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Hi all,

recently, I have been studying the prospectus of a company listed on the NASDAQ and find out that there are so many specialized words, phrases or laws that I can't fully understand in the specific circumstances. Could you kindly guide me where or which websites could help me on further understanding those professional words, especially those frequently used in the SEC Act and Merge & Acquisition Transactions.

Here are some examples requiring your kind guidance:

1. As indicated in the paragraph below(Refer to the red texts), How should I interpret initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities? and what is the Transaction structures involving trusts, nominees and similar entities

Quoted: The new regulation allows PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to the Ministry of Commerce and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the PRC business or assets and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year.

The regulation also limits our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and protect our stockholders’ economic interests.

2. As indicated below, what does "the make good obligations" mean and what is "a make good escrow agreement" (e.g. the content, purpose and origin if possible)?

Quoted: In connection with the private placement, on May 14, 2007, our stockholders Karmen Investment Holdings Ltd. and Leguna Verde Investments Ltd. placed a total of 3,888,890 shares of our common stock held by them into an escrow account to secure the make good obligations described below on behalf of the investors in the private placement, pursuant to a make good escrow agreement, or the Make Good Agreement, entered into among us, Karmen Investment Holdings Ltd., Leguna Verde Investments Ltd., Securities Transfer Corporation, the escrow agent, and the investors.

3. what details "penny stock regulation" and how this regulation works to restrict the liquidity of the common stock?

We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

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I am not an expert, but I doubt if this stock is listed on the NASDAQ if it is described as "being subject to penny stock regulations". Please see the article in Wikipedia on "penny stocks" This sounds more like an initial public offering (IPO) prospectus for acquiring shares in a company that is held privately.

An escrow account is a special account for money (or something of value like shares) to pay make good some guarantees or obligations.For example, I own a house, but borrowed money to buy it from a bank. The bank owns the mortgage, so if I don't pay them, they will get the house. They can sell it and get their money back. But the bank is very worried that if I don't pay property taxes, then the government will get the house. Or if I don't have insurance, and the house burns down, I won't pay them, and they just get a worthless burned out house. So the bank requires that I pay some money into an escrow account every month. They use this money to pay the taxes and insurance every year. If I pay all that I woe them for the house, then they have to return the money in the escrow account.
A "trust" is a legal entity that is not an individual person. I know about trusts, because my mom passed away last year. While her estate is being settled, her assets are held in a trust, which I am managing on behalf of myself and my brothers. They are saying that trusts and other legal entities that are not real persons cannot take part in these transactions.
I do not understand the other terms well enough to explain them. I would recommend a good legal dictionary, or searching the Internet.
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Hi Alphecca,

Although you said that you are not an expert, still I think you help me a lot on understanding those questions I raised since you are the teacher for me to some extent in this field.

Since you are not a specialist in this field, I would like to appreciate and respect you more for sharing those useful and helpful information with me without receiving any material benefits. By the way, I really feel sorry for reminding you of missing the important if not the most important person in your life when you try to clarify the definition of "Trust" to me.

God bless you.

Claire
Hi Alphecca,

Although you said you are not an expert, still you really help me a lot on understanding those questions I raised above and I believe you are the teacher for me to some extent in this field.

Since you are not a specialist in this field, I would like to appreciate and respect you more for sharing those useful and helpful information with me without receiving any material benefits. By the way, I really feel sorry for reminding you of the important if not the most important person in your life-your mother when you try to clarify the defination of "Trust" to me.

God bless you.

Claire