UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(RULE
14a-101)
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934
Filed
by the Registrant
þ
Filed
by a Party other than the Registrant ☐
Check
the appropriate box:
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þ
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Preliminary
Proxy Statement.
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☐
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)).
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☐
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Definitive
Proxy Statement.
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☐
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Definitive
Additional Materials.
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☐
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Soliciting
Material Pursuant to §240.14a-12.
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CHINA
YIDA HOLDING, CO.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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þ
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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Common
stock, par value US$0.001 per share, of China Yida Holding, Co. ("
Company Common Stock
")
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(2)
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Aggregate
number of securities to which transaction applies:
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1,646,988
shares of Company Common Stock outstanding as of March 30, 2016.
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(3)
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Per unit
price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11(b)(1) (set forth the amount on
which the filing fee is calculated and state how it was determined):
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The
maximum aggregate value of the transaction was calculated based upon the 1,646,988 shares of Company Common Stock issued and outstanding
as of March 30, 2016 (being the remainder of the 3,914,580 aggregate shares of Company Common Stock outstanding as of March 30,
2016 minus the 2,267,592 shares of Company Common Stock beneficially owned by the Principal Shareholders, as defined herein) multiplied
by US$3.32 per share Merger Consideration.
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(4)
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Proposed
maximum aggregate value of transaction: US$5,468,000.16
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(5)
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Total
fee paid: US$550.63
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☐
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Fee
paid previously with preliminary materials.
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☐
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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PRELIMINARY
PROXY STATEMENT – SUBJECT TO COMPLETION
CHINA
YIDA HOLDING, CO.
________,
2016
Dear
Shareholder:
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 ________, 2016 at ____, 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.
A
special committee of the Company's board of directors (the "
Special Committee
"), consisting entirely
of independent directors, reviewed and considered the terms and conditions of the Merger Agreement and the transactions contemplated
by the Merger Agreement, including the Merger. The Special Committee unanimously (i) determined that the Merger Agreement and
the transactions contemplated by the Merger Agreement, 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 Principal Shareholders), whom we refer to as
the "
Unaffiliated Shareholders
," and (ii) recommended that the Company's 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 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 March
30, 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.
Best
regards,
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Best
regards,
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Renjiu
Pei
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Minhua
Chen
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Chairman
of the Special Committee of the Board of Directors
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Chief
Executive Officer, President and Chairman of the Board of Directors
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The
proxy statement is dated ________, 2016, and is first being mailed to the Company's shareholders on or about ________, 2016.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON
THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
China
Yida Holding, Co.
28/F
Yifa Building, No. 111 Wusi Road
Fuzhou,
Fujian, P. R. China 350003
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
To
Be Held on ________, 2016
A
special meeting of shareholders of China Yida Holding, Co., a Nevada corporation (the "
Company
"), will be held
on ________, 2016 at ____ (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:
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1.
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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.
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2.
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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.
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The
board of directors of the Company has fixed the close of business, Beijing time, on ________, 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 Company] at +_________, or toll-free at _________.
TABLE
OF CONTENTS
SUMMARY
TERM SHEET
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1
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Overview
of the Transaction
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2
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The
Special Meeting
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2
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QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
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10
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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15
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THE
MERGER
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16
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The
Parties
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16
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Overview
of the Transaction
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17
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Management
and Board of Directors of the Surviving Corporation
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17
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Background
of the Merger
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17
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Recommendation
of Our Board of Directors and the Special Committee and Their Reasons for the Merger
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21
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Opinion
of the Special Committee's Financial Advisor
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27
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Reasons
of the Buyer Group for the Merger
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35
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Position
of the Buyer Group as to the Fairness of the Merger
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36
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Effect
of the Merger on the Company
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39
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Effects
on the Company if the Merger is not Completed
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39
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Plans
for the Company after the Merger
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39
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Alternatives
to the Merger
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40
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Financing
of the Merger
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40
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Voting
Agreement
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41
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Limited
Guarantee
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41
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Limitation
of Liability
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41
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Interests
of Certain Persons in the Merger
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41
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Relationship
between the Company and the Buyer Group
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43
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Dividends
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43
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Regulatory
Matters
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43
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Fees
and Expenses
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43
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Delisting
and Deregistration of the Company Common Stock
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43
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THE
SPECIAL MEETING
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44
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Time,
Place and Purpose of the Special Meeting
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44
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Record
Date and Quorum
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44
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Attendance
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44
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Vote
Required
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44
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Proxies
and Revocation
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46
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Adjournments
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47
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Anticipated
Date of Completion of the Merger
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47
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Payment
of Solicitation Expenses
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47
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Questions
and Additional Information
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47
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THE
AGREEMENT AND PLAN OF MERGER
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48
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Structure
and Completion of the Merger
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48
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Articles
of Incorporation and Bylaws of the Surviving Corporation; Directors and Officers of the Surviving Corporation
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48
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Treatment
of Common Stock
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48
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Exchange
Procedures
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48
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Representations
and Warranties
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49
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Conduct
of Business Prior to Closing
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51
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Financing
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53
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Agreement
Not to Solicit Other Offers
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53
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Shareholders
Meeting
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55
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Indemnification;
Directors' and Officers' Insurance
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55
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Actions
Taken at the Direction of Certain Members of the Buyer Group
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55
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Other
Covenants
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56
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Conditions
to the Merger
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56
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Termination
of the Merger Agreement
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57
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Termination
Fee and Reimbursement of Expenses
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57
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Fees
and Expenses
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58
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Modification
or Amendment
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58
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Extension
and Waiver
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58
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Remedies
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58
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY
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59
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COMMON
STOCK TRANSACTION INFORMATION
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60
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DISSENTERS'
RIGHTS FOR HOLDERS OF COMMON STOCK
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61
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SELECTED
FINANCIAL INFORMATION
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64
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CERTAIN
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
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65
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CERTAIN
MATERIAL PRC INCOME TAX CONSEQUENCES
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69
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WHERE
YOU CAN FIND MORE INFORMATION
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70
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ANNEX
A THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
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A-1
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ANNEX
B OPINION OF ROTH CAPITAL PARTNERS
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B-1
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ANNEX
C DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON
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C-1
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ANNEX
D FORM OF PROXY CARD
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D-1
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ANNEX
E NEVADA RIGHTS OF DISSENTING OWNERS
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E-1
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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 70. 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 refer to shareholders
of the Company (other than the holders of the Excluded Shares (as defined below)) as the "
Unaffiliated 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 44)
The
special meeting will be held on __________, 2016, starting at ______, 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 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 44)
You
may vote at the special meeting if you owned any shares of Company Common Stock at the close of business, Beijing time, on ________,
2016, the record date for the special meeting. On that date, there were ________ 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 48
and "
The Special Meeting
" beginning on page 44 for detailed information.
Merger
Consideration (Page 48)
If
the Merger Agreement is approved by the requisite vote of the Company's shareholders and the Merger is consummated:
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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 61 for additional information;
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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
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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.
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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 48 for additional information.
Recommendation
of Our Board of Directors and the Special Committee 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 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
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 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 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 36)
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 36 for additional information.
Opinion
of the Special Committee's Financial Advisor (Page 27)
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 27 for additional information.
Financing
of the Merger (Page 40)
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 40 for additional
information.
Voting
Agreement (page 41)
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 41 for additional information.
Limited
Guarantee (Page 41)
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 41 and
"
The Agreement and Plan of Merger—Termination Fees and Reimbursement of Expenses
" on page 57 for additional
information.
Interests
of Certain Persons in the Merger (Page 41)
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:
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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;
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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;
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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;
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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
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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.
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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 41 for additional information.
Conditions
to the Merger (Page 56)
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 56 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
53)
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:
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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;
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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
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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.
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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 53 for additional information
.
Termination
of the Merger Agreement (Page 57)
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
(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 57)
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:
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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;
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by
Acquisition, if the board of directors of the Company or the Special Committee shall have effected and not withdrawn a board
recommendation change;
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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
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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.
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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:
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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
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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.
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Remedies
(page 58)
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 61)
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
61 for additional information.
Certain
Material U.S. Federal Income Tax Consequences (Page 65)
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 65
for additional information.
Certain
Material PRC Income Tax Consequences (Page 69)
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 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 69 for additional information.
Fees
and Expenses (Page 58)
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 58 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 70)
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 70
.
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:
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Why
am I receiving this proxy statement?
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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, ________, 2016, the record date for the special
meeting.
Q:
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What
matters will be voted on at the special meeting?
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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:
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As
a shareholder, what will I receive in the Merger?
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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 65 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 ________, 2016, starting at ____ (Beijing time), at 28/F, Yifa Building,
No.111 Wusi Road, Fuzhou, Fujian Province, China, 35003.
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 ________, 2016, the record date, ________ shares of Company Common Stock were outstanding
and entitled to vote at the special meeting. On the record date, the Buyer Group owned ________ shares of Company Common Stock.
The Buyer Group shares represent approximately __% 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 ________, 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 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 41
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 ________, 2016, the record date of the special meeting, Mr. Chen owned ________
shares of Company Common Stock entitled to vote at the special meeting, or approximately __% of the total issued and outstanding
shares of the Company Common Stock. As of ________, 2016, the record date of the special meeting, Ms. Fan owned ________
shares of Company Common Stock entitled to vote at the special meeting, or approximately __% of the total issued and outstanding
shares of the Company Common Stock.
As
of ________, 2016, the record date, Mr. Chen and Ms. Fan beneficially owned and were entitled to vote, in the aggregate, ________
shares of Company Common Stock, representing __% 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 44 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
"
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 ________, 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.
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.
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 57 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 Company] at + [ ], or toll-free at [ ].
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:
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●
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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;
|
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●
|
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;
|
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●
|
the
failure of the Merger to close for any other reason;
|
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●
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risks
that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as
a result of the Merger;
|
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●
|
the
outcome of any legal proceedings that have been or may be instituted against the Company and/or others relating to the Merger
Agreement;
|
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●
|
diversion
of management's attention from ongoing business concerns;
|
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●
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the
effect of the announcement of the Merger on our business relationships, operating results and business generally;
|
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●
|
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
|
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●
|
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
" below). 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.
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 70. 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.
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:
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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;
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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;
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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
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the
Principal Shares will be the only remaining issued and outstanding shares of the surviving corporation .
|
Following
and as a result of the Merger:
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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;
|
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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
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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 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 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 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 Origianl Merger and approve the Original Mergre 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 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 Mergre 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 and Their Reasons for the Merger
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.
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):
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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;
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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;
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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;
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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;
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the
limited trading volume of our common stock on the NASDAQ Capital Market;
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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 27 for additional information.
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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;
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the
likelihood that the Merger would be completed based on, among other things (not in any relative order of importance):
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the
fact that the Buyer Group has all funds necessary to pay the Merger Consideration in accordance with the Merger Agreement;
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o
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the
absence of a financing condition in the Merger Agreement;
|
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o
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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;
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o
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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 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;
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o
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Acquisition's
agreement in the Merger Agreement to use its reasonable best efforts to consummate the Merger;
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o
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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;
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o
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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;
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o
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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—Competing Transactions
" below);
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the
fact that the outreach to other potential bidders during the pre-signing market check has not resulted in any alternative
acquisition proposals; and
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o
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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
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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:
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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;
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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;
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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;
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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;
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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;
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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;
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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;
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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;
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the
Company has the ability under certain circumstances to specifically enforce certain terms of the Merger Agreement;
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the
Company may under certain circumstances terminate the Merger Agreement in order to enter into an agreement relating to a superior
proposal; and
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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.
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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):
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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;
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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;
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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;
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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;
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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;
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the
risk of incurring substantial expenses related to the Merger, including in connection with any potential litigation related
to the Merger;
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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;
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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;
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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 41 for additional information); and
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the
tax implications of an all cash transaction to our Unaffiliated Shareholders that are U.S. holders for U.S. federal income
tax purposes.
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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 27. 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 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 60. 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 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; and
|
|
●
|
the
Special Committee's 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.
|
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 27 for additional
information;
|
|
●
|
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 totalled 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 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.
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 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 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;
|
|
●
|
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 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:
Company
|
|
Ticker
|
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:
|
|
|
Diluted
|
|
Share
Price
|
|
Mkt.
Cap
|
|
TEV
|
|
EV/Revenue
|
|
EV/EBITDA
|
|
P/Earnings
|
Proj.
Growth
|
|
LTM
Margins (%)
|
|
ROA
|
|
EV/
|
|
Company
|
Ticker
|
|
Shares
|
|
3/7/16
|
|
3/7/16
|
|
3/7/16
|
|
LTM
|
|
CY15
|
|
CY16
|
|
CY17
|
|
LTM
|
|
CY15
|
|
CY16
|
|
CY17
|
|
LTM
|
|
CY15
|
|
CY16
|
|
CY17
|
15-16
|
|
16-17
|
|
Gross
|
|
EBITDA
|
|
Net
|
|
%
|
|
T.
Book
|
|
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
|
|
Notes
to the tables:
Source:
Capital IQ & Bloomberg. Projected financials based on median analyst estimates.
Enterprise
value = market cap + debt – cash. All values in millions.
LTM
as of 09/30/15.
All
EV/EBITDA multiples less than 0 or greater than 50 are considered "NM".
All
P/E multiples less than 0 or greater than 100 are considered "NM".
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$3.32 was above the high end of
the various selected publicly traded comparable company multiples.
Selected
Comparable Transaction Analysis
. ROTH reviewed and compared the purchase prices and financial multiples paid in selected
other transactions primarily in the leisure, tourism, hotel, amusement park, resorts and cruise line space from January 1, 2010
to present that had publicly available data and that ROTH, in the exercise of its professional judgment, determined to be relevant.
For each of the selected transactions, ROTH calculated and compared the resulting enterprise value in the transaction as a multiple
of LTM revenue and EBITDA. ROTH also calculated and compared the resulting price as a multiple of LTM earnings and book value.
Such multiples for the selected transactions were based on publicly available information at the time of the relevant transaction.
The selected transactions analyzed are set out in the following table:
Closed
Date
|
|
Target
|
|
Buyer
|
|
Transaction
Value ($M)
|
|
EV/LTM
REV
|
|
EV/LTM
EBITDA
|
|
P/LTM
E
|
|
P/BV
|
|
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
|
|
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
|
|
|
|
|
|
25th
PCTL
|
|
$22.0
|
|
1.3x
|
|
8.7x
|
|
16.1x
|
|
1.4x
|
|
|
|
|
|
Median
|
|
$107.2
|
|
2.0x
|
|
15.7x
|
|
29.6x
|
|
2.0x
|
|
|
|
|
|
75th
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$3.32 was between the minimum and twenty-fifth percentile of the price to
book value multiples for the comparable transactions.
Analyses
of Implied Premia
. ROTH reviewed and compared the offer price to certain closing prices in selected other transactions
primarily in the amusement park space from January 1, 2010 to present that had publicly available data and that ROTH, in the exercise
of its professional judgment, determined to be relevant. For each of the transactions, ROTH calculated and compared the premium
of the offer price to (i) the closing price on the last trading day prior to the announcement of the offer, (ii) the closing price
of seven days prior to the offer, and (iii) the closing price 30 days prior to the offer. The selected transactions analyzed are
set out in the following table:
Closed Date
|
|
Target
|
|
Buyer
|
|
Transaction
Value ($M)
|
|
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
|
|
|
|
|
25th
PCTL
|
|
$34.4
|
|
-9.2
|
|
-7.0
|
|
-10.3
|
|
|
|
|
Median
|
|
$123.8
|
|
5.9
|
|
14.6
|
|
19.5
|
|
|
|
|
75th
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
|
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$3.32 was above the median premium for comparable transaction
premises for the day prior to an offer and between the twenty-fifth percentile and the median for comparable transaction premia
for the seven days and 30 days prior to an offer.
Illustrative
Analysis with Other U.S.-Listed Chinese Going Private Transactions
. ROTH reviewed the EV to LTM revenue multiples, the EV
to LTM EBITDA multiples and the premia paid or offered in transactions involving U.S.-listed Chinese companies that have either
completed a going private transaction or that are or were subject to a going private offer. ROTH believes that both the general
market for U.S.-listed Chinese companies as well as the specific market for privatizations of U.S.-listed Chinese companies are
unique, and that the EV to LTM revenue and EBITDA multiples as well as the premia paid or offered in such transactions is a meaningful
comparison for the Company's potential privatization (along with the other analyses performed by ROTH described in this
proxy statement). The selected transactions analyzed are set out in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
Premium as a % of
|
Company
|
|
Date
|
|
Status
|
|
EV
($M)
|
|
EV/LTM
REV
|
|
EV/LTM
EBITDA
|
|
1
Day Prior
|
|
30
Day VWAP
|
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 Innovatons
|
|
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%
|
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
|
|
$275.0
|
|
1.0x
|
|
10.6x
|
|
21.3%
|
|
25.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium as a % of
|
Company
|
|
Date
|
|
Status
|
|
EV
($M)
|
|
EV/LTM
REV
|
|
EV/LTM
EBITDA
|
|
1
Day Prior
|
|
30
Day VWAP
|
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%
|
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%
|
|
|
|
|
25th
PCTL
|
|
$69.4
|
|
0.6x
|
|
5.1x
|
|
17.6%
|
|
17.8%
|
|
|
|
|
Median
|
|
$216.0
|
|
1.2x
|
|
7.4x
|
|
22.9%
|
|
26.7%
|
|
|
|
|
75th
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.
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 fixed fee upon the delivery of its fairness
opinion to the Special Committee as well as a fixed fee upon the closing of the Merger. The fairness opinion fee is not contingent
upon the Merger closing. 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 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 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 41.
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 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:
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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;
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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;
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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;
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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;
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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;
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the
Merger will provide liquidity for the Company's Unaffiliated Shareholders without
incurring brokerage and other costs typically associated with market sales; and
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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.
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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:
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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;
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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;
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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;
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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;
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the
Special Committee and the Company's board of directors had no obligation to recommend
the approval of the Merger Agreement;
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the
Merger was unanimously approved by the Special Committee;
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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;
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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;
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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;
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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;
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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;
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the
Company has the ability under certain circumstances to specifically enforce the terms
of the Merger Agreement; and
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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.
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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 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 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 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. 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 57 for additional information.
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:
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an
extraordinary corporate transaction, such as a merger, reorganization or liquidation,
involving the Company or any of its subsidiaries;
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the
sale or transfer of a material amount of the assets of the Company or any of its subsidiaries;
or
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any
other material changes to the Company's corporate structure or otherwise in the
Company's business.
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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 PRELIMINARY 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 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.
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:
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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;
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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 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
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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.
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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 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:
Description
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Amount
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Financing fees and expenses and related professional fees
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US$
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Financial advisory fees and expenses
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US$
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Legal fees and expenses
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US$
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Special Committee fees
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US$
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Miscellaneous (including printing, proxy solicitation, filing fees, mailing costs, etc.)
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US$
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Total
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US$
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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.
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 ________, 2016 starting at ____ (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 ________, 2016 as the record date for the special meeting, and only holders of
record of Company Common Stock and Company preferred 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 or Company
preferred stock at the close of business on the record date. On the record date, there were _________ 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 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.
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 Company] at + [
], or toll-free at [ ].
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 ________, 2016, the record date, the directors and executive officers of the Company beneficially owned and were entitled to
vote, in the aggregate, ________ shares of Company Common Stock (excluding shares issuable upon the exercise of options and restricted
stock units as of such date), representing __% 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 ________, 2016, the record date, ________ shares of Company Common Stock were outstanding
and entitled to vote at the special meeting. On the record date, the Buyer Group owned ________ shares of Company Common Stock.
These represent approximately __% 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 ________ 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 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:
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submitting
a new proxy by telephone or via the Internet after the date of the earlier submitted
proxy;
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signing
another proxy card with a later date and returning it to us prior to the special meeting;
or
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attending
the special meeting and voting in person.
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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 Company] at + [ ], or toll-free
at [ ].
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 61 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 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. It should
also be noted that information concerning the subject matter of the representations and warranties, which do not purport to be
accurate as of the date of this proxy statement, may have changed since the date of the Merger Agreement and subsequent developments
or new information qualifying a representation or warranty may have been included in this proxy statement.
The
representations and warranties made by the Company to Acquisition include representations and warranties relating to, among other
things:
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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;
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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;
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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;
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●
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the
vote of the Company's shareholders required to approve the Merger Agreement;
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●
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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;
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●
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governmental
consents and approvals in connection with the transactions contemplated by the Merger
Agreement;
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●
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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;
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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;
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the
Company's SEC filings since December 31, 2014 and the financial statements included
or incorporated by reference in such SEC filings;
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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;
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material
contracts and the absence of any default under, or material breach or violation of, any
material contract;
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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;
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the
compliance with laws applicable to the Company and its subsidiaries in the jurisdictions
in which the Company and its subsidiaries operate;
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the
absence of legal proceedings and governmental orders against the Company or its subsidiaries;
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the
receipt of a fairness opinion from the financial advisor to the Special Committee;
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the
absence of a shareholder rights agreement and the inapplicability of Nevada anti-takeover
statutes to the Merger; and
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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.
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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:
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i.
|
changes
in general economic conditions in the United States, the PRC or any other country where
the Company or its subsidiaries operate;
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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;
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iii.
|
changes
in the conditions in the industries in which the in the Company or its subsidiaries operate;
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iv.
|
changes
in political conditions in the United States, the PRC or any other country where the
Company or its subsidiaries operate;
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v.
|
acts
of God, natural disasters, epidemics, declarations of war, acts of sabotage or terrorism,
outbreak or escalation of hostilities or similar events;
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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;
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vii.
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changes
in GAAP or regulatory accounting requirements (or any interpretation or enforcement thereof)
after the date of the Merger Agreement;
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viii.
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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;
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ix.
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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
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x.
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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;
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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:
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their
due organization, existence and good standing (to the extent the relevant jurisdiction
recognizes such concept of good standing);
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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;
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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;
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governmental
consents and approvals in connection with the transactions contemplated by the Merger
Agreement;
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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;
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the
absence of legal proceedings and governmental orders against Acquisition, or any of its
respective affiliates;
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ownership
of shares of Company Common Stock by Acquisition and its affiliates;
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the
absence of any undisclosed broker's or finder's fees;
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the
operations of Acquisition;
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the
capitalization of Acquisition;
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solvency
of Acquisition and the surviving corporation or any of their respective subsidiaries
immediately following completion of the Merger; and
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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.
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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.
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:
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amend
or otherwise change the governing documents of the Company or any of its subsidiaries;
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issue,
sell, deliver or agree to issue, sell, or deliver any securities of the Company or any
of its subsidiaries subject to certain exceptions;
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acquire,
repurchase or redeem any Company securities;
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reclassify,
combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly,
any Company securities;
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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;
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enter
into a voting agreement with respect to any Company securities that is inconsistent with
the Merger;
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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;
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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;
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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;
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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;
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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;
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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;
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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;
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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;
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enter
into any new line of business outside of its existing business segments;
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adopt,
propose, effect or implement any "shareholder rights plan," "poison
pill" or similar arrangement; or
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agree,
authorize or enter into any agreement or otherwise make a commitment, to do any of the
foregoing.
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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:
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solicit,
initiate or induce the making, submission or announcement of, or knowingly encourage,
facilitate or assist, an acquisition proposal;
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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;
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participate
or engage in discussions or negotiations with any third party with respect to an acquisition
proposal;
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approve,
endorse or recommend an acquisition proposal; or
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enter
into any agreement contemplating or otherwise relating to an acquisition.
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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 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 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.
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 "
—Competing Transactions
" , 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:
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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;
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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
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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:
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reasonable
best efforts of each party to consummate the transactions contemplated by the Merger
Agreement, including obtaining any applicable regulatory approval;
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●
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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);
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●
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notification
of certain matters and giving opportunity to the other party to review certain communications
and filings related to government approvals;
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●
|
except
for limited exceptions, establish a record date for and duly call a meeting of the Company's
shareholders;
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●
|
matters
relating to takeover statutes;
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●
|
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:
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the
required shareholder approval has been obtained; and
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●
|
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:
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|
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;
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●
|
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;
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●
|
since
the date of the Merger Agreement, there having been no Company Material Adverse Effect;
and
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●
|
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;
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●
|
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
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●
|
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 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:
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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;
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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
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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:
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|
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.
|
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.
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.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMPANY
The
following table sets forth certain information regarding beneficial ownership of Company Common Stock, as of March 30, 2016, by
each of the Company's directors and executive officers; all executive officers and directors as a group, and each person
known to the Company to own beneficially more than 5% of the Company Common Stock. Except as otherwise noted, the persons identified
have sole voting and investment powers with respect to their shares. As of March 30, 2016, there were a total of 3,914,580 shares
of Company Common Stock outstanding.
Unless
otherwise specified, the address of each of the persons set forth below is c/o China Yida Holding, Co., 28/F Yifa Building, No.
111 Wusi Road, Fuzhou, Fujian, People's Republic of China.
Name and Address of Beneficial Owner (1)
|
|
Number of Shares and Nature of Beneficial Ownership (1)
|
|
|
Percent of Common Stock Outstanding
|
|
Executive Officers and Directors
|
|
|
|
|
|
|
Minhua Chen
|
|
|
1,145,196
|
(2)
|
|
|
29.25
|
%
|
|
|
|
|
|
|
|
|
|
Yanling Fan
|
|
|
1,122,396
|
|
|
|
28.67
|
%
|
|
|
|
|
|
|
|
|
|
Yongxi Lin
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Renjiu Pei
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Chunyu Ying
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Fucai Huang
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (6 persons)
|
|
|
2,267,592
|
|
|
|
57.84
|
%
|
|
|
|
|
|
|
|
|
|
Other 5% Shareholders
|
|
|
|
|
|
|
|
|
Pope Investment II, LLC (3) 5100 Poplar Avenue, Suite 805 Memphis, Tennessee 38137
|
|
|
924,514
|
|
|
|
23.6
|
%
|
(1)
|
A
person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or
shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time
within 60 days (such as through exercise of stock options or warrants). Unless otherwise indicated, voting and investment
power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial
owner or shared by the owner and the owner's spouse or children.
|
|
|
(2)
|
Including
6,000 shares of common stock issuable upon exercise of stock options, which were transferred from George Wung and Wei Zhang
as a gift on January 6, 2012.
|
|
|
(3)
|
Based
on representation of Pope Investment II, LLC whose address is 5100 Poplar Ave. Suite 805 Memphis TN 38137. William P. Wells
is the managing member of Pope Investment II, LLC, acting alone, has voting and dispositive power over the shares beneficially
owned by Pope Investment II, LLC.
|
COMMON
STOCK TRANSACTION INFORMATION
There
have been no prior stock purchases by any member of the Buyer Group in shares of Company Common Stock during the past two years.
Market
Information
Our
common stock is quoted on the NASDAQ Capital Market under the trading symbol "CNYD". The closing price for Company
Common Stock on the NASDAQ Capital Market on October 23, 2015, the last trading day prior to the Company's announcement
of its receipt of Mr. Chen's and Ms. Fan's proposal on October 24, 2015, was US$3.02 per share.
The
following table sets forth the high and low sales prices for our common stock as reported by NASDAQ for the periods indicated.
