On behalf of the board of directors of China Yida Holding, Co. (the
“
Company
”),
we cordially invite you to attend a special meeting of shareholders
of the Company, to be held on June 28, 2016 at 9:00am, Beijing
time, at 28/F, Yifa Building, No.111 Wusi Road, Fuzhou, Fujian
Province, China 350003.
On March 8, 2016, the Company entered into an agreement and plan of
merger (the “
Original Merger
Agreement
”) with China Yida Holding Acquisition Co.
(“
Acquisition
”),
a Corporation organized under the laws of the State of Nevada. On
April 12, 2016, having determined that a merger in which the
Company survives is a more efficient structure, the Company and
Acquisition agreed to enter into an amended and restated agreement
and plan of merger (the “
Merger
Agreement
”). Under the terms of the Merger Agreement,
Acquisition will be merged with and into the Company (the
“
Merger
”),
with the Company surviving the Merger. The Merger is a going
private transaction involving (i) Mr. Minhua Chen, the
Company’s Chairman, President and Chief Executive Officer,
and (ii) Ms. Yanling Fan, the Company’s Chief Operating
Officer and Director (together with Mr. Minhua Chen, the
“
Principal
Shareholders
”). At the special meeting, you will be
asked to consider and vote upon a proposal to approve the Merger
Agreement.
If the Merger is completed, you will be entitled to receive US$3.32
in cash, without interest, less any applicable withholding taxes,
for each share of the Company’s common stock (the
“
Company Common
Stock
”) owned by you immediately prior to the
effective time of the Merger as described in the Merger Agreement
(the “
Effective
Time
”). As a result of the Merger, (1) all of the
shares of Acquisition common stock issued and outstanding
immediately prior to the effective time of the Merger will be
cancelled, and (2) each of the Company’s shares of common
stock issued and outstanding immediately prior to the effective
time of the Merger (the “
Shares
”)
will be cancelled and automatically converted into the right to
receive US$3.32 in cash without interest, except for Shares (the
“
Principal
Shares
”) owned by the Principal Shareholders and the
Shares held by shareholders who have exercised their rights to
dissent from the Merger. After completion of the Merger, the
Principal Shares will be the only issued and outstanding shares of
the surviving corporation. Shares with respect to which
dissenters’ rights have been properly exercised and not
withdrawn or lost will be cancelled in consideration for the right
to receive the fair value of such dissenting shares in accordance
with the Nevada Revised Statutes.
After carefully considering the unanimous recommendation of the
Special Committee and other factors, the Company’s board of
directors (with Mr. Minhua Chen and Ms. Yanling Fan abstaining in
accordance with the Nevada Revised Statutes) has unanimously
determined that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are advisable and fair
(both substantively and procedurally) to, and in the best interests
of, the Company and its shareholders (other than the holders of the
Excluded Shares), and adopted and declared advisable the Merger
Agreement and the transactions contemplated by the Merger
Agreement, including the Merger.
The Company’s
board of directors recommends that you vote “FOR” the
proposal to approve the Merger Agreement, and “FOR” the
proposal to adjourn or postpone the special meeting in order to
take such actions as the Company’s board of directors
determines are necessary or appropriate, including to solicit
additional proxies if there are insufficient votes at the time of
the special meeting to approve the proposal to approve the Merger
Agreement.
In considering the recommendation of the Company’s board of
directors, you should be aware that some of the Company’s
directors and officers have interests in the Merger that are
different from, or in addition to, the interests of the
Company’s shareholders generally. Mr. Minhua Chen, the
Company’s Chairman, President and Chief Executive Officer,
beneficially owns approximately 29.25% of the total outstanding
shares of Company Common Stock. Ms. Yanling Fan, the
Company’s Chief Operating Officer and Director, beneficially
owns approximately 28.67% of the total outstanding shares of
Company Common Stock. As of May 24, 2016, the Principal
Shareholders, as a group, beneficially owned 2,267,592 shares of
Company Common Stock, which represent approximately 57.84% of the
total outstanding shares of Company Common Stock. The accompanying
proxy statement includes additional information regarding certain
interests of the Company’s directors and officers that may be
different from, or in addition to, the interests of the
Company’s shareholders generally.
Approval of the Merger Agreement requires the affirmative vote (in
person or by proxy) of the holders of at least a majority of the
outstanding shares of Company Common Stock in accordance with the
Company’s articles of incorporation and bylaws and the Nevada
Revised Statutes. Your vote is very important. Whether or not you
plan to attend the special meeting, please complete, date, sign and
return, as promptly as possible, the enclosed proxy card in the
accompanying prepaid reply envelope, or submit your proxy by
telephone or the Internet. If you attend the special meeting and
vote by ballot in person, your vote by ballot will revoke any proxy
previously submitted.
The failure to vote your
shares of Company Common Stock will have the same effect as a vote
“AGAINST” the proposal to approve the Merger Agreement.
Abstentions or non-votes will result in a loss of dissenters’
rights or appraisal rights under the Nevada Revised
Statutes.
If your shares of Company Common Stock are held in “street
name” by your bank, brokerage firm or other nominee, your
bank, brokerage firm or other nominee will be unable to vote your
shares of Company Common Stock without instructions from you. You
should instruct your bank, brokerage firm or other nominee to vote
your shares of Company Common Stock in accordance with the
procedures provided by your bank, brokerage firm or other nominee.
The failure to instruct
your bank, brokerage firm or other nominee to vote your shares of
Company Common Stock “FOR” the proposal to approve the
Merger Agreement will have the same effect as voting
“AGAINST” the proposal to approve the Merger
Agreement.
The accompanying proxy statement provides you with detailed
information about the special meeting, the Merger Agreement and the
Merger. A copy of the Merger Agreement is attached as Annex A to
the proxy statement. We encourage that you read the entire proxy
statement and its annexes, including the Merger Agreement,
carefully. You may also obtain additional information about the
Company from documents we have filed with the Securities and
Exchange Commission (the “
SEC
”).
On behalf of the board of directors and management of the Company,
we thank you for your support.
The proxy statement is dated May 25, 2016, and is first being
mailed to the Company’s shareholders on or about May 31,
2016.
NOTICE OF SPECIAL
MEETING OF STOCKHOLDERS
To Be Held on June 28,
2016
A special meeting of shareholders of China Yida Holding, Co., a
Nevada corporation (the “
Company
”),
will be held on June 28, 2016 at 9:00am (Beijing time), at the
offices of the Company, located at 28/F, Yifa Building, No.111 Wusi
Road, Fuzhou, Fujian Province, China 350003, for the following
purposes:
1.
To
consider and vote on a proposal to approve the Amended and Restated
Agreement and Plan of Merger (the “
Merger
Agreement
”), dated as of April 12, 2016, as it may be
amended from time to time, by and between the Company and China
Yida Holding Acquisition Co. (“
Acquisition
”),
a corporation organized under the laws of the State of Nevada,
providing for the merger of Acquisition with and into the Company
(the “
Merger
”),
with the Company surviving the Merger. A copy of the Merger
Agreement is attached as Annex A to the accompanying proxy
statement.
2.
To
consider and vote on a proposal to adjourn or postpone the special
meeting in order to take such actions as the Company’s board
of directors determines are necessary or appropriate, including to
solicit additional proxies if there are insufficient votes at the
time of the special meeting, to approve the proposal to approve the
Merger Agreement.
The board of directors of the Company has fixed the close of
business, Beijing time, on May 24, 2016 as the record date. Only
holders of record of shares of Company Common Stock at the close of
business on the record date are entitled to notice of, and to vote
at, the special meeting, or any adjournment or postponement
thereof.
Your vote is very important, regardless of the number of shares of
Company Common Stock you own. The Merger cannot be completed unless
the Merger Agreement is approved by the affirmative vote (in person
or by proxy) of the holders of at least a majority of the
outstanding shares of Company Common Stock in accordance with the
Company’s articles of incorporation and bylaws and the Nevada
Revised Statutes. Even if you plan to attend the special meeting in
person, we request that you complete, sign, date and return, as
promptly as possible, the enclosed proxy card in the accompanying
prepaid reply envelope or submit your proxy by telephone or the
Internet prior to the special meeting to ensure that your shares of
Company Common Stock will be represented at the special meeting if
you are unable to attend. If you fail to return your proxy card or
fail to submit your proxy by phone or the Internet, your shares of
Company Common Stock will not be counted for purposes of
determining whether a quorum is present at the special meeting and
will have the same effect as a vote “
AGAINST
”
the proposal to approve the Merger Agreement.
After carefully considering the unanimous recommendation of the
Special Committee and other factors, the Company’s board of
directors (with Mr. Minhua Chen and Ms. Yanling Fan abstaining in
accordance with the Nevada Revised Statutes) has unanimously
determined that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are advisable and fair
(both substantively and procedurally) to, and in the best interests
of, the Company and its shareholders (other than Mr. Minhua Chen
and Mrs. Yanling Fan and shareholders who have exercised their
rights to dissent from the Merger), and adopted and declared
advisable the Merger Agreement and the transactions contemplated by
the Merger Agreement, including the Merger.
Accordingly, the
board of directors of the Company recommends that you vote
“FOR” the proposal to approve the Merger Agreement, and
“FOR” the proposal to adjourn or postpone the special
meeting in order to take such actions as the Company’s board
of directors determines are necessary or appropriate, including to
solicit additional proxies if there are insufficient votes at the
time of the special meeting, to approve the proposal to approve the
Merger Agreement.
WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY
TELEPHONE OR
THE INTERNET. IF YOU
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON, YOUR VOTE BY BALLOT
WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED.
Please do not send any Company stock certificates at this time. If
the Merger is completed, you will be notified of the procedures for
exchanging your stock certificates for the Merger
Consideration.
By Order of the Board of Directors,
Minhua Chen
Chief Executive Officer, President and Chairman of the Board of
Directors
SUMMARY VOTING
INSTRUCTIONS
Ensure that your shares
of Company Common Stock can be voted at the special meeting by
submitting your proxy or contacting your bank, brokerage firm or
other nominee.
If your shares of Company Common Stock are registered in the name
of a bank, brokerage firm or other nominee
:
check the voting instruction card forwarded by your bank, brokerage
firm or other nominee to see which voting options are available or
contact your bank, brokerage firm or other nominee in order to
obtain directions as to how to ensure that your shares of Company
Common Stock are voted at the special meeting.
If your shares of Company Common Stock are registered in your
name
:
submit your
proxy as soon as possible by telephone, via the Internet or by
signing, dating and returning the enclosed proxy card in the
enclosed postage-paid envelope, so that your shares of Company
Common Stock can be voted at the special meeting.
Instructions regarding telephone and Internet voting are included
on the proxy card.
The failure to vote will have the same effect as a vote
“AGAINST”
the proposal to approve the Merger Agreement. If you sign, date and
mail your proxy card without indicating how you wish to vote, your
proxy will be voted
“FOR”
the proposal to approve the Merger Agreement and the proposal to
adjourn or postpone the special meeting in order to take such
actions as the Company’s board of directors determines are
necessary or appropriate, including to solicit additional proxies
if there are insufficient votes at the time of the special meeting
to approve the proposal to approve the Merger Agreement.
The failure to instruct your bank, brokerage firm or other nominee
to vote your shares of Company Common Stock “
FOR”
the
proposal to approve the Merger Agreement will have the same effect
as a vote
“AGAINST
”
the proposal to approve the Merger Agreement.
If you have any questions, require assistance with voting your
proxy card, or need additional copies of proxy material, please
call American Stock Transfer & Trust, LLC at +1(718) 921-8124,
or toll-free at (800) 937-5449.
TABLE OF
CONTENTS
SUMMARY TERM SHEET
|
|
1
|
Overview of the Transaction
|
|
2
|
The Special Meeting
|
|
2
|
|
|
|
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
AND THE MERGER
|
|
10
|
|
|
|
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
|
|
15
|
|
|
|
THE MERGER
|
|
16
|
The Parties
|
|
16
|
Overview of the Transaction
|
|
17
|
Management and Board of Directors of the
Surviving Corporation
|
|
17
|
Background of the Merger
|
|
17
|
Recommendation of Our Board of Directors and the
Special Committee on Behalf of the Company and Their Reasons for
the Merger
|
|
21
|
Opinion of the Special Committee’s
Financial Advisor
|
|
28
|
Reasons of the Buyer Group for the
Merger
|
|
37
|
Position of the Buyer Group as to the Fairness
of the Merger
|
|
37
|
Effect of the Merger on the Company
|
|
40
|
Effects on the Company if the Merger is not
Completed
|
|
41
|
Plans for the Company after the
Merger
|
|
42
|
Alternatives to the Merger
|
|
42
|
Financing of the Merger
|
|
43
|
Voting Agreement
|
|
43
|
Limited Guarantee
|
|
43
|
Limitation of Liability
|
|
43
|
Interests of Certain Persons in the
Merger
|
|
44
|
Relationship between the Company and the Buyer
Group
|
|
45
|
Dividends
|
|
46
|
Regulatory Matters
|
|
46
|
Fees and Expenses
|
|
46
|
Delisting and Deregistration of the Company
Common Stock
|
|
46
|
|
|
|
THE SPECIAL MEETING
|
|
47
|
Time, Place and Purpose of the Special
Meeting
|
|
47
|
Record Date and Quorum
|
|
47
|
Attendance
|
|
47
|
Vote Required
|
|
47
|
Proxies and Revocation
|
|
49
|
Adjournments
|
|
50
|
Anticipated Date of Completion of the
Merger
|
|
50
|
Payment of Solicitation Expenses
|
|
50
|
Questions and Additional Information
|
|
50
|
|
|
|
THE AGREEMENT AND PLAN OF MERGER
|
|
51
|
Structure and Completion of the
Merger
|
|
51
|
Articles of Incorporation and Bylaws of the
Surviving Corporation; Directors and Officers of the Surviving
Corporation
|
|
51
|
Treatment of Common Stock
|
|
51
|
Exchange Procedures
|
|
51
|
i
Representations and Warranties
|
|
52
|
Conduct of Business Prior to Closing
|
|
54
|
Financing
|
|
56
|
Agreement Not to Solicit Other Offers
|
|
56
|
Shareholders Meeting
|
|
58
|
Indemnification; Directors’ and
Officers’ Insurance
|
|
58
|
Actions Taken at the Direction of Certain
Members of the Buyer Group
|
|
58
|
Other Covenants
|
|
58
|
Conditions to the Merger
|
|
59
|
Termination of the Merger Agreement
|
|
59
|
Termination Fee and Reimbursement of
Expenses
|
|
60
|
Fees and Expenses
|
|
61
|
Modification or Amendment
|
|
61
|
Extension and Waiver
|
|
61
|
Remedies
|
|
61
|
|
|
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT OF THE COMPANY
|
|
63
|
|
|
|
COMMON STOCK TRANSACTION INFORMATION
|
|
64
|
|
|
|
DISSENTERS’ RIGHTS FOR HOLDERS OF COMMON
STOCK
|
|
66
|
|
|
|
SELECTED FINANCIAL INFORMATION
|
|
69
|
|
|
|
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES
|
|
71
|
|
|
|
CERTAIN MATERIAL PRC INCOME TAX
CONSEQUENCES
|
|
75
|
|
|
|
WHERE YOU CAN FIND MORE INFORMATION
|
|
77
|
|
|
|
ANNEX A THE AMENDED AND RESTATED AGREEMENT AND
PLAN OF MERGER
|
|
A-1
|
|
|
|
ANNEX B OPINION OF ROTH CAPITAL
PARTNERS
|
|
B-1
|
|
|
|
ANNEX C DIRECTORS AND EXECUTIVE OFFICERS OF EACH
FILING PERSON
|
|
C-1
|
|
|
|
ANNEX D FORM OF PROXY CARD
|
|
D-1
|
|
|
|
ANNEX E NEVADA RIGHTS OF DISSENTING
OWNERS
|
|
E-1
|
ii
SUMMARY TERM
SHEET
This “Summary
Term Sheet,” together with the “Questions and Answers
about the Special 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 special 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 77. In this proxy statement,
unless otherwise stated or the context otherwise requires, the
terms “we,” “us,” “our,” and
the “Company” refer to China Yida Holding, Co. and its
subsidiaries. All references to “PRC” and
“China,” for purposes of this proxy statement, are to
the People’s Republic of China and do not include Taiwan,
Hong Kong and Macau. All references to “dollars,”
“US$” and “$” in this proxy statement are
to U.S. dollars. All references to “RMB” in this proxy
statement are to the legal currency of China.
The Parties Involved in
the Merger (Page 16)
The Company
China Yida Holding, Co., which we refer to as the
“
Company
”,
is a tourism enterprise operating various tourist destinations in
Fujian and Jiangxi provinces in the People’s Republic of
China. The Company develops, operates, manages and markets tourist
destinations, including natural, cultural, and historical tourist
destinations and theme parks. The Company also creates, designs and
constructs new tourist concepts, attractions and properties. The
Company is headquartered in Fuzhou City, Fujian province of China.
Its principal executive office is located at 28/F, Yifa Building,
No.111 Wusi Road, Fuzhou, Fujian Province, China, 35003, and its
telephone number is +86 (591) 28082230. Please see
“
The Merger —
The Parties
” beginning on page 16 for additional
information.
Acquisition
China Yida Holding Acquisition Co., which we refer to as
“
Acquisition
”
was incorporated under the laws of the State of Nevada and was
formed solely for the purpose of the Merger. Acquisition is 50.5 %
and 49.5% owned by Mr. Minhua Chen and Ms. Yanling Fan,
respectively. Acquisition has not engaged in any business except
for activities incidental to its formation and in connection with
the transactions contemplated under the Merger Agreement, including
the Merger and related financing transactions. The registered
office of Acquisition is 28/F, Yifa Building, No.111 Wusi Road,
Fuzhou, Fujian Province, China, 35003 , and its telephone number is
+86 (591) 28082230. Please see “
The Merger —
The Parties
” beginning on page 16 for additional
information.
Mr. Minhua Chen
Mr. Minhua Chen has been the Chairman, President and Chief
Executive Officer of the Company since November 2007. He is also
the Chairman of the Board of Directors, Chief Executive Officer and
Treasurer of Acquisition. The business address of Mr. Minhua Chen
is c/o China Yida Holding, Co., 28/F, Yifa Building, No.111 Wusi
Road, Fuzhou, Fujian Province, China, 35003. His telephone number
is +86 (591) 28082230. Mr. Minhua Chen is a citizen of the
People’s Republic of China. Please see “
The
Merger — The Parties
” beginning on page 16 for
additional information.
Ms. Yanling Fan
Ms. Yanling Fan has served as the Chief Operating Officer of the
Company since 2001 and as a Director of the Company since 2007. Ms.
Yanling Fan is the wife of Mr. Minhua Chen. Ms. Yanling Fan also
serves as a Director, the Chief Operating Officer and the Secretary
of Acquisition. Ms. Yanling Fan’s address is c/o China Yida
Holding, Co., 28/F, Yifa Building, No.111 Wusi Road, Fuzhou, Fujian
Province, China, 35003. Her telephone number is +86 (591) 28082230.
Ms. Yanling Fan is a citizen of the People’s Republic of
China. Please see “
The Merger —
The Parties
” beginning on page 16 for additional
information.
In this proxy statement, we refer to Mr. Minhua Chen and Ms.
Yanling Fan collectively as the “
Principal
Shareholders
.” We refer to the Principal Shareholders
and Acquisition collectively as the “
Buyer
Group
”. We
1
refer to shareholders of the Company who are not affiliates of the
Company as “
Unaffiliated
Shareholders
” (which excludes the Principal
Shareholders).
During the last five years, none of the persons referred to above
under the heading titled “
The Parties Involved
in the Merger
”, or the respective directors or
executive officers of the Company, members of the Buyer Group and
their affiliates as listed in Annex C of this proxy statement has
been (a) convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (b) a party to any judicial
or administrative proceeding (except for matters that were
dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of federal or
state securities laws.
Overview of the
Transaction (Page 17)
You are being asked to vote to approve the amended and restated
agreement and plan of merger dated as of April 12, 2016, as it may
be further amended from time to time, between the Company and
Acquisition (the “
Merger
Agreement
”), pursuant to which, once the Merger
Agreement is approved by the required shareholder approval and the
other conditions to the completion of the transactions contemplated
by the Merger Agreement are satisfied or waived in accordance with
the terms of the Merger Agreement, Acquisition will be merged with
and into the Company (the “
Merger
”),
with the Company continuing as the surviving corporation. The
Company, as the surviving corporation, will continue to do business
following the Merger. The separate corporate existence of
Acquisition will cease. If the Merger is completed, the Company
will cease to be a publicly traded company. A copy of the Merger
Agreement is attached as Annex A to this proxy statement. We
encourage you to read the Merger Agreement in its entirety because
it, and not this proxy statement, is the legal document that
governs the Merger. Please see “
The Merger —
Overview of the Transaction
” beginning on page 17 for
additional information.
The Special Meeting
(Page 47)
The
special meeting will be held on June 28, 2016, starting at 9:00am, Beijing time, at 28/F, Yifa Building, No.111 Wusi Road, Fuzhou,
China, 35003, or at any postponement or adjournment thereof. At the special meeting, you will be asked to, among other things,
vote to approve the Merger Agreement. Please see “
Questions and Answers About the Special Meeting and the Merger
”
beginning on page 10 and “
The Special Meeting”
beginning on page 47 for additional information about the special
meeting, including how to vote your shares of Company Common Stock.
Shareholders Entitled to
Vote; Vote Required to Approve the Merger Agreement (Page
47)
You may vote at the special meeting if you owned any shares of
Company Common Stock at the close of business, Beijing time, on May
24, 2016, the record date for the special meeting. On that date,
there were 3,914,580 shares of Company Common Stock outstanding and
entitled to vote at the special meeting. Each share of Company
Common Stock entitles its holder to one vote on all matters
properly coming before the special meeting. Approval of the Merger
Agreement at the special meeting of shareholders of the Company
requires the affirmative vote (in person or by proxy) of the
holders of at least a majority of the outstanding shares of Company
Common Stock in accordance with the Company’s articles of
incorporation and bylaws and the Nevada Revised Statutes.
As of March 30, 2016, the Principal Shareholders, as a group,
beneficially own 2,267,592 shares of Company Common Stock, which
represent approximately 57.84% of the total outstanding shares of
the Company Common Stock.
If your shares of Company Common Stock are held through a bank,
brokerage firm or other nominee, you are considered the
“beneficial owner” of shares of Company Common Stock
held in “street name.” In that case, this proxy
statement has been forwarded to you by your bank, brokerage firm or
other nominee who is the shareholder of record of those shares of
Company Common Stock. As the beneficial owner, you have the right
to direct your bank, brokerage firm or other nominee how to vote
your shares by following their instructions for voting. Please see
“
The Agreement and
Plan of Merger
” beginning on page 51 and
“
The Special
Meeting
” beginning on page 47 for detailed
information.
2
Merger Consideration
(Page 51)
If the Merger Agreement is approved by the requisite vote of the
Company’s shareholders and the Merger is consummated:
•
Each issued and outstanding share of Company Common Stock
immediately prior to the Effective Time (the “
Shares
”)
will be converted into the right to receive US$3.32 per share (the
“
Merger
Consideration
”), in cash without interest and net of
any applicable withholding taxes, except for Shares (i) owned by
the Company (as treasury shares, if any), (ii) Shares (the
“
Principal
Shares
”) owned by Mr. Minhua Chen and Mrs. Yanling Fan
(the “
Principal
Shareholders
”) and (iii) the Shares held by
shareholders who have exercised their rights to dissent from the
Merger ((i), (ii) and (iii) collectively, the “
Excluded
Shares
”). After completion of the Merger, the
Principal Shares will be the only issued and outstanding shares of
the surviving corporation. Shares with respect to which
dissenters’ rights have been properly exercised and not
withdrawn or lost will be cancelled in consideration for the right
to receive the fair value of such dissenting shares in accordance
with the Nevada Revised Statutes. See “
Dissenters’
Rights for Holders of Common Stock
” beginning on page
66 for additional information;
•
Each outstanding, unexercised and vested option to purchase shares
of Company Common Stock (the “
Company
Options
”) or, as applicable, the vested portion of a
Company Option with a per share exercise price less than the Merger
Consideration (each an
“In-the-Money
Vested Company Option”
) shall be converted into the
right to receive an amount in cash equal to the excess of (i) the
Merger Consideration over (ii) the exercise price of such
In-the-Money Vested Company Option, multiplied by the number of
Company shares underlying such In-the-Money Vested Company Option
(the “
Option
Consideration
”). No Option Consideration shall be paid
to a holder of Principal Shares; and
•
Each vested Company Option outstanding and unexercised immediately
prior to the consummation of the Merger with a per share exercise
price greater than or equal to the Merger Consideration shall
automatically be cancelled without any consideration payable in
respect thereof.
Prior to the Effective Time of the Merger, Acquisition will
designate American Stock Transfer & Trust Company to act as the
paying agent for the payment of the Merger Consideration. Prior to
the Effective Time of the Merger, Acquisition will deposit, or will
cause to be deposited, with the paying agent an amount in cash
sufficient for the paying agent to make payments to the holders of
shares of Company Common Stock pursuant to the Merger Agreement. As
promptly as practical, after the Effective Time of the Merger (but
in any event no later than three business days following the
Effective Time of the Merger), the paying agent will mail to each
shareholder of record (other than holders of the Excluded Shares)
(a) a letter of transmittal in customary form and (b) instructions
for use in effecting the surrender of any share certificates in
exchange for the applicable Merger Consideration. Do not return
your stock certificates with the enclosed proxy card, and do not
forward your stock certificates to the paying agent without a
letter of transmittal. You will not be entitled to receive the
Merger Consideration until you surrender your stock certificate or
certificates along with a duly completed and executed letter of
transmittal to the paying agent or until the paying agent receives
an “agent’s message” in the case of shares held
in book-entry form and other documents reasonably required by the
paying agent and approved by Acquisition and us. See
“
The Agreement and
Plan of Merger — Exchange Procedures
” beginning
on page 51 for additional information.
Recommendation of Our
Board of Directors and the Special Committee on Behalf of the
Company and Their Reasons for the Merger (Page 21)
The Special Committee unanimously (a) determined that the Merger
Agreement and the transactions contemplated thereby, including the
Merger, on the terms and subject to the conditions set forth in the
Merger Agreement, are advisable and fair (both substantively and
procedurally) to, and in the best interests of, the Company and its
Unaffiliated Shareholders and (b) recommended that our board of
directors adopt and declare advisable the Merger Agreement and the
transactions contemplated by the Merger Agreement, including the
Merger, and recommend that the Company’s shareholders approve
the Merger Agreement and the transactions contemplated by the
Merger Agreement, including the Merger. After carefully considering
the unanimous recommendation of the Special Committee and other
factors, the Company’s board of directors (with Mr. Minhua
Chen and Ms. Yanling Fan abstaining in accordance with the Nevada
Revised Statutes) has unanimously determined that the Merger
Agreement and the transactions contemplated thereby, including the
Merger, are advisable and fair (both substantively and
procedurally) to, and in the best interests of, the Company and its
shareholders (other than the holders of the
3
Excluded Shares), and adopted and declared advisable the Merger
Agreement and the transactions contemplated by the Merger
Agreement, including the Merger.
ACCORDINGLY, OUR BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE
PROPOSAL TO APPROVE THE MERGER AGREEMENT, AND “FOR” THE
PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING IN ORDER TO
TAKE SUCH ACTIONS AS OUR BOARD OF DIRECTORS DETERMINES ARE
NECESSARY OR APPROPRIATE, INCLUDING TO SOLICIT ADDITIONAL PROXIES
IF THERE ARE INSUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING,
TO APPROVE THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
For a discussion of the material factors considered by our board of
directors and the Special Committee in determining to recommend the
approval of the Merger Agreement, and in determining that the
Merger is fair (both substantively and procedurally) to our
Unaffiliated Shareholders, please see “
The Merger
— Recommendation of Our Board of Directors and the Special
Committee on Behalf of the Company and Their Reasons for the
Merger
” beginning on page 21 for additional
information. To the extent known by each filing person after making
reasonable inquiry, except as set forth under “
The
Merger — Recommendation of Our Board of Directors and the
Special Committee on Behalf of the Company and Their Reasons for
the Merger
,” no executive officer, director or
affiliate of the Company or such filing person has made a
recommendation either in support of or opposed to the
transaction.
Except as set forth under “
The Merger —
Background of the Merger
,” “
The Merger
— Recommendation of Our Board of Directors and the Special
Committee on Behalf of the Company and Their Reasons for the
Merger
” and “
The Merger —
Opinion of the Special 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 Shareholders 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 Fairness of the Merger (Page 37)
The Buyer Group believes the Merger is substantively and
procedurally fair to the Company and the Unaffiliated Shareholders.
For the factors upon which such belief is based, please see
“
The Merger —
Position of the Buyer Group as to Fairness of the
Merger
” beginning on page 37 for additional
information.
Opinion of the Special
Committee’s Financial Advisor (Page 28)
On March 8, 2016, in conjunction with the signing of the Original
Merger Agreement, ROTH Capital Partners, LLC (“
ROTH
”)
rendered an oral opinion to our Special Committee (which was
confirmed in writing by delivery of ROTH’s written opinion
dated March 8, 2016), as to the fairness, from a financial point of
view, of the US$3.32 per share Merger Consideration to be received
by holders of the shares of Company Common Stock (other than
holders of the Excluded Shares) in the Merger, as of March 8, 2016,
based upon and subject to the procedures followed, assumptions
made, qualifications and limitations on the review undertaken and
other matters considered by ROTH in preparing its opinion.
ROTH’s opinion was
directed to our Special Committee and only addressed the fairness
from a financial point of view of the US$3.32 per share Merger
Consideration to be received by holders of the shares of Company
Common Stock (other than holders of the Excluded Shares) in the
Merger and does not address any other aspect or implication of the
Merger. The summary of ROTH’s opinion in this proxy statement
is qualified in its entirety by reference to the full text of its
written opinion, which is included as Annex B to this proxy
statement and sets forth the procedures followed, assumptions made,
qualifications and limitations on the review undertaken and other
matters considered by ROTH in preparing its opinion. The opinion
did not address the relative merits of the Merger as compared to
any alternative business strategies or transactions that might be
available for the Company or any other party, nor did it address
the underlying business decision of the Special Committee, the
board of directors, the Company, its security holders or any other
party or entity to proceed with or effect the Merger or any terms
or aspects of any voting or other agreements to be entered into in
connection with the Merger, any potential financing for the Merger
or the likelihood of consummation of such financing. ROTH’s
opinion should not be construed as creating any fiduciary duty on
ROTH’s part to any party or entity. ROTH’s opinion was
not intended to be, and does not constitute, advice or a
recommendation to our Special Committee, board of directors or any
shareholder as to how to act or vote with respect to the Merger or
related matters.
