), we may be unable to complete our initial business combination.
The
funds available to us outside of the trust account, plus the interest earned on the funds held in the trust account that may
be available to us for the payment of our tax obligations, may not be sufficient to allow us to operate until July 27, 2019
(or April 27, 2020 if we extend the period of time to consummate a business combination, as described in more detail in this
Report), assuming that our initial business combination is not consummated during that time. Of the funds available to us, we
could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target
business. We could also use a portion of the funds as a down payment or to fund a “no-shop” provision (a
provision in letters of intent designed to keep target businesses from “shopping” around for transactions with
other companies on terms more favorable to such target businesses) with respect to a particular proposed business
combination, although we do not have any current intention to do so. If we are unable to fund such down payments or “no
shop” provisions, our ability to close a contemplated transaction could be impaired. Furthermore, if we entered into a
letter of intent where we paid for the right to receive exclusivity from a target business and were subsequently required to
forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching
for, or conduct due diligence with respect to, a target business. If we are unable to complete our initial business
combination, our public shareholders may only receive $10.00 per share or potentially less than $10.00 per share on our
redemption, and our rights and warrants will expire worthless.
Subsequent
to our consummation of our initial business combination, we may be required to subsequently take write-downs or write-offs, restructuring
and impairment or other charges that could have a significant negative effect on our financial condition, results of operations
and our share price, which could cause you to lose some or all of your investment.
Even
if we conduct thorough due diligence on a target business with which we combine, this diligence may not surface all material issues
that may be present inside a particular target business, that it would be possible to uncover all material issues through a customary
amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a
result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment
or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected
risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even
though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges
of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature
may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held
by a target business or by virtue of our obtaining post-combination debt financing.
If
we liquidate, distributions, or part of them, may be delayed while the liquidator determines the extent of potential creditor
claims.
Pursuant
to, among other documents, our memorandum and articles of association, if we do not complete our initial business combination
by July 27, 2019 (or by April 27, 2020 if we extend the period of time to consummate a business combination, as described in more
detail in this Report), this will trigger the required redemption of our ordinary shares using the available funds in the trust
account pursuant to our memorandum and articles of association, resulting in our repayment of available funds in the trust account.
Following which, we will proceed to commence a voluntary liquidation and thereby a formal dissolution of the company. In connection
with such a voluntary liquidation, the liquidator would give notice to our creditors inviting them to submit their claims for
payment, by notifying known creditors (if any) who have not submitted claims and by placing a public advertisement in at least
one newspaper published in the British Virgin Islands newspaper and in at least one newspaper circulating in the location where
the company has its principal place of business, and taking any other steps he considers appropriate, after which our remaining
assets would be distributed.
As
soon as our affairs are fully wound-up, if we were to liquidate, the liquidator must complete his statement of account and will
then notify the Registrar of Corporate Affairs in the British Virgin Islands (the “Registrar”) that the liquidation
has been completed. However, the liquidator may determine that he or she requires additional time to evaluate creditors’
claims (particularly if there is uncertainty over the validity or extent of the claims of any creditors). Also, a creditor or
shareholder may file a petition with the British Virgin Islands Court, which, if successful, may result in our liquidation being
subject to the supervision of that court. Such events might delay distribution of some or all of our remaining assets.
In
any liquidation proceedings of the company under British Virgin Islands law, the funds held in our trust account may be included
in our estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any
such claims deplete the trust account we may not be able to return to our public shareholders the redemption amounts payable to
them.
Our
directors may decide not to enforce indemnification obligations against our sponsor, resulting in a reduction in the amount of
funds in the trust account available for distribution to our public shareholders.
In
the event that the proceeds in the trust account are reduced below $10.00 per share and our sponsor asserts that it is unable
to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors
would determine on our behalf whether to take legal action against our sponsor to enforce its indemnification obligations. While
we currently expect that our independent directors would take legal action on our behalf against our sponsor to enforce its indemnification
obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so
in any particular instance. If our independent directors choose not to enforce these indemnification obligations on our behalf,
the amount of funds in the trust account available for distribution to our public shareholders may be reduced below $10.00 per
share.
If
we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance
requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination.
If
we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including restrictions
on the nature of our investments and restrictions on the issuance of securities, each of which may make it difficult for us to
complete our initial business combination. In addition, we may have imposed upon us burdensome requirements, including registration
as an investment company, adoption of a specific form of corporate structure and reporting, record keeping, voting, proxy and
disclosure requirements and other rules and regulations.
If
we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require
additional expenses for which we have not allotted funds and may hinder our ability to consummate our initial business combination.
Changes
in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and
results of operations.
We
are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply
with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult,
time consuming and costly. Those laws and regulations and their interpretation and application also may change from time to time
and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a
failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our
business and results of operations.
We
are not subject to the supervision of the Financial Services Commission of the British Virgin Islands and so our shareholders
are not protected by any regulatory inspections in the British Virgin Islands.
We
are not an entity subject to any regulatory supervision in the British Virgin Islands by the Financial Services Commission. As
a result, shareholders are not protected by any regulatory supervision or inspections by any regulatory agency in the British
Virgin Islands and the company is not required to observe any restrictions in respect of its conduct save as disclosed in this
Report or its memorandum and articles of association.
If
we are unable to consummate our initial business combination by July 27, 2019 (or by April 27, 2020 if we extend the period of
time to consummate a business combination, as described in more detail in this Report), our public shareholders may be forced
to wait beyond such period before redemption from our trust account.
If
we are unable to consummate our initial business combination by July 27, 2019 (or by April 27, 2020 if we extend the period
of time to consummate a business combination, as described in more detail in this Report), we will, as promptly as reasonably
possible but not more than five business days thereafter, distribute the aggregate amount then on deposit in the trust
account (net of taxes payable, and less up to $50,000 of interest to pay liquidation expenses), pro rata to our public
shareholders by way of redemption and cease all operations except for the purposes of winding up of our affairs by way of a
voluntary liquidation, as further described herein. Any redemption of public shareholders from the trust account shall be
effected as required by our memorandum and articles of association prior to our commencing any voluntary liquidation. If we
are required to liquidate prior to distributing the aggregate amount then on deposit in the trust account (net of taxes
payable, and less up to $50,000 of interest to pay liquidation expenses) pro rata to our public shareholders, then such
winding up, liquidation and distribution must comply with the applicable provisions of the Companies Act. In that case,
investors may be forced to wait beyond July 27, 2019 (or April 27, 2020 if we extend the period of time to consummate a
business combination, as described in more detail in this Report) before the redemption proceeds of our trust account become
available to them, and they receive the return of their pro rata portion of the proceeds from our trust account. Except as
otherwise described herein, we have no obligation to return funds to investors prior to the date of any redemption required
as a result of our failure to consummate our initial business combination within the period described above or our
liquidation, unless we consummate our initial business combination prior thereto and only then in cases where investors have
sought to redeem their ordinary shares. Only upon any such redemption of public shares as we are required to effect or
any liquidation will public shareholders be entitled to distributions if we are unable to complete our initial business
combination.
If
we are deemed to be insolvent, distributions, or part of them, may be delayed while the insolvency liquidator determines the extent
of potential creditor claims. In these circumstances, prior payments made by the company may be deemed “voidable transactions.”
If
we do not complete our initial business combination by July 27, 2019 (or by April 27, 2020 if we extend the period of time to
consummate a business combination, as described in more detail in this Report), we will be required to redeem our public shares
from the trust account pursuant to our memorandum and articles of association.
However,
if at any time we are deemed insolvent for the purposes of the Insolvency Act (i.e. (i) we fail to comply with the requirements
of a statutory demand that has not been set aside under section 157 of the Insolvency Act; (ii) execution or other process issued
on a judgment, decree or order of a British Virgin Islands Court in favor of a creditor of the company is returned wholly or partly
unsatisfied; or (iii) either the value of the company’s liabilities exceeds its assets, or the company is unable to pay
its debts as they fall due), we are required to immediately enter insolvent liquidation. In these circumstances, a liquidator
will be appointed who will give notice to our creditors inviting them to submit their claims for payment, by notifying known creditors
(if any) who have not submitted claims and by placing a public advertisement in at least one newspaper published in the British
Virgin Islands newspaper and in at least one newspaper circulating in the location where the company has its principal place of
business, and taking any other steps he considers appropriate, after which our assets would be distributed. Following the process
of insolvent liquidation, the liquidator will complete its final report and accounts and will then notify the Registrar of Corporate
Affairs in the British Virgin Islands (the “Registrar”). The liquidator may determine that he requires additional
time to evaluate creditors’ claims (particularly if there is uncertainty over the validity or extent of the claims of any
creditors). Also, a creditor or shareholder may file a petition with the British Virgin Islands Court which, if successful, may
result in our liquidation being subject to the supervision of that court. Such events might delay distribution of some or all
of our assets to our public shareholders. In such liquidation proceedings, the funds held in our trust account may be included
in our estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any
such claims deplete the trust account we cannot assure you we will be able to return to our public shareholders the amounts otherwise
payable to them.
If
we are deemed insolvent, then there are also limited circumstances where prior payments made to shareholders or other parties
may be deemed to be a “voidable transaction” for the purposes of the Insolvency Act. A voidable transaction would
be, for these purposes, payments made as “unfair preferences” or “transactions at an undervalue.” Where
a payment was a risk of being a voidable transaction, a liquidator appointed over an insolvent company could apply to the British
Virgin Islands Court for an order, inter alia, for the transaction to be set aside as a voidable transaction in whole or in part.
Our
initial shareholders have waived their right to participate in any liquidation distribution with respect to the initial
shares. We will pay the costs of our liquidation and distribution of the trust account from our remaining assets outside of
the trust account. In addition, our sponsor has agreed that it will be liable to us, for all claims of creditors to the
extent that we fail to obtain executed waivers from such entities in order to protect the amounts held in trust, except as to
any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including
liabilities under the Securities Act. However, we cannot assure you that the liquidator will not determine that he or she
requires additional time to evaluate creditors’ claims (particularly if there is uncertainty over the validity or
extent of the claims of any creditors). We also cannot assure you that a creditor or shareholder will not file a petition
with the British Virgin Islands Court which, if successful, may result in our liquidation being subject to the supervision of
that court. Such events might delay distribution of some or all of our assets to our public shareholders.
If
deemed to be insolvent, distributions made to public shareholders, or part of them, from our trust account may be subject to claw
back in certain circumstances.
If
we do not complete our initial business combination by July 27, 2019 (or by April 27, 2020 if we extend the period of time to
consummate a business combination, as described in more detail in this Report), and instead distribute the aggregate amount then
on deposit in the trust account (net of taxes payable), pro rata to our public shareholders by way of redemption, it will be necessary
for our directors to pass a board resolution approving the redemption of those ordinary shares and the payment of the proceeds
to public shareholders. Such board resolutions are required to confirm that we satisfy the solvency test prescribed by the Companies
Act (namely that our assets exceed our liabilities; and that we are able to pay our debts as they fall due). If, after the redemption
proceeds are paid to public shareholders, it transpires that our financial position at the time was such that it did not satisfy
the solvency test, the Companies Act provides a mechanism by which those proceeds could be recovered from public shareholders.
However, the Companies Act also provides for circumstances where such proceeds could not be subject to claw back, namely where
(a) the public shareholders received the proceeds in good faith and without knowledge of our failure to satisfy the solvency test;
(b) a public shareholder altered its position in reliance of the validity of the payment of the proceeds; or (c) it would be unfair
to require repayment of the proceeds in full or at all.