Year
|
|
Period
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
First Quarter
|
|
US$
|
7.24
|
|
|
US$
|
3.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
4.24
|
|
|
|
2.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
4.20
|
|
|
|
3.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
3.05
|
|
|
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
First Quarter
|
|
US$
|
2.63
|
|
|
US$
|
1.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
4.50
|
|
|
|
2.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
3.33
|
|
|
|
2.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
3.20
|
|
|
|
2.21
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
First Quarter
|
|
US$
|
3.31
|
|
|
US$
|
1.35
|
|
On
October 26, 2015, the last trading day before the Company publicly announced its receipt of the Buyer Group's non-binding
proposal to acquire the outstanding shares of the Company Common Stock that are not owned by the Buyer Group, for US$3.32 per
share, the last sale price of the shares of Company Common Stock reported on the NASDAQ was US$3.30 per share. On March 9, 2016,
the last trading day prior to the public announcement of the Merger Agreement, the last sale price of the shares of Company Common
Stock reported on the NASDAQ Capital Market was US$1.97 per share. On ________, 2016, the most recent practicable date before
this proxy statement was mailed to our shareholders, the closing price for the shares of Company Common Stock on NASDAQ Capital
Market was US$____ per share of Company Common Stock. You are encouraged to obtain current market quotations for shares of Company
Common Stock in connection with voting your shares of Company Common Stock.
Holders
As
of ________, 2016, the record date, there were ___ record holders of Company Common Stock.
Dividends
The
Company has not paid any cash dividends on its common stock, and does not currently intend to declare any dividends on its common
stock in the near future.
Other
Matters for Action at the Special Meeting
As
of the date of this proxy statement, the Company's board of directors knows of no matters that will be presented for consideration
at the special meeting other than as described in this proxy statement.
Once
the Merger is completed, there will be no public participation in any future meetings of the Company's shareholders. If
the Merger is not completed, our public shareholders will continue to be entitled to attend and participate in our shareholder
meetings, and we would expect to hold our 2016 annual meeting of shareholders prior to the end of 2016. As such, in order to be
considered for inclusion in the proxy statement distributed to shareholders prior to the 2016 annual meeting of shareholders,
a shareholder proposal pursuant to Rule 14a-8 under the Exchange Act must be received by us a reasonable time before the Company
begins to print and send its proxy materials. Proposals should be submitted in writing to the Company at our principal executive
offices at China Yida Holding, Co., 28/F, Yifa Building, No.111 Wusi Road, Fuzhou, Fujian Province, China 350003, Attn: Jocelyn
Chen, Board Secretary. We suggest that you mail your proposal by certified mail, return receipt requested.
DISSENTERS'
RIGHTS FOR HOLDERS OF COMMON STOCK
Pursuant
to Chapter 92A (Section 300 through 500 inclusive) of the NRS, or the "Dissenters' Rights Provisions", any unaffiliated
shareholder of the Company is entitled to dissent to the Merger, and obtain payment of the fair value of the Shares. In the context
of the Merger, the Dissenters' Rights Provisions provide that the Unaffiliated Shareholders may elect to have the Company
purchase the Shares held by the Unaffiliated Shareholders for a cash price that is equal to the "fair value" of such
Shares, as determined in a judicial proceeding in accordance with the Dissenters' Rights Provisions. The fair value of the
Shares of any unaffiliated shareholder means the value of such Shares immediately before the effectuation of the Merger, excluding
any appreciation or depreciation in anticipation of the Merger, unless exclusion of any appreciation or depreciation would be
inequitable.
A
copy of the Nevada Dissenters' Rights Provisions is attached as Annex E hereto. If you wish to exercise your dissenters'
rights or preserve the right to do so, you should carefully review Annex E hereto. If you fail to comply with the procedures specified
in the Nevada Dissenters' Rights Provisions in a timely manner, you may lose your dissenters' rights. Because of the
complexity of those procedures, you should seek the advice of counsel if you are considering exercising your dissenters'
rights.
Unaffiliated
Shareholders who perfect their dissenters' rights by complying with the procedures set forth in the Dissenters' Rights
Provisions will have the fair value of their Shares determined by a Nevada state district court and will be entitled to receive
a cash payment equal to such fair value. Any such judicial determination of the fair value of such Shares could be based upon
any valuation method or combination of methods the court deems appropriate. The value so determined could be more or less than
the Merger Consideration to be paid in connection with the Merger. In addition, Unaffiliated Shareholders who invoke dissenters'
rights may be entitled to receive payment of a fair rate of interest from the Effective Time of the Merger on the amount determined
to be the fair value of their Shares.
Within
10 days after the effectuation of the Merger, the Company will send a written notice (the "Notice of Merger and Dissenters'
Rights") to all the record shareholders of the Company entitled to dissenters' rights. Pursuant to NRS 92A.430, the
Notice of Merger and Dissenters' Rights will be accompanied by information that will: (a) state where the demand for payment
must be sent and where and when certificates, if any, for Shares must be deposited; (b) inform the holders of Shares not represented
by certificates to what extent the transfer of the Shares will be restricted after the demand for payment is received; (c) supply
a form for demanding payment that includes the date of the first announcement to the news media or to the shareholders of the
terms of the proposed action and requires that the person asserting dissenters' rights certify whether or not the person
acquired beneficial ownership of the Shares before that date; (d) set a date by which the Company must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date the notice is delivered and state that the shareholder
shall be deemed to have waived the right to demand payment with respect to the shares unless the form is received by the Company
by such specified date; and (e) be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
Under
NRS 92A.440, a shareholder wishing to exercise dissenters' rights must:
|
●
|
certify
whether the shareholder acquired beneficial ownership of the common stock before the
date specified in the Notice of Merger and Dissenters' Rights; and
|
|
●
|
deposit
its certificates, if any, in accordance with the terms of the Notice of Merger and Dissenters'
Rights.
|
Under
NRS 92A.440(5), shareholders who fail to demand payment or deposit their certificates where required by the dates set forth in
the Notice of Merger and Dissenters' Rights will not be entitled to demand payment or receive the fair market value for
their Shares as provided under Nevada law. Instead, such shareholders will receive the same consideration as the shareholders
who do not exercise rights of a dissenting owner.
Pursuant
to NRS 92A.460, within 30 days after receipt of a demand for payment, the Company must pay each dissenter who complied with the
provisions of the Dissenters' Rights Provisions the amount the Company estimates to be the fair value of such shares, plus
interest from the effective date of the Merger. The payment must be accompanied by the following: (a) the Company balance sheet
as of the end of 2015, a statement of income for 2015, a statement of changes in the shareholders' equity for 2015 or, where
such financial statements are not reasonably available, then such reasonably equivalent financial information and the latest available
quarterly financial statements, if any; (b) a statement of the Company's estimate of the fair value of the Shares; and (c)
a statement of the dissenter's rights to demand payment under NRS 92A.480 and that if any such shareholder does not do so
within the period specified, such shareholder shall be deemed to have accepted such payment in full satisfaction of the Company's
obligations under Chapter 92A of the NRS.
Under
NRS 92A.470(1), the Company is entitled to withhold payment from a dissenter unless the dissenter was the beneficial owner before
the date set forth in the dissenters' notice as the first date of any announcement to the news media or to the shareholders
of the terms of the proposed corporate action. If the Company chooses to withhold payment, it is required, within 30 days after
receiving demand for payment, to notify the dissenter: (a) of the Company's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of the notice, a statement of earnings for that year, and a statement of changes
in shareholders' equity for that year, or, where such financial statements are not reasonably available, then such reasonably
equivalent financial information, as well as the latest available financial statements, if any; (b) of the Company's estimate
of the fair value of the Shares; (c) that the dissenter may accept the Company's estimate of the fair value, plus interest,
in full satisfaction of his or her demands or demand appraisal; (d) that if the dissenter wishes to accept the offer, the dissenter
must notify the Company of acceptance within 30 days after receiving of the offer; and (e) that if the dissenter does not satisfy
the requirements for demanding appraisal, the dissenter shall be deemed to have accepted the Company' offer.
NRS
92A.480(1) provides that a dissenter who believes that the amount paid or offered is less than the full value of his or her, or
that the interest due is incorrectly calculated, may, within 30 days after the Company made or offered payment for the Shares,
either (i) notify the Company in writing of his or her own estimate of the fair value of the Shares and the amount of interest
due and demand payment of difference between this estimate and any payments made, or (ii) reject the offer for payment made by
the Company and demand payment of the fair value of his or her Shares and interest due.
If
the Company does not deliver payment within 30 days of receipt of the demand for payment, the dissenting shareholder may enforce
under NRS 92A.460(1) the dissenter's rights by commencing an action in Carson City, Nevada or if the dissenting shareholder
resides or has its registered office in Nevada, in the county where the dissenter resides or has its registered office.
If
a dissenting shareholder disagrees with the amount of the Company's payment, then the dissenting shareholder may, pursuant
to NRS 92A.480, within 30 days of such payment, (i) notify the Company in writing of the dissenting shareholder's own estimate
of the fair value of the dissenting shares and the amount of interest due, and demand payment of such estimate, less any payments
made by the Company, or (ii) reject the offer by the Company if the dissenting shareholder believes that the amount offered by
the Company is less than the fair value of the dissenting shares or that the interest due is incorrectly calculated. If a dissenting
shareholder submits a written demand as set forth above and the Company accepts the offer to purchase the Shares at the offer
price, then such dissenting shareholder will be sent a check for the full purchase price of the Shares within 30 days of acceptance.
If
a demand for payment remains unsettled, the Company must commence a proceeding in the Carson City, Nevada district court within
60 days after receiving the demand. Each dissenter who is made a party to the proceeding shall be entitled to a judgment in the
amount, if any, by which the court finds the fair value of the dissenting shares, plus interest, exceeds the amount paid by the
Company. If a proceeding is commenced to determine the fair value of the Shares, the costs of such proceeding, including the reasonable
compensation and expenses of any appraisers appointed by the court, shall be assessed against the Company, unless the court finds
the dissenters acted arbitrarily or not in good faith in demanding payment. The court may also assess the fees and expenses of
the counsel and experts for the respective parties, in amounts the court finds equitable against the Company if the court finds
that (i) the Company did not comply with the Dissenters' Rights Provisions or (ii) against either the Company or a dissenting
shareholder, if the court finds that such party acted arbitrarily or not in good faith with respect to the rights provided by
the Dissenters' Rights Provisions.
If
the Company fails to commence such a proceeding, it would be required by NRS 92A.490(1) to pay the amount demanded to each dissenter
whose demand remains unsettled. Dissenters would be entitled to a judgment for the amount, if any, by which the court finds the
fair value of his shares, plus accrued interest, exceeds the amount paid by the Company; or the fair value, plus accrued interest,
of his after-acquired shares for which the Company elected to withhold payment pursuant to Section 92.470 of the NRS.
Under
Section 92A.490(4) of the NRS, the district court may appoint one or more persons as appraisers to receive evidence and recommend
a decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment
to such order. In any such court proceeding, the dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
Under
Section 92A.500 of the NRS, the district court will assess the costs of the proceedings against the Company, unless the court
finds that all or some of the dissenters acted arbitrarily or not in good faith in demanding payment. The district court may also
assess against the Company or the dissenters the fees and expenses of counsel and experts for the respective parties, in the amount
the court finds equitable.
A
person having a beneficial interest in Shares that are held of record in the name of another person, such as a broker, fiduciary,
depository or other nominee, must act to cause the record holder to follow the requisite steps properly and in a timely manner
to perfect dissenters' rights of appraisal. If the Shares are owned of record by a person other than the beneficial owner,
including a broker, fiduciary (such as a trustee, guardian or custodian), depositary or other nominee, the written demand for
dissenters' rights of appraisal must be executed by or for the record owner. If Shares are owned of record by more than
one person, as in joint tenancy or tenancy in common, the demand must be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute a demand for appraisal for a shareholder of record, provided that
the agent identifies the record owner and expressly discloses, when the demand is made, that the agent is acting as agent for
the record owner. If a shareholder owns Shares through a broker who in turn holds the shares through a central securities depository
nominee such as CEDE & Co., a demand for appraisal of such Shares must be made by or on behalf of the depository nominee and
must identify the depository nominee as the record holder of such Shares.
A
record holder, such as a broker, fiduciary, depository or other nominee, who holds Shares as a nominee for others, will be able
to exercise dissenters' rights of appraisal with respect to the Shares held for all or less than all of the beneficial owners
of those Shares as to which such person is the record owner. In such case, the written demand must set forth the number of Shares
covered by the demand. Where the number of Shares is not expressly stated, the demand will be presumed to cover all Shares outstanding
in the name of such record owner.
Under
NRS 92A.380(2), a shareholder who is entitled to dissent and obtain payment pursuant to NRS 92A.300 to 92A.500, inclusive, may
not challenge the Merger unless it is unlawful or fraudulent with respect to the shareholder or the Company. Because the Merger
is being effected as a short-form merger under Section 92A.180 of the NRS, it does not require approval by the shareholders or
the board of directors of the Company. No such approval has been or will be sought.
The
foregoing summary does not purport to be a complete statement of the procedures to be followed by shareholders desiring to exercise
their dissenters' rights and is qualified in its entirety by express reference to Section 92A.300 to 500 of the NRS, the
full text of which is attached hereto as Annex E.
STOCKHOLDERS
ARE URGED TO READ ANNEX E IN ITS ENTIRETY SINCE FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS
OF DISSENTERS' RIGHTS.
SELECTED
FINANCIAL INFORMATION
Selected
Financial Information
The
following table sets forth selected financial data as of and for the years ended December 31, 2015 and 2014. We derived the selected
financial data from our financial statements for those periods. The following selected financial data should be read in conjunction
with our consolidated financial statements and related notes and the information contained in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our most recent annual report on Form 10-K, incorporated
here by reference.
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
US$
|
|
|
US$
|
|
Income Statement Data:
|
|
|
|
|
|
|
Sales
|
|
|
14,509,124
|
|
|
|
13,124,152
|
|
Cost of sales
|
|
|
9,562,829
|
|
|
|
9,053,904
|
|
Selling expenses
|
|
|
9,528,549
|
|
|
|
10,037,292
|
|
General and administrative expenses
|
|
|
6,839,614
|
|
|
|
7,595,484
|
|
Earnings before income tax expenses
|
|
|
(20,152,787
|
)
|
|
|
(26,538,087
|
)
|
Income tax expenses
|
|
|
0
|
|
|
|
0
|
|
Net income
|
|
|
(20,152,787
|
)
|
|
|
(26,538,087
|
)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(5.15
|
)
|
|
|
(8.60
|
)
|
Diluted
|
|
|
(5.15
|
)
|
|
|
(8.60
|
)
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,914,580
|
|
|
|
3,914,580
|
|
Diluted
|
|
|
3,914,580
|
|
|
|
3,914,580
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
219,120,147
|
|
|
|
228,799,910
|
|
Total equity attributable to China Yida Holding, Co.
|
|
|
81,470,467
|
|
|
|
106,743,965
|
|
Total equity
|
|
|
81,470,467
|
|
|
|
106,743,965
|
|
Net
Book Value Per Share
The
Company's net book value per share was US$-5.15 based on the weighted average number of outstanding shares of Company Common
Stock as of December 31, 2015.
CERTAIN
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The
following is a summary of certain material U.S. federal income tax consequences to beneficial owners of shares of Company Common
Stock upon the exchange of shares of Company Common Stock for cash pursuant to the Merger. This summary is general in nature and
does not discuss all aspects of U.S. federal income taxation that may be relevant to a holder of shares of Company Common Stock
in light of its particular circumstances. In addition, this summary does not describe any tax consequences arising under the laws
of any local, state or foreign jurisdiction and does not consider any aspects of U.S. federal tax law other than income taxation.
This summary deals only with shares of Company Common Stock held as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended, or the "Code" (generally, property held for investment), and does not address tax
considerations applicable to any holder of shares of Company Common Stock that may be subject to special treatment under the U.S.
federal income tax laws, including but not limited to:
|
●
|
a
bank, insurance company, or other financial institution;
|
|
●
|
a
tax-exempt organization;
|
|
●
|
a
retirement plan or other tax-deferred account;
|
|
●
|
a
partnership, an S corporation or other pass-through entity (or an investor in a partnership,
S corporation or other pass-through entity);
|
|
●
|
a
real estate investment trust;
|
|
●
|
a
dealer or broker in stocks and securities, or currencies;
|
|
●
|
a
trader in securities that elects mark-to-market treatment;
|
|
●
|
a
holder of shares of Company Common Stock subject to the alternative minimum tax provisions
of the Code;
|
|
●
|
a
holder of shares of Company Common Stock that received the shares of Company Common Stock
through the exercise of an employee stock option, through a tax qualified retirement
plan or otherwise as compensation;
|
|
●
|
a
"U.S. Holder" (as defined herein) that has a functional currency other than
the United States dollar;
|
|
●
|
"controlled
foreign corporations," "passive foreign investment companies," or corporations
that accumulate earnings to avoid U.S. federal income tax;
|
|
●
|
a
holder of shares of Company Common Stock that is treated as owning, or as related to
persons who own or are treated as owning stock of the Company after the Merger by reason
of certain U.S. rules related to the attribution of ownership of shares and transfers
among related parties;
|
|
●
|
a
person that holds shares of Company Common Stock as part of a hedge, straddle, constructive
sale, conversion or other risk reduction strategy or integrated transaction;
|
|
●
|
a
United States expatriate or a former citizen or long term resident of the United States;
or
|
|
●
|
any
Principal Shareholder or a holder who is treated as owning the shares of a Principal
Shareholder pursuant to the constructive ownership provisions of the Code.
|
This
summary is based on the Code, the Treasury regulations promulgated under the Code, and rulings and judicial decisions, all as
in effect as of the date hereof, and all of which are subject to change or differing interpretations at any time, with possible
retroactive effect. We have not sought, and do not intend to seek, any ruling from the Internal Revenue Service (the "
IRS
")
or opinion of counsel with respect to the statements made and the conclusions reached in the following summary, and no assurance
can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS
in the event of litigation. This discussion does not address any tax consequences arising under the unearned income Medicare contribution
tax pursuant to the Health Care and Education Reconciliation Act of 2010.
THE
DISCUSSION SET OUT HEREIN IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO A HOLDER OF SHARES
OF COMPANY COMMON STOCK WHO RECEIVES CASH IN THE MERGER. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES TO YOU IN CONNECTION WITH THE MERGER IN LIGHT OF YOUR OWN PARTICULAR CIRCUMSTANCES, INCLUDING FEDERAL ESTATE,
GIFT AND OTHER NON-INCOME TAX CONSEQUENCES, AND TAX CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN TAX LAWS OR TAX TREATIES.
For
purposes of this discussion, the term "U.S. Holder" means a beneficial owner of shares of Company Common Stock that
is, for U.S. federal income tax purposes:
|
●
|
an
individual citizen or resident of the United States;
|
|
●
|
a
corporation (or any other entity or arrangement treated as a corporation for U.S. federal
income tax purposes) that is created or organized (or treated as created or organized)
in or under the laws of the United States or any state thereof or the District of Columbia;
|
|
●
|
an
estate, the income of which is subject to U.S. federal income taxation regardless of
its source; or
|
|
●
|
a
trust if (i) a court within the United States is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons has the authority to
control all substantial decisions of the trust or (ii) the trust has validly elected
to be treated as a "United States person" under applicable Treasury regulations.
|
A
"non-U.S. Holder" is any beneficial owner of shares of Company Common Stock that is not a U.S. Holder and is not a
partnership or other pass-through entity for U.S. federal income tax purposes.
If
a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares
of Company Common Stock, the U.S. federal income tax treatment of a partner in the partnership generally will depend upon the
status of the partner and the activities of the partnership. Such holder should consult its own tax advisor regarding the tax
consequences of exchanging the shares of Company Common Stock pursuant to the Merger.
U.S.
Holders
The
Merger
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, and a U.S. Holder 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. Gain or loss will be determined separately for each block of shares of
Company Common Stock (i.e., shares of Company Common Stock acquired at the same cost and in a single transaction). Such gain or
loss will be capital gain or loss, and will be long-term capital gain or loss if such U.S. Holder's holding period for the
shares of Company Common Stock is more than one year at the time of the exchange. Long-term capital gain recognized by a non-corporate
U.S. Holder generally is subject to tax at a lower rate than short-term capital gain or ordinary income. There are limitations
on the deductibility of capital losses.
If
a PRC income tax applies to any gain from the exchange of shares of Company Common Stock by a U.S. Holder pursuant to the Merger,
such tax may be treated as a foreign tax eligible for a deduction from such U.S. Holder's U.S. federal taxable income or
a foreign tax credit against such U.S. Holder's U.S. federal income tax liability (subject to applicable conditions and
limitations). In addition, if such PRC tax applies to any such gain, such U.S. Holder may be entitled to certain benefits under
the Agreement between the Government of the United States of America and the Government of the People's Republic of China
for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income (the "
U.S.-PRC
Tax Treaty
"), if such U.S. Holder is considered a resident of the United States for purposes of, and otherwise meets
the requirements of, the U.S.-PRC Tax Treaty. U.S. Holders should consult their own tax advisors regarding the deduction or credit
for any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.
Information
Reporting and Backup Withholding
A
U.S. Holder (other than certain exempt recipients) generally will be subject to information reporting with respect to the proceeds
from the disposition of shares of Company Common Stock pursuant to the Merger. Furthermore, backup withholding may apply to such
amounts unless the U.S. Holder provides a valid taxpayer identification number and complies with certain certification procedures
(generally, by providing a properly completed and executed IRS Form W-9) or otherwise establishes an exemption from backup withholding.
Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder generally will be allowed as a credit
against that U.S. Holder's U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that
the required information is timely furnished to the IRS. Each U.S. Holder should complete and sign the IRS Form W-9, which will
be included with the Letter of Transmittal to be returned to the paying agent, to provide the information and certification necessary
to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.
Non-U.S.
Holders
The
Merger
A
non-U.S. Holder 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:
|
●
|
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;
|
|
●
|
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, is attributable
to a permanent establishment or fixed base maintained by the non-U.S. Holder in the United
States; or
|
|
●
|
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 (i) the five-year
period ending on the date of exchange of the shares of Company Common Stock or (ii) the
period that the non-U.S. Holder held the shares of Company Common Stock. There can be
no assurance that the shares of Company Common Stock will be treated as regularly traded
on an established securities market for this purpose.
|
Any
U.S. source capital gain of a non-U.S. Holder described in the first bullet point above (which may be offset by U.S. source capital
losses recognized by the non-U.S. Holder during the taxable year of the exchange) generally will be subject to tax at a flat U.S.
federal income tax rate of 30% (or such lower rate as may be specified under an applicable income tax treaty). Unless an applicable
income tax treaty provides otherwise, gain described in the second and third bullet points above generally will be subject to
U.S. federal income tax on a net income basis in the same manner as if the non-U.S. Holder were a resident of the United States.
Non-U.S. Holders that are foreign corporations also may be subject to an additional branch profits tax at a 30% rate (or a lower
applicable tax treaty rate). Non-U.S. Holders are urged to consult any applicable tax treaties, which may provide for more favorable
treatment in the application of these rules.
With
respect to the third bullet point above, the Company generally will be classified as a USRPHC if (looking through certain subsidiaries)
the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of
its worldwide real property interests plus its other assets used or held for use in a trade or business. Based on its financial
statements and operations, the Company believes that it neither currently is, nor within the past five years has been, a USRPHC.
Non-U.S. Holders, particularly those non-U.S. Holders that could be treated as actually or constructively holding more than 5%
of the shares of Company Common Stock, should consult their own tax advisors regarding the U.S. federal income tax consequences
of exchanging shares of Company Common Stock for cash pursuant to the Merger.
Information
Reporting and Backup Withholding
A
non-U.S. Holder may be subject to information reporting and backup withholding at the applicable rate with respect to the proceeds
from the exchange of shares of Company Common Stock pursuant to the Merger, unless the non-U.S. Holder certifies on an appropriate
IRS Form W-8 that such non-U.S. Holder is not a United States person, or by otherwise establishing an exemption in a manner satisfactory
to the paying agent. Information provided by a non-U.S. Holder may be disclosed to such non-U.S. Holder's local tax authorities
under an applicable tax treaty or information exchange agreement. Non-U.S. Holders should consult their tax advisors regarding
the applicable certification requirements.
Any
amounts withheld under the backup withholding tax rules generally will be allowed as a credit against the non-U.S. Holder's
U.S. federal income tax liability and may entitle such non-U.S. Holder to a refund, provided the required information is timely
furnished to the IRS.
THE
FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO PARTICULAR HOLDERS OF SHARES
OF COMPANY COMMON STOCK WHO RECEIVE CASH PURSUANT TO THE MERGER. HOLDERS OF SHARES OF COMPANY COMMON STOCK SHOULD CONSULT THEIR
OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF EXCHANGING THEIR SHARES OF COMPANY COMMON STOCK FOR CASH IN
THE MERGER UNDER ANY FEDERAL, STATE, FOREIGN, LOCAL OR OTHER TAX LAWS OR TAX TREATIES.
CERTAIN
MATERIAL PRC INCOME TAX CONSEQUENCES
The
following is a summary of certain material PRC tax consequences of the Merger to beneficial owners of our common stock who are
U.S. Holders.
On
March 16, 2007, the National People's Congress passed the Enterprise Income Tax Law of the PRC ("
EIT Law
"),
which became effective on January 1, 2008. Under the EIT Law, enterprises are classified as "resident enterprises"
and "non-resident enterprises." 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. According to the implementing rules of the EIT Law,
"de facto management body" refers to a managing body that in practice exercises overall management control over the
production and business, personnel, accounting and assets of an enterprise. On April 22, 2009, the State Administration of Taxation
("
SAT
") issued Circular 82, "Issues Concerning the Identification of China – Controlled Overseas-Incorporated
Enterprises as Resident Enterprises on the Basis of the Standard of De Facto Management Bodies." This Circular provides
that an overseas incorporated enterprise that is controlled domestically will be recognized as a "tax-resident enterprise"
if it satisfies all of the following conditions: (i) the senior management responsible for daily production/business operations
are primarily located in the PRC, and the location(s) where such senior management execute their responsibilities are primarily
in the PRC; (ii) strategic financial and personnel decisions are made or approved by organizations or personnel located in the
PRC; (iii) major properties, accounting ledgers, company seals and minutes of board meetings and shareholder meetings, etc., are
maintained in the PRC; and (iv) 50% or more of the board members with voting rights or senior management habitually reside in
the PRC. On July 27, 2011, the SAT enacted "Announcement of the State Administration of Taxation on Printing and Distributing
the Administrative Measures for Income Taxation on Chinese-controlled Resident Enterprises Incorporated Overseas (Trial Implementation)."
Under those two rules, the enterprises may request the PRC tax authorities to determine their "resident enterprise"
status or the tax authority may investigate and determine an enterprise's status. The target enterprises under those two
rules are foreign registered companies controlled by PRC companies, however, the PRC tax authority may determine if a foreign
registered company controlled by one or more PRC individuals is a "resident enterprise."
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 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. Under the EIT Law
and its implementing rules, non-resident investors that are enterprises (but not individuals) and that (i) do not have an establishment
or place of business in the PRC or (ii) have an establishment or place of business in the PRC but the relevant income is not effectively
connected with the establishment or place of business, generally may be subject to a 10% PRC income tax on any gain realized on
the sale or transfer of our common stock, including pursuant to the Merger, if such gain is regarded as income derived from sources
within the PRC.
