UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 13E-3

 

RULE 13e-3 TRANSACTION STATEMENT

 

UNDER SECTION 13(E) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Ossen Innovation Co., Ltd.

(Name of the Issuer)

 

Ossen Innovation Co., Ltd.

New Ossen Group Limited

New Ossen Innovation Limited

Acme Innovation Limited

Pujiang International Group Limited

Elegant Kindness Limited

Dr. Liang Tang

(Names of Persons Filing Statement)

 

Ordinary Shares, par value $0.01 per share

(Title of Class of Securities)

 

G67908106

(CUSIP Number)

 

Ossen Innovation Co., Ltd. Dr. Liang Tang
c/o Wei Hua New Ossen Group Limited
518 Shangcheng Road, Floor 17 New Ossen Innovation Limited
Pudong District, Shanghai, 200120 Acme Innovation Limited
People’s Republic of China Pujiang International Group Limited
Telephone: +86 (21) 6888-888 Elegant Kindness Limited
  16/F, No. 518, Shangcheng Road
  Pudong District, Shanghai
  People’s Republic of China
  Telephone: +86 (21) 6888-888
   
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)
 
With copies to
DLA Piper (UK) LLP Wilson Sonsini Goodrich & Rosati
20th Floor South Tower Beijing Kerry Center Jin Mao Tower 38F, Unit 03-04
No.1 Guanghua Road, Chaoyang District 88 Century Boulevard
Beijing 100020, PRC No. 2 Jianguomenwai Avenue
Attention: James Chang, Esq.; Yang Ge, Esq. Pudong, Shanghai, 200121, China
Facsimile: +86 10 8520 0700 Attention: Dan Ouyang, Esq.; Jie Zhu, Esq.
  Facsimile: +86 21 6165 1799
   

 

This statement is filed in connection with (check the appropriate box):

 

¨The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14-C or Rule 13e-3(c) under the Securities Exchange Act of 1934.

 

¨The filing of a registration statement under the Securities Act of 1933.

 

¨A tender offer

 

xNone of the above

 

Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: ¨

 

Check the following box if the filing is a final amendment reporting the results of the transaction: ¨

 

Calculation of Filing Fee
Transactional Valuation* Amount of Filing Fee**
US$11,459,887 US$1,250.27

 

 

*Calculated solely for the purpose of determining the filing fee in accordance with Rule 0-11(b)(1) under the Securities Exchange Act of 1934, as amended. The filing fee is calculated based on the sum of the aggregate cash payment for the proposed per share cash payment of  US$1.70 for 6,741,110 issued and outstanding ordinary shares of the issuer subject to the transaction (the “Transaction Valuation”).

 

**The amount of the filing fee, calculated in accordance with Exchange Act Rule 0-11(b)(1) and the Securities and Exchange Commission Fee Rate Advisory #1 for Fiscal Year 2021, was calculated by multiplying the Transaction Valuation by 0.0001091.

 

¨Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting of the fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

Amount Previously Paid: N/A Form or Registration No.: N/A
Filing Party: N/A Date Filed: N/A

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of this transaction, passed upon the merits or fairness of this transaction, or passed upon the adequacy or accuracy of the disclosure in this transaction statement on Schedule 13E-3. Any representation to the contrary is a criminal offense.

 

 

 

 

 

 

Table of Contents

 

Page

 

Item 1 Summary Term Sheet 2
     
Item 2 Subject Company Information 3
     
Item 3  Identity and Background of Filing Persons 4
     
Item 4 Terms of the Transaction 4
     
Item 5 Past Contracts, Transactions, Negotiations and Agreements 5
     
Item 6 Purposes of the Transaction and Plans or Proposals 7
     
Item 7 Purposes, Alternatives, Reasons and Effects 8
     
Item 8 Fairness of the Transaction 9
     
Item 9 Reports, Opinions, Appraisals and Negotiations 11
     
Item 10 Source and Amount of Funds or Other Consideration 11
     
Item 11 Interest in Securities of the Subject Company 12
     
Item 12 The Solicitation or Recommendation 12
     
Item 13 Financial Statements 13
     
Item 14 Persons/Assets, Retained, Employed, Compensated or Used 13
     
Item 15 Additional Information 14
     
Item 16 Exhibits 14

 

 

 

 

INTRODUCTION

 

This Rule 13E-3 transaction statement on Schedule 13E-3, together with the exhibits hereto (this “Transaction Statement”), is being filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), jointly by the following persons (each, a “Filing Person,” and collectively, the “Filing Persons”): (a) Ossen Innovation Co., Ltd., a company with limited liability incorporated under the laws of the British Virgin Islands (the “Company”), the issuer of the registered ordinary shares, par value of US$$0.01 per share (each, a “Share” and collectively, the “Shares”); (b) New Ossen Group Limited, a company with limited liability incorporated under the laws of the British Virgin Islands (“Parent”); (c) New Ossen Innovation Limited, a company with limited liability incorporated under the laws of the British Virgin Islands and a wholly-owned Subsidiary of the Parent (“Merger Sub”); (d) Acme Innovation Limited, a company with limited liability incorporated under the laws of the British Virgin Islands ; (e) Pujiang International Group Limited, a company with limited liability incorporated under the laws of the Cayman Islands; (f) Elegant Kindness Limited, a company with limited liability incorporated under the laws of the British Virgin Islands; and (g) Dr. Liang Tang, the chief executive officer and chairman of the board of directors of the Company (“Dr. Tang”).

 

On December 17, 2020, the Parent, the Merger Sub and the Company entered into an agreement and plan of merger (the “Merger Agreement”) providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company continuing as the surviving company after the Merger as a wholly-owned subsidiary of the Parent.

 

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), except as described below, (i) each Share (other than Shares represented by ADSs) issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist in exchange for the right to receive US$1.70 per Share in cash and without interest and (ii) each ADS issued and outstanding immediately prior to the Effective Time, together with each Share represented by such ADS, will be cancelled and cease to exist in exchange for the right to receive US$5.10 per ADS (less US$0.05 per ADS cancellation fee payable pursuant to the terms of the deposit agreement dated June 30, 2020 (the “Deposit Agreement”) by and among the Company, the Bank of New York Mellon (the “ADS depositary”), and all holders and beneficial owners from time to time of ADSs issued thereunder). The following Shares of the Company will not be converted into the right to receive the consideration described in the immediately preceding sentence: (a) Shares (including ADSs corresponding to such Shares) beneficially owned by the Rollover Shareholder (the “Rollover Shares”); (b) Shares (the “Dissenting Shares”) owned by holders of Shares who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 179 of the BVI Business Companies Act, 2004, as amended (the “BVI Companies Act”) (the “Dissenting Shareholders”); and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury) and Shares held by the Parent or any of its subsidiaries ((a), (b) and (c) collectively, the “Excluded Shares”). Each Excluded Share (excluding the Dissenting Shares) issued and outstanding immediately prior to the Effective Time, will be cancelled and will cease to exist, and no merger consideration will be delivered with respect thereto. Each Dissenting Share will be cancelled at the effective time of the Merger for the right to receive the fair value of such Shares as determined in accordance with the provisions of the BVI Companies Act.

 

1

 

 

The Merger remains subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, including the authorization and approval by an affirmative vote of holders of Shares representing at least a majority of the of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders, which will be convened to consider the authorization and approval of the Merger Agreement, articles of merger and a plan of merger (the “Plan of Merger”) and the transactions contemplated by the Merger Agreement, including the Merger.

 

The Company will make available to its shareholders a proxy statement (the “proxy statement”, a preliminary copy of which is attached as Exhibit (a)-(1) to this Transaction Statement), relating to the extraordinary general meeting of shareholders of the Company, at which the shareholders of the Company will consider and vote upon, among other proposals, a proposal to authorize and approve the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger. A copy of the Merger Agreement, together with the Plan of Merger substantially in the form attached as Appendix 1 to the Merger Agreement, is attached to the proxy statement as Annex A and is incorporated herein by reference. As of the date hereof, the proxy statement is in preliminary form and is subject to completion.

 

The cross-references below are being supplied pursuant to General Instruction G to Schedule 13E-3 and show the location in the proxy statement of the information required to be included in response to the items of Schedule 13E-3. Pursuant to General Instruction F to Schedule 13E-3, the information contained in the proxy statement, including all annexes thereto, is incorporated in its entirety herein by this reference, and the responses to each item in this Schedule 13E-3 are qualified in their entirety by the information contained in the proxy statement and the annexes thereto. Capitalized terms used but not defined in this Transaction Statement shall have the meanings given to them in the proxy statement.

 

All information contained in this Transaction Statement concerning each Filing Person has been supplied by such Filing Person. No Filing Person, including the Company, has produced any disclosure with respect to any other Filing Person. No Filing Person, including the Company, is responsible for the accuracy of any information supplied by any other Filing Person.

 

The filing of this Transaction Statement shall not be construed as an admission by any Filing Person, or by any affiliate of a Filing Person, that the Company is “controlled” by any other Filing Person, or that any other Filing Person is an “affiliate” of the Company within the meaning of Rule 13e-3 under Section 13(e) of the Exchange Act.

 

Item 1   Summary Term Sheet

 

The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet”

 

·“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

2 

 

 

Item 2   Subject Company Information

 

(a)           Name and Address. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Summary Term Sheet - The Parties Involved in the Merger”

 

(b)           Securities. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“The Extraordinary General Meeting - Record Date; Shares and ADSs Entitled to Vote”

 

·“The Extraordinary General Meeting - Shareholders and ADS Holders Entitled to Vote; Voting Materials”

 

·“Security Ownership of Certain Beneficial Owners and Management of the Company”

 

(c)          Trading Market and Price. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Market Price of the Company’s Shares and ADSs, Dividends and Other Matters - Market Price of the Shares and the ADSs”

 

(d)           Dividends. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Market Price of the Company’s Shares and ADSs, Dividends and Other Matters - Dividend Policy”

 

(e)           Prior Public Offering. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Transactions in the Shares and the ADSs - Prior Public Offerings”

 

(f)            Prior Stock Purchase. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Transactions in the Shares and the ADSs”

 

·“Special Factors - Related Party Transactions”

 

3 

 

 

Item 3   Identity and Background of Filing Persons

 

(a)Name and Address. Ossen Innovation Co., Ltd. is the subject company. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - The Parties Involved in the Merger”

 

·“Annex D - Directors and Executive Officers of Each Filing Person”

 

(b)Business and Background of Entities. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - The Parties Involved in the Merger”

 

·“Annex D - Directors and Executive Officers of Each Filing Person”

 

(c)Business and Background of Natural Persons. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - The Parties Involved in the Merger”

 

·“Annex D - Directors and Executive Officers of Each Filing Person”

 

Item 4   Terms of the Transaction

 

(a)-(1) Material Terms – Tender Offers. Not applicable.

 

(a)-(2) Material Terms – Merger or Similar Transactions. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet”

 

·“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

·“Special Factors”

 

·“The Extraordinary General Meeting”

 

·“The Merger Agreement and Plan of Merger”

 

·“Annex A - Agreement and Plan of Merger”

 

(c)Different Terms. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Interests of the Company’s Executive Officers and Directors in the Merger”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“The Extraordinary General Meeting - Proposals to be Considered at the Extraordinary General Meeting”

 

·“The Merger Agreement and Plan of Merger”

 

·“Annex A - Agreement and Plan of Merger”

 

4 

 

 

 

(d)Appraisal Rights. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Appraisal Rights of Shareholders”

 

·“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

·“Special Factors - Appraisal Rights”

 

·“Appraisal Rights”

 

·“Annex C - BVI Business Companies Act, 2004 - Section 179”

 

(e)Provisions for unaffiliated shareholders. The information set forth in the proxy statement the following caption is incorporated herein by reference:

 

·“Provisions for Unaffiliated Security Holders”

 

(f)Eligibility of Listing or Trading. Not applicable.

 

Item 5   Past Contracts, Transactions, Negotiations and Agreements

 

(a)Transactions. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“Special Factors - Related Party Transactions”

 

·“Transactions in the Shares and the ADSs”

 

(b)Significant Corporate Events. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors -  Purpose of and Reasons for the Merger”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“The Merger Agreement and Plan of Merger”

 

·“Annex A - Agreement and Plan of Merger”

 

5

 

 

(c)Negotiations or Contacts. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Plans for the Company after the Merger”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“The Merger Agreement and Plan of Merger”

 

·“Annex A - Agreement and Plan of Merger”

 

(e)Agreements Involving the Subject Company’s Securities. The information set forth in the proxy statement under the following captions incorporated herein by reference:

 

·“Summary Term Sheet - Support Agreement”

 

·“Summary Term Sheet - Equity Commitment Letter”

 

·“Summary Term Sheet - Financing of the Merger”

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Plans for the Company after the Merger”

 

·“Special Factors - Financing”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“Special Factors - Voting by the Rollover Shareholder at the Extraordinary General Meeting”

 

·“The Merger Agreement and Plan of Merger”

 

·“Transactions in the Shares and the ADSs”

 

·“Annex A - Agreement and Plan of Merger”

 

6

 

 

Item 6   Purposes of the Transaction and Plans or Proposals

 

(b)Use of Securities Acquired. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet”

 

·“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors - Purpose of and Reasons for the Merger”

 

·“Special Factors - Effect of the Merger on the Company”

 

·“The Merger Agreement and Plan of Merger”

 

·“Annex A - Agreement and Plan of Merger”

 

(c)(1)-(8) Plans. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - The Merger”

 

·“Summary Term Sheet - Purposes and Effects of the Merger”

 

·“Summary Term Sheet - Plans for the Company after the Merger”

 

·“Summary Term Sheet - Financing of the Merger”

 

·“Summary Term Sheet - Interests of the Company’s Executive Officers and Directors in the Merger”

 

·“Special Factors - Background of the Merger”

 

·“Special Factors -Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors - Purpose of and Reasons for the Merger”

 

·“Special Factors - Effect of the Merger on the Company”

 

·“Special Factors - Plans for the Company after the Merger”

 

·“Special Factors - Financing”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“The Merger Agreement and Plan of Merger”

 

·“Annex A - Agreement and Plan of Merger”

 

7

 

 

Item 7   Purposes, Alternatives, Reasons and Effects

 

(a)Purposes. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Purposes and Effects of the Merger”

 

·“Summary Term Sheet - Plans for the Company after the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors -  Purpose of and Reasons for the Merger”

 

(b)Alternatives. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors - Position of the Buyer Group as to the Fairness of the Merger”

 

·“Special Factors -  Purpose of and Reasons for the Merger”

 

·“Special Factors - Alternatives to the Merger”

 

·“Special Factors - Effects on the Company if the Merger is not Completed”

 

(c)Reasons. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Purposes and Effects of the Merger”

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors - Position of the Buyer Group as to the Fairness of the Merger”

 

·“Special Factors -  Purpose of and Reasons for the Merger”

 

·“Special Factors - Effect of the Merger on the Company”

 

8

 

 

(d)Effects. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Purposes and Effects of the Merger”

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors - Effect of the Merger on the Company”

 

·“Special Factors - Plans for the Company after the Merger”

 

·“Special Factors - Effects on the Company if the Merger is not Completed”

 

·“Special Factors - Effect of the Merger on the Company’s Net Book Value and Net Earnings”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“Special Factors - Material U.S. Federal Income Tax Consequences”

 

·“Special Factors - Material PRC Income Tax Consequences”

 

·“Special Factors - Material British Virgin Islands Tax Consequences”

 

·“The Merger Agreement and Plan of Merger”

 

·“Annex A - Agreement and Plan of Merger”

 

Item 8   Fairness of the Transaction

 

(a)-(b) Fairness; Factors Considered in Determining Fairness. The information set forth in the proxy statement under the following captions incorporated herein by reference:

 

·“Summary Term Sheet - Recommendations of the Independent Committee and the Board of Directors”

 

·“Summary Term Sheet - Position of the Buyer Group as to the Fairness of the Merger”

 

·“Summary Term Sheet - Interests of the Company’s Executive Officers and Directors in the Merger”

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors - Position of the Buyer Group as to the Fairness of the Merger”

 

9

 

 

·“Special Factors - Opinion of the Independent Committee’s Financial Advisor”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“Annex B - Opinion of Houlihan Lokey (China) Limited as Financial Advisor”

 

(c)Approval of Security Holders. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Shareholder Vote Required to Authorize and Approve the Merger Agreement and Plan of Merger”

 

·“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

·“The Extraordinary General Meeting - Vote Required”

 

(d)Unaffiliated Representative. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors - Opinion of the Independent Committee’s Financial Advisor”

 

(e)Approval of Directors. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Recommendations of the Independent Committee and the Board of Directors”

 

·“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

(f)Other Offers. The information set forth in the proxy statement under the following caption since incorporated herein by reference:

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

10

 

 

Item 9   Reports, Opinions, Appraisals and Negotiations

 

(a)Report, Opinion or Appraisal. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Opinion of the Independent Committee’s Financial Advisor”

 

·“Special Factors - Background of the Merger”

 

·“Special Factors - Opinion of the Independent Committee’s Financial Advisor”

 

·“Annex B - Opinion of Houlihan Lokey (China) Limited as Financial Advisor”

 

(b)Preparer and Summary of the Report, Opinion or Appraisal. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Special Factors - Opinion of the Independent Committee’s Financial Advisor”

 

·“Annex B - Opinion of Houlihan Lokey (China) Limited as Financial Advisor”

 

(c)Availability of Documents. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Where You Can Find More Information”

 

The reports, opinions or appraisals referenced in this Item 9 will be made available for inspection and copying at the principal executive office of the Company during its regular business hours by any interested holder of the Shares or his, her or its representative who has been so designated in writing.

 

Item 10   Source and Amount of Funds or Other Consideration

 

(a)Source of Funds. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Financing of the Merger”

 

·“Special Factors - Financing”

 

·“The Merger Agreement and Plan of Merger”

 

·“Annex A - Agreement and Plan of Merger”

 

(b)Conditions. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Financing of the Merger”

 

·“Special Factors - Financing”

 

11

 

 

(c)Expenses. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Summary Term Sheet - Fees and Expenses”

 

·“Special Factors - Fees and Expenses”

 

·“The Merger Agreement and Plan of Merger - Expenses”

 

(d)Borrowed Funds. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Summary Term Sheet - Financing of the Merger”

 

·“Special Factors - Financing”

 

·“The Merger Agreement and Plan of Merger - Financing”

 

Item 11   Interest in Securities of the Subject Company

 

(a)Securities Ownership. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Share Ownership of the Company Directors and Officers and Voting Commitments”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“Security Ownership of Certain Beneficial Owners and Management of the Company”

 

(b)Securities Transaction. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“Transactions in the Shares and the ADSs”

 

Item 12   The Solicitation or Recommendation

 

(d)Intent to Tender or Vote in a Going-Private Transaction. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Share Ownership of the Company Directors and Officers and Voting Commitments”

 

·“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

·“Summary Term Sheet - Support Agreement”

 

·“Special Factors - Support Agreement”

 

12

 

 

·“Special Factors - Voting by the Rollover Shareholder at the Extraordinary General Meeting”

 

·“The Extraordinary General Meeting - Vote Required”

 

·“Security Ownership of Certain Beneficial Owners and Management of the Company”

 

(e)Recommendations of Others. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - Recommendations of the Independent Committee and the Board of Directors”

 

·“Summary Term Sheet - Position of the Buyer Group as to the Fairness of the Merger”

 

·“Summary Term Sheet - Share Ownership of the Company Directors and Officers and Voting Commitments”

 

·“Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

·“Special Factors - Position of the Buyer Group as to the Fairness of the Merger”

 

·“The Extraordinary General Meeting - Our Board’s Recommendation”

 

Item 13   Financial Statements

 

(a)Financial Information. The audited financial statements of the Company for the two years ended December 31, 2018 and 2019 are incorporated herein by reference to the Company’s Form 20-F for the year ended December 31, 2019, filed on May 18, 2020 (see page F-1 and following pages). The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Financial Information”

 

·“Where You Can Find More Information”

 

(b)Pro Forma Information. Not applicable.

 

Item 14   Persons/Assets, Retained, Employed, Compensated or Used

 

(a)Solicitation or Recommendations. The information set forth in the proxy statement under the following caption is incorporated herein by reference:

 

·“The Extraordinary General Meeting”

 

13

 

 

(b)Employees and Corporate Assets. The information set forth in the proxy statement under the following captions is incorporated herein by reference:

 

·“Summary Term Sheet - The Parties Involved in the Merger”

 

·“Special Factors - Interests of Certain Persons in the Merger”

 

·“Annex D - Directors and Executive Officers of Each Filing Person”

 

Item 15   Additional Information

 

(a)Other Material Information. The information contained in the proxy statement, including all annexes thereto, is incorporated herein by reference.

 

Item 16   Exhibits

 

(a)-(1)Preliminary Proxy Statement of the Company, dated , 2021.

 

(a)-(2)Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to the proxy statement.

 

(a)-(3)Form of Proxy Card, incorporated herein by reference to the proxy statement.

 

(a)-(4)Press Release issued by the Company, dated September 16, 2020, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the Securities and Exchange Commission on September 16, 2020

 

(a)-(5)Press Release issued by the Company, dated September 22, 2020, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the Securities and Exchange Commission on September 22, 2020.

 

(a)-(6)Press Release issued by the Company, dated October 2, 2020, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the Securities and Exchange Commission on October 2, 2020.

 

(a)-(7)Press Release issued by the Company, dated December 17, 2020, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the Securities and Exchange Commission on December 17, 2020.

 

(b)Not Applicable.

 

(c)-(1)Opinion of Houlihan Lokey (China) Limited, dated December 17, 2020, incorporated herein by reference to Annex B of the proxy statement.

 

(c)-(2)Discussion materials prepared by Houlihan Lokey (China) Limited for discussion with the Independent Committee of the board of directors of the Company, dated December 17, 2020.

 

(d)-(1)Agreement and Plan of Merger, dated as of December 17, by and among the Company, Parent and Merger Sub incorporated herein by reference to Annex A to the proxy statement.

 

14

 

 

(d)-(2)Equity Commitment Letter, dated as of December 17, 2020, by Pujiang International Group limited in favor of the Parent, incorporated herein by reference to Annex G of the proxy statement.

 

(d)-(3)Support Agreement, dated as of December 17, 2020, by and among Pujiang International Group Limited and the Parent, incorporated herein by reference to Annex E of the proxy statement.

 

(d)-(4)Limited Guarantee, dated as of December 17, 2020, by Pujiang International Group Limited in favor of the Company, incorporated herein by reference to Annex F of the proxy statement.

 

(f)-(1)Appraisal Rights, incorporated herein by reference to the section entitled “Appraisal Rights” in the proxy statement.

 

(f)-(2)Section 179 of the BVI Business Companies Act, as amended, incorporated herein by reference to Annex C of the proxy statement.

 

(g)Not applicable.

 

15

 

 

SIGNATURES

 

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

 

Dated: January 11, 2021

 

  Ossen Innovation Co., Ltd.
   
  By: /s/ Wei Hua
  Name: Wei Hua
  Title: Chief Executive Officer and Chief Financial Officer
   
  Pujiang International Group Limited
   
  By: /s/ Liang Tang
  Name: Liang Tang
  Title: Director
   
  Liang Tang
   
  By: /s/ Liang Tang
  Name: Liang Tang
   
  New Ossen Group Limited
   
  By: /s/ Liang Tang
  Name: Liang Tang
  Title: Director

 

[Signature Page to Schedule 13E-3 (Ossen Innovation Co., Ltd.)]

 

 

 

  New Ossen Innovation Limited
   
  By: /s/ Liang Tang
  Name: Liang Tang
  Title:  Director
   
  Acme Innovation Limited
   
  By: /s/ Liang Tang
  Name: Liang Tang
  Title: Director
   
  Elegant Kindness Limited  
   
  By: /s/ Liang Tang
  Name: Liang Tang
  Title: Director

 

[Signature Page to Schedule 13E-3 (Ossen Innovation Co., Ltd.)]

 

 

 

Exhibit (a)-(1)

 

OSSEN INNOVATION CO., LTD.

 

_________, 2021

 

Shareholders of Ossen Innovation Co., Ltd.

 

Re: Notice of Extraordinary General Meeting of Shareholders

 

Dear Shareholder:

 

You are cordially invited to attend an extraordinary general meeting of shareholders of Ossen Innovation Co., Ltd. (the “Company”) to be held on_________, 2021 at ________(Beijing Time). The meeting will be held at 518 Shangcheng Road, Floor 17, Shanghai, 200120, People’s Republic of China. The attached notice of the extraordinary general meeting and proxy statement provide information regarding the matters to be acted on at the extraordinary general meeting, including at any adjournment or postponement thereof.

 

On December 17, 2020, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with New Ossen Group Limited, an exempted company with limited liability incorporated under the laws of the British Virgin Islands (“Parent”), and New Ossen Innovation Limited, an exempted company with limited liability incorporated under the laws of the British Virgin Islands and a wholly-owned Subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”) and cease to exist, with the Company continuing as the surviving company (“Surviving Company”) and becoming a wholly owned subsidiary of Parent. At the extraordinary general meeting, you will be asked to consider and vote upon a proposal to authorize and approve the Merger Agreement, the articles of merger and plan of merger required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands as provided in Section 171(2) of the BVI Companies Act for the purpose of the Merger and substantially in the form attached as Appendix A to the Merger Agreement (the “Plan of Merger”), and the transactions contemplated by the Merger Agreement, including the Merger. A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement.

 

Parent and Merger Sub are formed solely for purposes of the Merger. Parent is currently beneficially owned by (a) Pujiang International Group Limited, an exempted company with limited liability incorporated and existing under the laws of the Cayman Islands (the “Rollover Shareholder” or “Pujiang”), which has elected to roll-over all of its interests in the Company in connection with the Merger, (b) Acme Innovation Limited, a company with limited liability incorporated under the laws of the British Virgin Islands (“Acme”) and wholly owned by Pujiang, (c) Elegant Kindness Limited, a company with limited liability incorporated under the laws of the British Virgin Islands (“Elegant”) and controlled by Dr. Liang Tang, and (d) Dr. Liang Tang (“Dr. Tang”), the chief executive officer and chairman of the board of directors of the Company. Dr. Tang, Elegant, Pujiang, Acme, Parent and Merger Sub are collectively referred to as the “Buyer Group.” The Rollover Shareholder will have the Rollover Shares (as defined below) cancelled in the Merger and pursuant to the terms of the Merger Agreement, no Merger consideration will be paid to such shareholder, and it will receive newly issued shares of Parent.

 

i

 

 

As of the date of this proxy statement, the Rollover Shareholder beneficially owns, in the aggregate, 13,050,000 ordinary shares, par value US$0.01 per share, of the Company (each, a “Share,” and collectively, the “Shares”), representing approximately 65.9% of the Company’s outstanding Shares. If the Merger is consummated, the Company will continue its operations as a privately held company under the name “Ossen Innovation Co., Ltd.” As a result of the Merger, the Company’s American Depositary Shares (the “ADSs”) representing the Shares will no longer be listed on the NASDAQ and the ADS program will terminate.

 

If the Merger is completed, at the effective time of the Merger (the “Effective Time”), except as described below, (i) each Share (other than Shares represented by ADSs) issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist in exchange for the right to receive US$1.70 per Share in cash and without interest and (ii) each ADS issued and outstanding immediately prior to the Effective Time, together with each Share represented by such ADS, will be cancelled and cease to exist in exchange for the right to receive US$5.10 per ADS (less US$0.05 per ADS cancellation fee payable pursuant to the terms of the deposit agreement dated June 30, 2020 (the “Deposit Agreement”) by and among the Company, the Bank of New York Mellon (the “ADS depositary”), and all holders and beneficial owners from time to time of ADSs issued thereunder). The following Shares of the Company will not be converted into the right to receive the consideration described in the immediately preceding sentence: (a) Shares (including ADSs corresponding to such Shares) beneficially owned by the Rollover Shareholder (the “Rollover Shares”); (b) Shares (the “Dissenting Shares”) owned by holders of Shares who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 179 of the BVI Business Companies Act, 2004, as amended (the “BVI Companies Act”) (the “Dissenting Shareholders”); and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury) and Shares held by Parent or any of its subsidiaries ((a), (b) and (c) collectively, the “Excluded Shares”). Each Excluded Share (excluding any Dissenting Share) issued and outstanding immediately prior to the Effective Time, will be cancelled and will cease to exist, and no Merger consideration will be delivered with respect thereto. Each Dissenting Share will be cancelled at the Effective Time for the right to receive the fair value of such Shares as determined in accordance with the provisions of the BVI Companies Act. The ADS depositary will call for surrender of all outstanding ADSs (other than any ADSs representing Excluded Shares) to be exchanged for the applicable merger consideration.

 

The Rollover Shareholder intends to fund the Merger consideration through a combination of (i) rollover equity (represented by the Rollover Shares) from the Rollover Shareholder, (ii) cash contribution in the amount of US$12.5 million contemplated by an equity commitment letter, dated as of December 17, 2020 (the “Equity Commitment Letter”), by and between Parent and the Rollover Shareholder. Please see “Special Factors - Financing” beginning on page 69 for more details of the Equity Commitment Letter.

 

ii

 

 

An independent committee of the board of directors of the Company (the “Independent Committee”), composed solely of two independent and disinterested directors of the Company who are unaffiliated with the Buyer Group, the Company or any of the management members of the Company, Mr. Junhong Li and Mr. Zhongcai Wu, has reviewed and considered the terms and conditions of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger. On December 17, 2020, the Independent Committee unanimously (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, is fair to, and in the best interests of, the Company and its shareholders, including shareholders that are unaffiliated with the Buyer Group, (b) approved and declared it advisable for the Company to enter into the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, (c) recommended that the board of directors authorize and approve the entry into by the Company of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, and (d) recommended that the board of directors of the Company direct that the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the shareholders of the Company authorize and approve by way of a shareholder resolution the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger.

 

On December 17, 2020, the board of directors of the Company, upon the unanimous determination and recommendation of the Independent Committee, had (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, is fair to, and in the best interests of, the Company and its shareholders (including those shareholders who are unaffiliated with the Buyer Group), (b) approved the execution, delivery and performance by the Company of the Merger Agreement, the Plan of Merger and the consummation of the transactions contemplated thereby, including the Merger, and (c) resolved to direct that the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the shareholders of the Company authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the transactions contemplated thereby, including the Merger.

 

After careful consideration and upon the unanimous recommendation of the Independent Committee, and on behalf of the Company, the board of directors of the Company unanimously recommends that you vote FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the shareholders resolution during the extraordinary general meeting.

 

iii

 

 

In considering the recommendation of the Independent Committee and the board of directors, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of the shareholders generally. The Rollover Shareholder has agreed with Parent pursuant to a rollover and support agreement (the “Support Agreement”) to vote its Shares in favor of the proposal to approve and authorize the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger. As of the date of this proxy statement, the Rollover Shareholder beneficially owns 13,050,000 Shares, which represent approximately 65.9% of the total number of outstanding Shares.

 

The accompanying proxy statement provides detailed information about the Merger and the extraordinary general meeting. We encourage you to read the entire document and all of the attachments and other documents referred to or incorporated by reference herein carefully. You may also obtain more information about the Company from documents the Company has filed with the Securities and Exchange Commission (the “SEC”), which are available for free at the SEC’s website www.sec.gov.

 

Regardless of the number of the Shares you own, your vote is very important. The Merger cannot be completed unless the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, are approved and authorized by an affirmative vote of shareholders representing at least a majority of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. We expect that 19,791,110 Shares will be outstanding at the close of business in the British Virgin Islands on ________, 2021, the Share record date of the extraordinary general meeting of the shareholders.

 

Even if you plan to attend the extraordinary general meeting in person, we request that you submit your proxy in accordance with the instructions set forth on the proxy card as promptly as possible. The deadline to lodge your proxy card is ________, 2021 at ________ (Beijing time). Voting at the extraordinary general meeting will take place by poll voting if so demanded by the chairman of the meeting, or by any shareholder present in person or by proxy entitled to vote who disputes the announcement by the chairman of the result of the vote.

 

If you own ADSs as at the close of business in New York City on ________, 2021, the ADS record date, you may instruct the ADS depositary as the holder of the Shares underlying the ADSs, how to vote the Shares underlying your ADSs. However, you cannot vote at the extraordinary general meeting directly. As the holder of record for all the Shares represented by the ADSs, only the ADS depositary (or its nominee) may directly vote those Shares at the extraordinary general meeting. You should return your properly completed ADS Voting Instruction Card to the ADS depositary prior to ________ New York City time) on ________, 2021, which is the last date by which voting instructions may be received by the ADS depositary in order to directly vote the Shares underlying your ADSs at the extraordinary general meeting. The ADS depositary will endeavor, in so far as practicable, to vote or cause to be voted the number of Shares represented by your ADSs in accordance with your voting instructions. The ADS depositary will not vote or attempt to exercise the right to vote that attaches to your ADSs other than in accordance with the instructions given by you and received by the ADS depositary. Alternatively, you may vote directly at the meeting if you surrender your ADSs to the ADS depositary, pay the required ADS depositary fee for the cancellation of the ADSs (US$0.05 per ADS cancelled), provide instructions for the delivery and registration of the corresponding Shares, and certify that you have not given, and will not give, voting instructions as to the ADSs (or, alternatively, that you will not vote the Shares) prior to ________ (New York City time) on ________, 2021, and become a holder of Shares by the close of business in the British Virgin Islands on March ________, 2021. In addition, if you hold your Shares or ADSs through a financial intermediary such as a broker, bank or other nominee, you must rely on the procedures and timing of the financial intermediary through which you hold your Shares or ADSs if you wish to vote at the extraordinary general meeting.

 

iv

 

 

Shareholders who dissent from the Merger will be entitled to seek appraisal and payment of the fair value of their Shares if the Merger is completed, subject to the condition that they deliver to the Company, before the vote is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act, 2004, as amended regarding the exercise of appraisal rights, a copy of which is attached as Annex C to the accompanying proxy statement. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the Merger consideration you would receive pursuant to the Merger Agreement if you do not exercise appraisal rights with respect to your Shares.

 

ADS HOLDERS WILL NOT HAVE THE RIGHT TO SEEK APPRAISAL AND PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY APPRAISAL RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE APPRAISAL RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY, PAY THE REQUIRED ADS DEPOSITARY FEE FOR THE CANCELLATION OF THE ADSs (US$0.05 PER ADS CANCELLED), PROVIDE INSTRUCTIONS FOR THE DELIVERY AND REGISTRATION OF THE CORRESPONDING SHARES, AND CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL NOT GIVE, DIRECTLY OR INDIRECTLY, VOTING INSTRUCTIONS AS TO THE ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE SHARES) BEFORE ________ (NEW YORK CITY TIME) ON ________, 2021, AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE BRITISH VIRGIN ISLANDS ON ________, 2021. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING APPRAISAL RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 179 OF THE BVI BUSINESS COMPANIES LAW (2004). THE PROCESS OF SURRENDERING ADSs AND BECOMING A REGISTERED SHAREHOLDER OF THE COMPANY MAY TAKE A NUMBER OF DAYS. ADS HOLDERS WISHING TO DO SO SHOULD TAKE ACTION AS SOON AS POSSIBLE.

 

v

 

 

Neither the SEC nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this letter or in the accompanying notice of the extraordinary general meeting or proxy statement. Any representation to the contrary is a criminal offense.

 

On behalf of Ossen Innovation Corp. Ltd., we would like to thank all of our shareholders for their ongoing support as we prepare to take part in this important event in our history.