The
grant of registration rights to our initial shareholders may make it more difficult to complete our initial business combination,
and the future exercise of such rights may adversely affect the market price of our ordinary shares.
Pursuant
to a registration rights agreement, our initial shareholders and Chardan and their permitted transferees can demand that we register
for resale an aggregate of 1,100,000 founder shares, 260,000 insider units and underlying securities, 22,000 Chardan units and
underlying securities, 120,000 shares underlying the warrants underlying the unit purchase option issued to the underwriters of
our initial public offering, and up to 150,000 units, and underlying securities, issuable upon conversion of working capital loans.
We will bear the cost of registering these securities. The registration and availability of such a significant number of securities
for trading in the public market may have an adverse effect on the market price of our ordinary shares. In addition, the existence
of the registration rights may make our initial business combination more costly or difficult to conclude. This is because the
shareholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration
to offset the negative impact on the market price of our ordinary shares that is expected when the securities owned by our sponsor,
holders of our private units or their respective permitted transferees are registered.
Because
we are not limited to any particular business or specific geographic location or any specific target businesses with which to
pursue our initial business combination, you will be unable to ascertain the merits or risks of any particular target business’
operations.
Although
we are focused on businesses that have their primary operations in China, we may pursue acquisition opportunities in any
geographic region and in any business industry or sector. Except for the limitations that, so long as our securities are
listed on Nasdaq, a target business have a fair market value of at least 80% of the value of the trust account (less any
deferred underwriting commissions and taxes payable on interest earned and less any interest earned thereon that is released
to us for taxes) and that we are not permitted to effectuate our initial business combination with another blank check
company or similar company with nominal operations, we will have virtually unrestricted flexibility in identifying and
selecting a prospective acquisition candidate. There is no basis to evaluate the possible merits or risks of any particular
target business’s operations, results of operations, cash flows, liquidity, financial condition or prospects. To the
extent we consummate our initial business combination, we may be affected by numerous risks inherent in the business
operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an
established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a
financially unstable or a development stage entity. Although our officers and directors endeavor to evaluate the risks
inherent in a particular target business, we may not properly ascertain or assess all of the significant risk factors or that
we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control
and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. An
investment in our units may not ultimately prove to be more favorable to investors than a direct investment, if such
opportunity were available, in an acquisition target.
Past
performance by our management team may not be indicative of future performance of an investment in the Company.
Information
regarding performance by, or businesses associated with, our management team and their affiliates is presented for informational
purposes only. Past performance by our management team is not a guarantee either (i) that we will be able to identify a suitable
candidate for our initial business combination or (ii) of success with respect to any business combination we may consummate.
You should not rely on the historical record of the performance of our management team as indicative of our future performance
of an investment in the company or the returns the company will, or is likely to, generate going forward. None of our officers
or directors has had experience with any blank check companies in the past.
We
may seek investment opportunities outside of our management’s area of expertise and our management may not be able to adequately
ascertain or assess all significant risks associated with the target company.
There
is no limitation on the industry or business sector we may consider when contemplating our initial business combination. We may
therefore be presented with a business combination candidate in an industry unfamiliar to our management team, but determine that
such candidate offers an attractive investment opportunity for our company. In the event we elect to pursue an investment outside
of our management’s expertise, our management’s experience may not be directly applicable to the target business or
their evaluation of its operations.
Although
we identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may
enter into our initial business combination with a target that does not meet such criteria and guidelines, and as a result, the
target business with which we enter into our initial business combination may not have attributes entirely consistent with our
general criteria and guidelines.
Although
we have identified specific criteria and guidelines for evaluating prospective target businesses, it is possible that a target
business with which we enter into our initial business combination will not have all of these positive attributes. If we consummate
our initial business combination with a target that does not meet some or all of these guidelines, such combination may not be
as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce
our initial business combination with a target that does not meet our general criteria and guidelines, a greater number of shareholders
may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business
that requires us to have a minimum net worth or a certain amount of cash. In addition, if shareholder approval of the transaction
is required by law or the rules of Nasdaq, or we decide to obtain shareholder approval for business or other legal reasons, it
may be more difficult for us to attain shareholder approval of our initial business combination if the target business does not
meet our general criteria and guidelines. If we are unable to complete our initial business combination, our public shareholders
may only receive $10.00 per share or potentially less than $10.00 per share on our redemption, and our rights and warrants will
expire worthless.
Management’s
flexibility in identifying and selecting a prospective acquisition candidate, along with our management’s financial interest
in consummating our initial business combination, may lead management to enter into an acquisition agreement that is not in the
best interest of our shareholders.
Subject
to the requirement that, so long as our securities are listed on Nasdaq, our initial business combination must be with one or
more target businesses or assets having an aggregate fair market value of at least 80% of the value of the trust account (less
any deferred underwriting commissions and taxes payable on interest earned and less any interest earned thereon that is released
to us for taxes) at the time of the agreement to enter into such initial business combination, we will have virtually unrestricted
flexibility in identifying and selecting a prospective acquisition candidate. Investors will be relying on management’s
ability to identify business combinations, evaluate their merits, conduct or monitor diligence and conduct negotiations. Management’s
flexibility in identifying and selecting a prospective acquisition candidate, along with management’s financial interest
in consummating our initial business combination, may lead management to enter into an acquisition agreement that is not in the
best interest of our shareholders.
We
are not required to obtain an opinion from an independent investment banking firm or an independent accounting firm, and consequently,
an independent source may not confirm that the price we are paying for the business is fair to our shareholders from a financial
point of view.
Unless
we consummate our initial business combination with an affiliated entity, we are not required to obtain an opinion from an independent
investment banking firm or an independent accounting firm that the price we are paying is fair to our shareholders from a financial
point of view. If no opinion is obtained, our shareholders will be relying on the judgment of our board of directors, who will
determine fair market value based on standards generally accepted by the financial community. Our board of directors will have
significant discretion in choosing the standard used to establish the fair market value of the target acquisition. Such standards
used will be disclosed in our tender offer documents or proxy solicitation materials, as applicable, related to our initial business
combination.
We
may issue additional ordinary or preferred shares to complete our initial business combination or under an employee incentive
plan upon or after consummation of our initial business combination, which would dilute the interest of our shareholders and likely
present other risks.
Our
memorandum and articles of association authorize the issuance of an unlimited amount of both ordinary shares of no par value and
preferred shares of no par value. We may issue a substantial number of additional ordinary or preferred shares to complete our
initial business combination or under an employee incentive plan upon or after consummation of our initial business combination
(although our memorandum and articles of association provides that we may not issue securities that can vote with ordinary shareholders
on matters related to our pre-initial business combination activity).
However,
our memorandum and articles of association provides, among other things, that prior to our initial business combination, we may
not issue additional shares of capital stock that would entitle the holders thereof to (i) receive funds from the trust account
or (ii) vote on any initial business combination. These provisions of our memorandum and articles of association, like all provisions
of our memorandum and articles of association, may be amended with the approval of our shareholders. However, our executive officers
and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our memorandum
and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our public shares if we
do not complete our initial business combination by July 27, 2019 (or by April 27, 2020) or (B) with respect to any other provision
relating to shareholders’ rights or pre-initial business combination activity, unless we provide our public shareholders
with the opportunity to redeem their public shares upon approval of any such amendment at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable),
divided by the number of then outstanding public shares.
Although
no such issuance of ordinary or preferred shares will affect the per share amount available for redemption from the trust account,
the issuance of additional ordinary or preferred shares:
■
|
may
significantly dilute the equity interest of existing investors, who will not have pre-emption rights in respect of such an
issuance;
|
■
|
may
subordinate the rights of holders of ordinary shares if preferred shares are issued with rights created by amendment of our
memorandum and articles of association by resolution of the directors senior to those afforded our ordinary shares;
|
■
|
could
cause a change in control if a substantial number of ordinary shares are issued, which may affect, among other things, our
ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present
officers and directors; and
|
■
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may adversely affect prevailing
market prices for our units, ordinary shares and/or warrants.
|
Resources could be wasted
in researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate and
acquire or merge with another business.
The
investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments requires substantial management time and attention and substantial costs for accountants, attorneys
and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for the
proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business,
we may fail to consummate our initial business combination for any number of reasons including those beyond our control. Any such
event will result in a loss to us of the related costs incurred, which could materially adversely affect subsequent attempts to
locate and acquire or merge with another business. If we are unable to complete our initial business combination, our public shareholders
may only receive $10.00 per share or potentially less than $10.00 per share on our redemption, and our rights and warrants will
expire worthless.
We
may qualify as a passive foreign investment company, or “PFIC,” which could result in adverse U.S. federal income
tax consequences to U.S. holders of our securities.
If
we are determined to be a PFIC (under the rules described below) for any taxable year (or portion thereof) that is included in
the holding period of a U.S. Holder (as defined below) of our ordinary shares, rights or warrants, the U.S. Holder may be subject
to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. The term “U.S.
Holder” means a beneficial owner of ordinary shares, rights or warrants who or that is for U.S. federal income tax purposes:
(i) an individual citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United
States federal income tax purposes) that is created or organized (or treated as created or organized) in or under the laws of
the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to United States
federal income taxation regardless of its source or (iv) a trust if (A) a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions
of the trust, or (B) it has in effect a valid election to be treated as a U.S. person.
A
foreign (i.e., non-U.S.) corporation will be a PFIC for U.S. tax purposes if at least 75% of its gross income in a taxable year,
including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares
by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year
of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its
pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held
for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties
(other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive
assets.
Because
we are a blank check company, with no current active business, we believe that it is likely that we will meet the PFIC asset or
income test for our current taxable year ending November 30, 2019. However, pursuant to a start-up exception, a corporation will
not be a PFIC for the first taxable year the corporation has gross income (the “start-up year”, which in our case
is the taxable year ending November 30, 2018), if (1) no predecessor of the corporation was a PFIC; (2) the corporation satisfies
the IRS that it will not be a PFIC for either of the two taxable years following the start-up year; and (3) the corporation is
not in fact a PFIC for either of those years. The applicability of the start-up exception to us will not be known until after
the close of our current taxable year ending November 30, 2019. After the acquisition of a company or assets in a business combination,
we may still meet one of the PFIC tests depending on the timing of the acquisition and the amount of our passive income and assets
as well as the passive income and assets of the acquired business. If the company that we acquire in a business combination is
a PFIC, then we will likely not qualify for the start-up exception and will be a PFIC for our current taxable year ending November
30, 2019. Our actual PFIC status for our current taxable year or any future taxable year, however, will not be determinable until
after the end of such taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current
taxable year ending November 30, 2019 or any future taxable year.
If
we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder
of our ordinary shares, rights or warrants and, in the case of our ordinary shares, the U.S. Holder did not make either a timely
qualified electing fund (“QEF”) election for our first taxable year as a PFIC in which the U.S. Holder held (or was
deemed to hold) ordinary shares or a timely “mark to market” election, each as described below, such holder generally
will be subject to special rules with respect to:
■ any
gain recognized by the U.S. Holder on the sale or other disposition of its ordinary shares, rights or warrants; and
■ any
“excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year
of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the
ordinary shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding
period for the ordinary shares).
Under
these rules,
■ the
U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the
ordinary shares, rights and warrants (as applicable);
■ the
amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution,
or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC,
will be taxed as ordinary income;
■ the
amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed
at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
■ the
interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other
taxable year of the U.S. Holder.
In
general, if we are determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our
ordinary shares (but not our warrants and likely not our rights) by making a timely QEF election (if eligible to do so) to include
in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary
income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with
which our taxable year ends. A U.S. Holder generally may make a separate election to defer the payment of taxes on undistributed
income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.