Please see “
The Merger
— Opinion of the Special Committee’s Financial
Advisor
” beginning on page 28 for additional
information.
4
Financing of the Merger
(Page 43)
The Buyer Group estimates that the total amount of funds necessary
to consummate the Merger and related transactions, including the
payment of fees and expenses in connection with the Merger, will be
approximately US$5,513,000. The Buyer Group has all funds necessary
to pay the Merger Consideration and fees and expenses in connection
with the Merger according to the terms of the Merger Agreement. See
“
The Merger —
Financing of the Merger
” beginning on page 43 for
additional information.
Voting Agreement (page
43)
On April 12, 2016, the Company and the Principal Shareholders, Mr.
Chen and Ms. Fan, entered into a Voting Agreement (the
“
Voting
Agreement
”), replacing the Rollover Agreement
originally entered into on March 8, 2016 (the “
Rollover
Agreement
”) among the Principal Shareholders and
Acquisition, pursuant to which each of the Principal Shareholders
irrevocably agreed that he or she will appear at the special
meeting and any other shareholders’ meeting and vote (or
cause to be voted) all shares of Company Common Stock beneficially
owned by him or her, as applicable, in favor of the approval and
adoption of the Merger Agreement and against any competing
proposal. In conjunction with the execution of the Voting
Agreement, the parties executed a termination agreement on April
12, 2016 with respect to the Rollover Agreement. See
“
The Merger —
Voting Agreement
” beginning
on page 43
for additional
information.
Limited Guarantee (Page
43)
Concurrently with the execution of the Original Merger Agreement,
Mr. Minhua Chen and Ms. Yanling Fan (collectively, the
“
guarantors
”
and each, a “
guarantor
”)
delivered a limited guarantee (the “
Original Limited
Guarantee
”) pursuant to which each of the guarantors
agreed to, severally but not jointly, guarantee his or her
respective percentage of the obligations of Acquisition under the
Merger Agreement to pay, under certain circumstances in which the
Merger Agreement is terminated, a “reverse” termination
fee of US$375,000 to the Company and to reimburse certain expenses
incurred by the Company. In conjunction with the execution of the
Merger Agreement on April 12, 2016, Mr. Chen and Ms. Fan executed
and delivered an amended and restated limited guarantee (the
“
Limited
Guarantee
”), in which only non-substantive changes
were made to conform to the Merger Agreement. See
“
The Merger —
Limited Guarantee
” beginning on page 43 and
“
The Agreement and
Plan of Merger — Termination Fees and Reimbursement of
Expenses
” on page 60 for additional information.
Interests of Certain
Persons in the Merger (Page 44)
In considering the recommendation of our board of directors, you
should be aware that certain of our executive officers and
directors have interests in the Merger that may be different from,
or in addition to, your interests as a shareholder. These interests
include, among others:
•
As of the date of this proxy statement, (i) Mr. Chen, our Chairman,
President and Chief Executive Officer, beneficially owns
approximately 29.25% of the total outstanding shares of Company
Common Stock; and (ii) Ms. Fan, our Chief Operating Officer and
Director, beneficially owns approximately 28.67% of the total
outstanding shares of Company Common Stock; each of which will be
voted in connection with the proposed transaction and contributed
to Acquisition;
•
Pursuant to the Voting Agreement, each of the Principal
Shareholders has agreed to vote all shares of Company Common Stock
owned by him or her, as applicable, in favor of the proposal to
approve the Merger Agreement, and against any competing proposal at
any meeting of shareholders of the Company;
•
Directors of Acquisition will remain the directors of the surviving
corporation, and officers of the Company will remain officers of
the surviving corporation following the Merger;
•
Members of the Special Committee received no compensation for their
service of evaluating and negotiating the Merger Agreement and the
transactions contemplated by the Merger Agreement, including the
Merger; and
•
Pursuant to the Merger Agreement, directors and officers of the
Company will receive indemnification rights for six years following
the completion of the Merger for certain claims and liabilities
arising from their actions or omissions taken prior to the
Effective Time of the Merger.
5
The members of the Special Committee and our board of directors
were aware of these interests, and considered them, when they
approved the Merger Agreement and the transactions contemplated by
the Merger Agreement, including the Merger. Please see
“
The Merger —
Interests of Certain Persons in the Merger
” beginning
on page 44 for additional information.
Conditions to the Merger
(Page 59)
The respective obligations of each of the Company and Acquisition
to consummate the Merger are subject to the satisfaction or waiver
of certain conditions, including among other things, obtaining the
required shareholder approval. For a more detailed description of
these conditions, please see “
The Agreement and
Plan of Merger — Conditions to the Merger
”
beginning on page 59 for additional information
.
Regulatory
Matters
The Company does not believe that any material federal, national,
provincial, local or state, whether domestic or foreign, regulatory
approvals, filings or notices are required in connection with the
Merger other than the approvals, filings or notices required under
the U.S. federal securities laws and the filing of the articles of
merger with the Secretary of State of the State of Nevada with
respect to the Merger. The Company intends to seek or make, as
applicable, all necessary approvals, filings or notices required by
the U.S. federal securities laws and the Secretary of State of the
State of Nevada.
Agreement Not to Solicit
Other Offers (Page 56)
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 its subsidiaries nor any officer or
director of the Company or any of its subsidiaries is permitted to,
directly or indirectly:
•
solicit, initiate, knowingly encourage or knowingly facilitate any
inquiries regarding, or the making of any proposal or offer that
constitutes, or could reasonably be expected to lead to, an
alternative acquisition proposal;
•
engage in, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any other person any
information in connection with or for the purpose of soliciting,
initiating, knowingly encouraging or knowingly facilitating, a
alternative acquisition proposal; or
•
approve, recommend or enter into, or propose to approve, recommend
or enter into, any letter of intent or similar document, agreement,
commitment or agreement in principle (whether written, oral,
binding or non-binding) with respect to a alternative acquisition
proposal.
For a more detailed description of these conditions, please see
“
The Agreement and
Plan of Merger — Agreement Not to Solicit Other
Offers
” beginning on page 56 for additional
information
.
Termination of the
Merger Agreement (Page 59)
The Merger Agreement may be terminated at any time prior to the
Effective Time of the Merger by mutual written consent of the
Company (acting through the Special Committee) and Acquisition. The
Merger Agreement may be terminated prior to the Effective Time by
either the Company (acting through the Special Committee) or
Acquisition, if (i) the Effective Time shall not have occurred on
or before August 31, 2016; provided that such failure is caused by
a breach of the Merger Agreement by the party seeking to terminate
the Merger Agreement or (ii) the Company fails to obtain the
required stockholder approval of the Merger at the special meeting
or any adjournment or postponement thereof.
The Company (acting through the Special Committee) may terminate
the Merger Agreement if:
(1)(i)the board of directors of the Company (acting through the
Special Committee) has determined in good faith that failure to
terminate the Merger Agreement would be inconsistent with its
fiduciary duties under applicable law; (ii) the Company shall have
delivered to Acquisition a Recommendation Change Notice; or (iii)
the Company shall have entered into an Alternative Acquisition
Agreement; or
6
(2) at anytime prior to the Effective Time, Acquisition has
breached any of its representations, warranties or covenants under
the Merger Agreement, which breach would entitle the Company not to
consummate the Merger, subject to the right of Acquisition to cure
the breach within 30 business days following written notice, and
provided that the Company has not materially breached any of its
representations, warranties or covenants under the Merger
Agreement; or
(3) all of the conditions to closing set forth in the Merger
Agreement have been satisfied, except for those that are to be
satisfied at the closing, and Acquisition fails to consummate the
closing of the Merger within five business date days following the
date the closing should have occurred.
Acquisition may terminate the Merger Agreement if (1) at any time
prior to the Effective Time, the Company has breached any of its
representations, warranties or covenants under the Merger
Agreement, which breach would entitle Acquisition not to consummate
the Merger, subject to the right of the Company to cure the breach
within thirty (30) business days following a written notice, and
provided that the Company has not materially breached any of its
representations, warranties or covenants under the Merger Agreement
or (2) the board of directors of the Company or the Special
Committee shall have effected and not withdrawn any of its
recommendation changes, provided that Acquisition’s right to
terminate this Agreement in respect of a recommendation change
shall expire ten (10) business days after the first date upon such
recommendation change is made.
Termination Fee and
Reimbursement of Expenses (Page 60)
The Merger Agreement provides that the Company will pay to
Acquisition a termination fee of US$375,000, plus
Acquisition’s reasonable out-of-pocket expenses, including
attorney’s fees, if the Merger Agreement is terminated:
•
by Acquisition, if the Company has breached any of its
representations, warranties or covenants under the Merger
Agreement, which breach would entitle Acquisition not to consummate
the Merger, subject to the right of the Company to cure the breach
within 30 business days following written notice, and provided that
the Company has not materially breached any of its representations,
warranties or covenants under the Merger Agreement;
•
by Acquisition, if the board of directors of the Company or the
Special Committee shall have effected and not withdrawn a board
recommendation change;
•
by the Company after the board of directors of the Company (acting
through the Special Committee) (i) has determined in good faith
that failure to terminate the Merger Agreement would be
inconsistent with its fiduciary duties under applicable law; (ii)
the Company shall have delivered to Acquisition a Recommendation
Change Notice; or (iii) the Company shall have entered into an
Alternative Acquisition Agreement; or
•
by the Company if, subject to certain conditions, the Company
receives a bona fide alternative acquisition proposal, the Company
terminates the Merger Agreement due to failure to obtain
stockholder approval of the Merger Agreement, and then, within one
year, the Company consummates a transaction based on that same
alternative acquisition proposal.
The Merger Agreement provides that Acquisition will pay to the
Company a termination fee of US$375,000, plus the Company’s
reasonable out-of-pocket expenses, including attorney’s fees,
if the Merger Agreement is terminated:
•
by the Company, if Acquisition has breached any of its
representations, warranties or covenants under the Merger
Agreement, which breach would entitle the Company not to consummate
the Merger, subject to the right of Acquisition to cure the breach
within 30 business days following written notice, and provided that
the Company has not materially breached any of its representations,
warranties or covenants under the Merger Agreement; or
•
by the Company, if all of the conditions to closing set forth in
the Merger Agreement have been satisfied, except for those that are
to be satisfied at the closing, and Acquisition fails to consummate
the closing of the Merger within five business days of the
satisfaction of such conditions.
7
Remedies (page
61)
Under the Merger Agreement, the parties have agreed that, prior to
the termination of the Merger Agreement, each party will be
entitled to (1) an injunction or injunctions to prevent any
breaches of the Merger Agreement and to enforce specifically the
terms and provisions of the Merger Agreement; and (2) any other
rights and remedies to which such party is entitled at law or in
equity, and any such remedies will be deemed cumulative with, and
not exclusive of, any other remedy.
Dissenters’ Rights
(Page 66)
You have a statutory right to dissent from the Merger and demand
payment of the fair value of your shares of Company Common Stock as
determined in a judicial appraisal proceeding in accordance with
Chapter 92A (Section 300 through 500 inclusive) of the NRS. This
appraised value may be more or less than the $3.32 per share in
cash consideration offered in the Merger. In order to qualify for
these rights, you must make a written demand for appraisal within
30 days after the date of mailing of the Notice of Merger and
Dissenters’ Rights and otherwise comply with the procedures
for exercising appraisal rights in the NRS. The statutory right of
dissent is set out in Chapter 92A (Section 300 through 500
inclusive) of the NRS. A copy of Dissenters’ Rights
Provisions is attached as Annex E hereto. Any failure to comply
with the Dissenters’ Rights Provisions will result in an
irrevocable loss of such right. Shareholders seeking to exercise
their statutory right of dissent are encouraged to seek advice from
legal counsel. Please see “
Dissenters’
Rights for Holders of Common Stock
” beginning at page
66 for additional information.
Certain Material U.S.
Federal Income Tax Consequences (Page 71)
The exchange of shares of Company Common Stock for cash pursuant to
the Merger will be a taxable transaction for U.S. federal income
tax purposes. A U.S. Holder (as defined in “
Certain Material U.S.
Federal Income Tax Consequences
” below) who receives
cash for shares of Company Common Stock pursuant to the Merger will
recognize gain or loss, if any, equal to the difference between the
amount of cash received and the U.S. Holder’s adjusted tax
basis in the shares of Company Common Stock exchanged therefor. A
non-U.S. Holder (as defined in “
Certain Material U.S.
Federal Income Tax Consequences
” below) generally will
not be subject to U.S. federal income tax in respect of gain
recognized on the exchange of shares of Company Common Stock for
cash pursuant to the Merger unless: (a) the non-U.S. Holder is an
individual who was present in the United States for 183 days or
more during the taxable year of the exchange and certain other
conditions are met; (b) the gain is effectively connected with the
non-U.S. Holder’s conduct of a trade or business in the
United States, and, if required by an applicable tax treaty,
attributable to a permanent establishment or fixed base maintained
by the non-U.S. Holder in the United States; or (c) the Company is
or has been a United States real property holding corporation, or a
USRPHC, for U.S. federal income tax purposes at any time during the
shorter of the five-year period ending on the date of exchange of
the shares of Company Common Stock or the period that the non-U.S.
Holder held the shares of Company Common Stock, and, generally, in
the case where the shares of Company Common Stock are regularly
traded on an established securities market, the non-U.S. Holder has
owned, directly or indirectly, more than 5% of the shares of
Company Common Stock at any time during the shorter of the
five-year period ending on the date of exchange of the shares of
Company Common Stock or the period that the non-U.S. Holder held
the shares of Company Common Stock. 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.
Please see “
Certain Material U.S.
Federal Income Tax Consequences
” beginning on page 71
for additional information.
Certain Material PRC
Income Tax Consequences (Page 75)
On March 16, 2007, the National People’s Congress passed the
Enterprise Income Tax Law of the PRC (the “
EIT
Law
”), which became effective on January 1, 2008.
Pursuant to the EIT Law and its implementing rules, enterprises
established outside China whose “de facto management
bodies” are located in China are considered “resident
enterprises” and subject to the uniform 25% enterprise income
tax rate on worldwide income. Given the short history of the EIT
Law and lack of applicable legal precedent, it remains unclear how
the PRC tax authorities will determine the PRC tax resident status
of a company organized under the laws of a foreign (non-PRC)
jurisdiction, such as us. If the PRC tax authorities determine that
we are a “resident enterprise” for PRC enterprise
income tax purposes, gains realized by investors that are not tax
residents of the PRC, including U.S. Holders (“
non-resident
investors
”), may be treated as income derived from
sources within the PRC. In such event, any such
8
gain derived by such investors on the sale or transfer of our
common stock, including pursuant to the Merger, may be subject to
income tax under the PRC tax laws. Additionally, if we are
determined to be a resident enterprise under the EIT Law, under the
PRC Individual Income Tax Law and its implementing rules, any gain
realized on the sale or transfer of our common stock, including
pursuant to the Merger, by non-resident investors who are
individuals may be subject to a 20% PRC income tax if such gain is
regarded as income derived from sources within the PRC. Please see
“
Certain Material PRC
Income Tax Consequences
” beginning on page 75 for
additional information.
Fees and Expenses (Page
61)
Except for the right to reimbursement of costs and expenses under
certain circumstances, whether or not the Merger is completed, as
between Acquisition and the Company, all costs and expenses
incurred in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement will be paid by
the party incurring such costs and expenses. Please see
“
The Agreement and
Plan of Merger — Fees and Expenses
” beginning at
page 61 for additional information.
Delisting and
Deregistration of Company Common Stock
If and only after the Merger is completed, the Company Common Stock
will be delisted from the NASDAQ Capital Market and deregistered
under the Securities Exchange Act of 1934, as amended (the
“
Exchange
Act
”) and we will no longer file periodic reports with
the SEC.
Where You Can Find More
Information (page 77)
You can find more information about the Company in the periodic
reports and other information we file with the SEC. The information
is available at the SEC’s public reference facilities and at
the website maintained by the SEC at
www.sec.gov.
For a more detailed description of the additional information
available, please see “
Where You Can Find
More Information
” beginning on page 77
.
9
QUESTIONS AND ANSWERS
ABOUT THE SPECIAL MEETING AND THE MERGER
The following
questions and answers address briefly some questions you may have
regarding the special 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:
Why am I
receiving this proxy statement?
A:
On April
12, 2016, we entered into the Merger Agreement with Acquisition
providing for the Merger of Acquisition with and into the Company,
with the Company surviving the Merger. Acquisition is 50.5% and
49.5% owned by Mr. Chen and Ms. Fan, respectively. Mr. Chen is our
Chairman, President and Chief Executive Officer, and Ms. Fan is our
Chief Operating Officer and Director. The Merger is a going private
transaction involving Mr. Chen and Ms. Fan. You are receiving this
proxy statement in connection with the solicitation of proxies by
the board of directors of the Company in favor of the approval of
the Merger Agreement because you owned shares of Company Common
Stock as of May 24, 2016, the record date for the special meeting.
This proxy statement is dated May 25, 2016, and is first being
mailed to the Company’s shareholders on or about May 31,
2016.
Q:
What
matters will be voted on at the special meeting?
A:
You will
be asked to consider and vote on the following proposals:
1.
Approval of the Merger Agreement; and
2.
Approval of the proposal to adjourn or postpone the special meeting
in order to take such actions as our board of directors determines
are necessary or appropriate, including to solicit additional
proxies if there are insufficient votes at the time of the special
meeting to approve the proposal to approve the Merger
Agreement.
Q:
As a
shareholder, what will I receive in the Merger?
A:
If the
Merger is completed, you will be entitled to receive US$3.32 in
cash, without interest thereon and net of any applicable
withholding taxes, for each share of Company Common Stock that you
own immediately prior to the Effective Time of the Merger as
described in the Merger Agreement.
Q:
Is
the Merger a taxable
transaction to the Company’s shareholders for U.S. federal
income tax purposes?
A:
The
exchange of shares of Company Common Stock for cash pursuant to the
Merger generally will be a taxable transaction for U.S. federal
income tax purposes. See
“Certain
Material U.S. Federal Income Tax Consequences”
beginning on page 71 for a more detailed description of the U.S.
federal income tax consequences of the Merger. You should consult
with your own tax advisor for a full understanding of how the
Merger will affect your federal, state, local and/or non-U.S.
taxes.
Q:
When will
I receive the Merger Consideration for my shares of Company Common
Stock?
A:
After the
Merger is completed, you will receive written instructions,
including a letter of transmittal, which explain how to exchange
your shares for the Merger Consideration. When you properly
complete and return the required documentation described in the
written instructions, you will promptly receive from the paying
agent payment of the Merger Consideration for your shares of
Company Common Stock.
Q:
When and
where is the special meeting of our shareholders?
A:
The
special meeting of shareholders will be held on June 28, 2016,
starting at 9:00am (Beijing time), at 28/F, Yifa Building, No.111
Wusi Road, Fuzhou, Fujian Province, China, 35003.
10
Q:
What vote
of our shareholders is required to approve the Merger Agreement and
the other proposal?
A:
Approval
of the Merger Agreement by our shareholders requires an affirmative
vote (in person or by proxy) of the holders of at least a majority
of the total issued and outstanding shares of Company Common Stock
in accordance with the Company’s articles of incorporation
and bylaws and the Nevada Revised Statutes.
The adjournment or postponement of the special meeting, if
necessary or appropriate, to solicit additional proxies if there
are insufficient votes at the time of the special meeting to
approve the Merger Agreement will be approved if more holders of
the shares of Company Common Stock present in person or represented
by proxy and entitled to vote on the proposal vote in favor of the
proposal than against the proposal.
At the close of business, Beijing time, on May 24, 2016, the record
date, 3,914,580 shares of Company Common Stock were outstanding and
entitled to vote at the special meeting. On the record date, the
Buyer Group owned 2,267,592 shares of Company Common Stock. The
Buyer Group shares represent approximately 57.84% of the total
outstanding shares of Company Common Stock. The Principal
Shareholders have agreed, under the Voting Agreement, to vote in
favor of the proposal to approve the Merger Agreement.
Q:
Who can
attend and vote at the special meeting?
A:
All
shareholders of record as of the close of business, Beijing time,
on May 24, 2016, the record date for the special meeting, are
entitled to receive notice of and to attend and vote at the special
meeting, or any postponement or adjournment thereof. Shareholders
may vote by attending the special meeting and voting in person. In
order to attend the special meeting in person, arrive at the
meeting time at the address listed above with your proxy card and a
form of valid photo identification. To obtain directions to attend
the special meeting, call Jocelyn Chen at +86 (591) 28082230. If
you are a beneficial owner of shares held in “street
name” and you want to vote in person at the special meeting,
you must contact the bank, brokerage firm or other nominee that
holds your shares of Company Common Stock in its name prior to the
meeting and obtain from it a valid proxy issued by it in your name
giving you the right to vote the shares of Company Common Stock
registered in its name. Please note that cameras, recording devices
and other electronic devices will not be permitted at the special
meeting.
Q:
How does
our board of directors recommend that I vote?
A:
After
carefully considering the unanimous recommendation of the Special
Committee and other factors, the Company’s board of directors
(with Mr. Chen and Ms. Fan abstaining in accordance with the Nevada
Revised Statutes) has unanimously determined that the Merger
Agreement and the transactions contemplated thereby, including the
Merger, are advisable and fair (both substantively and
procedurally) to, and in the best interests of, the Company and its
shareholders (other than the holders of the Excluded Shares), and
adopted and declared advisable the Merger Agreement and the
transactions contemplated by the Merger Agreement, including the
Merger, and recommends that you vote “
FOR
”
the proposal to approve the Merger Agreement, and
“
FOR
” the
proposal to adjourn or postpone the special meeting in order to
take such actions as our board of directors determines are
necessary or appropriate, including to solicit additional proxies
if there are insufficient votes at the time of the special meeting,
to approve the proposal to approve the Merger Agreement.
Please see “
The Merger —
Recommendation of Our Board of Directors and the Special Committee
on Behalf of the Company and Their Reasons for the
Merger
” beginning on page 21 for a discussion of the
factors that the Special Committee and our board of directors
considered in deciding to recommend the approval of the Merger
Agreement. In addition, in considering the recommendation of the
Special Committee and the board of directors with respect to the
Merger Agreement, you should be aware that some of the
Company’s directors and executive officers may have interests
that are different from, or in addition to, the interests of our
shareholders generally. See “
The Merger —
Interests of Certain Persons in the Merger
” beginning
on page 44 for additional information.
Q:
How will
our directors and executive officers vote on the proposal to
approve the Merger Agreement?
A:
Mr. Chen,
our Chairman, President and Chief Executive Officer, and Ms. Fan,
our Chief Operating Officer and Director, have each entered into a
Voting Agreement with the Company, in which he or she agreed to
vote all of his or her shares of Company Common Stock in favor of
the approval of the Merger Agreement. As of
11
May 24, 2016, the record date of the special meeting, Mr. Chen
owned 1,145,196 shares of Company Common Stock entitled to vote at
the special meeting, or approximately 29.25% of the total issued
and outstanding shares of the Company Common Stock. As of May 24,
2016, the record date of the special meeting, Ms. Fan owned
1,122,396 shares of Company Common Stock entitled to vote at the
special meeting, or approximately 28.67% of the total issued and
outstanding shares of the Company Common Stock.
As of May 24, 2016, the record date, Mr. Chen and Ms. Fan
beneficially owned and were entitled to vote, in the aggregate,
2,267,592 shares of Company Common Stock, representing 57.84% of
the outstanding shares of Company Common Stock. Besides Mr. Chen
and Ms. Fan, no other director and executive officer own shares of
Company Common Stock. Please see “
The Special
Meeting
” beginning on page 47 for additional
information.
Q:
Am I
entitled to exercise dissenters’ or appraisal rights instead
of receiving the Merger Consideration for my shares of Company
Common Stock?
A:
Yes,
Nevada law provides that you may dissent from the disposal of
assets. If you do not comply with the procedures governing
dissenters’ rights set forth under the Nevada Revised
Statutes and explained elsewhere in this proxy statement, you may
lose your dissenters’ and appraisal rights. Shareholders
considering exercising dissenters’ rights should consult
legal counsel. You are urged to review the section of this proxy
statement entitled “
Dissenters’
Rights for Holders of Common Stock
” beginning on page 66 and Annex E for a
more complete discussion of dissenters’ rights.
Q:
How do I
cast my vote if I am a holder of record?
A:
If you
were a holder of record as of the close of business, Beijing time,
on May 24, 2016, you may submit your proxy or vote your shares of
Company Common Stock on matters presented at the special meeting in
any of the following ways: by telephone, via the Internet, by mail
or by voting in person at the meeting.
If you properly sign your proxy card but do not mark the boxes
showing how your shares of Company Common Stock should be voted on
a matter, the shares of Company Common Stock represented by your
properly signed proxy will be voted “FOR” the proposal
to approve the Merger Agreement and “FOR” the proposal
to adjourn or postpone the special meeting in order to take such
actions as our board of directors determines are necessary or
appropriate, including to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve
the Merger Agreement.
Q:
How do I
cast my vote if my shares of Company Common Stock are held in
“street name” by a bank, brokerage firm or other
nominee?
A:
If your
shares of Company Common Stock are held through a bank, brokerage
firm or other nominee, you are considered the “beneficial
owner” of shares of Company Common Stock held in
“street name.” You will receive instructions from your
bank, brokerage firm or other nominee that you must follow in order
to have your shares of Company Common Stock voted. Those
instructions will identify which of the above choices are available
to you in order to have your shares voted. Please note that if you
are a beneficial owner and wish to vote in person at the special
meeting, you must provide a legal proxy from your bank, brokerage
firm or other nominee.
Q:
What will
happen if I abstain from voting or fail to vote on the proposal to
approve the Merger Agreement?
A:
If you
fail to submit a proxy or vote in person at the special meeting, or
abstain, or do not provide your bank, brokerage firm or other
nominee with voting instructions, as applicable, your shares of
Company Common Stock will not be voted on the proposal to approve
the Merger Agreement, which will have the same effect as a vote
“AGAINST”
the proposal to approve the Merger Agreement. Please note that
abstentions or non-votes will result in a loss of dissenters’
and appraisal rights.
12
Q:
Can I
change my vote after I have delivered my proxy?
A:
Yes. If
you are a shareholder of record, you have the right to revoke a
proxy (whether delivered over the Internet, by telephone or by
mail) at any time before it is voted at the special meeting by (i)
submitting a new proxy by telephone or via the Internet after the
date of the earlier voted proxy, (ii) signing another proxy card
with a later date and returning it to us prior to the special
meeting, or (iii) attending the special meeting and voting in
person. Any such new or later-dated proxy should be delivered (over
the Internet, by facsimile over the telephone or by mail) to
Jocelyn Chen, our Board Secretary. If delivered by Internet, please
email jocelynchen@yidacn.net. If sent by mail or facsimile, please
send it to China Yida Holding, Co., 28/F, Yifa Building, No.111
Wusi Road, Fuzhou, Fujian Province, China, 35003, Attn: Jocelyn
Chen, or via facsimile to +86 (591) 28308358. Any such new or
later-dated proxies must be received by the Company prior to the
special meeting. Receipt by the Company of such new or later-dated
proxy prior to the special meeting is, in itself, sufficient to
revoke a prior proxy by that shareholder. If you hold your shares
of Company Common Stock in “street name,” you may
submit new voting instructions by contacting your bank, brokerage
firm or other nominee. You may also vote in person at the special
meeting if you obtain a legal proxy from your bank, brokerage firm
or other nominee.
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 of Company
Common Stock in more than one brokerage account, you will receive a
separate voting instruction card for each brokerage account in
which you hold shares of Company Common Stock. If you are a holder
of record and your shares of Company Common Stock are registered in
more than one name, you will receive more than one proxy card.
Please submit each proxy
and voting instruction card that you receive
.
Q:
If I am a
holder of certificated shares of Company Common Stock, should I
send in my stock certificates now?
A:
No.
Promptly after the Merger is completed, each holder of record as of
the time of the Merger will be sent written instructions for
exchanging their stock certificates for the Merger Consideration.
These instructions will tell you how and where to send in your
stock certificates for your cash consideration. You will receive
your cash payment after the paying agent receives your stock
certificates and any other documents requested in the instructions.
Please do not send in your stock certificates with your proxy.
Holders of uncertificated shares of Company Common Stock
represented by book-entry interests will receive a check or wire
transfer without such holder being required to deliver a stock
certificate or an executed letter of transmittal to the paying
agent, provided an “agent’s message” has been
previously delivered to the paying agent with respect to such
shares.
Q:
What
constitutes a quorum for the special meeting?
A:
The
presence, in person or by proxy, of the holders of a majority of
the issued and outstanding shares of Company Common Stock that are
entitled to vote on the record date is necessary to constitute a
quorum for the transaction of business at the special meeting.
Abstentions and broker non-votes are included in determining the
number of shares present or represented at the special meeting for
purposes of determining whether a quorum exists. Once a share of
Company Common Stock is represented at the special meeting, it will
be counted for the purpose of determining a quorum at the special
meeting and any adjournment of the special meeting. However, if a
new record date is set for the adjourned special meeting, then a
new quorum will have to be established. In the event that a quorum
is not present at the special meeting, it is expected that the
special meeting will be adjourned.
Q:
Will any
proxy solicitors be used in connection with the special
meeting?
A:
No,
neither the Company nor the Buyer Group engaged a proxy
solicitor.
13
Q:
What
happens if the Merger is not completed?
A:
If the
Merger Agreement is not approved by our shareholders, or if the
Merger is not completed for any other reason, you will not receive
any payment for your Company Common Stock pursuant to the Merger
Agreement. Instead, we will remain a publicly traded company and
our common stock will continue to be registered under the Exchange
Act and listed and traded on the NASDAQ Capital Market. If the
Merger Agreement is terminated, under certain circumstances we may
be required to pay to Acquisition, which is owned by Mr. Chen and
Ms. Fan, a termination fee of US$375,000 and to reimburse
Acquisition for its out-of-pocket expenses actually incurred in
connection with the Merger Agreement, or Acquisition may be
required to pay us a termination fee of US$375,000 and to reimburse
us for our out-of-pocket expenses actually incurred in connection
with the Merger Agreement. See “
The Agreement and
Plan of Merger — Termination Fees and Reimbursement of
Expenses
” beginning on page 60 for additional
information.