 

Sincerely,   Sincerely,
     
Junhong Li   Liang Tang
     

On behalf of the Independent Committee

 

Chairman of the Board

The accompanying proxy statement is dated ________, 2021, and is first being mailed to shareholders on or about five (5) business days after the filing date.

 

vi

 

 

OSSEN INNOVATION CO., LTD.

 

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON ________, 2021

 

Dear Shareholder:

 

Notice is hereby given that an extraordinary general meeting of the shareholders of Ossen Innovation Co., Ltd. referred to herein alternately as the “Company,” “us,” “our” or “we,” will be held on ________, 2021, beginning at ________ (Beijing time), at 518 Shangcheng Road, Floor 17, Shanghai, 200120, People’s Republic of China.

 

Only registered holders of ordinary shares, par value US$0.01 per share, of the Company (each a “Share” and collectively, the “Shares”), at the close of business in the British Virgin Islands on ________, 2021, the Share record date of the extraordinary shareholder meeting, or their proxy holders are entitled to directly vote at this extraordinary general meeting or any adjournment or postponements thereof. At the meeting, you will be asked to consider and vote upon the following resolutions:

 

THAT the Agreement and Plan of Merger dated December 17, 2020 (the “Merger Agreement”) by and among New Ossen Group limited, an exempted company with limited liability incorporated under the laws of the British Virgin Islands (“Parent”), New Ossen Innovation Limited, a company with limited liability incorporated under the laws of the British Virgin Islands, all of the issued and outstanding shares of which are owned by Parent (“Merger Sub”), and the Company, and the articles of merger and plan of merger (the “Plan of Merger”) required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands as provided in Section 171(2) of the BVI Companies Act for the purpose of the Merger, substantially in the form attached as Appendix A to the Merger Agreement (copies of such Merger Agreement and Plan of Merger being in the form attached to the proxy statement accompanying this notice, which will also be produced and made available for inspection at the meeting), pursuant to which Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving company, and the transactions contemplated by the Merger Agreement, including the Merger, be approved and authorized by the Company; and

 

THAT the chairman of the extraordinary general meeting be instructed to adjourn or postpone the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the shareholders resolutions to be proposed at the extraordinary general meeting.

 

A list of the shareholders of the Company will be available at its principal executive office at 518 Shangcheng Road, Floor 17, Shanghai, 200120, People’s Republic of China, during ordinary business hours for the two (2) business days immediately prior to the extraordinary general meeting.

 

vii

 

 

After careful consideration and upon the unanimous recommendation of the independent committee of the board of directors of the Company (the “Independent Committee”) composed solely of independent and disinterested directors of the Company who are unaffiliated with the any of Parent, Merger Sub, the Buyer Group, or the management members of the Company, the Company’s board of directors has approved the Merger Agreement and recommends that you vote FOR the proposal to approve and authorize the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, and FOR the proposal to instruct the chairman of the extraordinary general meeting to adjourn or postpone the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the resolutions to be proposed at the extraordinary general meeting.

 

Pujiang International Group Limited (the “Rollover Shareholder” or “Pujiang”) has elected to roll-over all of Shares it beneficially owned in the Company in connection with the Merger pursuant to a rollover and support agreement, and has agreed, among other things, to direct the voting all of the Shares in favor of the proposal to approve and authorize the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger. The Rollover Shareholder beneficially owns 13,050,000 Shares, which represent approximately 65.9% of the total issued and outstanding Shares entitled to vote as of the date of this proxy statement. The Rollover Shareholder will beneficially own Parent immediately following the consummation of the Merger.

 

Regardless of the number of the Shares you own, your vote is very important. The Merger cannot be completed unless the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, are approved and authorized by an affirmative vote of shareholders representing at least a majority of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. We expect that 19,791,110 Shares will be outstanding at the close of business in the British Virgin Islands on ________, 2021, the Share record date of the extraordinary general meeting of the shareholders.

 

Even if you plan to attend the extraordinary general meeting in person, we request that you submit your proxy in accordance with the instructions set forth on the proxy card as promptly as possible. The deadline to lodge your proxy card is ________, 2021 at ________ (Beijing time). Voting at the extraordinary general meeting will take place by poll voting if so demanded by the chairman of the meeting, or by any shareholder present in person or by proxy entitled to vote who disputes the announcement by the chairman of the result of the vote.

 

Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting and vote your Shares in person. Please note, however, that if your Shares are registered in the name of a broker, bank or other nominee and you wish to vote at the extraordinary general meeting in person, you must obtain from the record holder a proxy issued in your name.

 

If you fail to complete your proxy card in accordance with the instructions set forth on the proxy card or if you abstain from voting, your vote will not be counted.

 

viii

 

 

If you receive more than one proxy card because you own Shares that are registered in different names, please vote all of your Shares shown on each of your proxy cards in accordance with the instructions set forth on each such proxy card.

 

If you submit your signed proxy card without indicating how you wish to vote, the Shares represented by your proxy card will be voted FOR the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, and FOR any adjournment of the extraordinary general meeting referred to above unless you appoint a person other than the chairman of the meeting as proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.

 

If you hold Shares through a financial intermediary such as a broker, bank, or other nominee, you must rely on the procedures and timing of the financial intermediary through which you hold your Shares if you wish to vote at the extraordinary general meeting.

 

When proxies are properly dated, executed and returned by holders of Shares, the Shares they represent will be voted at the extraordinary general meeting in accordance with the instructions of the shareholders. If no specific instructions are given by such holders, the Shares will be voted “FOR” the proposals as described above and in the proxy holder’s discretion as to other matters that may properly come before the extraordinary general meeting. Abstentions by holders of Shares are included in the determination of the number of Shares present and voting but are not counted as votes for or against a proposal.

 

If you own ADSs as at the close of business in New York City on ________, 2021, the ADS record date, you may instruct the ADS depositary, as the holder of the Shares underlying the ADSs, how to vote the Shares underlying your ADSs. However, you cannot vote at the extraordinary general meeting directly. As the holder of record for all the Shares represented by the ADSs, only the ADS depositary (or its nominee) may directly vote those Shares at the extraordinary general meeting. You should return your properly completed accompanying ADS Voting Instruction Card to the ADS depositary prior to ________(New York City time) on ________, 2021, which is the last date by which voting instructions may be received by the ADS depositary in order to vote the Shares underlying your ADSs at the extraordinary general meeting. The ADS depositary will endeavor, in so far as practicable, to vote or cause to be voted the number of Shares represented by ADSs in accordance with the voting instructions of an ADS holder. The ADS depositary will not vote or attempt to exercise the right to vote that attaches to the Shares other than in accordance with the instructions given by you and received by the ADS depositary. Alternatively, you may vote directly at the meeting if you surrender your ADSs to the ADS depositary, pay the required ADS depositary fee for the cancellation of the ADSs (US$0.05 per ADS cancelled), provide instructions for the delivery and registration of the corresponding Shares, and certify that you have not given, and will not give, voting instructions as to the ADSs (or, alternatively, that you will not vote the Shares) prior to ________(New York City time) on ________, 2021, and become a holder of Shares by the close of business in the British Virgin Islands on March ________, 2021. In addition, if you hold your ADSs through a financial intermediary such as a broker, bank or other nominee, you must rely on the procedures and timing of the financial intermediary through which you hold your ADSs if you wish to vote at the extraordinary general meeting.

 

ix

 

 

Shareholders who dissent from the Merger will be entitled to seek appraisal and payment of the fair value of their Shares if the Merger is completed, subject to the condition that they deliver to the Company, before the vote is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act, 2004, as amended regarding the exercise of appraisal rights, a copy of which is attached as Annex C to the accompanying proxy statement. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the Merger consideration you would receive pursuant to the Merger Agreement if you do not exercise appraisal rights with respect to your Shares.

 

ADS HOLDERS WILL NOT HAVE THE RIGHT TO SEEK APPRAISAL AND PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY APPRAISAL RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE APPRAISAL RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY, PAY THE REQUIRED ADS DEPOSITARY FEE FOR THE CANCELLATION OF THE ADS (US$0.05 PER ADS CANCELLED), PROVIDE INSTRUCTIONS FOR THE DELIVERY AND REGISTRATION OF THE CORRESPONDING SHARES, AND CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL NOT GIVE, DIRECTLY OR INDIRECTLY, VOTING INSTRUCTIONS AS TO THE ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE SHARES) BEFORE ________P.M (NEW YORK CITY TIME) ON ________, 2021, AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE BRITISH VIRGIN ISLANDS ON ________, 2021. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING APPRAISAL RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 179 OF THE BVI BUSINESS COMPANIES LAW (2004). THE PROCESS OF SURRENDERING ADSs AND BECOMING A REGISTERED SHAREHOLDER OF THE COMPANY MAY TAKE A NUMBER OF DAYS. ADS HOLDERS WISHING TO DO SO SHOULD TAKE ACTION AS SOON AS POSSIBLE.

 

Please do not send your share certificates at this time. If the Merger is completed, you will be sent instructions regarding the surrender of your share certificates.

 

The Merger Agreement, the Plan of Merger and the Merger are described in the accompanying proxy statement. Copies of the Merger Agreement and the Plan of Merger are included as Annex A to the accompanying proxy statement. We urge you to read the entire proxy statement carefully.

 

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Notes:

 

1.The following shall apply in respect of joint ownership of shares:

 

(a)  if two or more persons hold shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member;

 

(b)  if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners, and

 

(c)  if two or more of the joint owners are present in person or by proxy they must vote as one.

 

2.The proxy card should be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorized.
  
3.A proxy need not be a member (registered shareholder) of the Company.

 

4.The chairman of the meeting may at his discretion direct that a proxy card shall be deemed to have been duly deposited. A proxy card that is not deposited in the manner permitted shall be invalid.

 

5.A vote given in accordance with the terms of a proxy card shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the proxy card or of the authority under which it was executed, provided that no notice in writing of such death, insanity or revocation shall have been received by the Company at its principal executive office before the commencement of the meeting or adjourned meeting at which the proxy is used.

 

  BY ORDER OF THE BOARD OF DIRECTORS
   
   
  Name: Liang Tang
   
  Title: Chairman of the Board

 

Registered Office:

 

Akara Bldg., 24 De Castro Street

Wickhams Cay 1

Road Town, Tortola

British Virgin Islands

 

Principal Executive Office Address:

 

518 Shangcheng Road, Floor 17

Shanghai

People’s Republic of China

 

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Table of Content

SUMMARY TERM SHEET 1
QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER 21
SPECIAL FACTORS 32
MARKET PRICE OF THE COMPANY’S SHARES AND ADSs, DIVIDENDS AND OTHER MATTERS 80
THE EXTRAORDINARY GENERAL MEETING 81
THE MERGER AGREEMENT AND PLAN OF MERGER 88
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS 112
APPRAISAL RIGHTS 113
FINANCIAL INFORMATION 115
TRANSACTIONS IN THE SHARES AND THE ADSs 117
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY 118
FUTURE SHAREHOLDER PROPOSALS 119
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 120
WHERE YOU CAN FIND MORE INFORMATION 122
ANNEX A: AGREEMENT AND PLAN OF MERGER A-1
ANNEX B: OPINION OF HOULIHAN LOKEY (CHINA) LIMITED AS FINANCIAL ADVISOR B-1
ANNEX C: BVI BUSINESS COMPANIES ACT, 2004 - SECTION 179 C-1
ANNEX D: DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON D-1
ANNEX E: SUPPORT AGREEMENT E-1
ANNEX F: LIMITED GUARANTEE F-1
ANNEX G: EQUITY COMMITMENT LETTER G-1
ANNEX H: FORM OF PROXY CARD H-1
ANNEX I: FORM OF ADS VOTING INSTRUCTION CARD I-1

 

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SUMMARY TERM SHEET

 

This “Summary Term Sheet,” together with the “Questions and Answers about the Extraordinary General Meeting and the Merger,” highlights selected information contained in this proxy statement regarding the Merger and may not contain all of the information that may be important to your consideration of the Merger. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers for a more complete understanding of the matters being considered at the extraordinary general meeting. In addition, this proxy statement incorporates by reference important business and financial information about the Company. You are encouraged to read all of the documents incorporated by reference into this proxy statement and you may obtain such information without charge by following the instructions in “Where You Can Find More Information” beginning on page 122. In this proxy statement, the terms “we,” “us,” “our,” the “Company” refer to Ossen Innovation Co., Ltd. and its subsidiaries. All references to “dollars” and “$” in this proxy statement are to U.S. dollars.

 

The Parties Involved in the Merger 

 

The Company 

 

We manufacture and sell an array of plain surface prestressed steel materials and rare earth coated and zinc coated prestressed steel materials, which we believe is the most comprehensive array among our competitors in China. Our materials are used in the construction of bridges, highways and other infrastructure projects in the PRC and internationally. Our facilities are located in Maanshan City, Anhui Province and in Jiujiang City, Jiangxi Province in the PRC. Based on our extensive experience in the industry, we believe that Ossen is one of the leading enterprises in the PRC in the design, engineering, manufacture and sale of customized prestressed steel materials used in the construction of bridges, highways, and other infrastructure projects in China.

 

Our products are marketed under the “Ossen” brand name both domestically and internationally. We handle all aspects of market research, product design, engineering, manufacturing, sales and marketing. We conduct our manufacturing operations in our ISO 9001 manufacturing facilities in Maanshan City and Jiujiang City in the PRC.

 

In 2013, the Chinese market began to adopt zinc-aluminum alloy coated PC wires and PC strands, which have more corrosion-resistance and stronger protective effect than zinc coated PC wires and PC strands. Our research and development department is currently developing a method to apply rare earth materials to the zinc-aluminum alloy coating process. We have made progress in developing such product so far and we will continue our research and development efforts in 2020. We anticipate that additional time will be necessary for such products to pass government inspection and to gain acceptance in the market.

 

Ossen Materials, our operating subsidiary, was founded in 2004. In 2005, we expanded our manufacturing capabilities by acquiring a facility in Jiujiang City in the PRC and forming Ossen Jiujiang. The senior management team of Ossen were among the first in China to introduce and promote the use of prestressed steel materials in construction projects. They have been involved in producing prestressed materials since 1994 and each has accumulated nearly 25 years of experience in the prestressed materials industry

 

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Our principal executive offices are located at 1 518 Shangcheng Road, Floor 17, Shanghai, People’s Republic of China. Our telephone number at this address is + 86 (21) 6888-8886 and our email is int.tr@ossengroup.com. Our registered office in the British Virgin Islands is at Akara Bldg., 24 De Castro Street, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011. Our corporate website is http://www.osseninnovation.com.

 

For a description of our history, development, business and organizational structure, see our annual report on Form 20-F for the year ended December 31, 2019, filed with the Commission on May 18, 2020, which is incorporated herein by reference. Please see “Where You Can Find More Information” beginning on page 122 for a description of how to obtain a copy of our annual report. 

 

Parent

 

 New Ossen Group Limited is a company with limited liability incorporated under the laws of the British Virgin Islands and is a holding company formed solely for the purpose of holding the equity interest in Merger Sub and completing the transactions contemplated by the Merger Agreement, including the Merger (each as defined below). The registered address of Parent is Unit 8 ,3/F, Qwomar Trading Complex, Blackburne Road, Port Purcell, Road Town, Tortola, British Virgin Islands, VG1110. The business address of Parent is 16/F, No.518 Shangcheng Road, Pudong District, Shanghai, China.

 

Merger Sub 

 

New Ossen Innovation Limited is a company with limited liability incorporated under the laws of the British Virgin Islands and is a holding company formed solely for the purpose of completing the transactions contemplated by the Merger Agreement, including the Merger. The registered address of Merger Sub is Unit 8 ,3/F, Qwomar Trading Complex, Blackburne Road, Port Purcell, Road Town, Tortola, British Virgin Islands, VG1110. The business address of Merger Sub is 16/F, No.518 Shangcheng Road, Pudong District, Shanghai, China.

 

Buyer Group

 

Acme Innovation Limited (“Acme”) is a company with limited liability incorporated under the laws of the British Virgin Islands and is an investment holding company whose principal business is to hold, transact or otherwise deal in the securities of the Company. The registered address of Acme is Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands. The business address of Acme is 16/F, No.518 Shangcheng Road, Pudong District, Shanghai, China.

 

2

 

 

Pujiang is an exempted company with limited liability incorporated and existing under the laws of the Cayman Islands. Pujiang is a holding company whose principal business is to hold, transact or otherwise deal in the securities of Acme and other companies operating in China. The registered address of Pujiang is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The business address of Pujiang is 16/F, No.518 Shangcheng Road, Pudong District, Shanghai, China.

 

Elegant Kindness Limited (“Elegant”) is a company with limited liability incorporated under the laws of the British Virgin Islands and is an investment holding company whose principal business is to hold, transact or otherwise deal in the securities of Pujiang. The registered address of Elegant is Unit 8, 3/F, Qwomar Trading Complex, Blackburne Road, Port Purcell, Road Town, Tortola, British Virgin Islands, VG1110. The business address of Elegant is 16/F, No.518 Shangcheng Road, Pudong District, Shanghai, China. Elegant Kindness Limited is wholly owned by Dr. Liang Tang.

 

Dr. Liang Tang (“Dr. Tang”) is the chief executive officer and the president of the Company and is a citizen of the People’s Republic of China. Dr. Tang’s business address is No.49,Wanping Road, Xuhui District, Shanghai China, and his business telephone number is +86-21-6888-8886. Dr. Liang is a 64.39% shareholder and the chairman of Pujiang.

 

Throughout this proxy statement, Dr. Tang, Elegant, Pujiang, Acme, Parent and Merger Sub are collectively referred to as the “Buyer Group.”

 

Additional information regarding the parties to the Merger is set forth on Annex D, which is attached hereto and incorporated herein by reference.

 

The Merger (Page 88) 

 

You are being asked to vote to authorize and approve the agreement and plan of merger dated as of December 17, 2020 (the “Merger Agreement”) among the Company, Parent and Merger Sub, articles of merger and a plan of merger required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands, substantially in the form attached as Appendix A to the Merger Agreement (the “Plan of Merger”) and the transactions contemplated by the Merger Agreement, including the Merger (the “Merger”). Once the Merger Agreement and the Plan of Merger are authorized and approved by the requisite vote of the shareholders of the Company and the other conditions to the consummation of the transactions contemplated by the Merger Agreement are satisfied or waived in accordance with the terms of the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving company. The Company, as the surviving company, will continue to do business under the name “Ossen Innovation Co., Ltd.” following the Merger. If the Merger is completed, the Company will cease to be a publicly traded company, and the Company will instruct the ADS depositary to terminate the Company’s ADS program. Copies of the Merger Agreement and the Plan of Merger are attached as Annex A to this proxy statement. You should read the Merger Agreement and the Plan of Merger in their entirety because they, and not this proxy statement, are the legal documents that govern the Merger. 

 

3

 

 

Merger consideration (Page 89) 

 

Under the terms of the Merger Agreement, at the Effective Time of the Merger, except as described below, (i) each Share (other than Shares represented by ADSs) issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist in exchange for the right to receive US$1.70 per Share in cash and without interest (the “Per Share Merger Consideration”) and (ii) each ADS issued and outstanding immediately prior to the Effective Time, together with each Share represented by such ADS, will be cancelled and cease to exist in exchange for the right to receive US$5.10 per ADS (the “Per ADS Merger Consideration”) (less US$0.05 per ADS cancellation fee payable pursuant to the terms of the Deposit Agreement) (Collectively referred to as the “Merger Consideration”). The following Shares of the Company will not be converted into the right to receive the consideration described in the immediately preceding sentence: (a) Shares (including ADSs corresponding to such Shares) beneficially owned by the Rollover Shareholder (the “Rollover Shares”); (b) Shares (the “Dissenting Shares”) owned by holders of Shares who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 179 of the BVI Business Companies Act, 2004, as amended (the “BVI Companies Act”) (the “Dissenting Shareholders”); and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury) and Shares held by Parent or any of its subsidiaries ((a), (b) and (c) collectively, the “Excluded Shares”). Each Excluded Share (excluding any Dissenting Share) issued and outstanding immediately prior to the Effective Time, will be cancelled and will cease to exist, and no Merger Consideration will be delivered with respect thereto. Each Dissenting Share will be cancelled at the Effective Time for the right to receive the fair value of such Shares as determined in accordance with the provisions of the BVI Companies Act. Please see “Appraisal Rights” beginning on page 113 for additional information. 

 

Support Agreement (Annex E) 

 

Concurrently with the execution of the Merger Agreement, the Rollover Shareholder and Parent entered into a rollover and support agreement (the “Support Agreement”), pursuant to which the parties have agreed that (i) the Rollover Shares shall be cancelled for no consideration, (ii) the Rollover Shareholder shall subscribe for the number of newly issued ordinary shares of Parent, and (iii) the Rollover Shareholder shall vote the Rollover Shares in favor of the authorization and approval of the Merger Agreement and Plan of Merger and the consummation of the transactions contemplated therein, in each case, upon the terms and conditions set forth therein. See “Special Factors—Support Agreement” beginning on page 70 for additional information.

 

4

 

 

Record Date and Voting (Page 83) 

 

You are entitled to attend and directly vote at the extraordinary general meeting if you have Shares registered in your name at the close of business in the British Virgin Islands on ________, 2021, the Share record date for voting at the extraordinary general meeting. Each outstanding Share on the Share record date entitles the holder to one vote on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the Share record date, there will be 19,791,110 Shares entitled to be voted at the extraordinary general meeting. If you have Shares registered in your name on the Share record date, the deadline for you to lodge your proxy card and vote is ________, 2021 at ________(Beijing Time). See “Summary Term Sheet – Voting Information” below. 

 

If you own ADSs as at the close of business in New York City on ________, 2021, the ADS record date, and do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained below, you cannot vote at the extraordinary general meeting directly, but you may instruct the ADS depositary (as the holder of the Shares underlying the ADSs) on how to vote the Shares underlying your ADSs. The ADS depositary must receive your instructions no later than ________ (New York City time) on ________, 2021, in order to ensure your Shares are properly voted at the extraordinary general meeting. Alternatively, if you own ADSs on the ADS record date, you may directly vote at the extraordinary general meeting by cancelling your ADSs (and certifying you have not instructed, and will not instruct, the ADS depositary to vote the Shares represented by your ADSs) before ________ (New York City time) on ________, 2021 and becoming a registered holder of Shares prior to the close of business in the British Virgin Islands on ________, 2021, the Share record date.

 

Shareholder Vote Required to Authorize and Approve the Merger Agreement and Plan of Merger (Page 83) 

 

In order for the Merger to be completed, the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, must be authorized and approved by an affirmative vote of shareholders representing at least a majority of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. The authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, are not subject to the authorization and approval of holders of a majority of the Shares unaffiliated with the Rollover Shareholder. 

 

Based on the 19,791,110 Shares expected to be issued and outstanding and entitled to vote on the record date, approximately 9,895,556 Shares must be voted in favor of the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, in order for the proposal to be authorized and approved, assuming all shareholders will be present and voting in person or by proxy at the extraordinary general meeting. 

 

As of the date of this proxy statement, the Rollover Shareholder beneficially owns 13,050,000 Shares, which represents 69.5% of the total outstanding voting Shares. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 118 for additional information. Pursuant to the terms of the Support Agreement, these Shares will be voted in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, at the extraordinary general meeting of the Company.

 

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If your Shares are held in the name of a broker, bank or other nominee, your broker, bank or other nominee will not vote your Shares in the absence of specific instructions from you. These non-voted Shares are referred to as “broker non-votes.” 

 

Voting Information (Page 84) 

 

Before voting your Shares, we encourage you to read this proxy statement in its entirety, including all of the annexes, attachments, exhibits and materials incorporated by reference, and carefully consider how the Merger will affect you. To ensure that your Shares can be voted at the extraordinary general meeting, please complete the enclosed proxy card in accordance with the instructions set forth on the proxy card as soon as possible. The deadline for you to lodge your proxy card is ________, 2021 at ________ (Beijing Time).

 

If you own ADSs as of the close of business in New York City on ________, 2021, the ADSs record date, and do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained below, you cannot vote at the extraordinary general meeting directly, but you may instruct the ADS depositary (as the holder of the Shares underlying the ADSs) how to vote the Shares underlying your ADSs. The ADS depositary must receive such instructions no later than ________(New York City time) on ________, 2021 in order to ensure your Shares are properly voted at the extraordinary general meeting. Alternatively, you may directly vote at the extraordinary general meeting if you cancel your ADSs and become a holder of Shares prior to the close of business in the British Virgin Islands on ________, 2021. If you wish to cancel your ADSs for the purpose of voting Shares, you need to make arrangements to deliver your ADSs to the ADS depositary for cancellation before ________ (New York City time) on ________, 2021, together with (a) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of Shares); (b) payment of the ADS cancellation fee (US$0.05 per ADS cancelled) and any applicable taxes; and (c) a certification that you held the ADS as of the ADS record date and you have not given, and will not give, voting instructions to the ADS depositary as to the ADSs being cancelled. If you hold your ADSs in a brokerage, bank or nominee account, please contact your broker, bank or nominee to find out what actions you need to take to instruct the broker, bank or nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS depositary will arrange for the Hong Kong and Shanghai Banking Corporation Limited, the custodian holding the underlying Shares, to transfer registration of the Shares to the former ADS holder (or a person designated by the former ADS holder). If after registration of Shares in your name, you wish to receive a certificate evidencing the Shares registered in your name, you will need to request the registrar of the Shares to issue and mail a certificate to your attention.

 

6

 

 

The ADS depositary will endeavor, in so far as practicable, to vote or cause to be voted the number of Shares represented by ADSs in accordance with the voting instructions of an ADS holder. The ADS depositary will not vote or attempt to exercise the right to vote that attaches to the Shares other than in accordance with the instructions given by you and received by the ADS depositary.

 

Appraisal Rights of Shareholders (Page 113) 

 

Shareholders who dissent from the Merger will have the right to seek appraisal and payment of the fair value of their Shares if the Merger is completed, on the condition that they deliver to the Company, before the vote is taken, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Companies Act regarding the exercise of appraisal rights. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the Merger consideration you would receive according to the Merger Agreement if you do not exercise appraisal rights with respect to your Shares. 

 

We encourage you to review carefully the section of this proxy statement entitled “Appraisal Rights” as well as Annex C to this proxy statement and to consult your British Virgin Islands legal counsel if you consider exercising your appraisal rights. 

 

ADS HOLDERS WILL NOT HAVE THE RIGHT TO SEEK APPRAISAL AND PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY APPRAISAL RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE APPRAISAL RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY, PAY THE REQUIRED ADS DEPOSITARY FEE FOR THE CANCELLATION OF THE ADSs (US$0.05 PER ADS CANCELLED), PROVIDE INSTRUCTIONS FOR THE DELIVERY AND REGISTRATION OF THE CORRESPONDING SHARES, AND CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL NOT GIVE, DIRECTLY OR INDIRECTLY, VOTING INSTRUCTIONS AS TO THE ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE SHARES) BEFORE ________ (NEW YORK CITY TIME) ON ________, 2021, AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE BRITISH VIRGIN ISLANDS ON ________, 2021. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING APPRAISAL RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 179 OF THE BVI BUSINESS COMPANIES LAW (2004). THE PROCESS OF SURRENDERING ADSs AND BECOMING A REGISTERED SHAREHOLDER OF THE COMPANY MAY TAKE A NUMBER OF DAYS. ADS HOLDERS WISHING TO DO SO SHOULD TAKE ACTION AS SOON AS POSSIBLE.

 

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Purposes and Effects of the Merger (Pages 62 and 63) 

 

The purpose of the Merger is to enable Parent to acquire 100% control of the Company in a transaction in which the Company’s shareholders other than the holders of Excluded Shares will be cashed out in exchange for US$1.70 per Share in cash without interest, or US$5.10 per ADS (less US$0.05 per ADS cancellation fee payable pursuant the terms of the Deposit Agreement) in cash without interest, so that Parent will bear the rewards and risks of the sole ownership of the Company after the Merger, including any future earnings and growth of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses. Please see “Special Factors – Purpose of and Reasons for the Merger” beginning on page 62 for additional information. 

 

The ADSs are currently listed on the NASDAQ Capital Market (“NASDAQ”) (under the symbol “OSN”). It is expected that, immediately following the completion of the Merger, the Company will cease to be a publicly traded company and will instead become a privately held company directly owned by Parent. Following the completion of the Merger, the ADS program of the Company will terminate, the ADSs will cease to be listed on any securities exchange or quotation system, including the NASDAQ, and price quotations with respect to sales of the Shares in the public market will no longer be available. In addition, registration of the ADSs and the underlying Shares under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) may be terminated upon the Company’s application to the SEC if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders of the Shares. Ninety days after the filing of Form 15 in connection with the completion of the Merger or such longer period as may be determined by the SEC, registration of the ADSs and the underlying Shares under the Exchange Act will be terminated and the Company will no longer be required to file periodic reports with the SEC or otherwise be subject to the U.S. federal securities laws, including the Sarbanes-Oxley Act of 2002, applicable to public companies. Following the completion of the Merger, the Company’s shareholders will no longer enjoy the rights or protections that the U.S. federal securities laws provide to shareholders of public companies, including reporting obligations for directors, officers and principal securities holders of the Company. Please see “Special Factors – Effect of the Merger on the Company” beginning on page 63 for additional information. 

 

Plans for the Company after the Merger (Page 67) 

 

After the Effective Time, the Buyer Group anticipates that the Company’s operations will be conducted substantially as they are currently being conducted, except that the Company will cease to be a publicly traded company and will instead be a wholly owned subsidiary of Parent, which is wholly owned by Pujiang.

 

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Recommendations of the Independent Committee and the Board of Directors (Page 40) 

 

The Independent Committee has unanimously (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, is fair to, and in the best interests of, the Company and its shareholders, including shareholders who are unaffiliated with the Buyer Group, (b) approved and declared it advisable for the Company to enter into the Merger Agreement, the Plan of Merger, and other transaction documents and the transactions contemplated thereby, including the Merger, and (c) recommended that the Board of Directors authorize and approve the entry into by the Company of the Merger Agreement, the Plan of Merger, and other transaction documents and the transactions contemplated thereby, including the Merger, and (d) recommended that the board of directors of the Company direct that the authorization and approval of the Merger Agreement, the Plan of Merger substantively in the form contained in Appendix A to the Merger Agreement, and the transactions contemplated under the Merger Agreement, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company, with the recommendation of the board of directors of the Company that the shareholders of the Company authorize and approve by way of a shareholder resolution the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger.

 

ACCORDINGLY, OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AUTHORIZE AND APPROVE THE MERGER AGREEMENT, THE PLAN OF MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER, AND FOR THE PROPOSAL TO ADJOURN THE EXTRAORDINARY GENERAL MEETING IN ORDER TO ALLOW THE COMPANY TO SOLICIT ADDITIONAL PROXIES IN THE EVENT THAT THERE ARE INSUFFICIENT PROXIES RECEIVED TO PASS THE SHAREHOLDERS RESOLUTION DURING THE EXTRAORDINARY GENERAL MEETING.

 

Position of the Buyer Group as to the Fairness of the Merger (Page 48) 

 

Each member of the Buyer Group believes that the Merger is fair, both substantively and procedurally, to the holders of the Shares and the ADSs of the Company (other than the holders of Excluded Shares and ADSs representing the Excluded Shares), and the unaffiliated security holders of the Company as such terms are defined in Rule 13e-3 of the Exchange Act (the “Unaffiliated Security Holders”). Their belief is based upon the factors discussed under the section entitled “Special Factors—Position of the Buyer Group as to the Fairness of the Merger” beginning on page 48.

 

Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13E-3 and related rules under the Exchange Act. The views of each member of the Buyer Group as to the fairness of the Merger are not intended to be and should not be construed as a recommendation to any shareholder of the Company as to how that shareholder should vote on the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger.

 

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Financing of the Merger (Page 69) 

 

The Company and the Buyer Group estimate that the total amount of funds necessary to complete the Merger and the related transactions, including payment of fees and expenses in connection with the Merger, would be approximately US$12.5 million, assuming no exercise of dissenter rights by shareholders of the Company. In calculating this amount, the Company and the Buyer Group did not consider the value of the Rollover Shares which will, in connection with and concurrently with the closing of the Merger at the Effective Time, be cancelled for no consideration in the Merger, and the Rollover Shareholder, in lieu of receiving US$1.70 per Share held by it will be issued newly issued shares of Parent pursuant to the Support Agreement.

 

The Buyer Group expects this amount to be provided through a combination of (i) rollover equity (represented by the Rollover Shares) from the Rollover Shareholder, and (ii) cash contribution in the amount of US$12.5 million contemplated by that certain equity commitment letter, dated as of December 17, 2020 (the “Equity Commitment Letter”), by and between Parent and the Rollover Shareholder.

 

See “Special Factors—Financing” beginning on page 69 for additional information.

 

Limited Guarantee (Annex F) 

 

Concurrently with the execution of the Merger Agreement, Pujiang entered into a limited guarantee (the “Limited Guarantee”) with the Company, pursuant to which Pujiang irrevocably guaranteed, subject to certain conditions, Parent’s payment obligations to pay a termination fee in the amount of US$680,000 pursuant to Section 8.06(b) of the Merger Agreement (the “Parent Termination Fee”), if the Parent Termination Fee becomes payable by Parent. The Rollover Shareholder also agreed to pay all reasonable and documented out-of-pocket expenses (including reasonable fees and expenses of counsel) incurred by the Company in connection with the enforcement of its rights thereunder.

 

Support Agreement (Annex E) 

 

Concurrently with the execution of the Merger Agreement, the Rollover Shareholder and Parent entered into a rollover and support agreement (the “Support Agreement”), pursuant to which the parties have agreed that (i) the Rollover Shares shall be cancelled for no consideration in the Merger, (ii) the Rollover Shareholder shall subscribe for the number of newly issued ordinary shares of Parent, and (iii) the Rollover Shareholder shall vote the Rollover Shares in favor of the authorization and approval of the Merger Agreement and the consummation of the Transactions, in each case, upon the terms and conditions set forth therein.

 

Share Ownership of the Company Directors and Officers and Voting Commitments (Page 118) 

 

As of the record date, we expect that the Buyer Group will beneficially own approximately 65.9% of our issued and outstanding Shares entitled to vote. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 118 for additional information. 

 

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Pursuant to the Support Agreement, the Rollover Shareholder has agreed to vote all Shares it beneficially owned in favor of the Merger Agreement and consummation of the transactions contemplated thereby, including the Merger. If completed, the Merger will result in the Company becoming a privately held company and its ADSs will no longer be listed on the NASDAQ. 

 

Opinion of the Independent Committee’s Financial Advisor (Annex B) 

 

The Independent Committee retained Houlihan Lokey (China) Limited (“Houlihan Lokey”) to act as its financial advisor in connection with the Merger. On December 17, 2020, Houlihan Lokey orally rendered to the Independent Committee its opinion (which was subsequently confirmed in writing by delivery on the same date of Houlihan Lokey’s written opinion addressed to the Independent Committee) as to the fairness, from a financial point of view, of the Merger Consideration to be received by the Unaffiliated Security Holders in the Merger pursuant to the Merger Agreement and the Plan of Merger, as of the date of such opinion, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Houlihan Lokey in preparing its opinion.

 

Houlihan Lokey’s opinion was directed to the Independent Committee (in its capacity as such) and only addressed the fairness, from a financial point of view, of the Merger Consideration to be received by the Unaffiliated Security Holders pursuant to the Merger Agreement, as of the date of such opinion and did not address any other aspect or implication of the Merger or any other agreement, arrangement, or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex B to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Independent Committee, the Board, any shareholder or holder of ADSs or any other person as to how to act with respect to any matter relating to the Merger. See “Special Factors — Opinion of the Independent Committee’s Financial Advisor” beginning on Page 55.