The
treatment of the rights to acquire our ordinary shares is unclear. For example, the rights may be viewed as a forward contract,
derivative security or similar interest in our company (analogous to a warrant or option with no exercise price), and thus the
holder of the right would not be viewed as owning the ordinary shares issuable pursuant to the rights until such ordinary shares
are actually issued. There may be other alternative characterizations of the rights that the IRS may successfully assert, including
that the rights are treated as equity in our company at the time the rights are issued, that would reach different conclusions
regarding the tax treatment of the rights under the PFIC rules. In any case, depending on which characterization is successfully
applied to the rights, different PFIC consequences may result for U.S. Holders of the rights. It is also likely that a U.S. Holder
of rights would not be able to make a QEF or mark-to-market election (discussed below) with respect to such U.S. Holder’s
rights. Due to the uncertainty of the application of the PFIC rules to the rights, all potential investors are strongly urged
to consult with their own tax advisors regarding an investment in the rights offered hereunder as part of the units offering and
the subsequent consequences to holders of such rights in any initial business combination.
A
U.S. Holder may not make a QEF election with respect to its warrants to acquire our ordinary shares. As a result, if a U.S.
Holder sells or otherwise disposes of such warrants (other than upon exercise of such warrants), any gain recognized
generally will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as
described above, if we were a PFIC at any time during the period the U.S. Holder held the warrants. If a U.S. Holder that
exercises such warrants properly makes a QEF election with respect to the newly acquired ordinary shares (or has previously
made a QEF election with respect to our ordinary shares), the QEF election will apply to the newly acquired ordinary shares,
but the adverse tax consequences relating to PFIC shares, adjusted to take into account the current income inclusions
resulting from the QEF election, will continue to apply with respect to such newly acquired ordinary shares (which generally
will be deemed to have a holding period for purposes of the PFIC rules that includes the period the U.S. Holder held the
warrants), unless the U.S. Holder makes a purging election. The purging election creates a deemed sale of such shares at
their fair market value. The gain recognized by the purging election will be subject to the special tax and interest charge
rules treating the gain as an excess distribution, as described above. As a result of the purging election, the U.S. Holder
will have a new basis and holding period in the ordinary shares acquired upon the exercise of the warrants for purposes of
the PFIC rules.
The
QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A
QEF election may not be made with respect to our warrants. A U.S. Holder generally makes a QEF election by attaching a completed
IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information
provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for the tax year to which the
election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if
certain other conditions are met or with the consent of the IRS. U.S. Holders should consult their own tax advisors regarding
the availability and tax consequences of a retroactive QEF election under their particular circumstances.
In
order to comply with the requirements of a QEF election, a U.S. Holder must receive a PFIC annual information statement from us.
If we determine we are a PFIC for any taxable year, we will endeavor to provide to a U.S. Holder such information as the IRS may
require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election.
However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information
to be provided.
If
a U.S. Holder has made a QEF election with respect to our ordinary shares, and the special tax and interest charge rules do not
apply to such shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or
is deemed to hold) such shares or a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized
on the sale of our ordinary shares generally will be taxable as capital gain and no interest charge will be imposed under the
PFIC rules. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of its earnings and profits,
whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included
in income generally should not be taxable as a dividend to such U.S. Holders. The tax basis of a U.S. Holder’s shares in
a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends,
under the above rules.
Although
a determination as to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally
apply for subsequent years to a U.S. Holder who held ordinary shares, rights or warrants while we were a PFIC, whether or not
we meet the test for PFIC status in those subsequent years. A U.S. Holder who makes the QEF election discussed above for our first
taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our ordinary shares, however, will not be subject
to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be
subject to the QEF inclusion regime with respect to such shares for any taxable year of us that ends within or with a taxable
year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our
taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) our ordinary shares, the PFIC rules discussed
above will continue to apply to such shares unless the holder makes a purging election, as described above, and pays the tax and
interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.
Alternatively,
if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S.
Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid
mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold)
ordinary shares in us and for which we are determined to be a PFIC, such holder generally will not be subject to the PFIC
rules described above in respect to its ordinary shares. Instead, in general, the U.S. Holder will include as ordinary income
each year the excess, if any, of the fair market value of its ordinary shares at the end of its taxable year over the
adjusted basis in its ordinary shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the
excess, if any, of the adjusted basis of its ordinary shares over the fair market value of its ordinary shares at the end of
its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market
election). The U.S. Holder’s basis in its ordinary shares will be adjusted to reflect any such income or loss amounts,
and any further gain recognized on a sale or other taxable disposition of the ordinary shares will be treated as ordinary
income. Currently, a mark-to-market election likely may not be made with respect to our rights or warrants.
The
mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered
with the Securities and Exchange Commission, including the Nasdaq Capital Market, or on a foreign exchange or market that the
IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. U.S.
Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in
respect to our ordinary shares under their particular circumstances.
If
we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed
to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest
charge described above if we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or
the U.S. Holders otherwise were deemed to have disposed of an interest in the lower-tier PFIC. We will endeavor to cause any lower-tier
PFIC to provide to a U.S. Holder the information that may be required to make or maintain a QEF election with respect to the lower-tier
PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC. In addition,
we may not hold a controlling interest in any such lower-tier PFIC and thus there can be no assurance we will be able to cause
the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax advisors regarding the
tax issues raised by lower-tier PFICs.
A
U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder, may have to file an IRS
Form 8621(whether or not a QEF or market-to-market election is made) and such other information as may be required by the U.S.
Treasury Department.
The
rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in
addition to those described above. Accordingly, U.S. Holders of our ordinary shares, rights or warrants should consult their own
tax advisors concerning the application of the PFIC rules to our ordinary shares, rights or warrants under their particular circumstances.
U.S.
federal income tax reform could adversely affect us and holders of our units.
On
December 22, 2017, President Trump signed into law H.R. 1, originally known as the “Tax Cuts and Jobs Act,” which
significantly reformed the Internal Revenue Code of 1986, as amended. The new legislation, among other things, changes the U.S.
federal tax rates, imposes significant additional limitations on the deductibility of interest, allows the expensing of capital
expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. We
continue to examine the impact this tax reform legislation may have on us. The impact of this tax reform, or of any future administrative
guidance interpreting provisions thereof, on holders of our units is uncertain and could be adverse. This Report does not discuss
any such tax legislation or the manner in which it might affect holders of our units. We urge prospective investors to consult
with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our
units.
We
may reincorporate in another jurisdiction in connection with our initial business combination and such reincorporation may result
in taxes imposed on shareholders.
We
may, in connection with our initial business combination, reincorporate in the jurisdiction in which the target company or business
is located or in another jurisdiction. The transaction may require a shareholder to recognize taxable income in the jurisdiction
in which the shareholder is a tax resident or in which its members are resident if it is a tax transparent entity. We do not intend
to make any cash distributions to shareholders to pay such taxes. Shareholders may be subject to withholding taxes or other taxes
with respect to their ownership of us after the reincorporation.
After
our initial business combination, it is likely that a majority of our directors and officers will live outside the United States
and all of our assets will be located outside the United States; therefore investors may not be able to enforce federal securities
laws or their other legal rights.
It
is likely that after our initial business combination, a majority of our directors and officers will reside outside of the United
States and all of our assets will be located outside of the United States. As a result, it may be difficult, or in some cases
not possible, for investors in the United States to enforce their legal rights, to effect service of process upon all of our directors
or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors
and officers under United States laws.
Our
ability to successfully effect our initial business combination and to be successful thereafter will be largely dependent upon
the efforts of our officers, directors and key personnel, some of whom may join us following our initial business combination.
The loss of our officers, directors, or key personnel could negatively impact the operations and profitability of our business.
Our
operations are dependent upon a relatively small group of individuals and, in particular, our officers and directors. We believe
that our success depends on the continued service of our officers and directors, at least until we have consummated our initial
business combination. In addition, our officers and directors are not required to commit any specified amount of time to our affairs
and, accordingly, have conflicts of interest in allocating management time among various business activities, including identifying
potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man
insurance on the life of, any of our directors or officers. The unexpected loss of the services of one or more of our directors
or officers could have a detrimental effect on us. Additionally, we do not intend to have any full time employees prior to the
consummation of our initial business combination.
The
role of such persons in the target business, however, cannot presently be ascertained. Although some of such persons may remain
with the target business in senior management or advisory positions following our initial business combination, it is likely that
some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals
we engage after our initial business combination, our assessment of these individuals may not prove to be correct. These individuals
may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time
and resources helping them become familiar with such requirements.
Our
key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business
combination. These agreements may provide for them to receive compensation following our initial business combination and as a
result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our
key personnel may be able to remain with the company after the consummation of our initial business combination only if they are
able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take
place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation
in the form of cash payments and/or our securities for services they would render to us after the consummation of the business
combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting
a target business. However, we believe the ability of such individuals to remain with us after the consummation of our initial
business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential
business combination. There is no certainty, however, that any of our key personnel will remain with us after the consummation
of our initial business combination. Our key personnel may not remain in senior management or advisory positions with us. The
determination as to whether any of our key personnel will remain with us will be made at the time of our initial business combination.
We
may have a limited ability to assess the management of a prospective target business and, as a result, may effect our initial
business combination with a target business whose management may not have the skills, qualifications or abilities to manage a
public company.
When
evaluating the desirability of effecting our initial business combination with a prospective target business, our ability to assess
the target business’ management may be limited due to a lack of time, resources or information. Our assessment of the capabilities
of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications
or abilities we suspected. Should the target’s management not possess the skills, qualifications or abilities necessary
to manage a public company, the operations and profitability of the post-combination business may be negatively impacted.
The
officers and directors of an acquisition candidate may resign upon consummation of our initial business combination. The loss
of an acquisition target’s key personnel could negatively impact the operations and profitability of our post-combination
business.
The
role of an acquisition candidate’s key personnel upon the consummation of our initial business combination cannot be ascertained
at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated
with the acquisition candidate following our initial business combination, it is possible that some members of the management
team of an acquisition candidate will not wish to remain in place.
Certain
of our officers and directors are now, and all of them may in the future become, affiliated with entities engaged in business
activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in allocating their
time and determining to which entity a particular business opportunity should be presented.
Until
we consummate our business combination, we will continue to engage in the business of identifying and combining with one or more
businesses. Our officers and directors are, or may in the future become, affiliated with entities that are engaged in a similar
business.
Our
officers also may become aware of business opportunities, which may be appropriate for presentation to us and the other entities
to which they owe certain fiduciary duties or contractual obligations. Accordingly, they may have conflicts of interest in determining
to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor or that
a potential target business would not be presented to another entity prior to its presentation to us.
The
shares beneficially owned by our officers and directors may not participate in liquidation distributions and, therefore, our officers
and directors may have a conflict of interest in determining whether a particular target business is appropriate for our initial
business combination.
Our
officers and directors have waived their right to redeem their founder shares, private shares, shares underlying private rights
or private warrants, or any other ordinary shares acquired, or to receive distributions with respect to their founder shares,
private shares, or shares underlying private rights or private warrants upon our liquidation if we are unable to consummate our
initial business combination, until all of the claims of any redeeming shareholders and creditors are fully satisfied (and then
only from funds held outside the trust account). Accordingly, these securities will be worthless if we do not consummate our initial
business combination. Any rights and warrants they hold, like those held by the public, will also be worthless if we do not consummate
an initial business combination. The personal and financial interests of our directors and officers may influence their motivation
in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’
and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when
determining whether the terms, conditions and timing of a particular business combination are appropriate and in our shareholders’
best interest.