Q:
When is
the Merger expected to be completed?
A:
We are
working to complete the Merger as quickly as possible. We currently
expect the Merger to be completed before the end of the third
quarter of fiscal year 2016, subject to all conditions to the
Merger having been satisfied or waived. However, we cannot assure
you that all conditions to the Merger will be satisfied or waived
by then or at all.
Q:
What is
householding and how does it affect me?
A:
The SEC
permits companies to send a single set of certain disclosure
documents to any household at which two or more shareholders
reside, unless contrary instructions have been received, but only
if the company provides advance notice and follows certain
procedures. In such cases, each shareholder continues to receive a
separate notice of the meeting and proxy card. This householding
process reduces the volume of duplicate information and reduces
printing and mailing expenses. We have not instituted householding
for shareholders of record; however, certain brokerage firms may
have instituted householding for beneficial owners of Company
Common Stock held through brokerage firms. If your family has
multiple accounts holding Company Common Stock, you may have
already received householding notification from your broker. Please
contact your broker directly if you have any questions or require
additional copies of this proxy statement. The broker will arrange
for delivery of a separate copy of this proxy statement promptly
upon your written or oral request. You may decide at any time to
revoke your decision to household, and thereby receive multiple
copies.
Q:
Who can
help answer my questions?
A:
If you
have any questions about the Merger or how to submit your proxy, or
if you need additional copies of this proxy statement or the
enclosed proxy card, you should contact American Stock Transfer
& Trust, LLC at +1(718) 921-8124, or toll-free at (800)
937-5449.
14
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in
this proxy statement, as well as information included in oral
statements or other written statements made or to be made by us,
contains forward-looking statements and information relating to
China Yida Holding, Co., that are based on the beliefs of our
management as well as assumptions made by and information currently
available to us. When used in this report, the words
“anticipate,” “believe,”
“estimate,” “expect,” “intend,”
“plan” and similar expressions, as they relate to us or
our management, are intended to identify forward-looking
statements, which appear in a number of places in this proxy
statement (and the documents to which we refer you in this proxy
statement) and include, but are not limited to, all statements
relating directly or indirectly to statements regarding the ability
to complete the transaction considering the various closing
conditions, projected financial information, the timing or
likelihood of completing the Merger to which this proxy statement
relates, plans for future growth and other business development
activities as well as capital expenditures, financing sources and
the effects of regulation and competition and all other statements
regarding our intent, plans, beliefs or expectations or those of
our directors or officers. These statements reflect our current
view concerning future events and are subject to risks,
uncertainties and assumptions, including among many others:
•
the occurrence of any event, change or other circumstances that
could give rise to the termination of the Merger Agreement,
including a termination under circumstances that could require us
to pay a termination fee;
•
the inability to complete the Merger due to the failure to obtain
the required shareholder approval or the failure to satisfy other
conditions to complete the Merger, including required regulatory
approvals;
•
the failure of the Merger to close for any other reason;
•
risks that the proposed transaction disrupts current plans and
operations and the potential difficulties in employee retention as
a result of the Merger;
•
the outcome of any legal proceedings that have been or may be
instituted against the Company and/or others relating to the Merger
Agreement;
•
diversion of management’s attention from ongoing business
concerns;
•
the effect of the announcement of the Merger on our business
relationships, operating results and business generally;
•
the amount of the costs, fees, expenses and charges related to the
Merger;
•
uncertainties as to the timing of the closing of the Merger;
and
•
risks that the Merger will not close because of a failure to
satisfy (or to have waived) one or more of the closing conditions
and that the Company’s business will have been adversely
impacted during the pendency of the transaction.
These risks are not exhaustive and may not include factors which
could adversely impact the Company’s business and financial
performance. Other factors that may cause actual results to differ
materially include those set forth in the reports that the Company
files from time to time with the SEC, including our annual report
on Form 10-K for the fiscal year ended December 31, 2015 and
quarterly and current reports on Form 10-Q and Form 8-K.
Consequently, all of the forward-looking statements we make in this
document are qualified by the information contained or incorporated
by reference herein, including, but not limited to (a) the
information contained under this heading and (b) the information
contained under the headings “Business” and “Risk
Factors” and information in our consolidated financial
statements and notes thereto included in our most recent filings,
including our annual report on Form 10-K for the fiscal year ended
December 31, 2015 and quarterly and current reports on Form 10-Q
and Form 8-K (see “
Where You Can Find
More Information
” beginning on page 77). In doing so, please note
that any safe harbor provisions in such periodic reports related to
the Private Securities Litigation Reform Act of 1995 do not apply
to any forward-looking statements made by us in connection with
this going private transaction.
15
THE MERGER
The following is a
description of the material aspects of the Merger. While we believe
that the following description covers the material terms of the
Merger, the description may not contain all of the information that
is important to you. We encourage you to read carefully this entire
document, including the Merger Agreement attached to this proxy
statement as Annex A, for a more complete understanding of the
Merger. The following description is subject to, and is qualified
in its entirety by reference to, the Merger Agreement.
The Parties
The Company
The
Company is a tourism enterprise operating various tourist destinations in Fujian and Jiangxi provinces in the People’s Republic
of China. The Company develops, operates, manages and markets tourist destinations, including natural, cultural, and historical
tourist destinations and theme parks. The Company also creates, designs and constructs new tourist concepts, attractions and properties.
The Company currently operates the Hua’An Tulou tourist destination (World Culture Heritage), China Yunding Park (National
Park), China Yang-sheng (Nourishing Life) Paradise and the City of Caves. For more information, please visit the Company’s
website at http://www.yidacn.net. The Company’s website address is provided as an inactive textual reference only. The information
contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document
on file with or furnished to the SEC. See also “
Where You Can Find More Information
” beginning on page 77.
The Company’s common stock is publicly quoted on the NASDAQ Capital Market under the symbol “CNYD”. Our principal
executive office is located at 28/F, Yifa Building, No.111 Wusi Road, Fuzhou, Fujian Province, China, 35003, and our telephone
number is +86 (591) 28082230.
Acquisition
China Yida Holding Acquisition Co. was incorporated under the laws
of the State of Nevada and was formed solely for the purpose of
effecting the Merger. Acquisition is jointly owned by Mr. Minhua
Chen, our Chairman, President and Chief Executive Officer, and Ms.
Yanling Fan, our Chief Operating Officer and Director. Acquisition
has not engaged in any business except for activities incidental to
its formation and in connection with the transactions contemplated
by the Merger Agreement, including the Merger. The registered
office of Acquisition is 28/F, Yifa Building, No.111 Wusi Road,
Fuzhou, Fujian Province, China, 35003, and its telephone number is
+86 (591) 28082230.
Mr. Minhua Chen
Mr. Minhua Chen has been the Chairman, President and Chief
Executive Officer of the Company since November 2007. He is also
the Chairman of the Board of Directors, Chief Executive Officer,
and Treasurer of Acquisition. The business address of Mr. Minhua
Chen is c/o China Yida Holding, Co., 28/F, Yifa Building, No.111
Wusi Road, Fuzhou, Fujian Province, China, 35003. His telephone
number is +86 (591) 28082230. Mr. Minhua Chen is a citizen of the
People’s Republic of China.
Ms. Yanling Fan
Ms. Yanling Fan has served as the Chief Operating Officer of the
Company since 2001 and a Director of the Company since 2007. Ms.
Yanling Fan also serves a Director, the Chief Operating Officer and
the Secretary of Acquisition. Ms. Yanling Fan is the wife of Mr.
Minhua Chen. Ms. Yanling Fan’s address is c/o China Yida
Holding, Co., 28/F, Yifa Building, No.111 Wusi Road, Fuzhou, Fujian
Province, China, 35003. Her telephone number is +86 (591) 28082230.
Ms. Yanling Fan is a citizen of the People’s Republic of
China.
During the last five years, none of the persons referred to above
under the heading titled “
The
Parties
” or the respective directors or executive
officers of the Company, members of the Buyer Group and their
affiliates as listed in Annex C of this proxy statement has been
(a) convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (b) a party to any judicial
or administrative proceeding (except for matters that were
dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of federal or
state securities laws.
16
Overview of the
Transaction
The Company and Acquisition entered into an Original Merger
Agreement on March 8, 2016, pursuant to which, the Company will
merger with and into Acquisition with Acquisition surviving the
merger (the “
Original
Merger
”). On April 12, 2016, having determined that a
merger in which the Company survives is a more efficient structure,
the Company and Acquisition agreed to enter into the Merger
Agreement, which amended and restated the Original Merger
Agreement. Under the terms of the Merger Agreement, Acquisition
will be merged with and into the Company, with the Company
surviving the Merger. The Company, as the surviving corporation,
will continue to do business following the Merger. The separate
corporate existence of Acquisition will cease. At the Effective
Time of the Merger, the following will occur in connection with the
Merger:
•
each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger (other than
the Excluded Shares) will be converted into the right to receive
the per share Merger Consideration of US$3.32 without interest and
net of any applicable withholding taxes;
•
each outstanding, unexercised and vested In-the-Money Vested
Company Option or, as applicable, the vested portion of an
In-the-Money Vested Company Option shall be converted into the
right to receive an amount in cash equal to the excess of (i) the
Merger Consideration over (ii) the exercise price of such
In-the-Money Vested Company Option, multiplied by the number of
Company shares underlying such In-the-Money Vested Company
Option;
•
each vested Company Option outstanding and unexercised immediately
prior to the consummation of the Merger with a per share exercise
price greater than or equal to the Merger Consideration shall
automatically be cancelled without any consideration payable in
respect thereof; and
•
the Principal Shares will be
the only remaining issued and outstanding shares of the surviving
corporation.
Following and as a result of the Merger:
•
the Unaffiliated Shareholders will no longer have any interest in,
and will no longer be shareholders of, the Company, and will not
participate in any of the Company’s future earnings or
growth;
•
shares of Company Common Stock will no longer be listed on the
NASDAQ Capital Market, and price quotations with respect to shares
of Company Common Stock in the public market will no longer be
available; and
•
the registration of shares of Company Common Stock under the
Exchange Act will be terminated.
Management and Board of
Directors of the Surviving Corporation
The board of directors of the surviving corporation will, from and
after the Effective Time of the Merger, consist of the directors of
Acquisition as of immediately prior to the Effective Time of the
Merger (identified below under “
Annex C —
Directors and Executive Officers of Each Filing
Person
”), until their respective successors are duly
elected or appointed and qualified or their earlier death,
resignation or removal. The officers of the surviving corporation
will, from and after the Effective Time of the Merger, be the
officers of the Company as of immediately prior to the Effective
Time of the Merger (identified below under “
Annex
C — Directors and Executive Officers of Each Filing
Person
”), until their respective successors are duly
elected or appointed and qualified, or until their earlier death,
resignation or removal.
Background of the
Merger
On October 24, 2015, Mr. Minhua Chen and Ms. Yanling Fan submitted
a preliminary, non-binding proposal letter (the “
Proposal
Letter
”) to our board of directors proposing to
acquire all of the issued and outstanding shares of the Company
Common Stock not already owned by Mr. Minhua Chen and Ms. Yanling
Fan for cash consideration of US$3.17 per share of Company Common
Stock. The closing price per share of Company Common Stock on
October 23, 2015 (the last trading day prior to the date of the
Proposal Letter) was US$3.02. In the Proposal Letter, Mr. Minhua
Chen and Ms. Yanling Fan, among other things: (a) outlined their
intention to form a transaction vehicle for the purpose of pursuing
the proposed transaction, (b) stated their expectations that the
transaction would be financed with equity financing by them in the
form of cash and rollover equity in the Company, and from any
additional equity investor who may also purchase shares as a
consortium member should a consortium be formed
17
for the purpose of implementing the proposed transaction, and (c)
indicated their understanding that the independent members of the
board of directors of the Company would consider the proposed
transaction. Mr. Minhua Chen and Ms. Yanling Fan also stated in the
Proposal Letter that they did not intend to sell their interests in
the Company to a third party.
On October 27, 2015, the Company issued a press release regarding
its receipt of the Proposal Letter and the transaction proposed
therein, and filed the press release as an exhibit to its Current
Report on Form 8-K. As a result, the board of directors of the
Company determined that it was in the best interests of the Company
to form the Special Committee, consisting of the board’s
three independent non-executive directors, Mr. Renjiu Pei, Mr.
Chunyu Yin and Mr. Fucai Huang and elected Mr. Pei as its chairman,
to consider and evaluate the proposal.
On
October 28, 2015, the Company issued a press release and announced that the Special Committee has retained Sidley Austin LLP (“
Sidley
”)
as its international legal counsel and ROTH Capital Partners (“
ROTH
”) as its independent financial advisor.
On November 3, 2015, the Special Committee held a telephone
conference with representatives from ROTH and Sidley. At the
Special Committee’s organizational meeting, representatives
of ROTH reviewed with the Special Committee (i) the key issues and
implications with respect to the proposed going-private
transaction, the offer price, including certain implied multiples
of the offer, the historical trading prices and volumes of the
Company’s stock in the past 12 months, and the current
shareholder structure of the Company, including the shareholding
distribution among Unaffiliated Shareholders. ROTH also briefed the
Special Committee on the estimated time line for the transaction
and advised key discussion points in the going-private
transactions, including the financial advisor’s due
diligence, the negotiation and drafting of the Original Merger
Agreement, the go-shop clause, the shareholder approval by a
majority of the minority vote, the price and the breakup fees.
Representatives of Sidley presented the Special Committee the
procedural considerations in a going-private transaction, including
the fiduciary standards of the directors, the process of
considering, negotiating and approving the transaction, the role
and function of the Special Committee. Sidley reminded the Special
Committee of its fiduciary duties under U.S. laws and standards of
such fiduciary duties, especially in respect of ensuring fairness
of the proposed transaction from the two aspects of fair dealing
and fair price. At the meeting, Sidley also highlighted that one of
the key issues in the proposed transaction was to obtain the
majority of minority shareholder approval. Sidley again reminded
the Special Committee of their fiduciary obligations to review the
Original Merger Agreement and of their mandate to conduct
independent consultations with Acquisition.
On December 9, 2015, the Special Committee held a telephone
conference call with representatives of its financial advisor ROTH
and legal counsel Sidley. At this meeting, ROTH informed the
Special Committee that the preliminary financial due diligence had
been completed. ROTH also discussed the initial offer price in the
Proposal Letter from Mr. Minhua Chen and Ms. Yanling Fan. ROTH
highlighted that the one of the key issues in the proposed
transaction was obtaining the consent of the majority of minority
shareholders, and that the Special Committee may need to seek an
increase in the Merger Consideration. The Special Committee agreed
to have an internal discussion and give ROTH further instructions.
At this meeting, Sidley advised the Special Committee of potential
transaction structures and the major process under each structure.
Sidley also advised that the Special Committee consider the deal
structure after review of the shareholders list and the
shareholding distribution of the Unaffiliated Shareholders.
On January 20, 2016, Acquisition’s counsel, McLaughlin &
Stern LLP (“
McLaughlin
”),
circulated an initial draft Original Merger Agreement to Sidley,
the legal counsel to the Special Committee.
On February 1, 2016, Sidley sent initial comments on the draft
Original Merger Agreement to the Special Committee, along with a
summary of material issues. The material issues addressed in the
comments sent by representatives of Sidley included, among others:
the extent of the representations and warranties to be given by
both the Company and Acquisition; the addition of a majority of
minority shareholders vote in the requisite shareholder approval
for the Merger; the addition of a “go-shop” period
after signing of the Original Merger Agreement, during which the
Company and the Special Committee, with the assistance of its
financial and legal advisors, would be entitled to seek alternative
acquisition proposals that may result in a superior proposal; the
ability of the parties to terminate the Original Merger Agreement;
and the amount of certain fees and expenses to be paid by each
party in the event of a termination of the Original Merger
Agreement.
On February 2, 2016, the Special Committee held a telephone
conference call with representatives of its financial advisor ROTH
and legal counsel Sidley. At this meeting, Sidley discussed with
the Special Committee
18
certain legal issues under the draft Original Merger Agreement and
provided their suggested comments on the draft Original Merger
Agreement with respect to the key legal issues: (a) to ask for a
limited guarantee signed by Mr. Minhua Chen and Ms. Yanling Fan to
guarantee the due and punctual payment, performance and discharge
of certain payment obligations of Acquisition under the Original
Merger Agreement; (2) to add a majority of minority shareholders
vote in the requisite shareholder approval for the Original Merger;
(3) to delete the no-solicitation provisions and add go-shop
provisions; (4) to change the mutual termination fee to one-way
termination fee payable by Acquisition and ask for a higher
termination fee from Acquisition; (5) to ask for a higher Merger
Consideration after consultation with the financial advisor; and
(6) to add certain voting undertakings of Mr. Chen and Ms. Fan in
the Rollover Agreement. The Special Committee agreed with
Sidley’s comments and directed Sidley to convey such comments
to representatives of McLaughlin.
On February 2, 2016, representatives of Sidley circulated a revised
draft of the Original Merger Agreement via email to
Acquisition’s counsel reflecting the Special
Committee’s positions including, among other things, a
proposed Original Limited Guarantee of the obligations of
Acquisition under the Original Merger Agreement by Mr. Minhua Chen
and Ms. Yanling Fan and a “majority of the minority”
voting provision, which would require approval of the Original
Merger Agreement and the transactions contemplated thereby,
including the Original Merger, by a majority of the issued and
outstanding common stock of the Company, other than the Excluded
Shares.
On February 23, 2016, Sidley held a telephone conference with
McLaughlin to discuss the key legal issues in the draft Original
Merger Agreement, including the no shop provision rather than a
go-shop provision, the inclusion of a “majority of the
minority voting” provision, and the termination fee
provision. On the same date, Sidley circulated a draft of the
Original Limited Guarantee agreement.
On March 1, 2016, McLaughlin provided a revised draft of the
Original Merger Agreement and the Original Limited Guarantee. The
material issues addressed in the comments sent by McLaughlin
included, among others: the amount of the termination fee to be
paid by the parties upon termination of the Original Merger
Agreement; the replacement of the “go-shop” period
previously proposed by the Company with a “no shop”
provision prohibiting the Company and the Special Committee, with
the assistance of its financial and legal advisors, from seeking
alternative acquisition proposals after execution of the Original
Merger Agreement; and the removal of the “majority of the
minority” voting provision previously proposed by the
Company.
From March 2, 2016 to March 8, 2016, representatives of Sidley and
McLaughlin continued to negotiate the terms of the Original Merger
Agreement and Original Limited Guarantee.
On March 8, 2016, the Special Committee held a telephone conference
to review the final draft of the Original Merger Agreement. The
meeting was attended by representatives of ROTH and Sidley.
Representatives of Sidley reviewed the terms of the final Original
Merger Agreement with the members of the Special Committee,
highlighting the material differences from the last draft the
Special Committee reviewed and also reviewed the final Original
Limited Guarantee. In particular, representatives of Sidley advised
the Special Committee of the implications of the removal of the
“majority of the minority” voting provision. The
Special Committee considered Sidley’s advice, and also
considered that, of the 1,646,988 shares of the Company’s
common stock held by unaffiliated shareholders, one such
unaffiliated shareholder owns 924,514 shares of the Company’s
common stock, or approximately 56% of the unaffiliated shares of
the Company’s common stock. Additionally, the remaining
unaffiliated shares of the Company’s common stock are widely
held by over 500 individual unaffiliated shareholders. The Special
Committee discussed its concerns that utilizing a “majority
of the minority” voting provision would (1) significantly
increase, relative to the size of the proposed transaction, the
time and expense associated with soliciting proxies from
unaffiliated shareholders to approve the Original Merger, while
also decreasing the likelihood of approval of the Original Merger
and (2) give an inordinate advantage to the one unaffiliated
shareholder owning a significant number of shares over the
remaining unaffiliated shareholders. Ultimately, in the totality of
the analysis of the key terms and conditions, including but not
limited to the provision of the Original Limited Guarantee by Mr.
Minhua Chen and Ms. Yanling Fan, the mutual termination fee
arrangement, a higher Merger Consideration of US$3.32, and voting
undertakings in the Rollover Agreement, the Special Committee
agreed to accept Acquisition’s proposal to eliminate the
“majority of the minority” voting requirement.
Representatives of ROTH presented ROTH’s financial analysis
of the proposed transaction and of the Merger Consideration to be
received by Company shareholders. The ROTH representatives then
rendered to the Special Committee ROTH’s oral opinion, which
was subsequently confirmed in writing, that, as of March 8, 2016
and based upon and subject to the factors and assumptions set forth
in such written opinion, the consideration to be paid to the
holders of the Company’s common stock (other than holders of
the Excluded
19
Shares) in the proposed merger was fair, from a financial point of
view, to such holders, as described in more detail under
“—
Opinion of the
Special Committee’s Financial Advisor
.” A copy
of such opinion is attached as Annex B to this proxy statement.
Following consideration of the Original Merger Agreement and the
transactions contemplated thereby, at the meeting, the Special
Committee unanimously: (i) approved and declared advisable the
Original Merger Agreement, and the transactions contemplated
thereby, including the Original Merger; (ii) determined that the
terms of the Original Merger Agreement and the transactions
contemplated thereby, including the Original Merger, are fair to
and in the best interests of the Company and to the Company’s
unaffiliated shareholders; and (iii) resolved to recommend that the
Company’s board of directors adopt and declare the
advisability of the transactions contemplated by the Original
Merger Agreement, including the Original Merger and approve the
Original Merger Agreement and the Original Limited Guarantee.
Later on the same day, following the consideration of the
recommendation of the Special Committee, the board of directors
(with Mr. Chen and Ms. Fan abstaining in accordance with the Nevada
Revised Statutes) unanimously, (i) authorized and approved the
Original Merger Agreement and the transactions contemplated
thereby, including the Original Merger and the Original Limited
Guarantee; and (ii) recommended that the Company’s
Unaffiliated Shareholders adopt the Original Merger Agreement at a
special meeting of Company’s shareholders to be duly called
and held for such purpose.
On March 10, 2016, the Company issued a press release announcing
its entry into the Original Merger Agreement and the Original
Limited Guarantee and filed the press release and the relevant
agreements as exhibits to its Current Report on Form 8-K.
On April 5, 2016, Sidley and McLaughlin held a telephone
conference, in which representatives of McLaughlin expressed
Acquisition’s preference, having determined that a merger in
which the Company survives is a more efficient structure, that the
transaction structure be reconsidered, proposing that Acquisition
should be merged with and into the Company, with the Company
surviving the Merger.
On April 6, 2016, McLaughlin provided to Sidley a draft of the
Merger Agreement, which proposed to amend and restate the Original
Merger Agreement such that Acquisition would be merged with and
into the Company, with the Company surviving the Merger. Aside from
changes throughout the draft Merger Agreement to conform to the
proposed revised transaction structure, McLaughlin, on behalf of
Acquisition, did not propose any additional substantive material
changes to the Original Merger Agreement. In conjunction with the
draft Merger Agreement, McLaughlin also provided a draft of the
Voting Agreement, which it proposed to replace the Rollover
Agreement. The proposed Voting Agreement contained the same
agreement by the Principal Shareholders to vote the Principal
Shares in favor of the transaction, but removed provisions related
to a contribution of the Principal Shares to Acquisition, with such
contribution no longer relevant under the proposed revised
transaction structure. Lastly, McLaughlin also provided a draft of
the Limited Guarantee, which contained only non-substantive changes
to the Original Limited Guarantee necessary to conform to the
Merger Agreement.
On April 7, 2016, the Company, with the assistance of Sidley, sent
the drafts of the Merger Agreement, Voting Agreement and Limited
Guarantee to the Special Committee, along with an explanation of
the considerations that led McLaughlin to propose a revision to the
transaction structure and the related proposed changes to the
Original Merger Agreement and Original Limited Guarantee, and the
replacement of the Rollover Agreement with the Voting
Agreement.
In the next couple of days, the Special Committee held various
discussions to carefully review and deliberate on the draft Merger
Agreement, Voting Agreement and Limited Guarantee with the
assistance of its legal counsel, Sidley. The Special Committee
considered that the proposed change in transaction structure did
not present a substantive difference in outcome for the
Unaffiliated Shareholders, including that the cancellation of all
outstanding Company Common Stock, except for the Principal Shares,
and the amount of the Merger Consideration to be received by the
Unaffiliated Shareholders would remain the same under the Merger
Agreement as under the Original Merger Agreement. Similarly, the
Special Committee considered that the drafts of the Voting
Agreement and Limited Guarantee only contained changes necessary to
conform the Rollover Agreement and Original Limited Guarantee,
respectively, to the proposed revised transaction structure, and
did not materially impact the substantive benefits of those
agreements to the Unaffiliated Shareholders. Finally, the Special
Committee reconsidered ROTH’s oral opinion, which was
subsequently confirmed in writing, that, as of March 8, 2016 and
based upon and subject to the factors and assumptions set forth in
such written opinion, the consideration to be paid to the holders
of the Company’s common stock (other than holders of the
Excluded Shares) in the proposed merger was fair, from a
20
financial point of view, to such holders, as described in more
detail under “—
Opinion of the
Special Committee’s Financial Advisor
.” The
Special Committee considered that, because the revised proposed
transaction structure was not material to the substantive outcome
of the transaction to the Unaffiliated Shareholders, it could still
rely on ROTH’s opinion.
Following those considerations, on April 12, 2016, the Special
Committee, on behalf of the Company’s board of directors,
unanimously: (i) approved and declared advisable the Merger
Agreement, and the transactions contemplated thereby, including the
Merger; (ii) determined that the terms of the Merger Agreement and
the transactions contemplated thereby, including the Merger, remain
fair to and in the best interests of the Company and to the
Company’s Unaffiliated Shareholders; (iii) resolved to
recommend that the Company’s board of directors adopt and
declare the advisability of the transactions contemplated by the
Merger Agreement, including the Merger and approve the Merger
Agreement, the Voting Agreement and the Limited Guarantee.
Later on the same day, following the consideration of the
recommendation of the Special Committee, the board of directors
(with Mr. Chen and Ms. Fan abstaining in accordance with the Nevada
Revised Statutes) unanimously, (i) authorized and approved the
Merger Agreement and the transactions contemplated thereby,
including the Merger, the Voting Agreement and the Limited
Guarantee; and (ii) recommended that the Company’s
Unaffiliated Shareholders adopt the Merger Agreement at a special
meeting of Company’s shareholders to be duly called and held
for such purpose.
On the same day, the Merger Agreement was executed by Acquisition
and the Company; the Voting Agreement was executed by Mr. Chen and
Ms. Fan and the Company; the Limited Guarantee was executed by Mr.
Chen and Ms. Fan in favor of the Company; and Mr. Chen, Ms. Fan and
Acquisition executed a termination agreement with respect to the
Rollover Agreement.
On April 13, 2016, the Company issued a press release announcing
the change to the transaction structure and its entry into the
Merger Agreement, the Voting Agreement and the Limited Guarantee
and filed the press release and the relevant agreements as exhibits
to its Current Report on Form 8-K.
Recommendation of Our
Board of Directors and the Special Committee on Behalf of the
Company and Their Reasons for the Merger
Pursuant to our Articles of Incorporation and Bylaws, our board of
directors has the authority to act on behalf of our Company and in
the best interests of the Company and its shareholders, and has the
authority to delegate such responsibilities to subcommittees of the
board, such as the Special Committee. With respect to the proposed
Merger, the board of directors and, to the extent it delegated
authority to and relied on the recommendations of, the Special
Committee have the authority to make a fairness determination on
behalf of the Company and to opine on the Company’s behalf.
Both the Special Committee and our board of directors determined
that the Merger, on the terms and subject to the conditions set
forth in the Merger Agreement, is advisable and fair (both
substantially and procedurally) to, and in the best interests of,
the Company and its Unaffiliated Shareholders.
The Special Committee
The Special Committee, acting with the advice and assistance of its
independent legal and financial advisors, evaluated the Merger,
including the terms of the Merger Agreement. At a meeting on March
8, 2016, the Special Committee unanimously (a) determined that the
Original Merger Agreement and the transactions contemplated
thereby, on the terms and subject to the conditions set forth in
the Original Merger Agreement, were advisable and fair (both
substantially and procedurally) to, and in the best interests of,
the Company and its Unaffiliated Shareholders and (b) recommended
that our board of directors adopt and declare the advisability of
the Original Merger Agreement and the transactions contemplated by
the Original Merger Agreement, and recommend that the
Company’s shareholders approve the Original Merger Agreement.
On April 12, 2016, the Special Committee unanimously (a) determined
that the change in transaction structure was not material to the
substantive outcome of the transaction to the Unaffiliated
Shareholders, (b) determined that the Merger Agreement and the
transactions contemplated thereby, including the Merger, on the
terms and subject to the conditions set forth in the Merger
Agreement, remained advisable and fair (both substantially and
procedurally) to, and in the best interests of, the Company and its
Unaffiliated Shareholders and (c) recommended that our board of
directors adopt and declare the advisability of the Merger
Agreement and the transactions contemplated by the Merger
Agreement, including the Merger, and recommend that the
Company’s shareholders approve the Merger Agreement.
21
In the course of reaching its determinations, the Special Committee
considered a number of substantive factors and potential benefits
of the Merger, each of which the Special Committee believed
supported its decisions, including, but not limited to, the
following factors (which are not listed in any relative order of
importance):
•
the all-cash Merger Consideration, which will allow our
Unaffiliated Shareholders an opportunity to immediately realize a
fixed amount of cash for their investment, which amount the Special
Committee believes to be fair to the Company’s Unaffiliated
Shareholders, without incurring brokerage and other costs typically
associated with market sales and not to be exposed to the risks and
uncertainties relating to the Company’s prospects;
•
the current and historical market prices of our common stock,
including the fact that the US$3.32 per share Merger Consideration
represents an approximately 73% premium over the closing price of
US$1.92 per share on the NASDAQ Capital Market on March 7, 2016 and
an approximately 4.8%, 3.2% and 10.8% premium, respectively, over
the 30-, 90-, and 180-trading day volume weighted average price on
the NASDAQ Capital Market on October 26, 2015, the last trading day
prior to the Company’s announcement on October 27, 2015 that
it had received the Buyer Group’s going-private proposal;
•
the extensive negotiations with respect to the Merger
Consideration, which led to an increase from US$3.17 per share to
US$3.32 per share and the Special Committee’s determination
that US$3.32 per share was the highest price that the Buyer Group
would agree to pay, with the Special Committee basing its belief on
a number of factors, including the duration and tenor of
negotiations and the experience of the Special Committee and its
advisors, and that further negotiation ran the risk that the Buyer
Group might determine to offer an amount less than US$3.32 per
share, or abandon the transaction altogether, especially in view of
the fact that the trading price of our common stock continued to
decrease since the initial announcement of the receipt of the
proposal, resulting in a significantly higher premium relative to
the recent trading price of our common stock, in which event the
Company’s shareholders would lose the opportunity to accept
the premium being offered;
•
the possibility that it could take a considerable period of time
for the trading price of our common stock to reach and sustain at
least the per share Merger Consideration of US$3.32 (or that such
price would never be reached), as adjusted for the time value of
money;
•
the limited trading volume of our common stock on the NASDAQ
Capital Market;
•
the financial analysis reviewed by ROTH with our Special Committee,
and the oral opinion to our Special Committee (which was confirmed
in writing by delivery of ROTH’s written opinion dated March
8, 2016), as to the fairness, from a financial point of view, of
the US$3.32 per share Merger Consideration to be received by
holders of the shares of Company Common Stock (other than holders
of the Excluded Shares) in the Merger, as of March 8, 2016, based
upon and subject to the procedures followed, assumptions made,
qualifications and limitations on the review undertaken and other
matters considered by ROTH in preparing its opinion. Please see
“
The Merger —
Opinion of the Special Committee’s Financial
Advisor
” beginning on page 28 for additional
information.