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.
Accordingly,
if non-resident investors as described under the PRC tax laws (including U.S. Holders) realized any gain from the sale or transfer
of our common stock pursuant to the Merger and if such gain were considered as PRC-sourced income, such non-resident investors
may be responsible for paying the applicable PRC income tax on the gain from the sale or transfer of our common stock. Under the
PRC tax laws, however, we would not have an obligation to withhold PRC income tax in respect of the gains that non-resident investors
(including U.S. Holders) may realize from the sale or transfer of our common stock pursuant to the Merger.
Moreover,
the SAT released Circular Guoshuihan No. 698 ("
Circular 698
") on December 10, 2009 that reinforces the taxation
of certain equity transfers by non-resident investors through overseas holding vehicles. Circular 698 addresses indirect equity
transfers as well as other issues. Circular 698 is retroactively effective from January 1, 2008. Subsequently SAT also released
the Announcement on Several Issues Related to Enterprise Income Tax for Indirect Asset Transfer by Non-PRC Resident Enterprises
("
Announcement 7
"), effective from February 3, 2015, which in part supersedes Circular 698. Announcement 7
addresses indirect share transfer as well as other issues. According to Announcement 7, if a non-PRC resident enterprise transfers
the equity interests of or similar rights or interests in overseas companies which directly or indirectly own PRC taxable assets
through an arrangement without a reasonable commercial purpose, but rather to avoid PRC corporate income tax, the transaction
will be re-characterized and treated as a direct transfer of PRC taxable assets subject to PRC corporate income tax. Announcement
7 specifies certain factors that should be considered in determining whether an indirect transfer has a reasonable commercial
purpose. Since Announcement 7 has a short history, there is uncertainty as to its application and in particular, the interpretation
of the term "reasonable commercial purpose." Announcement 7 further provides that, the entity which has the obligation
to pay the consideration for the transfer to the transferring shareholders has the obligation to withhold any PRC corporate income
tax that is due. If the transferring shareholders do not pay corporate income tax that is due for a transfer and the entity which
has the obligation to pay the consideration does not withhold the tax due, the PRC tax authorities may impose a penalty on the
entity that so fails to withhold, which may be relieved or exempted from the withholding obligation and any resulting penalty
under certain circumstances if it reports such transfer to the PRC tax authorities. A non-resident investor may become at risk
of being taxed or imposed a penalty under Announcement 7 and may be required to expend valuable resources to comply with Announcement
7 or to establish that such non-resident investor should not be taxed under Announcement 7, including in respect of any gain from
the sale or transfer of our common stock pursuant to the Merger.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document
we file at the SEC public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC
at 800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the
SEC website at www.sec.gov. You also may obtain free copies of the documents we file with the SEC, including this proxy statement,
by going to the Investor Relations page of our corporate website at www.yidachina.com.cn. Our website address is provided as an
inactive textual reference only. The information provided on our website, other than copies of the documents listed below that
have been filed with the SEC, is not part of this proxy statement, and therefore is not incorporated herein by reference.
Statements
contained in this proxy statement, or in any document incorporated by reference in this proxy statement regarding the contents
of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference
to that contract or other document filed as an exhibit with the SEC. The SEC allows us to "incorporate by reference"
into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later
information that we file with the SEC will update and supersede that information. We incorporate by reference the documents listed
below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
proxy statement and before the date of the special meeting:
|
●
|
Annual
Report on Form 10-K for the fiscal year ended December 31, 2015 (filed with the SEC on
March 30, 2016); and
|
|
●
|
Current
Reports on Form 8-K, filed with the SEC on March 10, 2016 and April 13, 2016.
|
Any
person, including any beneficial owner, to whom this proxy statement is delivered may request copies of proxy statements and any
of the documents incorporated by reference in this document or other information concerning us, without charge, by written or
telephonic request directed to China Yida Holding, Co., 28/F Yifa Building, No. 111 Wusi Road, Fuzhou, Fujian, People's
Republic of China, Attn: Jocelyn Chen or +86 (591) 28082230 or from the SEC through the SEC website at the address provided above.
Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit
is specifically incorporated by reference into those documents.
ANNEX
A
THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
Execution Version
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CHINA YIDA HOLDING, CO.
AND
CHINA YIDA HOLDING ACQUISITION CO.
Dated as of April 12, 2016
TABLE
OF CONTENTS
|
|
Page
|
|
|
|
ARTICLE
I DEFINITIONS & INTERPRETATIONS
|
A-7
|
|
|
Section
1.1
|
Certain
Definitions
|
A-7
|
Section
1.2
|
Additional
Definitions
|
A-13
|
Section
1.3
|
Certain
Interpretations
|
A-15
|
|
|
|
ARTICLE
II THE MERGER
|
A-
16
|
|
|
|
Section
2.1
|
The
Merger
|
A-16
|
Section
2.2
|
The
Closing
|
A-16
|
Section
2.3
|
The
Effective Time.
|
A-17
|
Section
2.4
|
Effect
of the Merger
|
A-17
|
Section
2.5
|
Articles
of Incorporation; Bylaws
|
A-17
|
Section
2.6
|
Directors
and Officers
|
A-17
|
Section
2.7
|
Effect
on Share Capital of the Company
|
A-18
|
Section
2.8
|
Exchange
of Certificates
|
A-19
|
Section
2.9
|
No
Further Ownership Rights
|
A-22
|
Section
2.10
|
Untraceable
and Dissenting Shareholders
|
A-22
|
Section
2.11
|
Lost,
Stolen or Destroyed Certificates
|
A-22
|
Section
2.12
|
Fair
Value
|
A-23
|
Section
2.13
|
Necessary
Further Actions
|
A-23
|
|
|
|
ARTICLE
III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
A-
23
|
|
|
|
Section
3.1
|
Organization
and Qualification
|
A-23
|
Section
3.2
|
Corporate
Power; Enforceability
|
A-23
|
Section
3.3
|
Board
Actions
|
A-24
|
Section
3.4
|
Requisite
Shareholder Approval
|
A-24
|
Section
3.5
|
Non-Contravention
|
A-24
|
Section
3.6
|
Required
Governmental Approvals
|
A-25
|
Section
3.7
|
Company
Capitalization
|
A-25
|
Section
3.8
|
Subsidiaries
|
A-25
|
Section
3.9
|
Company
SEC Reports
|
A-26
|
Section
3.10
|
Company
Financial Statements
|
A-26
|
Section
3.11
|
Absence
of Certain Changes
|
A-27
|
Section
3.12
|
Material
Contracts
|
A-27
|
Section
3.13
|
Tax
Matters
|
A-28
|
Section
3.14
|
Permits
|
A-28
|
Section
3.15
|
Compliance
with Laws
|
A-28
|
Section
3.16
|
Litigation
|
A-28
|
Section
3.17
|
Related
Party Transactions
|
A-28
|
Section
3.18
|
Opinion
of Financial Advisor
|
A-29
|
Section
3.19
|
Anti-Takeover
Provisions
|
A-29
|
Section
3.20
|
No
Other Company Representations or Warranties
|
A-29
|
|
|
|
ARTICLE
IV REPRESENTATIONS AND WARRANTIES OF ACQUISITION
|
A-30
|
|
|
|
Section
4.1
|
Organization;
Good Standing
|
A-30
|
Section
4.2
|
Corporate
Power; Enforceability
|
A-30
|
Section
4.3
|
Non-Contravention
|
A-30
|
Section
4.4
|
Required
Governmental Approvals
|
A-31
|
Section
4.5
|
Available
Funds
|
A-31
|
Section
4.6
|
Litigation
|
A-31
|
Section
4.7
|
Ownership
of Company Share Capital
|
A-31
|
Section
4.8
|
Brokers
|
A-31
|
Section
4.9
|
Operations
of Acquisition
|
A-31
|
Section
4.10
|
Capitalization
of Acquisition
|
A-32
|
Section
4.11
|
Solvency
|
A-32
|
Section
4.12
|
No
Other Acquisition Representations or Warranties
|
A-32
|
|
|
|
ARTICLE
V COVENANTS OF THE COMPANY
|
A-33
|
|
|
|
Section
5.1
|
Interim
Conduct of Business
|
A-33
|
Section
5.2
|
No
Solicitation
|
A-36
|
Section
5.3
|
Company
Board Recommendation
|
A-37
|
Section
5.4
|
Access
|
A-38
|
Section
5.5
|
Certain
Litigation
|
A-39
|
|
|
|
ARTICLE
VI COVENANTS OF ACQUISITION
|
A-39
|
|
|
|
Section
6.1
|
Obligations
of Acquisition
|
A-39
|
ARTICLE
VII ADDITIONAL COVENANTS OF ALL PARTIES
|
A-39
|
|
|
|
Section
7.1
|
Reasonable
Best Efforts to Complete
|
A-39
|
Section
7.2
|
Regulatory
Filings
|
A-40
|
Section
7.3
|
Company
Shareholders Meeting
|
A-41
|
Section
7.4
|
Anti-Takeover
Laws
|
A-42
|
Section
7.5
|
Public
Statements and Disclosure
|
A-43
|
Section
7.6
|
Actions
Taken at Direction of Acquisition/Principal Shareholders
|
A-43
|
Section
7.7
|
Directors'
and Officers' Indemnification
|
A-43
|
|
|
|
ARTICLE
VIII CONDITIONS TO THE MERGER
|
A-45
|
|
|
|
Section
8.1
|
Conditions
to the Obligations of Each Party
|
A-45
|
Section
8.2
|
Conditions
to the Obligations of Acquisition
|
A-46
|
Section
8.3
|
Conditions
to the Obligations of the Company
|
A-46
|
|
|
|
ARTICLE
IX TERMINATION, AMENDMENT AND WAIVER
|
A-47
|
|
|
|
Section
9.1
|
Termination
|
A-47
|
Section
9.2
|
Notice
of Termination; Effect of Termination
|
A-48
|
Section
9.3
|
Fees
and Expenses
|
A-49
|
Section
9.4
|
Amendment
|
A-50
|
Section
9.5
|
Extension;
Waiver
|
A-50
|
|
|
|
ARTICLE
X GENERAL PROVISIONS
|
A-50
|
|
|
|
Section
10.1
|
Survival
of Representations, Warranties and Covenants
|
A-50
|
Section
10.2
|
Notices
|
A-51
|
Section
10.3
|
Assignment
|
A-51
|
Section
10.4
|
Entire
Agreement
|
A-52
|
Section
10.5
|
Third
Party Beneficiaries
|
A-52
|
Section
10.6
|
Severability
|
A-52
|
Section
10.7
|
Remedies
|
A-53
|
Section
10.8
|
Governing
Law
|
A-53
|
Section
10.9
|
Consent
to Jurisdiction
|
A-54
|
Section
10.10
|
WAIVER
OF JURY TRIAL
|
A-54
|
Section
10.11
|
Company
Disclosure Letter References
|
A-55
|
Section
10.12
|
Counterparts
|
A-55
|
Exhibit A
|
Amended and Restated Limited Guarantee
|
Exhibit B
|
Voting Agreement
|
Execution Version
AMENDED AND RESTATED AGREEMENT AND PLAN
OF MERGER
THIS AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER (this "
Agreement
") is made and entered into as of April 12, 2016 by and between
China Yida Holding Co. a corporation organized under the laws of the State of Nevada (the "
Company
"), and China
Yida Holding Acquisition Co., a corporation organized under the laws of the State of Nevada ("
Acquisition
").
WITNESSETH:
WHEREAS, the Company and
Acquisition entered into a certain agreement and plan of merger as of March 8, 2016 (the "
Original Merger Agreement
"),
and now the Company and Acquisition wish to amend and restate the Original Merger Agreement in its entirety in the form of this
Agreement, which shall for all purposes be deemed to supersede the Original Merger Agreement;
WHEREAS, it is proposed
that Acquisition will merge with and into the Company in accordance with the Nevada Revised Statutes (the "
NRS
")
Chapter 92A, and the terms and conditions of this Agreement (the "
Merger
"), with the Company surviving the
Merger;
WHEREAS, the Company Board
has established a special committee of the Company Board consisting of independent directors (the "
Special Committee
")
to, among other things, review, evaluate, negotiate, recommend or not recommend any offer by Acquisition to acquire securities
of the Company;
WHEREAS, the Special Committee
has unanimously recommended that the Company Board approve this Agreement and the Merger and the other transactions contemplated
hereby;
WHEREAS, the Company Board
(acting upon the unanimous recommendation of the Special Committee) has (i) unanimously approved this Agreement, and approved
the execution and delivery by the Company of this Agreement, the performance by the Company of its covenants and agreements contained
herein and the consummation of the transactions contemplated hereby in accordance with the NRS upon the terms and subject to the
conditions contained herein and (ii) resolved to recommend that the Company Shareholders authorize this Agreement and the Merger
in accordance with the NRS;
WHEREAS, the board of directors
of Acquisition (i) approved this Agreement and approved the execution and delivery by Acquisition of this Agreement, the performance
by Acquisition of its covenants and agreements contained herein and the consummation of the transactions contemplated hereby in
accordance with the NRS upon the terms and subject to the conditions contained herein and (ii) resolved to authorize and approve
this Agreement and the consummation of the transactions contemplated hereby, including the Merger, in accordance with the NRS;
WHEREAS, as a condition
to and inducement of the Company's willingness to enter into this Agreement, concurrently with the execution and delivery
of this Agreement, each of Mr. Minhua Chen and Mrs. Yanling Fan (each, a "
Guarantor
"), is entering into an
amended and restated limited guarantee (the "
Limited Guarantee
"), a true copy of which is attached hereto as
Exhibit A
, in favor of the Company to guarantee the due and punctual payment, performance and discharge of certain
payment obligations of Acquisition under this Agreement;
WHEREAS, concurrently with
the execution and delivery of this Agreement, and as a condition and inducement to Acquisition willingness to enter into this
Agreement, each of the Principal Shareholders (as hereinafter defined) has executed and delivered a voting agreement, dated as
of the date hereof and attached hereto as
Exhibit B
, between the Principal Shareholders and the Company (together
with the schedules and exhibits attached thereto, the "
Voting Agreement
"), pursuant to which the Principal
Shareholders agree to vote all their Company Shares held directly or indirectly by them in favor of the authorization and approval
of this Agreement, as may be amended from time to time, and the transactions contemplated hereby;
WHEREAS, the Principal Shareholders
and Acquisition executed that certain rollover agreement dated as of March 8, 2016 (the "
Rollover Agreement
"),
which agreement is terminated and no longer of any force or effect upon the execution of the Voting Agreement;
WHEREAS, Acquisition and
the Company desire to make certain representations, warranties, covenants and agreements in connection with this Agreement and
the transactions contemplated hereby to prescribe certain conditions with respect to the consummation of the transactions contemplated
by this Agreement.
NOW, THEREFORE, in consideration
of the foregoing premises and the representations, warranties, covenants and agreements set forth herein, as well as other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, and intending to be legally
bound hereby, Acquisition and the Company hereby agree as follows:
Article
I
DEFINITIONS & INTERPRETATIONS
Section 1.1
Certain Definitions
.
For all purposes of and under this Agreement, the following capitalized terms shall have the following respective meanings:
"
Acquisition Proposal
"
shall mean any offer or proposal (other than an offer or proposal by Acquisition) to engage in an Acquisition Transaction.
"Acquisition Termination
Fee
" shall mean an amount equal to $375,000.
"
Acquisition
Transaction
" shall mean any transaction (other than the transactions contemplated by this 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 twenty percent (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 twenty percent
(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 twenty percent (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 twenty percent (20%) or more of the net revenue or net income of the
Company on a consolidated basis are attributable.
"
Affiliate
"
shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common
control with such Person. For purposes of the immediately preceding sentence, the term "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person,
whether through ownership of voting securities, by contract or otherwise. For the avoidance of doubt, a Subsidiary of a Person
shall be deemed an Affiliate of such Person.
"
Business
Day
" shall mean any day, other than a: (i) day which is a Saturday or Sunday; (ii) day which is a legal holiday under the
Laws of the State of Nevada, Hong Kong or the PRC; or (iii) day on which banking institutions located in the State of Nevada,
Hong Kong or the PRC are authorized or required by Law or Order to close.
"
Code
"
shall mean the United States Internal Revenue Code of 1986, as amended.
"
Company
Balance Sheet
" shall mean the unaudited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 2015.
"
Company
Balance Sheet Date
" shall mean September 30, 2015.
"
Company
Board
" shall mean the board of directors of the Company.
"Company
Disclosure Letter"
shall mean the disclosure schedule delivered by the Company to Acquisition on the date of this Agreement.
"
Company
Material Adverse Effect
" shall mean any change, effect, event or development (each a "
Change
", and collectively, "
Changes
"),
individually or in the aggregate, that has had or would reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole;
provided
that no Change (by itself or when aggregated or taken together with any and all other Changes) directly or indirectly resulting
from, relating to or arising out of any of the following shall be deemed to be or constitute a "Company Material Adverse Effect,"
or be taken into account when determining whether a "Company Material Adverse Effect" has occurred:
(i)
general economic conditions (or changes in such conditions) in the United States, the PRC or any other country or region in the
world in which the Company or any of its Subsidiaries operates or conducts business;
(ii)
conditions (or changes in such conditions) in the securities markets, capital markets, credit markets, currency markets or other
financial markets in the United States, the PRC or any other country or region in the world in which the Company or any of its
Subsidiaries operates or conducts business, including any suspension of trading in securities (whether equity, debt, derivative
or hybrid securities) generally on any securities exchange or over-the-counter market;
(iii) conditions
(or changes in such conditions) in the industries in which the Company and its Subsidiaries conduct business;
(iv) political
conditions (or changes in such conditions) in the United States, the PRC or any other country or region in the world in which
the Company or any of its Subsidiaries operates or conducts business or acts of war, sabotage or terrorism (including any escalation
or general worsening of any such acts of war, sabotage or terrorism) in the United States, the PRC or any other country or region
in the world in which the Company or any of its Subsidiaries operates or conducts business;
(v) earthquakes,
hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions and other force
majeure events in the United States, the PRC or any other country or region in the world in which the Company or any of its Subsidiaries
operates or conducts business;
(vi) changes in
Law (or the interpretation thereof) or in GAAP or other accounting standards (or in each case the interpretation thereof) used
by the Company or any of its Subsidiaries;
(vii) the announcement
of this Agreement or the pendency or consummation of the transactions contemplated hereby, including (A) the identity of, or any
facts or circumstances relating to, Acquisition, (B) the loss or departure of officers or other employees of the Company or any
of its Subsidiaries directly or indirectly resulting from, arising out of, attributable to, or related to the transactions contemplated
by this Agreement, (C) the termination or potential termination of (or the failure or potential failure to renew or enter into)
any Contracts with customers, suppliers, distributors or other business partners, whether as a direct or indirect result of the
loss or departure of officers or employees of the Company or any of its Subsidiaries or otherwise, directly or indirectly resulting
from, arising out of, attributable to, or related to the transactions contemplated by this Agreement, and (D) any other negative
development (or potential negative development) in the Company's or any of its Subsidiaries' relationships with any
of its customers, suppliers, distributors or other business partners, whether as a direct or indirect result of the loss or departure
of officers or employees of the Company or any of its Subsidiaries or otherwise, directly or indirectly resulting from, arising
out of, attributable to, or related to the transactions contemplated by this Agreement;
(viii) changes in the Company's stock
price or the trading volume of the Company's stock, or any failure by the Company to meet any public estimates or expectations
of the Company's revenue, earnings or other financial performance or results of operations for any period, or any failure
by the Company to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results
of operations (it being understood that the underlying cause of such failure may, except as otherwise provided in the other clauses
of this proviso, be taken into account in determining whether a Company Material Adverse Effect has occurred); and
(ix) any legal
proceedings made or brought by any of the current or former shareholders of the Company (on their own behalf or on behalf of the
Company) against the Company or any other legal proceedings arising out of the Merger or in connection with any other transactions
contemplated by this Agreement;
except to the extent such effects directly
or indirectly resulting from, arising out of, attributable to or related to the matters described in clauses (i) through (vi)
above materially and disproportionately affect the Company and its Subsidiaries, taken as a whole, as compared to other companies
that conduct business in the countries and regions in the world and in the industries in which the Company and its Subsidiaries
operate or conduct business (in which case, such effects may be taken into account when determining whether a "Company Material
Adverse Effect" has occurred, but only to the extent of such disproportionate effects (if any)).
"
Company Options
"
shall mean any options, rights or warrants to purchase Company Shares.
"
Company Share
"
shall mean an ordinary share of common stock, par value $0.001 per share, in the share capital of the Company.
"
Company Shareholders
"
shall mean holders of Company Shares in their capacities as such.
"
Company Termination
Fee
" shall mean an amount equal to $375,000.
"
Contract
"
shall mean any written contract, subcontract, agreement, commitment, note, bond, mortgage, indenture or lease.
"
Exchange Act
"
shall mean the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder,
or any successor statute, rules and regulations thereto.
"
Excluded Shares
"
shall mean (i) Company Shares owned by Acquisition, any of its Affiliates (such as the Principal Shares) or the Company (as treasury
shares, if any), in each case immediately prior to the Effective Time and/or (ii) Dissenting Shares.
"
GAAP
"
shall mean generally accepted accounting principles, as applied in the United States.
"
Governmental Authority
"
shall mean any government, any governmental or regulatory entity or body (including a securities exchange), department, commission,
board, agency or instrumentality, and any court, tribunal or judicial body of competent jurisdiction.
"
IRS
"
shall mean the United States Internal Revenue Service or any successor thereto.
"
Knowledge
"
shall mean, (i) with respect to the Company, with respect to any matter in question, shall mean the actual knowledge of the individuals
listed in
Section 1.1
of the Company Disclosure Letter, as of the date of this Agreement, and (ii) with respect to any
of Acquisition or the Principal Shareholders, the actual knowledge of any of the shareholders, officers or directors of Acquisition
or the Principal Shareholders.
"
Law
"
shall mean any and all applicable law, statute, constitution, principle of common law, ordinance, code, rule, regulation, ruling
or other legal requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Authority.
"
Legal Proceeding
"
shall mean any lawsuit, litigation or other similarly formal legal proceeding brought by or pending before any Governmental Authority.
"
Lien
"
shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, or community property interest.
"
Material Contract
"
shall mean any "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC.
"
NASDAQ
"
shall mean the NASDAQ Stock Market.
"
Order
"
shall mean any order, judgment, decision, decree, injunction, ruling, writ or assessment of any Governmental Authority (whether
temporary, preliminary or permanent) that is binding on any Person or its property under applicable Law.
"
Permitted Liens
"
shall mean any of the following: (i) Liens for Taxes, assessments and governmental charges or levies either not yet delinquent
or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established
on the consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP as adjusted in the ordinary
course of business through the Effective Time; (ii) mechanics, carriers', workmen's, warehouseman's, repairmen's,
materialmen's or other Liens that are not yet due or that are being contested in good faith and by appropriate proceedings;
(iii) leases and subleases (other than capital leases and leases underlying sale and leaseback transactions) and non-exclusive
licenses; (iv) Liens imposed by applicable Law (other than Tax Law) which are not currently violated by the current use or occupancy
of any real property or the operation of the business thereon; (v) pledges or deposits to secure obligations under workers'
compensation Laws or similar legislation or to secure public or statutory obligations; (vi) pledges and deposits to secure the
performance of bids, trade contracts, leases, surety and appeal bonds, performance bonds and other obligations of a similar nature,
in each case in the ordinary course of business consistent with past practice; (vii) defects, imperfections or irregularities
in title, easements, covenants and rights of way (unrecorded and of record) and other similar restrictions, and zoning, building
and other similar codes or restrictions, in each case that do not adversely affect in any material respect the current use of
the applicable property owned, leased, used or held for use by the Company or any of its Subsidiaries; (viii) Liens the existence
of which are disclosed in the notes to the consolidated financial statements of the Company included in the Company's Annual
Report on Form 10-K for the fiscal year ended 31 December 2014; (ix) Liens which do not materially and adversely affect the use
or operation of the property subject thereto; (x) any other Liens that do not secure a liquidated amount, that have been incurred
or suffered in the ordinary course of business consistent with past practice and that have not had a Company Material Adverse
Effect; (xi) Liens arising in connection with the VIE Agreements; and (xii) Liens described in
Section 1.1
of the Company
Disclosure Letter.
"
Person
"
shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization, entity or Governmental Authority.
"
PRC
"
shall mean the People's Republic of China excluding, for the purposes of this Agreement only, the Hong Kong Special Administrative
Region, the Macau Special Administrative Region and Taiwan.
"
Principal Shares
"
shall mean the Company Shares beneficially owned (as determined pursuant to Rule 13d-3 under the Exchange Act) by any Principal
Shareholders.
"
Principal Shareholders
"
shall mean Mr. Minhua Chen and Mrs. Yanling Fan.
"
Representatives
"
shall mean, with respect to any Person, such Person's Affiliates and such Person and its Affiliates' respective shareholders,
directors, officers or other employees, or investment bankers, attorneys or other authorized advisors, agents or representatives.
"
RMB
"
shall mean
renminbi
, the legal currency of the PRC.
"
Sarbanes-Oxley
Act
" shall mean the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder, or
any successor statute, rules or regulations thereto.
"
SEC
"
shall mean the United States Securities and Exchange Commission or any successor thereto.
"
Securities Act
"
shall mean the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, or any
successor statute, rules or regulations thereto.
"
Subsidiary
"
of any Person shall mean (i) a corporation more than fifty percent (50%) of the combined voting power of the outstanding voting
stock of which is owned, directly or indirectly, by such Person or by one of more other Subsidiaries of such Person or by such
Person and one or more other Subsidiaries thereof, (ii) a partnership of which such Person, or one or more other Subsidiaries
of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, is the general partner and has
the power to direct the policies, management and affairs of such partnership, (iii) a limited liability company of which such
Person or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, is the managing member and has the power to direct the policies, management and affairs of such company or (iv) any
other Person (other than a corporation, partnership or limited liability company) in which such Person, or one or more other Subsidiaries
of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof, or (v) any Person such Person controls through VIE Agreements.
"
Superior Proposal
"
shall mean 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, if in existence), 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 this 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 EBITDA of the Company.
"
Tax
"
shall mean any and all PRC and non-PRC taxes, including taxes based upon or measured by gross receipts, income, profits, sales,
use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with respect to such amounts.
"
VIE Agreements
"
shall mean agreements between Fujian Jiaoguang or any variable interest entity and the Company or any of its Affiliates.
Section 1.2
Additional Definitions
.
The following capitalized terms shall have the respective meanings ascribed thereto in the respective sections of this Agreement.
"
Acquisition
"
shall have the meaning set
forth in the
preamble.
"
Agreement
"
shall have the meaning set
forth in the
preamble.
"
Alternative Acquisition
Agreement
" shall have the meaning set
forth in Section 5.3(b).
"
Arbitrator
"
shall have the meaning set
forth in Section 10.9.
"
Articles of Merger
"
shall have the meaning set
forth in Section 2.3.
"
Capitalization
Date
" shall have the meaning set forth in Section 3.7.
"
Certificates
"
shall have the meaning set forth in Section 2.8(c).
"
Closing
"
shall have the meaning set forth in Section 2.2.
"
Closing Date
"
shall have the meaning set forth in Section 2.2.