 

Interests of the Company’s Executive Officers and Directors in the Merger (Page 72) 

 

In considering the recommendations of the board of directors, the Company’s shareholders should be aware that certain of the Company’s directors and executive officers have interests in the transaction that are different from, and/or in addition to, the interests of the Company’s shareholders generally. These interests include, among others:

 

·the beneficial ownership of equity interests in Parent by the Rollover Shareholder and the prospective beneficial ownership of equity interests in Parent by the Rollover Shareholder at and after the Effective Time; 

 

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·the potential enhancement or decline of share value for Parent, of which the Rollover Shareholder will beneficially own, as a result of the Merger and future performance of the surviving company; 

 

·continued indemnification rights, rights to advancement of fees and directors and officers liability insurance to be provided by the surviving company to former directors and officers of the Company; 

 

·the monthly compensation of US$3,000 for Mr. Junhong Li and Mr. Zhongcai Wu, each of which is a member of the Independent Committee, in exchange for their services in such capacity (the payment of which is not contingent upon the completion of the Merger or the Independent Committee’s or the board’s recommendation of the Merger); 

 

·cancellation of Rollover Shares by the Rollover Shareholder in exchange for newly issued shares of Parent; and 

 

·the continuation of service of the executive officers of the Company with the surviving company in positions that are substantially similar to their current positions. 

 

The Independent Committee and our board of directors were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions and recommendations with respect to the Merger Agreement and related matters. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 72 for additional information. 

 

Conditions to the Merger (Page 106) 

 

The obligations of each party to complete the transactions contemplated by the Merger Agreement, including the Merger, are subject to the satisfaction, or waiver (where permissible under applicable laws), of the following conditions:

 

·the Merger Agreement, the Plan of Merger and transactions contemplated by the Merger Agreement, including the Merger, shall have been authorized and approved by an affirmative vote of shareholders representing at least a majority of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting (or any adjournment or postponement thereof) of the Company’s shareholders; and 

 

·no court or other governmental entity of competent jurisdiction having enacted, issued, promulgated, enforced or entered any law (whether temporary, preliminary or permanent) that has or would have the effect of enjoining, restraining, prohibiting or otherwise making illegal the consummation of the Merger. 

 

The obligations of Parent and Merger Sub to consummate the Merger are also subject to the satisfaction, or waiver (where permissible under applicable laws), of the following conditions:

 

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·the representations and warranties of the Company in the Merger Agreement shall be true and correct as of the date of the Merger Agreement and as of the closing date (or as of a specific date, to the extent such representation or warranty is expressly made as of a specific date), except where the failure of such representations and warranties to be so true and correct has not had any material adverse effect; 

 

·the Company having performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the closing date; 

 

·since the date of the Merger Agreement, there having been no effect that has had, individually or in the aggregate, a material adverse effect and is ongoing; 

 

·Parent having received a certificate signed by an executive officer of the Company certifying as to the fulfillment of the above conditions; and

 

·holders of no more than ten percent (10)% of the Shares shall have validly served a notice of dissent under Section 179 of the Companies Act.

 

The obligations of the Company to consummate the Merger are also subject to the satisfaction, or waiver by the Company, of the following conditions:

 

·the representations and warranties of Parent and Merger Sub in the Merger Agreement being true and correct as of the date of the Merger Agreement and as of the closing date (or as of a specific date, to the extent such representation or warranty is expressly made as of a specific date), except where the failure of such representations and warranties to be so true and correct has not had, individually or in the aggregate, prevented or materially adversely affected the ability of Parent or Merger Sub to consummate the Merger; 

 

·each of Parent and Merger Sub having performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the closing date; and 

 

·the Company having received a certificate signed by an officer or director of Parent certifying as to the fulfillment of the above conditions. 

 

No Solicitation of Competing Transactions (Page 98) 

 

From the date of the Merger Agreement until the Effective Time of the Merger or, if earlier, the termination of the Merger Agreement, neither the Company nor any of its subsidiaries nor any investment banker, attorney or accountant retained by the Company and its subsidiaries will: (a) solicit, initiate or encourage the submission of any proposal or offer that constitutes, or may reasonably be expected to lead to, any Competing Transaction (as defined in the section entitled “Merger Agreement—No Solicitation of Competing Transactions” beginning on page 98 ), or any inquiries that may lead to any such Competing Transaction or offer; (b) enter into, maintain or continue discussions or negotiations with, or furnish to any person any non-public information with respect to the Company or any of its subsidiaries to facilitate, induce, or encourage any Competing Transaction; (c) agree to, approve, endorse, recommend or consummate, or enter into any letter of intent, agreement or agreement in principle with respect to a Competing Transaction; and (d) grant any waiver, amendment or release under any standstill, confidentiality or similar agreement or takeover, anti-takeover, moratorium, “business combination,” “fair price,” “control share” or other similar laws enacted under any laws applicable to the Company.

 

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Notwithstanding the foregoing, prior to the receipt of the required shareholder authorization and approval of the Merger Agreement, if the Company has otherwise complied in all material respects with its obligations set forth in the preceding paragraph, following receipt by the Company of an unsolicited bona fide, written proposal or offer regarding a Competing Transaction, the Company and its representatives may, acting only under the direction of the Independent Committee:

 

·contact such person solely in order to clarify and understand the terms and conditions of any proposal of a Competing Transaction made by such person so that the Independent Committee may determine whether such proposal constitutes or would reasonably be expected to result in a Superior Proposal (as defined in the section entitled “Merger Agreement—No Solicitation of Competing Transactions” beginning on page 98);

 

·provide information in response to the request of such person, if and only if, prior to providing such information, the Company has received from the person so requesting such information an executed confidentiality agreement that shall not include any provision calling for any exclusive right to negotiate with such person or having the effect of prohibiting the Company from satisfying its obligations under the Merger Agreement, and promptly discloses (and, if applicable, provides copies of) any such information to Parent to the extent not previously provided to Parent; and

 

·engage or participate in any discussion or negotiations with the person who has made such proposal or offer,

 

provided that, the Independent Committee shall have provided written notice to Parent at least three business days prior to providing information or engaging or participating in any discussion as described above, and the Independent Committee shall have determined in its good faith judgment that such proposal or offer constitutes or would reasonably be expected to result in a Superior Proposal, and that failure to take such action would be inconsistent with the fiduciary duties of the Company’s board of directors under applicable laws.

 

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Change of Recommendation (Page 100) 

 

The board of directors of the Company and the Independent Committee will not:

 

·subject to certain exceptions and conditions, withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify) in a manner adverse to Parent or Merger Sub the recommendation to the shareholders of the Company to vote in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger; or 

 

·subject to certain exceptions and conditions, cause or permit the Company to enter into any alternative acquisition agreement, including letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, Merger Agreement or other agreement (other than a confidentiality agreement relating to any Competing Transaction). 

 

However, prior to, but not after, obtaining the required shareholder authorization and approval of the Merger Agreement, the board of directors of the Company, based on the unanimous recommendation of the Independent Committee, may (a) approve, recommend or otherwise declare advisable any Superior Proposal not solicited, entered into or agreed to in breach of obligations under the Merger Agreement, and/or authorize the Company to terminate the Merger Agreement or enter into an alternative acquisition agreement with respect to a superior proposal, in each case, if the board of directors of the Company (acting through the Independent Committee) determines in good faith, after consultation with outside legal counsel to the Independent Committee, that failing to do so is inconsistent with its fiduciary obligations under applicable laws; (b) withhold, withdraw, qualify or modify the company recommendation in a manner adverse to Parent or Merger Sub, and/or authorize the Company to terminate the Merger Agreement if any material development or material change in circumstances that affects the business, assets or operation of the Company (the “Intervening Event”) occurring or arising after the date thereof with respect to the Company.

 

Prior to making any such change of recommendation with respect to a Superior Proposal, the Company will

 

·give Parent at least six (6) business days written notice advising that the Company (acting through the Independent Committee) currently intends to take such action and the basis therefor; 

 

·cause its representatives to, negotiate with Parent and Merger Sub in good faith (to the extent Parent and Merger Sub desire to negotiate) to make such adjustments in the terms and conditions of the Merger Agreement so that such Superior Proposal ceases to constitute a Superior Proposal; and 

 

·permit Parent and its representatives to make a presentation to the Company’s board and the Independent Committee regarding the Merger Agreement and other transaction documents and the adjustment with respect thereto. Any material amendment to any Superior Proposal will be deemed to be a new Superior Proposal and will require a new notice of superior proposal to Parent with a four business day notice period, and Merger Sub and the Company will be required to comply with the requirements under the Merger Agreement fully with respect to such amended Superior Proposal;

 

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·following the end of the six business day period or four business day period (as applicable) and taking into account any changes to the Merger Agreement proposed in writing by Parent and Merger Sub, determinate that the Superior Proposal continues to constitute a Superior Proposal.

 

Prior to making any such change of recommendation with respect to an Intervening Event, the Company will:

 

·provide Parent at least six business days’ prior written notice with reasonable details about the Intervening Event indicating that the board of directors of the Company intends to effect a change of recommendation and/or terminate the Merger Agreement;

 

·during the six business day period following Parent’s receipt of the aforementioned notice, cause its representatives to, negotiate with Parent and Merger Sub in good faith to make such adjustments in the terms and conditions of the Merger Agreement, so that it would no longer be inconsistent with the board of directors’ fiduciary obligations not to effect a change of recommendation; and

 

·following the end of the six business day period, acting at the direction of the Independent Committee following consultation with its financial advisor and outside legal counsel, determine in good faith, taking into account any changes to the Merger Agreement proposed in writing by Parent and Merger Sub in response to the aforementioned notice, that it would continue to be inconsistent with the board of directors’ fiduciary duties under applicable laws not to effect a change of recommendation in light of the Intervening Event.

 

Termination of the Merger Agreement (Page 107) 

 

The Merger Agreement may be terminated at any time prior to the Effective Time:

 

·by mutual written consent of the Company and Parent with the approval of their respective board of directors (or in the case of the Company, acting upon the unanimous recommendation of the Independent Committee); 

 

·by either Parent or the Company (acting upon the unanimous recommendation of the Independent Committee), if: 

 

othe Effective Time shall not have occurred on or before June 17, 2021 (the “Termination Date”)

 

oany governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any final and non-appealable order which, or taken any other final and non-appealable action that, has the effect of making consummation of the transactions therein illegal or otherwise preventing or prohibiting consummation of the transactions; or

 

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othe shareholders’ meeting has been held and completed and the requisite shareholders’ approval has not been obtained at the extraordinary general meeting duly convened therefor or at any adjournment or postponement thereof; 

 

·by the Company (acting upon the unanimous recommendation of the Independent Committee), if: 

 

oParent or Merger Sub has breached any of its representations, warranties, covenants or agreements under the Merger Agreement, or any representation or warranty made by Parent or Merger Sub under the Merger Agreement is not true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the Termination Date, or if curable, is not cured within thirty (30) business days following receipt by Parent or Merger Sub of written notice from the Company; provided that this termination right is not available to the Company if it is then in material breach of any representations, warranties, covenants or other agreements under the Merger Agreement that would result in the corresponding conditions to closing would not be satisfied; 

 

o(a) all of the closing conditions that are the obligation of Parent and Merger Sub are otherwise satisfied (other than those conditions that by their nature are to be satisfied at the closing); (b) the Company has delivered to Parent an irrevocable written notice confirming that all applicable conditions have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that it is ready, willing and able to consummate the closing and (c) Parent and Merger Sub fail to complete the closing within ten (10) business days following the date the closing should have occurred according to the Merger Agreement; or 

 

oprior to the receipt of the shareholders’ approval, the board of directors of the Company, based on recommendation of the Independent Committee, has effected a change of company recommendation pursuant to the terms of the Merger Agreement. 

 

·by Parent, if: 

 

othe Company has breached any of its representations, warranties, covenants or agreements under the Merger Agreement, or any representation or warranty made by the Company under the Merger Agreement is not true and correct, such that the corresponding condition to closing would not be satisfied prior to the Termination Date; provided that this termination right is not available to Parent if it is then in material breach of any representations, warranties, covenants or other agreements under the Merger Agreement that would result in the corresponding conditions to closing would not be satisfied; or 

 

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othe board of directors of the Company, based on recommendation of the Independent Committee, has effected a change of company recommendation pursuant to the terms of the Merger Agreement.

 

Termination Fee (Page 108) 

 

The Company is required to pay Parent a termination fee of US$340,000, if:

 

·(a) a bona fide proposal or offer with respect to a Competing Transaction has been made, proposed or communicated (and not withdrawn) by a third party after the date of the Merger Agreement and prior to the extraordinary shareholders’ meeting (or prior to the termination of the agreement if there has been such extraordinary shareholders’ meeting); (b) following the occurrence of an event described in the preceding sentence (a), the Merger Agreement is terminated by the Company or Parent pursuant to the Merger Agreement, because (i) the Merger has not been consummated on or before the Termination Date, or (ii) the requisite shareholders’ approval has not been obtained at the shareholders’ meeting; and (c) within twelve (12) months of the termination of the Merger Agreement, the Company or any of its subsidiaries consummates or enters into a definitive agreement in connection with any Competing Transaction; 

 

·the Merger Agreement is terminated by the Company, if prior to the receipt of the requisite shareholders’ approval, the board of directors of the Company (upon recommendation of the Independent Committee) has effected a change of company recommendation in order to enter into an alternative acquisition agreement relating to a Superior Proposal, or due to the occurrence of an Intervening Event; or

 

·the Merger Agreement is terminated by Parent due to a breach by the Company of their representations, warranties, covenants or agreements in the Merger Agreement, or a failure of any of their representations or warranties in the Merger Agreement being true and correct, such that the corresponding condition to closing cannot be satisfied.  

 

Parent is required to pay the Company a termination fee of US$680,000, if:

 

·Parent or Merger Sub has breached any of its representations, warranties, covenants or agreements under the Merger Agreement, or any representation or warranty made by Parent or Merger Sub under the Merger Agreement is not true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the Termination Date, or if curable, is not cured within thirty (30) business days following receipt by Parent or Merger Sub of written notice from the Company; provided that this termination right is not available to the Company if it is then in material breach of any representations, warranties, covenants or other agreements under the Merger Agreement that would result in the corresponding conditions to closing would not be satisfied; or 

 

·(a) all of the closing conditions that are the obligation of Parent and Merger Sub are otherwise satisfied (other than those conditions that by their nature are to be satisfied at the closing); (b) the Company has delivered to Parent an irrevocable written notice confirming that all applicable conditions have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that it is ready, willing and able to consummate the closing and (c) Parent and Merger Sub fail to complete the closing within ten (10) business days following the date the closing should have occurred according to the Merger Agreement.

 

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Fees and Expenses (Page 109) 

 

Whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement and the Merger and the other transactions contemplated by the Merger Agreement will be paid by the party incurring such expense. Please see “Special Factors – Fees and Expenses” beginning on page 75 for additional information.

 

The surviving corporation will pay any applicable fees, charges and expenses of the ADS depositary and government charges (other than withholding taxes, if any) due to or incurred by the ADS depositary in connection with distribution of the Per ADS Merger Consideration to holders of ADSs and the cancellation of ADSs (excluding any fees, including ADS cancellation or termination fees, payable by holders of ADSs in accordance with the Deposit Agreement).

 

Material U.S. Federal Income Tax Consequences (Page 76) 

 

The receipt of cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local and other tax laws. Please see “Special Factors – Material U.S. Federal Income Tax Consequences” beginning on page 76 for additional information. The tax consequences of the Merger to you will depend upon your personal circumstances. Because we may be or have been a passive foreign investment company, or PFIC, for U.S. federal income tax purposes during a U.S. Holder’s holding period for Shares or ADSs, any gain recognized by a U.S. Holder on the receipt of cash in exchange for such U.S. Holder’s Shares or ADSs may be taxed under special U.S. federal income tax rules, as described under “Material U.S. Federal Income Tax Consequences.” You should consult your tax advisors for a full understanding of the U.S. federal, state, local, foreign and other tax consequences of the Merger to you. 

 

Material PRC Income Tax Consequences (Page 79) 

 

Under the PRC Enterprise Income Tax Law, which took effect as of January 1, 2008 (the “EIT Law”), enterprises established under the laws of non-PRC jurisdictions but whose “de facto management body” are located in China are considered “resident enterprises” for PRC tax purposes. Under the implementation regulations issued by the State Council relating to the new tax law, “de facto management body” is defined as the body that has material and overall management control over the business, personnel, accounts and properties of an enterprise. The Company currently is not treated as a PRC resident enterprise by the relevant tax authorities. Since substantially all of the Company’s management is currently based in China and may remain in China in the future, the Company may be treated as a “resident enterprise” for the PRC tax purposes.

 

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If the PRC tax authorities were to determine that the Company should be considered a resident enterprise, then gain recognized on the receipt of cash for the Shares pursuant to the Merger by shareholders who are not PRC residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of 10% in the case of enterprises or 20% in the case of individuals (subject to applicable tax treaty relief, if any), and, even in the event that the Company is not considered a resident enterprise, gain recognized on the receipt of cash for Shares is subject to PRC tax if the holders of such Shares are PRC resident individuals. 

 

You should consult your own tax advisor for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences.

 

Material British Virgin Islands Tax Consequences (Page 79)

 

The British Virgin Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will be payable (either by direct assessment or withholding) to the government or other taxing authority in the British Virgin Islands under the laws of the British Virgin Islands in respect of the Merger or the receipt of cash for our Shares under the terms of the Merger. Please see “Special Factors – Material British Virgin Islands Tax Consequences” beginning on page 79 for additional information. 

 

Regulatory Matters (Page 76) 

 

The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with the Merger other than the approvals, filings or notices required under the federal securities laws and the filing of the Plan of Merger (and supporting documentation as specified in the BVI Companies Act) with the Registrar of Corporate Affairs of the British Virgin Islands and if the Registrar is satisfied that the requirements under the British Virgin Islands in respect of the merger have been complied with, the Registrar will issue a certificate of merger in the approved form. 

 

Accounting Treatment of the Merger (Page 75) 

 

Upon completion of the Merger, the Company would cease to be a publicly traded company, and the Company expects to account for the Merger at historical cost. 

 

Market Price of the Shares and the ADSs (Page 80) 

 

The closing price of the ADS on NASDAQ on September 15, 2020, the last trading date immediately prior to the Company’s announcement on September 16, 2020 that it had received “a going private” proposal, was US$3.68 per ADS. The Per ADS Merger Consideration of US$5.10 per Share (less US$0.05 per ADS cancellation fee payable pursuant to the Deposit Agreement), to be paid in the Merger represents a premium of approximately 38.6% to that closing price. 

 

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QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER

 

The following questions and answers address briefly some questions you may have regarding the extraordinary general meeting and the Merger. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

Q:           What is the Merger? 

 

A:The Merger is a going private transaction pursuant to which Merger Sub will merge with and into the Company. Once the Merger Agreement is authorized and approved by the shareholders of the Company and the other closing conditions under the Merger Agreement have been satisfied or waived, Merger Sub will merge with and into the Company, with the Company continuing as the surviving company after the Merger . If the Merger is completed, the Company will be a privately held company beneficially owned by the Buyer Group, and as a result of the Merger, the ADSs will no longer be listed on NASDAQ, the Company will cease to be a publicly traded company and the ADS program will terminate. 

 

Q:What will I receive in the Merger? 

 

A:If you own Shares and the Merger is completed, you will be entitled to receive US$1.70 in cash without interest, for each Share you own as of the effective time of the Merger (unless you validly exercise and have not effectively withdrawn or lost your appraisal rights under Section 179 of the BVI Companies Act, with respect to the Merger, in which event you will be entitled to the fair value of each Share pursuant to the BVI Companies Act). 

 

If you own ADSs and the Merger is completed, you will be entitled to receive US$5.10 per ADS in cash without interest (less US$0.05 per ADS cancellation fee payable pursuant to the Deposit Agreement), for each ADS you own as of the effective time of the Merger, unless you (a) surrender your ADS to the ADS depositary, pay the ADS depositary's fees required for the cancellation of ADSs (US$0.05 per ADS cancelled), provide instructions for the registration of the corresponding Shares, and certify that you have not given, and will not give, voting instructions as to the ADSs (or, alternatively, you will not vote the Shares) before ________ (New York City time) on ________, 2021, and become a registered holder of Shares by the close of business in the British Virgin Islands on ________, 2021, and (b) comply with the procedures and requirements for exercising Appraisal Rights for the Shares under Section 179 of the BVI Companies Act.

 

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Please see “Special Factors – Material U.S. Federal Income Tax Consequences,” “Special Factors – Material PRC Income Tax Consequences” and “Special Factors – Material British Virgin Islands Tax Consequences” beginning on page 76 for a more detailed description of the tax consequences of the Merger. You should consult with your own tax advisor for a full understanding of how the Merger will affect your U.S. federal, state, local, foreign and other taxes. 

 

Q:            After the Merger is completed, how will I receive the Per Share Merger Consideration for my Shares? 

 

A:If you are a registered holder of Shares, promptly after the effective time of the Merger (in any event within three business days after the effective time of the Merger), a paying agent appointed by Parent will mail you (a) a form of letter of transmittal specifying how the delivery of the Per Share Merger Consideration to you will be effected and (b) instructions for effecting the surrender of share certificates in exchange for the applicable Per Share Merger Consideration. You will receive cash for your Shares from the paying agent after you comply with these instructions. Upon surrender of your share certificates or a declaration of loss or non-receipt, you will receive an amount equal to the number of your Shares multiplied by US$1.70 in cash without interest, in exchange for the cancellation of your Shares. 

 

If your Shares are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee on how to surrender your Shares and receive the Per Share Merger Consideration for those Shares. 

 

Q:             After the Merger is completed, how will I receive the Per ADS Merger Consideration for my ADSs?

 

A:If your ADSs are represented by certificates, also referred to as American depositary receipts (“ADRs”), unless you have surrendered your ADRs to the ADS depositary for cancellation prior to the effective time of the Merger, upon your surrender of the ADRs (or an affidavit and indemnity of loss in lieu of the ADRs) together with a duly completed letter of transmittal (which will be supplied to you by the ADS depositary after the effective time of the Merger), the ADS depositary will send you a check for the Per ADS Merger Consideration of US$5.10 (less US$0.05 per ADS cancellation fee payable pursuant to the Deposit Agreement), without interest, for each ADS represented by the ADRs, in exchange for the cancellation of your ADRs after the completion of the Merger. You will pay any applicable fees, charges and expenses of the ADS depositary and government due to or incurred by the ADS depositary in connection with distribution of the Per ADS Merger Consideration to holders of ADSs and the cancellation of ADSs (including any ADS cancellation or termination fees payable in accordance with the Deposit Agreement in connection with the Merger). If you hold your ADSs in uncertificated form, that is, without an ADR, unless you have surrendered your ADSs to the ADS depositary for cancellation prior to the effective time of the Merger, the ADS depositary will automatically send you a check for the Per ADS Merger Consideration of US$5.10, without interest after deducting relevant application fees (including US$0.05 per ADS cancellation fee payable pursuant to the Deposit Agreement), in exchange for the cancellation of each of your ADSs after the completion of the Merger. The Per ADS Merger Consideration may be subject to backup withholding taxes if the ADS depositary has not received from you a properly completed and signed U.S. Internal Revenue Service Form W–8 or W–9.

 

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In the event of a transfer of ownership of ADSs that is not registered in the register of ADS holders maintained by the ADS depositary, the check for any cash to be exchanged upon cancellation of the ADSs will be issued to such transferee only if the ADRs, if applicable, are presented to the ADS depositary, accompanied by all documents reasonably required to evidence and effect such transfer and to evidence that any applicable ADS transfer taxes have been paid or are not applicable. The Per ADS Merger Consideration may be subject to backup withholding taxes if the ADS depositary has not received from the transferee a properly completed and signed U.S. Internal Revenue Service Form W–8 or W–9.

 

If your ADSs are held in "street name" by your broker, bank or other nominee, you will not be required to take any action to receive the net Merger consideration for your ADSs as the ADS depositary will arrange for the surrender of the ADSs and the remittance of the Per ADS Merger Consideration with The Depository Trust Company (the clearance and settlement system for the ADSs) for distribution to your broker, bank or nominee on your behalf. If you have any questions concerning the receipt of the Per ADS Merger Consideration, please contact your broker, bank or nominee.

 

Q:            When and where will the extraordinary general meeting be held? 

 

A:The extraordinary general meeting will take place on ________, 2021, at ________, at 518 Shangcheng Road, Floor 17, Shanghai, 200120, People’s Republic of China.

 

Q:            What matters will be voted on at the extraordinary general meeting? 

 

A:You will be asked to consider and vote on the following proposals: 

 

·to authorize and approve the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger; and 

 

·to approve any motion to adjourn or postpone the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the shareholders resolution during the extraordinary general meeting. 

 

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Q:            What vote of our shareholders is required to authorize and approve the Merger Agreement and the Plan of Merger? 

 

A:In order for the Merger to be completed, the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger must, be authorized and approved by an affirmative vote of shareholders representing at least a majority of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. At the close of business in the British Virgin Islands on ________, 2021, the record date for the extraordinary general meeting, we expect that there will be 19,791,110 Shares issued and outstanding and entitled to vote at the extraordinary general meeting. Pursuant to the Voting Agreement, the Rollover Shareholder has agreed to vote all of the Shares beneficially owned by them in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger. As of the date of this proxy statement, the Rollover Shareholder beneficially owns 13,050,000 Shares, representing approximately 69.5% of the total issued and outstanding Shares entitled to vote.

 

Q:How does the Company board of directors recommend that I vote on the proposals? 

 

A:After careful consideration and upon the unanimous recommendation of the Independent Committee, our board of directors by a unanimous vote recommends that you vote:

 

·FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger; and

 

·FOR the proposal to approve any motion to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the shareholders resolution during the extraordinary general meeting. 

 

Q:            Who is entitled to vote at the extraordinary general meeting? 

 

A:The share record date is ________, 2021 (British Virgin Islands time). Only shareholders entered in the register of members of the Company at the close of business in the British Virgin Islands on the share record date or their proxy holders are entitled to directly vote at the extraordinary general meeting or any adjournment thereof. The record date for ADS holders entitled to instruct the ADS depositary to vote at the extraordinary general meeting is ________, 2021 (New York City time). Only ADS holders of the Company at the close of business in New York City on the ADS record date are entitled to instruct the ADS depositary to vote at the extraordinary.  Alternatively, you may directly vote at the extraordinary general meeting if you cancel your ADSs by the close of business in New York City on ________, 2021 and become a holder of Shares by the close of business in the British Virgin Islands on the Share record date.

 

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Q:             What constitutes a quorum for the extraordinary general meeting? 

 

A:At the commencement of the meeting, the presence, in person or by proxy, of shareholders holding not less than 50% of the votes of the issued and outstanding Shares that are entitled to vote on the record date will constitute a quorum for the extraordinary general meeting. 

 

Q:             What effects will the Merger have on the Company? 

 

A:As a result of the Merger, the Company will cease to be a publicly traded company and will be indirectly wholly owned by the Rollover Shareholder. You will no longer have any interest in our future earnings or growth. Following consummation of the Merger, the registration of our Shares and ADSs, and our reporting obligations with respect to our Shares and ADSs under the Exchange Act, will be terminated upon application to the SEC. In addition, upon completion of the Merger, our ADSs will no longer be listed or traded on any stock exchange, including the NASDAQ and the ADS program will terminate. 

 

Q:             When do you expect the Merger to be completed? 

 

A:We are working toward completing the Merger as quickly as possible and currently expect the Merger to close in the first half of 2021. In order to complete the Merger, we must obtain shareholder approval of the Merger at the extraordinary general meeting and the other closing conditions under the Merger Agreement must be satisfied or waived in accordance with the Merger Agreement. 

 

Q:            What happens if the Merger is not completed? 

 

A:If our shareholders do not authorize and approve the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, or if the Merger is not completed for any other reason, our shareholders will not receive any payment for their Shares or ADSs pursuant to the Merger Agreement. In addition, the Company will remain a publicly traded company. The ADSs will continue to be listed and traded on NASDAQ, provided that the Company continues to meet NASDAQ’s listing requirements. In addition, the Company will remain subject to SEC reporting obligations. Therefore, our shareholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of our Shares or ADSs. 

 

Under specified circumstances in which the Merger Agreement is terminated, the Company may be required to pay Parent a termination fee, or Parent may be required to pay the Company a termination fee, in each case, as described under the caption “The Merger Agreement and Plan of Merger – Termination Fee” beginning on page 108

 

Q:            What do I need to do now? 

 

A:We urge you to read this proxy statement carefully, including its annexes, exhibits, attachments and the other documents referred to or incorporated by reference herein and to consider how the Merger affects you as a shareholder. After you have done so, please vote as soon as possible. 

 

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Q:           How do I vote if my Shares are registered in my name? 

 

A:If Shares are registered in your name as of the record date, you should simply indicate on your proxy card how you want to vote, and sign and mail your proxy card in the enclosed return envelope as soon as possible but in any event at least 72 hours before the time of the extraordinary general meeting so that your Shares will be represented and may be voted at the extraordinary general meeting. 

 

Alternatively, you can attend the extraordinary general meeting and vote in person. If you decide to sign and send in your proxy card, and do not indicate how you want to vote, the Shares represented by your proxy will be voted FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and transactions contemplated by the Merger Agreement, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the shareholders resolution during the extraordinary general meeting unless you appoint a person other than the chairman of the meeting as proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines. If your Shares are held by your broker, bank or other nominee, please see below for additional information. 

 

Q:           How do I vote if I own ADSs?

 

If you own ADSs as of the close of business in New York City on ________, 2021, the ADS record date (and do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained below), you cannot vote at the meeting directly, but you may instruct the ADS depositary (as the holder of the Shares underlying your ADSs) how to vote the Shares underlying your ADSs by completing and signing the ADS voting instruction card and returning it in accordance with the instructions printed on it as soon as possible but, in any event, so as to be received by the ADS depositary no later than ________ (New York City time) on ________, 2021. The ADS depositary will endeavor, in so far as practicable, to vote or cause to be voted the number of Shares represented by your ADSs in accordance with your voting instructions. The ADS depositary will not vote or attempt to exercise the right to vote that attaches to the Shares other than in accordance with the instructions given by you and received by the ADS depositary.

 

Alternatively, you may directly vote at the extraordinary general meeting if you cancel your ADSs prior to the close of business in New York City on ________, 2021 and become a holder of Shares by the close of business in the British Virgin Islands on ________, 2021, the share record date. If you hold your ADSs through a financial intermediary such as a broker, you must rely on the procedures and timing of the financial intermediary through which you hold your ADSs if you wish to vote. If your ADSs are held by your broker, bank or other nominee, see below.

 

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If you wish to cancel your ADSs, you need to make arrangements to deliver your ADSs to the ADS depositary for cancellation prior to ________ (New York City time) on ________ 2021, together with (a) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of Shares); (b) payment of the ADS cancellation fee (US$0.05 per ADS cancelled) and any applicable taxes; and (c) a certification that the ADS holder held the ADSs as of the ADS record date for the extraordinary general meeting and has not given, and will not give, voting instructions to the ADS depositary as to the ADSs being cancelled, or has given voting instructions to the ADS depositary as to the ADSs being cancelled but undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or nominee account, please contact your broker, bank or nominee to find out what actions you need to take to instruct the broker, bank or nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS depositary will arrange for the Hongkong and Shanghai Banking Corporation Limited, the custodian holding the Shares, to transfer registration of the Shares to the former ADS holder (or its designee). If, after registration of Shares in your name, you wish to receive a certificate evidencing the Shares registered in your name, you will need to request the registrar of the Shares to issue and mail a certificate to your attention. The process of surrendering ADSs and becoming a registered shareholder of the company may take a number of days. ADS holders wishing to do so should take action as soon as possible.

 

Q:           If my Shares or ADSs are held in a brokerage account, will my broker vote my Shares on my behalf? 

 

A:Your broker, bank or other nominee will only vote your Shares on your behalf, or give voting instructions to the ADS depositary with respect to the Shares representing your ADSs, if you instruct it how to vote. Therefore, it is important that you promptly follow the directions provided by your broker, bank or nominee regarding how to instruct it to vote your Shares or the Shares representing your ADSs. If you do not instruct your broker, bank or other nominee how to vote your Shares, or the Share representing your ADSs, that it holds on your behalf, those Shares may not be voted.

 

Q:What will happen if I abstain from voting or fail to vote on the proposal to authorize and approve the Merger Agreement and the Plan of Merger? 

 

A:If you abstain from voting, fail to cast your vote in person or by proxy or fail to give voting instructions to your broker, dealer, commercial bank, trust company or other nominee, your vote will not be counted. 

 

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Q:            May I change my vote? 

 

A:Yes, you may change your vote in one of three ways:

 

·first, you may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting before the extraordinary general meeting commences. Any written notice revoking a proxy should be sent to 518 Shangcheng Road, Floor 17, Shanghai, 200120, People’s Republic of China; 

 

·second, you may complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked to the Company no less than 48 hours prior to the extraordinary general meeting; or 

 

·third, you may attend the extraordinary general meeting and vote in person. Attendance, by itself, will not revoke a proxy. It will only be revoked if the shareholder actually votes at the extraordinary general meeting. 

 

If you hold Shares through a broker, bank or other nominee and have instructed the broker, bank or other nominee to vote your Shares, you must follow directions received from the broker, bank or other nominee to change your instructions. 

 

Holders of our ADSs may revoke their voting instructions by notification to the ADS depositary in writing at any time prior to ________ (New York City time) on ________, 2021. A holder of ADSs can do this in one of two ways:

 

·first, a holder of ADSs can revoke its voting instructions by written notice of revocation timely delivered to the ADS depositary; and

 

·second, a holder of ADSs can complete, date and submit a new ADS voting instruction card to the ADS depositary bearing a later date than the ADS voting instruction card sought to be revoked.

 

If you hold your ADSs through a broker, bank or nominee and you have instructed your broker, bank or nominee to give ADS voting instruction to the ADS depositary, you must follow the directions of your broker, bank or nominee to change those instructions.

 

Q:             What should I do if I receive more than one set of voting materials? 

 

A:You may receive more than one set of voting materials, including multiple copies of this proxy statement or multiple proxy or voting instruction cards. For example, if you hold your Shares or ADSs in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold Shares or ADSs. If you are a holder of record and your Shares or ADSs are registered in more than one name, you will receive more than one proxy card. Please submit each proxy card that you receive. 

 

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Q:           If I am a holder of certificated Shares or ADRs, should I send in my share certificates or my ADRs now? 

 

A:No. After the Merger is completed, you will be sent a form of letter of transmittal with detailed written instructions for exchanging your share certificates for the Merger Consideration. Please do not send in your certificates now. Similarly, you should not send in the ADRs that represent your ADSs at this time. Promptly after the Merger is completed, the ADS depositary will call for the surrender of all ADRs for delivery of the Merger consideration. ADR holders will be receiving a similar form of letter of transmittal and written instructions from the ADS depositary relating to the foregoing.

 

All holders of uncertificated Shares and uncertificated ADSs (i.e., holders whose Shares or ADSs are held in book entry) will automatically receive their cash consideration shortly after the Merger is completed without any further action required on the part of such holders. If your Shares or ADSs are held in “street name” by your broker, bank or other nominee you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your share certificates or ADRs in exchange for the Merger consideration. 

 

Q:           As a Shareholder, am I entitled to appraisal rights? 