•
the belief 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):
o
the fact that the Buyer Group has all funds necessary to pay the
Merger Consideration in accordance with the Merger Agreement;
o
the absence of a financing condition in the Merger Agreement;
o
the likelihood and anticipated timing of completing the Merger in
light of the scope of the conditions to completion, including the
absence of significant required regulatory approvals, such as the
U.S. and PRC antitrust approvals, in connection with the
Merger;
o
the fact that the Merger Agreement provides that, in the event of
the failure of the Merger to be completed under certain
circumstances, Acquisition will pay to the Company a
22
US$375,000 termination fee and reimburse the Company for
out-of-pocket expenses actually incurred in relation to pursuing
the Merger, and the guarantee of such payment obligations by Mr.
Chen and Ms. Fan, severally but not jointly, pursuant to the
Limited Guarantee;
o
Acquisition’s agreement in the Merger Agreement to use its
reasonable best efforts to consummate the Merger;
o
the ability of the Company, under certain circumstances, based on
the recommendation of the Special Committee, to withhold, withdraw,
amend or modify its recommendation that our shareholders vote to
approve the Merger Agreement;
o
the ability of the Company, subject to compliance with the terms
and conditions of the Merger Agreement, to terminate the Merger
Agreement prior to the receipt of the required shareholders
approvals if our board of directors determines (upon recommendation
of the Special Committee) in its good faith judgment that failure
to do so would be inconsistent with its fiduciary duties;
o
the ability of the Company, subject to compliance with the terms
and conditions of the Merger Agreement, to terminate the Merger Agreement prior to the receipt of the required shareholders approvals
in order to accept an alternative transaction proposed by a third party that is a “superior proposal” (as defined
in the Merger Agreement and further explained under “
The Agreement and Plan of Merger — Agreement Not to Solicit
Other Offers”
beginning on page 56
);
o
the fact that the outreach to other potential bidders during the
pre-signing market check has not resulted in any alternative
acquisition proposals; and
o
the fact that, if the Merger is not completed, the continued
expenses, burdens and constraints imposed on companies that are
subject to the public reporting requirements under the federal
securities laws of the United States, including the Exchange Act
and the Sarbanes-Oxley Act of 2002, and the need for the management
of the Company to be responsive to Unaffiliated Shareholders’
concerns and to engage in dialogue with Unaffiliated Shareholders,
which can distract management’s time and attention from the
effective operation and improvement of the business
In addition, the Special Committee believes that sufficient
procedural safeguards were and are present to ensure that the
Merger is procedurally fair to our Unaffiliated Shareholders and to
permit the Special Committee and our board of directors to
represent effectively the interests of such Unaffiliated
Shareholders. These procedural safeguards, which are not listed in
any relative order of importance, are discussed below:
•
in considering the Merger and the other transactions contemplated
by the Merger Agreement, the Special Committee acted solely to
represent the interests of the Unaffiliated Shareholders, and the
Special Committee had independent control of its legal advisors in
the extensive negotiations on behalf of such Unaffiliated
Shareholders with the Buyer Group;
•
all of the directors serving on the Special Committee during the
entire process were and are independent directors. In addition,
none of such directors 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 Shareholders other than continued
indemnification rights for such directors following the completion
of the Merger for certain claims and liabilities arising from their
actions taken prior to the Effective Time of the Merger;
•
the Special Committee was empowered to consider, attend to and take
any and all actions in connection with the written proposal from
the Buyer Group and the transactions contemplated by the Merger
Agreement from the date the committee was established, and no
evaluation, negotiation, or response regarding the transactions or
any documentation in connection therewith from that date forward
was considered by our board of directors for approval unless the
Special Committee had recommended such action to our board of
directors;
23
•
the recognition by the Special Committee that it had no obligation
to recommend the approval of the Merger proposal from the Buyer
Group or any other transaction;
•
the Special Committee held various meetings and met on various
occasions to consider and review the terms of the Merger and the
Merger Agreement, and each member of the Special Committee was
actively engaged in the process on a continuous and regular
basis;
•
the Special Committee was assisted in negotiations with the Buyer
Group and in its evaluation of the Merger by ROTH and Sidley, its
financial and legal advisors, respectively;
•
the terms and conditions of the Merger Agreement were the product
of extensive negotiations between the Special Committee and its
advisors, on the one hand, and the Buyer Group and its advisors, on
the other hand, which, among other things, resulted in an increase
in the Merger Consideration from US$3.17 per share to US$3.32 per
share;
•
the fact that, under the terms of the Merger Agreement, the Company
has the ability to consider and engage in discussions with respect
to any unsolicited acquisition proposal that constitutes or could
reasonably be expected to result in a superior proposal until the
date our shareholders vote upon and approve the Merger
Agreement;
•
the Company has the ability under certain circumstances to
specifically enforce certain terms of the Merger Agreement;
•
the Company may under certain circumstances terminate the Merger
Agreement in order to enter into an agreement relating to a
superior proposal; and
•
the Unaffiliated Shareholders of the Company are entitled to
exercise dissenters’ rights and demand fair value for their
shares of Company Common Stock as determined by a Nevada state
district court, which may be determined to be more or less than the
cash amount offered in the Merger.
The Special Committee also
considered a variety of potentially negative factors, including the
factors discussed below, concerning the Merger Agreement and the
Merger (which are not listed in any relative order of
importance):
•
the fact that the Company’s Unaffiliated Shareholders will
have no ongoing equity participation in the Company following the
Merger, and that they will cease to participate in our future
earnings or growth, if any, or to benefit from increases, if any,
in the value of the shares of Company Common Stock, 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 possibility that the Buyer Group could sell part or all of the
Company following the Merger to one or more purchasers at a
valuation higher than that being paid in the Merger;
•
the restrictions on the conduct of the Company’s business
prior to the completion of the Merger, which may delay or prevent
the Company from undertaking business opportunities that may arise
or any other action it would otherwise take with respect to the
operations of the Company pending completion of the Merger;
•
that the transaction is not structured so that approval of at least
a majority of Unaffiliated Shareholders is required;
•
the risks and costs to the Company if the Merger does not close,
including the diversion of management and employee attention,
potential employee attrition, the potential disruptive effect on
business and customer relationships, 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;
•
the risk that, while the Merger is expected to be completed, 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
approved by the Company’s shareholders;
24
•
the risk of incurring substantial expenses related to the Merger,
including in connection with any potential litigation related to
the Merger;
•
the Company will be required, under certain circumstances, to pay
Acquisition, which will be beneficially owned by the Buyer Group, a
termination fee of US$375,000 and to reimburse Acquisition for
out-of-pocket expenses incurred in relation to pursuing the Merger
reimbursement, in connection with the termination of the Merger
Agreement;
•
the fact that since the Company became publicly listed in 2009, the
highest historical closing price of our common stock (approximately
US$76.25 per share) significantly exceeds the Merger Consideration
offered to our Unaffiliated Shareholders;
•
the terms of the Buyer Group’s participation in the Merger
and the fact that the Buyer Group may have interests in the
transaction that are different from, or in addition to, those of
our Unaffiliated Shareholders (please see “
The
Merger — Interests of Certain Persons in the
Merger
” beginning
on page 44
for additional
information); and
•
the tax implications of an all cash transaction to our Unaffiliated
Shareholders that are U.S. holders for U.S. federal income tax
purposes.
The foregoing discussion of information and factors considered by
the Special Committee is not intended to be exhaustive, but
includes all the material factors considered by the Special
Committee. In view of the wide variety of factors considered by the
Special Committee, the Special Committee found it impracticable to
quantify or otherwise assign relative weights to the foregoing
factors in reaching its conclusions. In addition, individual
members of the Special Committee may have, in their discretion,
given different weights to different factors and may have viewed
some factors more positively or negatively than others. The Special
Committee recommended that our board of directors adopt, and our
board of directors adopted, the Merger Agreement based upon the
totality of the information presented to and considered by it.
In the course of reaching its conclusion regarding the fairness of
the Merger to the Unaffiliated Shareholders and its decision to
recommend the approval of the Merger Agreement and approval of the
transactions contemplated by the Merger Agreement, including the
Merger, the Special Committee considered advice from its legal
counsel that “majority of the minority” voting
provisions are sometimes included in Merger Agreements where
controlling shareholders own a majority of a company’s
outstanding voting securities. The Special Committee also
considered that, of the 1,646,988 shares of the Company’s
common stock held by unaffiliated shareholders, one such
unaffiliated shareholder owns 924,514 shares of the Company’s
common stock, or approximately 56% of the unaffiliated shares of
the Company’s common stock. Additionally, the remaining
unaffiliated shares of the Company’s common stock are widely
held by over 500 individual unaffiliated shareholders. The Special
Committee discussed its concerns that utilizing a “majority
of the minority” voting provision would (1) significantly
increase, relative to the size of the proposed transaction, the
time and expense associated with soliciting proxies from
unaffiliated shareholders to approve the Merger, while also
decreasing the likelihood of approval of the Merger and (2) give an
inordinate advantage to the one unaffiliated shareholder owning a
significant number of shares over the remaining unaffiliated
shareholders. Ultimately, in the totality of the analysis of the
key terms and conditions including, but not limited to, the
provision of a Limited Guarantee by Mr. Minhua Chen and Ms. Yanling
Fan, the mutual termination fee arrangement, a higher Merger
Consideration of US$3.32, and voting undertakings in the Voting
Agreement, the Special Committee agreed to accept
Acquisition’s proposal to eliminate the “majority of
the minority” voting requirement. Additionally, the Special
Committee considered financial analyses presented by ROTH. These
analyses included, among others, selected public companies
analyses, selected transaction analyses and discounted cash flow
analyses. All of the material analyses as presented to the Special
Committee on March 8, 2016 are summarized below under the caption
“
The Merger —
Opinion of the Special Committee’s Financial
Advisor
” beginning
on page
28. The Special Committee
expressly adopted these analyses and the opinion of ROTH, among
other factors considered, in reaching its determination as to the
fairness of the transactions contemplated by the Merger Agreement,
including the Merger.
The Special Committee did not consider the liquidation value of the
Company’s assets because the Special Committee considers the
Company to be a viable going concern business that will continue to
operate regardless of whether the Merger is consummated, where
value is derived from cash flows generated from its continuing
operations. In addition, the Special Committee believes that the
value of the Company’s assets that might be
25
realized in a liquidation would be significantly less than its
going concern value. The Special Committee believes the analyses
and additional factors it reviewed provided an indication of our
going concern value. The Special Committee also considered the
historical market prices of our common stock as described under the
caption “
Common Stock
Transaction Information
” beginning on page 64. The
Special Committee did not consider 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
Special Committee believes that net book value is not a material
indicator of the value of the Company as a going concern,
especially considering the Company’s high level of seasonal
volatility in regard to its income and unstable cash flow. As of
December 31, 2015, the Company had a net book value per share of
US$-5.15 based on the weighted average number of outstanding shares
of Company Common Stock. Net book value does not take into account
the future prospects of the Company, market conditions, trends in
the industry in which the Company conducts its business or the
business risks inherent in competing with other companies in the
same industry.
Position of the Board of Directors as to Fairness of the Merger and
Recommendation of the Board of Directors
The Company’s board of directors believes that the Merger, on
the terms and subject to the conditions set forth in the Merger
Agreement, is advisable and fair (both substantively and
procedurally) to, and in the best interests of, the Company and its
Unaffiliated Shareholders.
In reaching these determinations, our board of directors considered
and adopted:
•
the Special Committee’s analysis and unanimous determination
that the Merger, on the terms and subject to the conditions set
forth in the Merger Agreement, is advisable and fair (both
substantively and procedurally) to, and in the best interests of,
the Company and its Unaffiliated Shareholders;
•
the Special Committee’s analysis and unanimous recommendation
that our board of directors adopt and declare the advisability of
the Merger Agreement and the transactions contemplated by the
Merger Agreement, including the Merger, and that our shareholders
approve the Merger Agreement at the special meeting; and
•
the analysis and opinion of ROTH as to the fairness, from a
financial point of view, to the Company’s shareholders (other
than holders of the Excluded Shares) of the consideration of
US$3.32 per share Merger Consideration to be received by those
shareholders in the Merger.
In making these determinations, the Company’s board of
directors also considered a number of other factors, including the
following material factors (which are not listed in any relative
order of importance):
•
the consideration and negotiation of the Merger Agreement was
conducted entirely under the control and supervision of the Special
Committee, which consists of three independent directors, each of
whom is an outside, non-employee director, and that no limitations
were placed on the Special Committee’s authority with respect
to the proposed merger;
•
following its formation, the Special Committee’s independent
control of the sale process with the advice and assistance of ROTH
and Sidley as its financial advisor and legal advisor,
respectively, reporting solely to the Special Committee;
•
the process undertaken by the Special Committee and its advisors in
connection with evaluating the Merger, as described above in the
section “
The Merger —
Background of the Merger”
beginning
on page 17
;
•
the oral opinion of ROTH rendered to the Special Committee on March
8, 2016 (which was confirmed by delivery of ROTH’s written
opinion dated the same date) as to the fairness, from a financial
point of view, to the Company’s shareholders (other than
holders of the Excluded Shares) of the consideration of US$3.32 per
share Merger Consideration to be received by those shareholders in
the Merger, as of March 8, 2016, based upon and subject to the
assumptions made, procedures followed, matters considered, and
qualifications and limitations on the review undertaken by ROTH in
preparing its opinion. Please see “
The Merger
— Opinion of the Special Committee’s Financial
Advisor
” beginning on page 28 for additional
information;
26
•
if the Merger is not completed, the continued expenses, burdens and
constraints imposed on companies that are subject to the public
reporting requirements under the federal securities laws of the
United States, including the Exchange Act and the Sarbanes-Oxley
Act of 2002, and the need for the management of the Company to be
responsive to Unaffiliated Shareholders’ concerns and to
engage in dialogue with Unaffiliated Shareholders, which can
distract management’s time and attention from the effective
operation and improvement of the business;
•
as a publicly traded company, the Company faces pressure from
public shareholders and investment analysts to make decisions that
might produce better short-term results, but over the long term
might lead to a reduction in the per share price of its publicly
traded equity securities. If the Company becomes a privately held
entity, the Company’s management may have greater flexibility
to focus on improving the Company’s financial performance
without the constraints caused by the public equity market’s
valuation of the Company and the emphasis on short-term
period-to-period performance; and
•
(a) the offer price of US$3.32 per share from the Buyer Group
represents a significant premium over recent market prices, and (b)
the limited trading volume of the Company Common Stock on the
NASDAQ Capital Market does not justify the costs of remaining a
public company, including the cost of complying with the
Sarbanes-Oxley Act of 2002 and other U.S. federal securities laws,
which totaled approximately US$230,000 and US$250,000 for the
fiscal years ended December 31, 2014 and 2015, respectively. With
respect to (b) above, these costs are ongoing, comprise a
significant element of our corporate overhead expenses, and are
difficult to reduce. In addition to the direct out-of-pocket costs
associated with SEC reporting and compliance, the Company’s
management and accounting staff, which comprise a handful of
individuals, need to devote significant time to these matters.
Furthermore, as an SEC-reporting company, the Company is required
to disclose a considerable amount of business information to the
public, some of which would be considered proprietary and need not
be disclosed by a non-reporting company, which might allow our
actual or potential competitors, customers, lenders and vendors to
access information which potentially may help them compete against
us or make it more difficult for us to negotiate favorable terms
with them.
Our board of directors did not consider the Company’s net
book value, which is defined as total assets minus total
liabilities, as a factor. Our board of directors believes that net
book value, as an accounting concept based on historical costs, is
not a material indicator of the value of the Company as a going
concern because it does not take into account quality of earnings,
cash generation capability, the future prospects of the Company,
market conditions, trends in the industry in which the Company
conducts its business or the business risks inherent in competing
with other companies in the same industry. Therefore, our board of
directors does not believe that net book value reflects, or has any
meaningful impact on, the market price of Company Common Stock or
the fair market value of its assets or business, especially
considering the Company’s high level of seasonal volatility
in regard to its income and unstable cash flow.
Our board of directors did not consider the Company’s
liquidation value to be a relevant valuation method because it
considers the Company to be a viable going concern and because the
Company will continue to operate its business following the
Merger.
Our board of directors did not establish, and did not consider, a
going concern value for the Company Common Stock as a public
company to determine the fairness of the Merger Consideration to
the Company’s Unaffiliated Shareholders because it believed
that a going concern value is more relevant to a potential buyer,
while the opinion of ROTH as to the fairness, from a financial
standpoint, of the Merger Consideration, was more relevant to the
board of directors’ determination as to the fairness of the
transaction to the Unaffiliated Shareholders. However, to the
extent the pre-merger going concern value was reflected in the
pre-announcement price of the Company Common Stock, the Merger
Consideration of US$3.32 per share represented a premium to the per
share going concern value of the Company.
Our board of directors did not consider other offers made by any
unaffiliated person, other than as described in this proxy
statement and prior filings with the SEC, as the Company was not
aware of any firm offers made by any other persons during the two
years prior to the date of Merger Agreement for (i) a merger or
consolidation of the Company with another company, or vice versa,
(ii) a sale or transfer of all or any substantial part of the
Company’s assets, or (iii) a purchase of the Company’s
securities that would enable such person to exercise control of the
Company.
27
To the extent known by each filing person after making reasonable
inquiry, except as set forth under “
The Merger
— Recommendation of Our Board of Directors and the Special
Committee on Behalf of the Company and Their Reasons for the
Merger
,” no executive officer, director or affiliate
of the Company or such filing person has made a recommendation
either in support of or opposed to the Merger and other
transactions contemplated by the Merger Agreement.
Except as set forth under
“
The Merger —
Background of the Merger
,” “
The Merger
— Recommendation of Our Board of Directors and the Special
Committee on Behalf of the Company and Their Reasons for the
Merger
,” and “
The Merger —
Opinion of the Special 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 the Unaffiliated Shareholders for purposes of
negotiating the terms of the Merger and other transactions
contemplated by the Merger Agreement and/or preparing a report
concerning the fairness of the Merger and other transactions
contemplated by the Merger Agreement.
After carefully
considering the unanimous recommendation of the Special Committee
and other factors, the Company’s board of directors (with Mr.
Chen and Ms. Fan abstaining in accordance with the Nevada Revised
Statutes) has unanimously determined that the Merger Agreement and
the transactions contemplated thereby, including the Merger, are
advisable and fair (both substantively and procedurally) to, and in
the best interests of, the Company and its shareholders (other than
the holders of the Excluded Shares), and adopted and declared
advisable the Merger Agreement and the transactions contemplated by
the Merger Agreement, including the Merger, and recommends that our
shareholders vote “FOR” the proposal to approve the
Merger Agreement and “FOR” the proposal to adjourn or
postpone the special meeting in order to take such actions as our
board of directors determines are necessary or appropriate,
including to solicit additional proxies if there are insufficient
votes at the time of the special meeting, to approve the proposal
to approve the Merger Agreement.
Opinion of the Special
Committee’s Financial Advisor
On March 8, 2016, ROTH rendered an oral opinion to our Special
Committee (which was confirmed in writing by delivery of
ROTH’s written opinion dated March 8, 2016), to the effect
that, as of March 8, 2016 based upon and subject to the procedures
followed, assumptions made, qualifications and limitations on the
review undertaken and other matters considered by ROTH in preparing
its opinion, the US$3.32 per share Merger Consideration to be
received by holders of the shares of Company Common Stock (other
than holders of the Excluded Shares) in the Merger was fair, from a
financial point of view, to such holders.
ROTH’s opinion was
directed to our Special Committee and only addressed the fairness
from a financial point of view of the US$3.32 per share Merger
Consideration to be received by holders of the shares of Company
Common Stock (other than holders of the Excluded Shares) in the
Merger and does not address any other aspect or implication of the
Merger. The summary of ROTH’s opinion in this proxy statement
is qualified in its entirety by reference to the full text of its
written opinion, which is included as Annex B to this proxy
statement and sets forth the procedures followed, assumptions made,
qualifications and limitations on the review undertaken and other
matters considered by ROTH in preparing its opinion. The opinion
did not address the relative merits of the Merger as compared to
any alternative business strategies or transactions that might be
available for the Company or any other party, nor did it address
the underlying business decision of the Special Committee, the
board of directors, the Company, its security holders or any other
party or entity to proceed with or effect the Merger or any terms
or aspects of any voting, Limited Guarantee or other agreements to
be entered into in connection with the Merger. ROTH’s opinion
should not be construed as creating any fiduciary duty on
ROTH’s part to any party or entity. ROTH’s opinion and
the summary of its opinion and the related analyses set forth in
this proxy statement are not intended to be, and do not constitute,
advice or a recommendation to our Special Committee or any
shareholder as to how to act or vote with respect to the Merger or
related matters.
In arriving at its opinion, ROTH:
•
reviewed certain publicly available financial statements and other
business and financial information of the Company;
•
reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the
management of the Company;
28
•
reviewed certain financial projections concerning the Company
prepared by the management of the Company;
•
discussed the past and current operations, financial condition and
the prospects of the Company with senior executives of the
Company;
•
reviewed the reported prices and trading activity for the Company
Common Stock;
•
reviewed the financial terms, to the extent publicly available, of
certain comparable Acquisition Transactions we deemed comparable
with the Merger and compared such financial terms with those of the
Merger;
•
compared the financial performance of the Company and the prices
and trading activity of the Company Common Stock with that of
certain other publicly-traded companies we deemed comparable with
the Company and its securities;
•
participated in certain discussions with representatives of the
Special Committee and its legal advisors;
•
reviewed the Original Merger Agreement and a draft of the Original
Limited Guarantee delivered to ROTH on March 1, 2016; and
•
performed such other analyses, reviewed such other information and
considered such other factors as we have deemed appropriate.
For its opinion, ROTH assumed and relied upon, without independent
verification, the accuracy and completeness of the information that
was publicly available or supplied or otherwise made available to
us by the Company, which formed a substantial basis for this
opinion, and have further relied upon the assurances of the
management of the Company that such information did not contain an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements contained therein not misleading in any material
respect. With respect to the financial projections, ROTH was
advised by management of the Company and assumed that they were
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company
of the future financial performance of the Company, and ROTH
expressed no view as to the assumptions on which they are based. In
addition, ROTH assumed that the final executed Merger Agreement and
Limited Guarantee would not differ in any material respect from the
draft Original Merger Agreement and Original Limited Guarantee
reviewed by ROTH, and that the Merger would be consummated in
accordance with the terms set forth in the Merger Agreement without
any waiver, amendment or delay of any terms or conditions. ROTH
also assumed that in connection with the receipt of all the
necessary governmental, regulatory or other approvals and consents
required for the proposed merger, no delays, limitations,
conditions or restrictions would be imposed that would have an
adverse effect on the Company or the contemplated benefits expected
to be derived in the proposed merger.
ROTH is not a legal, tax, accounting or regulatory advisor. ROTH is
a financial advisor only and relied upon, without independent
verification, the assessment of the Company and its legal, tax,
accounting and regulatory advisors with respect to legal, tax,
accounting and regulatory matters. ROTH expressed no opinion with
respect to the fairness of the amount or nature of the compensation
to any of the Company’s officers, directors or employees, or
any class of such persons, relative to the Merger Consideration to
be received by the holders of Company Common Stock in the Merger.
ROTH’s opinion did not address the fairness of any
consideration to be received by Mr. Minhua Chen, Ms. Yanling Fan or
their affiliates or the Principal Shareholders pursuant to the
Merger Agreement or to the holders of any other class of
securities, creditors or other constituencies of the Company.
ROTH’s opinion did not address the underlying business
decision of the Company to enter into the Merger or the relative
merits of the Merger as compared to any other alternative business
transaction, or other alternatives, or whether or not such
alternatives could be achieved or are available. ROTH did not make
any independent valuation or appraisal of the assets or liabilities
(fixed, contingent or otherwise) of the Company, nor was ROTH
furnished with any such valuations or appraisals, nor did ROTH
assume any obligation to conduct, nor did ROTH conduct, any
physical inspection of the properties, facilities or other assets
of the Company. ROTH did not evaluate the solvency of the Company
under any law of any jurisdiction relating to bankruptcy,
insolvency or similar matters. ROTH is not a legal expert, and for
purposes of its analysis, ROTH did not make any assessment of the
status of any outstanding litigation involving the Company and
excluded the effects of any such litigation in its analysis.
ROTH’s opinion was based on financial, economic, market and
other conditions as in effect on, and the information made
available
29
to it as of, the date of its opinion. Events occurring after the
date ROTH’s opinion may affect the opinion and the
assumptions used in preparing it, and ROTH did not assume any
obligation to update, revise or reaffirm its opinion.
ROTH’s opinion addressed only the fairness from a financial
point of view, as of the date thereof, of the US$3.32 cash per
share Merger Consideration to be received by the holders of the
Company’s common stock (other than the holders of Excluded
Shares) in the proposed merger. The issuance of ROTH’s
opinion was approved by a fairness opinion committee of ROTH.
Summary of Material Financial Analysis
The following is a summary of the material financial analyses
performed by ROTH and reviewed by the Special Committee in
connection with ROTH’s opinion relating to the Merger and
does not purport to be a complete description of the financial
analyses performed by ROTH. The rendering of an opinion is a
complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances.
Therefore, this summary does not purport to be a complete
description of the analyses performed by ROTH or of its
presentation to the Special Committee on March 8, 2016. The order
of analyses described below does not represent the relative
importance or weight given to those analyses by ROTH. Some of the
summaries of the financial analyses include information presented
in tabular format. In order to fully understand ROTH’s
financial analyses, the tables must be read together with the text
of each summary, as the tables alone do not constitute a complete
description of the financial analyses. Considering the data below
without considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of
ROTH’s financial analyses.
In performing its analyses,
ROTH made numerous assumptions with respect to industry
performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company or any
other parties to the Merger Agreement. ROTH does not assume any
responsibility if future results are materially different from
those discussed. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less
favorable than as set forth below.
Selected Publicly
Traded Comparable Companies.
In order to assess how the
public market values shares of publicly traded companies similar to
the Company, ROTH reviewed and compared certain financial
information relating to the Company with selected companies, which,
in the exercise of its professional judgment and based on its
knowledge of the industry, ROTH deemed relevant to the Company.
Although none of the selected companies is identical to the
Company, ROTH selected these companies because they had publicly
traded equity securities and were deemed to be similar to the
Company in one or more respects including the nature of their
business, size, financial performance, geographic concentration and
listing jurisdiction. The selected comparable companies were:
|
|
|
Parks! America
|
|
PRKA
|
Leofoo
|
|
TSEC:2705
|
IFA Hotel
|
|
DB:IFA
|
Tuniu
|
|
TOUR
|
Aeon Fantasy
|
|
TSE:4343
|
H.I.S.
|
|
TSE:9603
|
Cedar Fair
|
|
FUN
|
Six Flags
|
|
SIX
|
For the Company and each of the selected companies, ROTH calculated
and compared various financial multiples and ratios of the Company
and the selected comparable companies based on each respective
company’s public filings for historical information and
third-party research estimates for forecasted information.
In its review of the selected companies, ROTH considered, among
other things, (i) market capitalizations (computed using closing
stock prices as of March 7, 2016), (ii) enterprise values
(“EV”), (iii) EV as a multiple of reported revenue for
the latest twelve-month period (“LTM”) as of September
30, 2015, and estimated revenue for calendar years 2015, 2016 and
2017, (iv) price to LTM and estimated calendar year 2015, 2016 and
2017 earnings, (v) projected growth rates for calendar years 2015
to 2016 and 2016 to 2017, (vi) LTM gross margins, EBITDA margins
and net income margins, (vii) return on assets and (viii) EV as a
multiple of tangible book value. This information and the results
of these analyses are summarized in the following table:
30
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Parks!