"
Company
"
shall have the meaning set
forth in the
preamble.
"
Company Board
Recommendation
" shall have the meaning set forth in Section 5.3(a).
"
Company Board
Recommendation Change
" shall have the meaning set forth in Section 5.3(b).
"
Company Securitie
s"
shall have the meaning set forth in Section 3.7(b).
"
Company SEC Reports
"
shall have the meaning set forth in Section 3.9.
"
Company Shareholders
Meeting
" shall have the meaning set forth in Section 7.3(d).
"
Consent
"
shall have the meaning set forth in Section 3.6.
"
Dissenting Shareholder
"
shall have the meaning set forth in Section 2.7(c).
"
Dissenting Shares
"
shall have the meaning set forth in Section 2.7(c).
"
Effective Time
"
shall have the meaning set forth in Section 2.3.
"
Exchange Fund
"
shall have the meaning set forth in Section 2.8(b).
"
Guarantor
"
shall have the meaning set
forth in the
preamble.
"
HKIAC
"
shall have the meaning set
forth in Section 10.9.
"
Indemnified Person
"
shall have the meaning set forth in Section 7.7(a).
"
In-the-Money Vested
Company Option
" shall have the meaning set forth in Section 2.7(d).
"
Limited Guarantee
"
shall have the meaning set
forth in the
preamble.
"
Merger
"
shall have the meaning set
forth in the
preamble.
"
NRS
"
shall have the meaning set
forth in the
preamble.
"
Option Consideratio
n"
shall have the meaning set forth in Section 2.7(d).
"
Outside Date
"
shall have the meaning set forth in Section 9.1(b).
"
Paying Agent
"
shall have the meaning set forth in Section 2.8(a).
"
Permits
"
shall have the meaning set forth in Section 3.14.
"
Per Share Merger
Consideration
"
shall have the meaning set forth in Section 2.7(a)(ii).
"
Preliminary Proxy
Statement
" shall have the meaning set forth in Section 7.3(a).
"
Proxy Statement
"
shall have the meaning set forth in Section 7.3(a).
"
Recommendation
Change Notice
" shall have the meaning set forth in Section 5.3(c).
"
Requisite Shareholder
Approval
" shall have the meaning set forth in Section 3.4.
"
Rules
"
shall have the meaning set
forth in Section 10.9.
"
Schedule 13E-3
"
shall have the meaning set forth in Section 3.6.
"
Secretary of State
"
shall have the meaning set forth in Section 2.3.
"
Special Committee
"
shall have the meaning set
forth in the
preamble.
"
Subsidiary Securities
"
shall have the meaning set forth in Section 3.8(c).
"
Surviving Company
"
shall have the meaning set forth in Section 2.1.
"
Takeover Statutes
"
shall have the meaning set
forth in Section 3.19.
"
Tax Returns
"
shall have the meaning set forth in Section 3.13(a).
"
Voting Agreement
"
shall have the meaning set forth in the preamble.
Section 1.3
Certain Interpretations.
(a) Unless otherwise indicated,
all references herein to Articles, Sections, Annexes, Exhibits or Schedules, shall be deemed to refer to Articles, Sections, Annexes,
Exhibits or Schedules of or to this Agreement, as applicable.
(b) Unless otherwise indicated,
the words "include," "includes" and "including," when used herein, shall be deemed in each
case to be followed by the words "without limitation."
(c) The table of contents
and headings set forth in this Agreement are for convenience of reference purposes only and shall not affect or be deemed to affect
in any way the meaning or interpretation of this Agreement or any term or provision hereof.
(d) Unless otherwise indicated,
all references herein to the Subsidiaries of a Person shall be deemed to include all direct and indirect Subsidiaries of such
Person unless otherwise indicated or the context otherwise requires.
(e) Whenever the context
may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns and pronouns shall include the plural, and vice versa.
(f) Any dollar or percentage
thresholds set forth herein shall not be used as a benchmark for the determination of what is or is not "material"
or a "Company Material Adverse Effect" under this Agreement.
(g) References to "$"
refer to U.S. dollars.
(h) When used herein, the
word "extent" and the phrase "to the extent" shall mean the degree to which a subject or other thing extends,
and such word or phrase shall not simply mean "if."
(i) The parties hereto agree
that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application
of any Law, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against
the party drafting such agreement or document.
Article
II
THE MERGER
Section 2.1
The Merger
.
Upon the terms and subject to the satisfaction or, if permissible, waiver of the conditions set forth in this Agreement and the
applicable provisions of the NRS, at the Effective Time, Acquisition shall be merged with and into the Company, the separate corporate
existence of Acquisition shall thereupon cease and the Company shall continue as the surviving company of the Merger. The Company
as the surviving company of the Merger, is sometimes referred to herein as the "
Surviving Company
".
Section 2.2
The Closing
.
Unless this Agreement shall have been terminated in accordance with
Article IX
, the closing of the Merger (the "
Closing
")
will occur at the offices of Sidley Austin LLP, Suite 2009, 5 Corporate Avenue, 150 Hubin Road, Shanghai, China on a date and
at a time to be agreed upon by Acquisition and the Company, which date shall be no later than the fifth (5th) Business Day after
the satisfaction or waiver of the last to be satisfied of the conditions set forth in
Article VIII
(excluding conditions
that by their terms are to be satisfied on the Closing Date, but subject to the satisfaction or waiver of such conditions at the
Closing), or at such other location, date and time as Acquisition and the Company shall mutually agree upon in writing. The date
upon which the Closing shall actually occur pursuant hereto is referred to herein as the "
Closing Date
".
Section
2.3
The Effective Time
. Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date,
Acquisition and the Company shall cause the Merger to be consummated under the NRS by executing and filing the Articles of Merger
("
Articles of Merger
"), with the Secretary of State of Nevada (the "
Secretary of State
")
in
accordance with Section
92A.200 of the NRS, together with such other appropriate documents, in such forms as are required by, and executed in accordance
with, the applicable provisions of the NRS. The Merger shall become effective on the date and at such time as the Articles of
Merger shall have been duly filed with the Secretary of State or such later time as may be agreed in writing by Acquisition and
the Company and specified in the Articles of Merger (the effective date and time of the Merger being referred to herein as the
"
Effective Time
").
Section 2.4
Effect of
the Merger
. At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions
of the NRS. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all of the property,
rights, privileges, powers and franchises of the Company and Acquisition shall vest in the Surviving Company, and all debts, liabilities
and duties of the Company and Acquisition shall become the debts, liabilities and duties of the Surviving Company.
Section 2.5
Articles
of Incorporation; Bylaws.
(a)
Articles of Incorporation
.
At the Effective Time, subject to the provisions of
Section 7.7
, the articles of incorporation of Acquisition, as in effect
immediately prior to the Effective Time, shall become the articles of incorporation of the Surviving Company (save and except
that references therein to the name and the authorized capital of Acquisition shall be amended to describe correctly the name
and authorized capital of the Surviving Company) until thereafter amended in accordance with the applicable provisions of the
NRS and such articles of incorporation.
(b)
Bylaws.
At
the Effective Time, subject to the provisions of
Section 7.7(a)
, the bylaws of Acquisition, as in effect immediately prior
to the Effective Time, shall become the bylaws of the Surviving Company (save and except that references therein to the name shall
be amended to describe correctly the name of the Surviving Company) until thereafter amended in accordance with the applicable
provisions of the NRS and such bylaws.
Section 2.6
Directors
and Officers.
(a)
Directors
. At
the Effective Time, the initial directors of the Surviving Company shall be the directors of Acquisition immediately prior to
the Effective Time, each to hold office until their respective successors are duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the bylaws of the Surviving Company.
(b)
Officers
. At
the Effective Time, the initial officers of the Surviving Company shall be the officers of the Company immediately prior to the
Effective Time, each to hold office until their respective successors are duly appointed or until their earlier death, resignation
or removal in accordance with the bylaws of the Surviving Company.
Section 2.7
Effect on
Share Capital of the Company.
(a)
Share Capital
.
Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, by virtue of the Merger and without
any action on the part of Acquisition, the Company or the holders of any of the following securities, the following shall occur:
(i)
Share
Capital of Acquisition
. Each common share, par value US$0.001 per share, in the share capital of Acquisition that is issued
and outstanding immediately prior to the Effective Time shall be cancelled.
(ii)
Company
Shares
. Each Company Share other than Excluded Shares that is issued and outstanding immediately prior to the Effective Time
shall be canceled and cease to exist and automatically converted, subject to
Section 2.7(b)
, into the right to receive
$3.32 in cash without interest (the "
Per Share Merger Consideration
") payable in the manner provided in
Section
2.8
(or in the case of a lost, stolen or destroyed Certificate, upon delivery of an affidavit in the manner provided in
Section
2.11
).
(iii)
Dissenting
Shares
. Each Dissenting Share that is issued and outstanding immediately prior to the Effective Time shall be cancelled and
cease to exist, in consideration for the right to receive the fair value of such Dissenting Share as provided in
Section 2.7(c)
,
and the register of shareholders of the Company shall be amended accordingly.
(iv)
Principal
Shares
. Each Principal Share that is issued and outstanding immediately prior to the Effective Time shall remain in effect
as issued and outstanding shares of the Company, fully paid and non-assessable. Such share(s) of common stock shall be the only
issued and outstanding share(s) of capital stock of the Surviving Company, which shall be reflected in the stock ledger of the
Surviving Company.
(b)
Certain Adjustments
.
The Per Share Merger Consideration shall be adjusted appropriately to reflect the effect of any share split, reverse share split,
share dividend (including any dividend or distribution of securities convertible into Company Shares), reclassification, combination,
exchange of shares, or other like change with respect to Company Shares occurring, or with a record date, on or after the date
hereof and prior to the Effective Time, and such adjustment to the Per Share Merger Consideration shall provide to the holders
of Company Shares the same economic effect as contemplated by this Agreement prior to such action.
(c)
Statutory Dissenters
Rights
. Notwithstanding anything in this Agreement to the contrary, any Company Shares that are issued and outstanding immediately
prior to the Effective Time and are held by a Company Shareholder (each, a "
Dissenting Shareholder
") who has
validly exercised and not lost its rights to dissent from the Merger pursuant to the NRS (collectively, the "
Dissenting
Shares
") shall not be converted into or exchangeable for or represent the right to receive the Per Share Merger Consideration
(except as provided in this
Section 2.7(c)
), and shall entitle such Dissenting Shareholder only to payment of the fair
value of such Dissenting Shares as determined in accordance with the NRS. If any Dissenting Shareholder shall have effectively
withdrawn (in accordance with the NRS) or lost the right to dissent, then upon the occurrence of such event, the Dissenting Shares
held by such Dissenting Shareholder shall cease to be Excluded Shares, and shall be cancelled and converted into and represent
the right to receive the Per Share Merger Consideration at the Effective Time, pursuant to
Section 2.7(a)(ii)
.
(d)
Company Options
.
Each outstanding, unexercised and vested Company Options or, as applicable, the vested portion of a Company Option with a per
share exercise price less than the Per Share Merger Consideration (each an
"In-the-Money Vested Company Option"
)
shall, automatically and without any required action on the part of the holder thereof, be converted into the right to receive
an amount in cash equal to the excess of (i) the Per Share 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
"). Each vested Company Option outstanding and unexercised immediately prior to the Effective Time with
a per share exercise price greater than or equal to the Per Share Merger Consideration shall automatically be cancelled as of
the Effective Time without any consideration payable in respect thereof. On the Closing Date, or as promptly as practicable thereafter
(but in no event later than five days thereafter), Acquisition shall pay to each holder of an In-the-Money Vested Company Option
the aggregate Option Consideration payable to such holder of In-the-Money Vested Company Options pursuant to this Section 2.7(d).
Such cash consideration shall be rounded down to the nearest cent and Acquisition shall be entitled to deduct and withhold from
such cash consideration all amounts required to be deducted and withheld under the Code, the rules and regulations promulgated
thereunder, or any other applicable Laws. To the extent that amounts are so withheld by Acquisition, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder of the In-the-Money Vested Company Options with
respect to whom such amounts were withheld by Acquisition. Notwithstanding anything contained herein to the contrary, no Option
Consideration shall be paid to a holder of Principal Shares.
Section 2.8
Exchange
of Certificates.
(a)
Paying Agent
.
Prior to the Closing, Acquisition shall select a bank, transfer agent or trust company reasonably acceptable to the Company to
act as the paying agent for the Merger (the "
Paying Agent
") and, in connection therewith, shall enter into
an agreement with the Paying Agent in a form reasonably acceptable to the Company.
(b)
Exchange Fund
.
Prior to the Effective Time, Acquisition shall deposit (or cause to be deposited) with the Paying Agent, for payment to the holders
of Company Shares an amount of cash equal to the aggregate consideration to which holders of Company Shares become entitled under
this
Article II
. Until disbursed in accordance with the terms and conditions of this Agreement, such funds shall be invested
by the Paying Agent, as directed by Acquisition, in obligations of or guaranteed by the United States of America or obligations
of an agency of the United States of America which are backed by the full faith and credit of the United States of America (such
cash amount being referred to herein as the "
Exchange Fund
"). Any interest and other income resulting from
such investments shall be paid to Acquisition. To the extent that there are any losses with respect to any investments of the
Exchange Fund, or the Exchange Fund diminishes for any reason below the level required for the Paying Agent to promptly pay the
cash amounts contemplated by this
Article II
, Acquisition shall promptly replace or restore the cash in the Exchange Fund
so as to ensure that the Exchange Fund is at all times maintained at a level sufficient for the Paying Agent to make such payments
contemplated by this
Article II.
(c)
Payment Procedures
.
Promptly following the Effective Time (and in any event within three Business Days), the Surviving Company shall cause the Paying
Agent to mail or otherwise disseminate to each holder of record (as of immediately prior to the Effective Time) of (i) a certificate
or certificates (the "
Certificates
") which immediately prior to the Effective Time represented outstanding
Company Shares (A) a letter of transmittal in customary form (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent, and/or (B) instructions
for use in effecting the surrender of the Certificates in exchange for the Per Share Merger Consideration payable in respect thereof
pursuant to the provisions of this
Article II
. Upon surrender of Certificates for cancellation to the Paying Agent or to
such other agent or agents as may be appointed by Acquisition, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such Certificates shall be entitled to receive in exchange
therefor an amount in cash equal to the Per Share Merger Consideration to which the holder thereof is entitled pursuant to
Section
2.7(a)(ii)
, and the Certificates so surrendered shall forthwith be canceled. Upon receipt of an "agent's message"
by the Paying Agent (or such other evidence, if any, of transfer as the Paying Agent may reasonably request) in the case of a
book entry transfer of uncertificated Shares, the holders of such uncertificated Shares shall be entitled to receive in exchange
for the cancellation of such uncertificated Shares an amount in cash equal to the Per Share Merger Consideration to which the
holder thereof is entitled pursuant to
Section 2.7(a)(ii)
, and the uncertificated Shares shall forthwith be canceled. The
Paying Agent shall accept such Certificates and transferred uncertificated Shares upon compliance with such reasonable terms and
conditions as the Paying Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices.
No interest shall be paid or accrued for the benefit of holders of the Certificates and uncertificated Shares on the Per Share
Merger Consideration payable upon the surrender of such Certificates and uncertificated Shares pursuant to this
Section 2.8
.
Until so surrendered, outstanding Certificates and uncertificated Shares shall be deemed from and after the Effective Time, to
evidence only the right to receive the Per Share Merger Consideration, without interest thereon, payable in respect thereof pursuant
to the provisions of this
Article II
.
(d)
Transfers of Ownership
.
In the event that a transfer of ownership of Company Shares is not registered in the share transfer books or register of shareholders
of the Company, or if the Per Share Merger Consideration is to be paid in a name other than that in which the Company Shares (whether
represented by Certificates or uncertificated Shares) are registered in the share transfer books or register of shareholders of
the Company, the Per Share Merger Consideration may be paid to a Person other than the Person in whose name Company Share (whether
represented by a Certificate or an uncertificated Share) so cancelled is registered in the share transfer books or register of
shareholders of the Company only if such Certificate or uncertificated Share is properly endorsed and otherwise in proper form
for surrender and transfer and the Person requesting such payment has paid to Acquisition (or any agent designated by Acquisition)
any transfer Taxes required by reason of the payment of the Per Share Merger Consideration to a Person other than the registered
holder of such Certificate or uncertificated Shares, or established to the satisfaction of Acquisition (or any agent designated
by Acquisition) that such transfer Taxes have been paid or are otherwise not payable.
(e)
Required Withholding
.
Each of the Paying Agent and the Surviving Company (and any other Person that has a withholding obligation pursuant to this Agreement)
shall only be entitled to deduct and withhold or cause to be deducted and withheld from any cash amounts payable pursuant to this
Agreement such amounts as may be required to be deducted or withheld therefrom under applicable Tax Laws and that are either (i)
U.S. federal backup withholding tax to a payee that does not provide the required documentation with respect to its U.S. tax status.
In the event that the Paying Agent, or the Surviving Company (or other Person) determines that any such permitted deduction or
withholding is required to be made from any amounts payable pursuant to this Agreement, the Paying Agent or the Surviving Company
(or other Person), as applicable, shall promptly inform the Special Committee and the other parties hereto of such determination
and
provide them with a reasonably detailed explanation of such determination and the parties hereto shall consult with
each other in good faith regarding such determination. To the extent that such amounts are so deducted, withheld and remitted
to the applicable Governmental Authority, such amounts shall be treated for all purposes under this Agreement as having been paid
to the Person to whom such amounts would otherwise have been paid.
(f)
No Liability
.
Notwithstanding anything to the contrary set forth in this Agreement, none of the Paying Agent, the Surviving Company or any other
party hereto shall be liable to a holder of Company Shares for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar Law.
(g)
Distribution of Exchange
Fund to Surviving Company
. Any portion of the Exchange Fund that remains undistributed to the holders of the Certificates,
uncertificated Shares on the date that is twelve (12) months after the Effective Time shall be delivered to the Surviving Company
upon demand, and any holders of Company Shares that were issued and outstanding immediately prior to the Effective Time who have
not theretofore surrendered their Certificates, uncertificated Shares representing such Company Shares for exchange pursuant to
the provisions of this
Section 2.8
shall thereafter look for payment of the Per Share Merger Consideration payable in respect
of the Company Shares represented by such Certificates, uncertificated Shares solely to
the Surviving Company, as general
creditors thereof, for any claim to the applicable Per Share Merger Consideration to which such holders may be entitled pursuant
to the provisions of this
Article II
. Any portion of the Exchange Fund remaining unclaimed by Company Shareholders as of
a date which is immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental
Authority shall, to the extent permitted by applicable Law, become the property of the Surviving Company free and clear of any
claims or interest of any person previously entitled thereto.
Section 2.9
No Further
Ownership Rights.
From and after the Effective Time, all Company Shares, except for the Principal Shares, shall no longer
be outstanding and shall automatically be cancelled, retired and cease to exist, and each holder of a Certificate, uncertificated
Shares theretofore representing any Company Shares shall cease to have any rights with respect thereto, except the right to receive
the Per Share Merger Consideration payable therefor upon the surrender thereof in accordance with the provisions of
Section
2.8
. The Per Share Merger Consideration paid in accordance with the terms of this
Article II
shall be deemed to have
been paid in full satisfaction of all rights pertaining to such Company Shares. From and after the Effective Time, there shall
be no further registration of transfers on the records of the Surviving Company of Company Shares that were issued and outstanding
immediately prior to the Effective Time, other than transfers to reflect, in accordance with customary settlement procedures,
trades effected prior to the Effective Time. If, after the Effective Time, Certificates, uncertificated Shares are presented to
the Surviving Company for any reason, they shall be canceled and exchanged as provided in this
Article II
.
Section 2.10
Untraceable
and Dissenting Shareholders.
Remittances for the Per Share Merger Consideration shall not be sent to Company Shareholders
who are untraceable unless and until, except as provided below, they notify the Paying Agent of their current contact details
prior to the Effective Time. A Company Shareholder will be deemed to be untraceable if (a) he has no registered address in the
register of shareholders maintained by the Company; (b) on the last two consecutive occasions on which a dividend has been paid
by the Company a check payable to such Company Shareholder either (i) has been sent to such Company Shareholder and has been returned
undelivered or has not been cashed; or (ii) has not been sent to such shareholder because on an earlier occasion a check for a
dividend so payable has been returned undelivered, and in any such case, no valid claim in respect thereof has been communicated
in writing to the Company; or (c) notice of the Company Shareholders Meeting convened to vote on the Merger has been sent to such
Company Shareholder and has been returned undelivered. Monies due to Dissenting Shareholders and Company Shareholders who are
untraceable shall be returned to the Surviving Company. Monies unclaimed after a period of two years from the date of the notice
of the Company Shareholders Meeting shall be forfeited and shall revert to the Surviving Company. Dissenting Shareholders and
Company Shareholders who are untraceable who subsequently wish to receive any monies otherwise payable in respect of the Merger
within applicable time limits or limitation periods should contact the Surviving Company.
Section 2.11
Lost, Stolen
or Destroyed Certificates.
In the event that any Certificates shall have been lost, stolen or destroyed, the Paying Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder
thereof, the Per Share Merger Consideration payable in respect thereof pursuant to
Section 2.7
.
Section 2.12
Fair Value.
Acquisition and the Company respectively agree that the Per Share Merger Consideration represent the fair value of the Company
Shares.
Section 2.13
Necessary
Further Actions.
If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes
of this Agreement and to vest the Surviving Company with full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Acquisition, the directors and officers of the Company and Acquisition shall take any
such lawful and necessary action.
Article
III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (i) as set forth
in the Company Disclosure Letter, or (ii) as set forth in the Company SEC Reports filed by the Company with the SEC (other than
in any "risk factor" disclosure or any other forward looking statements or other disclosures included in such documents
that are generally cautionary or forward-looking in nature), the Company hereby represents and warrants to Acquisition as follows:
Section 3.1
Organization
and Qualification.
The Company and each of its Subsidiaries is an entity duly organized and validly existing under the Laws
of the jurisdiction of its organization and has the requisite corporate or similar power and authority to conduct its business
as it is presently being conducted and to own, lease or operate its properties and assets, except where the failure to be so organized
or existing or to have such power and authority would not have a Company Material Adverse Effect. The Company and each of its
Subsidiaries is duly qualified to do business and is in good standing (to the extent either such concept is recognized under applicable
Law) in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification
necessary, except where the failure to be so qualified or in good standing has not had a Company Material Adverse Effect.
Section 3.2
Corporate
Power; Enforceability.
The Company has all requisite corporate power and authority to execute and deliver this Agreement,
to perform its covenants and obligations under this Agreement and, subject to obtaining the Requisite Shareholder Approval, to
consummate the transactions contemplated by this Agreement. The execution and delivery by the Company of this Agreement, the performance
by the Company of its covenants and obligations under this Agreement and the consummation by the Company of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate action on the part of the Company and no additional corporate
proceedings on the part of the Company are necessary to authorize the execution and delivery by the Company of this Agreement,
the performance by the Company of its covenants and obligations under this Agreement or the consummation of the transactions contemplated
by this Agreement other than obtaining the Requisite Shareholder Approval and filing the Articles of Merger with the Secretary
of State. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and
delivery by Acquisition, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that such enforceability (a) may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting or relating to creditors' rights generally, and (b) is subject to general principles
of equity.
Section 3.3
Board Actions.
At a meeting duly called and held prior to the execution of this Agreement, the Company Board (acting upon the recommendation
of the Special Committee) (a) approved this Agreement and approved the execution and delivery by the Company of this Agreement,
the performance by the Company of its covenants and agreements contained herein and the consummation of the transactions contemplated
hereby in accordance with the NRS upon the terms and subject to the conditions contained herein and (b) resolved to recommend
that the holders of Company Shares authorize and approve this Agreement and the Merger.
Section 3.4
Requisite
Shareholder Approval.
The affirmative vote of Company Shareholders representing a majority or more of the issued and outstanding
Company Shares present and voting in person or by proxy as a single class at the Company Shareholders Meeting (the "
Requisite
Shareholder Approval
") is the only vote or approval of the holders of any class or series of share capital of the Company
that is necessary to authorize and approve this Agreement and consummate the Merger.
Section 3.5
Non-Contravention.
The execution and delivery by the Company of this Agreement, the performance by the Company of its covenants and obligations
under this Agreement and the consummation by the Company of the transactions contemplated by this Agreement do not (a) violate
or conflict with any provision of the articles of incorporation, bylaws or other organizational documents of the Company, (b)
subject to obtaining such Consents set forth in Section 3.5 of the Company Disclosure Letter, violate, conflict with or result
in the breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under,
or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration
under, any Material Contract, (c) assuming the Consents referred to in Section 3.5 of the Company Disclosure Letter are obtained
or made and subject to obtaining the Requisite Shareholder Approval, violate or conflict with any Law or Order applicable to the
Company or any of its Subsidiaries or by which any of their properties or assets are bound or (d) result in the creation of any
Lien (other than Permitted Liens) upon any of the properties or assets of the Company or any of its Subsidiaries, except in the
case of each of clauses (b), (c) and (d) above, for such violations, conflicts, defaults, terminations, accelerations or Liens
which would not have a Company Material Adverse Effect or prevent or materially delay the consummation by the Company of the transactions
contemplated hereby or the performance by the Company of its covenants and obligations hereunder.
Section 3.6
Required
Governmental Approvals.
No consent, approval, Order or authorization of, or filing or registration with, or notification to
(any of the foregoing being referred to herein as a "
Consent
"), any Governmental Authority is required on the
part of the Company in connection with the execution and delivery by the Company of this Agreement, the performance by the Company
of its covenants and obligations hereunder and the consummation by the Company of the transactions contemplated hereby, except
(a) the filing and registration of the Articles of Merger with the Secretary of State (b) such filings and approvals as may be
required by any United States federal or state securities laws, including compliance with any applicable requirements of the Exchange
Act, including the joining of the Company in the filing of the Rule 13e-3 Transaction Statement on Schedule 13E-3 (including any
amendments or supplements thereto, the "
Schedule 13E-3
") and the furnishing of Form 8-K with the Proxy Statement
(c) such filings as may be required for compliance with the rules and regulations of the NASDAQ, and (d) such other Consents,
the failure of which to obtain would not have a Company Material Adverse Effect or prevent or materially delay the consummation
by the Company of the transactions contemplated hereby or the ability of the Company to perform its covenants and obligations
hereunder.
Section 3.7
Company Capitalization.
(a) The authorized share
capital of the Company consists of 10,000,000 shares of preferred stock, par value $0.0001 and 100,000,000 Company Shares, par
value $.001 per share. As of the close of business in New York City on March 8, 2016 (the "
Capitalization Date
"):
3,914,580 Company Shares were issued and outstanding and none of the preferred shares were issued and outstanding. All outstanding
Company Shares are, when issued in accordance with the terms thereof, validly issued, fully paid, non-assessable and free of any
preemptive rights. Since the Capitalization Date, the Company has not issued any Company Shares.