 

A:Yes. Shareholders who dissent from the Merger will have the right to seek appraisal and payment of the fair value of their Shares if the Merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the Merger and they subsequently comply with all procedures and requirements of Section 179 of the BVI Companies Act, as amended, for the exercise of appraisal rights. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the Merger consideration you would receive pursuant to the Merger Agreement if you do not exercise appraisal rights with respect to your Shares. 

 

We encourage you to read the information set forth in this proxy statement carefully and to consult your own British Virgin Islands legal counsel if you desire to exercise your appraisal rights. Please see “Appraisal Rights” beginning on page 113 as well as “Annex C – BVI Business Companies Act, 2004 – Section 179” to this proxy statement for additional information. 

 

Q:           If I own ADSs and seek to exercise appraisal rights, how do I convert my ADSs to Shares, and when is the deadline for completing the conversion of ADSs to Shares?

 

If you own ADSs and wish to exercise appraisal rights, you must surrender your ADSs to the ADS depositary (in the case of an ADR by delivering the ADR to the Bank of New York Mellon at ________, 2021). Upon your payment of the fees, including the applicable ADS cancellation fee (US$0.05 per ADS cancelled) and any applicable taxes, and a certification that you have not given, and will not give, voting instructions to the ADS depositary in respect of the ADSs being cancelled (or, alternatively, that you will not vote the Shares), the ADS depositary will transfer the Shares and any other deposited securities underlying the ADSs to such ADS holder or a person designated by such ADS holder. The deadline for surrendering ADSs to the ADS depositary for these purposes is ________, 2021 at ________ (New York City time).

 

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You must become a registered holder of your Shares and lodge a written notice of objection to the Plan of Merger prior to the extraordinary general meeting.

 

We encourage you to read the information set forth in this proxy statement carefully and to consult your own British Virgin Islands legal counsel if you desire to exercise your appraisal rights. Please see "Appraisal Rights" beginning on page 113 as well as "Annex C—BVI Business Companies Act, 2004—Section 179" to this proxy statement for additional information.

 

Q:          Will any proxy solicitors be used in connection with the extraordinary general meeting? 

 

A:No. The Company has not retained a proxy solicitor for this transaction.

 

Q:           Do any of the Company’s directors or executive officers have interests in the Merger that may differ from those of other shareholders? 

 

A:Yes. Some of the Company’s directors or executive officers have interests in the Merger that may differ from those of other shareholders, including:

 

·the beneficial ownership of equity interests in Parent by Dr. Liang Tang, the chairman of the board of the directors of the Company and chief executive officer of the Company, and a 64.39% shareholder and chairman of the board of directors of the Rollover Shareholder.

 

·the potential enhancement or decline of share value for Parent, of which the Rollover Shareholder, will beneficially own, as a result of the Merger and future performance of the surviving company; 

 

·continued indemnification rights, rights to advancement of fees and directors and officers liability insurance to be provided by the surviving company to former directors and officers of the Company; 

 

·the monthly compensation of US$3,000 for Mr. Junhong Li and Mr. Zhongcai Wu, each of which is a member of the Independent Committee, in exchange for their services in such capacity (the payment of which is not contingent upon the completion of the Merger or the Independent Committee’s or the board’s recommendation of the Merger); 

 

·Cancellation of Rollover Shares by the Rollover Shareholder in exchange for newly issued shares of Parent; and 

 

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·the continuation of service of the executive officers of the Company with the surviving company in positions that are substantially similar to their current positions.

 

Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 72 for a more detailed discussion of how some of our Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our shareholders generally. 

 

Q:             How will our directors and executive officers vote on the proposal to approve the Merger Agreement? 

 

A:Pursuant to the Support Agreement, the Rollover Shareholder, which is beneficially owned by our chief executive officer and chairman of the board of directors, Dr, Tang, has agreed to vote, or cause to be voted, all of the Shares it beneficially owns, representing an aggregate of approximately 65.9% of the total issued and outstanding Shares entitled to vote as of ________,2021 in favor of the proposal to approve the Merger Agreement and the transactions contemplated thereby, including the Merger. 

 

Q:              Who can help answer my questions? 

 

A:If you have any questions or need assistance in voting your Shares or ADSs, you may contact the Company’s investor relations firm GCI IR at + 1 -202-656-3688 or email at info@goldenir.com.

 

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SPECIAL FACTORS

 

Background of the Merger 

 

Events leading to the execution of the Merger Agreement described in this Background of the Merger occurred in China and Hong Kong. As a result, China Standard Time is used for all dates and times given.

 

Our board of directors (the “Board”) and senior management periodically review the Company’s long-term strategic plans with the goal of enhancing shareholder value. As part of this ongoing process, our board of directors and senior management, from time to time, have considered strategic alternatives that may be available to the Company. 

 

On September 15, 2020, Pujiang submitted a preliminary non-binding proposal letter (the “Proposal”) to the Board, proposing to acquire all of the outstanding Shares of the Company not already owned by Pujiang or its affiliates for US$1.667 in cash per Share, or US$5.00 in cash per ADS, subject to certain conditions, in a going private transaction (the “Proposed Transaction”). Pujiang indicated its intention to finance the Proposed Transaction with a combination of cash on hand and funds to be drawn from existing debt facilities. The Proposal stated that the price represented a premium of approximately 28.9% to the closing price of the Company’s ADSs on September 15, 2020 and a premium of approximately 44.3% to the volume-weighted average closing price of the ADSs during the last 180 trading days. On September 16, 2020, the Company issued a press release disclosing its receipt of the proposal letter.

 

The Board determined that it was in the best interests of the Company and its shareholders to form an independent committee (the “the Independent Committee”), consisting of the Board’s two independent and disinterested directors, Mr. Junhong Li (to serve as chairman of the Independent Committee) and Mr. Zhongcai Wu, to evaluate the Proposal submitted by Pujiang and other strategic alternatives for the Company. At the meeting of the Board on September 22, 2020, all members of the Board unanimously approved the establishment of the Independent Committee. The Board delegated full power and authority to the Independent Committee in connection with its evaluation of the Proposal and the Proposed Transaction, including, among other things, the power and authority to: (a) review and evaluate the Proposal and any alternative strategic options that the Company may pursue and negotiate and finalize definitive agreements, or terminate any such negotiation, in connection with the proposal as the Independent Committee deems appropriate and in the best interests of the Company and its shareholders, in accordance with applicable laws; (b) advise the Board whether the Proposal or any alternative transaction was advisable and fair to, and in the best interests of, the Company and the Unaffiliated Security Holders; (c) reject or approve the Proposal or any alternative transaction, or recommend such rejection or approval to the Board; and (d) engage legal, financial and other advisors and obtain any professional opinions from such advisors. The Board agreed that it would not recommend the Proposed Transaction or any alternative transaction for approval by the Company’s shareholders or otherwise approve the Proposed Transaction or any alternative transaction without a prior favorable recommendation by the Independent Committee. 

 

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The Independent Committee reviewed pertinent documents and quotation from several legal counsels. Following a meeting with representatives from DLA Piper (UK) LLP (“DLA Piper”) to discuss the qualifications of DLA Piper’s attorneys and their experiences on similar transactions, the Independent Committee retained DLA Piper as its independent legal counsel on September 22, 2020. DLA Piper has not performed any work for the Rollover Shareholder, the Buyer Group or their respective affiliates prior to its engagement by the Independent Committee. 

 

On September 22, 2020, the Company issued a press release disclosing the formation of the Independent Committee and the engagement of its legal counsel to evaluate the Proposal.

 

From September 22 to October 2, 2020, the Independent Committee received proposals from, and conducted interviews with, several investment banking firms to act as independent financial advisor. On October 2, 2020, after deliberation on the experience, qualifications and reputation of each financial advisor candidate, the Independent Committee approved the engagement of Houlihan Lokey as its independent financial advisor. Among the reasons for Houlihan Lokey’s selection were its extensive experience in similar transactions, including representing special committees in going private transactions, its strong reputation, its extensive experience in dealing with China-based companies, its lack of existing material relationships with the Company or members of the Buyer Group, and its ability to interact in both English and Chinese. The Independent Committee subsequently entered into an engagement letter with Houlihan Lokey on October 2, 2020. On the same day, the Company issued a press release announcing the appointment of Houlihan Lokey as the independent financial advisor to assist the Proposed Transaction.

 

On October 12, 2020, the Independent Committee held a telephonic meeting with DLA Piper and Houlihan Lokey. At the meeting, DLA Piper discussed with the Independent Committee, among other things, Independent Committee’s role and responsibilities in such a transaction, including the fiduciary duty of care and the duty of loyalty to the shareholders of the Company that are unaffiliated with Pujiang or members of the Buyer Group, the best practices for the Independent Committee in the context of a going private transaction, and outside advisors’ respective roles in assisting the Independent Committee in performing its fiduciary duties. DLA Piper also discussed with each member of the Independent Committee as to whether he is aware of any conflict that would prevent him from objectively evaluating the Proposed Transaction. DLA Piper then described the general process and indicative timeline of a going private transaction, including SEC filings, the litigation and appraisal risk, and discussed with the Independent Committee key terms typically found in going private transaction documents, such as conditions precedents to closing, termination fees, market check process, in each case from a market practice perspective.

 

In the same meeting, Houlihan Lokey discussed with the Independent Committee the principal areas of work that they planned to undertake and explained to the Independent Committee the need for Houlihan Lokey to conduct financial due diligence on the Company in order to evaluate the fairness of the Proposed Transaction from a financial point of view and the methods Houlihan Lokey proposed to adopt when conducting its financial analysis. After the discussion, the Independent Committee instructed Houlihan Lokey to proceed with the financial due diligence on the Company.

 

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On October 20, 2020, Wilson Sonsini Goodrich & Rosati (“Wilson Sonsini”), counsel to Pujiang and the Buyer Group, circulated the initial draft of the Merger Agreement to DLA Piper.

 

On October 26, 2020, at a meeting of the Independent Committee, DLA Piper and Houlihan Lokey discussed a number of key issues in the draft Merger Agreement circulated by Wilson Sonsini with members of the Independent Committee. Among other things, they discussed (a) payment of fees due to or incurred by the depositary in connection with the cancellation of ADSs and whether such fee would be paid by the Buyer Group or the ADS holders, (b) qualifications to the Company’s representations and warranties and covenants in light of Dr. Tang’s role in the Company’s management, (c) Pujiang’s financing plan, (d) the Independent Committee’s rights in dealing with any competing proposals from third parties, including the absence of a “go-shop” provision in the draft merger agreement, the advisability of conducting a “market check” and the rights of the Board to change its recommendation, (e) conditions precedent to the completion of the merger, including clearance of regulatory approval, and that holders of no more than 5% of the Shares shall have exercised dissenters’ rights, and (f) the amount and terms of termination fees payable by the Company and payable by Pujiang upon termination of the merger agreement under certain circumstances. Houlihan Lokey then orally briefed to the Independent Committee the use of a pre-signing “market check” and/or a “go shop” provision in similar prior “going private” transactions. The Independent Committee asked various questions regarding potential benefits, advantages, limitations, disadvantages of the use of a pre-signing “market check” and/or “go-shop” in a “going private” transaction, which Houlihan Lokey and DLA Piper answered. After extensive discussion of various related considerations among members of the Independent Committee and its advisors, which include, among other things, the fact that no potential buyer had approached the Company since the Company’s announcement of the Proposal by Pujiang on September 16, 2020 and the Pujiang’s beneficial ownership in the Company, which represented 65.9% of the Company’s outstanding Shares, the Independent Committee determined not to conduct such a “market check” or insist on a “go shop” provision, but would remain open to and evaluate any inbound inquiries and indications of interest.

 

The Independent Committee instructed DLA Piper to, among other things, (a) propose that fees due to or incurred by the ADS depositary in connection with the cancellation of ADSs shall be paid by Pujiang and the Buyer Group, (b) propose that the Company not make warranties against matters of which the Buyer Group has knowledge, (c) include Company as a third-party beneficiary of any equity commitment letter to be entered by Pujiang and Parent, (d) give the Board the power to change recommendation if not doing so would be inconsistent with its fiduciary duties, without conditioning such power on a superior competing proposal, and (e) further negotiate the dissenting shareholder condition with Pujiang.

 

On October 29, 2020, DLA Piper provided Wilson Sonsini with a draft of confidentiality agreement to be entered into by and between Pujiang and the Company. Wilson Sonsini sent to DLA Piper its comments on the draft confidentiality agreement on October 30, 2020.

 

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On October 30, 2020, at the meeting of the Independent Committee, representatives from the Company provided the draft financial projections for the fiscal years ending 2020 through 2024, including projected revenue, projected costs and profit forecasts, to the Independent Committee, and shared with the independent directors the Company’s views on projected profit from the sale of plain surface PC strands, zinc coated PC wires and PC strands, and rare earth coated PC wires and PC strands. The representatives from the Company discussed the Covid-19 pandemic impact on the business of the Company, the status of new production line and market competition. During the meeting, Houlihan Lokey provided the Independent Committee with an overview of the financial projections of the Company, based on their understanding of the financial projections from their due diligence. Members of the Independent Committee discussed the financial projections extensively among themselves and with its advisors. Following this discussion, and after representatives from the Company had departed the meeting, the Independent Committee approved the financial projections, and instructed Houlihan Lokey to perform the valuation analysis of the Company based on the financial projections and other information that Houlihan Lokey deems appropriate and relevant.

 

On November 3, 2020, Mr. Junhong Li, the chairman of the Independent Committee, on behalf of the Company, entered into the confidential agreement with Pujiang. On the same day, DLA Piper circulated its comments on the draft Merger Agreement to Wilson Sonsini, which reflected discussions with the Independent Committee.

 

On November 7, 2020, Wilson Sonsini circulated the revised Merger Agreement, an initial draft of the equity commitment letter and an initial draft of a limited guarantee agreement to DLA Piper. Among other things, the revised Merger Agreement accepted certain revisions made by DLA Piper to exclude representations and warranties of the Company known by the Buyer Group but rejected certain revisions made to other provisions, including (i) giving the Board the power to change recommendation under certain circumstances, (ii) restoring the dissenting shareholder condition, and (iii) rejecting DLA Piper’s comments to the termination fee and counter-offering 3% of the Merger consideration for the Company termination fee and 6% of the merger consideration for the Parent termination fee.

 

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On November 13, 2020, the Independent Committee held a telephonic meeting with DLA Piper and Houlihan Lokey. At the meeting, DLA Piper discussed certain terms of the revised Merger Agreement with the Independent Committee, including, among others, (a) market standard for closing conditions, (b) payment obligations of fees due to or incurred by the ADS depositary in connection with the cancellation of ADSs (c) the length of time for which the paying agent would hold funds intended for payment to shareholders of Company, and fees associated with retaining the services of a paying agent, (d) the extent to which Pujiang may rely on the Company’s representations and warranties to terminate the transaction, in light of Pujiang’s involvement in the Company’s operations; (e) the terms of covenants relating to Company’s post-signing operations, (f) the Independent Committee’s rights and obligations in dealing with any competing proposals from third parties and reversing a favorable recommendation and/or terminating the merger agreement, (g) the post-closing indemnification of the Independent Committee, (h) conditions precedent to the completion of merger, including clearance of regulatory issues pertaining to Chinese shareholders and the threshold for dissenting shareholder condition, and (i) the fairness of the proposed 3% of merger consideration for Company as termination fee and 6% of merger consideration of merger consideration as the Parent termination fee. DLA Piper then discussed the purpose and terms of equity commitment letter and the limited guarantee circulated by Wilson Sonsini on November 7, 2020, including but not limited to (a) the need to push back liability cap of Pujiang in the equity commitment letter and include the Company as a third-party beneficiary, and (b) with respect to the limited guarantee, the extent and terms under which Pujiang would be liable for the merger consideration and termination fee, the assignability of Pujiang’s guarantee, and time limit for the Company to exercise guaranteed rights against Pujiang. The Independent Committee then instructed DLA Piper to prepare an issues list of the Merger Agreement and other ancillary documents and further negotiate with Pujiang and its counsel. At the same meeting, Houlihan Lokey provided the Independent Committee with an update regarding its financial due diligence on the Company, and informed the Independent Committee that its work pertaining to its preliminary financial analysis was nearly complete, subject to internal approvals. Houlihan Lokey was also preparing a presentation for the Independent Committee and proposed to hold a meeting to discuss its preliminary financial analysis in the following week.

 

On November 17, 2020, Houlihan Lokey circulated to the Independent Committee a preliminary financial analysis report for its review and consideration. On November 20, 2020, the Independent Committee held a meeting to discuss the preliminary financial analysis presentation dated November 17, 2020 with Houlihan Lokey and DLA Piper. At the Meeting Houlihan Lokey discussed their preliminary views of the Company’s valuation and highlighted an adjustment to the proposed enterprise value and implied value of non-controlling interest of the Company based on the Company’s ownership in its operating subsidiaries. The adjustments were based upon, among others, the operating subsidiaries’ contribution of cash flow to the Company. The Independent Committee then discussed with its advisors the proposed merger consideration of US$5.00, as compared to the average closing price of the ADSs from periods ended on September 15, 2020. The parties then moved to discuss the Company’s financial information, including but not limited to (a) the Company’s turnover and profit margin derived from core products, (b) prospect for growth in light of sales and market share, and (c) capital expenditures. Houlihan Lokey discussed its preliminary discounted cash flow analysis of the Company and the justification for the discount rate and perpetual growth rate used in its analysis. Based on discounted cash flow analysis, Houlihan Lokey derived the implied per ADS value reference range of US$4.02 - US$6.53. Houlihan Lokey then moved to discuss market trading overview, a timeline of the Company’s ADS trading history, ADS trading activity prior to and after Pujiang’s Proposal. At this time, Houlihan Lokey was of the view that the mid-point of ADS value reference range of the company was approximately US$5.27 (based on a fair ADS value range of US$4.02 to US$6.53), which would give Company room to further negotiate the merger consideration and terms of the Merger Agreement in light of below mid-point offer price of US$5.00.

 

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DLA Piper reiterated legal negotiation points of the transaction, principally with respect to deal certainty and representations and warranties. In particular, Pujiang was concerned about the concept of “fiduciary-out,” which would allow the Independent Committee to terminate the merger agreement after the signing of the Merger Agreement under certain circumstances. DLA Piper stressed the need for the Independent Committee to have the ability to terminate the Merger Agreement if a superior deal appears, in order to satisfy its fiduciary duty towards the Company and the Unaffiliated Security Holders. In addition, DLA Piper advised that the Independent Committee should be keep negotiating more definite terms for the equity commitment letter so as to ensure Pujiang’s funding. After Houlihan Lokey and DLA’s presentation, the Independent Committee asked questions concerning the valuation report, specifically, the source of information from which Houlihan Lokey determined that other than Pujiang, no shareholders hold more than 1% of the Company’s outstanding shares. Houlihan Lokey stated that such information was calculated and derived from public sources. The Independent Committee then decided to provide a price counter-offer prior to DLA Piper reverting to Wilson Sonsini with the Company’s issues list concerning the Merger Agreement.

 

From November 17, 2020 to November 27, 2020, DLA Piper and Wilson Sonsini, through exchange of drafts and telephonic meetings, continued to negotiate the terms of the Merger Agreement and other transaction documents. On November 27, 2020, as instructed by the Independent Committee, DLA Piper informed Wilson Sonsini that the Independent Committee would not be in a position to continue the negotiation without an upwards adjustment of the offer price to reflect the fair value of the Company’s ADSs. The parties then continued to discuss the acceptable merger consideration in multiple rounds of negotiations.

 

On December 11, 2020, based on the understanding after extensive negotiations that the revised proposal of US$1.70 per Share and US$5.10 (less the cancellation fee of US$0.05 per ADS) Per ADS Merger Consideration represented Pujiang’s best and final offer, the Independent Committee, Houlihan Lokey, and DLA Piper discussed extensively with respect to the fairness of the new merger consideration and the need to further negotiate the terms of the Merger Agreement and other transaction documents, in light of the new proposed merger consideration. The Independent Committee instructed DLA Piper to resume negotiation with Wilson Sonsini with respect to the terms of the Merger Agreement. Later that day, DLA Piper and Wilson Sonsini held a telephonic meeting to go through the key outstanding issues of the Merger Agreement. DLA Piper requested for a rollover and support agreement from Pujiang.

 

On December 14, 2020, Wilson Sonsini circulated the initial draft of Support Agreement. Meanwhile, after discussion with representative from Ogier, the Independent Committee engaged Ogier as the Independent Committee’s counsel with respect to BVI laws. After reviewing the relevant transaction documents, including the Merger Agreement, Ogier prepared a memorandum for the Independent Committee, detailing the fiduciary duty of the members of the Independent Committee to the Company’s shareholders unaffiliated with Pujiang or the Buyer Group in connection with the proposed going-private transaction under the laws of the British Virgin Islands, and advised the Independent Committee ways that the Independent Committee can better ensure that it has fulfilled its obligations under the laws of the British Virgin Islands.

 

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On December 17, 2020, the Independent Committee and the representatives from DLA Piper, Houlihan Lokey held a telephonic meeting to discuss revised terms of the Merger Agreement. DLA Piper discussed material changes to key terms of the Merger Agreement since last meeting. It was noted that after multiple rounds of negotiations, the Merger consideration of the Company’s ADSs had been increased from US$5.00 per ADS to US$5.10 per ADS (less US$0.05 cancellation fee of the ADS, which shall be payable by the holders of ADSs). DLA Piper also explained to the Independent Committee about their ability to change recommendation with respect to the Merger if a superior proposal is made to the Company, or if an intervening event occurs before shareholders of the Company approve the Merger (an intervening event means any material development or change in circumstances that would affect the business, assets, or operations of the Company after the signing of the merger agreement that is not known or reasonably foreseeable for the Company). DLA Piper then discussed certain changes to the closing conditions from requiring that holders of no more than 5% of the shares shall have exercised dissenters’ rights to requiring that holders of no more than 10% of the shares shall have exercised dissenters’ rights, and informed the Independent Committee of the finalized termination fee and the closing date.

 

The Independent Committee’s then discussed the required shareholder votes to pass the Merger Agreement and the Merger, which is the affirmative vote of holders of shares representing at least a majority of the shares present and voting in person or by proxy at the Company’s shareholder meeting. DLA Piper reminded the Independent Committee that raising the voting threshold required for approving the Merger and the Merger Agreement will increase the influence and impact of the Unaffiliated Security Holders on the Merger. The parties at the meeting then discussed extensively on the shareholder voting threshold, and noted that in accordance with the BVI laws and the Company's articles of association, and as confirmed by the BVI counsel of the Company, the Merger (without the amendment of the articles of association of the Company) only requires the affirmative votes of the majority of the shares present and voting at the shareholder meeting. In was further noted that as the Buyer Group already held 65.9% of voting rights, increasing the voting threshold to 662/3% does not necessarily give significantly more influences to the Unaffiliated Security Holders of the Company. After extensive discussion among members of the Independent Committee and its advisors, the Independent Committee approved the proposed voting threshold, based on the need to protect the interest of the Unaffiliated Security Holders of the Company and the certainty of the transaction. Representatives from DLA Piper then briefly discussed the history and status of the parties’ negotiations on other transaction documents and discussed increases in equity commitment made by the Buyer Group to include expenses incurred by the Company in connection with the Merger.

 

Houlihan Lokey then presented to the Independent Committee its updated financial analysis with respect to the Company and the transaction proposed by Pujiang at the offer price of US$1.70 per Share without interest, or US$5.10 per ADS (less US$0.05 per ADS cancellation fee payable pursuant the terms of the Deposit Agreement). Houlihan Lokey reported that it had made certain updates to its last financial analyses made in November, to include among others, an increase in selected discount rate range due to updated market data. Houlihan Lokey then rendered its oral opinion to the Independent Committee, that, as of the date of the Meeting and based on the information available to Houlihan Lokey regarding the financial condition and prospects of the Company, the consideration to be received by the Unaffiliated Security Holders of the Company was fair to such Unaffiliated Security Holders from a financial point of view. Houlihan Lokey noted that it was prepared to execute and deliver a written fairness opinion to the Independent Committee on the same day of the Meeting. The full text of the written opinion of Houlihan Lokey is attached as Annex B to this proxy statement. For additional information regarding the financial analyses performed by and the opinion rendered by Houlihan Lokey, please refer to “Special Factors - Opinion of the Independent Committee’s Financial Advisor” beginning on page 55.

 

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Thereafter, members of the Independent Committee discussed Houlihan Lokey’s financial analyses and fairness opinion, following which the Independent Committee unanimously (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, is fair to, and in the best interests of, the Company and its shareholders who are unaffiliated with Pujiang and the Buyer Group, (b) approved and declared it advisable for the Company to enter into the Merger Agreement, the Plan of Merger, other transaction documents and the transactions contemplated thereby, including the Merger, (c) recommended that the Board authorize and approve the entry into by the Company of the Merger Agreement, the Plan of Merger, other transaction documents and the transactions contemplated thereby, including the Merger, and (d) recommended that the Board direct that the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the Board that the shareholders of the Company authorize and approve by way of a shareholder resolution the Merger Agreement, the Plan of Merger and the transactions contemplated under the Merger Agreement, including the Merger. See “Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and the Board” beginning on page 40 for a description of the resolutions of the Independent Committee at this meeting.

 

Following the meeting of the Independent Committee on December 17, 2020, the Board convened a meeting. During the meeting, upon the unanimous determination and recommendation of the Independent Committee and acting through the Independent Committee, the Board had (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, is fair to, and in the best interests of, the Company and its shareholders (including those shareholders who are unaffiliated with Pujiang and the Buyer Group), (b) approved the execution, delivery and performance by the Company of the Merger Agreement, the Plan of Merger and the consummation of the transactions contemplated thereby, including the Merger, and (c) resolved to direct that the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the Board that the shareholders of the Company authorize and approve the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger.

 

Later on December 17, 2020, (i) the Company, Parent, and Merger Sub executed the Merger Agreement, (ii) the Company and Pujiang executed the Limited Guarantee, (iii) Parent and Pujiang executed the Support Agreement, and (iv) Parent and Pujiang executed the Equity Commitment Letter. The Company then issued press release announcing the execution of the Merger Agreement and the ancillary documents and furnished the press release and the executed Merger Agreement to the SEC as exhibits to its current report on Form 6-K.

 

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On December 18, 2020, Pujiang, Acme, Elegant Kindness, and Dr. Tang filed with the SEC an Amendment No. 3 to the Schedule 13D originally filed with SEC on August 20, 2010.

 

Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors 

 

The Board, acting upon the unanimous recommendation of the Independent Committee, which Independent Committee acted with the advice and assistance of its independent financial and legal advisors, evaluated the Merger, including the terms and conditions of the Merger Agreement. 

 

At a meeting on December 17, 2020, after careful deliberation and consultation with its financial advisor and legal counsel, the Independent Committee unanimously (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, is fair to, and in the best interests of, the Company and its shareholders who are unaffiliated with the Buyer Group, (b) approved and declared it advisable for the Company to enter into the Merger Agreement, the Plan of Merger, other transaction documents and the transactions contemplated thereby, including the Merger, (c) recommended that the Board authorize and approve the entry into by the Company of the Merger Agreement, the Plan of Merger, other transaction documents and the transactions contemplated thereby, including the Merger, and (d) recommended that the Board direct that the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the Board that the shareholders of the Company authorize and approve by way of a shareholder resolution the Merger Agreement, the Plan of Merger and the transactions contemplated under the Merger Agreement, including the Merger.

 

On the same date following the Independent Committee meeting, the Board convened a meeting. Upon the unanimous determination and recommendation of the Independent Committee and acting through the Independent Committee, the Board had (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, is fair to, and in the best interests of, the Company and its shareholders (including those shareholders who are unaffiliated with the Buyer Group), (b) approved the execution, delivery and performance by the Company of the Merger Agreement, the Plan of Merger and the consummation of the transactions contemplated thereby, including the Merger, and (c) resolved to direct that the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the Board that the shareholders of the Company authorize and approve the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger.

 

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In the course of reaching their respective determinations, the Independent Committee and the Board considered the following substantive factors and potential benefits of the Merger, each of which the Independent Committee and the Board believed supported their respective decisions, but which are not listed in any relative order of importance:

 

·the current and historical market prices of the ADSs, including the fact that the Per ADS Merger Consideration of US$5.10 (less US$0.05 ADS cancellation fee payable by the holders of ADS pursuant to the Deposit Agreement) offered to the Unaffiliated Security Holders represents (a) a 38.6% premium to the closing price of our ADSs on September 15, 2020, the last trading day immediately prior to the Company’s announcement on September 16, 2020 that it had received “a going private” proposal and (b) 52.8% and 56.8% premium over the average closing price of the ADSs during the 30 and 90 trading days, respectively, prior to the Company’s announcement on September 16, 2020 that it had received a “going private” proposal;

 

·the possibility that it could take a considerable period of time before the trading price of the ADSs would reach and sustain a per ADS price equal to or greater than the Per ADS Merger Consideration of US$5.10, as adjusted for present value, particularly in light of (i) the trading price of the Company’s Shares prior to announcing the receipt of the going-private proposal, (ii) the Board’s recognition of the challenges involved in increasing shareholder value as an independent publicly traded company; (iii) the adverse impact on the Company’s performance and operations caused by the outbreak of COVID-19, which is expected to continue in 2021; and (iv)  the recent statement given by the chairman of the SEC and the chairman of the Public Company Accounting Oversight Board warning the disclosure, financial reporting and other risks of Chinese listed companies, the impact of newly enacted Holding Foreign Companies Accountable Act, as well as the evolving trade tension between the U.S. and China, which are expected to lead to lower valuation of China-based companies by the U.S. stock markets;

 

·the possible alternatives to the Merger (including the possibility of continuing to operate the Company as an independent publicly traded company and the possibility of a sale of the company to another buyer), the perceived potential benefits and risks of the possible alternatives and the timing and the likelihood of accomplishing the goals of such alternatives, and the assessment by the Independent Committee that none of these alternatives was reasonably likely to present superior opportunities for the Company or to create greater value for its shareholders than the Merger, taking into account (i) the likelihood of being consummated, given the size of and required funding for any potential alternative transaction, the percentage ownership held by the Buyer Group, and general timing consideration, (ii) the business, competitive, industry and market risks, and (iii) the absence of any proposals made by any unsolicited potential buyers since the announcement of the proposed transaction on September 16, 2020;

 

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·the all-cash merger consideration, which will allow the Unaffiliated Security Holders to immediately realize liquidity for their investment and provide them with a specific amount of cash consideration for their shares;

 

·the negotiations with respect to the Merger Consideration and the Independent Committee’s determination that, following extensive negotiations with Pujiang and the Buyer Group, the fact that US$1.70 per Share and US$5.10 per ADS (less US$0.05 cancellation fee) was the highest price that Pujiang and the Buyer Group would agree to pay; with the Independent Committee basing its belief on a number of factors, including the process of negotiations and the experience of the Independent Committee’s advisors;

 

·the lack of interested bidders, considering the fact that there was no proposal submitted to the Independent Committee and that there were no party other than Pujiang had contacted the Company or the Independent Committee expressing an interest in exploring an alternative transaction with the Company following the Company’s announcement on September 16, 2020 that it has received a “going private” proposal;

 

·the Independent Committee's belief that it was questionable whether any third party could complete an alternative transaction in light of the fact that Pujiang beneficially owns approximately 65.9% of the Company outstanding ordinary shares;

 

·the financial analysis reviewed and discussed with the Independent Committee by representatives of Houlihan Lokey, as well as the oral opinion of Houlihan Lokey to the Independent Committee on December 17, 2020 (which was subsequently confirmed by delivery of a written opinion of Houlihan Lokey dated the same date) with respect to the fairness, from a financial point of view, of the US$1.70 per Share and US$5.10 Per ADS Merger Consideration to be received by the holders of Company’s securities (other than holders of Excluded Shares) (without giving effect to any impact of the merger on any particular holder of Shares other than in its capacity as a holder of Shares), pursuant to the Merger Agreement, as of December 17, 2020, based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Houlihan Lokey in preparing its opinion;

 

·potential adverse effects on the Company’s business, financial condition and results of operations caused by economic conditions in the PRC and the United States, which have resulted in reduced liquidity, greater volatility, widening of credit spreads, lack of price transparency in credit markets, a reduction in available financing, the current coronavirus outbreak and reduced market confidence;

 

·the global economic downturn induced by the Covid-19 pandemic;

 

·increased costs of regulatory compliance for public companies;

 

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·the possibility that PRC-based U.S.-listed public companies would be subject to additional costs and burden of regulatory compliance by reason of the newly enacted Holding Foreign Companies Accountable Act and law or regulation similar in substance to the Holding Foreign Companies Accountable Act;

 

·the trends in the Company’s industry, including competition;

 

·the recognition that, as a privately-held entity, the management of the Company may have greater flexibility to focus on improving the Company’s long term financial performance without the pressures caused by the public equity market’s valuation of the Company and emphasis on short-term period-to-period performance;

 

·the recognition that, as an SEC-reporting company, the management of the Company and accounting staff, which comprises a handful of individuals, must devote significant time to SEC reporting and compliance;

 

·the recognition that, as an SEC-reporting company, the Company is required to disclose a considerable amount of business information to the public, some of which would otherwise be considered proprietary and competitively sensitive and would not be disclosed by a non-reporting company and which potentially may help our actual or potential competitors, customers, lenders and vendors compete against us or make it more difficult for us to negotiate favorable terms with them, as the case may be;

 

·the belief of the Independent Committee that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants and the conditions to their respective obligations, are reasonable;

 

·the likelihood that the Merger would be completed based on, among other things (not in any relative order of importance):

 

othe absence of a financing condition in the Merger Agreement;

 

othe likelihood and anticipated timing of completing the Merger in light of the scope of the conditions to completion;

 

othe fact the Merger Agreement provides that, in the event of a failure of the Merger to be completed under certain circumstances, Parent will pay the Company a termination fee in the amount of US$680,000 and the guarantee of such payment obligation by the Rollover Shareholder pursuant to a limited guarantee; and

 

·the consideration and negotiation of the Merger Agreement was conducted entirely under the control and supervision of the Independent Committee, which consists of two independent and disinterested directors, each of whom is an outside, non-employee director, and that no limitations were placed on the Independent Committee’s authority

 

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In addition, the Independent Committee and the Board believed that sufficient procedural safeguards were and are present to ensure that the Merger is procedurally fair to the Unaffiliated Security Holders and to permit the Independent Committee and the Board to represent effectively the interests of such Unaffiliated Security Holders. These procedural safeguards, which are not listed in any relative order of importance, are discussed below:

 

·in considering the Merger, the Independent Committee, which consists of two independent and disinterested directors, acted solely to represent the interests of the Unaffiliated Security Holders, and the Independent Committee had independent control of the negotiations with the Buyer Group and its legal advisor on behalf of such Unaffiliated Security Holders; 

 

·both of the directors serving on the Independent Committee during the entire process were and are independent and disinterested directors and free from any affiliation with Pujiang and the Buyer Group. In addition, neither of such directors is nor ever was an employee of the Company or any of its subsidiaries or affiliates and neither of such directors has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than (i) the directors’ receipt of board compensation in the ordinary course, (ii) Independent Committee members’ compensation in connection with its evaluation of the Merger (which is not contingent upon the completion of the Merger or the Independent Committee’s or the Board’s recommendation of the Merger), and (iii) the director’s indemnification rights under the Merger Agreement;

 

·following its formation, the Independent Committee had independent control over the sale process with the advice and assistance of Houlihan Lokey as its financial advisor, DLA Piper, LLP as its US legal advisor and Ogier as its BVI legal counsel, each reporting solely to the Independent Committee;

 

·the Independent Committee was empowered to consider, attend to and take any and all actions in connection with the written proposal from Pujiang and the transactions contemplated thereby from the date the Independent Committee was established, and no evaluation, negotiation, or response regarding the transaction or any documentation in connection therewith from that date forward was considered by the Board for authorization and approval unless the Independent Committee had recommended such action to the Board;

 

·there are no limitations placed on the Independent Committee’s authority, including the authority to reject the terms of any strategic transaction, including the Merger;

 

·the recognition by the Independent Committee and the Board that it had no obligation to recommend the authorization and approval of the proposal from the Buyer Group or any other transaction;

 

·the Independent Committee had the freedom to recommend for or against the Merger or any alternative transaction and the authority to “just say no” to any such extraordinary transaction if the Independent Committee would consider that course of action to be in the best interests of the Company and the Unaffiliated Security Holders;

 

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·the recognition by the Independent Committee and the Board that, under the terms of the Merger Agreement, it has the ability to consider any proposal regarding a competing transaction that is reasonably likely to lead to a Superior Proposal until the date the Company’s shareholders vote upon and authorize and approve the Merger Agreement;

 

·the ability of the Company to terminate the Merger Agreement in connection with a Superior Proposal” or a materially adverse intervening event, subject to compliance with the terms and conditions of the Merger Agreement;

 

·the Independent Committee held regular meetings to consider and review the terms of the Merger Agreement and the Merger;

 

·the terms and conditions of the Merger Agreement were the product of vigorous negotiations between the Independent Committee and its financial advisor and legal advisor, on the one hand, and Pujiang and its counsel, on the other hand; and 

 

·the availability of appraisal rights to the Unaffiliated Security Holders who comply with all of the required procedures under the BVI Business Companies Act for exercising dissenters’ and appraisal rights, which allow such holders to seek appraisal of the fair value of their shares as determined by independent appraisers. 