America
|
|
PRKA
|
|
74.4
|
|
$
|
0.08
|
|
$
|
6.2
|
|
$
|
9.5
|
|
2.1x
|
|
NA
|
|
NA
|
|
NA
|
|
7.8x
|
|
NA
|
|
NA
|
|
NA
|
|
10.1x
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
|
NA
|
|
|
87.6
|
|
27.1
|
|
13.6
|
|
7.8
|
|
2.9x
|
Leofoo
|
|
TSEC:
2705
|
|
330.3
|
|
$
|
0.32
|
|
$
|
106.5
|
|
$
|
170.9
|
|
1.9x
|
|
NA
|
|
NA
|
|
NA
|
|
14.7x
|
|
NA
|
|
NA
|
|
NA
|
|
9.8x
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
|
NA
|
|
|
34.4
|
|
13.2
|
|
12.3
|
|
0.6
|
|
1.1x
|
IFA
Hotel
|
|
DB:
IFA
|
|
19.5
|
|
$
|
6.04
|
|
$
|
118.1
|
|
$
|
195.2
|
|
1.4x
|
|
NA
|
|
NA
|
|
NA
|
|
6.2x
|
|
NA
|
|
NA
|
|
NA
|
|
7.7x
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
|
NA
|
|
|
31.3
|
|
23.2
|
|
11.4
|
|
3.8
|
|
1.1x
|
Tuniu
|
|
TOUR
|
|
95.5
|
|
$
|
9.55
|
|
$
|
912.0
|
|
$
|
399.5
|
|
0.3x
|
|
0.3x
|
|
0.2x
|
|
0.1x
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
85.4
|
%
|
|
37.5
|
%
|
|
4.8
|
|
-18.9
|
|
-19.1
|
|
-18.5
|
|
1.1x
|
Aeon
Fantasy
|
|
TSE:
4343
|
|
19.7
|
|
$
|
18.32
|
|
$
|
360.5
|
|
$
|
408.2
|
|
0.9x
|
|
0.9x
|
|
0.7x
|
|
0.7x
|
|
7.9x
|
|
NA
|
|
NA
|
|
NA
|
|
60.8x
|
|
NA
|
|
NA
|
|
NA
|
|
25.9
|
%
|
|
7.5
|
%
|
|
10
|
|
11.7
|
|
1.3
|
|
3.2
|
|
2.2x
|
H.I.S.
|
|
TSE:
9603
|
|
69.0
|
|
$
|
27.30
|
|
$
|
1,884.7
|
|
$
|
1,393.7
|
|
0.3x
|
|
0.3x
|
|
0.3x
|
|
0.3x
|
|
6.4x
|
|
6.2x
|
|
5.0x
|
|
4.4x
|
|
22.6x
|
|
NA
|
|
NA
|
|
NA
|
|
9.4
|
%
|
|
12.7
|
%
|
|
20.4
|
|
5.0
|
|
1.9
|
|
4.0
|
|
1.9x
|
Cedar
Fair
|
|
FUN
|
|
55.8
|
|
$
|
57.71
|
|
$
|
3,220.9
|
|
$
|
4,683.1
|
|
3.8x
|
|
3.8x
|
|
3.6x
|
|
3.5x
|
|
10.6x
|
|
10.2x
|
|
9.8x
|
|
9.3x
|
|
28.7x
|
|
22.4x
|
|
16.9x
|
|
15.7x
|
|
3.9
|
%
|
|
3.9
|
%
|
|
49.6
|
|
35.8
|
|
9.1
|
|
9.8
|
|
NM
|
Six
Flags
|
|
SIX
|
|
95.6
|
|
$
|
52.21
|
|
$
|
4,991.2
|
|
$
|
6,398.5
|
|
5.1x
|
|
5.2x
|
|
4.8x
|
|
4.6x
|
|
13.8x
|
|
13.7x
|
|
12.3x
|
|
11.4x
|
|
32.3x
|
|
33.8x
|
|
29.0x
|
|
27.1x
|
|
6.9
|
%
|
|
4.8
|
%
|
|
55.2
|
|
36.6
|
|
12.2
|
|
9.2
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min
|
|
19.5
|
|
$
|
0.08
|
|
$
|
6.2
|
|
$
|
9.5
|
|
0.3x
|
|
0.3x
|
|
0.2x
|
|
0.1x
|
|
6.2x
|
|
6.2x
|
|
5.0x
|
|
4.4x
|
|
7.7x
|
|
22.4x
|
|
16.9x
|
|
15.7x
|
|
3.9
|
%
|
|
3.9
|
%
|
|
4.8
|
|
-18.9
|
|
-19.1
|
|
-18.5
|
|
1.1x
|
|
|
25th
PCTL
|
|
46.8
|
|
$
|
4.61
|
|
$
|
115.2
|
|
$
|
189.1
|
|
0.8x
|
|
0.3x
|
|
0.3x
|
|
0.3x
|
|
7.1x
|
|
8.2x
|
|
7.4x
|
|
6.9x
|
|
9.9x
|
|
25.2x
|
|
19.9x
|
|
18.5x
|
|
6.9
|
%
|
|
4.8
|
%
|
|
17.8
|
|
10.0
|
|
1.8
|
|
2.5
|
|
1.1x
|
|
|
Median
|
|
71.7
|
|
$
|
13.93
|
|
$
|
636.30
|
|
$
|
403.8
|
|
1.7x
|
|
0.9x
|
|
0.7x
|
|
0.7x
|
|
7.9x
|
|
10.2x
|
|
9.8x
|
|
9.3x
|
|
22.6x
|
|
28.1x
|
|
22.9x
|
|
21.4x
|
|
9.4
|
%
|
|
7.5
|
%
|
|
32.9
|
|
18.2
|
|
10.2
|
|
3.9
|
|
1.5x
|
|
|
75th
PCTL
|
|
95.5
|
|
$
|
33.53
|
|
$
|
2,218.7
|
|
$
|
2,216.1
|
|
2.5x
|
|
3.8x
|
|
3.6x
|
|
3.5x
|
|
12.2x
|
|
11.9x
|
|
11.0x
|
|
10.3x
|
|
30.5x
|
|
31.0x
|
|
26.0x
|
|
24.3x
|
|
25.9
|
%
|
|
12.7
|
%
|
|
51
|
|
29.3
|
|
12.3
|
|
8.1
|
|
2.1x
|
|
|
Max
|
|
330.3
|
|
$
|
57.71
|
|
$
|
4,991.2
|
|
$
|
6,398.5
|
|
5.1x
|
|
5.2x
|
|
4.8x
|
|
4.6x
|
|
14.7x
|
|
13.7x
|
|
12.3x
|
|
11.4x
|
|
60.8x
|
|
33.8x
|
|
29.0x
|
|
27.1x
|
|
85.4
|
%
|
|
37.5
|
%
|
|
87.6
|
|
36.6
|
|
13.6
|
|
9.8
|
|
2.9x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company
|
|
CNYD
|
|
3.9
|
|
$
|
3.32
|
|
$
|
13.0
|
|
$
|
137.4
|
|
9.3x
|
|
11.8x
|
|
13.2x
|
|
14.6x
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
NM
|
|
-10.0
|
%
|
|
-10.0
|
%
|
|
36.5
|
|
-15.0
|
|
-135.5
|
|
-3.2
|
|
3.1x
|
31
ROTH noted that, although the selected companies were used for
comparison purposes, no business of any selected company was either
identical or directly comparable to the Company’s business.
Accordingly, ROTH’s comparison of selected companies to the
Company and analyses of the results of such comparisons was not
purely mathematical, but instead necessarily involved complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that could affect
the relative values of the selected companies and the Company.
ROTH noted that the resulting multiples for the Company at the per
share Merger Consideration of US$3.32 was above the high end of the
various selected publicly traded comparable company multiples.
Selected Comparable
Transaction Analysis
. ROTH reviewed and compared the
purchase prices and financial multiples paid in selected other
transactions primarily in the leisure, tourism, hotel, amusement
park, resorts and cruise line space from January 1, 2010 to present
that had publicly available data and that ROTH, in the exercise of
its professional judgment, determined to be relevant. For each of
the selected transactions, ROTH calculated and compared the
resulting enterprise value in the transaction as a multiple of LTM
revenue and EBITDA. ROTH also calculated and compared the resulting
price as a multiple of LTM earnings and book value. Such multiples
for the selected transactions were based on publicly available
information at the time of the relevant transaction. The selected
transactions analyzed are set out in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/15
|
|
HNA Innovation
|
|
HNA Tourism Holding
|
|
$
|
115.4
|
|
NM
|
|
—
|
|
NM
|
|
3.6x
|
12/18/15
|
|
China Intl. Travel
|
|
Nanhua
|
|
$
|
416.6
|
|
2.1x
|
|
19.6x
|
|
31.2x
|
|
4.5x
|
12/9/15
|
|
Kuoni Travel
|
|
Thomas Cook
|
|
$
|
80.4
|
|
0.3x
|
|
17.6x
|
|
—
|
|
—
|
11/13/15
|
|
USJ
|
|
NBCUniversal
|
|
$
|
1,500.0
|
|
2.6x
|
|
—
|
|
—
|
|
—
|
9/24/15
|
|
Euro Disney
|
|
EDL Holding
|
|
$
|
107.2
|
|
1.4x
|
|
15.8x
|
|
—
|
|
1.7x
|
5/26/15
|
|
Shanghai Oriental Pearl
|
|
Shanghai Oriental Pearl Media
|
|
$
|
8,869.6
|
|
9.7x
|
|
39.1x
|
|
39.8x
|
|
5.1x
|
4/30/15
|
|
BHG S.A. - Brazil Hospitality
|
|
Latin America Hotels
|
|
$
|
489.4
|
|
4.7x
|
|
17.3x
|
|
—
|
|
1.1x
|
3/20/15
|
|
HANATOUR Service
|
|
STIC Investments
|
|
$
|
15.4
|
|
1.9x
|
|
15.7x
|
|
28.1x
|
|
5.2x
|
12/5/14
|
|
Hurtigruten
|
|
TDR Capital
|
|
$
|
856.0
|
|
1.5x
|
|
7.9x
|
|
17.2x
|
|
2.7x
|
6/24/14
|
|
Co-operative Travel
|
|
Mawasem Travel & Tourism
|
|
$
|
22.7
|
|
1.2x
|
|
—
|
|
—
|
|
—
|
3/31/14
|
|
China United Travel
|
|
Xiamen Dangdai
|
|
$
|
48.2
|
|
17.5x
|
|
—
|
|
NM
|
|
3.7x
|
3/24/14
|
|
Dawn Properties
|
|
Lengrah Investments
|
|
$
|
6.0
|
|
6.1x
|
|
20.7x
|
|
35.5x
|
|
0.4x
|
1/22/14
|
|
Port Aventura
|
|
KKR
|
|
$
|
271.3
|
|
2.2x
|
|
—
|
|
—
|
|
|
2/15/13
|
|
New Zealand Experience
|
|
Rangatira
|
|
$
|
14.1
|
|
1.5x
|
|
5.5x
|
|
9.2x
|
|
2.0x
|
12/10/12
|
|
Port Aventura Entertainment
|
|
InvestIndustrial
|
|
$
|
134.3
|
|
1.2x
|
|
3.7x
|
|
—
|
|
—
|
3/12/12
|
|
Hurtigruten
|
|
Periscopus
|
|
$
|
14.7
|
|
1.3x
|
|
11.9x
|
|
—
|
|
1.4x
|
1/18/12
|
|
Rusticas
|
|
Inversiones Mobiliarias
|
|
$
|
153.2
|
|
12.9x
|
|
NM
|
|
—
|
|
6.8x
|
1/17/12
|
|
Vinpearl One-member
|
|
Vingroup
|
|
$
|
940.5
|
|
19.9x
|
|
47.8x
|
|
49.3x
|
|
3.7x
|
11/30/11
|
|
Kumhoresort
|
|
Kumho Buslines
|
|
$
|
241.0
|
|
3.9x
|
|
30.5x
|
|
—
|
|
1.2x
|
7/28/11
|
|
Beijing Bayhood
|
|
China Jiuhao
|
|
$
|
63.8
|
|
2.8x
|
|
—
|
|
—
|
|
—
|
6/15/11
|
|
Hurtigruten
|
|
Home Capital
|
|
$
|
9.1
|
|
1.3x
|
|
9.0x
|
|
NM
|
|
1.4x
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/9/10
|
|
Hurtigruten
|
|
Periscopus
|
|
|
$
|
21.4
|
|
1.5x
|
|
10.9x
|
|
—
|
|
1.4x
|
1/26/10
|
|
Pierre
& Vacances
|
|
–
|
|
|
$
|
35.2
|
|
0.4x
|
|
6.3x
|
|
12.7x
|
|
1.0x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min
|
|
|
$
|
6.0
|
|
0.3x
|
|
3.7x
|
|
9.2x
|
|
0.4x
|
|
|
|
|
25
th
PCTL
|
|
|
$
|
22.0
|
|
1.3x
|
|
8.7x
|
|
16.1x
|
|
1.4x
|
|
|
|
|
Median
|
|
|
$
|
107.2
|
|
2.0x
|
|
15.7x
|
|
29.6x
|
|
2.0x
|
|
|
|
|
75
th
PCTL
|
|
|
$
|
343.9
|
|
4.5x
|
|
19.8x
|
|
36.6x
|
|
3.7x
|
|
|
|
|
Max
|
|
|
$
|
8,869.6
|
|
19.9x
|
|
47.8x
|
|
49.3x
|
|
6.8x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company
|
|
|
$
|
137.4
|
|
9.3x
|
|
NM
|
|
NM
|
|
0.1x
|
ROTH noted that, although the
selected transactions were used for comparison purposes, no
business of any selected company was either identical or directly
comparable to the Company’s business. Accordingly,
ROTH’s comparison of selected companies to the Company and
analyses of the results of such comparisons was not purely
mathematical, but instead necessarily involved complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that could affect
the relative values of the selected companies and the
Company.
ROTH noted that the EV to LTM revenue multiple for the Merger at
the per share Merger Consideration of US$3.32 was at the high end
of the EV to LTM revenue multiples for the comparable transactions.
ROTH also noted that the price to book value multiple for the
Merger at the per share Merger Consideration of US$3.32 was between
the minimum and twenty-fifth percentile of the price to book value
multiples for the comparable transactions.
Analyses of Implied
Premia
. ROTH reviewed and compared the offer price to
certain closing prices in selected other transactions primarily in
the amusement park space from January 1, 2010 to present that had
publicly available data and that ROTH, in the exercise of its
professional judgment, determined to be relevant. For each of the
transactions, ROTH calculated and compared the premium of the offer
price to (i) the closing price on the last trading day prior to the
announcement of the offer, (ii) the closing price of seven days
prior to the offer, and (iii) the closing price 30 days prior to
the offer. The selected transactions analyzed are set out in the
following table:
|
|
|
|
|
|
|
|
Target
Stock Premium 1- Day Prior
(%)
|
|
Target
Stock Premium 7-Days Prior
(%)
|
|
Target
Stock Premium 30-Days Prior (%)
|
12/24/15
|
|
E-World Co.
|
|
E-Land Fashion
|
|
|
$
|
29.4
|
|
0.0
|
|
1.9
|
|
-10.3
|
9/24/15
|
|
Euro Disney
|
|
EDL Holding
|
|
|
$
|
107.2
|
|
-63.9
|
|
-64.3
|
|
-65.0
|
2/15/13
|
|
New Zealand Experience
|
|
Rangatira
|
|
|
$
|
14.1
|
|
-12.2
|
|
-10.0
|
|
-10.0
|
5/21/09
|
|
USJ Co
|
|
Owl Creek Asset Management
|
|
|
$
|
1,749.1
|
|
22.9
|
|
30.9
|
|
37.6
|
6/26/07
|
|
Puuharyhma Oyj
|
|
Aspro Parks
|
|
|
$
|
49.5
|
|
45.9
|
|
41.6
|
|
41.7
|
12/31/05
|
|
Six Flags
|
|
Red Zone
|
|
|
$
|
140.4
|
|
0.2
|
|
19.7
|
|
23.8
|
12/18/03
|
|
Parques Reunidos S.A.
|
|
Advent
|
|
|
$
|
263.8
|
|
11.6
|
|
12.0
|
|
32.0
|
8/31/02
|
|
Grévin & Cie SA
|
|
Compagnie des Alpes
|
|
|
$
|
208.4
|
|
34.5
|
|
34.8
|
|
34.0
|
7/19/02
|
|
Danoptra Limited
|
|
Motion Equity Partners
|
|
|
$
|
166.6
|
|
17.2
|
|
17.2
|
|
15.3
|
6/27/00
|
|
Queensborough
|
|
Cloudburst
Holdings
|
|
|
$
|
14.1
|
|
-46.0
|
|
-46.0
|
|
-46.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min
|
|
|
$
|
14.1
|
|
-63.9
|
|
-64.3
|
|
-65.0
|
|
|
|
|
25
th
PCTL
|
|
|
$
|
34.4
|
|
-9.2
|
|
-7.0
|
|
-10.3
|
|
|
|
|
Median
|
|
|
$
|
123.8
|
|
5.9
|
|
14.6
|
|
19.5
|
|
|
|
|
75
th
PCTL
|
|
|
$
|
197.9
|
|
21.4
|
|
28.1
|
|
33.5
|
|
|
|
|
Max
|
|
|
$
|
1,749.1
|
|
45.9
|
|
41.6
|
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company
|
|
|
$
|
136.8
|
|
9.9
|
|
11.2
|
|
3.4
|
33
ROTH compared the per share Merger Consideration of US$3.32 to
closing price of the Company’s on the day prior to the
announcement of the Proposal Letter, to the closing price of the
Company’s shares seven days prior to the public announcement
of the offer, and to the closing price of the Company’s
shares 30 days prior to the public announcement of the offer. ROTH
noted that the implied premiums at the per share Merger
Consideration of US$3.32 was above the median premium for
comparable transaction premises for the day prior to an offer and
between the twenty-fifth percentile and the median for comparable
transaction premia for the seven days and 30 days prior to an
offer.
Illustrative Analysis
with Other U.S.-Listed Chinese Going Private
Transactions
. ROTH reviewed the EV to LTM revenue
multiples, the EV to LTM EBITDA multiples and the premia paid or
offered in transactions involving U.S.-listed Chinese companies
that have either completed a going private transaction or that are
or were subject to a going private offer. ROTH believes that both
the general market for U.S.-listed Chinese companies as well as the
specific market for privatizations of U.S.-listed Chinese companies
are unique, and that the EV to LTM revenue and EBITDA multiples as
well as the premia paid or offered in such transactions is a
meaningful comparison for the Company’s potential
privatization (along with the other analyses performed by ROTH
described in this proxy statement). The selected transactions
analyzed are set out in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
Ming Yang Wind Power Group
|
|
11/1/15
|
|
Announced
|
|
$
|
364.2
|
|
0.3x
|
|
5.2x
|
|
13.1
|
%
|
|
20.2
|
%
|
SORL
Auto Parts
|
|
10/31/15
|
|
Announced
|
|
$
|
22.6
|
|
NM
|
|
0.5x
|
|
21.9
|
%
|
|
38.3
|
%
|
Youku
Tudou
|
|
10/16/15
|
|
Announced
|
|
$
|
4,317.0
|
|
5.3x
|
|
NM
|
|
30.2
|
%
|
|
44.2
|
%
|
iKang
Healthcare Group
|
|
8/31/15
|
|
Announced
|
|
$
|
1,221.0
|
|
3.9x
|
|
17.0x
|
|
10.8
|
%
|
|
9.6
|
%
|
Country
Style Cooking Restaurant Chain
|
|
8/14/15
|
|
Announced
|
|
$
|
44.0
|
|
0.2x
|
|
2.6x
|
|
18.9
|
%
|
|
13.0
|
%
|
eLong
Inc
|
|
8/3/15
|
|
Announced
|
|
$
|
476.0
|
|
3.0x
|
|
NM
|
|
24.1
|
%
|
|
26.7
|
%
|
Global-Tech
Advanced Innovations
|
|
8/1/15
|
|
Announced
|
|
$
|
2.6
|
|
NM
|
|
NM
|
|
191.7
|
%
|
|
169.3
|
%
|
Mecox
Lane
|
|
7/21/15
|
|
Announced
|
|
$
|
31.0
|
|
0.6x
|
|
9.2x
|
|
17.7
|
%
|
|
22.1
|
%
|
E-Commerce
China Dangdang
|
|
7/9/15
|
|
Announced
|
|
$
|
357.0
|
|
0.3x
|
|
NM
|
|
20.0
|
%
|
|
-17.0
|
%
|
YY
|
|
7/9/15
|
|
Announced
|
|
$
|
3,595.0
|
|
4.8x
|
|
17.2x
|
|
17.4
|
%
|
|
-3.3
|
%
|
China
Neqstar Chain Drugstore
|
|
7/6/15
|
|
Announced
|
|
$
|
78.0
|
|
0.2x
|
|
5.9x
|
|
18.2
|
%
|
|
-1.7
|
%
|
Kongzhong
|
|
6/29/15
|
|
Announced
|
|
$
|
281.0
|
|
1.2x
|
|
7.3x
|
|
21.8
|
%
|
|
15.7
|
%
|
Momo
|
|
6/23/15
|
|
Announced
|
|
$
|
3,118.0
|
|
47.5x
|
|
NM
|
|
20.5
|
%
|
|
11.6
|
%
|
Vimicro
Interntional Corp
|
|
6/21/15
|
|
Announced
|
|
$
|
403.0
|
|
3.9x
|
|
41.1x
|
|
9.5
|
%
|
|
0.6
|
%
|
China
Information Technology
|
|
6/19/15
|
|
Announced
|
|
$
|
220.0
|
|
3.6x
|
|
NM
|
|
31.9
|
%
|
|
12.5
|
%
|
Airmedia
Group
|
|
6/19/15
|
|
Announced
|
|
$
|
326.0
|
|
1.3x
|
|
NM
|
|
70.4
|
%
|
|
-4.7
|
%
|
iDreamSky
Technology Limited
|
|
6/13/15
|
|
Announced
|
|
$
|
481.0
|
|
2.5x
|
|
NM
|
|
-3.8
|
%
|
|
34.1
|
%
|
Bona
Film
|
|
6/12/15
|
|
Announced
|
|
$
|
1,047.0
|
|
3.3x
|
|
41.1x
|
|
6.5
|
%
|
|
17.8
|
%
|
Homeinns
Hotel
|
|
6/11/15
|
|
Announced
|
|
$
|
1,624.0
|
|
1.6x
|
|
7.4x
|
|
8.8
|
%
|
|
19.5
|
%
|
21
Vianet Group
|
|
6/10/15
|
|
Announced
|
|
$
|
2,410.0
|
|
4.8x
|
|
32.6x
|
|
15.5
|
%
|
|
18.0
|
%
|
Renren
|
|
6/10/15
|
|
Announced
|
|
$
|
1,022.0
|
|
13.9x
|
|
NM
|
|
2.2
|
%
|
|
14.9
|
%
|
E-House
(China) Holdings
|
|
6/9/15
|
|
Announced
|
|
$
|
901.0
|
|
1.0x
|
|
15.7x
|
|
10.0
|
%
|
|
19.4
|
%
|
JA
Solar
|
|
6/5/15
|
|
Announced
|
|
$
|
891.0
|
|
0.5x
|
|
4.1x
|
|
19.9
|
%
|
|
4.8
|
%
|
Mindray
Medical
|
|
6/4/15
|
|
Announced
|
|
$
|
1,958.0
|
|
1.5x
|
|
8.5x
|
|
-1.7
|
%
|
|
-5.1
|
%
|
Taomee
Holdings
|
|
5/30/15
|
|
Announced
|
|
$
|
55.0
|
|
1.4x
|
|
NM
|
|
20.0
|
%
|
|
12.9
|
%
|
China
Mobile Games and Entertainment Group
|
|
5/18/15
|
|
Closed
|
|
$
|
650.0
|
|
2.7x
|
|
12.7x
|
|
7.9
|
%
|
|
6.9
|
%
|
WuXi
PharmaTech
|
|
4/29/15
|
|
Closed
|
|
$
|
3,087.0
|
|
4.4x
|
|
21.5x
|
|
16.5
|
%
|
|
17.2
|
%
|
China
Cord Blood
|
|
4/27/15
|
|
Announced
|
|
$
|
216.0
|
|
2.1x
|
|
4.7x
|
|
-11.4
|
%
|
|
8.5
|
%
|
Xueda
Education Group
|
|
4/20/15
|
|
Announced
|
|
$
|
135.0
|
|
NM
|
|
NM
|
|
95.0
|
%
|
|
86.3
|
%
|
Sungy
Mobile
|
|
4/13/15
|
|
Closed
|
|
$
|
56.0
|
|
0.9x
|
|
NM
|
|
8.9
|
%
|
|
17.8
|
%
|
Jiayuan.com
International
|
|
3/3/15
|
|
Announced
|
|
$
|
67.0
|
|
0.6x
|
|
19.2x
|
|
3.4
|
%
|
|
-0.7
|
%
|
Perfect
World
|
|
12/31/14
|
|
Closed
|
|
$
|
662.0
|
|
1.1x
|
|
5.9x
|
|
28.2
|
%
|
|
28.0
|
%
|
Montage
Technology Group
|
|
3/10/14
|
|
Closed
|
|
$
|
504.0
|
|
4.0x
|
|
NM
|
|
31.7
|
%
|
|
38.4
|
%
|
Chindex
International
|
|
2/17/14
|
|
Closed
|
|
$
|
450.0
|
|
2.5x
|
|
37.2x
|
|
39.9
|
%
|
|
44.9
|
%
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AutoNavi
|
|
2/10/14
|
|
Closed
|
|
$
|
1,168.0
|
|
|
8.2x
|
|
NM
|
|
27.0
|
%
|
|
36.8
|
%
|
Shanda
Games
|
|
1/27/14
|
|
Closed
|
|
$
|
1,872.0
|
|
|
3.1x
|
|
8.2x
|
|
25.7
|
%
|
|
50.0
|
%
|
Noah
Education
|
|
12/24/13
|
|
Closed
|
|
$
|
22.0
|
|
|
0.6x
|
|
2.8x
|
|
26.7
|
%
|
|
24.3
|
%
|
Trunkbow
International
|
|
12/10/13
|
|
Closed
|
|
$
|
58.0
|
|
|
2.2x
|
|
5.5x
|
|
22.7
|
%
|
|
25.5
|
%
|
Giant
Interactive
|
|
11/25/13
|
|
Closed
|
|
$
|
2,368.0
|
|
|
6.2x
|
|
9.5x
|
|
18.5
|
%
|
|
32.6
|
%
|
Asia
Green Agriculture
|
|
11/18/13
|
|
Closed
|
|
$
|
33.0
|
|
|
0.3x
|
|
0.8x
|
|
10.0
|
%
|
|
22.9
|
%
|
RDA
Microelectronics
|
|
10/25/13
|
|
Closed
|
|
$
|
811.0
|
|
|
2.0x
|
|
12.9x
|
|
19.0
|
%
|
|
23.0
|
%
|
Charm
Communications
|
|
9/30/13
|
|
Closed
|
|
$
|
110.0
|
|
|
0.7x
|
|
NM
|
|
17.2
|
%
|
|
15.0
|
%
|
Exceed
Company
|
|
8/17/13
|
|
Cancelled
|
|
$
|
(25.0
|
)
|
|
NM
|
|
NM
|
|
19.5
|
%
|
|
41.7
|
%
|
Spreadtrum
Communications
|
|
6/20/13
|
|
Closed
|
|
$
|
1,485.0
|
|
|
1.7x
|
|
10.6x
|
|
39.1
|
%
|
|
56.0
|
%
|
ChinaEdu
Corporation
|
|
6/20/13
|
|
Closed
|
|
$
|
95.0
|
|
|
1.2x
|
|
4.5x
|
|
19.9
|
%
|
|
18.5
|
%
|
iSoftStone
Holdings
|
|
6/6/13
|
|
Closed
|
|
$
|
442.0
|
|
|
0.9x
|
|
14.9x
|
|
17.6
|
%
|
|
26.6
|
%
|
Le
Gaga Holdings
|
|
5/21/13
|
|
Closed
|
|
$
|
165.0
|
|
|
1.8x
|
|
3.7x
|
|
21.6
|
%
|
|
NA
|
|
Pactera
Technology International
|
|
5/20/13
|
|
Closed
|
|
$
|
452.0
|
|
|
0.7x
|
|
8.7x
|
|
38.8
|
%
|
|
39.7
|
%
|
UT
Starcom
|
|
3/27/13
|
|
Cancelled
|
|
$
|
100.4
|
|
|
0.5x
|
|
NM
|
|
35.6
|
%
|
|
22.6
|
%
|
Ambow
Education Holding
|
|
3/18/13
|
|
Cancelled
|
|
$
|
103.6
|
|
|
0.5x
|
|
3.3x
|
|
-5.8
|
%
|
|
0.7
|
%
|
Camelot
Information Systems
|
|
3/12/13
|
|
Closed
|
|
$
|
36.0
|
|
|
0.1x
|
|
NM
|
|
36.7
|
%
|
|
41.3
|
%
|
Simcere
Pharmaceutical
|
|
3/11/13
|
|
Closed
|
|
$
|
519.0
|
|
|
1.5x
|
|
16.7x
|
|
21.4
|
%
|
|
21.9
|
%
|
New
Energy Systems Group
|
|
3/4/13
|
|
Cancelled
|
|
$
|
16.4
|
|
|
0.3x
|
|
NA
|
|
251.4
|
%
|
|
217.1
|
%
|
China
Shenghuo Pharma
|
|
2/15/13
|
|
Effective
|
|
$
|
0.7
|
|
|
0.4x
|
|
NA
|
|
NA
|
|
|
NA
|
|
MEMSIC
|
|
11/10/12
|
|
Closed
|
|
$
|
69.0
|
|
|
1.3x
|
|
NM
|
|
153.0
|
%
|
|
130.6
|
%
|
China
Shengda Packaging Group
|
|
10/15/12
|
|
Cancelled
|
|
$
|
25.0
|
|
|
0.4x
|
|
4.2x
|
|
53.8
|
%
|
|
40.3
|
%
|
American
Lorain Corp
|
|
10/15/12
|
|
Cancelled
|
|
$
|
107.0
|
|
|
0.5x
|
|
3.6x
|
|
39.1
|
%
|
|
26.4
|
%
|
Yongye
International
|
|
10/15/12
|
|
Closed
|
|
$
|
357.0
|
|
|
0.5x
|
|
1.4x
|
|
48.2
|
%
|
|
53.7
|
%
|
Ninetown
Internet Technology Group
|
|
10/12/13
|
|
Closed
|
|
$
|
5.0
|
|
|
0.3x
|
|
NM
|
|
66.7
|
%
|
|
54.9
|
%
|
Feihe
International
|
|
10/3/12
|
|
Closed
|
|
$
|
275.0
|
|
|
1.0x
|
|
10.6x
|
|
21.3
|
%
|
|
25.9
|
%
|
China
Kanghui
|
|
9/27/12
|
|
Closed
|
|
$
|
745.0
|
|
|
13.0x
|
|
28.2x
|
|
25.5
|
%
|
|
23.5
|
%
|
7
Days Group Holdings
|
|
9/26/12
|
|
Closed
|
|
$
|
666.0
|
|
|
1.6x
|
|
7.2x
|
|
30.6
|
%
|
|
44.3
|
%
|
3SBio
|
|
9/12/12
|
|
Closed
|
|
$
|
119.0
|
|
|
1.2x
|
|
4.5x
|
|
44.1
|
%
|
|
NA
|
|
Syswin
|
|
9/7/12
|
|
Closed
|
|
$
|
27.0
|
|
|
0.4x
|
|
NM
|
|
28.1
|
%
|
|
44.4
|
%
|
LJ
International
|
|
8/13/12
|
|
Closed
|
|
$
|
148.0
|
|
|
0.8x
|
|
9.3x
|
|
24.2
|
%
|
|
23.5
|
%
|
Focus
Media Hodlings
|
|
8/12/12
|
|
Closed
|
|
$
|
2,884.0
|
|
|
3.4x
|
|
9.1x
|
|
17.6
|
%
|
|
40.1
|
%
|
VanceInfo
Technologies
|
|
8/10/12
|
|
Closed
|
|
$
|
428.0
|
|
|
1.3x
|
|
15.8x
|
|
19.5
|
%
|
|
16.0
|
%
|
ShangPharma
|
|
7/6/12
|
|
Closed
|
|
$
|
142.0
|
|
|
1.2x
|
|
8.2x
|
|
30.8
|
%
|
|
40.6
|
%
|
Yucheng
Technologies
|
|
5/21/12
|
|
Closed
|
|
$
|
79.0
|
|
|
0.9x
|
|
7.9x
|
|
26.4
|
%
|
|
27.3
|
%
|
China
Nuokang
|
|
5/9/12
|
|
Closed
|
|
$
|
83.0
|
|
|
1.9x
|
|
9.8x
|
|
56.8
|
%
|
|
57.3
|
%
|
China
Mass Media Corp.