(b) Except as set forth
in the
Section 3.7
of the Company Disclosure Letter, there are (i) no outstanding shares of capital stock of, or other
equity or voting interest in, the Company, (ii) no outstanding securities of the Company convertible into or exchangeable for
shares of capital stock of, or other equity or voting interest in, the Company, (iii) no outstanding options, warrants, rights
or other commitments or agreements to acquire from the Company, or that obligates the Company to issue, any capital stock of,
or other equity or voting interest in, or any securities convertible into or exchangeable for shares of capital stock of, or other
equity or voting interest in, the Company, (iv) no obligations of the Company to grant, extend or enter into any subscription,
warrant, right, convertible or exchangeable security or other similar agreement or commitment relating to any capital stock of,
or other equity or voting interest (including any voting debt) in, the Company (the items in clauses (i), (ii), (iii) and (iv),
together with the capital stock of the Company, being referred to collectively as "
Company Securities
") and
(v) no other obligations by the Company or any of its Subsidiaries to make any payments based on the price or value of any Company
Securities. Neither the Company nor any of its Subsidiaries is a party to any Contract which obligates the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
Section 3.8
Subsidiaries.
(a)
Section 3.8
of
the Company Disclosure Letter contains a complete and accurate list of the name, jurisdiction of organization, capitalization
and schedule of shareholders of each Subsidiary of the Company.
(b) All of the outstanding
capital stock of, or other equity or voting interest in, each Subsidiary of the Company (i) have been duly authorized, validly
issued and are fully paid and nonassessable and (ii) are owned, directly or indirectly, by the Company, free and clear of all
Liens (other than Permitted Liens) and free of any other restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other equity or voting interest) that would prevent the operation by the Surviving
Company or such Subsidiary's business as presently conducted.
(c) There are no outstanding
(i) securities of the Company or any of its Subsidiaries convertible into or exchangeable for shares of capital stock of, or other
equity or voting interest in, any Subsidiary of the Company, (ii) options, warrants, rights or other commitments or agreements
to acquire from the Company or any of its Subsidiaries, or that obligate the Company or any of its Subsidiaries to issue, any
capital stock of, or other equity or voting interest in, or any securities convertible into or exchangeable for shares of capital
stock of, or other equity or voting interest in, any Subsidiary of the Company, (iii) obligations of the Company to grant, extend
or enter into any subscription, warrant, right, convertible or exchangeable security or other similar agreement or commitment
relating to any capital stock of, or other equity or voting interest (including any voting debt) in, any Subsidiary of the Company
(the items in clauses (i), (ii) and (iii), together with the capital stock of the Subsidiaries of the Company, being referred
to collectively as "
Subsidiary Securities
"), or (iv) other obligations by the Company or any of its Subsidiaries
to make any payments based on the price or value of any shares of any Subsidiary of the Company. Neither the Company nor any of
its Subsidiaries is a party to any Contract which obligates the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any outstanding Subsidiary Securities, except in connection with the VIE Agreements.
Section 3.9
Company SEC
Reports.
Since December 31, 2014, the Company has filed all material forms, reports and documents with the SEC that have been
required to be filed by it under applicable Laws prior to the date hereof (all such forms, reports and documents, together with
all exhibits and schedules thereto, the "
Company SEC Reports
"). As of its filing date (or, if amended or superseded
by a filing prior to the date of this Agreement, on the date of such amended or superseded filing), (a) each Company SEC Report
complied as to form in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the
case may be, each as in effect on the date such Company SEC Report was filed, and (b) each Company SEC Report did not contain
any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading. True and correct copies of all Company SEC Reports
filed prior to the date hereof have been furnished to Acquisition or are publicly available in the Electronic Data Gathering,
Analysis and Retrieval (EDGAR) database of the SEC. None of the Company's Subsidiaries is required to file any forms, reports
or other documents with the SEC.
Section 3.10
Company
Financial Statements.
The consolidated financial statements of the Company and its Subsidiaries filed with the Company SEC
Reports (including the related notes an schedules) have been prepared (or in the case of Company SEC Reports filed after the date
hereof, will be prepared ) in accordance with GAAP consistently applied during the periods and at the dates involved, and fairly
present (or in the case of Company SEC Reports filed after the date hereof, will fairly present) in all material respects the
consolidated financial position of the Company and its Subsidiaries as of the dates thereof and the consolidated results of operations
and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end adjustments).
Section 3.11
Absence
of Certain Changes.
(a) Since the Company Balance
Sheet Date through the date hereof, except for actions taken or not taken in connection with the transactions contemplated by
this Agreement, the business of the Company and its Subsidiaries has been conducted, in all material respects, in the ordinary
course consistent with past practice, and there has not been or occurred, and there does not exist, any Company Material Adverse
Effect that is continuing.
(b) Since the Company Balance
Sheet Date through the date hereof, neither the Company nor any of its Subsidiaries has taken any action that would be prohibited
by
Section 5.1(b)
if such section had been in effect since the Company Balance Sheet Date.
Section 3.12
Material
Contracts.
(a)
Section 3.12(a)
of the Company Disclosure Letter contains a complete and accurate list of all Material Contracts to or by which the Company or
any of its Subsidiaries is a party as of the date of this Agreement. As of the date hereof, true and complete copies of all Material
Contracts have been (i) publicly filed with the SEC or (ii) made available to Acquisition.
(b) Each Material Contract
is valid and binding on the Company (and/or each such Subsidiary of the Company party thereto) and, to the Knowledge of the Company,
each other party thereto, and is in full force and effect, enforceable against the Company or each such Subsidiary of the Company
party thereto, as the case may be, in accordance with its terms, except that such enforceability (i) may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting or relating to creditors' rights generally,
and (ii) is subject to general principles of equity. Neither the Company nor any of its Subsidiaries that is a party to a Material
Contract, nor, to the Knowledge of the Company, any other party thereto, is in breach of, or default under, any such Material
Contract, and no event has occurred that with notice or lapse of time or both would constitute such a breach or default thereunder
by the Company or any of its Subsidiaries, or, to the Knowledge of the Company, any other party thereto, except for such breaches
and defaults that have not had a Company Material Adverse Effect.
Section 3.13
Tax Matters.
(a) The Company and each
of its Subsidiaries (i) have timely filed (taking into account any extensions of time in which to file) all returns, estimates,
claims for refund, information statements and reports or other similar documents with respect to Taxes (including amendments,
schedules, or attachments thereto) relating to any and all Taxes ("
Tax Returns
") required to be filed with
any Governmental Authority by any of them and all such filed Tax Returns are true, correct and complete in all material aspects
and were prepared in compliance with all applicable Laws in all material aspects, (ii) have paid, or have adequately reserved
(in accordance with GAAP) on the most recent financial statements contained in the Company SEC Reports for the payment of, all
Taxes required to be paid through the Company Balance Sheet Date, and (iii) have not incurred any liability for Taxes since the
Company Balance Sheet Date other than in the ordinary course of business consistent with past practice. No deficiencies for any
Taxes have been asserted in writing or assessed in writing, or to the Knowledge of the Company, proposed, against the Company
or any of its Subsidiaries that are not subject to adequate reserves on the consolidated financial statements of the Company and
its Subsidiaries (in accordance with GAAP) as adjusted in the ordinary course of business through the Effective Time, nor has
the Company or any of its Subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment
or collection of any Tax. There are no Liens (other than Permitted Liens) on any of the assets of the Company or its Subsidiaries
for Taxes.
(b) The representations
and warranties contained in this
Section 3.13
are the only representations and warranties of the Company and its Subsidiaries
with respect to Taxes, and no other representation or warranty contained in any other section of this Agreement shall apply to
any such Tax matters.
Section 3.14
Permits.
The Company and its Subsidiaries have, and are in compliance with the terms of, all permits, licenses, authorizations, consents,
approvals and franchises from Governmental Authorities required to conduct their businesses as currently conducted ("
Permits
"),
and no suspension or cancellation of any such Permits is pending or, to the Knowledge of the Company, threatened, except for such
noncompliance, suspensions or cancellations that have not had a Company Material Adverse Effect.
Section 3.15
Compliance
with Laws.
The Company and each of its Subsidiaries is in compliance with all Law and Orders applicable to the Company and
its Subsidiaries, except for such noncompliance that has not had a Company Material Adverse Effect. No representation or warranty
is made in this
Section 3.15
with respect to (a) compliance with the Exchange Act, to the extent such compliance is covered
in
Section 3.6
and
Section 3.9
or (b) applicable laws with respect to Taxes, which are covered solely in
Section
3.13
.
Section 3.16
Litigation.
There is no Legal Proceeding pending or, to the Knowledge of the Company, threatened in writing against the Company, any of
its Subsidiaries or any of the respective properties of the Company or any of its Subsidiaries that has had a Company Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is subject to any outstanding Order that has had a Company Material
Adverse Effect.
Section 3.17
Related
Party Transactions.
None of the directors or executive officers of the Company or individuals owning, directly or indirectly,
an interest in the voting power of the Company that gives them significant influence over the Company and its Subsidiaries taken
as a whole, since the Company Balance Sheet Date, has had any transaction with the Company or any of its Subsidiaries which is
material to the Company and its Subsidiaries taken as a whole (other than employment relationship or serving as a director). The
Company and its Subsidiaries have not, since the Company Balance Sheet Date, extended or maintained credit, arranged for the extension
of credit or renewed an extension of credit in the form of a personal loan to or for any director or executive officer of the
Company.
Section 3.18
Opinion
of Financial Advisor.
The Special Committee received the opinion of ROTH Capital Partners LLC, the financial advisor to the
Special Committee, dated as of the date hereof, to the effect that, as of the date of this Agreement, the Per Share Merger Consideration
to be received by the holders of Company Shares pursuant to this Agreement is fair from a financial point of view to such holders.
Section 3.19
Anti-Takeover
Provisions
. The Company is not party to a Shareholder rights agreement, "poison pill" or similar agreement or
plan. None of the requirements or restrictions of (a) the Nevada "combinations with interested Shareholders" statutes,
NRS 78.411 through 78.444, inclusive, or (b) the Nevada "acquisition of controlling interest" statutes, NRS 78.378
through 78.3793, inclusive (collectively, the "
Takeover Statutes
") would apply to prevent the consummation
of any of the transactions contemplated by this Agreement, including the Merger.
Section 3.20
No Other
Company Representations or Warranties.
Except for the representations and warranties set forth in
Article III
, Acquisition
hereby acknowledges and agrees that (a) neither the Company nor any of its Subsidiaries, nor any of their respective Representatives,
has made or is making any other express or implied representation or warranty with respect to the Company or any of its Subsidiaries
or their respective business or operations, including with respect to any information provided or made available to Acquisition
or any of its Representatives, and (b) neither the Company nor any of its Subsidiaries, nor any of their respective Representatives,
will have or be subject to any liability or indemnification obligation or other obligation of any kind or nature to Acquisition
or any of its Representatives, resulting from the delivery, dissemination or any other distribution to Acquisition or any of its
Representatives, or the use by Acquisition or any of its Representatives, of any such information provided or made available to
any of them by the Company or any of its Subsidiaries, or any of their respective Representatives, including any information,
documents, estimates, projections, forecasts or other forward-looking information, business plans or other material provided or
made available to Acquisition or any of its Representatives, in "data rooms," confidential information memoranda or
management presentations in anticipation or contemplation of the Merger or any other transactions contemplated by this Agreement.
Article
IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition hereby represents
and warrants to the Company as follows:
Section 4.1
Organization;
Good Standing.
Acquisition is duly organized and validly existing under the Laws of the State of Nevada and has the requisite
corporate power and authority to conduct its business as it is presently being conducted and to own, lease or operate its properties
and assets. Acquisition is duly qualified to do business and is in good standing (to the extent either such concept is recognized
under applicable Law) in each jurisdiction where the character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified or in good standing would not, individually or
in the aggregate, prevent or materially delay the consummation by Acquisition of the transactions contemplated hereby or the performance
by Acquisition of its covenants and obligations hereunder. Acquisition has previously furnished to the Company a true and complete
copy of the articles of incorporation and bylaws of Acquisition, each as amended or modified to date, as in effect as of the date
of this Agreement. Such articles of incorporation and bylaws are in full force and effect as of the date hereof. Acquisition is
not in violation of any provision of its articles of incorporation or bylaws in any material respect.
Section 4.2
Corporate
Power; Enforceability.
Acquisition has the requisite corporate power and authority to execute and deliver this Agreement,
to perform covenants and obligations under this Agreement and to consummate the transactions contemplated by this Agreement. The
execution and delivery by Acquisition of this Agreement, the performance by Acquisition of its covenants and obligations under
this Agreement and the consummation by Acquisition of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate or other action on the part of Acquisition, and no other corporate or other proceeding on the part
of Acquisition is necessary to authorize the execution and delivery by Acquisition of this Agreement, the performance by Acquisition
of its covenants and obligations under this Agreement or the consummation by Acquisition of the transactions contemplated by this
Agreement. This Agreement has been duly executed and delivered by Acquisition and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of Acquisition, enforceable against it in accordance
with its terms, except that such enforceability (a) may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting or relating to creditors' rights generally, and (b) is subject to general principles of
equity.
Section 4.3
Non-Contravention.
The execution and delivery by Acquisition of this Agreement, the performance by Acquisition of its covenants and obligations
under this Agreement and the consummation by Acquisition of the transactions contemplated by this Agreement do not and will not
(a) violate or conflict with any provision of the Articles of Incorporation, (b) violate, conflict with, or result in the breach
of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or result in
the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument
or obligation to which Acquisition is a party or by which Acquisition or any of its properties or assets may be bound, (c) assuming
the Consents referred to in
Section 3.5
of the Company Disclosure Letter are obtained or made, violate or conflict with
any Law or Order applicable to Acquisition or by which any of their properties or assets are bound or (d) result in the creation
of any Lien (other than Permitted Liens) upon any of the properties or assets of Acquisition, except in the case of each of clauses
(b), (c) and (d) above, for such violations, conflicts, defaults, terminations, accelerations or Liens which would not, individually
or in the aggregate, prevent or materially delay the consummation by Acquisition of the transactions contemplated hereby or the
performance by Acquisition of its respective covenants and obligations hereunder.
Section 4.4
Required
Governmental Approvals.
No Consent of any Governmental Authority is required on the part of Acquisition or any of its Affiliates
in connection with the execution and delivery by Acquisition of this Agreement, the performance by Acquisition or any of its affiliates
of their respective covenants and obligations hereunder and the consummation by Acquisition of the transactions contemplated hereby,
except (a) the filing and registration of the Articles of Merger with the Secretary of State and such filings with Governmental
Authorities to satisfy the applicable laws of states in which Acquisition is qualified to do business, (b) such filings and approvals
as may be required by any United States federal or state securities laws, including compliance with any applicable requirements
of the Exchange Act, and the filing of the Proxy Statement and the Schedule 13E-3, and (c) such other Consents, the failure of
which to obtain would not, individually or in the aggregate, prevent or materially delay the consummation by Acquisition of the
transactions contemplated hereby or the performance by Acquisition of its covenants and obligations hereunder.
Section 4.5
Available
Funds
. Acquisition has or will have available to it, as of the Effective Time, all funds necessary for the payment to the
Paying Agent of the aggregate amount of the Exchange Fund and any other amounts required to be paid in connection with the consummation
of the Merger and the other transactions contemplated by this Agreement and to pay all related fees and expenses of Acquisition.
Section 4.6
Litigation.
As of the date hereof, there is no Legal Proceeding pending or, to the Knowledge of Acquisition or any of its Affiliates,
threatened in writing against or affecting Acquisition or any of their Affiliates or any of their respective properties that would,
individually or in the aggregate, prevent or materially delay the consummation by Acquisition of the transactions contemplated
hereby or the performance by Acquisition of its covenants and obligations hereunder. Acquisition is not subject to any outstanding
Order that would, individually or in the aggregate, prevent or materially delay the consummation by Acquisition of the transactions
contemplated hereby or the performance by Acquisition of its covenants and obligations hereunder.
Section 4.7
Ownership
of Company Share Capital.
As of the date hereof, other than the Principal Shares, neither Acquisition nor any of its Affiliates
owns (beneficially (as such term is used in Rule 13d-3 promulgated under the Exchange Act), of record or otherwise) any Company
Shares or Subsidiary Securities (or any other economic interest through derivative securities or otherwise in the Company or any
Subsidiary of the Company) except pursuant to this Agreement.
Section 4.8
Brokers.
No agent, broker, finder or investment banker is entitled to any brokerage, finder or other fee or commission payable by the
Company in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Acquisition.
Section 4.9
Operations
of Acquisition.
Acquisition has been formed solely for the purpose of engaging in the transactions contemplated hereby and,
prior to the Effective Time, Acquisition will not have engaged in any other business activities or have incurred any liabilities
or obligations other than as contemplated by this Agreement.
Section 4.10
Capitalization
of Acquisition.
The authorized share capital of Acquisition consists of 50,000 shares, par value $0.001 per share, 19 of which
are validly issued and outstanding. Mr. Minhua Chen and Mrs. Yanling Fan own 100% of the issued and outstanding share capital
of Acquisition.
Section 4.11
Solvency.
Acquisition is not entering into the transactions contemplated hereby with the intent to hinder, delay or defraud any present
or future creditors. Assuming that the Company is solvent immediately prior to the Effective Time without giving effect to the
transactions contemplated by this Agreement, then as of the Effective Time and immediately after giving effect to all of the transactions
contemplated by this Agreement, including the Merger and the payment of the aggregate Per Share Merger Consideration and payment
of all related fees and expenses of Acquisition, the Company and their respective Subsidiaries in connection therewith, (a) the
amount of the "fair saleable value" of the assets of each of the Surviving Company and its Subsidiaries will exceed
(i) the value of all liabilities of the Surviving Company and such Subsidiaries, including contingent and other liabilities, and
(ii) the amount that will be required to pay the probable liabilities of the Surviving Company and such Subsidiaries on their
existing debts (including contingent liabilities) as such debts become absolute and matured, (b) neither the Surviving Company
nor any of its Subsidiaries will have an unreasonably small amount of capital for the operation of the businesses in which it
is engaged or proposed to be engaged, and (c) each of the Surviving Company and its Subsidiaries will be able to pay its liabilities,
including contingent and other liabilities, as they mature. For purposes of the foregoing, "not have an unreasonably small
amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged" and "able
to pay its liabilities, including contingent and other liabilities, as they mature" means that such Person will be able
to generate enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet its obligations
as they become due. For purposes of this representation, the Parties assume that the Company immediately prior to the Effective
Time will be able to generate enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet
its obligations as they become due without giving effect to transactions contemplated by this Agreement.
Section 4.12
No Other
Acquisition Representations or Warranties.
Except for the representations and warranties set forth in
Article IV
, the
Company hereby acknowledges and agrees that (a) neither Acquisition nor any of its Affiliates, nor any of their respective Representatives,
has made or is making any other express or implied representation or warranty with respect to Acquisition or its business or operations,
including with respect to any information provided or made available to the Company or any of its Representatives, and (b) neither
Acquisition nor any of its Affiliates, nor any of their respective Representatives, will have or be subject to any liability or
indemnification obligation or other obligation of any kind or nature to the Company or any of its Representatives, resulting from
the delivery, dissemination or any other distribution to the Company or any of its Representatives, or the use by the Company
or any of its Representatives, of any such information provided or made available to any of them by Acquisition or any of its
Representatives, including any information, documents, estimates, projections, forecasts or other forward-looking information,
business plans or other material provided or made available to the Company or any of its Representatives, in "data rooms,"
confidential information memoranda or management presentations in anticipation or contemplation of the Merger or any other transactions
contemplated by this Agreement.
Article
V
COVENANTS OF THE COMPANY
Section 5.1
Interim Conduct
of Business.
(a) Except as (i) contemplated,
required or permitted by this Agreement, (ii) required by applicable Law, (iii) set forth in
Section 5.1(a)
of the Company
Disclosure Letter, or (iv) approved by Acquisition (which approval will not be unreasonably withheld, conditioned or delayed),
at all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to
occur of the termination of this Agreement pursuant to
Article IX
and the Effective Time, the Company and each of its Subsidiaries
shall (A) carry on its business in the ordinary course in substantially the same manner as heretofore conducted in all material
respects, and (B) use its reasonable best efforts, consistent with past practices, to preserve substantially intact its business
organization and preserve the current relationships of the Company and each of its Subsidiaries with material customers, suppliers
and other Persons with whom the Company or any of its Subsidiaries has significant business relations as is reasonably necessary.
(b) Except as (i) contemplated,
required or permitted by this Agreement, (ii) required by applicable Law, (iii) set forth in
Section 5.1(b)
of the Company
Disclosure Letter, or (iv) approved by Acquisition (which approval will not be unreasonably withheld, conditioned or delayed),
at all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to
occur of the termination of this Agreement pursuant to
Article IX
and the Effective Time, the Company shall not do any
of the following and shall not permit any of its Subsidiaries to do any of the following (it being understood and hereby agreed
that if any action is expressly permitted by any of the following subsections, such action shall be expressly permitted under
Section 5.1(a)
):
(i) amend its
articles of incorporation, bylaws or comparable organizational documents;
(ii) issue,
sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any Company Securities or any Subsidiary Securities, except for (A) the issuance
and sale of Company Shares, (B) grants to employees or directors of Company Options issued in the ordinary course of business
consistent with past practice, and with a per share exercise price that is no less than the then-current market price of a Company
Share;
(iii) directly
or indirectly acquire, repurchase or redeem any Company Securities;
(iv) (A) split,
combine, subdivide or reclassify any Company Shares, (B) declare, set aside or pay any dividend or other distribution (whether
in cash, shares or property or any combination thereof) in respect of any Company Shares, or make any other actual, constructive
or deemed distribution in respect of Company Shares, except for cash dividends made by any direct or indirect Subsidiary of the
Company to the Company or one of its Subsidiaries or (C) enter into any voting agreement with respect to its share capital that
is inconsistent with the transaction contemplated hereby;
(v) propose
or adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries, except for (A) the transactions contemplated by this Agreement or (B)
the dissolution or reorganization of a wholly owned Subsidiary of the Company in the ordinary course of business consistent with
past practice;
(vi) (A) incur
or assume any long-term or short-term debt for borrowed monies or issue any debt securities, except for (1) debt incurred in the
ordinary course of business under letters of credit, lines of credit or other credit facilities or arrangements in effect on the
date hereof or issuances or repayment of commercial paper in the ordinary course of business consistent with past practice, and
(2) loans or advances between the Company and any direct or indirect Subsidiaries, or between any direct or indirect Subsidiaries,
(B) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person in excess of $50,000 (or an equivalent amount in RMB) individually or $100,000 (or an equivalent
amount in RMB) in the aggregate, except with respect to obligations of direct or indirect Subsidiaries of the Company, (C) make
any loans, advances or capital contributions to or investments in any other Person (other than the Company or any direct or indirect
Subsidiaries), except for payments or advances made in the ordinary course of business of the Company or any of its direct or
indirect Subsidiaries consistent with their respective past practice, or (D) mortgage or pledge any of its or its Subsidiaries'
assets, tangible or intangible, or create or suffer to exist any Lien thereupon (other than Permitted Liens);
(vii) except
as may be required by applicable Law or the terms of any employee benefit plan as in effect on the date hereof, (A) enter into,
adopt, amend (including acceleration of vesting), modify or terminate any bonus, profit sharing, incentive, compensation, severance,
retention, termination, option, appreciation right, performance unit, share equivalent, share purchase agreement, pension, retirement,
deferred compensation, employment, severance or other employee benefit agreement, trust, plan, fund or other arrangement for the
compensation, benefit or welfare of any officer or employee in any manner, except in any such case (1) in connection with the
hiring of new officers or employees in the ordinary course of business consistent with past practice, and (2) in connection with
the promotion of officers or employees in the ordinary course of business consistent with past practice, or (B) increase the compensation
payable or to become payable to any officer or employee, pay or agree to pay any special bonus or special remuneration to any
officer or employee, or pay or agree to pay any benefit not required by any plan or arrangement as in effect as of the date hereof,
except in the ordinary course of business consistent with past practice;
(viii) except
as may be required as a result of a change in applicable Law or in GAAP, make any material change in any of the accounting principles
or practices used by it;
(ix) sell,
transfer, lease, license, assign or otherwise dispose of (including, by merger, consolidation, or sale of stock or assets) any
entity, business, tangible assets or tangible properties of the Company or any of its Subsidiaries having a current value in excess
of $100,000 (or an equivalent amount in RMB) in the aggregate (other than the sale of inventory in the ordinary course of business);
(x) sell, transfer,
license, assign or otherwise dispose of (including, by merger, consolidation or sale of stock or assets), abandon, permit to lapse
or fail to maintain or enforce any material intellectual property owned by the Company or any of its Subsidiaries (except the
granting of nonexclusive licenses in the ordinary course of business), or disclose to any Person any confidential information
(except pursuant to confidentiality agreements);
(xi) (A) make
or change any material Tax election, (B) settle or compromise any material income Tax liability, or (C) consent to any extension
or waiver of any limitation period with respect to any claim or assessment for material Taxes, in each case to the extent such
election, settlement, compromise, extension, waiver or other action would have the effect of materially increasing the Tax liability
of the Company or any of its Subsidiaries for any period ending after the Closing Date or materially decreasing any Tax attribute
of the Company or any of its Subsidiaries existing on the Closing Date;
(xii) other
than in the ordinary course of business consistent with past practice, (A) acquire (by merger, consolidation or acquisition of
stock or assets) any other Person or any material equity interest therein with a value in excess of $100,000 (or an equivalent
amount in RMB) individually or $500,000 (or an equivalent amount in RMB) in the aggregate or (B) dispose of any properties or
assets of the Company or its Subsidiaries, which are material to the Company and its Subsidiaries, taken as a whole;
(xiii) enter
into any new line of business outside of its existing business segments;
(xiv) adopt,
propose, effect or implement any "shareholder rights plan," "poison pill" or similar arrangement; or
(xv) enter
into a Contract, or otherwise resolve or agree in any legally binding manner, to take any of the actions prohibited by this
Section
5.1(b)
.
(c) Notwithstanding the
foregoing, nothing in this Agreement is intended to give Acquisition, directly or indirectly, the right to control or direct the
business or operations of the Company or its Subsidiaries at any time prior to the Effective Time. Prior to the Effective Time,
the Company and its Subsidiaries shall exercise, consistent with the terms and conditions of this Agreement, complete control
and supervision over their own business and operations.
Section 5.2
No Solicitation
.
(a) Subject to Section
5.2(b), from the date hereof until the earlier to occur of the termination of this Agreement pursuant to Article IX and the Effective
Time, the Company and its Affiliates shall not, nor shall they authorize or knowingly permit any of their respective Representatives
to, directly or indirectly, (i) solicit, initiate or induce the making, submission or announcement of, or knowingly encourage,
facilitate or assist, an Acquisition Proposal, (ii) furnish to any Person (other than Acquisition or any designees of Acquisition)
any non-public information relating to the Company or any of its Subsidiaries, or afford to any Person (other than Acquisition
or any designees of Acquisition or Acquisition) 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, in any such case with the intent to induce the making,
submission or announcement of, or the intent to encourage, facilitate or assist, an Acquisition Proposal or any inquiries or the
making of any proposal that would reasonably be expected to lead to an Acquisition Proposal, (iii) participate or engage in discussions
or negotiations with any Person with respect to an Acquisition Proposal, (iv) approve, endorse or recommend an Acquisition Proposal,
or (v) enter into any Contract contemplating or otherwise relating to an Acquisition Transaction. Promptly following the date
of this Agreement, the Company and its Affiliate shall instruct their 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.