 

The Independent Committee and the Board also considered a variety of potentially negative factors discussed below concerning the Merger Agreement and the Merger, which are not listed in any relative order of importance:

 

·the fact that authorization and approval of the Merger Agreement are not subject to the authorization and approval of holders of a majority of the Company’s outstanding Shares unaffiliated with Pujiang and the Buyer Group, in light of the fact that Pujiang beneficially owns 65.9% of the Company’s issued and outstanding shares; 

 

·the fact that the Company’s shareholders, other than the Rollover Shareholder, will have no ongoing equity participation in the Company following the Merger, and that they will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of the  Shares, and will not participate in any potential future sale of the Company to a third party or any potential recapitalization of the Company which could include a dividend to shareholders;

 

·the restrictions on the conduct of the Company’s business prior to the completion of the Merger;

 

·the risks and costs to the Company if the Merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on business and customer relationships;

 

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·the Company will be required to, under certain circumstances, pay Parent a termination fee of US$340,000 in connection with the termination of the Merger Agreement;

 

·the fact that Parent and Merger Sub are newly formed corporations with essentially no assets and that the Company’s legal remedy in the event of breach of the Merger Agreement by Parent or Merger Sub under certain circumstances may be limited to receipt of a termination fee of US$680,000, and that under certain circumstances the Company may not be entitled to a termination fee;

 

·the Merger Agreement precludes the Company from actively soliciting alternative transaction proposals;

 

·the terms of Pujiang and the Buyer Group’s participation in the Merger and the fact that Pujiang and the Buyer Group may have interests in the transaction that are different from, or in addition to, those of the Unaffiliated Security Holders, as well as the other interests of the Company’s directors and officers in the Merger;

 

·that while the Independent Committee expects to complete the Merger, there can be no assurance that all conditions to the parties’ obligations to complete the Merger will be satisfied and, as a result, it is possible that the Merger may not be completed even if Company shareholders approve it;

 

·the possibility that the Merger might not be completed and the negative impact of a public announcement of the Merger on our sales and operating results and our ability to attract and retain key management, marketing and technical personnel; and

 

·the taxability of an all-cash transaction to the Unaffiliated Security Holders that are U.S. holders as defined below in “Special Factors - Material U.S. Federal Income Tax Consequences” beginning on page 76. 

 

The forgoing discussion of information and factors considered by the Independent Committee and the Board is not intended to be exhaustive, but includes the material factors considered by the Independent Committee and the Board. In view of the wide variety of factors considered by the Independent Committee and our board of directors, neither the Independent Committee nor the Board found it practicable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the Independent Committee and the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Independent Committee recommended that the Board authorize and approve, and the Board authorized and approved, the Merger Agreement based upon the totality of the information presented to and considered by it. 

 

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In the course of reaching its conclusion regarding the fairness of the Merger to the Unaffiliated Security Holders and its decision to recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, the Independent Committee considered financial analyses presented by Houlihan Lokey as an indication of the going concern value of the Company. These analyses included, among others, a discounted cash flow analysis. The Independent Committee noted that the financial analyses performed by Houlihan Lokey relied only on a discounted cash flows analysis while also presenting information with respect to selected companies and selected transactions for information purposes. The Independent Committee also noted Houlihan Lokey’s view that the results derived from the selected companies analysis and selected transactions analysis do not provide a meaningful comparison to the Company because (i) there were not a sufficient number of meaningfully comparable companies to the Company to serve as a basis of comparison for the selected companies analysis, and (ii) there were not a sufficient number of transactions involving target companies that were meaningfully comparable to the Company for the selected transactions analysis. After reviewing the information with respect to selected companies and selected transactions presented by Houlihan Lokey and making inquiries about the availability of comparable companies and transactions for which financial information was publicly available, the Independent Committee concluded that the results derived from the selected company analysis and selected transactions analysis would not provide a meaningful comparison to the Company. The Independent Committee adopted Houlihan Lokey’s financial analyses as a whole, including its determinations that the selected companies analysis and transactions analysis did not result in meaningful comparisons with respect to the Company and the Merger. . All of the material analyses as presented to the Independent Committee on December 17, 2020 are summarized below under the caption “Special Factors - Opinion of the Independent Committee’s Financial Advisor” beginning on page 55. The Independent Committee expressly adopted these analyses and the opinion of Houlihan Lokey, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger. 

 

Neither the Independent Committee nor the Board considered the liquidation value of Company’s assets because each considers the Company to be a viable going concern business where value is derived from cash flows generated from its continuing operations. In addition, the Independent Committee and the Board believe that the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going concern value. In addition, the Independent Committee and the Board believe that the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going concern value on the following grounds: (i) the realization of value in a liquidation would involve selling many distinct operating entities and such a process would likely be complex and time consuming, which might delay or impede such a process, (ii) a liquidation of some (but not all) assets would risk leaving unattractive, orphaned assets that would be difficult to monetize, (iii) the tax implications and lay-off costs in a liquidation are difficult to quantify, and could be significant relative to a sale of the Company as a going concern and (iv) neither the Independent Committee nor the Board were aware of any precedents of U.S.-listed PRC companies liquidating their entire business and returning the proceeds to shareholders. Each of the Independent Committee and the Board believes the analyses and additional factors it reviewed provided an indication of the Company’s going concern value. Each of the Independent Committee and the Board also considered the historical market prices of the Company’s ADSs as described under the caption “Market Price of the Company’s Shares and ADSs, Dividends and Other Matters - Market Price of the Shares and the ADSs” beginning on page 80.

 

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Neither the Independent Committee nor the Board considered the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the shareholders of the Company, as a factor. The Independent Committee and the Board believe that net book value is not a material indicator of the value of the Company as a going concern. The Company’s net book value per Share as of December 31, 2019 was US$6.60, which is based on the 19,791,110 issued and outstanding Shares as of December 31, 2019. Net book value does not take into account the future prospects of the Company, market conditions, trends in our industry or the business risks inherent in competing with larger companies in our industry. The Company is not aware of any firm offers made by any unaffiliated person, other than the filing persons, during the past two years for (i) the Merger or consolidation of the Company with or into another company, or vice-versa; (ii) the sale or other transfer of all or any substantial part of the assets of the Company; or (iii) a purchase of the Company’s securities that would enable the holder to exercise control of the Company.

 

In reaching its determination that the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, are fair to and in the best interests of the Company and the Unaffiliated Security Holders and its decision to authorize and approve the Merger Agreement and recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, by our shareholders, the Board, on behalf of the Company, considered the analysis and recommendation of the Independent Committee and the factors examined by the Independent Committee as described above under this section and adopted such recommendations and analysis.

 

For the foregoing reasons, each of the Company and the Board believes that the Merger Agreement, the Plan of Merger and the transactions contemplated thereby are substantively and procedurally fair to and in the best interests of the Company and the Unaffiliated Security Holders

 

Except as discussed in “Special Factors - Background of the Merger,” “Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and our Board of Directors,” and “Special Factors - Opinion of the Independent Committee’s Financial Advisor,” no director who is not an employee of the Company has retained an unaffiliated representative to act solely on behalf of Unaffiliated Security Holders for purposes of negotiating the terms of the transaction and/or preparing a report concerning the fairness of the transaction. 

 

Position of the Buyer Group as to the Fairness of the Merger 

 

SEC rules governing going-private transactions, each member of the Buyer Group is required to express his or its belief as to the fairness of the Merger to the Unaffiliated Security Holders.

 

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Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Buyer Group as to the fairness of the Merger are not intended to be and should not be construed as a recommendation to any shareholder as to how that shareholder should vote on the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger. Members of the Buyer Group have interests in the Merger that are different from, and/or in addition to, those of the other shareholders of the Company by virtue of their continuing interests in the Surviving Company after the completion of the Merger. These interests are described under the section entitled “Special Factors—Interests of Certain Persons in the Merger—Interests of the Buyer Group” beginning on page 72.

 

The Buyer Group believes that the interests of the Unaffiliated Security Holders were represented by the Independent Committee, which negotiated the terms and conditions of the Merger Agreement with the assistance of its independent legal and financial advisors. The Buyer Group attempted to negotiate a transaction that would be most favorable to the Buyer Group, rather than to the Unaffiliated Security Holders and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were substantively and procedurally fair to such holders. The Buyer Group did not participate in the deliberations of the Independent Committee regarding, and did not receive any advice from the Independent Committee’s independent legal or financial advisors as to, the fairness of the Merger to the Unaffiliated Security Holders. Furthermore, the Buyer Group did not itself undertake a formal evaluation of the fairness of the Merger. No financial advisor provided the Buyer Group with any analysis or opinion with respect to the fairness of the Per Share Merger consideration to the Unaffiliated Security Holders.

 

Based on their knowledge and analyses of available information regarding the Company, as well as discussions with the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Independent Committee and the Board discussed under the section entitled “—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” beginning on page 40, the Buyer Group believes that the Merger is substantively fair to Unaffiliated Security Holders based on the following factors, which are not listed in any relative order of importance:

 

·The Per ADS Merger Consideration of US$5.10 per ADS represents a premium of approximately 38.6% to the closing price of the Company’s ADSs on September 15, 2020, the date of the Proposal, and a premium of approximately 92.4% to the average closing price of the ADSs during the last 180 trading days;

 

·the Company’s ADSs traded as low as US$1.50 per ADS during the 52-week period prior to the receipt of the Proposal on September 15, 2020;

 

·the members of the Independent Committee are not affiliated with any member of Buyer Group and do not have any financial interests in the Merger different from, or in addition to, those of the Unaffiliated Security Holders, other than the members’ receipt of Board compensation in the ordinary course and Independent Committee compensation (which are not contingent upon the completion of the Merger or the Independent Committee’s or the Board's recommendation and/or authorization and approval of the Merger) and their indemnification rights under their respective indemnification agreement entered into with the Company and the Merger Agreement;

 

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·notwithstanding that the Buyer Group may not rely upon the opinion provided by Houlihan Lokey to the Independent Committee, the Independent Committee received an opinion from Houlihan Lokey stating that, as of the date of such opinion, and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion, the Per Share Merger consideration to be received by the holders of Shares (other than the Buyer Group) in the Merger was fair to them, from a financial point of view;

 

·the Independent Committee and, upon the unanimous recommendation of the Independent Committee, the Board determined that the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, are fair to and in the best interests of the Unaffiliated Security Holders;

 

·the Company has the ability, under certain circumstances, to seek specific performance to prevent breaches of the Merger Agreement and to specifically enforce the terms of the Merger Agreement;

 

·the Merger is not conditioned on any financing being obtained by Parent or Merger Sub, thus increasing the likelihood that the Merger will be consummated, and the Merger consideration will be paid to the Unaffiliated Security Holders;

 

·the consideration to be paid to the Unaffiliated Security Holders in the Merger is all cash, allowing the Unaffiliated Security Holders to immediately realize a certain and fair value for all of their Shares, without incurring brokerage and other costs typically associated with market sales; and

 

·the possibility that PRC-based U.S.-listed public companies would be subject to additional costs and burden of regulatory compliance by reason of Holding Foreign Companies Accountable Act or any newly enacted similar law or regulation.

 

The Buyer Group did not consider the liquidation value of the Company because the Buyer Group considers the Company to be a viable going concern and views the trading history of the Company’s ADSs as an indication of the Company’s going concern value, and, accordingly, did not believe liquidation value to be relevant to a determination as to the fairness of the Merger.

 

The Buyer Group did not consider the Company’s net book value, which is an accounting concept based on historical costs, as a factor because it believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs and therefore not a relevant measure in the determination as to the fairness of the Merger. See “Where You Can Find More Information” beginning on page 122 for a description of how to obtain a copy of the Company's Annual Report.

 

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The Buyer Group did not establish, and did not consider, a going concern value for the Company as a public company to determine the fairness of the Merger consideration to the Unaffiliated Security Holders because, following the Merger, the Company will have a significantly different capital structure. However, to the extent the pre-Merger going concern value was reflected in the pre-announcement price of the Company’s ADSs, the Per ADS Merger Consideration of US$5.10 represents a premium to the going concern value of the Company.

 

The Buyer Group is not aware of, and thus did not consider, any offers or proposals made by any unaffiliated person during the past two years for (i) a Merger or consolidation of the Company with or into another company, (ii) a sale or transfer of all or substantially all of the Company’s assets or (iii) the purchase of all or a substantial portion of the Company’s ordinary shares that would enable such person to exercise control of or significant influence over the Company.

 

The Buyer Group did not perform or receive any independent reports, opinions or appraisals from any third party related to the Merger, and thus did not consider any such reports, opinions or appraisals in determining the substantive and procedural fairness of the Merger to Unaffiliated Security Holders.

 

The Buyer Group believes that the Merger is procedurally fair to the Unaffiliated Security Holders based on the following factors, which are not listed in any relative order of importance:

 

·the consideration and negotiation of the Merger Agreement were conducted entirely under the control and supervision of the Independent Committee, which consists of two independent directors, as defined under applicable NASDAQ rules, each of whom is an outside, non-employee director, and that no limitations were placed on the Independent Committee’s authority;

 

·in considering the transaction with the Buyer Group, the Independent Committee acted solely to represent the interests of the Unaffiliated Security Holders, and the Independent Committee had independent control of the extensive negotiations with the members of the Buyer Group and their respective advisors on behalf of the Unaffiliated Security Holders;

 

·all of the members of the Independent Committee during the entire process were and are independent directors and free from any affiliation with any member of the Buyer Group; in addition, none of such Independent Committee members is or ever was an employee of the Company or any of its subsidiaries or affiliates and none of such directors has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than the members’ receipt of Board compensation and Independent Committee compensation (which are not contingent upon the completion of the Merger or the Independent Committee’s or the Board’s recommendation and/or authorization and approval of the Merger) and their indemnification rights under their respective indemnification agreement entered into with the Company and under the Merger Agreement;

 

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·the Independent Committee retained independent financial advisors and legal counsels to assist it in negotiations with the Buyer Group and in its evaluation of the Merger;

 

·the Independent Committee was empowered to consider, attend to and take any and all actions in connection with the written proposal from the Buyer Group and in connection with the Transactions from the date the Independent Committee was established, and no evaluation, negotiation or response regarding the Transactions in connection therewith from that date forward was considered by the Board for approval unless the Independent Committee had recommended such action to the Board;

 

·the terms and conditions of the Merger Agreement were the product of extensive negotiations between the Independent Committee and its advisors, on the one hand, and the Buyer Group and its advisors, on the other hand;

 

·the Independent Committee was empowered to exercise the full power and authority of the Board in connection with the Merger and related transactions and process;

 

·since the announcement of the receipt of the Proposal on September 16, 2020 and prior to the execution of the Merger Agreement, no party other than the members of the Buyer Group had contacted the Company or the Independent Committee expressing an interest in exploring an alternative transaction with the Company;

 

·the Independent Committee met regularly to consider and review the terms of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger;

 

·the recognition by the Independent Committee and the Board that it had no obligation to recommend the Merger;

 

·the recognition by the Independent Committee and the Board that, under the terms of the Merger Agreement, it has the ability to consider a bona fide written proposal or offer with respect to a Competing Transaction that constitutes a Superior Proposal until the Company’s shareholders vote upon and authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the transactions contemplated under the Merger Agreement;

 

·the Buyer Group did not participate in or have any influence over the deliberative process of, or the conclusions reached by, the Independent Committee or the negotiating positions of the Independent Committee;

 

·the Company’s ability, subject to compliance with the terms and conditions of the Merger Agreement, to terminate the Merger Agreement prior to the receipt of shareholder approval in order to accept an alternative transaction proposed by a third party that is a Superior Proposal;

 

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·the availability of dissenters’ rights to the Unaffiliated Security Holders who comply with all of the required procedures under the BVI Business Companies Act for exercising dissenters’ rights, which allow such shareholders to receive payment of the fair value of their ordinary shares as determined by independent appraisers; and

 

·the fact that, in certain circumstances under the terms of the Merger Agreement, the Independent Committee and the Board are able to change, withhold, withdraw, qualify or modify their recommendation of the Merger.

 

The foregoing is a summary of the information and factors considered and given weight by the Buyer Group in connection with its evaluation of the fairness of the Merger to the Unaffiliated Security Holders, which is not intended to be exhaustive, but is believed by the Buyer Group to include all material factors considered by it. The Buyer Group did not find it practicable to assign, and did not assign, relative weights to the individual factors considered in reaching its conclusion as to the fairness of the Merger to the Unaffiliated Security Holders. Rather, its fairness determination was made after consideration of all of the foregoing factors as a whole.

 

The Buyer Group believes these factors provide a reasonable basis for its belief that the Merger is both substantively and procedurally fair to the Unaffiliated Security Holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Buyer Group to any Unaffiliated Security Holder of the Company as to how such Unaffiliated Security Holder should vote with respect to the authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the transactions contemplated under the Merger Agreement.

 

Certain Financial Projections 

 

The Company does not generally make public detailed financial forecasts or internal projections as to future performance, revenues, earnings or financial condition. However, the Company’s management prepared certain financial projections for the fiscal year ended December 31, 2020 through the fiscal year ending December 31, 2024 (the “Management Projections”) for the Independent Committee and Houlihan Lokey in connection with the financial analysis of the Merger. These financial projections, which were based on Company management’s estimates of the Company’s future financial performance as of the date provided, were prepared by the Company’s management for internal use and for use by Houlihan Lokey in its financial analyses, and were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC regarding forward-looking information or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or U.S. generally accepted accounting principles. 

 

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The financial projections are not a guarantee of performance. They involve significant risks, uncertainties and assumptions. In compiling the projections, our management considered historical performance, combined with estimates regarding net revenue, gross profit, operating expenses, income from operations and net income. Although the projections are presented with numerical specificity, they were based on numerous assumptions and estimates as to future events made by our management that our management believed were reasonable at the time the projections were prepared. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results. In addition, factors such as industry performance, the market for our existing and new products, the competitive environment, expectations regarding future acquisitions or any other transactions and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of our management, may cause actual future results to differ materially from the results forecasted in these financial projections. 

 

In addition, the projections do not take into account any circumstances or events occurring after the date that they were prepared. For instance, the projections do not give effect to completion of the Merger or any changes to our operations or strategy that may be implemented after the time the projections were prepared. As a result, there can be no assurance that the projections will be realized, and actual results may be significantly different from those contained in the projections. 

 

Neither our independent registered public accounting firm, BDO China Shu Lun Pan Certified Public Accountants LLP, nor any other independent accountants have examined, compiled, or performed any procedures with respect to the financial projections or any amounts derived therefrom or built thereupon, nor have they given any opinion or any other form of assurance on such information or its achievability. The financial projections included in this proxy statement are included solely to give shareholders access to certain information that was made available to the Independent Committee and Houlihan Lokey , and are not included in this proxy statement in order to induce any holder of Shares to vote in favor of approval of the Merger Agreement or to elect not to seek appraisal for his or her Shares. 

 

The following table summarizes the financial projections prepared by our management and considered by the Independent Committee and Houlihan Lokey in connection with their analyses of the proposed transaction: 

 

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   Company Financial Projections 
   Fiscal Year Ending December 31, 
   2020E   2021E   2022E   2023E   2024E 
Total Revenue   139.3    142.0    144.7    147.5    150.3 
                          
Gross Profit (1)   22.1    21.0    21.7    22.5    23.3 
% Margin   15.9%   14.8%   15.0%   15.3%   15.5%
                          
Operating Expenses (1)   6.4    8.4    8.6    8.8    9 
                          
Income from Operations   15.7    12.6    13.1    13.7    14.3 
% Margin   11.3%   8.9%   9.1%   9.3%   9.5%
                          
Depreciation and Amortization   0.7    1.7    2.6    2.6    2.6 
                          
Adjusted EBITDA (2)   16.3    14.2    15.7    16.4    17.0 
% Margin   11.7%   10.0%   10.9%   11.1%   11.3%
                          
Adjusted EBIT (3)   15.6    12.6    13.1    13.7    14.4 
% Margin   11.2%   8.8%   9.1%   9.3%   9.6%

 

(1) Management projected gross profit and operating expenses exclude depreciation and amortization.

 

(2) “EBITDA” refers to earnings before interest, taxes, depreciation and amortization.

 

(3) “EBIT” refers to earnings before interest and taxes.

 

Opinion of the Independent Committee’s Financial Advisor 

 

The Independent Committee retained Houlihan Lokey to act as its financial advisor in connection with the Merger, and on December 17, 2020, Houlihan Lokey rendered its oral opinion, which it subsequently confirmed in writing, to the Independent Committee as to the fairness, from a financial point of view, of the Merger Consideration to be received by the Unaffiliated Security Holders in the Merger pursuant to the Merger Agreement and the Plan of Merger, as of the date of such opinion, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Houlihan Lokey in preparing its opinion.

 

Houlihan Lokey’s opinion was directed to the Independent Committee (in its capacity as such) and only addressed the fairness, from a financial point of view, of the Merger Consideration to be received by the Unaffiliated Security Holders in the Merger pursuant to the Merger Agreement and the Plan of Merger, as of the date of such opinion and did not address any other aspect or implication of the Merger or any other agreement, arrangement, or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex B to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Independent Committee, the Board, any shareholder or any other person as to how to act or vote with respect to any matter relating to the Merger.

 

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In arriving at its opinion, Houlihan Lokey, among other things:

 

·reviewed the draft dated December 16, 2020 of the Merger Agreement and Plan of Merger by and among Parent, Merger Sub and the Company;

 

·reviewed certain publicly available business and financial information relating to the Company that Houlihan Lokey deemed to be relevant;

 

·reviewed certain information relating to the historical, current and future operations, financial condition and prospects of the Company made available to Houlihan Lokey by the Company, including Management Projections (and adjustments thereto) prepared by the management of the Company relating to the Company for the fiscal years ending 2020 through 2024;

 

·spoke with certain members of the management of the Company regarding the respective businesses, operations, financial condition and prospects of the Company, the Merger and related matters;

 

·compared the financial and operating performance of the Company with that of other public companies that Houlihan Lokey deemed to be relevant;

 

·considered the public available financial terms of certain transactions that Houlihan Lokey deemed to be relevant;

 

·reviewed the current and historical market prices and trading volume for certain of the Company’s publicly traded securities, and the current and historical market prices and trading volume of the publicly traded securities of certain other companies that we deemed to be relevant;

 

·reviewed certificates and/or confirmation emails addressed to Houlihan Lokey from senior management of the Company which contained, among other things, representations regarding the accuracy of the information, data and other materials (financial or otherwise) provided to, or discussed with, Houlihan Lokey by or on behalf of the Company; and

 

conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate.

 

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In giving its opinion, Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, management of the Company advised Houlihan Lokey, and Houlihan Lokey assumed, that the Management Projections (and adjustments thereto) reviewed by it were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of the Company and the other matters covered thereby, and Houlihan Lokey expressed no opinion with respect to such projections or the assumptions on which they were based. Houlihan Lokey relied upon and assumed, without independent verification, that there had been no change in the businesses, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would be material to its analyses or its opinion, and that there was no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading. The credit, financial and stock markets have recently been experiencing unusual volatility and Houlihan Lokey expressed no opinion or view as to any potential effects of such volatility on the Merger, and its opinion did not purport to address potential developments in any such markets. In addition, Houlihan Lokey expressed no view as to, and its opinion did not address, foreign currency exchange risks (if any) associated with the Merger, the Management Projections or otherwise.

 

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the Merger Agreement and all other related documents and instruments that were referred to therein were true and correct, (b) each party to the Merger Agreement and such other related documents and instruments would fully and timely perform all of the covenants and agreements required to be performed by such party, and (c) all conditions to the consummation of the Merger will be satisfied without waiver thereof, and (d) the Merger would be consummated in a timely manner in accordance with the terms described in the Merger Agreement and such other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey relied upon and assumed, without independent verification, that (i) the Merger would be consummated in a manner that complies in all respects with all applicable foreign, federal, and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Merger would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would result in the disposition of any assets of the Company or the Parent, or otherwise have an effect on the Merger, or the Company that would be material to Houlihan Lokey’s analyses or its opinion. Houlihan Lokey also relied upon and assumed, without independent verification, at the direction of the Company, that any adjustments to the Merger Consideration pursuant to the Merger Agreement would not be material to its analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final form of the Plan of Merger would not differ in any respect from the form attached as an annex to the Merger Agreement.

 

Furthermore, in connection with such opinion, Houlihan Lokey was not requested to make and did not make any physical inspection or independent appraisal or evaluation of any of the assets, properties, or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company, or any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Houlihan Lokey undertook no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims, or other contingent liabilities, to which the Company was or may have been a party or was or may have been subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company was or may have been a party or was or may have been subject.

 

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Houlihan Lokey was not requested to, and did not, (a) initiate any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to the Merger, or the securities, assets, business or operations of the Company or any other party, or any alternatives to the Merger, (b) negotiate the terms of the Merger, or (c) advise the Independent Committee, the Board, the Company, or any other party with respect to alternatives to the Merger. Houlihan Lokey’s opinion was necessarily based on financial, economic, market, and other conditions as in effect on, and the information made available to Houlihan Lokey as of, the date of such opinion. Houlihan Lokey did not undertake, and is under no obligation, to update, revise, reaffirm, or withdraw its opinion, or otherwise comment on or consider events occurring or coming to its attention after the date of such opinion.

 

Houlihan Lokey’s opinion was furnished for the use of the Independent Committee (in its capacity as such) in connection with the Independent Committee’s evaluation of the Merger, and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey has consented to the inclusion in this proxy statement of its opinion in its entirety and the description thereof. Houlihan Lokey’s opinion was not intended to be, and did not constitute, a recommendation to the Independent Committee, the Board, any security holder, or any other party as to how to act or vote with respect to any matter relating to the Merger or otherwise.

 

Houlihan Lokey was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Independent Committee, the Board, the Company, or Parent, their respective security holders, or any other party to proceed with or effect the Merger, (ii) the terms of any arrangements, understandings, agreements, or documents related to, or the form, structure, or any other portion or aspect of, the Merger or otherwise (other than the Merger Consideration to the extent expressly specified in Houlihan Lokey’s opinion), (iii) the fairness of any portion or aspect of the Merger to the holders of any class of securities, creditors, or other constituencies of the Company, or to any other party, except if and only to the extent expressly set forth in the last sentence of Houlihan Lokey’s opinion, (iv) the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available for the Company, Parent or any other party, (v) the fairness of any portion or aspect of the Merger to any one class or group of the Company’s, Parent’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s, Parent’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents), (vi) whether or not the Company or its security holders, Parent, or its security holders, or any other party is receiving or paying reasonably equivalent value in the Merger, (vii) the solvency, creditworthiness, or fair value of the Company, Parent, or any other participant in the Merger, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance, or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature, or any other aspect of any compensation to or consideration payable to or received by any officers, directors, or employees of any party to the Merger, any class of such persons or any other party, relative to the Merger Consideration or otherwise. Furthermore, no opinion, counsel, or interpretation was intended in matters that require legal, regulatory, accounting, insurance, tax, or other similar professional advice. Houlihan Lokey assumed that such opinions, counsel, or interpretations were or would be obtained from appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of the Independent Committee, on the assessments by the Independent Committee, the Board, the Company, Parent, and their respective advisors as to all legal, regulatory, accounting, insurance, tax, and other similar matters with respect to the Company and the Merger or otherwise.

 

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In performing its analyses, Houlihan Lokey considered general business, economic, industry, and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to the Company or the proposed Merger and an evaluation of the results of those analyses is not entirely mathematical. The estimates contained in the Management Projections prepared by members of the management of the Company and the implied reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses, or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of the Company. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

 

Houlihan Lokey’s opinion was only one of many factors considered by the Independent Committee and the Board in evaluating the proposed Merger. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the Merger Consideration or of the views of the Independent Committee or the Board with respect to the Merger or the Merger Consideration. Under the terms of its engagement by the Company, neither Houlihan Lokey’s opinion nor any other advice or services rendered by it in connection with the proposed Merger or otherwise should be construed as creating, and Houlihan Lokey should not be deemed to have, any fiduciary duty to, or agency relationships with, the Independent Committee, the Board, the Company, Parent, any security holder or creditor of the Company, Parent, or any other person, regardless of any prior or ongoing advice or relationships. The type and amount of consideration payable in the Merger were determined through negotiation between the Independent Committee on the one hand and the Buyer Group on the other hand, and the decision to enter into the Merger Agreement was solely that of the Independent Committee and the Board.

 

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Financial Analyses

 

In preparing its opinion to the Independent Committee, Houlihan Lokey performed a variety of analyses. The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of such an opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative, and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither Houlihan Lokey’s opinion nor its underlying analyses are readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology, or factor. While the results of each analysis were taken into account in reaching Houlihan Lokey’s overall conclusion with respect to fairness, Houlihan Lokey did not make separate or quantifiable judgments regarding individual analyses. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies, and factors, without considering all analyses, methodologies, and factors, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion.

 

The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with the preparation of its opinion and reviewed with the Independent Committee on December 17, 2020. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey.

 

For purposes of its analysis, Houlihan Lokey reviewed a number of financial metrics, including:

 

  Enterprise Value — generally, the value as of a specified date of the relevant company’s outstanding equity securities (taking into account outstanding options and other securities convertible, exercisable, or exchangeable into or for equity securities of the company) plus the amount of its net debt (the amount of its outstanding indebtedness, capital lease obligations, and non-controlling interests less the amount of cash and cash equivalents on its balance sheet) less the amount of its equity-method investments.
  EBITDA — generally, the amount of the relevant company’s earnings before interest, taxes, depreciation, and amortization for a specified time period.
  Adjusted EBITDA – generally, EBITDA adjusted for certain non-recurring items.

The estimates of the future financial performance of the Company relied upon for the financial analyses described below were based on the Management Projections.

 

Selected Companies Analysis. Houlihan Lokey considered performing a selected companies analysis. However, due to the limited comparability of the Company to other public companies, Houlihan Lokey concluded that it would not be able to derive a meaningful result for which an implied valuation range could be concluded based on an analysis of comparable companies.

 

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Selected Transactions Analysis. Houlihan Lokey considered performing a selected transactions analysis. However, due to the limited comparability of the Company to other companies subject to transactions for which financial information was made publicly available, Houlihan Lokey concluded that it would not be able to derive a meaningful result for which an implied valuation range could be concluded based on an analysis of comparable transactions.

 

Discounted Cash Flow Analysis. Houlihan Lokey performed a discounted cash flow analysis of the Company by calculating the estimated net present value of the projected unlevered, after-tax free cash flows of the Company based on the Management Projections. Houlihan Lokey calculated terminal values for the Company by applying a range of perpetuity growth rates of 0.0% to 1.0% to the Company’s normalized 2024 unlevered free cash flows, which rate was derived based on Company management’s expected long-term growth rate for the Company and the industry. The net present values of the Company’s projected future cash flows and terminal values were then calculated using discount rates ranging from 18.0% to 21.0%, which was derived based on certain financial metrics, including betas, capital structures and tax rates for the Company and the selected companies as presented in Houlihan Lokey’s discussion materials for the Independent Committee, as well as risk-free rates for the U.S. and China, and size premium data as provided by third party sources. The discounted cash flow analysis indicated an implied per Share reference range of US$4.34 to US$6.23 per ADS, as compared to Merger Consideration of US$5.10 per ADS.

 

Houlihan Lokey was engaged by the Independent Committee to act as its financial advisor in connection with the Merger and provide financial advisory services to the Independent Committee, including an opinion as to the fairness from a financial point of view of the Merger Consideration to be received by the Unaffiliated Security Holders. The Independent Committee engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to provide financial advisory services in connection with mergers and acquisitions, financings, and financial restructurings. Pursuant to its engagement by the Independent Committee, Houlihan Lokey is entitled to a fixed fee of US$450,000, US$150,000 of which became payable upon execution of Houlihan Lokey’s engagement letter, US$100,000 of which became payable at the beginning of the third week following the date of Houlihan Lokey’s engagement letter, US$200,000 of which became payable upon the delivery of Houlihan Lokey’s opinion at the request of the Independent Committee. No portion of Houlihan Lokey’s fee is contingent upon any conclusions set forth in Houlihan Lokey’s opinion. The Company has also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates, and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws, arising out of or related to Houlihan Lokey’s engagement.

 

In the ordinary course of business, certain of Houlihan Lokey’s employees and affiliates, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold, or sell long or short positions, or trade, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, the Company, Parent, or any other party that may be involved in the Merger and their respective affiliates or security holders or any currency or commodity that may be involved in the Merger.

 

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Neither Houlihan Lokey nor any of its affiliates has in the past two years provided or is currently providing any investment banking, financial advisory and/or other financial or consulting services to the Company, Parent and their respective affiliates. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and/or other financial or consulting services to the Company, the Parent, other participants in the Merger or certain of their respective affiliates or security holders in the future, for which Houlihan Lokey and its affiliates may receive compensation. In addition, Houlihan Lokey and certain of its affiliates and certain of our and their respective employees may have committed to invest in private equity or other investment funds managed or advised by the Company, the Parent, other participants in the Merger or certain of their respective affiliates or security holders, and in portfolio companies of such funds, and may have co-invested with the Company, the Parent, other participants in the Merger or certain of their respective affiliates or security holders, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, distressed situations and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, the Parent, other participants in the Merger or certain of their respective affiliates or security holders, for which advice and services Houlihan Lokey and its affiliates have received and may receive compensation.

 

Buyer Group, Parent and Merger Sub's Purpose of and Reasons for the Merger 

 

Under the SEC rules governing going-private transactions, each member of the Buyer Group is required to express his or its reasons for the Merger to the Company’s Unaffiliated Security Holders, as defined in Rule 13e-3 of the Exchange Act.