We
may engage in our initial business combination with one or more target businesses that have relationships with entities that may
be affiliated with our sponsor, officers or directors, which may raise potential conflicts of interest.
We
have not adopted a policy that expressly prohibits our directors, officers, security holders or affiliates from having a
direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any
transaction to which we are a party or have an interest. In light of the involvement of our sponsor, officers and directors
with other entities, we may decide to acquire one or more businesses affiliated with our sponsor, officers and directors. Our
directors also serve as officers and board members for other entities. Although we are not specifically focusing on, or
targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such
affiliated entity met our criteria for our initial business combination. Despite our agreement to obtain an opinion from an
independent investment banking firm or an independent account firm regarding the fairness to our shareholders from a
financial point of view of a business combination with one or more domestic or international businesses affiliated with our
officers, directors or existing holders, potential conflicts of interest still may exist and, as a result, the terms of the
business combination may not be as advantageous to our public shareholders as they would be absent any conflicts of interest.
Our directors have a fiduciary duty to act in the best interests of our shareholders, whether or not a conflict of interest
may exist.
Since
our sponsor will lose its entire investment in us if our initial business combination is not consummated and our officers and
directors have significant financial interests in us, a conflict of interest may arise in determining whether a particular acquisition
target is appropriate for our initial business combination.
Our
sponsor, Greenland Asset Management Corporation, of which Mr. Liu, our Chairman and Chief Executive Officer is the managing member,
purchased 1,100,000 founder shares for an aggregate purchase price of $25,000, or approximately $0.02 per share. The founder shares
will be worthless if we do not consummate an initial business combination. In addition, our sponsor purchased 260,000 insider
units, each consisting of one ordinary share, one right entitling the holder to receive one-tenth (1/10) of one ordinary share,
and a warrant to purchase one-half (1/2) of one ordinary share, for an aggregate purchase price of $2,600,000 that will also be
worthless if we do not consummate our initial business combination.
We
may issue notes or other debt securities, or otherwise incur substantial debt, to complete our initial business combination, which
may adversely affect our financial condition and thus negatively impact the value of our shareholders’ investment in us.
Although
we have no commitments as of the date of this Report to issue any notes or other debt securities, or to otherwise incur outstanding
debt, we may choose to incur substantial debt to complete initial business combination. Furthermore, we may issue a substantial
number of additional ordinary or preferred shares to complete our initial business combination or under an employee incentive
plan upon or after consummation of our initial business combination (although our memorandum and articles of association provide
that we may not issue securities that can vote with ordinary shareholders on matters related to our pre-initial business combination
activity). We and our officers and directors have agreed that we will not incur any indebtedness unless we have obtained from
the lender a waiver of any right, title, interest or claim of any kind in or to any monies held in the trust account. As such,
no issuance of debt will affect the per share amount available for redemption from the trust account. Nevertheless, the incurrence
of debt could have a variety of negative effects, including:
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default and foreclosure on
our assets if our operating revenues after our initial business combination are insufficient to repay our debt obligations;
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acceleration of our obligations to repay the
indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the
maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
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our immediate payment of all principal and accrued
interest, if any, if the debt security is payable on demand;
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our inability to obtain necessary additional
financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security
is outstanding;
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our inability to pay dividends on our ordinary
shares;
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using a substantial portion of our cash flow
to pay principal and interest on our debt, which will reduce the funds available for dividends on our ordinary shares if declared,
expenses, capital expenditures, acquisitions and other general corporate purposes;
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limitations on our flexibility in planning for
and reacting to changes in our business and in the industry in which we operate;
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increased vulnerability to adverse changes in
general economic, industry and competitive conditions and adverse changes in government regulation; and
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limitations on our ability to borrow additional
amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes
and other disadvantages compared to our competitors who have less debt.
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We
may only be able to complete one business combination with the proceeds of our initial public offering, and the sale of the private
units, which will cause us to be solely dependent on a single business, which may have a limited number of products or services.
This lack of diversification may negatively impact our operations and profitability.
The
net proceeds from our initial public offering and the sale of the private units will provide us with approximately $44,000,000
that we may use to complete our initial business combination which amounts include $1,760,000 of deferred underwriting commissions
being held in the trust account, subject to adjustment as described elsewhere herein.
We
may effectuate our initial business combination with a single target business or multiple target businesses simultaneously. However,
we may not be able to effectuate our initial business combination with more than one target business because of various factors,
including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements
with the SEC that present operating results and the financial condition of several target businesses as if they had been operated
on a combined basis. By consummating our initial business combination with only a single entity, our lack of diversification may
subject us to numerous economic, competitive and regulatory risks. Further, we would not be able to diversify our operations or
benefit from the possible spreading of risks or offsetting of losses, unlike other entities, which may have the resources to complete
several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for
our success may be:
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solely dependent upon the
performance of a single business, property or asset, or
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dependent upon the development
or market acceptance of a single or limited number of products, processes or services.
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This
lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a
substantial adverse impact upon the particular industry in which we may operate subsequent to our initial business combination.
We
may attempt to simultaneously consummate business combinations with multiple prospective targets, which may hinder our ability
to consummate our initial business combination and give rise to increased costs and risks that could negatively impact our operations
and profitability.
If
we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers
to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which
may make it more difficult for us, and delay our ability, to complete the initial business combination. With multiple business
combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations
and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation
of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately
address these risks, it could negatively impact our profitability and results of operations.
We
may attempt to consummate our initial business combination with a private company about which little information is available,
which may result in our initial business combination with a company that is not as profitable as we suspected, if at all.
In
pursuing our acquisition strategy, we may seek to effectuate our initial business combination with a privately held company. Very
little public information exists about private companies, and we could be required to make our decision on whether to pursue a
potential initial business combination on the basis of limited information, which may result in our initial business combination
with a company that is not as profitable as we suspected, if at all.
Our
management team and our shareholders may not be able to maintain control of a target business after our initial business combination.
We
may structure our initial business combination to acquire less than 100% of the equity interests or assets of a target business,
but we will only consummate such business combination if we will become the majority shareholder of the target (or control the
target through contractual arrangements in limited circumstances for regulatory compliance purposes) or are otherwise not required
to register as an investment company under the Investment Company Act. Even though we may own a majority interest in the target,
our shareholders prior to the business combination may collectively own a minority interest in the post business combination company,
depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a
transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target.
In this case, we acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number
of new shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding shares
subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in
a single person or group obtaining a larger share of the company’s stock than we initially acquired. Accordingly, this may
make it more likely that we will not be able to maintain our control of the target business.
Investors
may view our units as less attractive than those of other blank check companies.
Unlike
other blank check companies whose units are comprised of shares and warrants each to purchase one full share in their initial
public offerings, our units are comprised of ordinary shares, rights entitling the holder to receive one-tenth (1/10) of one ordinary
share, and warrants to purchase one-half (½) of one ordinary share. The rights and warrants will not have any voting rights
and will expire and be worthless if we do not consummate an initial business combination. Furthermore, no fractional shares will
be issued upon exercises of the warrants and it is not our intent to issue fractional shares upon conversion of any rights. As
a result, unless you acquire at least two warrants, you will not be able to receive a share upon exercise of your warrants and
if you acquire less than ten rights, you may, in our discretion, not receive one whole share. Any rounding down and extinguishment
may be done with or without any in lieu cash payment or other compensation being made to the holder of the relevant rights. Accordingly,
investors will not be issued the same securities as part of their investment as they may have in other blank check company offerings,
which may have the effect of limiting the potential upside value of your investment in our company.
Holders
of rights and warrants will not participate in liquidating distributions if we are unable to complete an initial business combination
within the required time period.
If
we are unable to complete an initial business combination within the required time period and we liquidate the funds held in the
trust account, the rights and warrants will expire and holders will not receive any of such proceeds with respect to the rights
and warrants. In this case, holders of rights and warrants are treated in the same manner as holders of rights and warrants of
blank check companies whose units are comprised of shares, rights and warrants, as the rights and warrants in those companies
do not participate in liquidating distributions. Nevertheless, the foregoing may provide a financial incentive to public shareholders
to vote in favor of any proposed initial business combination as each of their rights would entitle the holder to receive one-tenth
(1/10) of one ordinary share upon the consummation of such business combination and each of their warrants would entitle the holder
to purchase one-half (1/2) of one ordinary share, resulting in an increase in their overall economic stake in our company. If
a business combination is not approved, the rights and warrants will expire and will be worthless.
If
we do not maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants,
public holders will only be able to exercise such warrants on a “cashless basis” which would result in a fewer number
of shares being issued to the holder had such holder exercised the warrants for cash.
If
we do not maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the public warrant
at the time that holders wish to exercise such warrants, they will only be able to exercise them on a “cashless basis”
provided that an exemption from registration is available. As a result, the number of ordinary shares that a holder will receive
upon exercise of its public warrants will be fewer than it would have been had such holder exercised its warrant for cash. Further,
if an exemption from registration is not available, holders would not be able to exercise their warrants on a cashless basis and
would only be able to exercise their warrants for cash if a current and effective prospectus relating to the ordinary shares issuable
upon exercise of the warrants is available. Under the terms of the warrant agreement, we have agreed to use our best efforts to
meet these conditions and to maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise
of the warrants until the expiration of the warrants. However, we cannot assure you that we will be able to do so. If we are unable
to do so, the potential “upside” of the holder’s investment in our company may be reduced or the warrants may
expire worthless. Notwithstanding the foregoing, the private warrants may be exercisable for unregistered ordinary shares for
cash even if the prospectus relating to the ordinary shares issuable upon exercise of the warrants is not current and effective.
An
investor will only be able to exercise a warrant if the issuance of ordinary shares upon such exercise has been registered or
qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.
No
public warrants will be exercisable for cash and we will not be obligated to issue ordinary shares unless the ordinary shares
issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of the warrants. At the time that the warrants become exercisable, we expect to have our securities listed
on a national securities exchange, which would provide an exemption from registration in every state. However, we cannot assure
you of this fact. If the ordinary shares issuable upon exercise of the warrants are not qualified or exempt from qualification
in the jurisdictions in which the holders of the warrants reside, the warrants may be deprived of any value, the market for the
warrants may be limited and they may expire worthless if they cannot be sold.
Our
management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders
to receive fewer ordinary shares upon their exercise of the warrants than they would have received had they been able to exercise
their warrants for cash.
If
we call our public warrants for redemption after the redemption criteria described elsewhere in this Report have been satisfied,
our management will have the option to require any holder that wishes to exercise his warrant (including any warrants held by
our initial shareholders or their permitted transferees) to do so on a “cashless basis.” If our management chooses
to require holders to exercise their warrants on a cashless basis, the number of ordinary shares received by a holder upon exercise
will be fewer than it would have been had such holder exercised his warrant for cash. This will have the effect of reducing the
potential “upside” of the holder’s investment in our company.
We
may amend the terms of the warrants in a way that may be adverse to holders with the approval by the holders of a majority of
the then outstanding warrants.
Our
warrants are issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant
agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder
to cure any ambiguity or correct any defective provision. The warrant agreement requires the approval by the holders of a majority
of the then outstanding warrants (including the private warrants) in order to make any change that adversely affects the interests
of the registered holders.
We
may amend the terms of the rights in a way that may be adverse to holders with the approval by the holders of a majority of the
then outstanding rights.
Our
rights are issued in registered form under a rights agreement between Continental Stock Transfer & Trust Company, as rights
agent, and us. The rights agreement provides that the terms of the rights may be amended without the consent of any holder to
cure any ambiguity or correct any defective provision. The rights agreement requires the approval by the holders of a majority
of the then outstanding rights (including the private rights) in order to make any change that adversely affects the interests
of the registered holders.