(b) Notwithstanding anything
to the contrary set forth in Section 5.2(a), the Company Board (acting through the Special Committee), may, directly or indirectly
through the Company's Representatives, (i) 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, (ii) 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 (iii) furnish to any Person that has made a
bona fide
, written Acquisition Proposal
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 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, in each
case under this clause (iii) pursuant to a confidentiality agreement; provided that in the case of any action taken pursuant to
the preceding clauses (ii) or (iii), the Company Board (acting through the Special Committee) determines in good faith (after
consultation with outside legal counsel) that the failure to take such action would reasonably be expected to be inconsistent
with its fiduciary duties under applicable Law, provided further that the Company shall (I) provide written notice to Acquisition
of its intent to furnish information or enter into discussions with such Person at least one Business Day prior to taking any
such action, (II) promptly following its execution, deliver to Acquisition a copy of the confidentiality agreement executed by
the Company and such Person, and (III) promptly make available to Acquisition any material information concerning the Company
and its Subsidiaries that is provided to any such Person and that was not previously made available to Acquisition or its Representatives.
Section 5.3
Company Board
Recommendation.
(a) Subject to the terms
of
Section 5.3(b)
and
Section 5.3(c)
, the Company Board shall recommend that the holders of Company Shares authorize
this Agreement (the "
Company Board Recommendation
").
(b)
Neither the Company Board nor any committee thereof (including the Special Committee) shall (i) (A) withhold, withdraw, amend
or modify in a manner adverse to Acquisition in any material respect, or publicly propose to withhold, withdraw, amend or modify
in a manner adverse to Acquisition in any material respect, the Company Board Recommendation or (B) adopt, approve or recommend,
or propose publicly to adopt, approve or recommend, any Superior Proposal (any action in this clause (i) being referred to as
a "
Company Board Recommendation Change
"); or (ii) adopt, approve or recommend, or allow the Company or any
of its Subsidiaries to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger
agreement, acquisition agreement, option agreement or other similar agreement (each, an "
Alternative Acquisition Agreement
")
constituting or related to, or that would reasonably be expected to result in, any Acquisition Proposal (other than a confidentiality
Agreement referred to in
Section 5.2
)
;
provided
that a "stop,
look and listen" communication by the Company Board or the Special Committee, to the Company Shareholders pursuant to Rule
14d-9(f) of the Exchange Act, or any substantially similar communication, shall not be deemed to be a Company Board Recommendation
Change.
Notwithstanding the foregoing or anything to
the contrary set forth in this Agreement, at any time prior to the Effective Time, (x) the Company Board (acting through the Special
Committee, if in existence) may effect a Company Board Recommendation Change if the Company Board (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 (y) if the Company Board 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 this Agreement in accordance with
Section 9.1(d)
.
(c) The Company shall not be
entitled to effect a Company Board Recommendation Change or terminate this Agreement as permitted under
Section 9.1(d)
unless the Company has provided written notice (a "
Recommendation Change Notice
") at least fifteen (15) Business
Days in advance to Acquisition advising Acquisition that the Company Board intends to make a Company Board Recommendation Change
or enter into an Alternative Acquisition Agreement with respect to an Acquisition Proposal that either constitutes or could reasonably
be expected to constitute a Superior Proposal, as applicable, and specifying the reasons therefor, including the terms and conditions
of such Acquisition Proposal that is the basis of the proposed action by the Company Board (including the identity of the Person
making the Acquisition Proposal and any financing materials related thereto, if any) and following the end of the fifteen (15)
Business Day period, the Company Board and the Special Committee shall have determined in good faith, taking into account any
changes to this Agreement proposed in writing by Acquisition in response to the notice of Superior Proposal, that the Acquisition
Proposal giving rise to the notice of Superior Proposal continues to constitute a Superior Proposal. Notwithstanding anything
herein to the contrary, should Acquisition respond to the Recommendation Change Notice within such fifteen (15) Business Day period
with a proposal equivalent to the proposed Superior Proposal, then the revised proposal from Acquisition shall be recommended
by the Company Board as the Company Board Recommendation. Any material amendment to the financial terms or any other material
amendment of any such Superior Proposal shall require a new notice of Superior Proposal and the Company shall be required to comply
again with the requirements of this
Section 5.3(c)
.
(d) Nothing in this Agreement
shall prohibit the Company Board or the Special Committee, from (i) complying with its disclosure obligations under applicable
Law with regard to an Acquisition Proposal, including taking and disclosing to the Company Shareholders a position contemplated
by Rule 14e-2(a) under the Exchange Act or complying with the provisions of Rule 14d-9 promulgated under the Exchange Act (or
any similar communication to the Company Shareholders), and (ii) making any disclosure to the Company Shareholders that the Company
Board or the Special Committee, if in existence, determines in good faith (after consultation with its outside legal counsel)
that the failure to make such disclosure would reasonably be expected to be inconsistent with its fiduciary duties to the Company
Shareholders under applicable Law.
Section 5.4
Access
.
At all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to
occur of the termination of this Agreement pursuant to
Article IX
and the Effective Time, the Company shall afford Acquisition
and its Representatives reasonable access during normal business hours, upon reasonable notice, to the properties, books and records
and personnel of the Company; provided that the Company may restrict or otherwise prohibit access to any documents or information
to the extent that (a) any applicable Law requires the Company to restrict or otherwise prohibit access to such documents or information,
(b) such documents or information are subject to any attorney-client privilege, work product doctrine or other privilege applicable
to such documents or information, or (c) access to a Contract to which the Company or any of its Subsidiaries is a party or otherwise
bound would violate or cause a default under, or give a third party the right to terminate or accelerate the rights under, such
Contract; provided further that no information or knowledge obtained by Acquisition in any investigation conducted pursuant to
the access contemplated by this
Section 5.4
shall affect or be deemed to modify any representation or warranty of the Company
set forth in this Agreement or otherwise affect the rights and remedies available to Acquisition hereunder. Any investigation
conducted pursuant to the access contemplated by this
Section 5.4
shall be conducted in a manner that does not unreasonably
interfere with the conduct of the business of the Company and its Subsidiaries or create a risk of damage or destruction to any
property or assets of the Company or any of its Subsidiaries. Any access to the Company's properties shall be subject to
the Company's reasonable security measures and insurance requirements and shall not include the right to perform invasive
testing.
Section 5.5
Certain Litigation
.
Each party hereto shall promptly advise the other parties hereto of any litigation commenced after the date hereof against such
party or any of its directors (in their capacity as such) by any Company Shareholders (on their own behalf or on behalf of the
Company) relating to this Agreement or the transactions contemplated hereby, and shall keep the other parties hereto reasonably
informed regarding any such litigation. Each party hereto shall give the other parties hereto the opportunity to consult with
such party regarding the defense or settlement of any such shareholder litigation and shall consider such other parties'
views with respect to such shareholder litigation.
Article
VI
cOvenants
of ACQUISITION
Section 6.1
Obligations
of Acquisition
. Acquisition and its Affiliates shall take all action necessary to perform its obligations under this Agreement
and to consummate the transactions contemplated hereby upon the terms and subject to the conditions set forth in this Agreement.
Article
VII
ADDITIONAL COVENANTS OF ALL PARTIES
Section 7.1
Reasonable
Best Efforts to Complete
. Upon the terms and subject to the conditions set forth in this Agreement, each of Acquisition and
the Company shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other party or parties hereto in doing, all things reasonably necessary, proper or advisable
under applicable Law or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including using reasonable best efforts to: (a) cause the conditions set forth in
Article VIII
to be satisfied; and (b) obtain all necessary actions or non-actions, waivers, consents, approvals, orders and authorizations
from Governmental Authorities and make all necessary registrations, declarations and filings with Governmental Authorities, that
are necessary to consummate the Merger or the transactions contemplated hereby. In addition to the foregoing, neither Acquisition,
on the one hand, nor the Company, on the other hand, shall take any action that, or fail to take any action if such failure, is
intended to, or has (or would reasonably be expected to have) the effect of, preventing, impairing, delaying or otherwise adversely
affecting the consummation of the Merger or the ability of such party to fully perform its obligations under this Agreement. Notwithstanding
anything to the contrary herein, the Company shall not be required prior to the Effective Time to pay any consent or other similar
fee, "profit sharing" or other similar payment or other consideration (including increased rent or other similar payments
or any amendments, supplements or other modifications to (or waivers of) the existing terms of any Contract), or the provision
of additional security (including a guaranty) to obtain the consent, waiver or approval of any Person under any Contract.
Section 7.2
Regulatory
Filings.
(a) Acquisition, on the
one hand, and the Company, on the other hand, shall promptly inform the other of any communication from any Governmental Authority
regarding any of the transactions contemplated by this Agreement in connection with any filings or investigations with, by or
before any Governmental Authority relating to this Agreement or the transactions contemplated hereby, including any proceedings
initiated by a private party. In connection with and without limiting the foregoing, to the extent reasonably practicable and
unless prohibited by applicable Law or by the applicable Governmental Authority, the parties hereto agree to (i) give each other
reasonable advance notice of all meetings with any Governmental Authority relating to the Merger, (ii) give each other an opportunity
to participate in each of such meetings, (iii) keep the other party reasonably apprised with respect to any oral communications
with any Governmental Authority regarding the Merger, (iv) cooperate in the filing of any analyses, presentations, memoranda,
briefs, arguments, opinions or other written communications explaining or defending the Merger, articulating any regulatory or
competitive argument and/or responding to requests or objections made by any Governmental Authority, (v) provide each other with
a reasonable advance opportunity to review and comment upon, and consider in good faith the views of the other with respect to,
all written communications (including any analyses, presentations, memoranda, briefs, arguments and opinions) with a Governmental
Authority regarding the Merger, (vi) provide each other (or counsel of each party, as appropriate) with copies of all written
communications to or from any Governmental Authority relating to the Merger, and (vii) cooperate and provide each other with a
reasonable opportunity to participate in, and consider in good faith the views of the other with respect to, all material deliberations
with respect to all efforts to satisfy the conditions set forth in
Section 8.1(b)
. Any such disclosures, rights to participate
or provisions of information by one party to the other may be made on a counsel-only basis to the extent required under applicable
Law or as appropriate to protect confidential information.
(b) Each of Acquisition
and the Company shall cooperate with one another in good faith to (i) promptly determine whether any filings not expressly contemplated
by this Agreement are required to be or should be made, and whether any other consents, approvals, permits or authorizations not
expressly contemplated by this Agreement are required to be or should be obtained, from any Governmental Authority under any other
applicable Law in connection with the transactions contemplated hereby, and (ii) promptly make any filings, furnish information
required in connection therewith and seek to obtain timely any such consents, permits, authorizations, approvals or waivers that
the parties determine are required to be or should be made or obtained in connection with the transactions contemplated hereby.
Section 7.3
Company Shareholders
Meeting.
(a) As promptly as practicable
following the date hereof, the Company, in cooperation with and subject to the approval of the Special Committee, shall, in accordance
with applicable Law (in the case of each of clauses (i) to (iv), unless the Company Board (acting through the Special Committee)
has effected a Company Board Recommendation Change or entered into an Alternative Acquisition Agreement): (i) prepare and cause
to be filed with the SEC as an exhibit to the Schedule 13E-3 a preliminary proxy statement (the "
Preliminary Proxy Statement
")
relating to this Agreement and the transactions contemplated by this Agreement; (ii) after consultation with Acquisition, respond
as promptly as reasonably practicable to any comments made by the SEC with respect to the Preliminary Proxy Statement (including
filing as promptly as reasonably practicable any amendments or supplements thereto necessary to be filed in response to any such
comments or as required by Law); (iii) use reasonable best efforts to have the SEC confirm that it has no further comments thereto;
and (iv) cause a definitive proxy statement, letter to shareholders, notice of meeting and form of proxy accompanying the proxy
statement that will be provided to the Company Shareholders in connection with the solicitation of proxies for use at the Company
Shareholders Meeting (collectively, as amended or supplemented, the "
Proxy Statement
"), to be mailed to the
Company Shareholders at the earliest practicable date after the date that the SEC confirms it has no further comments. Acquisition
shall as promptly as practicable furnish all information as the Company may reasonably request and otherwise cooperate with and
assist the Company, at the Company's reasonable request, in connection with the preparation of the Preliminary Proxy Statement,
the Proxy Statement and the other actions to be taken by the Company under this
Section 7.3(a)
.
(b) Unless the Company Board
(acting through the Special Committee) has effected a Company Board Recommendation Change or entered into an Alternative Acquisition
Agreement, the Company, in cooperation with and subject to the approval of the Special Committee, and Acquisition shall cooperate
to: (i) concurrently with the preparation of the Preliminary Proxy Statement and the Proxy Statement (including any amendments
or supplements thereto), jointly prepare and file with the SEC the Schedule 13E-3 relating to the transactions contemplated hereby
and furnish to each other all information concerning such party as may be reasonably requested by the other party in connection
with the preparation of the Schedule 13E-3; (ii) respond as promptly as reasonably practicable to any comments received from the
SEC with respect to such filings and consult with each other prior to providing such response; (iii) as promptly as reasonably
practicable after consulting with each other, prepare and file any amendments or supplements necessary to be filed in response
to any SEC comments or as required by Law; (iv) have cleared by the SEC the Schedule 13E-3; and (v) to the extent required by
applicable Law, as promptly as reasonably practicable prepare, file and distribute to the Company Shareholders any supplement
or amendment to the Schedule 13E-3 if any event shall occur which requires such action at any time prior to the Company Shareholders
Meeting.
(c) Unless the Company Board
(acting through the Special Committee) shall have effected a Company Board Recommendation Change or entered into an Alternative
Acquisition Agreement, the Company shall, in accordance with applicable Law, notify Acquisition promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Schedule 13E-3,
the Preliminary Proxy Statement or the Proxy Statement or for additional information and will supply Acquisition with copies of
all correspondence between the Company or any of its Representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Schedule 13E-3, the Preliminary Proxy Statement or the Proxy Statement. The Company shall give Acquisition
a reasonable opportunity to comment on any correspondence with the SEC or its staff or any proposed material to be included in
the Schedule 13E-3, the Preliminary Proxy Statement or the Proxy Statement prior to transmission to the SEC or its staff and shall
not, unless required by Law, transmit any such material to which Acquisition reasonably objects. If the Company discovers at any
time prior to the Company Shareholders Meeting any information that, pursuant to the Exchange Act, is required to be set forth
in an amendment or supplement to the Proxy Statement, then the Company, in cooperation with and subject to the approval of the
Special Committee, shall promptly transmit such amendment or supplement to the Company Shareholders.
(d) Unless the Company Board
(acting through the Special Committee) has effected a Company Board Recommendation Change or entered into an Alternative Acquisition
Agreement, the Company, in cooperation with and subject to the approval of the Special Committee, shall (i) in accordance with
applicable Law, establish a record date for and duly call a meeting of the Company Shareholders (the "
Company Shareholders
Meeting
") as promptly as reasonably practicable following the date hereof for the purposes of considering and, if thought
fit by the Company Shareholders, passing resolutions to authorize and approve this Agreement and the Merger, (ii) use reasonable
best efforts to solicit the authorization and approval of this Agreement and the Merger by the Company Shareholders, and (iii)
include in the Proxy Statement the Company Board Recommendation. Notwithstanding the foregoing, the Company may adjourn or postpone
the Company Shareholders Meeting as and to the extent: (1) required by applicable Law; (2) if as of the time for which the Company
Shareholders Meeting is originally scheduled (as set forth in the Proxy Statement) there are insufficient Company Shares represented
(either in person or by proxy) to constitute a quorum necessary to conduct the business of the Company Shareholders Meeting; or
(3) if in the good faith judgment of the Company Board, such adjournment or postponement is consistent with its fiduciary duties
under applicable Law.
(e) Notwithstanding the
foregoing or anything else herein to the contrary, and subject to compliance with the terms of
Section 5.3
, in connection
with any disclosure regarding a Company Board Recommendation Change relating to a Superior Proposal or an Acquisition Proposal,
the Company shall not be required to provide Acquisition the opportunity to review or comment on (or include comments proposed
by Acquisition in) or permit Acquisition to participate in any discussions with the SEC regarding the Proxy Statement, or any
amendment or supplement thereto, or any comments thereon or any other filing by the Company with the SEC, with respect to such
disclosure.
Section 7.4
Anti-Takeover
Laws
. In the event that any anti-takeover Law is or becomes applicable to this Agreement or any of the transactions contemplated
by this Agreement, the Company and Acquisition shall use their respective reasonable best efforts to ensure that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on the terms and subject to the conditions set forth
in this Agreement and otherwise to minimize the effect of such Law on this Agreement and the transactions contemplated hereby.
Section 7.5
Public Statements
and Disclosure
. None of the Company, on the one hand, or Acquisition, on the other hand, shall issue any public release or
make any public announcement concerning this Agreement or the transactions contemplated by this Agreement without the prior written
consent of the other (which consent shall not be unreasonably withheld, conditioned or delayed), except as such release or announcement
may be required by applicable Law or the rules or regulations of any applicable United States securities exchange or regulatory
or Governmental Authority to which the relevant party is subject or submits, wherever situated, in which case the party required
to make the release or announcement shall use its reasonable best efforts to allow the other party or parties hereto reasonable
time to comment on such release or announcement in advance of such issuance (it being understood that the final form and content
of any such release or announcement, as well as the timing of any such release or announcement, shall be at the final discretion
of the disclosing party); provided that the restrictions set forth in this
Section 7.5
shall not apply to any release or
announcement made or proposed to be made by the Company pursuant to
Section 5.3
or following a Company Board Recommendation
Change.
Section 7.6
Actions Taken
at Direction of Acquisition/Principal Shareholders
. Notwithstanding any other provision of this Agreement to the contrary,
the Company shall not be deemed to be in breach of any representation, warranty, covenant or agreement hereunder, including, without
limitation,
Article VI
and
Article VII
hereof, if the alleged breach is the proximate result of action or inaction
taken by the Company or any of its Subsidiaries at the direction of Acquisition, any
Principal
Shareholder or any shareholder,
officer or director of Acquisition or any
Principal
Shareholder without the approval or direction of the Company Board
or the Special Committee.
Section 7.7
Directors'
and Officers' Indemnification.
(a) The Surviving Company
and its Affiliates shall honor and fulfill in all respects the obligations of the Company and its Subsidiaries under any and all
indemnification agreements between the Company or any of its Subsidiaries and any of their respective current or former directors
and officers and any person who becomes a director or officer of the Company or any of its Subsidiaries prior to the Effective
Time (the "
Indemnified Persons
"). In addition, during the period commencing at the Effective Time and ending
on the sixth anniversary of the Effective Time, the Surviving Company and its Affiliates shall cause the articles of incorporation
(and other similar organizational documents) of the Surviving Company and its Subsidiaries to contain provisions with respect
to indemnification, exculpation and the advancement of expenses that are at least as favorable to the Indemnified Person as the
indemnification, exculpation and advancement of expenses provisions contained in the articles of incorporation (or other similar
organizational documents) of the Company and its Subsidiaries as of the date hereof, and during such six-year period, such provisions
shall not be repealed, amended or otherwise modified in any manner except as required by applicable Law.
(b) Without limiting the
generality of the provisions of
Section 7.7
, during the period commencing at the Effective Time and ending on the second
anniversary of the Effective Time, to the fullest extent permitted by applicable Law, the Surviving Company and its Affiliates
shall indemnify and hold harmless each Indemnified Person from and against any costs, fees and expenses (including reasonable
attorneys' fees and investigation expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, proceeding, investigation or inquiry, whether civil, criminal, administrative or investigative,
to the extent such claim, proceeding, investigation or inquiry arises directly or indirectly out of or pertains directly or indirectly
to (i) any action or omission or alleged action or omission in such Indemnified Person's capacity as a director, officer,
employee or agent of the Company or any of its Subsidiaries or other Affiliates (regardless of whether such action or omission,
or alleged action or omission, occurred prior to, at or after the Effective Time), or (ii) any of the transactions contemplated
by this Agreement;
provided
that if, at any time prior to the sixth anniversary of the Effective Time, any Indemnified
Person delivers to Acquisition and its Affiliates a written notice asserting a claim for indemnification under this
Section
7.7 (b)
, then the claim asserted in such notice shall survive the sixth anniversary of the Effective Time until such time
as such claim is fully and finally resolved. In addition, during the period commencing at the Effective Time and ending on the
second anniversary of the Effective Time, to the fullest extent permitted by applicable Law, the Surviving Company and its Subsidiaries
shall advance, prior to the final disposition of any claim, proceeding, investigation or inquiry for which indemnification may
be sought under this Agreement, promptly following request by an Indemnified Person therefor, all costs, fees and expenses (including
reasonable attorneys' fees and investigation expenses) incurred by such Indemnified Person in connection with any such claim,
proceeding, investigation or inquiry upon receipt of an undertaking by such Indemnified Person to repay such advances if it is
ultimately decided in a final, non-appealable judgment by a court of competent jurisdiction that such Indemnified Person is not
entitled to indemnification. In the event of any such claim, proceeding, investigation or inquiry, (A) the Surviving Company and
its Affiliates shall have the right to control the defense thereof after the Effective Time (it being understood that, by electing
to control the defense thereof, the Surviving Company and its Affiliates will be deemed to have waived any right to object to
the Indemnified Person's entitlement to indemnification hereunder with respect thereto), (B) each Indemnified Person shall
be entitled to retain his or her own counsel, whether or not the Surviving Company and its Affiliates shall elect to control the
defense of any such claim, proceeding, investigation or inquiry, (C) the Surviving Company and its Affiliates shall pay all reasonable
fees and expenses of any counsel retained by an Indemnified Person, promptly after statements therefor are received, whether or
not the Surviving Company and its Affiliates shall elect to control the defense of any such claim, proceeding, investigation or
inquiry, and (D) no Indemnified Person shall be liable for any settlement effected without his or her prior express written consent.
Notwithstanding anything to the contrary set forth in this
Section 7.7(b)
or elsewhere in this Agreement, the Surviving
Company and its Affiliates may settle or otherwise compromise or consent to the entry of any judgment or otherwise seek termination
with respect to any claim, proceeding, investigation or inquiry for which indemnification may be sought by an Indemnified Person
under this Agreement provided such settlement, compromise, consent or termination includes an unconditional release of all Indemnified
Persons from all liability arising out of such claim, proceeding, investigation or inquiry.
(c) If the Surviving Company
and its Affiliates or any of its successors or assigns shall (i) consolidate with or merge into any other Person and shall not
be the continuing or surviving company or entity of such consolidation or merger, or (ii) transfer all or substantially all of
its properties and assets to any Person, then, and in each such case, proper provisions shall be made so that the successors and
assigns of the Surviving Company and its Affiliates shall assume all of the obligations of the Surviving Company and its Affiliates
set forth in this
Section 7.7
.
(d) The obligations set
forth in this
Section 7.7
shall not be terminated, amended or otherwise modified in any manner that adversely affects any
Indemnified Person without the prior written consent of such affected Indemnified Person (and their heirs and representatives).
Each of the Indemnified Persons (and their heirs and representatives) are intended to be third party beneficiaries of this
Section
7.7
, with full rights of enforcement as if a party thereto. The rights of the Indemnified Persons (and their heirs and representatives))
under this
Section 7.7
shall be in addition to, and not in substitution for, any other rights that such persons may have
under the articles of incorporation, bylaws or other equivalent organizational documents, any and all indemnification agreements
of or entered into by the Company or any of its Subsidiaries, or applicable Law (whether at law or in equity).
(e) Nothing in this Agreement
is intended to, shall be construed to or shall release, waive or impair any rights to directors' and officers' insurance
claims under any policy that is or has been in existence with respect to the Company or any of its Subsidiaries for any of their
respective directors, officers or other employees, it being understood and agreed that the indemnification provided for in this
Section 7.7
is not prior to or in substitution for any such claims under such policies.
Article
VIII
CONDITIONS TO THE MERGER
Section 8.1
Conditions
to the Obligations of Each Party
. The respective obligations of Acquisition and the Company to consummate the Merger shall
be subject to the satisfaction or waiver (except with respect to the condition set forth in
Section 8.1(a)
, which cannot
be waived) by mutual written agreement of Acquisition and the Company (subject to the approval of the Special Committee), prior
to the Effective Time, of each of the following conditions:
(a)
Requisite Shareholder
Approval
. The Company shall have received the Requisite Shareholder Approval.
(b)
No Legal Prohibition
.
No Governmental Authority of competent jurisdiction shall have (i) enacted, issued or promulgated any Law that is in effect and
has the effect of making the Merger illegal in any jurisdiction in which the Company has material business or operations or which
has the effect of prohibiting or otherwise preventing the consummation of the Merger in any jurisdiction in which the Company
has material business or operations, or (ii) issued or granted any Order that has the effect of making the Merger illegal in any
jurisdiction in which the Company has material business or operations or which has the effect of prohibiting or otherwise preventing
the consummation of the Merger in any jurisdiction in which the Company has material business or operations.
Section 8.2
Conditions
to the Obligations of Acquisition
. The obligations of Acquisition to consummate the Merger shall be subject to the satisfaction
or waiver prior to the Effective Time of each of the following conditions, any of which may be waived exclusively by Acquisition:
(a)
Representations and
Warranties
. The representations and warranties of the Company set forth in this Agreement shall be true and correct on and
as of the Closing Date with the same force and effect as if made on and as of such date (except for those representations and
warranties that address matters only as of a particular date, which representations and warranties shall have been true and correct
as of such particular date), except (i) for any failure to be so true and correct which has not had a Company Material Adverse
Effect and (ii) for changes contemplated by this Agreement;
provided
that, solely for purposes of determining the accuracy
of the representations and warranties of the Company set forth in this Agreement for purposes of this
Section 8.2(a)
, all
"materiality" and "Company Material Adverse Effect" qualifications set forth in such representations and
warranties shall be disregarded.
(b)
Performance of Obligations
of the Company
. The Company shall have performed in all material respects the material obligations that are to be performed
by it under this Agreement at or prior to the Effective Time.
(c)
No Company Material
Adverse Effect
. Since the date of this Agreement, there shall not have occurred and be continuing a Company Material Adverse
Effect.
(d)
Officer's Certificate
.
Acquisition shall have received a certificate of the Company, validly executed for and on behalf of the Company and in its name
by a duly authorized officer thereof, certifying that the conditions set forth in
Section 8.2(a)
to
Section 8.2(c)
have been satisfied.
Section 8.3
Conditions
to the Obligations of the Company
. The obligations of the Company to consummate the Merger shall be subject to the satisfaction
or waiver prior to the Effective Time of each of the following conditions, any of which may be waived exclusively by the Company,
subject to the approval of the Special Committee:
(a)
Representations and
Warranties
. The representations and warranties of Acquisition set forth in this Agreement shall be true and correct on and
as of the Closing Date with the same force and effect as if made on and as of such date (except for those representations and
warranties that address matters only as of a particular date, which representations and warranties shall have been true and correct
as of such particular date), except (i) for any failure to be so true and correct that would not, individually or in the aggregate,
prevent or materially delay the consummation of the transactions contemplated by this Agreement or the ability of Acquisition
to fully perform their respective covenants and obligations under this Agreement and (ii) for changes contemplated by this Agreement.