 

Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. For the Buyer Group, the purpose of the Merger is to enable Parent to acquire 100% control of the Company, in a transaction in which the Company’s ordinary shares (other than the Excluded Shares and the Dissenting Shares) will be cancelled in exchange for US$1.70 per ordinary share, so that Parent will bear the rewards and risks of the sole ownership of the Company after the Merger, including any future earnings and growth of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses. In addition, the Merger will allow Dr. Tang, together with his affiliates, to increase his ownership percentage in the Company through his indirect ownership in Parent and maintain his leadership role with the Surviving Company.

 

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The Buyer Group believes the operating environment has changed in a significant manner since the Company’s initial public offering and these changes have increased the uncertainty and volatility inherent in the business model of companies similar to the Company. As a result, the Buyer Group is of the view that there is potential for considerably greater short- and medium-term volatility in the Company’s earnings. Responding to current market challenges will require tolerance for volatility in the performance of the Company’s business and a willingness to make business decisions focused on improving the Company’s long-term profitability. The Buyer Group believes that these strategies would be most effectively implemented in the context of a private company structure. As a privately held entity, the Company’s management will have greater flexibility to focus on improving long-term profitability without the pressures exerted by the public market’s valuation of the Company and its emphasis on short-term period-to-period performance. Further, as a privately held entity, the Company will be relieved of many of the expenses, burdens and constraints imposed on companies that are subject to the public reporting requirements under the U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act of 2002. The Buyer Group decided to undertake the going-private transaction at this time because it wants to take advantage of the benefits of the Company being a privately held company as described above. In the course of considering the going-private transaction, the Buyer Group did not consider alternative transaction structures because the Buyer Group believed the Merger was the most direct and effective way to enable the Buyer Group to acquire ownership and control of the Company.

 

The Company’s Purpose of and Reasons for the Merger

 

The Company’s purpose for engaging in the Merger is to enable its shareholders to receive US$1.70 per Share in cash without interest or US$5.10 per ADS (less US$0.05 cancellation fee pursuant to the Depositary Agreement) in cash without interest by the Company’s ADS holders. The Company has determined to undertake the Merger at this time based om the analyses, determinations and conclusions of the Independent Committee and the board of the directors described in detail under the caption “Special Factors – Reasons for the Merger and Recommendation of the Independent Committee and the Board.”

 

Effect of the Merger on the Company 

 

Private Ownership 

 

The Company’s ADSs are currently listed on NASDAQ under the symbol “OSN.” It is expected that, immediately following the completion of the Merger, the Company will cease to be a publicly traded company and will instead become a privately held company directly owned by Parent. Following the completion of the Merger, the ADSs will cease to be listed on NASDAQ, and price quotations with respect to sales of the ADSs in the public market will no longer be available. The Company will instruct the ADS depositary to terminate the ADS program. In addition, registration of the Shares and the ADSs under the Exchange Act may be terminated upon the Company’s application to the SEC if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders of the Shares. Ninety days after the filing of Form 15 in connection with the completion of the Merger or such longer period as may be determined by the SEC, registration of the Shares under the Exchange Act will be terminated. At such time, the Company will no longer be required to file periodic reports with the SEC or otherwise be subject to the United States federal securities laws, including Sarbanes-Oxley, applicable to public companies, and our shareholders will no longer enjoy the rights or protections that the United States federal securities laws provide, including reporting obligations for directors, officers and principal securities holders of the Company.

 

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Subject to the terms and conditions of the Merger Agreement, at the Effective Time, except as described below, (i) each Share (other than Shares represented by ADSs) issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist in exchange for the right to receive US$1.70 per Share in cash and without interest and (ii) each ADS issued and outstanding immediately prior to the Effective Time, together with each Share represented by such ADS, will be cancelled and cease to exist in exchange for the right to receive US$5.10 per ADS (less US$0.05 per ADS cancellation fee payable pursuant to the terms of the Deposit Agreement), and all holders from time to time of American depositary receipts issued thereunder. The Excluded Shares, which include (a) the Rollover Shares, (b) the Dissenting Shares, and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury) and Shares held by the Parent or any of its subsidiaries, will not be converted into the right to receive the consideration described in the immediately preceding sentence. Each Excluded Share (excluding any Dissenting Share) issued and outstanding immediately prior to the Effective Time , will be cancelled and will cease to exist, and no Merger consideration will be delivered with respect thereto. Each Dissenting Share will be cancelled at the Effective Time for the right to receive the fair value of such Shares as determined in accordance with the provisions of the BVI Companies Act. The ADS depositary will call for surrender of all outstanding ADSs (other than any ADSs representing Excluded Shares) to be exchanged for the applicable merger consideration.

 

Directors and Management of the Surviving Company 

 

The director of Merger Sub immediately prior to the completion of the Merger will become the initial director of the Surviving Company, and the officers of the Company will become the initial officers of the Surviving Company, in each case, unless otherwise determined by Parent prior to the Effective Time.

 

Primary Benefits and Detriments of the Merger 

 

The primary benefits of the Merger to the Company’s Unaffiliated Security Holders include, without limitation, the following:

 

·the receipt by such shareholders of US$1.70 per Share in cash or US$5.10 (less US0.05 cancellation fee per ADS), representing a premium of 52.8% over the Company’s 30  trading day average closing price of the ADSs as quoted by NASDAQ on September 15, 2020, the last trading day prior to the Company’s announcement on September 16, 2020 that it had received a “going private” proposal; and 

 

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·the avoidance of the risk associated with any possible decrease in our future revenues and free cash flow, growth or value, and the risks related to our substantial leverage, following the Merger. 

 

The primary detriments of the Merger to the Company’s Unaffiliated Security Holders include, without limitation, the following:

 

·such shareholders will cease to have an interest in the Company and, therefore, will no longer benefit from possible increases in the future revenues and free cash flow, growth or value of the Company or payment of dividends on the Shares, if any; and 

 

·in general, the receipt of cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under other applicable tax laws. As a result, a U.S. Holder (as defined under “Special Factors – Material U.S. Federal Income Tax Consequences”) of the Shares who receives cash in exchange for all of such U.S. Holder’s Shares in the Merger generally will be required to recognize gain as a result of the Merger for U.S. federal income tax purposes if the amount of cash received exceeds such U.S. Holder’s aggregate adjusted tax basis in such Shares. Because we may be or have been a PFIC for U.S. federal income tax purposes during a U.S. Holder’s holding period for Shares, any gain recognized by a U.S. Holder on the receipt of cash in exchange for such U.S. Holder’s Shares may be taxed under special U.S. federal income tax rules, as described under “Material U.S. Federal Income Tax Consequences.” 

 

The primary benefits of the Merger to the Company’s directors and executive officers (other than the members of the Buyer Group) include, without limitation, the following:

 

·continued indemnification rights and rights to advancement of fees to be provided by the surviving company to former directors and officers of the Company; 

 

·the monthly compensation of US$3,000 for Mr. Junhong Li and Mr. Zhongcai Wu, each of which is a member of the Independent Committee, in exchange for their services in such capacity (the payment of which is not contingent upon the completion of the Merger or the Independent Committee’s or the board’s recommendation of the Merger);

 

·the continuation of service of the executive officers of the Company with the surviving company in positions that are substantially similar to their current positions. 

 

The primary detriments of the Merger to the Company’s directors and executive officers (other than members of the Buyer Group) include they will resign from the Company and will no longer receive income from the Company. 

 

The primary benefits of the Merger to the Buyer Group include the following:

 

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·if the Company successfully executes its business strategies, the value of their equity investment could increase because of possible increases in future revenues and free cash flow, increases in the underlying value of the Company or the payment of dividends, if any, that will accrue to Parent; 

 

·the Company will no longer have continued pressure to meet quarterly forecasts set by analysts. In contrast, as a publicly traded company, the Company currently faces public shareholders and investment analyst pressure to make decisions that may produce better short term results, but which may not over the long term lead to a maximization of its equity value; 

 

·the Company will have more freedom to focus on long-term strategic planning in a highly competitive business; 

 

·the Company will have more flexibility to change its capital spending strategies without public market scrutiny or analysts’ quarterly expectations; 

 

·the Company will be able to deploy new services or change its pricing strategies to attract customers without public market scrutiny or the pressure to meet quarterly forecasts set by analysts; and 

 

·there will be a reduction of the costs and administrative burden associated with operating the Company as a U.S. publicly traded company, including the costs associated with regulatory filings and compliance requirements. 

 

The primary detriments of the Merger to the Buyer Group include the following:

 

·all of the risk of any possible decrease in our revenues, free cash flow or value following the Merger will be borne by the Buyer Group; 

 

·risks associated with pending legal and regulatory proceedings against the Company will be borne by the Buyer Group; 

 

·the business risks facing the Company, will be borne by the Buyer Group; 

 

·an equity investment in the surviving company by Parent following the Merger will involve substantial risk resulting from the limited liquidity of such an investment; and 

 

·following the Merger, there will be no trading market for the surviving company’s equity securities. 

 

Effect of the Merger on the Company’s Net Book Value and Net Earnings 

 

Parent does not currently own any interest in the Company. Immediately after the closing of the Merger, Parent will own 100% of the outstanding Shares and will have a corresponding share in the Company’s net book value and net earnings. The Company’s net earnings attributable to the Company’s shareholders for the year ended December 31, 2019 was approximately US$0.56 and net book value attributable to the Company’s shareholders as of December 31, 2019 was approximately US$6.6.

 

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The table below sets out the direct or indirect interest in the Company’s net book value and net earnings for the Buyer Group before and immediately after the Merger, based on the historical net book value as of December 31, 2019 and the net earnings of the Company for the fiscal year 2019. 

 

   Ownership Prior to the Merger(1)   Ownership After the Merger 
   Earnings   Net Book Value   Earnings   Net Book Value 
Name  US$ 000   %   US$ 000   %   US$ 000   %   US$ 000   % 
Pujiang   7,308    65.9    86,029    65.9    11,089    100    130,545    100 
Dr. Tang   7,308    65.9    86,029    65.9    11,089    100    130,545    100 

 

(1)       Ownership percentages prior to the Merger are based on 19,791,110 Shares issued and outstanding as of the date of this Proxy Statement.

 

Plans for the Company after the Merger 

 

Following the completion of the Merger, the Buyer Group will beneficially own 100% of the equity interests in the Surviving Company indirectly through Parent. The Buyer Group anticipates that the Company will continue to conduct its operations substantially as they are currently being conducted, except that the Company will cease to be a publicly traded company and will instead be a wholly owned subsidiary of Parent.

 

Following the completion of the Merger and the anticipated deregistration of the Company’s Shares and ADSs, the Company will no longer be subject to the Exchange Act and the compliance and reporting requirements of NASDAQ and the related direct and indirect costs and expenses, and may experience positive effects on profitability as a result of the elimination of such costs and expenses.

 

Except as set forth in this proxy statement and transactions already under consideration by the Company, the Buyer Group has no present plans or proposals that relate to or would result in an extraordinary corporate transaction involving the Company's corporate structure, business, or management, such as a Merger, reorganization, liquidation, relocation of any material operations, or sale or transfer of a material amount of assets. However, the Buyer Group will continue to evaluate the Company’s entire business and operations from time to time, and may propose or develop plans and proposals which they consider to be in the best interests of the Company and its equity holders, including the disposition or acquisition of material assets, alliances, joint ventures, and other forms of cooperation with third parties or other extraordinary transactions, including the possibility of relisting the Company or a substantial part of its business on another stock exchange. The Buyer Group expressly reserves the right to make any changes they deem appropriate to the operation of the Surviving Company in light of such evaluation and review as well as any future developments.

 

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Alternatives to the Merger 

 

The board of directors of the Company did not independently determine to initiate a process for the sale of the Company. The Independent Committee was formed on September 22, 2020, in response to the receipt of the going private proposal letter from Pujiang on September 15, 2020. The Independent Committee discussed with its advisors other potential alternatives available to the Company, including the possibility of remaining as an independent company, and reviewed and discussed the proposed process to conduct a pre-signing market check through a third-party solicitation process.

 

In light of  (i) the beneficial ownership of the Buyer Group of approximately 65.9% of the entire issued and outstanding Shares (as of the date of this proxy statement), and (ii) the fact that, since the announcement of the proposed transaction and prior to the entry into the Merger Agreement, no party other than the members of the Buyer Group has contacted the Company or the Independent Committee expressing an interest in exploring an alternative transaction with the Company, the Independent Committee determined that (1) there were no other interested buyers and (2) no viable alternative to the proposed sale of the Company to the Buyer Group.

 

The Independent Committee also took into account that the Company can terminate the Merger Agreement in order to enter into an alternative acquisition agreement with respect to a Superior Proposal, prior to obtaining required shareholder approval of the Merger Agreement, subject to the payment to Parent of a termination fee of US$340,000. In this regard, the Independent Committee recognized that it has flexibility under the Merger Agreement to respond to an alternative transaction proposed by a third party that is or is reasonably likely to result in a Superior Proposal, including the ability to provide information to and engage in discussions and negotiations with such party (and, if such proposal is a Superior Proposal, recommend such proposal to the Company’s shareholders).

 

In addition, the Independent Committee also considered, as an alternative available to the Company to enhance shareholder value, that the Company remain as a public company. However, the Independent Committee did not believe such options to be equally or more favorable in enhancing shareholder value, after considering factors such as the forecasts of future financial performance prepared by management unaffiliated with the Buyer Group, the offer premium implied by the merger consideration, the increased costs of regulatory compliance for public companies, the challenges to the Company’s efforts to increase shareholder value as an independent publicly-traded company, and the requirement, as an SEC-reporting company, to disclose a considerable amount of business information to the public which will limit the Company’s ability to compete in the market.

 

Considering the possible alternatives to the Merger (including the possibility of continuing to operate the Company as an independent entity and the perceived risks of that alternative), the range of potential benefits to its shareholders of the possible alternatives and the timing and the likelihood of accomplishing the goals of such alternatives, the Independent Committee determined that none of these alternatives were reasonably likely to present superior opportunities for the Company or to create greater value for its shareholders than the proposed sale of the Company to the Buyer Group, taking into account risks of execution as well as business, financing, regulatory approval, competitive, industry and market risks.

 

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Effects on the Company if the Merger is not Completed 

 

If the Merger Agreement and the Plan of Merger are not authorized and approved by the Company’s shareholders or if the Merger is not completed for any other reason, shareholders will not receive any payment for their Shares in connection with the Merger. Instead, the Company will remain a publicly traded company, the Shares will continue to be listed and traded on NASDAQ, provided that the Company continues to meet NASDAQ’s listing requirements, and the Company will remain subject to SEC reporting obligations. Therefore, the Company’s shareholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of our Shares. Accordingly, if the Merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your Shares, including the risk that the market price of the Shares and the ADSs may decline to the extent that the current market price reflects a market assumption that the Merger will be completed. 

 

Under specified circumstances in which the Merger Agreement is terminated, the Company may be required to pay Parent a termination fee of US$340,000, or Parent may be required to pay the Company a termination fee of US$680,000, in each case, as described under the caption “The Merger Agreement and Plan of Merger - Termination Fee” beginning on page 108. 

 

If the Merger is not completed, from time to time, the Company’s board of directors will evaluate and review, among other things, the business, operations, dividend policy and capitalization of the Company and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance shareholder value. If the Merger Agreement is not authorized and approved by the Company’s shareholders or if the Merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Company will be offered, or that the business, prospects or results of operations of the Company will not be adversely impacted. 

 

Financing 

 

The Company and the Buyer Group estimate that the total amount of funds necessary to complete the Merger and the related transactions, including payment of fees and expenses in connection with the Merger, would be approximately US$12.5 million, assuming no exercise of dissenter rights by shareholders of the Company. In calculating this amount, the Company and the Buyer Group did not consider the value of the Rollover Shares which will, in connection with and concurrently with the closing of the Merger at the Effective Time, be cancelled for no consideration in the Merger, and the Rollover Shareholder, in lieu of receiving US$1.70 per ordinary share held by it will be issued newly issued shares of Parent pursuant to the Support Agreement.

 

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The Buyer Group expects this amount to be provided through a combination of (i) rollover equity (represented by the Rollover Shares) from the Rollover Shareholder, (ii) cash contribution in the amount of US$12.5 million contemplated by the Equity Commitment Letter, by and between Parent and the Rollover Shareholder. Pursuant to the Equity Commitment Agreement, Pujiang has committed, subject to the terms and conditions therein, to purchaser, or cause the purchaser of, equity securities of Parent, prior to the Effective Time, in an aggregate cash amount of US$12.5 million.

 

The funding of Pujiang’s equity commitment under the Equity Commitment Letter is conditioned upon (i) the satisfaction in full or waiver (if permissible) of the conditions to Parent’s and Merger Sub’s obligations to complete the Merger under the Merger Agreement (other than any conditions that by their nature are to be satisfied at the closing of the Merger but subject to the prior or substantially concurrent satisfaction of such conditions), and (ii) the substantially contemporaneous consummation of the closing of the Merger. The obligation of Pujiang to fund the equity commitment under the Equity Commitment Letter will terminate automatically and immediately upon the earliest to occur of the (i) the valid termination of the Merger Agreement in accordance with its terms, (ii) the closing of the Merger, at which time such obligation will be discharged but subject to the performance of such obligation, (iii) the Company or any of its affiliates directly or indirectly (a) asserting a claim or initiating a proceeding against Parent, Merger Sub, Pujiang, any Non-Recourse Party (as defined in the relevant Limited Guarantee) in connection with or relating to the Equity Commitment Letter, the Merger Agreement, the Limited Guarantee, or any of the Transactions, or (b) asserting that the cap on Pujiang’s aggregate liabilities under the Equity Commitment Letter is illegal, invalid or unenforceable in whole or in part, and (iv) any event which, by the terms of the Limited Guarantee, is an event which terminates Pujiang’s liabilities under the Limited Guarantee.

 

The Company is an express third-party beneficially of the Equity Commitment Letter. Pujiang may assign or delegate all or a portion of its obligations to fund its equity commitment to any of Pujiang’s subsidiaries or affiliates so long as Pujiang remains liable for the obligations under the Equity Commitment Letter.

 

A copy of the Equity Commitment is attached as Annex G to this proxy statement and is incorporated herein by reference.

 

Support Agreement

 

Concurrently with the execution of the Merger Agreement, the Rollover Shareholder and Parent entered into the Support Agreement, pursuant to which the parties have agreed that (i) the Rollover Shares shall be cancelled for no consideration, (ii) the Rollover Shareholder shall subscribe for the number of newly issued ordinary shares of Parent as set forth in the Support Agreement, and (iii) the Rollover Shareholder shall vote the Rollover Shares in favor of the authorization and approval of the Merger Agreement and the consummation of the Transactions, in each case, upon the terms and conditions set forth therein.

 

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A copy of the Support Agreement is attached as Annex E to this proxy statement and is incorporated herein by reference.

 

As of the date of this proxy statement, the Rollover Shareholder indirectly owns 13,050,000 Rollover Shares, representing approximately 65.9% of the total voting power of the outstanding ordinary shares in the Company.

 

Limited Guarantee

 

Concurrently with the execution of the Merger Agreement, Pujiang made the Limited Guarantee, pursuant to which Pujiang irrevocably guaranteed, subject to certain conditions, Parent’s payment obligations under the Merger Agreement to pay the termination fee if that fee becomes payable by Parent and certain reimbursement obligations set forth therein.

 

The Limited Guarantee will terminate on the earliest to occur of (a) the Effective Time, (b) the termination of the Merger Agreement in accordance with its terms in any circumstances other than pursuant to which Parent and Merger Sub would be obligated to make a payment of Parent termination fee pursuant to the Merger Agreement, (c) the payment in full of the obligations under the Limited Guarantee, and (d) one hundred twenty (120) days after any termination of the Merger Agreement in accordance with its terms in any circumstances pursuant to which Parent and Merger Sub would be obligated to make a payment of Parent termination fee pursuant to the Merger Agreement, unless the Company has initiated a bona fide claim or proceeding in accordance with the terms of the Merger Agreement; provided further that if the Company has initiated such claim or proceeding on or before such 120th day of the termination of the Merger Agreement, the Limited Guarantee shall terminate upon the date such claim or proceeding is resolved by a final and non-appealable judicial or arbitral decision or as agreed in writing by the parties to the Limited Guarantee or otherwise satisfied.

 

Remedies and Limitations on Liability 

 

The parties to the Merger Agreement will be entitled to an injunction or injunctions, or any other appropriate form of specific performance or equitable relief, to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement in any court of competent jurisdiction, pursuant to the Merger Agreement, this being in addition to any other remedy to which they are entitled under the terms of the Merger Agreement at law or in equity. Each party to the Merger Agreement accordingly agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such party under the Merger Agreement. While the Company, Parent and Merger Sub may pursue both a grant of specific performance and monetary damages, none of them will be permitted or entitled to receive both a grant of specific performance that results in the completion of the Merger and monetary damages. 

 

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Interests of Certain Persons in the Merger 

 

Interests of the Buyer Group

 

As a result of the Merger, Parent will own 100% of the equity interest in the Surviving Company immediately following the completion of the Merger. The Buyer Group will directly or indirectly enjoy the benefits from any future earnings and growth of the Company after the Merger which, if the Company is successfully managed, could result in an increase in the value of their investments in the Company. The Buyer Group will also bear the corresponding risks of any possible decreases in the future earnings, growth or value of the Company. As there will be no public trading market for the Surviving Company’s shares, the Buyer Group will have no certainty of any future opportunity to sell such shares at an attractive price, or that any dividend paid by the Surviving Company will be sufficient to recover their respective investments in the Company.

 

The Merger may also provide additional means to enhance shareholder value for the Buyer Group, including improved profitability due to the elimination of the expenses associated with public company reporting and compliance, increased flexibility and responsiveness in management of the business to achieve growth and respond to competition without the restrictions of short-term earnings comparisons, and additional means for making liquidity available to the Buyer Group, such as through dividends or other distributions.

 

Shares and Options Held by Officers and Directors 

 

As of the date of this proxy statement, our directors and executive officers (as set forth in “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 118), as a group beneficially own an aggregate of 13,050,000 Shares.

 

The following table summarizes, the number of issued and outstanding Shares beneficially held by our directors and executive officers as of the date of this proxy statement.

 

   Beneficial Ownership (1)     
Name of Beneficial Owner  Ordinary Shares   Percentage 
Liang Tang(2)   13,050,000    65.9%
Wei Hua   -    - 
Junhong Li   -    - 
Yingli Pan   -    - 
Zhongcai Wu(   -    - 
All directors and executive officers as a group   13,050,000    65.9%

 

* Less than 1%.

 

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(1) Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the ordinary shares or the power to receive the economic benefit of the ordinary shares.
   
(2) Represents ordinary shares held by Acme Innovation Limited, a wholly-owned subsidiary of Pujiang International Group Limited. Pujiang International Group Limited is a Cayman Islands company listed on the Hong Kong Stock Exchange Dr. Liang Tang is a 64.39% shareholder and the chairman of Pujiang International Group Limited. See Item 4.C. above. The address of Pujiang International Group Limited is Floor 16, 518 Shangcheng Road, Shanghai, China 200120.

 

Indemnification

 

Pursuant to the Merger Agreement, Parent and Merger Sub have agreed that:

 

·The indemnification, advancement and exculpation provisions of certain indemnification agreements by and among the Company and its directors and certain executive officers, as in effect at the Effective Time will survive the Merger and will not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who are current or former directors, officers or employees of the Company or any person who becomes a director or officer of the Company or any of its subsidiaries prior to the Effective Time (the “Indemnified Parties”).

 

·The memorandum and articles of association of the surviving company will contain provisions with respect to exculpation and indemnification that are at least as favorable to the directors, officers or employees of the Company as those contained in the memorandum and articles of association of the Company as in effect on the date of the Merger Agreement, except to the extent prohibited by the applicable laws, which provisions will not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder of the Indemnified Parties, unless such modification is required by law.

 

·From and after the Effective Time, the surviving company will comply with all of the Company’s obligations, and will cause its subsidiaries to comply with their respective obligations to indemnify and hold harmless (including any obligations to advance funds for expenses) (i) the Indemnified Parties thereof against any and all costs or expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (“Damages”), arising out of, relating to or in connection with (A) the fact that an Indemnified Party is or was a director, officer or employee of the Company or any of its subsidiaries, (B) any acts or omissions occurring or alleged to have occurred (including acts or omissions with respect to the approval of the Merger Agreement, the Merger or any other transactions contemplated by the Merger Agreement or arising out of or pertaining to the Merger and actions to enforce this provision or any other indemnification or advancement right of any Indemnified Party) prior to or at the Effective Time, to the extent provided under the Company’s or such subsidiaries’ respective organizational and governing documents or agreements in effect on the date thereof and to the fullest extent permitted by applicable laws, provided, that such indemnification shall be subject to any limitation imposed from time to time under applicable laws; and (ii) such persons against any and all Damages arising out of acts or omissions in such persons’ official capacity as an officer, director or other fiduciary of the Company or any of its Subsidiaries if such service was at the request or for the benefit of the Company or any of its subsidiaries.

 

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·In the event the Company or the surviving company or any of their respective successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving company or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then, and in each such case, proper provision shall be made so that the successors and assigns of the Company or the surviving company, as the case may be, or at Parent’s option, Parent, shall assume the obligations set forth in the foregoing paragraphs.

 

The Independent Committee 

 

On September 22, 2020, our board of director established an Independent Committee of directors to consider the proposal from Pujiang and to take any actions it deems appropriate to assess the fairness and viability of such proposal. The Independent Committee is composed of independent and disinterested directors: Mr. Junhong Li (who serves as the chairman), and Mr. Zhongcai Wu. All such directors are free from any affiliation with the Buyer Group, and none of such directors is or was ever an employee of the Company or any of its subsidiaries or has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than (i) the director’s receipt of board compensation in the ordinary course, (ii) Independent Committee members’ compensation in connection with its evaluation of the Merger (which is not contingent upon the completion of the Merger or the Independent Committee’s or board’s recommendation of the Merger), and (iii) the director’s indemnification rights under the Merger Agreement. Our board of directors did not place any limitations on the authority of the Independent Committee regarding its investigation and evaluation of the Merger. 

 

The Company has compensated the members of the Independent Committee in exchange for their service in such capacity. The monthly compensation is US$3,000 for Mr. Junhong Li and Mr. Zhongcai Wu, (the payment of which is not contingent upon the completion of the Merger or the Independent Committee’s or the board’s recommendation of the Merger). 

 

Position with the Surviving Company 

 

After completion of the Merger, the Chairman expects to continue to serve as chairman of the board of directors of the surviving company and chief executive officer of the surviving company. It is anticipated that the other executive officers of the Company will hold positions with the surviving company that are substantially similar to their current positions. 

 

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Related Party Transactions 

 

We have adopted an audit committee charter, which requires the audit committee to review and approve all related party transactions on an ongoing basis. For a description of our related party transactions, please see “Item 7. Major Shareholders and Related Party Transactions” included in our annual report on Form 20-F for the fiscal year ended December 31, 2019, incorporated by reference into this proxy statement. Please see “Where You Can Find More Information” beginning on page 122 for a description of how to obtain a copy of our annual report. 

 

Fees and Expenses

 

Fees and expenses incurred or to be incurred by the Company and the Buyer Group in connection with the Merger are estimated at the date of this proxy statement to be as follows:

 

Description   Amount
(US$)
 
Financing fees and expenses and other professional fees     
Legal fees and expenses     
Independent Committee fees     
Miscellaneous (including accounting, filing fees, printer, proxy solicitation and mailing costs)     
Total     

 

These fees and expenses will not reduce the Merger Consideration to be received by the Company’s shareholders and ADS holders. Whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement, the Plan of Merger and the Merger, will be paid by the party incurring such costs and expenses.

 

Voting by the Rollover Shareholder at the Extraordinary General Meeting 

 

Pursuant to the Voting Agreement, the Rollover Shareholder has agreed to vote all of the Shares it beneficially owns in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, at the extraordinary general meeting of the Company. As of the record date, the Rollover Shareholder is expected to beneficially own, in the aggregate, 13,050,000 Shares, which represents 65.9% of the total issued and outstanding Shares entitled to vote. 

 

Accounting Treatment of the Merger 

 

Upon completion of the Merger, the Company would cease to be a publicly traded company, and the Company expects to account for the Merger at historical cost. 

 

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Regulatory Matters 

 

The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with the Merger other than the approvals, filings or notices required under the federal securities laws and the registration of the Plan of Merger (and supporting documentation as specified in the BVI Companies Act) with the Registrar of Corporate Affairs of the British Virgin Islands and if the Registrar is satisfied that the requirements under the British Virgin Islands in respect of the merger have been complied with, the Registrar will issue a certificate of merger in the approved form. 

 

Appraisal Rights 

 

Please see “Appraisal Rights” beginning on page 113. 

 

Material U.S. Federal Income Tax Consequences 

 

The following is a discussion of certain material U.S. federal income tax consequences of the Merger to U.S. Holders (as defined below) of the Shares or ADSs who exchange their Shares or ADSs solely for cash pursuant to the Merger Agreement or receive cash as a result of exercising their Appraisal Rights. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the “Code”, existing and proposed Treasury regulations promulgated under the Code, published rulings, and administrative and judicial interpretations of the Code, all as currently in effect as of the date of hereof, all of which are subject to change, possibly with retroactive effect. 

 

This discussion does not address any U.S. federal estate, gift, or other non-income tax, or any state, local, or non-U.S. tax, consequences of the Merger. For purposes of this discussion, the term “U.S. Holder” means (except as described in the preceding paragraph) a beneficial owner of the Company’s ADSs or ordinary shares that is, for United States federal income tax purposes, (i) an individual U.S. citizen or resident, (ii) a corporation (or other entity taxable as a corporation) created or organized under the laws of the United States or any political subdivision thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust if either (x) a court within the United States is able to exercise primary jurisdiction 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 (y) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. A beneficial owner of the Company’s ADSs or ordinary shares (other than a partnership or an entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder is referred to below as a “Non-U.S. Holder.”

 

If a partnership, or an entity treated for U.S. federal income tax purposes as a partnership, such as a limited liability company, holds the Company’s ADSs or ordinary shares, the tax treatment of a partner in such partnership will depend on the status of the partner and upon the activities of the partnership. Any partner of a partnership holding Shares or ADSs is urged to consult its own tax advisor.

 

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ALL HOLDERS OF SHARES OR ADSS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PARTICULAR SITUATIONS, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER LAWS.

 

Consequences of the Merger Generally

 

The receipt of cash by a U.S. Holder in exchange for ordinary shares pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, subject to the "passive foreign investment company," or "PFIC," discussion below, a U.S. Holder who receives cash in exchange for ordinary shares pursuant to the Merger will recognize gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received and (2) the U.S. Holder's adjusted tax basis in those shares. If a U.S. Holder acquired different blocks of ordinary shares at different times and different prices, that holder generally must determine its adjusted tax basis and holding period separately with respect to each block of ordinary shares. The deductibility of capital losses is subject to limitations. Subject to the PFIC rules discussed below, capital gain recognized by an individual U.S. Holder is generally eligible for the preferential long-term capital gains rate if such individual U.S. Holder's holding period in its ordinary shares exchanged in the Merger is greater than one year as of the effective date of the Merger.

 

Any capital gain or loss will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes. In the event that we are deemed to be a PRC resident enterprise under PRC tax law, and gain from the disposition of the ordinary shares would be subject to tax in the PRC, as described in "Special Factors—PRC Income Tax Consequences," such gain may be treated as PRC-source gain for U.S. foreign tax credit purposes under the U.S.-PRC income tax treaty. U.S. Holders should consult their tax advisors regarding the tax considerations if a foreign tax is imposed on a disposition of our ordinary shares, including the availability of the foreign tax credit under their particular circumstances.

 

PFIC Considerations 

 

The Company will be a passive foreign investment company (a “PFIC”) if, after applying certain pass-through rules, either: (i) 75% or more of the Company’s gross income in any taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties); or (ii) at least 50% of our assets in any taxable year (averaged over the year and generally determined on a quarterly basis) produce or are held for the production of passive income.

 

The Company does not believe that it was a PFIC for its 2019 taxable year. However, because the determination of its PFIC status is based on such factual matters as the composition of the Company’s income and the valuation of its assets, and its market capitalization, there is no assurance that the United Stated Internal Revenue Service (“IRS”) will agree with the Company’s position for the 2019 taxable year or any prior taxable year. In addition, there can be no assurance that the Company will not become a PFIC for the taxable year ended December 31, 2020 or in future taxable years.

 

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If the Company were to be treated as a PFIC for any taxable year during the period in which a U.S. Holder owns its ADSs or ordinary shares (and regardless of whether it remains a PFIC for subsequent taxable years), each U.S. Holder who is treated as owning the Company’s Shares or ADSs for purposes of the PFIC rules would be liable to pay U.S. federal income tax at the highest applicable income tax rates on ordinary income upon the receipt of “excess distributions” (i.e., the portion of any distributions received by the U.S. Holder on ADSs or ordinary shares in a taxable year in excess of 125 percent of the average annual distributions received by the U.S. Holder in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares) and on any gain from the disposition of the ADSs or ordinary shares, plus interest on a portion of such amounts, as if such excess distributions or gain had been recognized ratably over the U.S. Holder’s holding period of the Company’s ADSs or ordinary shares.

 

The above rules relating to the taxation of excess distributions and dispositions will not apply to a U.S. Holder who has made a timely “qualified electing fund” (“QEF”) election for all taxable years that the holder has held the ADSs or ordinary shares and if the Company complies with certain reporting requirements. Instead, each U.S. Holder who has made a timely QEF election is required for each taxable year that the Company is a PFIC to include in income a pro rata share of the Company’s ordinary earnings as ordinary income and a pro rata share of the Company’s net capital gain as long term capital gain, regardless of whether the Company has made any distributions of the earnings or gain. The U.S. Holder’s basis in the ADSs or ordinary shares will be increased to reflect taxed but undistributed income. Distributions of income that had been previously taxed will result in a corresponding reduction in the basis of the ADSs or ordinary shares and will not be taxed again once distributed. A U.S. Holder making a QEF election will generally recognize capital gain or loss on the sale, exchange or other taxable disposition of ADSs or ordinary shares. If the Company determines that it is a PFIC for any taxable year, the Company may provide each U.S. Holder with all necessary information in order to make the QEF election described above.

 

Alternatively, if the Company were to be treated as a PFIC for any taxable year and provided that its ADSs or ordinary shares are treated as “marketable stock” (e.g., “regularly traded” on the NASDAQ) a U.S. Holder may make a mark-to-market election. Under a “mark-to-market” election, in any taxable year that the Company is a PFIC, any excess of the fair market value of the ADSs or ordinary shares at the close of any taxable year over the U.S. Holder’s adjusted tax basis in the ADSs or ordinary shares is included in the U.S. Holder’s income as ordinary income. In addition, the excess, if any, of the U.S. Holder’s adjusted tax basis at the close of any taxable year over the fair market value of the ADSs or ordinary shares is deductible in an amount equal to the lesser of the amount of the excess or the amount of the net mark-to-market gains that the U.S. Holder included in income in prior years. A U.S. Holder’s tax basis in its ADSs or ordinary shares would be adjusted to reflect any such income or loss. For any taxable year that the Company is a PFIC, gain realized on the sale, exchange or other disposition of the ADSs or ordinary shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the ADSs or ordinary shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder. There can be no assurances that there will be sufficient trading volume with respect to the ADSs or ordinary shares for the ADSs or ordinary shares to be considered “regularly traded,” or that the ADSs or ordinary shares will continue to trade on the Nasdaq Capital Market. Accordingly, there are no assurances that the Company’s ADSs or ordinary shares will be marketable stock for these purposes.