We
have no obligation to net cash settle the rights or warrants.
In
no event will we have any obligation to net cash settle the rights or warrants. Furthermore, there are no contractual penalties
for failure to deliver securities to the holders of the rights or warrants upon consummation of our initial business combination
or exercise of the warrants. Accordingly, the rights and warrants may expire worthless.
Our
rights and warrants may have an adverse effect on the market price of our ordinary shares and make it more difficult to effectuate
our initial business combination.
We
issued rights to receive 440,000 ordinary shares and warrants to purchase 2,200,000 of our ordinary shares as part of the units
sold in our initial public offering, and rights to receive 28,200 ordinary shares and warrants to purchase 141,000 of our ordinary
shares, as part of a private placement, and warrants exercisable for 120,000 ordinary shares and rights to receive 24,000 ordinary
shares underlying the unit purchase option, in each case, the warrants are exercisable at a price of $11.50 per full share. In
addition, our initial shareholders, officers and directors or their affiliates may, but are not obligated to, make certain loans
to us, up to $1,500,000 of which may be converted upon consummation of our initial business combination into additional private
units at a price of $10.00 per unit (which, for example, would result in the holders being issued 165,000 ordinary shares if $1,500,000
of notes were so converted (including 15,000 shares upon the closing of our initial business combination in respect of 150,000
rights included in such units), as well as 150,000 warrants to purchase 75,000 shares). To the extent we issue ordinary shares
to effectuate a business transaction, the potential for the issuance of a substantial number of additional ordinary shares upon
exercise of these rights and warrants could make us a less attractive acquisition vehicle to a target business. Any such issuance
will increase the number of issued and outstanding ordinary shares and reduce the value of the ordinary shares issued to complete
the business transaction. Therefore, our rights and warrants may make it more difficult to effectuate a business combination or
increase the cost of acquiring the target business.
The
ability of our public shareholders to exercise their redemption rights may not allow us to effectuate the most desirable business
combination or optimize our capital structure.
If
our initial business combination requires us to use substantially all of our cash to pay the purchase price, because we will not
know how many public shareholders may exercise redemption rights, we may either need to reserve part of the trust account for
possible payment upon such redemption, or we may need to arrange third party financing to help fund our initial business combination.
In the event that the acquisition involves the issuance of our stock as consideration, we may be required to issue a higher percentage
of our stock to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity
financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive
business combination available to us.
We
may be unable to consummate an initial business combination if a target business requires that we have a certain amount of cash
at closing, in which case public shareholders may have to remain shareholders of our company and wait until our redemption of
the public shares to receive a pro rata share of the trust account or attempt to sell their shares in the open market.
A
potential target may make it a closing condition to our initial business combination that we have a certain amount of cash in
excess of the $5,000,001 of net tangible assets we are required to have pursuant to our organizational documents available at
the time of closing. If the number of our public shareholders electing to exercise their redemption rights has the effect of reducing
the amount of money available to us to consummate an initial business combination below such minimum amount required by the target
business and we are not able to locate an alternative source of funding, we will not be able to consummate such initial business
combination and we may not be able to locate another suitable target within the applicable time period, if at all. In that case,
public shareholders may have to remain shareholders of our company and wait beyond July 27, 2019 (or April 27, 2020 if we extend
the period of time to consummate a business combination, as described in more detail in this Report), in order to be able to receive
a portion of the trust account, or attempt to sell their shares in the open market prior to such time, in which case they may
receive less than they would have in a liquidation of the trust account.
We
intend to offer each public shareholder the option to vote in favor of the proposed business combination and still seek redemption
of such shareholders’ shares.
In
connection with any meeting held to approve an initial business combination, we will offer each public shareholder (but not our
initial shareholders, officers or directors) the right to have his, her or its ordinary shares redeemed for cash (subject to the
limitations described elsewhere in this Report) regardless of whether such shareholder votes for or against such proposed business
combination; provided that a shareholder must in fact vote for or against a proposed business combination in order to have his,
her or its ordinary shares redeemed for cash. If a shareholder fails to vote for or against a proposed business combination, that
shareholder would not be able to have his ordinary shares so redeemed. We will consummate our initial business combination only
if we have net tangible assets of at least $5,000,001 upon such consummation and a majority of the outstanding ordinary shares
voted are voted in favor of the business combination. This threshold and the ability to seek redemption while voting in favor
of a proposed business combination may make it more likely that we will consummate our initial business combination.
We
will require public shareholders who wish to redeem their ordinary shares in connection with a proposed business combination to
comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights
prior to the deadline for exercising their rights.
We
will require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their
shares in “street name,” to either tender their certificates to our transfer agent prior to the expiration date set
forth in the tender offer documents mailed to such holders, or in the event we distribute proxy materials, up to two business
days prior to the vote on the proposal to approve the business combination, or to deliver their shares to the transfer agent electronically
using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. In order
to obtain a physical stock certificate, a shareholder’s broker and/or clearing broker, DTC and our transfer agent will need
to act to facilitate this request. It is our understanding that shareholders should generally allot at least two weeks to obtain
physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers
or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. While we have been advised that
it takes a short time to deliver shares through the DWAC System, this may not be the case. Under our memorandum and articles of
association, we are required to provide at least 10 days advance notice of any shareholder meeting, which would be the minimum
amount of time a shareholder would have to determine whether to exercise redemption rights. Accordingly, if it takes longer than
we anticipate for shareholders to deliver their shares, shareholders who wish to redeem may be unable to meet the deadline for
exercising their redemption rights and thus may be unable to redeem their shares. In the event that a shareholder fails to comply
with the various procedures that must be complied with in order to validly tender or redeem public shares, its shares may not
be redeemed.
Additionally,
despite our compliance with the proxy rules or tender offer rules, as applicable, shareholders may not become aware of the opportunity
to redeem their shares.
Redeeming
shareholders may be unable to sell their securities when they wish to in the event that the proposed business combination is not
approved.
We
will require public shareholders who wish to redeem their ordinary shares in connection with any proposed business combination
to comply with the delivery requirements discussed above for redemption. If such proposed business combination is not consummated,
we will promptly return such certificates to the tendering public shareholders. Accordingly, investors who attempted to redeem
their shares in such a circumstance will be unable to sell their securities after the failed acquisition until we have returned
their securities to them. The market price for our ordinary shares may decline during this time and you may not be able to sell
your securities when you wish to, even while other shareholders that did not seek redemption may be able to sell their securities.
Because
of our structure, other companies may have a competitive advantage and we may not be able to consummate an attractive business
combination.
We
have encountered and expect to continue to encounter intense competition from entities other than blank check companies having
a business objective similar to ours, including private equity groups, venture capital funds, leveraged buyout funds and operating
businesses competing for acquisitions. Many of these entities are well established and have extensive experience in identifying
and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human
and other resources than we do and our financial resources are relatively limited when contrasted with those of many of these
competitors. Therefore, our ability to compete in acquiring certain sizable target businesses may be limited by our available
financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target
businesses. Furthermore, seeking shareholder approval of our initial business combination may delay the consummation of a transaction.
Any of the foregoing may place us at a competitive disadvantage in successfully negotiating our initial business combination.
The
provisions of our memorandum and articles of association relating to the rights and obligations attaching to our ordinary shares,
including an amendment to permit us to withdraw funds from the trust account such that the per share amount investors will receive
upon any redemption or liquidation is substantially reduced or eliminated, may be amended prior to the consummation of our initial
business combination with the approval of the holders of 65% (or 50% if for the purposes of approving, or in conjunction with,
the consummation of our initial business combination) of our outstanding ordinary shares attending and voting on such amendment
at the relevant meeting, which is a lower amendment threshold than that of many blank check companies. It may be easier for us,
therefore, to amend our memorandum and articles of association to facilitate the consummation of our initial business combination
that a significant number of our shareholders may not support.
Our
memorandum and articles of association provides that, prior to the consummation of our initial business combination, its provisions
related to pre-business combination activity and the rights and obligations attaching to the ordinary shares, including to permit
us to withdraw funds from the trust account such that the per share amount investors will receive upon any redemption or liquidation
is substantially reduced or eliminated, may be amended if approved by holders of 65% (or 50% if approved in connection with our
initial business combination) of our outstanding ordinary shares attending and voting on such amendment. Prior to our initial
business combination, if we seek to amend any provisions of our memorandum and articles of association relating to shareholders’
rights or pre-business combination activity, we will provide dissenting public shareholders with the opportunity to redeem their
public shares in connection with any such vote on any proposed amendments to our memorandum and articles of association. Other
provisions of our memorandum and articles of association may be amended prior to the consummation of our initial business combination
if approved by a majority of the votes of shareholders attending and voting on such amendment or by resolution of the directors.
Following the consummation of our initial business combination, the rights and obligations attaching to our ordinary shares and
other provisions of our memorandum and articles of association may be amended if approved by a majority of the votes of shareholders
attending and voting on such amendment or by resolution of the directors. Our initial shareholders, which will beneficially own
approximately 23.5% of our ordinary shares, will participate in any vote to amend our memorandum and articles of association and
will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our memorandum
and articles of association which govern our pre-business combination and the rights and obligations attaching to the ordinary
shares behavior more easily that many blank check companies, and this may increase our ability to consummate our initial business
combination with which you do not agree. However, we and our directors and officers have agreed not to propose any amendment to
our memorandum and articles of association (A) to modify the substance or timing of our obligation to redeem 100% of our public
shares if we do not complete our initial business combination by July 27, 2019 (or by April 27, 2020) or (B) with respect to any
other provision relating to shareholders’ rights or pre-initial business combination activity, unless we provide our public
shareholders with the opportunity to redeem their public shares upon approval of any such amendment at a per-share price, payable
in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of
taxes payable), divided by the number of then outstanding public shares.
We
may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth
of a target business, which could compel us to restructure or abandon a particular business combination. If we are unable to complete
our initial business combination, our public shareholders may only receive $10.00 per or potentially less than $10.00 per share
on our redemption, and the rights and warrants will expire worthless.
Although
we believe that the net proceeds of our initial public offering and the sale of the private units, including the interest earned
on the proceeds held in the trust account that may be available to us for our initial business combination, will be sufficient
to allow us to consummate our initial business combination, because we have not yet identified any prospective target business
we cannot ascertain the capital requirements for any particular transaction. If the net proceeds of our initial public offering
and the sale of the private units prove to be insufficient, either because of the size of our initial business combination, the
depletion of the available net proceeds in search of a target business, the obligation to repurchase for cash a significant number
of shares from shareholders who elect redemption in connection with our initial business combination or the terms of negotiated
transactions to purchase shares in connection with our initial business combination, we may be required to seek additional financing
or to abandon the proposed business combination. Financing may not be available on acceptable terms, if at all. To the extent
that additional financing proves to be unavailable when needed to consummate our initial business combination, we would be compelled
to either restructure the transaction or abandon that particular initial business combination and seek an alternative target business
candidate. If we are unable to complete our initial business combination, our public shareholders may only receive $10.00 per
share or potentially less than $10.00 per share on our redemption, and the rights and warrants will expire worthless. In addition,
even if we do not need additional financing to consummate our initial business combination, we may require such financing to fund
the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect
on the continued development or growth of the target business. None of our officers, directors or shareholders is required to
provide any financing to us in connection with or after our initial business combination.
If
we do not hold an annual meeting of shareholders until after the consummation of our initial business combination, shareholders
will not be afforded an opportunity to elect directors and to discuss company affairs with management until such time.