|
|
5/4/12
|
|
Closed
|
|
$
|
3.5
|
|
|
0.1x
|
|
0.9x
|
|
100.0
|
%
|
|
139.1
|
%
|
Sino
Gas International Holdings
|
|
4/28/12
|
|
Closed
|
|
$
|
124.0
|
|
|
1.8x
|
|
8.7x
|
|
306.3
|
%
|
|
312.3
|
%
|
Shengtai
Pharmaceutical
|
|
4/17/12
|
|
Under
Review
|
|
$
|
87.4
|
|
|
0.5x
|
|
5.6x
|
|
50.0
|
%
|
|
71.4
|
%
|
Winner
Medical Group
|
|
4/1/12
|
|
Closed
|
|
$
|
99.0
|
|
|
0.6x
|
|
5.1x
|
|
33.7
|
%
|
|
35.7
|
%
|
Zhongpin
|
|
4/1/12
|
|
Closed
|
|
$
|
694.0
|
|
|
0.5x
|
|
6.5x
|
|
46.6
|
%
|
|
36.4
|
%
|
Gushan
Environmental Energy
|
|
2/24/12
|
|
Closed
|
|
$
|
35.0
|
|
|
0.2x
|
|
3.8x
|
|
34.1
|
%
|
|
27.9
|
%
|
China
TransInfo Technology
|
|
2/19/12
|
|
Closed
|
|
$
|
152.0
|
|
|
1.0x
|
|
8.2x
|
|
12.6
|
%
|
|
25.6
|
%
|
AsiaInfo-Linkage
|
|
1/20/13
|
|
Closed
|
|
$
|
574.0
|
|
|
1.2x
|
|
5.4x
|
|
21.0
|
%
|
|
50.3
|
%
|
Pansoft
Company Limited
|
|
1/7/12
|
|
Closed
|
|
$
|
15.0
|
|
|
0.7x
|
|
8.1x
|
|
106.5
|
%
|
|
85.6
|
%
|
Jingwei
International
|
|
1/6/12
|
|
Closed
|
|
$
|
26.5
|
|
|
0.7x
|
|
6.0x
|
|
64.2
|
%
|
|
67.1
|
%
|
WSP
Holdings Limited
|
|
12/13/11
|
|
Cancelled
|
|
$
|
6.0
|
|
|
NM
|
|
NM
|
|
50.0
|
%
|
|
39.6
|
%
|
Andatee
China Marine Fuel Services
|
|
11/23/11
|
|
Cancelled
|
|
$
|
16.6
|
|
|
0.3x
|
|
4.4x
|
|
20.6
|
%
|
|
36.8
|
%
|
Global
Education & Technology Group
|
|
11/19/11
|
|
Closed
|
|
$
|
174.0
|
|
|
3.1x
|
|
22.1x
|
|
105.0
|
%
|
|
213.1
|
%
|
China
GrenTech Corp
|
|
11/12/11
|
|
Closed
|
|
$
|
218.0
|
|
|
0.8x
|
|
7.3x
|
|
23.0
|
%
|
|
35.6
|
%
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanda
Interactive Entertainment
|
|
10/15/11
|
|
Closed
|
|
|
$
|
1,559.0
|
|
|
1.5x
|
|
7.8x
|
|
23.5
|
%
|
|
25.0
|
%
|
SOKO
Fitness & Spa Group
|
|
7/25/11
|
|
Closed
|
|
|
$
|
87.0
|
|
|
2.3x
|
|
5.8x
|
|
21.6
|
%
|
|
NA
|
|
Tiens
Biotech Group
|
|
6/27/11
|
|
Closed
|
|
|
$
|
150.0
|
|
|
3.5x
|
|
15.9x
|
|
67.0
|
%
|
|
39.9
|
%
|
Funtalk
China Holdings
|
|
3/25/11
|
|
Closed
|
|
|
$
|
631.0
|
|
|
0.6x
|
|
7.3x
|
|
17.1
|
%
|
|
31.7
|
%
|
China
Fire & Security Group
|
|
3/7/11
|
|
Closed
|
|
|
$
|
233.8
|
|
|
2.9x
|
|
14.4x
|
|
43.8
|
%
|
|
52.2
|
%
|
China
Security & Surveillance Technology
|
|
1/28/11
|
|
Closed
|
|
|
$
|
754.0
|
|
|
1.1x
|
|
6.5x
|
|
33.2
|
%
|
|
29.9
|
%
|
Chemspec
International
|
|
11/11/10
|
|
Closed
|
|
|
$
|
289.0
|
|
|
1.9x
|
|
5.8x
|
|
28.2
|
%
|
|
23.6
|
%
|
Fushi
Copperweld
|
|
11/3/10
|
|
Closed
|
|
|
$
|
205.0
|
|
|
0.7x
|
|
3.0x
|
|
4.4
|
%
|
|
-0.8
|
%
|
Harbin
Electric
|
|
10/10/10
|
|
Closed
|
|
|
$
|
762.0
|
|
|
1.8x
|
|
6.7x
|
|
20.2
|
%
|
|
36.3
|
%
|
Tongjitang
Chinese Medicines
|
|
4/8/10
|
|
Closed
|
|
|
$
|
103.0
|
|
|
1.4x
|
|
NM
|
|
19.0
|
%
|
|
21.0
|
%
|
Sinoenergy
|
|
4/9/09
|
|
Closed
|
|
|
$
|
69.8
|
|
|
2.0x
|
|
NA
|
|
48.4
|
%
|
|
78.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min
|
|
|
$
|
(25.0
|
)
|
|
0.1x
|
|
0.5x
|
|
-11.4
|
%
|
|
-17.0
|
%
|
|
|
|
|
25
th
PCTL
|
|
|
$
|
69.4
|
|
|
0.6x
|
|
5.1x
|
|
17.6
|
%
|
|
17.8
|
%
|
|
|
|
|
Median
|
|
|
$
|
216.0
|
|
|
1.2x
|
|
7.4x
|
|
22.9
|
%
|
|
26.7
|
%
|
|
|
|
|
75
th
PCTL
|
|
|
$
|
664.0
|
|
|
2.4x
|
|
12.7x
|
|
39.0
|
%
|
|
41.5
|
%
|
|
|
|
|
Max
|
|
|
$
|
4,317.0
|
|
|
47.5x
|
|
41.1x
|
|
306.3
|
%
|
|
312.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company
|
|
10/27/15
|
|
Announced
|
|
|
$
|
137.4
|
|
|
9.3x
|
|
NM
|
|
9.9
|
%
|
|
4.8
|
%
|
For each transaction, ROTH calculated the enterprise value based on
the offer price and compared that to the LTM revenue and EBITDA for
the target company. ROTH also calculated the premium per share paid
or offered by the buying group by comparing the announced
transaction value per share to the target company’s closing
stock price one day prior to the announcement of the transaction
and to the target company’s one day prior to the offer and
the 30-day volume weighted average price prior to the announcement
of the transaction.
ROTH noted that the EV to LTM revenue multiple for the Merger at
the per share Merger Consideration of US$3.32 was between the
seventy-fifth percentile and the maximum for other U.S.-listed
Chinese going private transactions. ROTH noted that the implied
premiums at the per share Merger Consideration of US$3.32 was
between the minimum and twenty-fifth percentile for other
U.S.-listed Chinese going private transaction premia for the day
prior to an offer and for 30-day volume weighted average price
prior to an offer.
General
The summary set forth above does not contain a complete description
of the analyses performed by ROTH, but does summarize the material
analyses performed by ROTH in rendering its opinion. The
preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
ROTH believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of its
analyses or of the summary, without considering the analyses as a
whole or all of the factors included in its analyses, would create
an incomplete view of the processes underlying the analyses set
forth in the ROTH opinion. In arriving at its opinion, ROTH
considered the results of all of its analyses and did not attribute
any particular weight to any factor or analysis. Instead, ROTH made
its determination as to fairness on the basis of its experience and
financial judgment after considering the results of all of its
analyses. The fact that any specific analysis has been referred to
in the summary above is not meant to indicate that this analysis
was given greater weight than any other analysis. In addition, the
ranges of valuations resulting from any particular analysis
described above should not be taken to be ROTH’s view of the
actual value of the Company.
As described above, ROTH’s opinion was only one of many
factors considered by the Special Committee and the board of
directors in making its determination to approve the Merger. ROTH
was not requested to, and did not solicit any expressions of
interest from any other parties with respect to any business
combination with the Company.
36
ROTH is a full service securities firm engaged in securities
trading and brokerage activities, as well as providing investment
banking and other financial services. The Special Committee
selected ROTH to act as its financial advisor in connection with
the transactions contemplated by the Merger Agreement on the basis
of such experience and its familiarity with the market. ROTH has
had no relationship with the Company, Acquisition or the Principal
Shareholders in the past two years, except that in the ordinary
course of business ROTH and its affiliates may acquire, hold or
sell, for it and its affiliates’ own accounts and for the
accounts of customers, equity, debt and other securities and
financial instruments (including bank loans and other obligations)
of the Company and the other parties to the Merger, and,
accordingly, may at any time hold a long or a short position in
such securities. ROTH and its affiliates may in the future provide
investment banking and other financial services to the Company and
Acquisition and their respective affiliates for which ROTH would
expect to receive compensation.
ROTH is acting as financial advisor to the Special Committee of the
board of directors of the Company in connection with the Merger.
Pursuant to its engagement letter with ROTH, the Company has agreed
to pay ROTH (a) a $50,000 non-refundable retainer upon the
execution of the engagement agreement, (b) a $200,000 fee upon the
delivery of a fairness opinion, which fee is not contingent upon
the closing of the Merger, and (c) a $300,000 advisory fee upon the
closing of the Merger, provided that any fee paid in connection
with a fairness opinion is creditable against the advisory fee.
These fees were determined by ROTH and proposed to the Special
Committee. In addition, the Company has agreed to indemnify ROTH
for certain liabilities that may arise out of its engagement by the
Special Committee and the rendering of ROTH’s opinion.
Reasons of the Buyer
Group for the Merger
Under SEC rules governing “going private” transactions,
each member of the Buyer Group is deemed to be an affiliate of the
Company and is required to express its reasons for the Merger to
the Company’s Unaffiliated Shareholders. 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 the Buyer Group to
acquire control of the Company in a transaction in which the
Unaffiliated Shareholders will receive US$3.32 per share of Company
Common Stock. If the Merger is consummated, shares of the
Company’s common stock will cease to be publicly traded, and
the Buyer Group will bear 100% of the risks and rewards of
ownership of the Company.
The Buyer Group believes that, as a privately held entity, the
Company’s management will have greater flexibility to focus
on improving the Company’s long-term profitability without
the constraints caused by the public equity market’s
valuation of the Company and emphasis on short-term
period-to-period performance. As a privately held entity, the
Company will have greater flexibility to make decisions that might
negatively affect short-term results, but that could increase the
Company’s value over the long term. In contrast, as a
publicly traded entity, the Company faces pressure from public
shareholders and investment analysts to make decisions that might
produce improved short-term results, but which are not necessarily
beneficial to the Company in the long term.
As a privately held entity, the Company will also be relieved of
many of the other expenses, burdens and constraints imposed on
companies that are subject to the public reporting requirements
under the federal securities laws of the United States, including
the Exchange Act and the Sarbanes-Oxley Act of 2002. The need for
the management of the Company to be responsive to Unaffiliated
Shareholders’ concerns and to engage in dialogue with
Unaffiliated Shareholders can also at times distract
management’s time and attention from the effective operation
and improvement of the business. Please see “
The
Merger — Recommendation of Our Board of Directors and the
Special Committee on Behalf of the Company and Their Reasons for
the Merger
” beginning on page 21 for additional
information.
The Buyer Group did not consider any other form of transaction
because the Buyer Group believed the Merger was the most direct and
effective way to enable the Buyer Group to acquire 100% ownership
and control of the Company.
Position of the Buyer
Group as to the Fairness of the Merger
Under SEC rules governing “going private” transactions,
each member of the Buyer Group is deemed to be an affiliate of the
Company and is required to express its beliefs as to the fairness
of the Merger to the Company’s Unaffiliated Shareholders. The
Buyer Group is making the statements included in this section
solely for the purposes of complying with the requirements of Rule
13e-3 and related rules under the Exchange Act. The views of the
Buyer
37
Group as to the fairness of the Merger are not intended and should
not be construed as a recommendation to any shareholder of the
Company as to how to vote on the proposal to approve the Merger
Agreement. The Buyer Group has interests in the Merger that are
different from those of the Unaffiliated Shareholders of the
Company by virtue of their continuing interests in the surviving
corporation after the consummation of the Merger. These interests
are described under “
The Merger —
Interests of Certain Persons in the Merger
” beginning
on page 44.
The Buyer Group believes that the interests of the Company’s
Unaffiliated Shareholders were represented by the Special
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 it, and not to the
Company’s Unaffiliated Shareholders and, accordingly, did not
negotiate the Merger Agreement with a goal of obtaining terms that
were substantively and procedurally fair to such Unaffiliated
Shareholders. The Buyer Group did not participate in the
deliberations of the Special Committee regarding, and did not
receive any advice from the Special Committee’s independent
legal or financial advisors as to, the fairness of the Merger to
the Company’s Unaffiliated Shareholders. The Buyer Group did
not perform, or engage a financial advisor to perform, any
independent valuation or other analysis for the Buyer Group to
assist it in assessing the substantive and procedural fairness of
the Merger to the Company’s Unaffiliated Shareholders.
Based on their knowledge and analyses of available information
regarding the Company, as well as discussions with the
Company’s management regarding the Company and its business
and the factors considered by, and findings of, the Special
Committee and the Company’s board of directors discussed in
“
The Merger —
Recommendation of Our Board of Directors and the Special Committee
on Behalf of the Company and Their Reasons for the
Merger
”
beginning on page 21
(which considerations and findings are adopted by the Buyer Group
solely for the purposes of making the statements in this section),
the Buyer Group believes the Merger is substantively fair to the
Company’s Unaffiliated Shareholders based upon the following
factors:
•
the current and historical market prices of the Company Common
Stock, including the fact that the Merger Consideration of US$3.32
per share represents a 9.9% premium over the closing price of
US$3.02 per share on the NASDAQ Capital Market on October 23, 2015
(the last trading day prior to the date of the Proposal Letter),
and a 3.3% premium over the 90-trading day volume weighted average
price on the NASDAQ Capital Market through October 26, 2015, the
last trading day before the Company’s announcement on October
27, 2015 of the Company’s receipt of the Buyer Group’s
going private proposal;
•
the all-cash Merger Consideration, which will afford the
Unaffiliated Shareholders an opportunity to immediately realize a
fixed amount of cash for their investment without incurring
brokerage and other costs typically associated with market
sales;
•
the Special Committee and, based in part upon the unanimous
recommendation of the Special Committee, the Company’s board
of directors determined by the unanimous approval of those present
at the meeting that the Merger is in the best interests of the
Company’s Unaffiliated Shareholders and declared it advisable
to enter into the Merger Agreement, adopted resolutions approving
the Company’s execution, delivery and performance of the
Merger Agreement and the consummation of the transactions
contemplated thereby, including the Merger, and resolved to
recommend that the shareholders approve the Merger Agreement;
•
Mr. Chen and Ms. Fan have each executed the Voting Agreement,
pursuant to which they have each committed to provide their equity
interests in the Company to Acquisition in exchange for equity
interests in Acquisition, in accordance with the terms and
conditions of the respective commitment letters;
•
Mr. Chen and Ms. Fan have each agreed to guarantee the obligations
of Acquisition under the Merger Agreement to pay, under certain
circumstances, a reverse termination fee to the Company and
reimburse certain expenses of the Company;
•
the Merger will provide liquidity for the Company’s
Unaffiliated Shareholders without incurring brokerage and other
costs typically associated with market sales; and
38
•
the Unaffiliated Shareholders of the Company are entitled to
exercise dissenters’ rights and demand fair value for their
shares of Company Common Stock as determined by a Nevada state
district court, which may be determined to be more or less than the
Merger Consideration.
The Buyer Group did not consider the Company’s net book
value, which is defined as total assets minus total liabilities, as
a factor. The Buyer Group believes that net book value, as an
accounting concept based on historical costs, is not a material
indicator of the value of the Company as a going concern because it
does not take into account quality of earnings, cash generation
capability, the future prospects of the Company, market conditions,
trends in the industry in which the Company conducts its business
or the business risks inherent in competing with other companies in
the same industry. Therefore, the Buyer Group does not believe that
net book value reflects, or has any meaningful impact on, the
market price of Company Common Stock or the fair market value of
its assets or business, especially considering the Company’s
high level of seasonal volatility in regard to its income and
unstable cash flow.
The Buyer Group did not consider the Company’s liquidation
value to be a relevant valuation method because it considers the
Company to be a viable going concern and because the Company will
continue to operate its business following the Merger.
The Buyer Group did not establish, and did not consider, a going
concern value for the Company Common Stock as a public company to
determine the fairness of the Merger Consideration to the
Company’s Unaffiliated Shareholders. However, to the extent
the pre-merger going concern value was reflected in the
pre-announcement price of the Company Common Stock, the Merger
Consideration of US$3.32 per share represented a premium to the per
share going concern value of the Company.
The Buyer Group is not aware of, and thus did not consider in its
fairness determination, any offers or proposals made by any
unaffiliated third parties with respect to a merger or
consolidation of the Company with or into another company, a sale
of all or a substantial part of the Company’s assets, or the
purchase of the Company’s common stock that would enable the
holder to exercise control over the Company.
The Buyer Group did not receive any independent reports, opinions
or appraisals from any outside 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 the Unaffiliated Shareholders.
The Buyer Group believes the Merger is procedurally fair to the
Company’s Unaffiliated Shareholders based upon the following
factors:
•
the Special Committee, consisting entirely of directors who are not
officers or employees of the Company and none of whom has any
financial interest in the Merger that is different from that of the
Unaffiliated Shareholders other than the members’ continued
indemnification rights for such members under the Merger Agreement,
was established and given absolute authority to, among other
things, formulate, establish, oversee and direct a process for the
identification, solicitation, evaluation and negotiation of any
potential sale transaction, evaluate and negotiate the terms of any
proposed definitive or other agreements in respect of any potential
sale transaction, make recommendations to the board of directors in
respect of any potential sale transaction, including, without
limitation, any recommendation to not proceed with or to recommend
that the Company’s shareholders reject a potential sale
transaction;
•
the members of the Special Committee do not have any interests in
the Merger different from, or in addition to, those of the
Company’s Unaffiliated Shareholders, other than the
members’ continued indemnification rights for these directors
following the completion of the Merger for certain claims and
liabilities arising from their actions or omissions taken prior to
the Effective Time of the Merger;
•
the Special Committee retained and was advised by its independent
legal and financial advisors who are experienced in advising
committees such as the Special Committee in similar
transactions;
•
the Buyer Group did not participate in or have any influence over
the deliberative process of, or the conclusions reached by, the
Special Committee or the negotiating positions of the Special
Committee;
•
the Special Committee and the Company’s board of directors
had no obligation to recommend the approval of the Merger
Agreement;
39
•
the Merger was unanimously approved by the Special Committee;
•
the Merger Consideration and other terms and conditions of the
Merger Agreement were the result of extensive negotiations over an
extended period of time between the Buyer Group and its legal
advisors, on the one hand, and the Special Committee and its legal
and financial advisors, on the other hand;
•
the Special Committee did not receive any alternative acquisition
proposal from any other interested investors during the period
between October 27, 2015, when the Company first announced its
receipt of the going private proposal and March 8, 2016 when the
Merger Agreement was executed;
•
the Special Committee received from ROTH, its financial advisor, an
opinion, dated March 8, 2016, as to the fairness, from a financial
point of view, to the Company’s shareholders (other than
holders of the Excluded Shares) of the consideration of US$3.32 per
share to be received by those shareholders in the Merger, as of
March 8, 2016, based upon and subject to the assumptions made,
procedures followed, matters considered, and qualifications and
limitations on the review undertaken by ROTH in preparing its
opinion;
•
the Merger is not conditioned on any financing being obtained by
Acquisition, thus increasing the likelihood that the Merger will be
completed and the Merger Consideration will be paid to the
Company’s Unaffiliated Shareholders;
•
under the terms of the Merger Agreement, in certain circumstances
prior to obtaining the requisite shareholders’ approval of
the Merger, the Company is permitted to provide information to and
participate in discussions or negotiations with persons making
alternative transaction proposals and the board of directors of the
Company is permitted to withdraw or modify its recommendation of
the Merger Agreement;
•
the Company has the ability under certain circumstances to
specifically enforce the terms of the Merger Agreement; and
•
the ability of the Company to terminate the Merger Agreement (in
accordance with the terms of the Merger Agreement) upon acceptance
of an alternative acquisition proposal.
The foregoing discussion of the information and factors considered
and given weight by the Buyer Group in connection with their
evaluation of the substantive and procedural fairness to the
Company’s Unaffiliated Shareholders of the Merger Agreement
and the transactions contemplated thereby, including the Merger, is
not intended to be exhaustive, but is believed by the Buyer Group
to include all material factors considered by them. The Buyer Group
did not find it practicable to and did not quantify or otherwise
attach relative weights to the foregoing factors in reaching its
position as to the substantive and procedural fairness of the
Merger Agreement and the transactions contemplated thereby,
including the Merger, to the Company’s Unaffiliated
Shareholders. Rather, the Buyer Group made the fairness
determinations after considering all of the foregoing as a whole.
In addition, the Buyer Group considered and recognized the negative
factors considered by the Special Committee and the Company’s
board of directors described under “
The Merger
— Recommendation of Our Board of Directors and the Special
Committee on Behalf of the Company and Their Reasons for the
Merger
”, the consideration of which is expressly
adopted here by the Buyer Group.
The Buyer Group believes these factors provide a reasonable basis
for its belief that the Merger is both substantively and
procedurally fair to the Company’s Unaffiliated Shareholders.
This belief, however, is not intended to be and should not be
construed as a recommendation by the Buyer Group to any shareholder
of the Company as to how such shareholder should vote with respect
to the approval of the Merger Agreement.
Effect of the Merger on
the Company
The Merger Agreement provides that Acquisition will be merged with
and into the Company on the terms and subject to the conditions in
the Merger Agreement. After the Merger, Acquisition will no longer
exist as a separate entity. The Company will be the surviving
corporation and will continue to exist as the operating entity,
owned entirely by the Principal Shareholders. Pursuant to the
Merger Agreement, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger
will be converted into the right to receive US$3.32 in cash,
without interest and net of any applicable withholding taxes,
except for the Excluded
40
Shares. Shares with respect to which dissenters’ rights have
been properly exercised and not withdrawn or lost will be cancelled
in consideration for the right to receive the fair value of such
dissenting shares in accordance with the Nevada Revised Statutes.
The shares of Company Common Stock are currently listed on the
NASDAQ Capital Market under the symbol “CNYD.”
After completion of the Merger, the Principal Shares will be the
only issued and outstanding shares of the surviving corporation and
the Company will cease to be a publicly traded company and will
instead be a privately held company owned directly by the Buyer
Group. Following the completion of the Merger, the shares of
Company Common Stock will cease to be listed on the NASDAQ Capital
Market, and price quotations with respect to sales of Company
Common Stock in the public market will no longer be available. In
addition, registration of Company Common Stock under the Exchange
Act may be terminated upon the Company’s application to the
SEC if the Company Common Stock is not listed on a national
securities exchange. After the termination of registration of the
Company Common Stock, the Company will no longer be required to
file periodic reports with the SEC, which cost the Company
approximately US$230,000 and US$250,000 for the fiscal years ended
December 31, 2014 and 2015, respectively, or otherwise be subject
to the United States federal securities laws, including the
Sarbanes-Oxley Act of 2002, applicable to public companies. After
the termination of registration of the Company Common Stock, you
will no longer enjoy the rights or protections that the United
States federal securities laws provide. You will not own any shares
of capital stock of the surviving corporation, and you will cease
to have any rights in the Company as a shareholder. Any cost
savings realized by the surviving corporation as a result of no
longer being subject to SEC reporting requirements of the United
States federal securities laws will be realized solely by the
surviving corporation and, indirectly as shareholders of the
surviving company, the Principal Shareholders.
The Company has reported net operating losses for U.S. federal
income tax purposes in each of the last two fiscal years.
Generally, net operating losses can be carried forward to reduce
taxable income in future periods. After completion of the Merger,
the net operating loss carryforwards will be net operating loss
carryforwards of the surviving company and, subject to any
limitations imposed by the Internal Revenue Code of 1986, as
amended, or other applicable tax law, the surviving company will be
entitled to use such carryforwards. Only the surviving company and,
indirectly as shareholders of the surviving company, the Principal
Shareholders will realize any potential benefits through the use of
the net operating loss carryforwards.
We have attached the Merger Agreement to this proxy statement as
Annex A. We encourage you to read the entire Merger Agreement
carefully, because it is the legal document that governs the
Merger.
Effects on the Company
if the Merger is not Completed
If our shareholders do not approve the Merger Agreement, or if the
Merger is not completed for any other reason, our shareholders will
not receive Merger Consideration for their shares of Company Common
Stock provided by the Merger Agreement. Instead, unless the Company
is sold to a third party, we will remain an independent publicly
traded company. The Company’s management expects to operate
the business in a manner similar to that in which it is being
operated today, and our shareholders will continue to be subject to
similar risks and opportunities as they currently are with respect
to their ownership of our common stock. If the Merger is not
completed, there is no assurance as to the effect of these risks
and opportunities on the future value of your shares of Company
Common Stock, including the risk that the market price of our
common stock may decline to the extent that the current market
price of our stock reflects a market assumption that the Merger
will be completed. From time to time, the board of directors of the
Company will evaluate and review the business operations,
properties and capitalization of the Company and, among other
things, make such changes as are deemed appropriate. If our
shareholders do not approve the Merger Agreement, or the Merger is
not completed for any other reason, there is 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. Pursuant to the Merger Agreement,
under certain circumstances the Company is permitted to terminate
the Merger Agreement and enter into an agreement with respect to an
alternative transaction. Also, under other circumstances, if the
Merger is not completed, the Company may be obligated to pay to
Acquisition a termination fee. See “
The Agreement
and Plan of Merger — Termination Fees and Reimbursement of
Expenses
” beginning on page 60 for additional
information.
41
Plans for the Company
after the Merger
If the Merger is completed, the Principal Shares will be the only
issued and outstanding shares of common stock of the Company.
Except for the Principal Shareholders, none of our current
shareholders will have any ownership interest in, or be a
shareholder of, the Company after the completion of the Merger. As
a result, our current shareholders (other than the Principal
Shareholders) will no longer benefit from any increase in our
value, nor will they bear the risk of any decrease in our value.
Following the Merger, the Principal Shareholders will benefit from
any increase in our value and also will bear the risk of any
decrease in our value.
Upon completion of the Merger, each share of Company Common Stock
issued and outstanding immediately prior to the closing (other than
shares which are owned by the Company or any of its subsidiaries or
owned by the Principal Shareholders) will be converted into the
right to receive the Merger Consideration.
After the Effective Time of the Merger, the Buyer Group anticipates
that the Company will continue its current operations, except that
it will cease to be an independent publicly traded company and will
instead be wholly-owned by the Buyer Group. After the Effective
Time of the Merger, the directors of Acquisition immediately prior
to the Effective Time of the Merger will become the directors of
the Company, and the officers of the Company immediately prior to
the Effective Time of the Merger will remain the officers of the
Company, in each case until the earlier of their resignation or
removal or until their respective successors are duly elected or
appointed and qualified, as the case may be. The Company will no
longer be subject to the federal securities laws of the United
States, including the Exchange Act and the Sarbanes-Oxley Act of
2002, or NASDAQ compliance and reporting requirements, and the
related direct and indirect costs and expenses.
Except for the transactions contemplated by the Merger Agreement,
the Company does not have any current plans, proposals or
negotiations that relate to or would result in any of the
following:
•
an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its
subsidiaries;
•
the sale or transfer of a material amount of the assets of the
Company or any of its subsidiaries; or
•
any other material changes to the Company’s corporate
structure or otherwise in the Company’s business.
The above prospective
financial information should be evaluated, if at all, in
conjunction with the historical financial statements and other
information regarding the Company contained elsewhere in this proxy
statement and the Company’s public filings with the
SEC.
BY INCLUDING IN THIS PROXY STATEMENT A SUMMARY OF ITS INTERNAL FINANCIAL
PROJECTIONS, THE COMPANY UNDERTAKES NO OBLIGATIONS TO UPDATE, OR
PUBLICLY DISCLOSE ANY UPDATE TO, THESE FINANCIAL PROJECTIONS TO
REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS,
THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF
THESE PROJECTIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE
ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE SHOWN TO BE IN
ERROR OR CHANGE EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL
SECURITIES LAWS.
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
Special Committee was formed on October 28, 2015, in response to
the receipt of the Proposal Letter from Mr. Chen and Ms. Fan on
October 24, 2015 indicating their interest and preliminary proposal
regarding a potential going-private transaction. The Special
Committee has considered certain potential transactions involving
the Company (including the going-private transaction and the
possibility of remaining an independent entity) on its own and with
the assistance of its independent financial and legal advisors.