 

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A U.S. Holder who holds the Company’s ADSs or ordinary shares during a period when the Company is a PFIC will be subject to the foregoing rules for that taxable year and all subsequent taxable years with respect to that U.S. Holder’s holding of the ADSs or ordinary shares, even if the Company ceases to be a PFIC, subject to certain exceptions for U.S. Holders who made a timely mark-to-market or QEF election. U.S. Holders are urged to consult their tax advisors regarding the PFIC rules in the event that the Company is a PFIC, including as to the advisability and consequences of making a QEF or mark-to -market election.

 

Material PRC Income Tax Consequences 

 

Under the PRC Enterprise Income Tax Law, which took effect as of January 1, 2008, enterprises established under the laws of non-PRC jurisdictions but whose “de facto management body” are located in China are considered “resident enterprises” for PRC tax purposes. Under the implementation regulations issued by the State Council relating to the new tax law, “de facto management body” is defined as the body that has material and overall management control over the business, personnel, accounts and properties of an enterprise. The Company is not currently treated as a PRC resident enterprise by the relevant tax authorities. Since substantially all of the Company’s management is currently based in China and may remain in China in the future, the Company may be treated as a “resident enterprise” for the PRC tax purposes.

 

If the PRC tax authorities were to determine that the Company should be considered a resident enterprise, then gain recognized on the receipt of cash for the Shares pursuant to the Merger by shareholders who are not PRC residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of 10% in the case of enterprises or 20% in the case of individuals (subject to applicable tax treaty relief, if any), and, even in the event that the Company is not considered a resident enterprise, gain recognized on the receipt of cash for Shares is subject to PRC tax if the holders of such Shares are PRC resident individuals. 

 

You should consult your own tax advisor for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences. 

 

Material British Virgin Islands Tax Consequences 

 

The British Virgin Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will payable (either by direct assessment or withholding) to the government or other taxing authority in the British Virgin Islands under the laws of the British Virgin Islands in respect of the Merger or the receipt of cash for our Shares under the terms of the Merger.

 

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MARKET PRICE OF THE COMPANY’S SHARES AND ADSs, DIVIDENDS AND OTHER MATTERS  

 

Market Price of the Shares and the ADSs

 

The following table provides the high and low sales prices for our ADSs on the NASDAQ under the symbol “OSN,” for the periods indicated:

 

   Sale Price per Share (in US$) 
   High   Low 
Quarterly:        
2019        
First quarter   2.18    1.20 
Second quarter   2.65    1.56 
Third quarter   7.00    1.91 
Fourth quarter   4.89    3.00 
2020          
First quarter   3.38    1.50 
Second quarter   3.43    1.62 
Third quarter   5.69    2.73 
Fourth quarter   4.87    4.17 

 

The closing price of the ADSs on NASDAQ on September 15, 2020, the last trading date immediately prior to the Company’s announcement on September 16, 2020 that it had received “a going private” proposal, was US$3.68 per ADS. The Per ADS Merger Consideration of US$5.10 per Share (less US$0.05 per ADS cancellation fee payable pursuant to the Deposit Agreement), to be paid in the Merger represents a premium of approximately 38.6% to that closing price. 

 

 You are urged to obtain a current market price quotation for the ADSs in connection with voting your Shares and your ADSs represented by Shares.

 

Dividend Policy 

 

Since our inception, we have not declared or paid any dividends on our ordinary shares. We do not anticipate paying any cash dividends in the foreseeable future and the Merger Agreement prohibits us from paying dividends without the prior written consent of Parent. 

 

Cash dividends on our Shares and ADSs, if any, will be paid in U.S. dollars. If we pay any dividends, the ADS depositary will pay our ADS holders the dividends it receives on our Shares, after deducting its fees and expenses as otherwise provided in the Deposit Agreement. Other distributions, if any, will be paid by the ADS depositary to the holders of ADSs in U.S. dollars after deducting its fees and expenses or as otherwise provided in the Deposit Agreement.

 

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THE EXTRAORDINARY GENERAL MEETING  

 

We are furnishing this proxy statement to you, as a holder of our Shares, as part of the solicitation of proxies by the Company’s board of directors for use at the extraordinary general meeting described below.

 

Date, Time and Place of the Extraordinary General Meeting 

 

The extraordinary general meeting will be held on _________, at _________ (Beijing Time) at 518 Shangcheng Road, Floor 17, Shanghai, 200120, People’s Republic of China. 

 

Proposals to be Considered at the Extraordinary General Meeting 

 

At the meeting, you will be asked to consider and vote upon: 

 

THAT the Agreement and Plan of Merger dated December 17, 2020 (the “Merger Agreement”) by and among New Ossen Group limited, an exempted company with limited liability incorporated under the laws of the British Virgin Islands (“Parent”), New Ossen Innovation Limited, a company with limited liability incorporated under the laws of the British Virgin Islands, all of the issued and outstanding shares of which are owned by Parent (“Merger Sub”), and the Company, and the articles of merger and plan of merger (the “Plan of Merger”) required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands as provided in Section 171(2) of the BVI Companies Act for the purpose of the Merger, substantially in the form attached as Appendix A to the Merger Agreement (copies of such Merger Agreement and Plan of Merger being in the form attached to the proxy statement accompanying this notice, which will also be produced and made available for inspection at the meeting), pursuant to which Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving company, and the transactions contemplated by the Merger Agreement, including the Merger, be approved and authorized by the Company; and

 

THAT the chairman of the extraordinary general meeting be instructed to adjourn or postpone the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the shareholders resolutions to be proposed at the extraordinary general meeting.

 

If the Merger is completed, at the effective time of the Merger (the “Effective Time”), except as described below, (i) each Share (other than Shares represented by ADSs) issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist in exchange for the right to receive US$1.70 per Share in cash and without interest and (ii) each ADS issued and outstanding immediately prior to the Effective Time, together with each Share represented by such ADS, will be cancelled and cease to exist in exchange for the right to receive US$5.10 per ADS (less US$0.05 per ADS cancellation fee payable pursuant to the terms of the deposit agreement (the “Deposit Agreement”) dated June 30, 2020 by and among the Company, the Bank of New York Mellon (the “ADS depositary”), and all holders and beneficial owners from time to time of ADSs issued thereunder. The following Shares of the Company will not be converted into the right to receive the consideration described in the immediately preceding sentence: (a) Shares (including ADSs corresponding to such Shares) beneficially owned by the Rollover Shareholder (the “Rollover Shares”); (b) Shares (the “Dissenting Shares”) owned by holders of Shares who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 179 of the BVI Business Companies Act, 2004, as amended (the “BVI Companies Act”) (the “Dissenting Shareholders”); and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury) and Shares held by Parent or any of its subsidiaries ((a), (b) and (c) collectively, the “Excluded Shares”). Each Excluded Share (excluding any Dissenting Share) issued and outstanding immediately prior to the Effective Time , will be cancelled and will cease to exist, and no Merger Consideration will be delivered with respect thereto. Each Dissenting Share will be cancelled at the Effective Time of the Merger for the right to receive the fair value of such Shares as determined in accordance with the provisions of the BVI Companies Act. The ADS depositary will call for surrender of all outstanding ADSs (other than any ADSs representing Excluded Shares) to be exchanged for the applicable merger consideration.

 

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Our Board’s Recommendation 

 

Our board of directors, acting upon the unanimous recommendation of the Independent Committee of our board of directors:

 

·determined that it is fair to and in the best interests of the Company and its shareholders, including shareholders who are unaffiliated with the Rollover Shareholder or the Buyer Group, and declared that it is advisable, to enter into the Merger Agreement; 

 

·authorized and approved the execution, delivery and performance of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger; and 

 

·resolved to direct that the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company. 

 

Quorum 

 

A quorum of our shareholders is necessary to have a valid shareholders’ meeting. The required quorum for the transaction of business at the extraordinary general meeting is the presence, in person or by proxy, of shareholders holding not less than an aggregate of fifty percent of the votes of Shares that are entitled to vote on the record date. We expect, as of the record date, there will be 19,791,110 Shares entitled to be voted at the extraordinary general meeting. In the event that a quorum is not present at the extraordinary general meeting, we currently expect that we will adjourn the extraordinary general meeting to solicit additional proxies in favor of the adoption of the Merger Agreement. 

 

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Record Date; Shares and ADSs Entitled to Vote 

 

You are entitled to attend and directly vote at the extraordinary general meeting if you have Shares registered in your name at the close of business in the British Virgin Islands on _________, 2021, the Share record date for voting at the extraordinary general meeting. If you own ADSs as at the close of business in New York City on _________, 2021, the ADS record date, and do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained below, you cannot vote at the extraordinary general meeting directly, but you may instruct the ADS depositary (as the registered holder of the Shares underlying the ADSs) on how to vote the Shares underlying your ADSs. The ADS Depositary must receive your instructions no later than _________ (New York City time) on _________, 2021 in order to ensure your Shares are properly voted at the extraordinary general meeting. Alternatively, if you own ADSs on the ADS record date, you may vote directly at the extraordinary general meeting by cancelling your ADSs (and certifying you have not instructed, and will not instruct, the ADS depositary to vote the Shares represented by your ADSs) before the close of business in New York City on _________, 2021 and becoming a holder of Shares prior to the close of business in the British Virgin Islands on _________, 2021, the share record date. Each outstanding Share on the share record date entitles the holder to one vote on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the Share record date, there will be 19,791,110 Shares entitled to be voted at the extraordinary general meeting. If you have Shares registered in your name on the Share record date, the deadline for you to lodge your proxy card and vote is _________, 2021 at ________ (Beijing Time).

 

Please see “The Extraordinary General Meeting—Shareholders and ADS Holders Entitled to Vote; Voting Materials” below for additional information. If the Merger is not completed, the Company would continue to be a public company in the U.S. and the Company's ADSs would continue to be listed on NASDAQ. The Company's Shares are not listed and cannot be traded on any stock exchange other than NASDAQ, and in such case only in the form of ADSs. As a result, if you have cancelled your ADSs to attend the extraordinary general meeting and the Merger is not completed and you wish to be able to sell your Shares on a stock exchange, you would need to deposit your Shares into the Company's ADS program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable laws and the deposit agreement, including, among other things, payment of relevant fees of the ADS Depositary for the issuance of ADSs (up to US$0.05 per ADS issued) and any applicable stock transfer taxes (if any) and related charges pursuant to the Deposit Agreement.

 

Vote Required 

 

Under the BVI Companies Act and the Merger Agreement, we cannot complete the Merger unless the Merger Agreement, the transactions contemplated under the Merger Agreement, including the Merger, are adopted by an affirmative vote of shareholders representing at least a majority of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. As of the date of this proxy statement, the Rollover Shareholder beneficially owns 13,050,000 Shares, which represents 65.9% of the total issued and outstanding Shares entitled to vote. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 118 for additional information. Pursuant to the terms of the Support Agreement, these Shares will be voted in favor of the authorization and approval of the Merger Agreement, the Plan of Merger the transactions contemplated by the Merger Agreement, including the Merger, at the extraordinary general meeting of the Company.

 

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Shareholders and ADS Holders Entitled to Vote; Voting Materials 

 

Only holders of Shares entered in the register of members of the Company at the close of business on ________, 2021 (British Virgin Islands time), the share record date, will receive the final proxy statement and proxy card directly from the Company. Shareholders registered in the register of members of the Company as of the share record date or their proxy holders are entitled to vote and may participate in the extraordinary general meeting or any adjournment thereof. Shareholders wanting to vote by proxy should simply indicate on their proxy card how they want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event so that it is received by the Company no later than ________ (Beijing Time) on ________, 2021.

 

Holders of ADSs as of the close of business on ________, 2021 (New York City time), the ADS record date, will receive the final proxy statement and ADS voting instruction card either directly from the Company's ADS depositary (in the case of holders of ADSs who hold the ADSs in certificated form, i.e., in the form of ADRs) or these materials will be forwarded to them by a third party service provider (in the case of beneficial owners of ADSs who do not hold the ADSs in the form of ADRs). Holders of ADSs as of the close of business on ________, 2021 (New York City time) (who do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained in the following paragraph) cannot attend or vote at the extraordinary general meeting directly, but may instruct the ADS depositary how to vote the Shares underlying the ADSs by completing and signing an ADS voting instruction card provided by the ADS depositary and returning it in accordance with the instructions printed on it. The ADS depositary must receive the ADS voting instruction card no later than ________(New York City time) on________, 2021. The ADS depositary will endeavor, in so far as practicable, to vote or cause to be voted the number of Shares represented by your ADSs in accordance with your voting instructions. The ADS depositary will not vote or attempt to exercise the right to vote that attaches to your ADSs other than in accordance with the instructions given by you and received by the ADS depositary.

 

Holders of ADSs may vote directly at the extraordinary general meeting if they cancel their ADSs and become a holder of Shares by the close of business on ________, 2021 (British Virgin Islands time). ADS holders wanting to cancel their ADSs need to make arrangements to deliver their ADSs to the ADS depositary for cancellation prior to the close of business in New York City on ________, 2021 and complete certain other procedures required by the ADS depositary. Persons who hold ADSs in a brokerage, bank or nominee account, must contact their broker, bank or nominee to find out what actions they need to take to instruct the broker, bank or nominee to cancel the ADSs on their behalf.

 

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Persons holding ADSs in a brokerage, bank or nominee account should consult with their broker, bank or nominee to obtain directions on how to provide such broker, bank or nominee with instructions on how to vote their ADSs.

 

Each ADS represents three Shares. We expect that as of ________, 2021, there will be 19,791,110 Shares issued and outstanding (including Shares represented by ADSs), all of which are entitled to vote on the proposals at the extraordinary general meeting, subject to the procedures described above. As of ________, 2021, we expect that there will be approximately 2,247,036 ADSs outstanding; subject to the cancellation procedures described above, none of the holders of these ADSs may vote in person at the extraordinary general meeting.

 

Proxy Holders for Registered Shareholders 

 

Shareholders registered in the register of members of the Company as of the Share record date who are unable to participate in the extraordinary general meeting may appoint as a representative another shareholder, a third party or the Company as proxy holder by completing and returning the form of proxy in accordance with the instructions printed thereon. With regard to the items listed on the agenda and without any explicit instructions to the contrary, the Company as proxy holder will vote in favor of the Merger according to the recommendation of the board of directors of the Company. If new proposals (other than those on the agenda) are put forth before the extraordinary general meeting, the Company as proxy holder will vote in accordance with the position of the board of directors of the Company. 

 

Voting of Proxies and Failure to Vote

 

All Shares represented by valid proxies will be voted at the extraordinary general meeting in the manner specified by the holder. If a shareholder returns a properly signed proxy card but does not indicate how the shareholder wants to vote, Shares represented by that proxy card will be voted FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the shareholders resolution during the extraordinary general meeting unless the shareholder appoints a person other than the chairman of the meeting as proxy, in which case the Shares represented by that proxy card will be voted (or not submitted for voting) as the proxy determines. Shareholders who fail to cast their vote in person or by proxy will not have their votes counted. 

 

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Revocability of Proxies 

 

Registered holders of our Shares may revoke their proxies in one of three ways:

 

·first, a registered shareholder may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting before the extraordinary general meeting commences. Any written notice revoking a proxy should be sent to Ossen Innovation Co., Ltd., 518 Shangcheng Road, Floor 17, Shanghai, 200120, People’s Republic of China; 

 

·second, a registered shareholder may complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked to the Company no less than 48 hours prior to the extraordinary general meeting; or 

 

·third, a registered shareholder may attend the extraordinary general meeting and vote in person. Attendance, by itself, will not revoke a proxy. It will only be revoked if the shareholder actually votes at the extraordinary general meeting. 

 

If a shareholder holds Shares through a broker, bank or other nominee and has instructed the broker, bank or other nominee to vote the shareholder’s Shares, the shareholder must follow directions received from the broker, bank or other nominee to change those instructions. 

 

Holders of our ADSs may revoke their voting instructions by notification to the ADS depositary in writing at any time prior to ________(New York City time) on ________, 2021. A holder of ADSs can do this in one of two ways:

 

·first, a holder of ADSs can revoke its voting instructions by written notice of revocation timely delivered to the ADS depositary; or

 

·second, a holder of ADSs can complete, date and submit a new ADS voting instruction card to the ADS depositary bearing a later date than the ADS voting instruction card sought to be revoked.

 

If you hold your ADSs through a broker, bank or nominee and you have instructed your broker, bank or nominee to give ADS voting instruction to the ADS depositary, you must follow the directions of your broker, bank or nominee to change those instructions.

 

Rights of Shareholders Who Object to the Merger 

 

Shareholders who continue to hold their Shares in their own name until the completion of the Merger will have the right to dissent from the Merger and receive payment of the fair value of their Shares if the Merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Companies Act, which is attached as Annex C to this proxy statement, for the exercise of Appraisal Rights. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the Merger consideration you would receive pursuant to the Merger Agreement if you do not exercise Appraisal Rights with respect to your Shares. 

 

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ADS HOLDERS WILL NOT HAVE THE RIGHT TO DISSENT FROM THE MERGER AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY APPRAISAL RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE APPRAISAL RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY, PAY THE ADS DEPOSITARY'S FEES REQUIRED FOR THE CANCELLATION OF THE ADSs (US$0.05 PER ADS CANCELLED), PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES, AND CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THE ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE SHARES) BEFORE ________ (NEW YORK CITY TIME) ON ________, 2021 AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE BRITISH VIRGIN ISLANDS ON ________, 2021. THE PROCESS OF SURRENDERING ADSs AND BECOMING A REGISTERED SHAREHOLDER OF THE COMPANY MAY TAKE A NUMBER OF DAYS. ADS HOLDERS WISHING TO DO SO SHOULD TAKE ACTION AS SOON AS POSSIBLE.

 

THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING APPRAISAL RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 179 OF THE BVI COMPANIES ACT. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE U.S. AND THE COMPANY'S ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. THE COMPANY'S SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS OR HER ADSs TO EXERCISE APPRAISAL RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS OR HER SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS OR HER SHARES INTO THE COMPANY'S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAWS AND THE DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs (UP TO $0.05 PER ADS ISSUED) AND ANY APPLICABLE STOCK TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.

 

Whom to Call for Assistance 

 

If you have any questions or need assistance in voting your Shares, you may contact the Company’s investor relations firm GCI IR at + 1 -202-656-3688 or email at info@goldenir.com.

 

Other Business 

 

We are not currently aware of any business to be acted upon at the extraordinary general meeting other than the matters discussed in this proxy statement. 

 

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THE MERGER AGREEMENT AND PLAN OF MERGER  

 

This section of the proxy statement describes the material terms of the Merger Agreement and the Plan of Merger but does not purport to describe all of the terms of the Merger Agreement and the Plan of Merger. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement and the Plan of Merger, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. You should read the Merger Agreement and the Plan of Merger in their entirety because they, and not this proxy statement, are the legal documents that govern the Merger. This description of the Merger Agreement and the Plan of Merger have been included to provide you with information regarding their terms.

 

Structure and Completion of the Merger 

 

The Merger Agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, of the Merger Agreement and the Plan of Merger, with the Company as the surviving entity of the Merger. If the Merger is completed, the Company will cease to be a publicly traded company. The closing will occur no later than the tenth (10th) business day immediately following the day on which all of the closing conditions have been satisfied or waived or another date agreed in writing by Parent and the Company. At the closing, Merger Sub and the Company will execute the Plan of Merger and register the Plan of Merger and other related documents with the Registrar of Corporate Affairs of the British Virgin Islands. The Merger will become effective at the time when the Plan of Merger has been registered by the Registrar of Corporate Affairs of the British Virgin Islands or at such other subsequent date (not exceeding 30 days after the date the Plan of Merger is registered) as Merger Sub and the Company may agree and specify in the Plan of Merger in accordance with the BVI Companies Act. 

 

We expect that the Merger will be completed in the first half of 2021, after all conditions to the Merger have been satisfied or waived. We cannot specify when, or assure you that, all conditions to the Merger will be satisfied or waived; however, we intend to complete the Merger as promptly as practicable. 

 

Memorandum and Articles of Association; Directors and Officers of the Surviving Company 

 

As of the Effective Time of the Merger, without any further action on the part of the parties, the memorandum and articles of association of Merger Sub then in effect will be the memorandum and articles of association of the surviving company, except that, at the Effective Time, references therein to the name and the authorized capital of Merger Sub will be amended to describe correctly the name and authorized capital of the surviving company, as provided in the Plan of Merger, until thereafter changed or amended as provided therein or by applicable laws. 

 

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In addition, unless otherwise determined by Parent prior to the Effective Time of the Merger, the directors of Merger Sub at the Effective Time of the Merger (identified below in Annex D - “Directors and Executive Officers of Each Filing Person”) will become the directors of the surviving company and the officers (other than those officers who also were directors) of the Company immediately prior to the Effective Time of the Merger will become the officers of the surviving company, until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the memorandum and articles of association. 

 

Merger Consideration 

 

At the Effective Time of the Merger, except as described below, (i) each Share (other than Shares represented by ADSs) issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist in exchange for the right to receive US$1.70 per Share in cash and without interest (the “Per Share Merger Consideration”) and (ii) each ADS issued and outstanding immediately prior to the Effective Time, together with each Share represented by such ADS, will be cancelled and cease to exist in exchange for the right to receive US$5.10 per ADS (the “Per ADS Merger Consideration”) (less US$0.05 per ADS cancellation fee payable pursuant to the terms of the Deposit Agreement) (together, the “Merger Consideration”). The following Shares of the Company will not be converted into the right to receive the Merger Consideration described in the immediately preceding sentence: (a) Shares (including ADSs corresponding to such Shares) beneficially owned by the Rollover Shareholder (the “Rollover Shares”); (b) Shares (the “Dissenting Shares”) owned by holders of Shares who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 179 of the BVI Business Companies Act, 2004, as amended (the “BVI Companies Act”) (the “Dissenting Shareholders”); and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury) and Shares held by the Parent or any of its subsidiaries ((a), (b) and (c) collectively, the “Excluded Shares”). Each Excluded Share (excluding any Dissenting Share) issued and outstanding immediately prior to the Effective Time, will be cancelled and will cease to exist, and no Merger Consideration will be delivered with respect thereto. Each Dissenting Share will be cancelled at the Effective Time for the right to receive the fair value of such Shares as determined in accordance with the provisions of the BVI Companies Act.

 

At the Effective Time, each ordinary share, par value US$1.00 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time of the Merger will be converted into one fully paid and non-assessable ordinary share, par value US$0.001 per share, of the surviving company. 

 

Exchange Procedures 

 

Prior to the Effective Time, Parent will designate a paying agent for making the payments required to be made pursuant to the Merger Agreement, and will enter into an agreement with the paying agent. At or prior to the Effective Time of the Merger, Parent will deposit, or will cause to be deposited, with the paying agent, for the benefit of the holders of Shares, and ADSs a cash amount in immediately available funds sufficient for the paying agent to make payments under the Merger Agreement. 

 

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Promptly after the Effective Time (and in any event within five (5) business days following the closing date), the surviving company will cause the paying agent to mail (or, in the case of the depository trust company, to deliver), to each person who was, at the effective time of the Merger, a registered holder of Shares entitled to receive the Merger consideration pursuant to the Merger Agreement: (i) a letter of transmittal (which will be in customary form for a company listed on the NASDAQ reasonably acceptable to Parent and the Company (at the direction of the Independent Committee), and will specify how the delivery of the Merger consideration to registered holders of the Shares will be effected and contain such other provisions as Parent and the Company may mutually agree); and (ii) instructions for use in effecting the surrender of any issued share certificates and book-entry shares and/or such other documents as may be required in exchange for the per Share Merger consideration, as applicable. 

 

Prior to the Effective Time, Parent and the Company will establish procedures with the paying agent and the ADS depositary to ensure that (a) the paying agent will transmit to the ADS depositary as promptly as reasonably practicable following the Effective Time an amount in cash in immediately available funds equal to the product of (x) the number of ADSs issued and outstanding immediately prior to the Effective Time of the merger (other than ADSs representing the Excluded Shares) and (y) the Per ADS Merger Consideration; and (b) the ADS depositary will distribute the Per ADS Merger Consideration to holders of ADSs pro rata to their holdings of ADSs (other than ADSs representing the Excluded Shares) upon surrender by them of the ADSs. Pursuant to the terms of the Deposit Agreement, the ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary, stock transfer or other taxes and other government charges due to or incurred by the ADS Depositary in connection with the cancellation of their ADSs. The Surviving Company will pay any applicable fees, charges and expenses of the Depositary and government charges (other than withholding taxes, if any, which shall be withheld by the ADS Depositary due to or incurred by the ADS Depositary in connection with distribution of the Per ADS Merger Consideration to holders of ADSs and the cancellation of ADSs (excluding any fees, including ADS cancellation or termination fees, payable by holders of ADSs in accordance with the Deposit Agreement).

 

Representations and Warranties 

 

The Merger Agreement contains representations and warranties made by the Company to Parent and Merger Sub and representations and warranties made by Parent and Merger Sub to the Company, in each case, as of specific dates. The statements embodied in those representations and warranties were made for purposes of the Merger Agreement and are subject to important qualifications and limitations agreed by the parties in connection with negotiating the terms of the Merger Agreement (including those set forth in the disclosure schedule delivered by the Company in connection therewith). In addition, some of those representations and warranties may be subject to a contractual standard of materiality different from that generally applicable to shareholders, may have been made for the principal purposes of establishing the circumstances in which a party to the Merger Agreement may have the right not to close the Merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise and allocating risk between the parties to the Merger Agreement rather than establishing matters as facts. Moreover, the representations and warranties made by the Company were qualified by its public disclosure with the SEC prior to, and for the matters that members of the Buyer Group had knowledge of as of, the date of the Merger Agreement. 

 

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The representations and warranties made by the Company to Parent and Merger Sub include representations and warranties relating to, among other things:

 

·due organization, existence, good standing and authority to carry on the Company’s businesses; 

 

·the Company’s capitalization, the absence of preemptive or other rights with respect to securities of the Company, or any securities that give their holders the right to vote with the Company’s shareholders; 

 

·the Company’s corporate power and authority to execute and deliver, to perform its obligations under and to consummate the transactions under the Merger Agreement, and the enforceability of the Merger Agreement against the Company; 

 

·the declaration of advisability and recommendation to the shareholders of the Company of the Merger Agreement and the Merger by the Independent Committee and by the board of directors of the Company, and the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated under the Merger Agreement, including the Merger by the board of directors of the Company; 

 

·the required vote of the Company’s shareholders to adopt the Merger Agreement; 

 

·the absence of violations of, or conflict with, the governing documents of the Company, laws applicable to the Company and certain agreements of the Company as a result of the Company entering into and performing under the Merger Agreement and consummating the transactions contemplated by the Merger Agreement; 

 

·the Company’s SEC filings since January 1, 2017 and the financial statements included therein; 

 

·the Company’s disclosure controls and procedures and internal controls over financial reporting; 

 

·the absence of any “Material Adverse Effect” (as defined below) on the Company or certain other changes or events since December 31, 2019 ; 

 

·the absence of any legal proceedings against the Company; 

 

·compliance with applicable laws and licenses; 

 

·labor and employment matters; 

 

·material contracts and the absence of any default under, or breach or violation of, any material contract; 

 

·real property; 

 

·tax matters; 

 

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·intellectual property; 

 

·privacy and date security;

 

·insurance matters; 

 

·the receipt of opinion from Houlihan Lokey by the Independent Committee; 

 

·the absence of interested party transactions; 

 

·environmental matters;

 

·the absence of any undisclosed broker’s or finder’s fees;

 

·major customers and suppliers;

 

·inventories;

 

·product defects and warranties; and

 

·acknowledgement by Parent and Merger Sub as to the absence of any other representations and warranties by the Company, other than the representations and warranties made by the Company contained in the Merger Agreement and the disclosure schedules delivered by the Company. 

 

Many of the representations and warranties made by the Company are qualified as to “knowledge”, “materiality” or “Material Adverse Effect.” For purposes of the Merger Agreement, a “Material Adverse Effect” means any change, effect, event, circumstance, occurrence, development or fact (including any change in applicable laws or the interpretation or enforcement thereof or other regulatory change that affects the Company or any of its subsidiaries), that is, or would reasonably be expected to, either individually or in the aggregate, a) have a material adverse effect on the business, condition (financial or otherwise), assets, liabilities, properties or results of operations of the Company and its subsidiaries taken as a whole; or (b) prevent or materially delay the consummation of the transactions contemplated in the Merger Agreement or otherwise be materially adverse to the ability of the Company to perform its material obligations under the Merger Agreement, provided, however, that the foregoing clause (a) shall not include any fact, event, circumstance, change, condition, occurrence or effect occurring after the date of the Merger Agreement following or resulting from (i) geopolitical conditions, any outbreak or escalation of war or major hostilities or any act of sabotage or terrorism or natural or man-made disasters or epidemic-induced public health crises or other force majeure events, (ii) changes in laws, generally accepted accounting principles applicable to the Company or enforcement or interpretation thereof, in each case proposed, adopted or enacted after the date of Merger Agreement, (iii) changes or conditions that generally affect the industry and market in which the Company and its subsidiaries operate, (iv) changes in the financial, credit or other securities or capital markets, or in general economic, business, regulatory, legislative or political conditions, (v) the announcement, pendency or consummation of the transactions contemplated in the Merger Agreement, or (vi) any action taken by the Company or any of its subsidiaries at the written request, or with the written consent, of Parent or expressly required by Merger Agreement; except, in the case of clause (i), (ii), (iii) or (iv), to the extent having a materially disproportionate effect on the Company and its subsidiaries, taken as a whole, relative to other participants in the industry in which the Company and its Subsidiaries operates (in which case the incremental materially disproportionate impact or impacts may be taken into account in determining whether there has been a Company Material Adverse Effect).

 

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The representations and warranties made by Parent and Merger Sub to the Company include representations and warranties relating to, among other things:

 

·their due organization, existence and good standing; 

 

·their corporate power and authority to execute, deliver and perform their obligations under and to consummate the transactions contemplated by the Merger Agreement, and the enforceability of the Merger Agreement against them; 

 

·capitalization of Parent and Merger Sub, Parent ownership of Merger Sub and the operations of Parent and Merger Sub; 

 

·sufficiency of funds in the financing for the Merger, subject to certain conditions; 

 

·the absence of violations of, or conflict with, the governing documents of Parent or Merger Sub, laws applicable to Parent or Merger Sub and certain agreements of Parent or Merger Sub as a result of Parent and Merger Sub entering into and performing under the Merger Agreement and consummating the transactions contemplated by the Merger Agreement; 

 

·governmental consents and approvals; 

 

·the execution and validity of the limited guarantees provided by Pujiang and the lack of any default thereunder; 

 

·the absence of legal proceedings against Parent and Merger Sub; 

 

·the absence of any other agreements (except for the transaction documents as specified in the Merger Agreement and any documents or agreements with respect to the shareholder arrangements of Parent (or any equity holder of Parent), including, the rollover agreement, the voting agreement, the limited guarantee, the share subscription agreement) (i) between Parent, Merger Sub or any of their affiliates (excluding the Company and its subsidiaries), on one hand, and any of the Company’s or its subsidiaries’ directors, officers, employees or shareholders, on the other, that relate to the transactions contemplated by the Merger Agreement, or (ii) pursuant to which any holder of Shares would be entitled to receive consideration different than the Merger consideration or pursuant to which a shareholder agreed to vote to approve the Merger Agreement or against any Superior Proposal;

 

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·the absence of any undisclosed broker’s or finder’s fees; 

 

·the absence of secured or unsecured creditors for Merger Sub; 

 

·independent investigation conducted by Parent and Merger Sub and non-reliance on the Company’s estimates; and 

 

·acknowledgement by the Company as to the absence of any other representations and warranties by Parent or Merger Sub, other than the representations and warranties made by Parent and/or Merger Sub contained in the Merger Agreement and the disclosure schedules delivered by Parent and Merger Sub. 

 

Conduct of Business Prior to Closing 

 

The Company agrees that, from the date of the Merger Agreement until the earlier of the Effective Time (or the termination of the Merger Agreement ), without the prior written consent of Parent or otherwise expressly required or permitted by the Merger Agreement or as required by law, (i) the businesses of the Company and its subsidiaries shall be conducted in the ordinary course of business and in a manner consistent with past practice; and (ii) the Company shall use its reasonable best efforts to preserve substantially intact the assets and the business organization of the Company and its subsidiaries, to keep available the services of the current officers and key employees of the Company and its subsidiaries and to maintain in all material respects the current relationships of the Company and its subsidiaries with existing customers, suppliers and other persons with which any Company or its subsidiaries has material business relations.