Unless
otherwise required by law or the rules of Nasdaq, we do not currently intend to call an annual meeting of shareholders until after
we consummate our initial business combination. If our shareholders want us to hold a meeting prior to our consummation of our
initial business combination, they may do so by members holding not less than thirty percent of voting rights in respect of the
matter for which the meeting is requested making a request in writing to the directors in accordance with Section 82(2) of the
Companies Act. Under British Virgin Islands law, we may not increase the required percentage to call a meeting above thirty percent.
Until we hold an annual meeting of shareholders, public shareholders may not be afforded the opportunity to elect directors and
to discuss company affairs with management.
A
market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
The
price of our securities may vary significantly due to one or more potential business combinations and general market or economic
conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. Additionally,
if our securities become delisted from Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated
quotation system for equity securities not listed on a national exchange, the liquidity and price of our securities may be more
limited than if we were listed on Nasdaq or another national exchange. You may be unable to sell your securities unless a market
can be established and sustained.
Our
securities may not continue to be listed on Nasdaq in the future, which could limit investors’ ability to make transactions
in our securities and subject us to additional trading restrictions.
Our
securities have are listed on Nasdaq. However, we cannot assure you that our securities will continue to be listed on Nasdaq in
the future. Additionally, in connection with our business combination, Nasdaq will require us to file a new initial listing application
and meet its initial listing requirements as opposed to its more lenient continued listing requirements. We cannot assure you
that we will be able to meet those initial listing requirements at that time.
If
Nasdaq delists our securities from trading on its exchange, we could face significant material adverse consequences, including:
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a limited availability of market quotations
for our securities;
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a reduced liquidity with respect to our securities;
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a determination that our
ordinary shares are a “penny stock” which will require brokers trading in our ordinary shares to adhere to more
stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our ordinary
shares;
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a limited amount of news and analyst coverage
for our company; and
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a decreased ability to issue additional securities
or obtain additional financing in the future.
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Because
we must furnish our shareholders with target business financial statements, we may lose the ability to complete an otherwise advantageous
initial business combination with some prospective target businesses.
The
United States federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain
financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. We will include
the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under
the tender offer rules. These financial statements must be prepared in accordance with, or be reconciled to, GAAP or IFRS, and
the historical financial statements must be audited in accordance with the standards of the Public Company Accounting Oversight
Board (United States), or PCAOB. These financial statement requirements may limit the pool of potential target businesses we may
acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance
with federal proxy rules and consummate our initial business combination by July 27, 2019 (or by April 27, 2020, as applicable).
Compliance
obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate our initial business combination, require
substantial financial and management resources, and increase the time and costs of completing a business combination.
Section
404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual
Report on Form 10-K for the year ending November 30, 2020. Only in the event we are deemed to be a large accelerated filer or
an accelerated filer will we be required to comply with the independent registered public accounting firm attestation requirement
on our internal control over financial reporting. Further, for as long as we remain an emerging growth company, we will not be
required to comply with the independent registered public accounting firm attestation requirement on our internal control over
financial reporting. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act
particularly burdensome on us as compared to other public companies because a target company with which we seek to complete our
business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal
controls. The development of the internal control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase
the time and costs necessary to complete any such business combination.
We
may re-domicile or continue out of the British Virgin Islands into, another jurisdiction in connection with our initial business
combination, and the laws of such jurisdiction will likely govern all of our material agreements and we may not be able to enforce
our legal rights.
In
connection with our initial business combination, we may relocate the home jurisdiction of our business or re-domicile or continue
out of from the British Virgin Islands to another jurisdiction. If we determine to do this, the laws of such jurisdiction would
likely govern all of our material agreements. The system of laws and the enforcement of existing laws in such jurisdiction may
not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under
any of our future agreements could result in a significant loss of business, business opportunities or capital. Any such reincorporation
and the international nature of our business will likely subject us to foreign regulation.
You
may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may
be limited, because we are incorporated under British Virgin Islands law.
We
are a company incorporated under the laws of the British Virgin Islands. As a result, it may be difficult for investors to enforce
judgments obtained in the United States courts against our directors or officers.
Our
corporate affairs will be governed by our memorandum and articles of association, the Companies Act and the common law of the
British Virgin Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and
the fiduciary responsibilities of our directors to us under British Virgin Islands law are governed by the Companies Act and the
common law of the British Virgin Islands. The common law of the British Virgin Islands is derived from English common law, and
whilst the decisions of the English courts are of persuasive authority, they are not binding on a court in the British Virgin
Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law may
not be as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States.
In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some
states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, while statutory
provisions do exist in British Virgin Islands law for derivative actions to be brought in certain circumstances, shareholders
in BVI companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The
circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any
such action, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company
organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate
wrongdoing has occurred.
The
British Virgin Islands Courts are also unlikely:
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to recognize or enforce against
us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws where that
liability is in respect of penalties, taxes, fines or similar fiscal or revenue obligations of the company; and
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to impose liabilities against us, in original
actions brought in the British Virgin Islands, based on certain civil liability provisions of U.S. securities laws that are
penal in nature.
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There
is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the
British Virgin Islands will in certain circumstances recognize such a foreign judgment and treat it as a cause of action in itself
which may be sued upon as a debt at common law so that no retrial of the issues would be necessary provided that the U.S. judgment:
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the U.S. court issuing the
judgment had jurisdiction in the matter and the company either submitted to such jurisdiction or was resident or carrying
on business within such jurisdiction and was duly served with process;
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is final and for a liquidated sum;
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the judgment given by the U.S. court was not
in respect of penalties, taxes, fines or similar fiscal or revenue obligations of the company;
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in obtaining judgment there was no fraud on
the part of the person in whose favor judgment was given or on the part of the court;
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recognition or enforcement of the judgment would
not be contrary to public policy in the British Virgin Islands; and
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the proceedings pursuant to which judgment was
obtained were not contrary to natural justice.
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In
appropriate circumstances, a British Virgin Islands Court may give effect in the British Virgin Islands to other kinds of final
foreign judgments such as declaratory orders, orders for performance of contracts and injunctions.
As
a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions
taken by our board of directors, management or controlling shareholders than they would as public shareholders of a U.S. company.
For a discussion of certain differences between the provisions of the Companies Act, remedies available to shareholders and the
laws applicable to companies incorporated in the United States and their shareholders, see “British Virgin Islands Company
Considerations.”
Our
memorandum and articles of association permit the board of directors by resolution to amend our memorandum and articles of association,
including to create additional classes of securities, including shares with rights, preferences, designations and limitations
as they determine which may have an anti-takeover effect.
Our
memorandum and articles of association permit the board of directors by resolution to amend certain provisions of the memorandum
and articles of association including to designate rights, preferences, designations and limitations attaching to the preferred
shares as they determine in their discretion, without shareholder approval with respect the terms or the issuance. If issued,
the rights, preferences, designations and limitations of the preferred shares would be set by the board of directors by amendment
to relevant provisions of the memorandum and articles of association and could operate to the disadvantage of the outstanding
ordinary shares the holders of which would not have any pre-emption rights in respect of such an issue of preferred shares. Such
terms could include, among others, preferences as to dividends and distributions on liquidation, or could be used to prevent possible
corporate takeovers. We may issue some or all of such preferred shares in connection with our initial business combination. Notwithstanding
the foregoing, we and our directors and officers have agreed not propose any amendment to our memorandum and articles of association
(A) to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial
business combination by July 27, 2019 (or by April 27, 2020) or (B) with respect to any other provision relating to shareholders’
rights or pre-initial business combination activity, unless we provide our public shareholders with the opportunity to redeem
their public shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then
on deposit in the trust account, including interest (which interest shall be net of taxes payable), divided by the number of then
outstanding public shares.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our securities less attractive to investors.
We
are an “emerging growth” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging
growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain
information they may deem important. We could be an emerging growth company for up to five years, although circumstances could
cause us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates exceeds $700
million as of any May 31 before that time, in which case we would no longer be an emerging growth company as of the following
November 30. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions.
If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our
securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading
prices of our securities may be more volatile.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared
effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised
financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and
comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We
have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has
different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard
at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another
public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended
transition period difficult or impossible because of the potential differences in accountant standards used.
We
may seek investment opportunities with a financially unstable business or in its early stages of development.
To
the extent we effect our initial business combination with a company or business that may be financially unstable or in its early
stages of development or growth, we may be affected by numerous risks inherent in such company or business. These risks include
volatile revenues or earnings and difficulties in obtaining and retaining key personnel. Although our officers and directors will
endeavor to evaluate the risks inherent in a particular target business, we may not be able to properly ascertain or assess all
of the significant risk factors and we may not have adequate time to complete due diligence. Furthermore, some of these risks
may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact
a target business.
Risks
Associated with Acquiring and Operating a Business Outside of the United States
If
we effect our initial business combination with a company located outside of the United States, we would be subject to a variety
of additional risks that may negatively impact our operations.
If
we effect our initial business combination with a company located outside of the United States, we would be subject to any special
considerations or risks associated with companies operating in the target business’ home jurisdiction, including any of
the following:
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rules and regulations or
currency redemption or corporate withholding taxes on individuals;
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laws governing the manner
in which future business combinations may be effected;
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exchange listing and/or delisting
requirements;
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tariffs and trade barriers;
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regulations related to customs
and import/export matters;
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tax issues, such as tax law
changes and variations in tax laws as compared to the United States;
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currency fluctuations and
exchange controls;
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challenges in collecting
accounts receivable;
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cultural and language differences;
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employment regulations;
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crime, strikes, riots, civil
disturbances, terrorist attacks and wars; and
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deterioration of political
relations with the United States. We may not be able to adequately address these additional risks. If we were unable to do
so, our operations might suffer.
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Because
of the costs and difficulties inherent in managing cross-border business operations, our results of operations may be negatively
impacted.
Managing
a business, operations, personnel or assets in another country is challenging and costly. Any management that we may have (whether
based abroad or in the U.S.) may be inexperienced in cross-border business practices and unaware of significant differences in
accounting rules, legal regimes and labor practices. Even with a seasoned and experienced management team, the costs and difficulties
inherent in managing cross-border business operations, personnel and assets can be significant (and much higher than in a purely
domestic business) and may negatively impact our financial and operational performance.
If
social unrest, acts of terrorism, regime changes, changes in laws and regulations, political upheaval, or policy changes or enactments
occur in a country in which we may operate after we effect our initial business combination, it may result in a negative impact
on our business.
Political
events in another country may significantly affect our business, assets or operations. Social unrest, acts of terrorism, regime
changes, changes in laws and regulations, political upheaval, and policy changes or enactments could negatively impact our business
in a particular country.
Many
countries have difficult and unpredictable legal systems and underdeveloped laws and regulations that are unclear and subject
to corruption and inexperience, which may adversely impact our results of operations and financial condition.
Our
ability to seek and enforce legal protections, including with respect to intellectual property and other property rights, or to
defend ourselves with regard to legal actions taken against us in a given country, may be difficult or impossible, which could
adversely impact our operations, assets or financial condition.
Rules
and regulations in many countries are often ambiguous or open to differing interpretation by responsible individuals and agencies
at the municipal, state, regional and federal levels. The attitudes and actions of such individuals and agencies are often difficult
to predict and inconsistent.
Delay
with respect to the enforcement of particular rules and regulations, including those relating to customs, tax, environmental and
labor, could cause serious disruption to operations abroad and negatively impact our results.
If
relations between the United States and foreign governments deteriorate, it could cause potential target businesses or their goods
and services to become less attractive.