(b)
Performance of Obligations
of Acquisition
. Acquisition shall have performed in all material respects the material obligations that are to be performed
by Acquisition under this Agreement at or prior to the Effective Time.
(c)
Officer's Certificate
.
The Company shall have received a certificate of Acquisition, validly executed for and on behalf of Acquisition and in by a duly
authorized officer thereof, certifying that the conditions set forth in
Section 8.3(a)
and
Section 8.3(b)
have been
satisfied.
Article
IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1
Termination
.
This Agreement may be validly terminated only as follows (it being understood and hereby agreed that this Agreement may not be
terminated for any other reason or on any other basis):
(a) at any time prior to
the Effective Time (notwithstanding the prior receipt of the Requisite Shareholder Approval), by mutual written agreement of Acquisition
and the Company (acting through the Special Committee); or
(b) by either the Company
(acting through the Special Committee) or Acquisition, at any time prior to the Effective Time (notwithstanding the prior receipt
of the Requisite Shareholder Approval), in the event that the Effective Time shall not have occurred on or before August 31, 2016,
(such date referred to herein as the "
Outside Date
");
provided
that the right to terminate this Agreement
pursuant to this
Section 9.1(b)
shall not be available to any party hereto (i) whose actions or omissions have been a principal
cause of, or primarily resulted in, the failure of the Merger to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement or (ii) that is in material breach of this Agreement; or
(c) by either the Company
(acting through the Special Committee) or Acquisition, at any time prior to the Effective Time, in the event that the Company
shall have failed to obtain the Requisite Shareholder Approval after the final adjournment of the Company Shareholders Meeting
at which a vote is taken on this Agreement and the Merger; or
(d) by the Company (acting
through the Special Committee) in the event that: (i) the Company Board (acting through the Special Committee) shall have determined
in good faith (after consultation with outside legal counsel) that the failure to terminate this Agreement would reasonably be
expected to 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 shave have entered into an Alternative Acquisition Agreement; or
(e) by the Company (acting
through the Special Committee), at any time prior to the Effective Time (notwithstanding the prior receipt of the Requisite Shareholder
Approval), in the event that (i) the Company has not breached any of its representations, warranties or covenants under this Agreement
in any material respect and (ii) Acquisition shall have breached any of its representations, warranties or covenants under this
Agreement such that the conditions set forth in
Section 8.3(a)
or
Section 8.3(b)
would not be satisfied and shall
have failed to cure such breach within thirty (30) Business Days after Acquisition has received written notice of such breach
from the Company (it being understood that the Company shall not be permitted to terminate this Agreement pursuant to this
Section
9.1(e)
in respect of the breach set forth in any such written notice (A) at any time during such thirty (30) Business Day
period, and (B) at any time after such thirty (30) Business Day period if Acquisition shall have cured such breach during such
thirty (30) Business Day period); or
(f) by the Company (acting
through the Special Committee), in the event that (i) the conditions set forth in
Section 8.1
and
Section 8.2
have
been satisfied (excluding conditions that by their terms are to be satisfied on the Closing Date) and (ii) Acquisition fails to
complete the Closing within five (5) Business Days following the date the Closing should have occurred; or
(g) subject to
Section
7.6
, by Acquisition, at any time prior to the Effective Time (notwithstanding the prior receipt of the Requisite Shareholder
Approval), in the event that (i) Acquisition has not breached any of its representations, warranties or covenants under this Agreement
in any material respect, and (ii) the Company shall have breached any of its representations, warranties or covenants under this
Agreement such that the conditions set forth in
Section 8.2(a)
or
Section 8.2(b)
would not be satisfied and shall
have failed to cure such material breach within thirty (30) Business Days after the Company has received written notice of such
breach from Acquisition (it being understood that Acquisition shall not be permitted to terminate this Agreement pursuant to this
Section 9.1(g)
in respect of the breach set forth in any such written notice (A) at any time during such thirty (30) Business
Day period, and (B) at any time after such thirty (30) Business Day period if the Company shall have cured such breach during
such thirty (30) Business Day period); or
(h) by Acquisition, in the
event that the Company Board or the Special Committee shall have effected and not withdrawn a Company Board Recommendation Change;
provided
that Acquisition's right to terminate this Agreement pursuant to this
Section 9.1(h)
in respect of a Company
Board Recommendation Change shall expire ten (10) Business Days after the first date upon which the Company makes such Company
Board Recommendation Change
Section 9.2
Notice of
Termination; Effect of Termination
. Any proper and valid termination of this Agreement pursuant to
Section 9.1
shall
be effective immediately upon the delivery of written notice of the terminating party to the other party or parties hereto, as
applicable. In the event of the termination of this Agreement pursuant to
Section 9.1
, this Agreement shall be of no further
force or effect without liability of any party or parties hereto, as applicable (or any director, officer, employee, affiliate,
agent or other representative of such party or parties) to the other party or parties hereto, as applicable, except for the terms
of this
Section 9.2
,
Section 9.3
and
Article X
, each of which shall survive the termination of this Agreement;
provided that nothing herein shall relieve any party hereto from liabilities for breach of this Agreement, subject to the limitations
set forth in
Section 9.3(d)
.
Section 9.3
Fees and
Expenses.
(a)
General
. Except as
otherwise set forth in this
Section 9.3
, all fees and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party or parties, as applicable, incurring such expenses whether or not the Merger is
consummated.
(b)
Company Payments.
(i) In the event that
this Agreement is terminated (A) by the Company pursuant to
Section 9.1(d)
or (B) by Acquisition pursuant to
Section
9.1(g)
or
Section 9.1(h)
, then in either case, the Company shall pay to Acquisition the Company Termination Fee plus,
Acquisition's reasonable out-of-pocket expenses, including attorney's fees, actually incurred by Acquisition and its
Affiliates in connection with the Merger on or prior to the termination of this Agreement, by wire transfer of immediately available
funds to an account or accounts designated in writing by Acquisition, within two (2) Business Days after such termination.
(ii) In the event
that (A) a
bona fide
written offer or proposal (other than an offer or proposal by Acquisition or in connection with the
transactions contemplated hereby) to engage in an Acquisition Transaction (provided that for purposes of this
Section 9.3(b)(ii)
,
all percentages included in the definition of Acquisition Transaction shall be increased to 50%) shall have been made after the
date hereof and prior to the Company Shareholders Meeting, and not withdrawn as of the Company Shareholders Meeting, (B) following
the occurrence of an event described in the preceding clause (A), this Agreement is terminated by the Company pursuant to
Section
9.1(c)
(provided that the Principal Shareholders unanimously voted in favor of the transactions contemplated hereby) and (C)
within 12 months after the termination of this Agreement, the Company consummates the transactions contemplated by such same Acquisition
Transaction; then the Company shall pay to Acquisition the Company Termination Fee plus, Acquisition's reasonable out-of-pocket
expenses, including attorney's fees, actually incurred by Acquisition and its Affiliates in connection with the Merger on
or prior to the termination of this Agreement, by wire transfer of immediately available funds to an account or accounts designated
in writing by Acquisition, within two (2) Business Days following the consummation of the transactions contemplated by such same
Acquisition Transaction.
(iii) The parties hereto acknowledge and
hereby agree that in no event shall the Company be required to pay the Company Termination Fee on more than one occasion, whether
or not the Company Termination Fee may be payable under more than one provision of this Agreement at the same or at different
times and the occurrence of different events.
(c)
Acquisition Payments
.
In the event that this Agreement is terminated by the Company pursuant to
Section 9.1(e)
or
Section 9.1(f)
, then
in either case, Acquisition shall pay to the Company the Acquisition Termination Fee plus, the Company's reasonable out-of-pocket
expenses, including attorney's fees, actually incurred by the Company and its Subsidiaries in connection with the Merger
on or prior to the termination of this Agreement, by wire transfer of immediately available funds to an account or accounts designated
in writing by the Company, within two (2) Business Days after such termination. The parties hereto acknowledge and hereby agree
that in no event shall Acquisition be required to pay the Acquisition Termination Fee on more than one occasion, whether or not
the Acquisition Termination Fee may be payable under more than one provision of this Agreement at the same or at different times
and the occurrence of different events.
Section 9.4
Amendment
.
Subject to applicable Law and subject to the other provisions of this Agreement, this Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of each of Acquisition and the Company; provided
that (a) any such amendment by the Company shall require the approval of the Special Committee and (b) in the event that the Company
has received the Requisite Shareholder Approval, no amendment shall be made to this Agreement that requires the approval of the
Company Shareholders under the NRS without obtaining the Requisite Shareholder Approval of such amendment.
Section 9.5
Extension;
Waiver
. At any time and from time to time prior to the Effective Time, any party or parties hereto may, to the extent legally
allowed and except as otherwise set forth herein, (a) extend the time for the performance of any of the obligations or other acts
of the other party or parties hereto, as applicable, (b) waive any inaccuracies in the representations and warranties made to
such party or parties hereto contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of
the agreements or conditions for the benefit of such party or parties hereto contained herein. Any agreement on the part of a
party or parties hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party or parties, as applicable. No failure or delay by any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
Article
X
GENERAL PROVISIONS
Section 10.1
Survival
of Representations, Warranties and Covenants
. The representations and warranties of the Company and Acquisition contained
in this Agreement shall terminate at the earlier of the Effective Time or termination of this Agreement pursuant to Article IX,
and only the covenants that by their terms survive the Effective Time or termination of this Agreement shall so survive the Effective
Time or termination of this Agreement in accordance with their respective terms.
Section 10.2
Notices
.
All notices and other communications hereunder shall be in writing and shall be deemed to have been duly delivered and received
hereunder (a) four (4) Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid,
(b) one (1) Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable nationwide overnight courier
service, or (c) immediately upon delivery by email, by hand or by facsimile (with a written or electronic confirmation of delivery),
in each case to the intended recipient as set forth below:
(a) if to Acquisition to:
China Yida Holding
Acquisition Co.
28/F Yifa Building
No. 111 Wusi Road
Fuzhow, Fujian, P.R. China
Attention: Minhua Chen
with a copy (which shall not constitute notice) to:
McLaughlin & Stern, LLP
260 Madison Avenue
New York, NY 10024
Attention: Steven Schuster
David W. Sass
Telephone No.: 212-448-1100
Fax No.: 212-448-6277
(b) if to the
Company, to (or if to the Special Committee, in care of the Company):
China Yida Holding, Co.
28/F Yifa Building
No. 111 Wusi Road
Fuzhow, Fujian
P.R. China
Attention: Jocelyn Chen
Telephone No.: 86 591 2830 2230
with a copy (which shall not constitute notice) to:
Sidley & Austin LLP
Suite 2009
5 Corporate Avenue
150 Hubin Road
Shanghai 200021
China
Attention: Joseph Chan
Telephone No.: 86 21 2322 9328
Fax No.: 86 21 5306 8966
Section 10.3
Assignment
.
No party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this Agreement shall (a) be binding upon the parties hereto
and their respective successors and permitted assigns and (b) inure to the benefit of the parties hereto and their respective
successors and permitted assigns and the Special Committee.
Section 10.4
Entire Agreement
.
This Agreement, the Voting Agreement, the Articles of Merger, the Limited Guarantee and the other documents and instruments and
other agreements among the parties hereto as contemplated by or referred to herein and therein, including the Company Disclosure
Letter and the Annexes hereto, constitute the entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter
hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER ACQUISITION
OR ANY OF ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES OR REPRESENTATIVES, ON THE ONE HAND, NOR THE COMPANY OR ANY OF ITS AFFILIATES,
DIRECTORS, OFFICERS, EMPLOYEES OR REPRESENTATIVES, ON THE OTHER HAND, MAKES ANY REPRESENTATIONS OR WARRANTIES TO THE OTHER, AND
EACH PARTY HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE), OR AS TO THE ACCURACY OR COMPLETENESS OF ANY OTHER INFORMATION, MADE (OR MADE AVAILABLE
BY) BY ITSELF OR ANY OF ITS REPRESENTATIVES, WITH RESPECT TO, OR IN CONNECTION WITH, THE NEGOTIATION, EXECUTION OR DELIVERY OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR THE OTHER'S
REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
Section 10.5
Third Party
Beneficiaries
. Except as provided in
Section 7.7
, Acquisition and the Company hereby agree that their respective representations,
warranties and covenants set forth herein are solely for the benefit of the other party hereto, in accordance with and subject
to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any Person other than the parties
hereto any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein.
The parties hereto further agree that the rights of third party beneficiaries under
Section 7.7
shall not arise unless
and until the Effective Time occurs. The representations and warranties in this Agreement are the product of negotiations among
the parties hereto and are for the sole benefit of the parties hereto. Any inaccuracies in such representations and warranties
are subject to waiver by the parties hereto in accordance with
Section 9.5
without notice or liability to any other Person.
In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of
risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, Persons other
than the parties hereto may not rely upon the representations and warranties in this Agreement as characterizations of actual
facts or circumstances as of the date of this Agreement or as of any other date.
Section 10.6
Severability
.
In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and
the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent
of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or
unenforceable provision.
Section 10.7
Remedies.
(a) Except as otherwise
provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive
of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will
not preclude the exercise of any other remedy.
(b) The parties hereto hereby
agree that irreparable damage would occur in the event that any provision of this Agreement were not performed in accordance with
its specific terms or were otherwise breached, and that money damages or other legal remedies would not be an adequate remedy
for any such damages. Accordingly, the parties hereto acknowledge and hereby agree that in the event of any breach or threatened
breach by the Company, on the one hand, or Acquisition on the other hand, of any of their respective covenants or obligations
set forth in this Agreement and the Voting Agreement, the Company, on the one hand, and Acquisition, on the other hand, shall
be entitled to an injunction or injunctions to prevent or restrain breaches or threatened breaches of this Agreement and the Voting
Agreement by the other (as applicable), and to specifically enforce the terms and provisions of this Agreement and the Voting
Agreement to prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of the other
under this Agreement and the Voting Agreement to cause Acquisition to fully enforce the terms thereof the and applicable laws
and to thereafter cause the transactions contemplated by this Agreement, including the Merger, to be consummated. Acquisition
hereby agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain
breaches or threatened breaches of this Agreement by Acquisition, and to specifically enforce the terms and provisions of this
Agreement to prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of Acquisition
under this Agreement. If, prior to the Outside Date, any party brings any Legal Proceeding to enforce specifically the performance
of the terms and provisions hereof by any other party, the Outside Date shall automatically be extended by (x) the amount of time
during which such Legal Proceeding is pending, plus twenty (20) Business Days or (y) such other time period established by the
court of competent jurisdiction presiding over such Legal Proceeding.
Section 10.8
Governing
Law.
This Agreement and all claims or causes of action (whether in contract, tort or otherwise) that may be based upon, arise
out of or relate to this Agreement or the negotiation, execution or performance of this Agreement (including any claim or cause
of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement
or as an inducement to enter into this Agreement), shall be interpreted, construed, performed and enforced in accordance with
the Laws of the State of Nevada without giving effect to its principles or rules of conflict of laws to the extent such principles
or rules would require or permit the application of the Laws of another jurisdiction.
Section 10.9
Consent
to Jurisdiction
. In the event any dispute arises among the parties hereto out of or in relation to this Agreement, including
any dispute regarding its breach, termination or validity, the parties shall attempt in the first instance to resolve such dispute
through friendly consultations. If any dispute has not been resolved by friendly consultations within thirty (30) days after any
party has served written notice on the other parties requesting the commencement of such consultations, then any party may demand
that the dispute be finally settled by arbitration in accordance with the following provisions of this
Section 10.9
.
Subject to
Section
10.7
and the last sentence of this
Section 10.9
, any disputes, actions and proceedings against any party or arising
out of or in any way relating to this Agreement shall be submitted to the Hong Kong International Arbitration Centre ("
HKIAC
")
and resolved in accordance with the Arbitration Rules of HKIAC in force at the relevant time (the "
Rules
")
and as may be amended by this
Section 9.09
. The place of arbitration shall be Hong Kong. The official language of the arbitration
shall be English and the arbitration tribunal shall consist of three arbitrators (each, an "
Arbitrator
"). The
claimant(s), irrespective of number, shall nominate jointly one Arbitrator; the respondent(s), irrespective of number, shall nominate
jointly one Arbitrator; and a third Arbitrator will be nominated jointly by the first two Arbitrators and shall serve as chairman
of the arbitration tribunal. In the event the claimant(s) or respondent(s) or the first two Arbitrators shall fail to nominate
or agree the joint nomination of an Arbitrator or the third Arbitrator within the time limits specified by the Rules, such Arbitrator
shall be appointed promptly by the HKIAC. The arbitration tribunal shall have no authority to award punitive or other punitive-type
damages.
The arbitration shall
be conducted in private. The parties agree that all documents and evidence submitted in the arbitration (including without limitation
any statements of case and any interim or final award, as well as the fact that an arbitral award has been made) shall remain
confidential both during and after any final award that is rendered unless the parties hereto otherwise agree in writing. Upon
and after the submission of any dispute to arbitration, the parties shall continue to exercise their remaining respective rights,
and fulfill their remaining respective obligations under this Agreement, except insofar as the same may relate directly to the
matters in dispute. The award of the arbitration tribunal shall be final and binding upon the disputing parties. Any party to
an award may apply to any court of competent jurisdiction for enforcement of such award and, for purposes of the enforcement of
such award, the parties irrevocably and unconditionally submit to the jurisdiction of any court of competent jurisdiction and
waive any defenses to such enforcement based on lack of personal jurisdiction or inconvenient forum or the defense of sovereign
immunity and any other defense based on the fact or allegation that it is an agency or instrumentality of a sovereign state or
is otherwise entitled to immunity.
Section 10.10
WAIVER
OF JURY TRIAL
. EACH OF ACQUISITION AND THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF
ACQUISITION OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
Section 10.11
Company
Disclosure Letter References
. The parties hereto agree that the disclosure set forth in any particular section or subsection
of the Company Disclosure Letter shall be deemed to be an exception to (or, as applicable, a disclosure for purposes of) (a) the
representations and warranties (or covenants, as applicable) of the Company that are set forth in the corresponding section or
subsection of this Agreement, and (ii) any other representations and warranties (or covenants, as applicable) of the Company that
are set forth in this Agreement, but in the case of this clause (b) only if the relevance of that disclosure as an exception to
(or a disclosure for purposes of) such other representations and warranties (or covenants, as applicable) is reasonably Acquisition
on the face of such disclosure. The parties hereto further agree that the disclosure of any matter or item in the Company Disclosure
Letter shall not be deemed to constitute an acknowledgement that such matter or item is required to be disclosed therein or is
material to a representation or warranty set forth in this Agreement and shall not be used as a basis for interpreting the terms
"material," "materially," Company Material Adverse Effect" or any word or phrase of similar import
and does not mean that such matter or item would, alone or together with any other matter or item, have a Company Material Adverse
Effect.
Section 10.12
Counterparts
.
This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed by their respective duly authorized officers to be effective as of the date
first above written.
|
China
Yida Holding, Co.
|
|
|
|
|
By:
|
/s/
Renjiu Pei
|
|
Name:
|
Renjiu
Pei
|
|
Title:
|
Director
|
Signature
Page
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed by their respective duly authorized officers to be effective as of the date
first above written.
|
China
Yida Holding Acquisition Co.
|
|
|
|
|
By:
|
/s/
Minhua Chen
|
|
Name:
|
Minhua
Chen
|
|
Title:
|
President
|
Signature
Page
ANNEX
B
OPINION OF ROTH CAPITAL PARTNERS
March
8, 2016
Special
Committee of the Board of Directors
China
Yida Holding, Co.
28/F
Yifa Building, No. 111 Wusi Road
Fuzhou,
Fujian, P. R. 350003, China
Members
of the Special Committee:
ROTH
Capital Partners, LLC ("we" or "ROTH") understands that China Yida Holding, Co., a corporation organized
under the laws of the State of Nevada ("Yida" or the "Company"), and China Yida Holding Acquisition Co.,
a corporation organized under the laws of the State of Nevada ("Acquisition Co."), propose to enter into an Agreement
and Plan of Merger, substantially in the form of the draft delivered to ROTH on March 1, 2016 (the "Merger Agreement"),
which provides, among other things, for the merger (the "Merger") of Yida with and into Acquisition Co., and the separate
corporate existence of Yida shall thereupon cease and Acquisition Co. shall continue as the surviving company following the Merger.
Additional defined terms in this letter shall have the meaning set forth in the Merger Agreement. Pursuant to the Merger, each
Company Share (other than Excluded Shares) that is issued and outstanding immediately prior to the Effective Time shall be canceled
and cease to exist and automatically converted into the right to receive $3.32 in cash without interest (the "Merger Consideration").
The terms and conditions of the Merger are more fully set forth in the Merger Agreement.
You
have asked for our opinion as to whether the Merger Consideration to be received by the holders of Company Shares (other than
holders of Excluded Shares) pursuant to the Merger Agreement is fair from a financial point of view to such holders (other than
holders of Excluded Shares).
For
purposes of the opinion set forth herein, we have, among other things:
●
|
reviewed
certain publicly available financial statements and other business and financial information of Yida;
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|
|
●
|
reviewed
certain internal financial statements and other financial and operating data concerning Yida prepared by the management of
Yida;
|
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|
●
|
reviewed
certain financial projections concerning Yida prepared by the management of Yida (the "Financial Projections");
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|
|
●
|
discussed
the past and current operations, financial condition and the prospects of Yida with senior executives of Yida;
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●
|
reviewed
the reported prices and trading activity for Yida common stock;
|
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●
|
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;
|
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●
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compared
the financial performance of Yida and the prices and trading activity of Yida common stock with that of certain other publicly-traded
companies we deemed comparable with Yida and its securities;
|
China
Yida Holding, Co.
March
8, 2016
Page
2 of 3
●
|
participated
in certain discussions with representatives of the Special Committee and its legal advisors;
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●
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reviewed
the Merger Agreement and a draft Limited Guarantee by Mr. Minhua Chen and Ms. Yanling Fan in favor of Yida delivered to ROTH
on March 1, 2016 (the "Limited Guarantee"); and
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●
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performed
such other analyses, reviewed such other information and considered such other factors as we have deemed appropriate.
|
We
have 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 Yida, which formed a substantial basis for this opinion, and have further
relied upon the assurances of the management of Yida that such information does 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, we have been advised by the management of Yida,
and assumed, that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments
of the management of Yida of the future financial performance of Yida and we express no view as to the assumptions on which they
are based. In addition, we have assumed that the final executed Merger Agreement will not differ in any material respect from
the draft Merger Agreement reviewed by us, that the final executed Limited Guarantee will not differ in any material respect from
the draft Limited Guarantee reviewed by us, and that the Merger will be consummated in accordance with the terms set forth in
the Merger Agreement without any waiver, amendment or delay of any terms or conditions. We have 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 will be imposed that would have an adverse effect on Yida or the contemplated
benefits expected to be derived in the proposed Merger. We are not legal, tax, accounting or regulatory advisors. We are financial
advisors only and have relied upon, without independent verification, the assessment of Yida and its legal, tax, accounting and
regulatory advisors with respect to legal, tax, accounting and regulatory matters. We express 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 Shares in the Merger. Our opinion does
not address the fairness of any consideration to be received by Mr. Minhua Chen, Ms. Yanling Fan or their affiliates or the Rollover
Shareholders pursuant to the Merger Agreement or to the holders of any other class of securities, creditors or other constituencies
of Yida. Our opinion does not address the underlying business decision of Yida 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. We have not made any independent valuation or appraisal of the assets or liabilities (fixed,
contingent or otherwise) of Yida, nor have we been furnished with any such valuations or appraisals, nor have we assumed any obligation
to conduct, nor have we conducted, any physical inspection of the properties, facilities or other assets of Yida. We have not
evaluated the solvency of Yida under any law of any jurisdiction relating to bankruptcy, insolvency or similar matters. As you
know, we are not legal experts, and for purposes of our analysis, we have not made any assessment of the status of any outstanding
litigation involving the Company and have excluded the effects of any such litigation in our analysis. Our opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof may affect this opinion and the assumptions used in preparing it, and we do
not assume any obligation to update, revise or reaffirm this opinion.
China
Yida Holding, Co.
March
8, 2016
Page
3 of 3
We
have acted as financial advisor to the Special Committee of the Board of Directors of Yida in connection with this transaction
and will receive a fee for our services, part of which is contingent upon the closing of the Merger. The fee for this opinion
is not contingent upon the consummation of the Merger. In addition, Yida has agreed to indemnify us for certain liabilities and
other items arising out of our engagement, which indemnity obligation is not contingent on the consummation of the Merger.
ROTH
is a full service securities firm engaged in securities trading and brokerage activities, as well as providing investment banking
and other financial services. In the ordinary course of business, we and our affiliates may acquire, hold or sell, for our and
our affiliates' own accounts and for the accounts of customers, equity, debt and other securities and financial instruments
(including bank loans and other obligations) of Yida 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 Acquisition Co. and their respective affiliates for which we would expect to receive compensation.
This
opinion has been approved by a committee of ROTH investment banking and other professionals in accordance with our customary practice.
This opinion is for the information of the Special Committee of the Board of Directors of the Company only and may not be used
for any other purpose without our prior written consent, except that a copy of this opinion may be included in its entirety in
any filing Yida is required to make with the Securities and Exchange Commission in connection with the Merger in accordance with
the terms of our engagement letter with the Special Committee, if such inclusion is required by applicable law. In addition, ROTH
expresses no opinion or recommendation as to how the shareholders of Yida should vote at the shareholders' meeting to be held
in connection with the Merger and this opinion does not in any manner address the prices at which Company Shares will trade at
any time.
On
the basis of and subject to the foregoing, and such other factors as we deemed relevant, we are of the opinion on the date hereof
that the Merger Consideration to be received by the holders of Company Shares (other than the holders of Excluded Shares) pursuant
to the Merger Agreement is fair from a financial point of view to such holders (other than the holders of Excluded Shares).
Very
truly yours,
/s/
ROTH Capital Parnters
ROTH
Capital Partners, LLC
ANNEX
C
DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON
(a)
The Company:
The
following sets forth the name and position of each of the Company's current executive officers and directors:
Name
|
|
Position/Title with China Yida
|
|
Age
|
|
Other Occupation
|
Minhua Chen
|
|
Chairman and Chief Executive Officer
|
|
57
|
|
|
|
|
|
|
|
|
|
Yanling Fan
|
|
Director and Chief Operating Officer
|
|
41
|
|
|
|
|
|
|
|
|
|
Yongxi Lin
|
|
Chief Financial Officer
|
|
45
|
|
|
|
|
|
|
|
|
|
Renjiu Pei
|
|
Director (1) (2)
|
|
49
|
|
Chairman of Fujian Tianren Huitong Investment Co., Ltd.
|
|
|
|
|
|
|
|
Chunyu Yin
|
|
Director (1) (2)
|
|
67
|
|
CEO of East Prosperity International Advertising Company
|
|
|
|
|
|
|
|
Fucai Huang
|
|
Director (1) (2)
|
|
67
|
|
Professor at Xiamen University Tourism Department
|
(1)
|
Members
of the Audit Committee
|
(2)
|
Members
of Compensation Committee
|
The
following are biographical summaries for our directors and executive officers:
Minhua
Chen
Mr.