Since the Company’s receipt of the Proposal Letter from the
Buyer Group, which was announced via press release on October 27,
2015 and filed with the SEC on that same date, the Company has not
received any actionable offer from any third party for (a) a merger
or consolidation of the Company with another company, (b) a sale or
transfer of all or substantially all of the Company’s assets
or (c) a purchase of all or a substantial portion of the shares
that would enable such person to
42
exercise control of or significant influence over the Company. The
Special Committee also took into account that, under certain
circumstances prior to the receipt of the required shareholder
approval, the Company can terminate the Merger Agreement in order
to enter into an Alternative Acquisition Agreement with respect to
a superior proposal, subject to the payment to Acquisition of a
termination fee of US$375,000, plus reimbursement of reasonable
out-of-pocket expenses, including attorney’s fees, under
certain circumstances, as set forth in the Merger Agreement. In
this regard, the Special Committee recognized that it has
flexibility under the Merger Agreement, subject to the contractual
rights of the Buyer Group, 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.
Financing of the
Merger
The Buyer Group estimates that the total amount of funds necessary
to consummate the Merger and related transactions, including the
payment of fees and expenses in connection with the Merger, will be
approximately US$5,513,000. The Buyer Group expects to fund this
amount through cash on hand, provided to Acquisition by Mr. Chen
and Ms. Fan.
Voting
Agreement
On March 8, 2016, Mr. Chen, Ms. Fan and Acquisition entered into
the Rollover Agreement pursuant and subject to which Mr. Chen and
Ms. Fan collectively committed to contribute their shares of
Company Common Stock to Acquisition as part of the transactions
contemplated by the Original Merger Agreement, and also committed
to vote any Company Common Stock owned by them in favor of the
Original Merger Agreement and the transactions contemplated
thereby. On April 12, 2016, in conjunction with the parties’
entering into the Merger Agreement, the Company and the Principal
Shareholders, Mr. Chen and Ms. Fan, entered into the Voting
Agreement, replacing the Rollover Agreement, pursuant to which each
of the Principal Shareholders irrevocably agreed that he or she
will appear at the special meeting and any other
shareholders’ meeting and vote (or cause to be voted) all
shares of Company Common Stock beneficially owned by him or her, as
applicable, in favor of the approval and adoption of the Merger
Agreement. In conjunction with the execution of the Voting
Agreement, the parties entered into a termination agreement with
respect to the Rollover Agreement.
Limited
Guarantee
Concurrently with the execution of the Merger Agreement, the
guarantors, Mr. Chen and Ms. Fan, delivered the Original Limited
Guarantee pursuant to which each of them agreed to, severally but
not jointly, guarantee each of their respective percentage of the
obligations of Acquisition under the Original Merger Agreement to
pay, under certain circumstances in which the Original Merger
Agreement is terminated, a reverse termination fee of US$375,000 to
the Company and to reimburse certain expenses incurred by the
Company, including all of the reasonable documented out-of-pocket
expenses, including attorney’s fees, incurred by the Company
if the required shareholder approval is not obtained at the special
meeting. In conjunction with the execution of the Merger Agreement
on April 12, 2016, Mr. Chen and Ms. Fan delivered an amended and
restated limited guarantee (the “
Limited
Guarantee
”), in which only non-substantive changes
were made to conform to the Merger Agreement.
The Limited Guarantee will terminate as of the earliest of: (i) the
Effective Time of the Merger, (ii) all of the obligations under the
Limited Guarantee having been paid in full, and (iii) the date
falling 30 days from the date of the termination of the Merger
Agreement in accordance with its terms if the Company has not
presented a bona fide written claim for payment under the agreement
by such date.
Limitation of
Liability
Other than any equitable remedies the Company may be entitled to,
the Company’s right to terminate the Merger Agreement and
receive payment of (i) a reverse termination fee of US$375,000 from
Acquisition in connection with the Merger and (ii) any
reimbursement of costs and expenses pursuant to the Merger
Agreement, are the sole and exclusive remedies of the Company
against Acquisition as described in the Merger Agreement with
respect to any loss or damage suffered as a result of any breach of
the Merger Agreement or failure of the transactions contemplated by
the Merger Agreement to be consummated.
43
Other than any equitable remedies Acquisition may be entitled to,
the right of Acquisition to receive payment of (i) a termination
fee of US$375,000 and (ii) any reimbursement of costs and expenses
pursuant to the Merger Agreement, are the sole and exclusive
remedies of Acquisition (and its respective affiliates and
representatives) against the Company and certain related parties as
described in the Merger Agreement with respect to any loss or
damage suffered as a result of any breach of the Merger Agreement
or failure of the transactions contemplated by the Merger Agreement
to be consummated.
Acquisition is entitled to specific performance of the terms under
the Merger Agreement, including an injunction or injunctions to
prevent breaches of the Merger Agreement and to enforce
specifically the terms and provisions of the Merger Agreement.
Pursuant to the Limited Guarantee agreement, the Company is
entitled to an injunction, specific performance or other equitable
remedies to cause Mr. Chen and Ms. Fan to fund the Merger
Consideration in certain circumstances. However, under no
circumstances is the Company permitted or entitled to both a grant
of specific performance that results in completion of the Merger
and payment of all or any portion of the reverse termination
fee.
Interests of Certain
Persons in the Merger
In considering the recommendation of the Special Committee and our
board of directors with respect to the Merger, you should be aware
that each Principal Shareholder has interests in the transactions
that are different from, and/or in addition to, the interests of
our shareholders generally. The Company’s board of directors
and Special Committee were aware of such interests and considered
them, among other matters, in reaching their decisions to approve
the Merger Agreement and approve the transactions contemplated by
the Merger Agreement, including the Merger, and recommend that our
shareholders vote in favor of approving the Merger Agreement and
the transactions contemplated by the Merger Agreement, including
the Merger.
Interests of
Continuing Shareholders in the Merger
As a result of the Merger, the Principal Shareholders will hold
100% of the equity interests of the Company immediately following
the completion of the Merger. The Principal Shareholders will enjoy
the benefits from any future earnings and growth of the Company
after the Merger which, if the Company is successfully managed,
could exceed the value of their original investments in the
Company, including the amount paid by Acquisition as Merger
Consideration to the Company’s shareholders who are not
members of the Buyer Group in the Merger. The Principal
Shareholders will also bear the risks of any possible decreases in
the future earnings, growth or value of the Company and they will
have no certainty of any future opportunity to sell their shares in
the Company at an attractive price, or that any dividends paid by
the Company will be sufficient to recover their investment.
The Merger may provide additional means to enhance shareholder
value for the Principal Shareholders, 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 them, such as through dividends or other
distributions.
Indemnification and
Insurance
Pursuant to the Merger Agreement, the parties have agreed that:
•
the articles of incorporation and bylaws (or comparable
organizational documents) of the surviving corporation shall
contain provisions no less favorable with respect to exculpation,
advances of expenses and indemnification than are set forth in the
articles of incorporation and bylaws (or comparable organizational
documents) of the Company as in effect on the date of the Merger
Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective
Time of the Merger in any manner that would adversely affect the
rights thereunder of former or present directors or officers of the
Company, unless such modification shall be required by law;
•
the indemnification, advancement of expenses and exculpation
provisions of certain indemnification agreements and employment
agreements by and among the Company or its subsidiaries and their
respective directors, officers or employees, as in effect at the
Effective Time of the Merger, will survive the Merger and may not
be amended, repealed or otherwise modified for six years from the
Effective
44
Time of the Merger in any manner that would adversely affect the
rights of the current or former directors, officers or employees of
the Company or any subsidiaries; and
•
from and after the Effective Time of the Merger, subject to certain
conditions, the surviving corporation 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 (a) the present and former directors or officers of the
Company or any of its subsidiaries against damages arising out of,
relating to or in connection with (i) the fact that such party is
or was a director or officer of the Company or such subsidiary, or
(ii) any acts or omissions occurring or alleged to have occurred
before or at the Effective Time of the Merger to the extent
provided under the Company and its subsidiaries’ respective
organizational and governing documents or agreements in effect on
the date of the Merger Agreement and to the fullest extent
permitted by the Nevada Revised Statutes or any other applicable
law, including the approval of the Merger Agreement; and (b) such
persons against all damages arising out of acts or omissions in
connection with such persons serving as an officer, director or
other fiduciary in 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.
The Special
Committee
On October 28, 2015, our board of directors established a Special
Committee of directors to consider the proposal from the Buyer
Group and to take any actions it deems appropriate to assess the
fairness and viability of such proposal. The Special Committee is
composed of three independent directors — Mr. Renjiu Pei, Mr.
Chunyu Yin and Mr. Fucai Huang, with Mr. Renjiu Pei serving as
chairman. Other than their indemnification rights under the Merger
Agreement, none of the members of the Special Committee has a
financial interest in the Merger or any of the transactions
contemplated by the Merger Agreement and none of them is related to
any member of the Buyer Group. Our board of directors did not place
any limitations on the authority of the Special Committee regarding
its investigation and evaluation of the Merger.
Position with the
Surviving Corporation
After completion of the Merger, Mr. Chen and Ms. Fan expect to
continue to serve as the Chairman of the Board of Directors and
Chief Executive Officer, and Chief Operating Officer of the
Company. After completion of the Merger, the directors of the
surviving corporation shall consist of the directors of Acquisition
as of immediately prior to the completion of the Merger, until
their respective successors are duly elected or appointed and
qualified or their earlier death, resignation or removal in
accordance with the surviving corporation’s articles of
incorporation and bylaws. The officers of the surviving corporation
shall consist of the officers of the Company as of immediately
prior to the completion of the Merger, until their respective
successors are duly elected or appointed and qualified or their
earlier death, resignation or removal in accordance with the
surviving corporation’s articles of incorporation and
bylaws.
As of the date of this proxy statement, except as described in this
proxy statement, no member of the Company’s management has
entered into any amendments or modifications to his or her existing
employment arrangements with the Company in connection with the
proposed transaction, nor has any member of the Company’s
management entered into any employment or other agreement with
Acquisition or its affiliates.
Acquisition has not indicated that it or its affiliates may pursue
agreements, arrangements or understandings with the Company’s
executive officers, which may include cash, stock and co-investment
opportunities. However, prior to the Effective Time of the Merger
and with the prior written consent of the Special Committee,
Acquisition may initiate negotiations of these agreements,
arrangements and understandings, and may enter into definitive
agreements regarding employment with, or the right to participate
in the equity of, the surviving corporation on a going-forward
basis following completion of the Merger.
Relationship between the
Company and the Buyer Group
Mr. Chen has been the Chairman, President and Chief Executive
Officer of the Company since November 2007. He is also the Chairman
of the Board of Directors, Chief Executive Officer, and Treasurer
of Acquisition. Ms. Fan has served as the Chief Operating Officer
of the Company since 2001 and a Director of the Company since 2007.
Ms. Yanling Fan also serves a Director, the Chief Operating Officer
and the Secretary of Acquisition. The Merger is a
45
going private transaction, which will result in Mr. Chen and Ms.
Fan owning all of the outstanding common stock of the Company after
the Merger is consummated. Mr. Chen and Ms. Fan each received
compensation for their services in their respective roles for the
Company. Mr. Chen and Ms. Fan recused themselves from the
deliberations and the board of directors’ determination with
respect to the Merger Agreement and the Merger.
Except as set forth above and elsewhere in this proxy statement, no
member of the Buyer Group nor any of their respective directors,
executive officers or other affiliates engaged in any transactions
with us or any of our directors, officers or other affiliates that
would require disclosure under the rules and regulations of the SEC
applicable to this proxy statement.
Dividends
The Company has not paid any cash dividends on its common stock,
and does not currently intend to pay cash dividends in the
foreseeable future.
Regulatory
Matters
The Company does not believe that any material federal, national,
provincial, local or state, whether domestic or foreign, regulatory
approvals, filings or notices are required in connection with the
Merger other than the approvals, filings or notices required under
the U.S. federal securities laws and the filing of the articles of
merger with the Secretary of State of the State of Nevada with
respect to the Merger.
Fees and
Expenses
Fees and expenses incurred or to be incurred by the Company in
connection with the Merger are estimated at the date of this proxy
statement to be as follows:
|
|
|
Financial advisory fees and expenses
|
|
US$
|
350,000
|
Legal fees and expenses
|
|
US$
|
400,000
|
Miscellaneous (including printing, proxy
solicitation, filing fees, mailing costs, etc.)
|
|
US$
|
20,000
|
Total
|
|
US$
|
770,000
|
These expenses will not reduce the Merger Consideration to be
received by the Company’s shareholders. Except for the right
to reimbursement of costs and expenses under certain circumstances,
the party incurring any costs and expenses in connection with the
Merger and the Merger Agreement will pay such costs and
expenses.
Delisting and
Deregistration of the Company Common Stock
If the Merger is completed, the Company Common Stock will be
delisted from the NASDAQ Capital Market and deregistered under the
Exchange Act and we will no longer file periodic reports with the
SEC.
46
THE SPECIAL
MEETING
Time, Place and Purpose
of the Special Meeting
This proxy statement is being furnished to our shareholders as part
of the solicitation of proxies by the Company’s board of
directors for use at the special meeting to be held June 28, 2016
starting at 9:00am (Beijing time), at the offices of the Company
located at 28/F, Yifa Building, No.111 Wusi Road, Fuzhou, Fujian
Province, China 350003, or at any postponement or adjournment
thereof. At the special meeting, holders of Company Common Stock
will be asked to vote upon the proposal to approve the Merger
Agreement, and to approve the proposal to adjourn or postpone the
special meeting in order to take such actions as our board of
directors determines are necessary or appropriate, including to
solicit additional proxies if there are insufficient votes at the
time of the special meeting to approve the Merger Agreement.
The Merger is subject to the approval of the Merger Agreement by
the affirmative vote (in person or by proxy) of the holders of at
least a majority of the issued and outstanding shares of Company
Common Stock on the record date in accordance with the
Company’s articles of incorporation and bylaws and the Nevada
Revised Statutes. If our shareholders fail to approve the Merger
Agreement, the Merger will not occur. A copy of the Merger
Agreement is attached as Annex A to this proxy statement, which we
encourage you to read carefully in its entirety.
Record Date and
Quorum
We have set the close of business, Beijing time, on May 24, 2016 as
the record date for the special meeting, and only holders of record
of Company Common Stock on the record date are entitled to vote at
the special meeting. You are entitled to receive notice of, and to
vote at, the special meeting if you owned shares of Company Common
Stock at the close of business on the record date. On the record
date, there were 3,914,580 shares of Company Common Stock
outstanding and entitled to vote. Each share of Company Common
Stock entitles its holder to one vote on all matters properly
coming before the special meeting.
The presence, in person or by proxy, of the holders of a majority
of the shares of Company Common Stock outstanding and entitled to
vote on the record date is necessary to constitute a quorum for the
transaction of business at the special meeting. Abstentions and
broker non-votes are included in determining the number of shares
present or represented at the special meeting for purposes of
determining whether a quorum exists. Once a share of Company Common
Stock is represented at the special meeting, it will be counted for
the purpose of determining a quorum at the special meeting and any
adjournment of the special meeting. However, if a new record date
is set for the adjourned special meeting, then a new quorum will
have to be established. In the event that a quorum is not present
at the special meeting, it is expected that the special meeting
will be adjourned.
Attendance
Shareholders may vote by attending the special meeting and voting
in person. In order to attend the special meeting in person, arrive
on time at the address listed above with your proxy card and a form
of valid photo identification. To obtain directions to attend the
special meeting, call Jocelyn Chen at +86 (591) 28082230. If you
are a beneficial owner of shares held in street name and you want
to vote in person at the special meeting, you must contact the
bank, brokerage firm or other nominee that holds your shares in
their name prior to the meeting and obtain from them a valid proxy
issued by them in your name giving you the right to vote the shares
registered in their name. Please note that cameras, recording
devices and other electronic devices will not be permitted at the
special meeting.
Vote Required
Approval of the Merger Agreement requires the affirmative vote (in
person or by proxy) of the holders of at least a majority of the
issued and outstanding shares of Company Common Stock as of the
record date for the special meeting in accordance with the
Company’s articles of incorporation and bylaws and the Nevada
Revised Statutes. For the proposal to approve the Merger Agreement,
you may vote
“FOR,”
“AGAINST”
or
“ABSTAIN”.
Abstentions will not be counted as votes cast in favor of the
proposal to approve the Merger Agreement, but will count for the
purpose of determining whether a quorum is present.
If you
fail to submit a proxy or to vote in person at the special meeting,
or abstain, it will have the same effect as a vote
“AGAINST” the proposal to
47
approve the Merger
Agreement.
Abstentions or non-votes
will result in a loss of your dissenters’ and appraisal
rights.
If your shares of Company Common Stock are registered directly in
your name with our transfer agent, American Stock Transfer and
Trust Company, you are considered, with respect to those shares of
Company Common Stock, the “shareholder of record.” This
proxy statement and proxy card have been sent directly to you by
the Company.
If your shares of Company Common Stock are held through a bank,
brokerage firm or other nominee, you are considered the
“beneficial owner” of shares of Company Common Stock
held in “street name.” In that case, this proxy
statement has been forwarded to you by your bank, brokerage firm or
other nominee who is considered, with respect to those shares of
Company Common Stock, the shareholder of record. As the beneficial
owner, you have the right to direct your bank, brokerage firm or
other nominee how to vote your shares by following their
instructions for voting.
Under the rules of the NASDAQ Capital Market, banks, brokerage
firms or other nominees who hold shares in street name for
customers have the authority to vote on “routine”
proposals when they have not received instructions from beneficial
owners. However, banks, brokerage firms or other nominees are
precluded from exercising their voting discretion with respect to
approving non-routine matters, such as the proposal to approve the
Merger Agreement, and, as a result, absent specific instructions
from the beneficial owner of such shares of Company Common Stock,
banks, brokerage firms or other nominees are not empowered to vote
those shares of Company Common Stock on non-routine matters, which
we refer to generally as broker non-votes.
These broker
non-votes will be counted for purposes of determining a quorum, and
will have the same effect as a vote “AGAINST” the
proposal to approve the Merger Agreement. Broker non-votes will
have no effect on the outcome of the proposal to adjourn or
postpone the special meeting.
The proposal to adjourn or postpone the special meeting in order to
take such actions as our board of directors determines are
necessary or appropriate, including to solicit additional proxies
if there are insufficient votes at the time of the special meeting
to approve the Merger Agreement will be approved if more holders of
the shares of the Company Common Stock present in person or by
proxy and entitled to vote on the proposal vote in favor of the
proposal than against the proposal. For the proposal to adjourn or
postpone the special meeting in order to take such actions as our
board of directors determines are necessary or appropriate,
including to solicit additional proxies if there are insufficient
votes at the time of the special meeting to approve the Merger
Agreement, you may vote
“FOR,”
“AGAINST”
or
“ABSTAIN”.
For purposes of this proposal, if you have given a proxy and
abstained on this proposal, such abstention will have no effect on
the outcome of this proposal. If there are broker non-votes on the
issue, such broker non-votes will have no effect on the outcome of
this proposal.
If you are a shareholder of record, you may submit your proxy or
vote your shares of Company Common Stock on matters presented at
the special meeting in any of the following ways:
By
Telephone:
You may submit your proxy by calling the
toll-free telephone number indicated on your proxy card. Please
follow the voice prompts that allow you to submit your proxy and
confirm that your instructions have been properly recorded.
Via the
Internet:
You may submit your proxy by logging on to
the website indicated on your proxy card. Please follow the website
prompts that allow you to submit your proxy and confirm that your
instructions have been properly recorded.
By
Mail:
You may submit your proxy by completing, signing
and returning the proxy card in the postage-paid envelope provided
with this proxy statement. The proxy holders will vote your shares
of Company Common Stock according to your directions. If you sign
and return your proxy card without specifying choices, your shares
of Company Common Stock will be voted by the persons named in the
proxy in accordance with the recommendations of the Company’s
board of directors as set forth in this proxy statement.
Vote at the
Meeting:
You may cast your vote in person at the
special meeting. Written ballots will be passed out to shareholders
or legal proxies who want to vote in person at the meeting.
48
If you are a beneficial owner, you will receive instructions from
your bank, brokerage firm or other nominee that you must follow in
order to have your shares of Company Common Stock voted. Those
instructions will identify which of the above choices are available
to you in order to have your shares voted.
Please note that if you are a beneficial owner of shares held in
street name and wish to vote in person at the special meeting, you
must provide a legal proxy from your bank, brokerage firm or other
nominee.
Please refer to the instructions on your proxy or voting
instruction card to determine the deadlines for submitting your
proxy over the Internet or by telephone. If you choose to submit
your proxy by mailing a proxy card, your proxy card must be filed
with our Board Secretary, Jocelyn Chen, by the time the special
meeting begins.
Please do not send in
your stock certificates with your proxy card.
When the
Merger is completed, a separate letter of transmittal will be
mailed to you that will enable you to receive the Merger
Consideration in exchange for your stock certificates.
If you submit your proxy, regardless of the method you choose, the
individuals named on the enclosed proxy card, and each of them,
with full power of substitution, or your proxies, will vote your
shares of Company Common Stock in the way that you indicate. When
completing the Internet or telephone processes or the proxy card,
you may specify whether your shares of Company Common Stock should
be voted for or against or to abstain from voting on all, some or
none of the specific items of business to come before the special
meeting.
If you properly sign your proxy card but do not mark the boxes
showing how your shares of Company Common Stock should be voted on
a matter, the shares of Company Common Stock represented by your
properly signed proxy will be voted
“FOR”
the proposal to approve the Merger Agreement and
“FOR”
the proposal to adjourn or postpone the special meeting in order to
take such actions as our board of directors determines are
necessary or appropriate, including to solicit additional proxies
if there are insufficient votes at the time of the special meeting
to approve the Merger Agreement.
If you have any questions or need assistance voting your shares,
please call American Stock Transfer & Trust, LLC at +1(718)
921-8124, or toll-free at (800) 937-5449.
IT IS IMPORTANT THAT YOU
SUBMIT A PROXY FOR YOUR SHARES OF COMPANY COMMON STOCK PROMPTLY.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR
SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. STOCKHOLDERS WHO
ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN
PERSON.
As of May 24, 2016, the record date, the directors and executive
officers of the Company beneficially owned and were entitled to
vote, in the aggregate, 2,267,592 shares of Company Common Stock
(excluding shares issuable upon the exercise of options and
restricted stock units as of such date), representing 57.84% of the
outstanding shares of Company Common Stock on the record date. The
directors and executive officers have informed the Company that
they currently intend to vote all of their shares of Company Common
Stock “FOR” the proposal to approve the Merger
Agreement and “FOR” the proposal to adjourn or postpone
the special meeting in order to take such actions as our board of
directors determines are necessary or appropriate, including to
solicit additional proxies if there are insufficient votes at the
time of the special meeting to approve the proposal to approve the
Merger Agreement.
At the close of business, Beijing time, on May 24, 2016, the record
date, 3,914,580 shares of Company Common Stock were outstanding and
entitled to vote at the special meeting. On the record date, the
Buyer Group owned 2,267,592 shares of Company Common Stock. These
represent approximately 57.84% of the total outstanding shares of
Company Common Stock. Mr. Chen and Ms. Fan have agreed, under the
Voting Agreement, to vote in favor of the proposal to approve the
Merger Agreement. Accordingly, based on the 3,914,580 shares of
Company Common Stock outstanding on the record date, more than 50%
of the shares of Company Common Stock will be voted in favor of the
proposal to approve the Merger Agreement.
Proxies and
Revocation
Any shareholder of record entitled to vote at the special meeting
may submit a proxy by telephone, over the Internet, or by returning
the enclosed proxy card in the accompanying prepaid reply envelope,
or may vote in person
49
at the special meeting. If your shares of Company Common Stock are
held in “street name” by your bank, brokerage firm or
other nominee, you should instruct your bank, brokerage firm or
other nominee on how to vote your shares of Company Common Stock
using the instructions provided by your bank, brokerage firm or
other nominee. If you fail to submit a proxy or vote in person at
the special meeting, or abstain, or do not provide your bank,
brokerage firm or other nominee with voting instructions, as
applicable, your shares of Company Common Stock will not be voted
on the proposal to approve the Merger Agreement, which will have
the same effect as a vote
“AGAINST”
the proposal to approve the Merger Agreement.
If you are a shareholder of record, you have the right to revoke a
proxy (whether delivered over the Internet, by telephone or by
mail) at any time before it is submitted at the special meeting
by:
•
submitting a new proxy by telephone or via the Internet after the
date of the earlier submitted proxy;
•
signing another proxy card with a later date and returning it to us
prior to the special meeting; or
•
attending the special meeting and voting in person.
Any such new or later-dated proxy should be delivered (over the
Internet, by facsimile over the telephone or by mail) to Jocelyn
Chen, our Board Secretary. If delivered by Internet, please email
jocelynchen@yidacn.net. If sent by mail or facsimile, please send
it to China Yida Holding, Co., 28/F, Yifa Building, No.111 Wusi
Road, Fuzhou, Fujian Province, China 350003, Attn: Jocelyn Chen,
Board Secretary or via facsimile to +86 (591) 28308358. Any such
new or later-dated proxies must be received by the Company prior to
the special meeting. Receipt by the Company of such new or
later-dated proxy prior to the special meeting is, in itself,
sufficient to revoke a prior proxy by that shareholder. If you hold
your shares in street name, you may submit new voting instructions
by contacting your bank, brokerage firm or other nominee. You may
also vote in person at the special meeting if you obtain a legal
proxy from your bank, brokerage firm or other nominee.
Adjournments
Although it is not currently expected, the special meeting may be
adjourned, including for the purpose of soliciting additional
proxies, if there are insufficient votes at the time of the special
meeting to approve the Merger Agreement, or if a quorum is not
present at the special meeting. Other than an announcement to be
made at the special meeting of the time, date and place of an
adjourned meeting, an adjournment generally may be made without
notice. Any adjournment of the special meeting for the purpose of
soliciting additional proxies will allow the Company’s
shareholders who have already sent in their proxies to revoke them
at any time prior to their use at the special meeting as
adjourned.
Anticipated Date of
Completion of the Merger
We are working towards completing the Merger as soon as possible.
If the Merger Agreement is approved at the special meeting, then,
assuming timely satisfaction of the other necessary closing
conditions, we anticipate that the Merger will be completed before
the end of the third quarter of fiscal year 2016.
Payment of Solicitation
Expenses
The Company may reimburse brokers, banks and other custodians,
nominees and fiduciaries representing beneficial owners of shares
of Company Common Stock for their expenses in forwarding soliciting
materials to beneficial owners of Company Common Stock and in
obtaining voting instructions from those owners.
Questions and Additional
Information
If you have more questions about the Merger or how to submit your
proxy, or if you need additional copies of this proxy statement or
the enclosed proxy card or voting instructions, please call
American Stock Transfer & Trust, LLC at +1(718) 921-8124, or
toll-free at (800) 937-5449.
50
THE AGREEMENT AND PLAN
OF MERGER
This section of the
proxy statement describes the material terms of the Merger
Agreement but does not purport to describe all of the terms of the
Merger Agreement. This description is qualified in its entirety by
reference to the complete text of the Merger Agreement, a copy of
which is attached as Annex A, and is incorporated by reference into
this proxy statement. We urge you to read the full text of the
Merger Agreement because it is the legal document that governs the
Merger. This description of the Merger Agreement has been included
to provide you with information regarding its terms.
Structure and Completion
of the Merger
The Merger Agreement provides for the Merger of Acquisition with
and into the Company, with the Company surviving the Merger, upon
the terms, and subject to the conditions, of the Merger Agreement.
Acquisition is a Nevada company formed solely for purposes of the
Merger. If and only after the Merger is completed, the Company will
cease to be a publicly traded company. The closing will occur on a
date to be specified by the Special Committee and Acquisition,
which will be no later than the fifth business day immediately
following the date on which all of the closing conditions have been
satisfied or waived. At the closing, Acquisition and the Company
will file articles of merger with respect to the Merger with the
Secretary of State of the State of Nevada. The Merger will become
effective upon such filing or on such other date as Acquisition and
the Company shall agree in writing that will be specified in the
articles of merger.
We expect the Merger to be completed before the end of the third
quarter of 2016, 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.
Articles of
Incorporation and Bylaws of the Surviving Corporation; Directors
and Officers of the Surviving Corporation
Upon completion of the Merger, the articles of incorporation and
bylaws of Acquisition, as in effect at the Effective Time of the
Merger, will be the articles of incorporation and bylaws of the
surviving corporation (except that at the Effective Time of the
Merger, they will be amended to reflect that the name of the
surviving corporation is “China Yida Holding, Co.”).
The directors of Acquisition immediately prior to the Effective
Time of the Merger will become the directors of the surviving
corporation and the officers of the Company immediately prior to
the Effective Time of the Merger will remain the officers of the
surviving corporation.
Treatment of Common
Stock
At the Effective Time of the Merger, each issued and outstanding
share of Company Common Stock, other than the Excluded Shares, will
be cancelled and converted into the right of its holder to receive
US$3.32 in cash without interest and net of any applicable
withholding taxes. No payment or distribution shall be made to the
holders of such Excluded Shares. Following the Merger, the
Principal Shares will be the only issued and outstanding shares of
the Company. Shares with respect to which dissenters’ rights
have been properly exercised and not withdrawn or lost will be
cancelled, but will not be converted into the right to receive the
per share Merger Consideration, and may be entitled to appraisal of
their fair value. See “
Dissenters’
Rights for Holders of Common Stock
” beginning on page
66 for additional information.
Exchange
Procedures
Prior to the Effective Time of the Merger, Acquisition will
deposit, or cause to be deposited with American Stock Transfer
& Trust Company, LLC (“
AST
”), cash
in an amount sufficient to pay the aggregate Merger Consideration
under the Merger Agreement. The cash deposited, prior to the
Effective Time of the Merger, shall be held on behalf of
Acquisition and, from and after the Effective Time of the Merger,
shall be held for the benefit of the holders of the shares of
Company Common Stock (other than holders of the Excluded Shares).
Promptly after the Effective Time of the Merger (but in no event
later than three business days following the Effective Time of the
Merger), the surviving corporation will instruct the paying agent
to mail to each shareholder of record (other than holders of the
Excluded Shares) (a) a letter of transmittal in customary form and
(b) instructions for effecting the surrender of any stock
certificates in exchange for the applicable Merger Consideration.
Upon surrender of the stock certificates, or receipt of an
“agent’s message” by the paying agent if the
shares are represented by book-entry
51
interests, each record holder of such stock certificates or
book-entry interests will receive an amount (after giving effect to
any required tax withholdings), equal to (i) the number of shares
represented by the stock certificates or book-entry interests
multiplied by (ii) the per share Merger Consideration, without
interest.
Representations and
Warranties
The Merger Agreement contains representations and warranties made
by the Company to Acquisition, and representations and warranties
made by Acquisition 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. 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 or parties 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.