The
relationship between the United States and foreign governments could be subject to sudden fluctuation and periodic tension. For
instance, the United States may announce its intention to impose quotas on certain imports. Such import quotas may adversely affect
political relations between the two countries and result in retaliatory countermeasures by the foreign government in industries
that may affect our ultimate target business. Changes in political conditions in foreign countries and changes in the state of
U.S. relations with such countries are difficult to predict and could adversely affect our operations or cause potential target
businesses or their goods and services to become less attractive. Because we are not limited to any specific industry, there is
no basis for investors to evaluate the possible extent of any impact on our ultimate operations if relations are strained between
the United States and a foreign country in which we acquire a target business or move our principal manufacturing or service operations.
If
any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than
the U.S. dollar amount that you will actually ultimately receive.
If
you are a U.S. holder of our ordinary shares, you will be taxed on the U.S. dollar value of your dividends, if any, at the time
you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S.
dollars. Specifically, if a dividend is declared and paid in a foreign currency, the amount of the dividend distribution that
you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined
at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income,
regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases
before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S.
dollar amount that you will actually ultimately receive.
If
our management following our initial business combination is unfamiliar with United States securities laws, they may have to expend
time and resources becoming familiar with such laws, which could lead to various regulatory issues.
Following
our initial business combination, certain members of our management team will likely resign from their positions as officers or
directors of the company and the management of the target business at the time of the business combination will remain in place.
Management of the target business may not be familiar with United States securities laws. If new management is unfamiliar with
our laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming
and could lead to various regulatory issues, which may adversely affect our operations.
After
our initial business combination, substantially all of our assets may be located in a foreign country and substantially all of
our revenue may be derived from our operations in such country. Accordingly, our results of operations and prospects will be subject,
to a significant extent, to the economic, political and legal policies, developments and conditions in the country in which we
operate.
The
economic, political and social conditions, as well as government policies, of the country in which our operations are located
could affect our business. The economy in China differs from the economies of most developed countries in many respects. Such
economic growth has been uneven, both geographically and among various sectors of the economy and such growth may not be sustained
in the future. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there
may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially
and adversely affect our ability to find an attractive target business with which to consummate our initial business combination
and if we effect our initial business combination, the ability of that target business to become profitable.
Currency
policies may cause a target business’ ability to succeed in the international markets to be diminished.
In
the event we acquire a non-U.S. target, all revenues and income would likely be received in a foreign currency, the dollar equivalent
of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The
value of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic
conditions. Any change in the relative value of such currency against our reporting currency may affect the attractiveness of
any target business or, following consummation of our initial business combination, our financial condition and results of operations.
Additionally, if a currency appreciates in value against the dollar prior to the consummation of our initial business combination,
the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate
such transaction.
Because
foreign law could govern almost all of our material agreements, we may not be able to enforce our rights within such jurisdiction
or elsewhere, which could result in a significant loss of business, business opportunities or capital.
Foreign
law could govern almost all of our material agreements. The target business may not be able to enforce any of its material agreements
or that remedies will be available outside of such foreign jurisdiction’s legal system. The system of laws and the enforcement
of existing laws and contracts in such jurisdiction may not be as certain in implementation and interpretation as in the United
States. The judiciaries in China are relatively inexperienced in enforcing corporate and commercial law, leading to a higher than
usual degree of uncertainty as to the outcome of any litigation. As a result, the inability to enforce or obtain a remedy under
any of our future agreements could result in a significant loss of business and business opportunities.
Many
of the economies in Asia are experiencing substantial inflationary pressures which may prompt the governments to take action to
control the growth of the economy and inflation that could lead to a significant decrease in our profitability following our initial
business combination.
While
many of the economies in Asia have experienced rapid growth over the last two decades, they currently are experiencing inflationary
pressures. As governments take steps to address the current inflationary pressures, there may be significant changes in the availability
of bank credits, interest rates, limitations on loans, restrictions on currency conversions and foreign investment. There also
may be imposition of price controls. If prices for the products of our ultimate target business rise at a rate that is insufficient
to compensate for the rise in the costs of supplies, it may have an adverse effect on our profitability. If these or other similar
restrictions are imposed by a government to influence the economy, it may lead to a slowing of economic growth. Because we are
not limited to any specific industry, the ultimate industry that we operate in may be affected more severely by such a slowing
of economic growth.
Many
industries in Asia are subject to government regulations that limit or prohibit foreign investments in such industries, which
may limit the potential number of acquisition candidates.
Governments
in many Asian countries have imposed regulations that limit foreign investors’ equity ownership or prohibit foreign investments
altogether in companies that operate in certain industries. As a result, the number of potential acquisition candidates available
to us may be limited or our ability to grow and sustain the business, which we ultimately acquire will be limited.
If
a country in Asia enacts regulations in industry segments that forbid or restrict foreign investment, our ability to consummate
our initial business combination could be severely impaired.
Many
of the rules and regulations that companies face concerning foreign ownership are not explicitly communicated. If new laws or
regulations forbid or limit foreign investment in industries in which we want to complete our initial business combination, they
could severely impair our candidate pool of potential target businesses. Additionally, if the relevant central and local authorities
find us or the target business with which we ultimately complete our initial business combination to be in violation of any existing
or future laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:
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revoking
our business and other licenses;
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requiring
that we restructure our ownership or operations; and
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requiring
that we discontinue any portion or all of our business.
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Any
of the above could have an adverse effect on our company post-business combination and could materially reduce the value of your
investment.
Corporate
governance standards in Asia may not be as strict or developed as in the United States and such weakness may hide issues and operational
practices that are detrimental to a target business.
General
corporate governance standards in some countries are weak in that they do not prevent business practices that cause unfavorable
related party transactions, over-leveraging, improper accounting, family company interconnectivity and poor management. Local
laws often do not go far enough to prevent improper business practices. Therefore, shareholders may not be treated impartially
and equally as a result of poor management practices, asset shifting, conglomerate structures that result in preferential treatment
to some parts of the overall company, and cronyism. The lack of transparency and ambiguity in the regulatory process also may
result in inadequate credit evaluation and weakness that may precipitate or encourage financial crisis. In our evaluation of a
business combination we will have to evaluate the corporate governance of a target and the business environment, and in accordance
with United States laws for reporting companies take steps to implement practices that will cause compliance with all applicable
rules and accounting practices. Notwithstanding these intended efforts, there may be endemic practices and local laws that could
add risk to an investment we ultimately make and that result in an adverse effect on our operations and financial results.
Risks
Associated With Acquiring and Operating a Target Business with its Primary Operation in China
As
set forth herein, our efforts in identifying a prospective target business will not be limited to a particular country, although
we are focused initially on companies with operations located primarily in the People’s Republic of China (PRC). Accordingly,
in addition to the risk factors referred above, we have set forth some of the primary risks we have identified in seeking to consummate
our initial business combination with a company having its primary operations in the PRC.
As
a result of merger and acquisition regulations implemented on September 8, 2006 (amended on June 22, 2009) relating to acquisitions
of assets and equity interests of Chinese companies by foreign persons, it is expected that acquisitions will take longer and
be subject to economic scrutiny by the PRC government authorities such that we may not be able to complete a transaction.
On
September 8, 2006, the Ministry of Commerce, together with several other government agencies, promulgated the Regulations on Merger
and Acquisition of Domestic Enterprises by Foreign Investors (the “M&A Regulations”, including its amendment on
June 22, 2009), which implemented a comprehensive set of regulations governing the approval process by which a Chinese company
may participate in an acquisition of its assets or its equity interests and by which a Chinese company may obtain public trading
of its securities on a securities exchange outside the PRC. Although there was a complex series of regulations in place prior
to September 8, 2006 for approval of Chinese enterprises that were administered by a combination of provincial and centralized
agencies, the M&A Regulations have largely centralized and expanded the approval process to the Ministry of Commerce, the
State Administration of Industry and Commerce (SAIC), the State Administration of Foreign Exchange (SAFE) or its branch offices,
the State Asset Supervision and Administration Commission (SASAC), and the China Securities Regulatory Commission (CSRC). Depending
on the structure of the transaction, these M&A Regulations will require the Chinese parties to make a series of applications
and supplemental applications to one or more of the aforementioned agencies, some of which must be made within strict time limits
and depending on approvals from one or the other of the aforementioned agencies. The application process has been supplemented
to require the presentation of economic data concerning a transaction, including appraisals of the business to be acquired and
evaluations of the acquirer which will permit the government to assess the economics of a transaction in addition to the compliance
with legal requirements. If obtained, approvals will have expiration dates by which a transaction must be completed. Also, completed
transactions must be reported to the Ministry of Commerce and some of the other agencies within a short period after closing or
be subject to an unwinding of the transaction. Therefore, acquisitions in China may not be able to be completed because the terms
of the transaction may not satisfy aspects of the approval process and may not be completed, even if approved, if they are not
consummated within the time permitted by the approvals granted.
Compliance
with the PRC Antitrust law may limit our ability to effect our initial business combination.
The
PRC Antitrust Law became effective on August 1, 2008. The government authorities in charge of antitrust matters in China are the
Antitrust Commission and other antitrust authorities under the State Council. The PRC Antitrust Law regulates (1) monopoly agreements,
including decisions or actions in concert that preclude or impede competition, entered into by business operators; (2) abuse of
dominant market position by business operators; and (3) concentration of business operators that may have the effect of precluding
or impeding competition. To implement the Antitrust Law, in 2008, the State Council formulated the regulations that require filing
of concentration of business operators, pursuant to which concentration of business operators refers to (1) merger with other
business operators; (2) gaining control over other business operators through acquisition of equity interest or assets of other
business operators; and (3) gaining control over other business operators through exerting influence on other business operators
through contracts or other means. In 2009, the Ministry of Commerce, to which the Antitrust Commission is affiliated, promulgated
the Measures for Filing of Concentration of Business Operators (amended by the Guidelines for Filing of Concentration of Business
Operators in 2014), which set forth the criteria of concentration and the requirement of miscellaneous documents for the purpose
of filing. The business combination we contemplate may be considered the concentration of business operators, and to the extent
required by the Antitrust Law and the criteria established by the State Council, we must file with the antitrust authority under
the PRC State Council prior to conducting the contemplated business combination. If the antitrust authority decides not to further
investigate whether the contemplated business combination has the effect of precluding or impeding competition or fails to make
a decision within 30 days from receipt of relevant materials, we may proceed to consummate the contemplated business combination.
If antitrust authority decides to prohibit the contemplated business combination after further investigation, we must terminate
such business combination and would then be forced to either attempt to complete a new business combination if it was prior to
July 27, 2019 (or April 27, 2020 if we extend the period of time to consummate a business combination), or we would be required
to return any amounts which were held in the trust account to our shareholders. When we evaluate a potential business combination,
we will consider the need to comply with the Antitrust Law and other relevant regulations which may limit our ability to effect
an acquisition or may result in our modifying or not pursuing a particular transaction.
If,
due to restrictions on foreign investment in a target business, we have to acquire the business through the use of contractual
arrangements and the PRC government determines that such contractual arrangements do not comply with foreign investment regulations,
or if these regulations or the interpretation of existing regulations in the PRC change or new restrictive or prohibitive regulations
come into force in the future, we could be subject to significant penalties or be forced to relinquish our interests in those
operations.
Because
of the above mentioned industrial restrictions, foreign investors often acquire control of PRC business through the use of contractual
arrangements pursuant to which they effectively control the PRC business. There are uncertainties as to whether such contractual
arrangements comply with the regulations prohibiting or restricting foreign ownership in certain industries. In addition, even
if such arrangements are not in violation of current regulations, such regulations are subject to change in the future and may
be broadened to further restrict foreign investments in new industries or new category of assets.