 

From the date of the Merger Agreement until the Effective Time (or the termination of the Merger Agreement), without the prior written consent of Parent or otherwise expressly required or permitted by the Merger Agreement or as required by law, the Company will not and will not permit any of its subsidiaries to, among other things:

 

·adopt or propose any change in the memorandum and articles of association or equivalent organizational documents of the Company or any of its subsidiaries;

 

·issue, sell, transfer, lease, sublease, license, pledge, dispose of, grant or encumber, or authorize the issuance, sale, transfer, lease, sublease, license, pledge, disposition, grant or encumbrance of, (i) any shares of any class of the Company or any of its subsidiaries, (ii) any property or assets (whether real, personal or mixed, and including leasehold interests and intangible property) of the Company or any of its subsidiaries with a value or purchase price (including the value of assumed liabilities) in excess of US$100,000, except in the ordinary course of business, or (iii) any material intellectual property owned by or licensed to the Company or any of its subsidiaries, except in the ordinary course of business consistent with past practice;

 

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·declare, set aside, make or pay any dividend or other distribution, payable in cash, shares, property or otherwise, with respect to any of its shares (other than dividends or other distributions from any subsidiary of the Company to the Company or any of its other subsidiaries consistent with past practice);

 

·reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its shares or securities or other rights exchangeable into or convertible or exercisable for any of its shares;

 

·effect or commence any liquidation, dissolution, scheme of arrangement, merger, consolidation, amalgamation, restructuring, reorganization, public offering or similar transaction involving the Company or any of its subsidiaries, or create any new subsidiary;

 

·acquire, whether by purchase, merger, spin off, consolidation, scheme of arrangement, amalgamation or acquisition of stock or assets or otherwise, any assets, securities or properties, in aggregate, with a value or purchase price (including the value of assumed liabilities) in excess of US$250,000 in any transaction or related series of transactions;

 

·make any capital contribution or investment in any corporation, partnership, other business organization or any division thereof in excess of US$100,000 in aggregate;

 

·incur, assume, alter, amend or modify any indebtedness, or guarantee any indebtedness, or issue any debt securities, except for (i) the incurrence or guarantee of indebtedness under the Company or any of its subsidiaries’ existing credit facilities as in effect on the date hereof in an aggregate amount not to exceed the maximum amount authorized under the contracts evidencing such indebtedness or (ii) not in an aggregate amount in excess of US$1,000,000;

 

·other than expenditures necessary to maintain assets in good repair consistent with the past practice, authorize, or make any commitment with respect to, any single capital expenditure which is in excess of US$500,000 or capital expenditures which are, in the aggregate, in excess of US$3,000,000 for the Group Companies taken as a whole;

 

·except as required pursuant to the Merger Agreement, (i) enter into any new employment or compensatory agreements (including the renewal of any such agreements), or terminate any such agreements, with any Employee of any Group Company other than the hiring or termination of employees with an aggregate annual compensation of less than US$150,000, (ii) grant or provide any severance or termination payments or benefits to any employee of the Company or any of its subsidiaries, (iii) increase the compensation, bonus or pension, welfare, severance or other benefits of, pay any bonus to any employee of the Company or any of its subsidiaries except such increases or payments, in the aggregate, do not cause an increase in the labor costs of the Company or any of its subsidiaries, taken as a whole, by more than 1%, (iv) make any new equity awards to any employee of the Company or any of its subsidiaries, (v) establish, adopt, amend or terminate any employee plan, (vi) take any action to accelerate the vesting or payment, of compensation or benefits under the employee plan, or (vii) forgive any loans to any employee of the Company or any of its subsidiaries;

 

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·adopt any employee share option plan or other employee incentive plan or issue, grant or announce any options or incentive awards thereunder;

 

·make any changes with respect to financial accounting policies or procedures, including changes affecting the reported consolidated assets, liabilities or results of operations of the Company or its subsidiaries, except as required by changes in statutory or regulatory accounting rules or GAAP or regulatory requirements with respect thereto;

 

·enter into, amend, modify, consent to the termination of, or waive any material rights under, any material contract;

 

·enter into any contract with any “relater party” transactions (as such term is defined in Item 404 of Regulation S-K promulgated under the Exchange Act) except for contracts solely between the Company and/or its wholly-owned subsidiaries and as otherwise permitted under the Merger Agreement;

 

·terminate or cancel, let lapse, or amend or modify in any material respect, other than renewals in the ordinary course of business, any material insurance policies maintained by it which are not promptly replaced by a comparable amount of insurance coverage;

 

·commence any action for a claim of more than US$1,000,000 (excluding any action seeking for an injunctive relief or other similar equitable remedies) or settle, release, waive or compromise any pending or threatened Action of or against the Company or its subsidiaries (A) for an amount in excess of US$1,000,000, (B) that would impose any material restrictions on the business or operations of the Company or its subsidiaries, or (C) that is brought by or on behalf of any current, former or purported holder of any shares or debt securities of the Company or its subsidiaries relating to transactions contemplated in the Merger Agreement;

 

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·permit any intellectual property owned by the Company or its subsidiaries to lapse or to be abandoned, dedicated, or disclaimed, fail to perform or make any applicable filings, recordings or other similar actions or filings, fail to pay all required fees and taxes required or advisable to maintain and protect its interest in each and every item of intellectual property owned by the Company or its subsidiaries, or grant or license or transfer to any third party any material intellectual property owned by the Company or its subsidiaries;

 

·fail to make in a timely manner any filings or registrations with the SEC required under the Securities Act or the Exchange Act or the rules and regulations promulgated thereunder;

 

·enter into, or propose to enter into, any transaction involving any earn-out or similar payment payable by the Company or its subsidiaries, to any third party, other than payments in connection with purchases of vehicles, plant, equipment, supplies or computers in the ordinary course of business;

 

·engage in the conduct of any new line of business material to the Company and its subsidiaries, taken as a whole;

 

·make or change any material tax election, amend any tax return, enter into any closing agreement or seek any ruling from any governmental authority with respect to material taxes, surrender any right to claim a material refund of taxes, settle or finally resolve any material controversy with respect to taxes, agree to an extension or waiver of the statute of limitations with respect to the assessment or determination of material taxes, change any method of tax accounting or tax accounting period, initiate any voluntary tax disclosure to any governmental authority, or incur any material amount of taxes outside of the ordinary course of business;

 

·grant any fixed or floating security interests; or

 

·announce an intention, enter into any formal or informal agreement or otherwise make a commitment, to do any of the foregoing.

 

Shareholders’ Meeting 

 

The Company will cause an extraordinary general meeting of its shareholders to be duly called and held promptly after the SEC confirms that it has no further comments on the Schedule 13E-3 and this proxy statement. The Company may adjourn or postpone the shareholders’ meeting to the extent necessary to ensure that any supplement or amendment to the proxy statement is provided to its shareholders within a reasonable number of days prior to the shareholders’ meeting, and the Company may adjourn or postpone the shareholders’ meeting if as of the time for which the shareholders’ meeting is originally scheduled there are insufficient Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the shareholders’ meeting or if the Company deems necessary to solicit more proxies. 

 

In the event that the board of directors of the Company changes, withholds, withdraws, qualifies or modifies its recommendation to the shareholders of the Company, the Company will have the right not to submit the Merger Agreement to the holders of Shares for the approval at, and will have the right not to hold the shareholders’ meeting. 

 

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No Solicitation of Competing Transactions

 

From the date of the Merger Agreement until the Effective Time of the Merger or, if earlier, the termination of the Merger Agreement, neither the Company nor any of its subsidiaries nor any investment banker, attorney or accountant retained by the Company and its subsidiaries will: (a) solicit, initiate or encourage the submission of any proposal or offer that constitutes, or may reasonably be expected to lead to, any Competing Transaction, or any inquiries that may lead to any such Competing Transaction or offer; (b) enter into, maintain or continue discussions or negotiations with, or furnish to any person any non-public information with respect to the Company or any of its subsidiaries to facilitate, induce, or encourage any Competing Transaction; (c) agree to, approve, endorse, recommend or consummate, or enter into any letter of intent, agreement or agreement in principle with respect to a Competing Transaction; and (d) grant any waiver, amendment or release under any standstill, confidentiality or similar agreement or takeover, anti-takeover, moratorium, “business combination,” “fair price,” “control share” or other similar laws enacted under any laws applicable to the Company.

 

As used herein and for purposes of the Merger Agreement, a “Competing Transaction” means any of the following (other than the transactions contemplated in the Merger Agreement): (i) any merger, consolidation, share exchange, business combination, scheme of arrangement, amalgamation, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any of its Subsidiaries whose assets, individually or in the aggregate, constitute 15% or more of the consolidated assets of the Company or to which 15% or more of the total revenue or net income of the Company are attributable; (ii) any sale, lease, exchange, transfer or other disposition of assets or businesses that constitute or represent 15% or more of the total revenue, net income or assets of the Company and its subsidiaries, taken as a whole; (iii) any sale, exchange, transfer or other disposition of 15% or more of any class of equity securities of the Company, or securities convertible into or exchangeable for 15% or more of any class of Equity Securities of the Company; (iv) any tender offer or exchange offer that, if consummated, would result in any person beneficially owning 15% or more of any class of equity securities of the Company; (v) any other transaction the consummation of which would be reasonably likely to impede, interfere with, prevent or materially delay the Merger; (vi) any other transaction having an effect similar to the foregoing; or (vii) any combination of the foregoing.

 

The Company shall notify Parent as promptly as practicable (and in any event within forty-eight (48) hours), orally and in writing, of any proposal or offer, or any inquiry or contact between the Company or its representatives and any third party, regarding a competing transaction or that could reasonably be expected to lead to a Competing Transaction, specifying (x) the material terms and conditions thereof (including material amendments or proposed material amendments) and providing, if applicable, copies of any written requests, proposals or offers, including proposed agreements, (y) the identity of the party making such proposal or offer or inquiry or contact, and (z) whether the Company has any intention to provide confidential information to such person.

 

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The Company shall keep Parent informed, on a reasonably current basis (and in any event within forty-eight (48) hours of the occurrence of any material changes, developments, discussions or negotiations) of the status and terms of any such proposal, offer, inquiry, contact or request and of any material changes in the status and terms of any such proposal, offer, inquiry, contact or request (including the material terms and conditions thereof). Without limiting the foregoing, the Company shall (A) promptly notify Parent orally and in writing if it determines to initiate actions concerning a proposal, offer, inquiry, contact or request, in each case as permitted under the Merger Agreement, and (B) provide Parent with forty-eight (48) hours prior notice (or such lesser prior notice as is provided to the members of the Company Board or members of the Independent Committee) of any meeting of the Company Board or Independent Committee at which the Company Board or Independent Committee , as applicable, is reasonably expected to consider any Competing Transaction. The Company shall, and shall cause its subsidiaries and the representatives of the Company and its subsidiaries to, immediately cease and terminate all existing discussions or negotiations with any parties conducted heretofore with respect to a competing transaction and immediately revoke or withdraw access of any third party to any data room containing any nonpublic information concerning the Company and its subsidiaries and request, and use its reasonable efforts to cause, all such third parties to promptly return or destroy all such nonpublic information. The Company shall not, and shall cause its subsidiaries not to, enter into any confidentiality agreement with any third party subsequent to the date of the Merger Agreement which prohibits the Company from providing such information to Parent.

 

Notwithstanding the foregoing, prior to the receipt of the required shareholder authorization and approval of the Merger Agreement, if the Company has otherwise complied in all material respects with its obligations set forth in the preceding paragraph, following receipt by the Company of an unsolicited bona fide, written proposal or offer regarding a Competing Transaction, the Company and its representatives may, acting only under the direction of the Independent Committee:

 

·contact such person solely in order to clarify and understand the terms and conditions of any proposal of a Competing Transaction made by such person so that the Independent Committee may determine whether such proposal constitutes or would reasonably be expected to result in a Superior Proposal;

 

·provide information in response to the request of such person, if and only if, prior to providing such information, the Company has received from the person so requesting such information an executed confidentiality agreement that shall not include any provision calling for any exclusive right to negotiate with such person or having the effect of prohibiting the Company from satisfying its obligations under the Merger Agreement, and promptly discloses (and, if applicable, provides copies of) any such information to Parent to the extent not previously provided to Parent; and

 

·engage or participate in any discussion or negotiations with the person who has made such proposal or offer,

 

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provided that, the Independent Committee shall have provided written notice to Parent at least three business days prior to providing information or engaging or participating in any discussion as described above, and the Independent Committee shall have determined in its good faith judgment that such proposal or offer constitutes or would reasonably be expected to result in a Superior Proposal, and that failure to take such action would be inconsistent with the fiduciary duties of the Company’s board of directors under applicable laws.

 

As used herein and for purposes of the Merger Agreement, “Superior Proposal” means a bona fide written proposal or offer with respect to a Competing Transaction, which was not obtained in violation of the terms of the Merger Agreement, that would result in any person (or its shareholders, members or other equity owners) becoming the beneficial owner, directly or indirectly, of more than 50% of the assets (on a consolidated basis), or more than 50% of the total voting power of the equity securities, of the Company that (i) provides for the payment of cash consideration per Share to holders thereof that is in excess of the Per Share Merger Consideration and cash consideration per ADS to holders thereof that is in excess of the Per ADS Merger Consideration, and (ii) the Board has determined in its good faith judgment, upon the unanimous recommendation of the Independent Committee (after consultation with its financial advisor and outside legal counsel), is reasonably likely to be consummated in accordance with its terms without undue delay, taking into account all legal, financial and regulatory aspects of the proposal (including financing, regulatory or other consents and approvals, shareholder litigation, the identity of the person making the proposal, breakup or termination fee and expense reimbursement provisions, expected timing, risk and likelihood of consummation and other relevant events and circumstances), and would, if consummated, result in a transaction more favorable to the Company’s shareholders (other than the Rollover Shareholder) solely from a financial point of view than the transactions contemplated under the Merger Agreement (including the effect of any termination fee or provision relating to the reimbursement of expenses) provided that no offer or proposal shall be deemed to be a “Superior Proposal” if any financing required to consummate the transaction contemplated by such offer or proposal is not fully committed or if the receipt of any such financing is a condition to the consummation of such transaction, or if the Company’s recourse in the event such transaction is not consummated because of the failure to obtain financing is less favorable to the Company in any material respect than the Company’s recourse in such an event thereunder.

 

Change of Recommendation

 

The board of directors of the Company and the Independent Committee will not:

 

·subject to certain exceptions and conditions, withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify) in a manner adverse to Parent or Merger Sub the recommendation to the shareholders of the Company to vote in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the transactions contemplated by the Merger Agreement, including the Merger; or 

 

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·subject to certain exceptions and conditions, cause or permit the Company to enter into any alternative acquisition agreement, including letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, Merger Agreement or other agreement (other than a confidentiality agreement relating to any Competing Transaction). 

 

However, prior to, but not after, obtaining the required shareholder authorization and approval of the Merger Agreement, the board of directors of the Company, based on the unanimous recommendation of the Independent Committee, may (a) approve, recommend or otherwise declare advisable any Superior Proposal not solicited, entered into or agreed to in breach of obligations under the Merger Agreement, and/or authorize the Company to terminate the Merger Agreement or enter into an alternative acquisition agreement with respect to a superior proposal, in each case, if the board of directors of the Company (acting through the Independent Committee) determines in good faith, after consultation with outside legal counsel to the Independent Committee, that failing to do so is inconsistent with its fiduciary obligations under applicable laws; (b) withhold, withdraw, qualify or modify the company recommendation in a manner adverse to Parent or Merger Sub, and/or authorize the Company to terminate the Merger Agreement if any material development or material change in circumstances that affects the business, assets or operation of the Company (the “Intervening Event”) occurring or arising after the date thereof with respect to the Company.

 

Prior to making any such change of recommendation with respect to a Superior Proposal, the Company will

 

·give Parent at least six (6) business days written notice advising that the Company (acting through the Independent Committee) currently intends to take such action and the basis therefor; 

 

·cause its representatives to, negotiate with Parent and Merger Sub in good faith (to the extent Parent and Merger Sub desire to negotiate) to make such adjustments in the terms and conditions of the Merger Agreement so that such Superior Proposal ceases to constitute a Superior Proposal; and 

 

·permit Parent and its representatives to make a presentation to the Company’s board and the Independent Committee regarding the Merger Agreement and other transaction documents and the adjustment with respect thereto. Any material amendment to any Superior Proposal will be deemed to be a new Superior Proposal and will require a new notice of superior proposal to Parent with a four business day notice period, and Merger Sub and the Company will be required to comply with the requirements under the Merger Agreement fully with respect to such amended Superior Proposal;

 

·following the end of the six business day period or four business day period (as applicable) and taking into account any changes to the Merger Agreement proposed in writing by Parent and Merger Sub, determinate that the Superior Proposal continues to constitute a Superior Proposal.

 

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Prior to making any such change of recommendation with respect to an Intervening Event, the Company will:

 

·provide Parent at least six business days’ prior written notice with reasonable details about the Intervening Event indicating that the board of directors of the Company intends to effect a change of recommendation and/or terminate the Merger Agreement;

 

·during the six business day period following Parent’s receipt of the aforementioned notice, cause its representatives to, negotiate with Parent and Merger Sub in good faith to make such adjustments in the terms and conditions of the Merger Agreement, so that it would no longer be inconsistent with the board of directors’ fiduciary obligations not to effect a change of recommendation; and

 

·following the end of the six business day period, acting at the direction of the Independent Committee following consultation with its financial advisor and outside legal counsel, determine in good faith, taking into account any changes to the Merger Agreement proposed in writing by Parent and Merger Sub in response to the aforementioned notice, that it would continue to be inconsistent with the board of directors’ fiduciary duties under applicable laws not to effect a change of recommendation in light of the Intervening Event.

 

Indemnification

 

Pursuant to the Merger Agreement, Parent and Merger Sub have agreed that:

 

·The indemnification, advancement and exculpation provisions of certain indemnification agreements by and among the Company and its directors and certain executive officers, as in effect at the Effective Time will survive the Merger and will not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who are current or former directors, officers or employees of the Company or any person who becomes a director or officer of the Company or any of its subsidiaries prior to the Effective Time (the “Indemnified Parties”).

 

·The memorandum and articles of association of the Surviving Company shall contain provisions no less favorable to the intended beneficiaries with respect to exculpation and indemnification of liability and advancement of expenses than are set forth in the memorandum and articles of association of the Company as in effect on the date hereof, and Parent shall cause such provisions not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who, at or prior to the Effective Time, were directors, officers, employees, fiduciaries or agents of the Company, unless such modification shall be required by law. From and after the Effective Time, any agreement of any Indemnified Party with the Company or any of its Subsidiaries regarding exculpation or indemnification of liability or advancement of expenses shall be assumed by the surviving company, shall survive the Merger and shall continue in full force and effect in accordance with its terms.

 

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·From and after the Effective Time, the surviving company will comply with all of the Company’s obligations, and will cause its subsidiaries to comply with their respective obligations to indemnify and hold harmless (including any obligations to advance funds for expenses) (a) the Indemnified Parties thereof against any and all costs or expenses (including reasonable attorneys’ fees and expenses) paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (“Damages”), arising out of, relating to or in connection with (i) the fact that an Indemnified Party is or was a director or officer of the Company or any of its subsidiaries, (ii) any acts or omissions occurring or alleged to occur prior to or at the Effective Time of the Merger to the extent provided under the Company’s or such subsidiaries’ respective organizational and governing documents or agreements in effect on the date hereof and to the fullest extent permitted by the BVI Companies Act or any other applicable laws, including (x) the approval of this Agreement, the Merger or the other transactions contemplated by this Agreement or arising out of or pertaining to the transactions contemplated by this Agreement, and (y) actions to enforce this provision or any other indemnification or advancement right of any Indemnified Party; provided, however, that such indemnification will be subject to any limitation imposed from time to time under applicable laws; and (b) such Indemnified Parties against any and all damages arising out of acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at the request or for the benefit of the Company or any of its subsidiaries.

 

Financing 

 

Subject to the terms and conditions of the Merger Agreement, each of Parent and Merger Sub shall use its reasonable best efforts to (i) maintain in effect the Equity Commitment Letter until the Merger is consummated, (iii) satisfy, or cause to be satisfied, on a timely basis all conditions to the closing of and funding under the Equity Commitment Letter applicable to Parent and/or Merger Sub that are within its control, (iv) seek to enforce its right under the Equity Commitment Letter, and (v) consummate the Equity Financing at or prior to the Effective Time. Neither Parent nor Merger Sub shall agree to or permit any amendments or modifications to, or grant any waivers of, any condition or other provision under the Equity Commitment Letter without the prior written consent of the Company (which shall not be unreasonably withheld, conditioned or delayed), unless such amended or modified Equity Commitment Letter is subject only to such conditions to funding that are substantially similar, or are not less favorable in aggregate, from the standpoint of the Company and its shareholders (other than the holders of Excluded Shares), than the terms and conditions as set forth in the Equity Commitment Letter as in effect.

 

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No Amendment to Transaction Documents

 

Parent and Merger Sub should not, and should cause its respective affiliates not to, (a) amend, modify, withdraw, waive or terminate any Parent Group Contract (as defined in the Merger Agreement), or (b) enter into or modify any other contract directly relating to the transactions as contemplated under the Merger Agreement, in each case without the prior written consent of the Independent Committee (acting on behalf of the Company).

 

Further Action; Reasonable Best Efforts

 

Subject to the terms and conditions of the Merger Agreement,

 

·in furtherance and not in limitation of the covenants of the parties contained herein, if any objections are asserted with respect to the Merger under any law or if any suit is instituted (or threatened to be instituted) by any applicable governmental authority or any private party challenging any of the Merger as violating any law or which would otherwise prevent, materially impede or materially delay the consummation of the transactions contemplated hereby, each of Parent, Merger Sub and the Company shall use its reasonable best efforts to resolve any such objections or suits so as to permit consummation of the transactions, which shall include in the case of the Company if (and only if) requested by Parent, the Company’s selling, holding separate or otherwise disposing of or conducting its or any of its subsidiaries’ business in a manner which would resolve such objections or suits or agreeing to sell, hold separate or otherwise dispose of or conduct its or any of its subsidiaries’ business in a manner which would resolve such objections or suits or permitting the sale, holding separate or other disposition of, any of its assets or the assets of its subsidiaries or the conducting of its business in a manner which would resolve such objections or suits; provided, however, that the Company may expressly condition any such sale, holding separate or other disposal, and any agreement to take any such action or to conduct its or any of its subsidiaries’ business in any manner, upon the consummation of the Merger and other transactions.

 

·Notwithstanding anything herein to the contrary, none of Parent, Merger Sub or any of their respective Affiliates or Representatives shall be required to take or refrain from taking, or to agree to it, its affiliates or the Company and its subsidiaries taking or refraining from taking, any action, or to permitting or suffering to exist any restriction, condition, limitation or requirement which, individually or together with all other such actions, restrictions, conditions, limitations or requirements would or may be reasonably likely to (i) adversely affect the interest of Parent, Merger Sub or any of their respective affiliates or representatives in the Transaction, (ii) require Parent, Merger Sub or any of their respective affiliates or representatives commit to or effect, by consent decree, hold separate orders, or otherwise, the restructuring, reorganization, sale, divesture or disposition of such of its or any of its affiliates’ or portfolio companies’ assets, properties or businesses, or accept any prohibition or limitation on the ownership or operation of, or any arrangement that would apply to, any of its or any of its affiliates’ or portfolio companies’ assets, properties or businesses, (iii) require the sponsor or its affiliates to agree to any modification to the governance or similar rights of the Sponsor or its affiliates agreed by the sponsor or its Affiliates with respect to the Company and its affiliates following the Closing or (iv) result in a material adverse effect to the Company.

 

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·Each party to the Merger Agreement shall, upon request by any other party, furnish such other party with all information concerning itself, its subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the proxy statement, the Schedule 13E-3, or any other statement, filing, notice or application made by or on behalf of Parent, Merger Sub, the Company or any of their respective subsidiaries to any third party and/or any governmental authority in connection with the Merger.

 

·     The Company shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, at or prior to the closing all things within its control which are necessary, proper or advisable and which are reasonably requested by Parent to facilitate the continuing operations of business of the Company and its subsidiaries from and after the closing, including using its reasonable best efforts to provide operational data, provide bank account information of the Company and its subsidiaries, locate the corporate chops and finance stamps of the Company and its subsidiaries incorporated in the PRC and procure the satisfaction of the closing conditions.

 

Certain Additional Covenants

 

The Merger Agreement contains additional agreements between the Company and Parent and/or Merger Sub relating to, among other things:

 

·the filing of this proxy statement and the Rule 13e-3 transaction statement on Schedule 13E-3 with the SEC (and cooperation in response to any comments from the SEC with respect to either statement);

 

·reasonable access by Parent and its representatives to the offices, properties, books, records of the Company or any of its subsidiaries and other information between the date of the Merger Agreement and the earlier of the Effective Time and the termination of the Merger Agreement (subject to all applicable legal or contractual obligations and restrictions);

 

·delisting and deregistration of the Shares;

 

·consultation with respect to press releases and other public announcements relating to the Merger Agreement and the transactions contemplated by the Merger Agreement;

 

·notification of certain events;

 

·resignation of the directors of the Company and its subsidiaries pursuant to Parent’s request;

 

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·participation in the defense and settlement of any shareholder litigation relating to the Merger Agreement or the transactions; and

 

·Parent’s obligation to cause Merger Sub to perform its obligations under the Merger Agreement.

 

Conditions to the Merger 

 

The obligations of each party to complete the transactions contemplated by the Merger Agreement, including the Merger, are subject to the satisfaction, or waiver (where permissible under applicable laws), of the following conditions:

 

·the Merger Agreement, the Plan of Merger and transactions contemplated by the Merger Agreement, including the Merger, shall have been authorized and approved by an affirmative vote of shareholders representing at least a majority of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting (or any adjournment or postponement thereof) of the Company’s shareholders; and 

 

·no court or other governmental entity of competent jurisdiction having enacted, issued, promulgated, enforced or entered any law (whether temporary, preliminary or permanent) that has or would have the effect of enjoining, restraining, prohibiting or otherwise making illegal the consummation of the Merger. 

 

The obligations of Parent and Merger Sub to consummate the Merger are also subject to the satisfaction, or waiver (where permissible under applicable laws), of the following conditions:

 

·the representations and warranties of the Company in the Merger Agreement shall be true and correct as of the date of the Merger Agreement and as of the closing date (or as of a specific date, to the extent such representation or warranty is expressly made as of a specific date), except where the failure of such representations and warranties to be so true and correct has not had any material adverse effect; 

 

·the Company having performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the closing date; 

 

·since the date of the Merger Agreement, there having been no effect that has had, individually or in the aggregate, a material adverse effect and is ongoing; 

 

·Parent having received a certificate signed by an executive officer of the Company certifying as to the fulfillment of the above conditions; and

 

·The holders of no more than ten percent (10)% of the Shares shall have validly served a notice of dissent under Section 179 of the Companies Act.

 

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The obligations of the Company to consummate the Merger are also subject to the satisfaction, or waiver by the Company, of the following conditions:

 

·the representations and warranties of Parent and Merger Sub in the Merger Agreement being true and correct as of the date of the Merger Agreement and as of the closing date (or as of a specific date, to the extent such representation or warranty is expressly made as of a specific date), except where the failure of such representations and warranties to be so true and correct has not had, individually or in the aggregate, prevented or materially adversely affected the ability of Parent or Merger Sub to consummate the Merger; 

 

·each of Parent and Merger Sub having performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the closing date; and 

 

·the Company having received a certificate signed by an officer or director of Parent certifying as to the fulfillment of the above conditions. 

 

Termination of the Merger Agreement

 

The Merger Agreement may be terminated at any time prior to the Effective Time:

 

·by mutual written consent of the Company and Parent with the approval of their respective board of directors (or in the case of the Company, acting upon the unanimous recommendation of the Independent Committee); 

 

·by either Parent or the Company (acting upon the unanimous recommendation of the Independent Committee), if: 

 

○ the Effective Time shall not have occurred on or before June 17, 2021 (the “Termination Date”)

 

○ any governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any final and non-appealable order which, or taken any other final and non-appealable action that, has the effect of making consummation of the transactions therein illegal or otherwise preventing or prohibiting consummation of the transactions; or

 

○ the shareholders’ meeting has been held and completed and the requisite shareholders’ approval has not been obtained at the extraordinary general meeting duly convened therefor or at any adjournment or postponement thereof; 

 

·by the Company (acting upon the unanimous recommendation of the Independent Committee), if: 

 

○ Parent or Merger Sub has breached any of its representations, warranties, covenants or agreements under the Merger Agreement, or any representation or warranty made by Parent or Merger Sub under the Merger Agreement is not true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the Termination Date, or if curable, is not cured within thirty (30) business days following receipt by Parent or Merger Sub of written notice from the Company; provided that this termination right is not available to the Company if it is then in material breach of any representations, warranties, covenants or other agreements under the Merger Agreement that would result in the corresponding conditions to closing would not be satisfied; 

 

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○ (a) all of the closing conditions that are the obligation of Parent and Merger Sub are otherwise satisfied (other than those conditions that by their nature are to be satisfied at the closing); (b) the Company has delivered to Parent an irrevocable written notice confirming that all applicable conditions have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that it is ready, willing and able to consummate the closing and (c) Parent and Merger Sub fail to complete the closing within ten (10) business days following the date the closing should have occurred according to the Merger Agreement; or 

 

○ prior to the receipt of the shareholders’ approval, the board of directors of the Company, based on recommendation of the Independent Committee, has effected a change of company recommendation pursuant to the terms of the Merger Agreement. 

 

·by Parent, if: 

 

○ the Company has breached any of its representations, warranties, covenants or agreements under the Merger Agreement, or any representation or warranty made by the Company under the Merger Agreement is not true and correct, such that the corresponding condition to closing would not be satisfied prior to the Termination Date; provided that this termination right is not available to Parent if it is then in material breach of any representations, warranties, covenants or other agreements under the Merger Agreement that would result in the corresponding conditions to closing would not be satisfied; or 

 

○ the board of directors of the Company, based on recommendation of the Independent Committee, has effected a change of company recommendation pursuant to the terms of the Merger Agreement.

 

Termination Fee

 

The Company is required to pay Parent a termination fee of US$340,000, if:

 

·(a) a bona fide proposal or offer with respect to a Competing Transaction has been made, proposed or communicated (and not withdrawn) by a third party after the date of the Merger Agreement and prior to the extraordinary shareholders’ meeting (or prior to the termination of the agreement if there has been such extraordinary shareholders’ meeting); (b) following the occurrence of an event described in the preceding sentence (a), the Merger Agreement is terminated by the Company or Parent pursuant to the Merger Agreement, because (i) the Merger has not been consummated on or before the Termination Date, or (ii) the requisite shareholders’ approval has not been obtained at the shareholders’ meeting; and (c) within twelve (12) months of the termination of the Merger Agreement, the Company or any of its subsidiaries consummates or enters into a definitive agreement in connection with any Competing Transaction;

 

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·the Merger Agreement is terminated by the Company, if prior to the receipt of the requisite shareholders’ approval, the board of directors of the Company (upon recommendation of the Independent Committee) has effected a change of company recommendation in order to enter into an alternative acquisition agreement relating to a Superior Proposal, or due to the occurrence of an Intervening Event; or

 

·the Merger Agreement is terminated by Parent due to a breach by the Company of their representations, warranties, covenants or agreements in the Merger Agreement, or a failure of any of their representations or warranties in the Merger Agreement being true and correct, such that the corresponding condition to closing cannot be satisfied.  

 

Parent is required to pay the Company a termination fee of US$680,000, if:

 

·Parent or Merger Sub has breached any of its representations, warranties, covenants or agreements under the Merger Agreement, or any representation or warranty made by Parent or Merger Sub under the Merger Agreement is not true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the Termination Date, or if curable, is not cured within thirty (30) business days following receipt by Parent or Merger Sub of written notice from the Company; provided that this termination right is not available to the Company if it is then in material breach of any representations, warranties, covenants or other agreements under the Merger Agreement that would result in the corresponding conditions to closing would not be satisfied; or 

 

·(a) all of the closing conditions that are the obligation of Parent and Merger Sub are otherwise satisfied (other than those conditions that by their nature are to be satisfied at the closing); (b) the Company has delivered to Parent an irrevocable written notice confirming that all applicable conditions have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that it is ready, willing and able to consummate the closing and (c) Parent and Merger Sub fail to complete the closing within ten (10) business days following the date the closing should have occurred according to the Merger Agreement. 

 

Expenses 

 

Whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement and the Merger and the other transactions contemplated by the Merger Agreement will be paid by the party incurring such expense except as otherwise provided in the Merger Agreement. 

 

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The surviving corporation will pay any applicable fees, charges and expenses of the ADS depositary and government charges (other than withholding taxes, if any) due to or incurred by the ADS depositary in connection with distribution of the Per ADS Merger Consideration to holders of ADSs and the cancellation of ADSs (excluding any fees, including ADS cancellation or termination fees, payable by holders of ADSs in accordance with the Deposit Agreement).

 

Remedies and Limitations on Liability 

 

The parties to the Merger Agreement agree that irreparable damage, for which monetary damages would not be an adequate remedy, would occur in the event that any of the provisions of the Merger Agreement were not performed in accordance with their specific terms or were otherwise breached by the parties to the Merger Agreement. Prior to the termination of the Merger Agreement pursuant to the Merger Agreement, it is agreed that the parties to the Merger Agreement will be entitled to an injunction or injunctions, or any other appropriate form of specific performance or equitable relief, to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement in any court of competent jurisdiction, pursuant to the Merger Agreement, this being in addition to any other remedy to which they are entitled under the terms of the Merger Agreement at law or in equity. Each party to the Merger Agreement accordingly agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such party under the Merger Agreement. Any party seeking an injunction or injunctions to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement will not be required to post a bond or undertaking in connection with such order or injunction sought in accordance with the terms described in this paragraph. 

 

However, (i) while the parties to the Merger Agreement may pursue both a grant of specific performance and the payment of the termination fee, neither Parent and Merger Sub, on the one hand, nor the Company, on the other hand, will be permitted or entitled to receive both a grant of specific performance that results in a closing of the Merger and payment of such termination fee; and (ii) upon the payment of such termination fee, the remedy of specific performance will not be available against the party making such payment. 

 

Modification or Amendment 

 

The Merger Agreement may be amended with the approval of the respective boards of directors of the parties at any time (whether before or after the adoption of the Merger Agreement by the shareholders of the Company); provided, however, that (a) in the case of the Company, the board of directors of the Company and the Independent Committee have approved such amendment in writing; and (b) after any such adoption of the agreement by the shareholders of the Company, no amendment will be made which by law requires further approval of the shareholders of the Company without the further approval of such shareholders. The Merger Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties to the Merger Agreement. 

 

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Governing Law and Dispute Resolution 

 

The Merger Agreement will be interpreted, construed and governed by and in accordance with the laws of the State of New York without regard to the conflicts of law principles thereof. Notwithstanding the foregoing, if any provision of the Merger with specific reference to the laws of the British Virgin Islands will be subject to the laws of the British Virgin Islands, the laws of the British Virgin Islands will supersede the laws of the State of New York with respect to such provision. 

 

Any dispute, controversy or claim arising out of or relating to the Merger Agreement or its subject matter (including a dispute regarding the existence, validity, formation, effect, interpretation, performance or termination of the Merger Agreement) will be finally settled by arbitration. The place of arbitration will be Hong Kong, and the arbitration will be administered by the Hong Kong International Arbitration Centre in accordance with its Arbitration Rules then in force. 

 

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PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS  

 

No provision has been made to (a) grant the Company’s shareholders access to corporate files of the Company and other parties to the Merger or any of their respective affiliates or (b) to obtain counsel or appraisal services at the expense of the Company or any other such party or affiliate. 

 

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APPRAISAL RIGHTS  

 

The following is a brief summary of the rights of holders of the Shares to object to the Merger and receive cash equal to the appraised fair value of their Shares (“Appraisal Rights”). This summary is not a complete statement of the law, and is qualified in its entirety by the complete text of Section 179 of the BVI Business Companies Act, as amended (the “BVI Companies Act”), a copy of which is attached as Annex C to this proxy statement. If you are contemplating the possibility of objecting to the Merger, you should carefully review the text of Annex C, particularly the procedural steps required to perfect Appraisal Rights. These procedures are complex and you are advised to consult your British Virgin Islands legal counsel. If you do not fully and precisely satisfy the procedural requirements of the BVI Companies Act, you will lose your Appraisal Rights. 

 

Requirements for Exercising Appraisal Rights 

 

A Dissenting Shareholder of the Company is entitled to payment of the fair value of his Shares upon dissenting to the Merger. 

 

The exercise of your Appraisal Rights will preclude the exercise of any other rights by virtue of holding Shares in connection with the Merger, other than the right to institute proceedings to obtain relief on the grounds that the Merger is illegal. To preserve your Appraisal Rights, the following procedures must be followed:

 

·you must give written notice of objection to the Merger (“Notice of Objection”) to the Company prior to the vote to approve the Merger. The Notice of Objection must include a statement that you propose to demand payment for all your Shares if the Merger is approved by resolution of the shareholders at the extraordinary general meeting and the Merger becomes effective; 

 

·within twenty (20) days immediately following the date on which the vote approving the Merger is made, the Company must give written notice of the approval (“Approval Notice”) to all Dissenting Shareholders who have served a Notice of Objection, except those Dissenting Shareholders who voted for the Merger; 

 

·within twenty (20) days immediately following the date on which the Approval Notice is given (the “Dissent Period”), the Dissenting Shareholder must give a written notice of his decision to dissent (a “Notice of Dissent”) to the Company stating his name and address, the number and class of the Shares with respect to which he dissents and demanding payment of the fair value of his Shares; and a Dissenting Shareholder must dissent in respect of all the Shares which he holds; 

 

·within seven (7) days immediately following (a) the date of expiry of the Dissent Period or (b) the date on which the Merger becomes effective, whichever is later, the Company, as the surviving company, must make a written offer (a “Fair Value Offer”) to each Dissenting Shareholder to purchase their Shares at a price determined by the Company to be the fair value of such Shares; 

 

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·if, within thirty (30) days immediately following the date of the Fair Value Offer, the Company and the Dissenting Shareholder fail to agree on a price at which the Company will purchase the Dissenting Shareholder’s Shares, then, within twenty (20) days immediately following the date of the expiry of such 30-day period: 

 

·the Company and the Dissenting Shareholder shall each designate an appraiser; 

 

·the two designated appraisers together