The representations and warranties made by the Company to
Acquisition include representations and warranties relating to,
among other things:
•
due organization, existence, good standing (to the extent the
relevant jurisdiction recognizes such concept of good standing) and
authority to carry on the Company’s businesses;
•
the Company’s corporate power and authority to execute,
deliver and perform its obligations under the Merger Agreement and
to consummate the transactions contemplated by 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 board of directors of the Company, acting upon the unanimous
recommendation of the Special Committee, and the approval of the
Merger Agreement and the Merger by the board of directors of the
Company, acting upon the unanimous recommendation of the Special
Committee;
•
the vote of the Company’s shareholders required to approve
the Merger Agreement;
•
the absence of violations of, default under, material breach of, or
conflict with, the governing documents of the Company and its
subsidiaries, any law applicable to the Company and its
subsidiaries and certain agreements of the Company and its
subsidiaries as a result of the Company entering into and
performing under the Merger Agreement and consummating the
transactions contemplated by the Merger Agreement;
•
governmental consents and approvals in connection with the
transactions contemplated by the Merger Agreement;
•
the Company’s capitalization, the absence of preemptive or
other rights with respect to the share capital of the Company, or
any securities that give their holders the right to vote with the
Company’s shareholders; the absence of any agreements to
acquire from the Company, or that obligate the Company to issue,
any capital stock or other equity or voting interest in the
Company; the absence of encumbrances on the Company’s
ownership of the equity interests of its subsidiaries; the absence
of outstanding contractual obligations of the Company or any of its
subsidiaries to repurchase or otherwise acquire the share capital
of the Company or any of its subsidiaries, as the case may be, or
to provide funds or make investment in such subsidiaries or any
other person;
•
the subsidiaries of the Company, the absence of violations of
preemptive right or other rights with respect to the share capital
of such subsidiaries, and the absence of encumbrances on the
Company’s or its subsidiaries’ ownership of the equity
interests of such subsidiaries;
•
the Company’s SEC filings since December 31, 2014 and the
financial statements included or incorporated by reference in such
SEC filings;
52
•
the absence of a “Company Material Adverse Effect” (as
defined below) and the absence of certain other changes or events
since September 30, 2015 through the date of the Merger
Agreement;
•
material contracts and the absence of any default under, or
material breach or violation of, any material contract;
•
tax matters;
•
the possession of governmental permits, consents or approvals
necessary for the Company or its subsidiaries to own or use its
properties or to carry on its business; the absence of default
under or violations of any law applicable to the Company or any of
its subsidiaries;
•
the compliance with laws applicable to the Company and its
subsidiaries in the jurisdictions in which the Company and its
subsidiaries operate;
•
the absence of legal proceedings and governmental orders against
the Company or its subsidiaries;
•
the receipt of a fairness opinion from the financial advisor to the
Special Committee;
•
the absence of a shareholder rights agreement and the
inapplicability of Nevada anti-takeover statutes to the Merger;
and
•
the absence of any other representations and warranties made by the
Company to Acquisition, other than the representations and
warranties made by the Company in the Merger Agreement.
Many of the representations and warranties in the Merger Agreement
made by the Company are qualified as to “materiality”
or “Company Material Adverse Effect.” For purposes of
the Merger Agreement, a “
Company Material Adverse
Effect
” means any event, circumstance, change or
effect that, either individually or in the aggregate, has had, or
reasonably would be expected to have, a material adverse effect on
the business, financial condition or results of operations of the
Company and its subsidiaries taken as a whole; provided, however,
in no event shall any of the following, either alone or in
combination, constitute, or be taken into account in determining
whether there has been or would reasonably expected to be, a
Company Material Adverse Effect:
i.
changes in general economic conditions in the United States, the
PRC or any other country where the Company or its subsidiaries
operate;
ii.
changes in the securities markets, capital markets, credit markets
or other financial markets in the United States, the PRC or any
other country where the Company or its subsidiaries operate;
iii.
changes
in the conditions in the industries in which the in the Company or
its subsidiaries operate;
iv.
changes
in political conditions in the United States, the PRC or any other
country where the Company or its subsidiaries operate;
v.
acts of God, natural disasters, epidemics, declarations of war,
acts of sabotage or terrorism, outbreak or escalation of
hostilities or similar events;
vi.
changes in applicable laws
(or any interpretation or enforcement thereof) or directives or
policies of a governmental authority of general applicability that
are binding on the Company or any of its subsidiaries;
vii.
changes in GAAP or regulatory accounting requirements (or any
interpretation or enforcement thereof) after the date of the Merger
Agreement;
viii.
effects resulting from the consummation of the Merger and the
transactions contemplated by the Merger Agreement, or the public
announcement of the Merger Agreement or the identity of the parties
to the Merger Agreement, including the initiation of litigation or
other legal proceeding related to the Merger Agreement or the
transactions contemplated by the Merger Agreement, or any losses of
customers or employees;
ix.
changes
in the market price or trading volume of Company Common Stock
(although the underlying cause of such changes may be taken into
account in determining whether a Company Material Adverse Effect
has occurred or is reasonably expected to occur); and
53
x.
legal proceedings made or brought by any current or former
shareholders of the Company or any other legal proceedings arising
out of the Merger or in connection with any other transactions
contemplated by the Merger Agreement;
provided, that events, circumstances, changes or effects set forth
in clauses (i) through (vi) above may be taken into account in
determining whether a “Company Material Adverse Effect”
has occurred or would reasonably be expected to occur if and to the
extent such events, circumstances, changes or effects individually
or in the aggregate have a materially disproportionate impact on
the Company and its subsidiaries, taken as a whole, relative to the
other participants in the industries in which the Company and its
subsidiaries conduct their businesses (in which case the
incremental materially disproportionate impact or impacts may be
taken into account in determining whether or not a Company Material
Adverse Effect has occurred or would be reasonably expected to
occur).
The representations and warranties made by Acquisition to the
Company include representations and warranties relating to, among
other things:
•
their due organization, existence and good standing (to the extent
the relevant jurisdiction recognizes such concept of good
standing);
•
their corporate power and authority to execute, deliver and perform
their obligations under the Merger Agreement and to consummate the
transactions contemplated by the Merger Agreement, and the
enforceability of the Merger Agreement against them;
•
the absence of violations of, default under, material breach of, or
conflict with, the governing documents of Acquisition, any law
applicable to Acquisition and certain agreements of Acquisition as
a result of Acquisition entering into and performing under the
Merger Agreement and consummating the transactions contemplated by
the Merger Agreement;
•
governmental consents and approvals in connection with the
transactions contemplated by the Merger Agreement;
•
sufficiency of funds as of the Effective Time of the Merger to pay
the aggregate Merger Consideration contemplated by the Merger
Agreement, and to pay all reasonable related fees and expenses;
•
the absence of legal proceedings and governmental orders against
Acquisition, or any of its respective affiliates;
•
ownership of shares of Company Common Stock by Acquisition and its
affiliates;
•
the absence of any undisclosed broker’s or finder’s
fees;
•
the operations of Acquisition;
•
the capitalization of Acquisition;
•
solvency of Acquisition and the surviving corporation or any of
their respective subsidiaries immediately following completion of
the Merger; and
•
the absence of any other representations and warranties made by
Acquisition to the Company, other than the representations and
warranties made by Acquisition in the Merger Agreement.
Conduct of Business
Prior to Closing
Under the Merger Agreement, the Company has agreed that, subject to
certain exceptions in the Merger Agreement, from the date of the
Merger Agreement until the earlier of the Effective Time of the
Merger or the termination of the Merger Agreement, the Company and
its subsidiaries will conduct their business in the ordinary course
consistent with past practice in all material respects and use
reasonable best efforts to preserve substantially intact their
business organization and current relationships with customers and
suppliers, government authorities and other persons with which the
Company has material business relations and keep available the
services of current officers and key employees.
54
Subject to certain exceptions set forth in the Merger Agreement,
unless Acquisition consents in writing (which consent cannot be
unreasonably conditioned, withheld or delayed), the Company will
not and will not permit any of its subsidiaries to, among other
things:
•
amend or otherwise change the governing documents of the Company or
any of its subsidiaries;
•
issue, sell, deliver or agree to issue, sell, or deliver any
securities of the Company or any of its subsidiaries subject to
certain exceptions;
•
acquire, repurchase or redeem any Company securities;
•
reclassify, combine, split, subdivide or redeem, or purchase or
otherwise acquire, directly or indirectly, any Company
securities;
•
declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any
of its shares, or split, combine or reclassify any of its shares,
other than dividends paid by a wholly-owned Company subsidiary to
its parent or another subsidiary;
•
enter into a voting agreement with respect to any Company
securities that is inconsistent with the Merger;
•
propose, effect or commence any liquidation, dissolution, scheme of
arrangement, merger, consolidation, amalgamation, restructuring,
reorganization or similar transaction involving the Company or any
of its subsidiaries, or create any new subsidiaries, subject to
certain exceptions;
•
except for limited exceptions, (i) incur or assume any long-term or
short-term debt or issue any debt securities; (ii) assume,
guarantee, endorse or otherwise become liable or responsible for
the obligations of any other party in excess of US$50,000
individually or US$100,000 in the aggregate; (iii) make any loans,
advances or capital contributions not in the ordinary course of
business consistent with past practice; or (iv) mortgage or pledge
any assets of any of its subsidiaries;
•
except for limited exceptions, (i) enter into any new employment or
compensatory agreements, or amend or terminate any such agreements
with any director, officer, employee or consultant of the Company
or any of its subsidiaries, (ii) materially increase the
compensation, bonus or pension, welfare, severance or other
benefits of, pay any bonus to, or make any new equity awards to any
director, officer or employee of the Company or any of its
subsidiaries, (iii) establish, adopt, amend or terminate any
company employee plan, or (iv) take any action to accelerate the
vesting or payment, or fund or in any other way secure the payment,
of compensation or benefits under the company employee plan or
company employee agreement, to the extent not already required in
any such plan or contemplated by the Merger Agreement;
•
except as required by changes in statutory or regulatory accounting
rules, GAAP or law, make any material changes with respect to any
financial accounting policies, methods or procedures of the Company
or any of its subsidiaries;
•
sell, transfer, lease, license, assign or otherwise dispose of any
entity, business, assets or properties of the Company or any of its
subsidiaries having a current value in excess of US$100,000;
•
sell, transfer, license, assign or otherwise dispose of, abandon,
permit to lapse or fail to maintain or enforce any material
intellectual property owned by the Company or any of its
subsidiaries;
•
make or change any material tax election, settle or compromise any
material income tax liability, or consent to any extension or
waiver of any limitation period with respect to any material tax
claim or assessment;
•
other than in the ordinary course of business consistent with past
practice, acquire any business, assets, or equity interests with a
value in excess of $100,000 individually or $500,000 in the
aggregate, or dispose of any assets or properties that are material
to the company and its subsidiaries;
•
enter into any new line of business outside of its existing
business segments;
55
•
adopt, propose, effect or implement any “shareholder rights
plan,” “poison pill” or similar arrangement;
or
•
agree, authorize or enter into any agreement or otherwise make a
commitment, to do any of the foregoing.
Financing
The Buyer Group estimates that the total amount of funds necessary
to consummate the Merger and related transactions, including the
payment of fees and expenses in connection with the Merger, will be
approximately US$5,513,000. The Buyer Group expects to fund this
amount through cash on hand, provided to Acquisition by Mr. Chen
and Ms. Fan. Pursuant to the Limited Guarantee, Mr. Chen and Ms.
Fan are obligated to provide the necessary fund to Acquisition to
complete the Merger, and the Company is entitled to specific
performance in order to require Mr. Chen and Ms. Fan to provide
such financing.
The obtaining of the financing is not a condition to the
consummation of the Merger.
Agreement Not to Solicit
Other Offers
Promptly following the date of the Original Merger Agreement, the
Company shall instruct its representatives that are engaged in
ongoing discussions and negotiations with any persons (other than
Acquisition or any of its representatives) with respect to any
possible acquisition proposal to cease any such discussions.
Additionally, following the date of the Original Merger Agreement,
and until the earlier of the Effective Time of the Merger or
termination the Merger Agreement pursuant to its terms, the Company
shall not, and shall not authorize or knowingly permit its
representatives to:
•
solicit, initiate or induce the making, submission or announcement
of, or knowingly encourage, facilitate or assist, an acquisition
proposal;
•
furnish to any third party, other than Acquisition or its
affiliates, any non-public information relating to the Company or
any of its subsidiaries, with the intent to induce the making,
submission or announcement of, or the intent to encourage,
facilitate or assist, an acquisition proposal;
•
participate or engage in discussions or negotiations with any third
party with respect to an acquisition proposal;
•
approve, endorse or recommend an acquisition proposal; or
•
enter into any agreement contemplating or otherwise relating to an
acquisition.
Notwithstanding the foregoing, the Company may, directly or
indirectly through its representatives, (a) contact any person that
has made a
bona fide
,
written acquisition proposal to clarify and understand the terms
and conditions thereof in order to assess whether such acquisition
proposal is reasonably expected to lead to a superior proposal (as
defined below); (b) participate or engage in discussions or
negotiations with any person that has made a
bona
fide
, written acquisition proposal and that the Company
board (acting through the Special Committee) determines in good
faith, after consultation with its financial advisor and outside
legal counsel, either constitutes or is reasonably expected to lead
to a superior proposal, and/or (c) furnish to any person that has
made a
bona fide
,
written acquisition proposal that the Company board (acting through
the Special Committee, if in existence) determines in good faith,
after consultation with its financial advisor and outside legal
counsel, either constitutes or is reasonably expected to lead to a
superior proposal any non-public information relating to the
Company or any of its subsidiaries, and/or afford to any such
person access to the business, properties, assets, books, records
or other non-public information, or to any personnel, of the
Company or any of its subsidiaries.
Except as described in the following paragraph, the board of
directors and the Special Committee of the Company may not (a)
withhold, withdraw, amend or modify, or propose publicly to
withhold, withdraw, amend or modify, in a manner adverse to
Acquisition in any material respect, the board of directors’
recommendation with respect to the Merger; or (b) adopt, approve or
recommend, or publicly propose to adopt, approve or recommend, any
superior proposal other than a recommendation against such offer or
a customary “stop, look and listen” communication
pursuant to Rule 14d-9(f) of the Exchange Act (such action under
clauses (a) or (b) being referred to
56
as a “
Company Board
Recommendation Change
”); or (c) approve or recommend,
or cause or permit the Company or any of its subsidiaries to enter
into any agreement, letter of intent, acquisition agreement, Merger
Agreement or other similar definitive agreement relating to, any
competing transaction (an “
Alternative Acquisition
Agreement
”).
Notwithstanding the foregoing, at any time prior to the Effective
Time of the Merger, (i) the board of directors of the Company
(acting through the Special Committee) may effect a Company Board
Recommendation Change if the board of directors of the Company
(acting through the Special Committee) determines in good faith
(after consultation with outside legal counsel) that the failure to
effect a Company Board Recommendation Change would reasonably be
expected to be inconsistent with its fiduciary duties to the
Company shareholders under applicable law; and (ii) if the board of
directors of the Company determines in good faith (after
consultation with the Company’s outside financial and legal
advisors) that an acquisition proposal constitutes a superior
proposal, then the Company may enter into an Alternative
Acquisition Agreement with respect to such superior proposal or
terminate the Merger Agreement in accordance with Section 9.1(d) of
the Merger Agreement.
The Company shall not be entitled to effect a Company Board
Recommendation Change or terminate the Merger Agreement unless the
Company has provided written notice (a “
Recommendation
Change Notice
”) at least 15 business days prior to the
Company advising Acquisition that the Company Board intends to make
a Company Board Recommendation Change or enter into an alternative
Acquisition Transaction, and specifying the reasons therefor,
including the terms and conditions of such alternative Acquisition
Transaction, including the identity of the third party proposing
the alternative Acquisition Transaction. Following the end of the
15 business day period, the Company may be entitled to effect a
Company Board Recommendation Change if the company’s board
and the Special Committee shall have determined in good faith,
taking into account any changes to the Merger Agreement proposed in
writing by Acquisition in response to the recommendation change
notice, that the proposed alternative Acquisition Transaction
giving rise to the notice continues to constitute a superior
proposal. If Acquisition responds to a recommendation change notice
with a proposal equivalent to the superior proposal, then the
revised proposal from Acquisition shall be recommended by the
Company’s board.
In the Merger Agreement, an “
Acquisition
Transaction
” means any transaction (other than the
transactions contemplated by the Merger Agreement) involving: (i)
the purchase or other acquisition by any person or
“group” (as defined in or under Section 13(d) of the
Exchange Act, directly or indirectly, of more than 20% of the
Company shares outstanding as of the consummation of such purchase
or other acquisition, or any tender offer or exchange offer by any
person or “group” (as defined in or under Section 13(d)
of the Exchange Act) that, if consummated in accordance with its
terms, would result in such person or “group”
beneficially owning more than 20% of the Company shares outstanding
as of the consummation of such tender or exchange offer; or (ii) a
sale, transfer, acquisition or disposition of more than 20% of the
consolidated assets of the Company and its subsidiaries taken as a
whole (measured by the fair market value thereof), or to which 20%
or more of the net revenue or net income of the Company on a
consolidated basis are attributable.
In the Merger Agreement, a “
superior
proposal
” means any
bona fide
written acquisition proposal for an Acquisition Transaction (with
all percentages included in the definition of Acquisition
Transaction increased to 50%) that the Company board reasonably
determines (upon recommendation of the Special Committee), in its
good faith judgment, after consultation with its financial advisor
and outside legal counsel, and taking into account relevant legal,
financial and regulatory aspects of such offer or proposal
(including the likelihood and timing of the consummation thereof
based upon, among other things, the availability of financing and
the expectation of obtaining required approvals), the identity of
the person or group making the offer or proposal and any changes to
the terms of the Merger Agreement proposed by Acquisition in
response to such offer or proposal or otherwise, to be (i) more
favorable, including from a financial point of view, to the Company
shareholders (other than the Principal Shareholders) than the
Merger and (ii) reasonably likely to be consummated, provided
however in the event of a proposal other than a cash proposal by
means of any merger, consolidation, share exchange, business
combination, scheme of arrangement, amalgamation, recapitalization,
liquidation, dissolution or other similar transaction the proposal
shall be from a party whose assets, individually or in the
aggregate, constitute 20% or more of the consolidated assets of the
Company or to which 20% or more of the total revenue, operating
income or the total revenue, operating income or earnings before
interest, taxes, depreciation and amortization of the Company.
57
Shareholders
Meeting
Unless the Merger Agreement is terminated, the Company shall duly
mail this proxy statement, convene and cause to occur a meeting of
its shareholders as promptly as reasonably practicable after the
SEC confirms that it has no further comments on this proxy
statement and the Schedule 13E-3 for the purpose of obtaining the
shareholder approval required by the Merger Agreement. Subject to
the provisions of the Merger Agreement discussed above under
“
— Agreement Not to Solicit Other Offers
”, the Company shall include in the proxy
statement the Company board recommendation that the Company’s
shareholders approve the Merger Agreement and use its reasonable
best efforts to solicit proxies in favor of approval of the Merger
and to secure the required shareholder approval.
The Principal Shareholders have agreed to vote all of their shares
in favor of the proposal to approve the Merger Agreement at the
special meeting.
Indemnification;
Directors’ and Officers’ Insurance
Pursuant to the Merger Agreement, the parties have agreed that:
•
the articles of incorporation and bylaws (or comparable
organizational documents) of the surviving corporation shall
contain provisions no less favorable with respect to exculpation,
advances of expenses and indemnification than are set forth in the
articles of incorporation and bylaws (or comparable organizational
documents) of the Company as in effect on the date of the Merger
Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective
Time of the Merger in any manner that would adversely affect the
rights thereunder of former or present directors or officers of the
Company, unless such modification shall be required by law;
•
the indemnification, advancement of expenses and exculpation
provisions of certain indemnification agreements and employment
agreements by and among the Company or its subsidiaries and their
respective directors, officers or employees, as in effect at the
Effective Time of the Merger will survive the Merger and may not be
amended, repealed or otherwise modified for six year from the
Effective Time of the Merger in any manner that would adversely
affect the rights of the current or former directors, officers or
employees of the Company or any subsidiaries; and
•
from and after the Effective Time of the Merger, subject to certain
conditions, the surviving corporation 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 (a) the present and former directors or officers of the
Company or any of its subsidiaries against damages arising out of,
relating to or in connection with (i) the fact that such party is
or was a director or officer of the Company or such subsidiary, or
(ii) any acts or omissions occurring or alleged to have occurred
before or at the Effective Time of the Merger to the extent
provided under the Company and its subsidiaries’ respective
organizational and governing documents or agreements in effect on
the date of the Merger Agreement and to the fullest extent
permitted by the Nevada Revised Statutes or any other applicable
law, including the approval of the Merger Agreement; and (b) such
persons against all damages arising out of acts or omissions in
connection with such persons serving as an officer, director or
other fiduciary in 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.
Actions Taken at the
Direction of Certain Members of the Buyer Group
The Company will not be deemed to be in breach of any
representation, warranty, covenant or agreement under the Merger
Agreement if the alleged breach is the proximate result of action
or inaction taken by the Company at the written direction of any
member of the Buyer Group.
Other
Covenants
The Merger Agreement contains additional agreements between the
Company and Acquisition relating to, among other things:
•
reasonable best efforts of each party to consummate the
transactions contemplated by the Merger Agreement, including
obtaining any applicable regulatory approval;
58
•
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);
•
notification of certain matters and giving opportunity to the other
party to review certain communications and filings related to
government approvals;
•
except for limited exceptions, establish a record date for and duly
call a meeting of the Company’s shareholders;
•
matters relating to takeover statutes;
•
coordination of press releases and other public announcements or
filings relating to the Merger;
Conditions to the
Merger
The obligations of each party to consummate the transactions
contemplated by the Merger Agreement, including the Merger, are
subject to the satisfaction or waiver (where permissible) of the
following conditions:
•
the required shareholder approval has been obtained; and
•
no governmental authority having enacted, issued, promulgated,
enforced or entered any law which is then in effect and has the
effect of making the Merger illegal or otherwise prohibiting the
consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement.
The obligations of Acquisition to consummate the Merger are subject
to the satisfaction or waiver (where permissible), of the following
conditions:
•
the representations and warranties of the Company in the Merger
Agreement being true and correct as of the closing date, subject to
certain Company Material Adverse Effect exceptions and without
giving effect to any “materiality” qualifications in
such representations and warranties;
•
the Company having performed or complied in all material respects
with all covenants and agreements required to be performed or
complied with by it under the Merger Agreement on or prior to the
Effective Time;
•
since the date of the Merger Agreement, there having been no
Company Material Adverse Effect; and
•
the Company having delivered to Acquisition a certificate, dated
the closing date, signed by a duly authorized officer of the
Company, certifying as to the satisfaction of the conditions
above.
The obligations of the Company to consummate the Merger are subject
to the satisfaction or waiver (where permissible) of the following
conditions:
•
the representations and warranties of Acquisition in the Merger
Agreement being true and correct as of the closing date, except for
certain failures to be true and correct that would not prevent or
materially delay consummation of the Merger;
•
Acquisition having performed or complied in all material respects
with all covenants and agreements required to be performed or
complied with by it under the Merger Agreement on or prior to the
Effective Time; and
•
Acquisition having delivered to the Company a certificate, dated
the closing date, signed by a duly authorized officer of
Acquisition, certifying as to the satisfaction of the conditions
above.
Termination of the
Merger Agreement
The Merger Agreement may be terminated at any time prior to the
Effective Time of the Merger by mutual written consent of the
Company (acting through the Special Committee) and Acquisition or
by either the Company (acting through the Special Committee) or
Acquisition, if (1) the Merger is not consummated by August 31,
2016, unless the reason the Merger has not been completed by that
date is a breach of the Merger Agreement by the
59
company seeking to terminate the Merger Agreement, or (2) the
Company fails to obtain the required stockholder approval of the
Merger at the special meeting or any adjournment or postponement
thereof.
The Company (acting through the Special Committee) may terminate
the Merger Agreement if:
•
the board of directors of the Company (acting through the Special
Committee) (i) has determined in good faith that failure to
terminate the Merger Agreement would be inconsistent with its
fiduciary duties under applicable law; (ii) notifies Acquisition
that it intends to withdraw or modify its recommendation to
stockholders to approve the Merger Agreement or to potentially
adopt an alternative acquisition proposal; or (iii) has authorized
the Company to enter into an Alternative Acquisition Agreement;
•
Acquisition has breached any of its representations, warranties or
covenants under the Merger Agreement, which breach would entitle
the Company not to consummate the Merger, subject to the right of
Acquisition to cure the breach within 30 days following written
notice, and provided that the Company has not materially breached
any of its representations, warranties or covenants under the
Merger Agreement; or
•
all of the conditions to closing set forth in the Merger Agreement
have been satisfied, except for those that are to be satisfied at
the closing, and Acquisition fails to consummate the closing of the
Merger within five days of the satisfaction of such conditions.
Acquisition may terminate the Merger Agreement if:
•
the Company has breached any of its representations, warranties or
covenants under the Merger Agreement, which breach would entitle
Acquisition not to consummate the Merger, subject to the right of
the Company to cure the breach within 30 days following written
notice, and provided that the Company has not materially breached
any of its representations, warranties or covenants under the
Merger Agreement; or
•
the board of directors of the Company or the Special Committee
withdraws or modifies its recommendation to stockholders that they
approve the Merger Agreement or to potentially adopt an alternative
acquisition proposal.
Termination Fee and
Reimbursement of Expenses
The Merger Agreement contains certain termination rights for the
Company and Acquisition. The Merger Agreement provides that the
Company will pay to Acquisition a termination fee of US$375,000,
plus Acquisition’s reasonable out-of-pocket expenses,
including attorney’s fees, if the Merger Agreement is
terminated:
•
by Acquisition, if the Company has breached any of its
representations, warranties or covenants under the Merger
Agreement, which breach would entitle Acquisition not to consummate
the Merger, subject to the right of the Company to cure the breach
within 30 days following written notice, and provided that the
Company has not materially breached any of its representations,
warranties or covenants under the Merger Agreement;
•
by Acquisition, if the board of directors of the Company or the
Special Committee withdraws or modifies its recommendation to
stockholders that they approve the Merger Agreement or to
potentially adopt an alternative acquisition proposal;
•
by the Company after the board of directors of the Company (acting
through the Special Committee) (i) has determined in good faith
that failure to terminate the Merger Agreement would be
inconsistent with its fiduciary duties under applicable law; (ii)
notifies Acquisition that it intends to withdraw or modify its
recommendation to stockholders to approve the Merger Agreement or
to potentially adopt an alternative acquisition proposal; or (iii)
has authorized the Company to enter into an Alternative Acquisition
Agreement; or
•
by the Company if, subject to certain conditions, the Company
receives a bona fide alternative acquisition proposal, the Company
terminates the Merger Agreement due to failure to obtain
stockholder approval of the Merger Agreement, and then, within one
year, the Company consummates a transaction based on that same
alternative acquisition proposal.
60
The Merger Agreement provides that Acquisition will pay to the
Company a termination fee of US$375,000, plus the Company’s
reasonable out-of-pocket expenses, including attorney’s fees,
if the Merger Agreement is terminated:
•
by the Company, if Acquisition has breached any of its
representations, warranties or covenants under the Merger
Agreement, which breach would entitle the Company not to consummate
the Merger, subject to the right of Acquisition to cure the breach
within 30 business days following written notice, and provided that
the Company has not materially breached any of its representations,
warranties or covenants under the Merger Agreement; or
•
by the Company, if all of the conditions to closing set forth in
the Merger Agreement have been satisfied, except for those that are
to be satisfied at the closing, and Acquisition fails to consummate
the closing of the Merger within five business days of the
satisfaction of such conditions.
Fees and
Expenses
Except for the right to reimbursement of costs and expenses under
certain circumstances, whether or not the Merger is completed, as
between the Buyer Group and the Company, all costs and expenses
incurred in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement will be paid by
the party incurring such costs and expense.
Modification or
Amendment
Subject to applicable law, the Merger Agreement may be amended by
action of the parties to the Merger Agreement at any time prior to
the Effective Time of the Merger, provided (i) that any such
amendment by the Company requires approval of the Special Committee
and (ii) no amendment shall be made after the approval of the
Merger by the shareholders of the Company that would require
further approval of such shareholders. The Merger Agreement may not
be amended except by an instrument in writing signed by each of the
Company and Acquisition. The Original Merger Agreement contained
the same substantive provisions, and the Merger Agreement was
approved by the Special Committee and entered into in writings
signed by the parties.
Extension and
Waiver
At any time before the Effective Time of the Merger, each of the
parties to the Merger Agreement may (i) extend the time for
performance of any obligation or other act of any other party, (ii)
waive any inaccuracy in the representations and warranties of any
other party, and (iii) waive compliance with any agreement of any
other party or any condition for the benefit of such party or
parties contained in the Merger Agreement subject to the amendment
clause and to the extent permitted by applicable laws.
Remedies
Other than any equitable remedies the Company may be entitled to,
the Company’s right to terminate the Merger Agreement and
receive payment of (i) a reverse termination fee of US$375,000 from
Acquisition and (ii) reimbursement of reasonable out-of-pocket
expenses incurred, including attorney’s fees, is the sole and
exclusive remedy of the Company against Acquisition and certain
related parties as described in the Merger Agreement with respect
to any loss or damage suffered as a result of any breach of the
Merger Agreement or failure of the transactions contemplated by the
Merger Agreement to be consummated.
Other than any equitable remedies Acquisition may be entitled to,
the right of Acquisition to receive payment of (i) a termination
fee of US$375,000 from the Company and (ii) reimbursement of
reasonable out-of-pocket expenses incurred, including
attorney’s fees, is the sole and exclusive remedy of
Acquisition (and its respective affiliates and representatives)
against the Company with respect to any loss or damage suffered as
a result of any breach of the Merger Agreement or failure of the
transactions contemplated by the Merger Agreement to be
consummated.
61
The Company and Acquisition are entitled to specific performance of
the terms under the Merger Agreement, including an injunction or
injunctions to prevent breaches of the Merger Agreement and to
enforce specifically the terms and provisions of the Merger
Agreement. The Company is entitled to an injunction, specific
performance or other equitable remedies to cause Acquisition to cause Mr. Chen and
Ms. Fan to fund the Merger Consideration in certain circumstances.
However, under no circumstances is the Company permitted or
entitled to both a grant of specific performance that results in
completion of the Merger and payment of all or any portion of the
reverse termination fee.
62