If
we or any of our potential future target businesses are found to be in violation of any existing or future local laws or regulations
with respect to foreign investment in local entities (for example, if we are deemed to be holding equity interests in certain
of our affiliated entities in which direct foreign ownership is prohibited), the relevant regulatory authorities might have the
discretion to:
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revoke
the business and operating licenses of the potential future target business;
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confiscate
relevant income and impose fines and other penalties;
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discontinue
or restrict the operations of the potential future target business;
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require
us or potential future target business to restructure the relevant ownership structure or operations;
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restrict
or prohibit our use of the proceeds of our initial public offering to finance the target businesses and its operations;
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impose
conditions or requirements with which we or potential future target business may not be able to comply; or
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require
us to discontinue a portion or all of our business.
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The
imposition of any of the above penalties could result in a material and adverse effect on our ability to conduct our business
as well as our financial situation and we might be forced to relinquish our interests in operations.
If
we have to acquire a target business through contractual arrangements with, or which results in, one or more operating businesses
in China, such contracts may not be as effective in providing operational control as direct ownership of such businesses.
The
government of the PRC has restricted or limited foreign ownership of certain kinds of assets and companies operating in certain
industries. The industry groups that are restricted are wide ranging, including certain aspects of telecommunications, advertising,
food production and heavy equipment manufacturers, for example. In addition, there can be restrictions on the foreign ownership
of businesses that are determined from time to time to be in “important industries” that may affect the national economic
security or having “famous Chinese brand names” or “well established Chinese brand names.” Subject to
the review and approval requirements of the Ministry of Commerce and other relevant agencies as discussed elsewhere for acquisitions
of assets and companies in the PRC and subject to the various percentage ownership limitations that exist from time to time, acquisitions
involving foreign investors and parties in the various restricted categories of assets and industries may nonetheless sometimes
be consummated using contractual arrangements with permitted Chinese parties. To the extent such agreements are employed, they
may be for control of specific assets such as intellectual property or control of blocks of the equity ownership interests of
a company which may provide exceptions to the merger and acquisition regulations mentioned above since these types of arrangements
typically do not involve a change of equity ownership in PRC operating company. The agreements would be designed to provide our
company with the economic benefits of and control over the subject assets or equity interests similar to the rights of full ownership,
while leaving the technical ownership in the hands of Chinese parties who would be our nominees and, therefore, may exempt the
transaction from the merger and acquisition regulations, including the application process required thereunder. However, there
has been limited implementation guidance provided with respect to the merger and acquisition regulations. There can be no assurance
the relevant government agencies would not apply them to a business combination effected through contractual arrangements. If
such an agency determines such an application should have made, consequences may include levying fines, revoking business and
other licenses, requiring restructure of ownership or operations and requiring discontinuation of any portion of all of the acquired
business. These agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted
under PRC law and regulation. If we choose to effect our initial business combination that employs the use of these types of control
arrangements, we may have difficulty in enforcing our rights. Therefore, these contractual arrangements may not be as effective
in providing us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership.
For example, if the target business or any other entity fails to perform its obligations under these contractual arrangements,
we may have to incur substantial costs and expend substantial resources to enforce such arrangements, and rely on legal remedies
under Chinese law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will
be sufficient to off-set the cost of enforcement and may adversely affect the benefits we expect to receive from the business
combination.
Regulations
relating to the transfer of state-owned property rights in enterprises may increase the cost of our acquisitions and impose an
additional administrative burden on us.
The
legislation governing the acquisition of a China state-owned company contains stringent governmental regulations. The transfer
of state-owned property rights in enterprises must take place through a government approved “state-owned asset exchange,”
and the value of the transferred property rights must be evaluated by those Chinese appraisal firms qualified to do “state-owned
assets evaluation.” The final price must not be less than 90% of the appraisal price. Additionally, bidding/auction procedures
are essential in the event that there is more than one potential transferee. In the case of an acquisition by foreign investors
of state-owned enterprises, the acquirer and the seller must make a resettlement plan to properly resettle the employees, and
the resettlement plan must be approved by the Employees’ Representative Congress. The seller must pay all unpaid wages and
social welfare payments from the existing assets of the target company to the employees. These regulations may adversely effect
our ability to acquire a state-owned business or assets.
Exchange
controls that exist in the PRC may restrict or prevent us from using the proceeds of our initial public offering to acquire a
target company in PRC and limit our ability to utilize our cash flow effectively following our initial business combination.
SAFE
promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement
of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant
Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of
Foreign-Invested Enterprises, or SAFE Circular 142, the Notice from the State Administration of Foreign Exchange on Relevant Issues
Concerning Strengthening the Administration of Foreign Exchange Businesses, or Circular 59, and the Circular on Further Clarification
and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or Circular
45. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital
of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the
repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although Circular
19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used
for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated
capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it
is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated
the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management
Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in Circular
19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a
foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated
enterprises. Violations of SAFE Circular 19 and Circular 16 could result in administrative penalties.
As
such, Circular 19 and Circular 16 may significantly limit our ability to transfer the proceeds of our initial public offering
to a PRC target company and the use of such proceeds by the PRC target company.
In
addition, following our initial business combination with a PRC target company, we will be subject to the PRC’s rules and
regulations on currency conversion. In the PRC, the SAFE regulates the conversion of the Renminbi into foreign currencies. Currently,
FIEs are required to apply to the SAFE for “Foreign Exchange Registration Certificates for FIEs.” Following our initial
business combination, we will likely be an FIE as a result of our ownership structure. With such registration certificates, which
need to be renewed annually, FIEs are allowed to open foreign currency accounts including a “basic account” and “capital
account.” Currency conversion within the scope of the “basic account,” such as remittance of foreign currencies
for payment of dividends, can be effected without requiring the approval of the SAFE. However, conversion of currency in the “capital
account,” including capital items such as direct investment, loans and securities, still require approval of the SAFE.
We
cannot assure you the PRC regulatory authorities will not impose further restrictions on the convertibility of the Renminbi. Any
future restrictions on currency exchanges may limit our ability to use the proceeds of our initial public offering in an initial
business combination with a PRC target company and the use our cash flow for the distribution of dividends to our shareholders
or to fund operations we may have outside of the PRC.
Our
initial business combination may be subject to national security review by the PRC government and we may have to spend additional
resources and incur additional time delays to complete any such business combination or be prevented from pursuing certain investment
opportunities.
On
February 3, 2011, the PRC government issued a Notice Concerning the Establishment of Security Review Procedure on Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors, or Security Review Regulations, which became effective on March 5,
2011. The Security Review Regulations cover acquisitions by foreign investors of a broad range of PRC enterprises if such acquisitions
could result in de facto control by foreign investors and the enterprises are relating to military, national defense, important
agriculture products, important energy and natural resources, important infrastructures, important transportation services, key
technologies and important equipment manufacturing. The scope of the review includes whether the acquisition will impact the national
security, economic and social stability, and the research and development capabilities on key national security related technologies.
Foreign investors should submit a security review application to the Department of Commerce for its initial review for contemplated
acquisition. If the acquisition is considered to be within the scope of the Security Review Regulations, the Department of Commerce
will transfer the application to a joint security review committee within five business days for further review. The joint security
review committee, consisting of members from various PRC government agencies, will conduct a general review and seek comments
from relevant government agencies. The joint security review committee may initiate a further special review and request the termination
or restructuring of the contemplated acquisition if it determines that the acquisition will result in significant national security
issue.
The
Security Review Regulations will potentially subject a large number of mergers and acquisitions transactions by foreign investors
in China to an additional layer of regulatory review. Currently, there is significant uncertainty as to the implication of the
Security Review Regulations. Neither the Department of Commerce nor other PRC government agencies have issued any detailed rules
for the implementation of the Security Review Regulations. If, for example, our potential initial business combination is with
a target company operating in the PRC in any of the sensitive sectors identified above, the transaction will be subject to the
Security Review Regulations, and we may have to spend additional resources and incur additional time delays to complete any such
acquisition. We may also be prevented from pursuing certain investment opportunities if the PRC government considers that the
potential investments will result in a significant national security issue.
In
the event we successfully consummated business combination with a target business with primary operation in PRC, we will be subject
to restrictions on dividend payments following consummation of our initial business combination.
After
we consummate our initial business combination, we may rely on dividends and other distributions from our operating company to
provide us with cash flow and to meet our other obligations. Current regulations in China would permit our operating company in
China to pay dividends to us only out of its accumulated distributable profits, if any, determined in accordance with Chinese
accounting standards and regulations. In addition, our operating company in China will be required to set aside at least 10% (up
to an aggregate amount equal to half of its registered capital) of its accumulated profits each year. Such cash reserve may not
be distributed as cash dividends. In addition, if our operating company in China incurs debt on its own behalf in the future,
the instruments governing the debt may restrict its ability to pay dividends or make other payments to us.
If
we make equity compensation grants to persons who are PRC citizens, they may be required to register with the State Administration
of Foreign Exchange of the PRC (“SAFE”). We may also face regulatory uncertainties that could restrict our ability
to adopt equity compensation plans for our directors and employees and other parties under PRC laws.
On
April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee
Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company, also known as “Circular 78.” It is not clear
whether Circular 78 covers all forms of equity compensation plans or only those which provide for the granting of shares options.
For any plans which are so covered and are adopted by a non-PRC listed company, such as our company, after April 6, 2007, Circular
78 requires all participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation
in the plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and
filings if they participated in an overseas listed company’s covered equity compensation plan prior to April 6, 2007. We
believe that the registration and approval requirements contemplated in Circular 78 will be burdensome and time consuming.
Upon
consummation of business combination with a target business with primary operations in PRC, we may adopt an equity incentive plan
and make shares option grants under the plan to our officers, directors and employees, whom may be PRC citizens and be required
to register with SAFE. If it is determined that any of our equity compensation plans are subject to Circular 78, failure to comply
with such provisions may subject us and participants of our equity incentive plan who are PRC citizens to fines and legal sanctions
and prevent us from being able to grant equity compensation to our PRC employees. In that case, our ability to compensate our
employees and directors through equity compensation would be hindered and our business operations may be adversely affected.
Enhanced
scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may
pursue in the future.
The
PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in
particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular
59 and Circular 698, which became effective in January 2008, and a Circular 7 in replacement of some of the existing rules in
Circular 698, which became effective in February 2015.
Under
Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests
of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the
non-resident enterprise, being the transferor, may be subject to PRC corporate income tax, if the indirect transfer is considered
to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect
transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise
transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value,
the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.
In
February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced
a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not
only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through
the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular
698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the
purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor
and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise
conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests
of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly
owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form”
principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial
purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect
transfer may be subject to PRC corporate income tax, and the transferee or other person who is obligated to pay for the transfer
is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident
enterprise.
We
face uncertainties on this Reporting and consequences on future private equity financing transactions, share exchange or other
transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities
may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and
request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become
at risk of being subject to filing obligations or being taxed, under Circular 59 or Circular 698 and Circular 7, and may be required
to expend valuable resources to comply with Circular 59, Circular 698 and Circular 7 or to establish that we and our non-resident
enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and
results of operations.
The
PRC tax authorities have the discretion under SAT Circular 59, Circular 698 and Circular 7 to make adjustments to the taxable
capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. Although
we currently have no plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future
that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC corporate income tax
law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Circular 59 or Circular
698 and Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse
effect on our financial condition and results of operations.