Minhua Chen has been the Chief Executive Officer of China Yida Holding, Co. since November 2007. Mr. Chen has been serving on
the board of directors or senior management of our subsidiaries and affiliates including as a director for Fuzhou Hongda Commercial
Services Co., Ltd., the Chairman for Fujian Jintai Tourism Developments Co., Ltd. the Chairman of Anhui Yida Tourism Development
Co., Ltd., and the Chief Executive Officer of Jiangxi Fenyi Yida Tourism Development Co., Ltd. and Jiangxi Zhangshu Yida Tourism
Development Co. For the past five years, Chairman Chen has been a part-time professor at the Tourism College of Fujian Normal
University and a tutor for postgraduate students. He is also the vice-president of Fujian Provincial Tourism Institute and vice-president
of Fujian Advertisement Association. From 1978 to 1992, he was a news journalist and editor-in-chief of "Fujian Internal
Reference," eventually becoming the head of the journalist station of "Fujian Daily" in Sanming City and general
manager of the newspaper "HK-Taiwan Information." During that period, he was appointed as chief journalist of Fujian
Province to HK, where he was in charge of news and management of the publication. During these years, several of his works in
journalism received national and provincial prizes and were published in books. He received awards for "Excellent News Journalist"
and "Advanced Workers of News Management." Since 1992, Mr. Chen has worked full-time as Hong Kong Yi Tat's CEO
and has run all the subsidiaries, including the media and tourism businesses. Since the establishment of New Handsome Joint Group
in 1995, he has advocated and practiced the concept of "circulating cultural economy." In 2005, he published a scholarly
treatise "General Theory of Tourism and Chinese Traditional Culture", which has been used as the educational material
for undergraduates in Tourism College of Fujian Normal University. In February 2007, he was awarded as one of the "2006
Ten Most Distinguished Persons of Fujian Economic."
Yanling
Fan
Ms.
Yanling Fan has served as Chief Operating Officer of the Company since 2001 and a director of the Company since November 2007.
She is the Executive Director of Fujian Jiaoguang Media Co., Ltd., Chairman for Fuzhou Hongda Commercial Services Co., Ltd., a
Director of Fujian Jintai Tourism Developments Co., Ltd., and a member of the Board of Supervisors of Jiangxi Fenyi Yida Tourism
Development Co., Ltd. and Jiangxi Zhangshu Yida Tourism Development Co. From 1992 to 1994, Ms. Fan was a journalist and radio
anchorwoman for the Voice of Haixia. From 1995 to 2004, she was the general manager of New Handsome Advertisement Co., Ltd. Since
2000, she has taken on the following positions: General Manager of New Handsome Joint Group (Fujian), General Manager of Hong
Kong Yitat International Investment Co., Ltd, Chairman of Fujian Gold Lake Economy and Trading (Tourism) Development Co., Ltd.,
Director of Sydney Communication College (Australia), and General Manager of Fujian Education and Broadcasting Media Co., Ltd.
In 2005, she was awarded "Fujian Splendid Women" and "Advanced worker of advertisement industry Fuzhou 2005."
Yongxi
Lin
Mr.
Yongxi Lin served as the Financial Controller of the Company since 2003 and was promoted to be the Chief Financial Officer since
January 2012. He has extensive financial experience working at large-scale enterprises in Fujian province. Before joining the
Company, Mr. Lin served as the Chief Financial Director at Fujian Furi Group Co., Ltd. for three years. From 1994 to
2000, he was an accountant for China Fujian International Economic and Technological Cooperation Company. Mr. Lin has been
qualified as a Certified Public Accountant in China since 2000, and is a professional member of the Chinese Institute
of the Certified Public Accountant. He received his bachelor degree in accounting from Xiamen University in 1994.
Renjiu
Pei
Mr.
Renjiu Pei has been a director of the Company since June 2013. He has served as chairman at Fujian Tianren Huitong Investment
Co., Ltd. since 2013. Previously, Mr. Pei served as the managing director at Fujian Jinuo Investment & Guaranty Co., Ltd.
from 2009 to 2011. He served as independent director at Anxin-China Holdings Limited (Hong Kong Exchange Stock Code: 01149) from
2004 to 2011. From 1990 to 2001, he served as supervisor of pharmacy in Fuzhou General Hospital. He received his master degree
from Anhui Medical University in 1990. Mr. Pei received trainings in US GAAP. In 2001, he attended Corporate Compliance Seminars
Audit Committee Workshop in Hong Kong which addressed the awareness of governance issues and audit committee effectiveness. In
2012, he participated in a study by CFA Institution regarding US GAAP Essentials in Kuala Lumpur which provided a detailed overview
of the technical issues faced in producing US GAAP financial statements.
Chunyu
Yin
Ms.
Chunyu Yin has been a director of the Company since June 2009. Ms. Yin has a wealth of experience in China's advertising
and media industry. Between 1984 and 2002, Ms. Yin served as the general manager of China's first state-owned cosmetics
advertising company – Beijing Dabao Advertising Co. During those eighteen (18) years, the company's annual sales increased
from 40 million to 1.5 billion RMB. After she left Beijing Dabao Advertising Co. in 2002, she served as manager in several advertising
companies. Currently, she is the Chief Executive Officer of East Prosperity International Advertising Company, and a teaching
professor at Beijing Union University Advertising School.
All
of the advertising companies in which Ms. Yin served as manager are listed on the Top 100 Advertising Companies List in China.
The well-known clients she served, or is currently serving, include Daobao Cosmetics, Haier, Hisense Electric, Ariston Refrigerator,
Shanxi Fen Wine, Red Eagle, Furong Wang, Tsingtao Beer, and Yanjing Beer. Ms. Yin has also achieved acknowledgement and recognition
in the media industry. She participated in planning, producing and filming many important TV programs and dramas, including "Walk
into Taiwan," "China's Economic Reports," "1/2 Hour Economic Report," "CCTV Young Singer
Competition," "Red Eagle Cinema" on Phoenix Channel, and the TV drama "The Prime Minister Liu Luoguo."
In
addition, Ms. Yin organized several large-scale events for Chinese government's ministries and commissions and other international
organizations: Putian Yanhuang Millennium, Dragon Board World Cup, China's Trade Marks around the World, 2004 Miss Universe
Finale, 2007 Miss Japan International Finale, Hong Kong's Second International Mahjong Competitions.
Ms.
Yin received her bachelor degree in Chinese from People's University of China in 1979.
Fucai
Huang
Mr.
Fucai Huang has been a director of the Company since June 2009. Mr. Huang, founder of Xiamen University Tourism Department, has
served as a full-time professor at Xiamen University for 30 years. Currently, he is also the director of tourism management doctorate
program of Xiamen University. Before he was appointed as the director of the doctorate program, he was in charge of the tourism
management post-doctorate program and served as doctorate student advisor. Before he joined Xiamen University, between 1989 and
1998, he was the director of Xiamen University Tourism Management Planning and Research Institute, a part time professor at the
Tourism Department of Beijing International Studies University, and a consultant to Fujian tourism development.
Mr.
Huang is an expert among China's tourism academics. Between March 2008 and March 2009, Mr. Huang was appointed by the China
National Tourism Bureau to preside over the Open Tourism Market for Mainland Citizens' Travel to Taiwan and Related Management
Issues. In 2006 and 2007, he was invited by the China National Tourism Bureau and Taiwan Office of CPC Central Committee to represent
China's tourism academics to draft monographs and to participate in Strait Economic Trade Forum. Between 2005 and 2006,
Mr. Huang engaged in the planning, research, and modification of display contents of China Fujian-Taiwan Kinship Museum sponsored
by the Publicity Department of the CPC Central Committee and Fujian Provincial Committee. China Fujian-Taiwan Kinship Museum became
the new tourism landmark of the west coast of Taiwan Strait, and a popular tourist attraction in Quanzhou, Fujian.
Mr.
Huang obtained his bachelor degree in history from Xiamen University in 1976.
(b)
Acquisition:
Mr.
Chen and Ms. Fan are the directors of Acquisition. Acquisition does not have any executive officers.
ANNEX
D
FORM OF PROXY CARD
PRELIMINARY
COPY – SUBJECT TO COMPLETION
ANNEX
E
NEVADA RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions.
As
used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "Beneficial
shareholder" defined.
"Beneficial shareholder" means a person who is a beneficial owner of shares
held in a voting trust or by a nominee as the shareholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate
action" defined.
"Corporate action" means the action of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter"
defined.
"Dissenter" means a shareholder who is entitled to dissent from a domestic corporation's
action under NRS 92A.380 and who exercises that right when and in the manner required byNRS 92A.400 to 92A.480,
inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair
value" defined.
"Fair value," with respect to a dissenter's shares, means the value of
the shares determined:
1. Immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation
or depreciation in anticipation of the corporate action unless exclusion would be inequitable;
2. Using customary and current valuation concepts and techniques generally employed for similar businesses in the context
of the transaction requiring appraisal; and
3. Without discounting for lack of marketability or minority status.
(Added to NRS by 1995, 2087; A 2009, 1720)
NRS 92A.325 "Shareholder"
defined.
"Shareholder" means a shareholder of record or a beneficial shareholder of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 "Shareholder
of record" defined.
"Shareholder of record" means the person in whose name shares are registered
in the records of a domestic corporation or the beneficial owner of shares to the extent of the rights granted by a nominee's
certificate on file with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "Subject
corporation" defined.
"Subject corporation" means the domestic corporation which is the issuer
of the shares held by a dissenter before the corporate action creating the dissenter's rights becomes effective or the surviving
or acquiring entity of that issuer after the corporate action becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 Computation
of interest.
Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be computed from
the effective date of the action until the date of payment, at the rate of interest most recently established pursuant to NRS
99.040.
(Added to NRS by 1995, 2087; A 2009, 1721)
NRS 92A.350 Rights
of dissenting partner of domestic limited partnership.
A partnership agreement of a domestic limited partnership
or, unless otherwise provided in the partnership agreement, an agreement of merger or exchange, may provide that contractual rights
with respect to the partnership interest of a dissenting general or limited partner of a domestic limited partnership are available
for any class or group of partnership interests in connection with any merger or exchange in which the domestic limited partnership
is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.360 Rights
of dissenting member of domestic limited-liability company.
The articles of organization or operating agreement
of a domestic limited-liability company or, unless otherwise provided in the articles of organization or operating agreement,
an agreement of merger or exchange, may provide that contractual rights with respect to the interest of a dissenting member are
available in connection with any merger or exchange in which the domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 Rights
of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise provided in the articles or bylaws, any member
of any constituent domestic nonprofit corporation who voted against the Merger may, without prior notice, but within 30 days after
the effective date of the Merger, resign from membership and is thereby excused from all contractual obligations to the constituent
or surviving corporations which did not occur before the member's resignation and is thereby entitled to those rights, if
any, which would have existed if there had been no merger and the membership had been terminated or the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no member of a domestic nonprofit corporation,
including, but not limited to, a cooperative corporation, which supplies services described in chapter 704of NRS to its members
only, and no person who is a member of a domestic nonprofit corporation as a condition of or by reason of the ownership of an
interest in real property, may resign and dissent pursuant to subsection 1.
(Added to NRS by 1995, 2088)
NRS 92A.380 Right
of shareholder to dissent from certain corporate actions and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390 and subject to the limitation in paragraph
(f), any shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the
event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation is a constituent entity:
(1) If approval by the shareholders is required for the Merger by NRS 92A.120 to 92A.160, inclusive, or the
articles of incorporation, regardless of whether the shareholder is entitled to vote on the plan of merger; or
(2) If the domestic corporation is a subsidiary and is merged with its parent pursuant to NRS 92A.180.
(b) Consummation of a plan of conversion to which the domestic corporation is a constituent entity as the corporation whose
subject owner's interests will be converted.
(c) Consummation of a plan of exchange to which the domestic corporation is a constituent entity as the corporation whose
subject owner's interests will be acquired, if the shareholder's shares are to be acquired in the plan of exchange.
(d) Any corporate action taken pursuant to a vote of the shareholders to the extent that the articles of incorporation, bylaws
or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
(e) Accordance of full voting rights to control shares, as defined in NRS 78.3784, only to the extent provided for pursuant
to NRS 78.3793.
(f) Any corporate action not described in this subsection that will result in the shareholder receiving money or scrip instead
of a fraction of a share except where the shareholder would not be entitled to receive such payment pursuant to NRS 78.205, 78.2055 or 78.207.
A dissent pursuant to this paragraph applies only to the fraction of a share, and the shareholder is entitled only to obtain payment
of the fair value of the fraction of a share.
2. A shareholder who is entitled to dissent and obtain payment pursuant to NRS 92A.300 to 92A.500, inclusive,
may not challenge the corporate action creating the entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the domestic corporation.
3. Subject to the limitations in this subsection, from and after the effective date of any corporate action described
in subsection 1, no shareholder who has exercised the right to dissent pursuant to NRS 92A.300 to 92A.500, inclusive,
is entitled to vote his or her shares for any purpose or to receive payment of dividends or any other distributions on shares.
This subsection does not apply to dividends or other distributions payable to shareholders on a date before the effective date
of any corporate action from which the shareholder has dissented. If a shareholder exercises the right to dissent with respect
to a corporate action described in paragraph (f) of subsection 1, the restrictions of this subsection apply only to the shares
to be converted into a fraction of a share and the dividends and distributions to those shares.
(Added to NRS by 1995, 2087; A 2001, 1414, 3199; 2003, 3189; 2005, 2204; 2007, 2438; 2009,
1721; 2011, 2814)
NRS 92A.390 Limitations
on right of dissent: Shareholders of certain classes or series; action of shareholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger, conversion or exchange in favor of shareholders of
any class or series which is:
(a) A covered security under section 18(b)(1)(A) or (B) of the Securities Act of 1933, 15 U.S.C. § 77r(b)(1)(A) or (B),
as amended;
(b) Traded in an organized market and has at least 2,000 shareholders and a market value of at least $20,000,000, exclusive
of the value of such shares held by the corporation's subsidiaries, senior executives, directors and beneficial shareholders
owning more than 10 percent of such shares; or
(c) Issued
by an open end management investment company registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, 15 U.S.C. §§ 80a-1 et seq., as amended, and which may be redeemed at the option of the holder
at net asset value, unless the articles of incorporation of the corporation issuing the class or series or the resolution of
the board of directors approving the plan of merger, conversion or exchange expressly provide otherwise.
2. The applicability of subsection 1 must be determined as of:
(a) The record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting of shareholders
to act upon the corporate action requiring dissenter's rights; or
(b) The day before the effective date of such corporate action if there is no meeting of shareholders.
3. Subsection 1 is not applicable and dissenter's rights are available pursuant to NRS 92A.380 for
the holders of any class or series of shares who are required by the terms of the corporate action requiring dissenter's
rights to accept for such shares anything other than cash or shares of any class or any series of shares of any corporation, or
any other proprietary interest of any other entity, that satisfies the standards set forth in subsection 1 at the time the corporate
action becomes effective.
4. There is no right of dissent for any holders of stock of the surviving domestic corporation if the plan of merger
does not require action of the shareholders of the surviving domestic corporation under NRS 92A.130.
5. There is no right of dissent for any holders of stock of the parent domestic corporation if the plan of merger does
not require action of the shareholders of the parent domestic corporation under NRS 92A.180.
(Added to NRS by 1995, 2088; A 2009, 1722; 2013, 1285)
NRS 92A.400 Limitations
on right of dissent: Assertion as to portions only to shares registered to shareholder; assertion by beneficial shareholder.
1. A shareholder of record may assert dissenter's rights as to fewer than all of the shares registered in his
or her name only if the shareholder of record dissents with respect to all shares of the class or series beneficially owned by
any one person and notifies the subject corporation in writing of the name and address of each person on whose behalf the shareholder
of record asserts dissenter's rights. The rights of a partial dissenter under this subsection are determined as if the shares
as to which the partial dissenter dissents and his or her other shares were registered in the names of different shareholders.
2. A beneficial shareholder may assert dissenter's rights as to shares held on his or her behalf only if the
beneficial shareholder:
(a) Submits to the subject corporation the written consent of the shareholder of record to the dissent not later than the
time the beneficial shareholder asserts dissenter's rights; and
(b) Does so with respect to all shares of which he or she is the beneficial shareholder or over which he or she has power
to direct the vote.
(Added to NRS by 1995, 2089; A 2009, 1723)
NRS 92A.410 Notification
of shareholders regarding right of dissent.
1. If a proposed corporate action creating dissenter's rights is submitted to a vote at a
shareholders' meeting, the notice of the meeting must state that shareholders are, are not or may be entitled to assert
dissenter's rights under NRS 92A.300 to 92A.500, inclusive. If the domestic corporation concludes that
dissenter's rights are or may be available, a copy of NRS 92A.300 to 92A.500, inclusive, must accompany
the meeting notice sent to those record shareholders entitled to exercise dissenter's rights.
2. If the corporate action creating dissenter's rights is taken by written consent of the shareholders or without
a vote of the shareholders, the domestic corporation shall notify in writing all shareholders entitled to assert dissenter's
rights that the action was taken and send them the dissenter's notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730; 2009, 1723; 2013, 1286)
NRS 92A.420 Prerequisites
to demand for payment for shares.
1. If a proposed corporate action creating dissenter's rights is submitted to a vote at a shareholders'
meeting, a shareholder who wishes to assert dissenter's rights with respect to any class or series of shares:
(a) Must deliver to the subject corporation, before the vote is taken, written notice of the shareholder's intent to
demand payment for his or her shares if the proposed action is effectuated; and
(b) Must not vote, or cause or permit to be voted, any of his or her shares of such class or series in favor of the proposed
action.
2. If a proposed corporate action creating dissenter's rights is taken by written consent of the shareholders,
a shareholder who wishes to assert dissenter's rights with respect to any class or series of shares must not consent to
or approve the proposed corporate action with respect to such class or series.
3. A shareholder who does not satisfy the requirements of subsection 1 or 2 and NRS 92A.400 is not entitled
to payment for his or her shares under this chapter.
(Added to NRS by 1995, 2089; A 1999, 1631; 2005, 2204; 2009, 1723; 2013, 1286)
NRS 92A.430 Dissenter's
notice: Delivery to shareholders entitled to assert rights; contents.
1. The subject corporation shall deliver a written dissenter's notice to all shareholders of record entitled
to assert dissenter's rights in whole or in part, and any beneficial shareholder who has previously asserted dissenter's
rights pursuant to NRS 92A.400.
2. The dissenter's notice must be sent no later than 10 days after the effective date of the corporate action
specified in NRS 92A.380, and must:
(a) State where the demand for payment must be sent and where and when certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what extent the transfer of the shares will be restricted
after the demand for payment is received;
(c) Supply a form for demanding payment that includes the date of the first announcement to the news media or to the shareholders
of the terms of the proposed action and requires that the person asserting dissenter's rights certify whether or not the
person acquired beneficial ownership of the shares before that date;
(d) Set a date by which the subject corporation must receive the demand for payment, which may not be less than 30 nor more
than 60 days after the date the notice is delivered and state that the shareholder shall be deemed to have waived the right to
demand payment with respect to the shares unless the form is received by the subject corporation by such specified date; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089; A 2005, 2205; 2009, 1724; 2013, 1286)
NRS 92A.440 Demand
for payment and deposit of certificates; loss of rights of shareholder; withdrawal from appraisal process.
1. A shareholder who receives a dissenter's notice pursuant to NRS 92A.430 and who wishes to exercise
dissenter's rights must:
(a) Demand payment;
(b) Certify whether the shareholder or the beneficial owner on whose behalf he or she is dissenting, as the case may be,
acquired beneficial ownership of the shares before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit the shareholder's certificates, if any, in accordance with the terms of the notice.
2. If a shareholder fails to make the certification required by paragraph (b) of subsection 1, the subject corporation
may elect to treat the shareholder's shares as after-acquired shares under NRS 92A.470.
3. Once a shareholder deposits that shareholder's certificates or, in the case of uncertified shares makes demand
for payment, that shareholder loses all rights as a shareholder, unless the shareholder withdraws pursuant to subsection 4.
4. A shareholder who has complied with subsection 1 may nevertheless decline to exercise dissenter's rights and
withdraw from the appraisal process by so notifying the subject corporation in writing by the date set forth in the dissenter's
notice pursuant to NRS 92A.430. A shareholder who fails to so withdraw from the appraisal process may not thereafter withdraw
without the subject corporation's written consent.
5. The shareholder who does not demand payment or deposit his or her certificates where required, each by the date
set forth in the dissenter's notice, is not entitled to payment for his or her shares under this chapter.
(Added
to NRS by 1995, 2090; A 1997, 730; 2003, 3189; 2009, 1724)
NRS 92A.450 Uncertificated
shares: Authority to restrict transfer after demand for payment.
The subject corporation may restrict the transfer
of shares not represented by a certificate from the date the demand for their payment is received.
(Added to NRS by 1995, 2090; A 2009, 1725)
NRS 92A.460 Payment
for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt of a demand for payment pursuant
to NRS 92A.440, the subject corporation shall pay in cash to each dissenter who complied with NRS 92A.440the amount
the subject corporation estimates to be the fair value of the dissenter's shares, plus accrued interest. The obligation
of the subject corporation under this subsection may be enforced by the district court:
(a) Of the county where the subject corporation's principal office is located;
(b) If the subject corporation's principal office is not located in this State, in the county in which the corporation's
registered office is located; or
(c) At
the election of any dissenter residing or having its principal or registered office in this State, of the county where the dissenter
resides or has its principal or registered office.
The
court shall dispose of the complaint promptly.
2. The
payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the
date of payment, a statement of income for that year, a statement of changes in the shareholders' equity for that year or,
where such financial statements are not reasonably available, then such reasonably equivalent financial information and the latest
available quarterly financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value of the shares; and
(c) A statement of the dissenter's rights to demand payment under NRS 92A.480 and that if any such shareholder
does not do so within the period specified, such shareholder shall be deemed to have accepted such payment in full satisfaction
of the corporation's obligations under this chapter.
(Added to NRS by 1995, 2090; A 2007, 2704; 2009, 1725; 2013, 1287)
NRS 92A.470 Withholding
payment for shares acquired on or after date of dissenter's notice: General requirements.
1. A subject corporation may elect to withhold payment from a dissenter unless the dissenter was the beneficial owner
of the shares before the date set forth in the dissenter's notice as the first date of any announcement to the news media
or to the shareholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, within 30 days after receipt of a demand for payment
pursuant to NRS 92A.440, the subject corporation shall notify the dissenters described in subsection 1:
(a) Of the information required by paragraph (a) of subsection 2 of NRS 92A.460;
(b) Of the subject corporation's estimate of fair value pursuant to paragraph (b) of subsection 2 of NRS 92A.460;
(c) That they may accept the subject corporation's estimate of fair value, plus interest, in full satisfaction of their
demands or demand appraisal under NRS 92A.480;
(d) That those shareholders who wish to accept such an offer must so notify the subject corporation of their acceptance of
the offer within 30 days after receipt of such offer; and
(e) That those shareholders who do not satisfy the requirements for demanding appraisal under NRS 92A.480 shall
be deemed to have accepted the subject corporation's offer.
3. Within 10 days after receiving the shareholder's acceptance pursuant to subsection 2, the subject corporation
shall pay in cash the amount offered under paragraph (b) of subsection 2 to each shareholder who agreed to accept the subject
corporation's offer in full satisfaction of the shareholder's demand.
4. Within 40 days after sending the notice described in subsection 2, the subject corporation shall pay in cash the
amount offered under paragraph (b) of subsection 2 to each shareholder described in paragraph (e) of subsection 2.
(Added to NRS by 1995, 2091; A 2009, 1725; 2013, 1287)
NRS 92A.480 Dissenter's
estimate of fair value: Notification of subject corporation; demand for payment of estimate.
1. A dissenter paid pursuant to NRS 92A.460 who is dissatisfied with the amount of the payment may notify
the subject corporation in writing of the dissenter's own estimate of the fair value of his or her shares and the amount
of interest due, and demand payment of such estimate, less any payment pursuant to NRS 92A.460. A dissenter offered payment
pursuant to NRS 92A.470 who is dissatisfied with the offer may reject the offer pursuant to NRS 92A.470 and
demand payment of the fair value of his or her shares and interest due.
2. A dissenter waives the right to demand payment pursuant to this section unless the dissenter notifies the subject
corporation of his or her demand to be paid the dissenter's stated estimate of fair value plus interest under subsection
1 in writing within 30 days after receiving the subject corporation's payment or offer of payment under NRS 92A.460 or 92A.470 and
is entitled only to the payment made or offered.
(Added to NRS by 1995, 2091; A 2009, 1726)
NRS 92A.490 Legal
proceeding to determine fair value: Duties of subject corporation; powers of court; rights of dissenter.
1. If a demand for payment pursuant to NRS 92A.480 remains unsettled, the subject corporation shall commence
a proceeding within 60 days after receiving the demand and petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within the 60-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded by each dissenter pursuant toNRS 92A.480 plus interest.
2. A subject corporation shall commence the proceeding in the district court of the county where its principal office
is located in this State. If the principal office of the subject corporation is not located in this State, the right to dissent
arose from a merger, conversion or exchange and the principal office of the surviving entity, resulting entity or the entity whose
shares were acquired, whichever is applicable, is located in this State, it shall commence the proceeding in the county where
the principal office of the surviving entity, resulting entity or the entity whose shares were acquired is located. In all other
cases, if the principal office of the subject corporation is not located in this State, the subject corporation shall commence
the proceeding in the district court in the county in which the corporation's registered office is located.
3. The subject corporation shall make all dissenters, whether or not residents of Nevada, whose demands remain unsettled,
parties to the proceeding as in an action against their shares. All parties must be served with a copy of the petition. Nonresidents
may be served by registered or certified mail or by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under subsection 2 is plenary and exclusive.
The court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value.
The appraisers have the powers described in the order appointing them, or any amendment thereto. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a judgment:
(a) For the amount, if any, by which the court finds the fair value of the dissenter's shares, plus interest, exceeds
the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of the dissenter's after-acquired shares for which the subject corporation
elected to withhold payment pursuant to NRS 92A.470.
(Added to NRS by 1995, 2091; A 2007, 2705; 2009, 1727; 2011, 2815; 2013, 1288)
NRS 92A.500 Assessment
of costs and fees in certain legal proceedings.
1. The court in a proceeding to determine fair value shall determine all of the costs of the proceeding, including
the reasonable compensation and expenses of any appraisers appointed by the court. The court shall assess the costs against the
subject corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and experts for the respective parties, in amounts
the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the court finds the subject corporation did not substantially
comply with the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights
provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services should not be assessed against the subject corporation, the court may
award to those counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the costs against the subject corporation,
except that the court may assess costs against all or some of the dissenters who are parties to the proceeding, in amounts the
court finds equitable, to the extent the court finds that such parties did not act in good faith in instituting the proceeding.
5. To the extent the subject corporation fails to make a required payment pursuant to NRS 92A.460, 92A.470 or 92A.480,
the dissenter may bring a cause of action directly for the amount owed and, to the extent the dissenter prevails, is entitled
to recover all expenses of the suit.
6. This section does not preclude any party in a proceeding commenced pursuant to NRS 92A.460 or 92A.490 from
applying the provisions of N.R.C.P. 68 or NRS 17.115.
(Added to NRS by 1995, 2092; A 2009, 1727)
E-6
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