PRER14A 1 d55648dprer14a.htm PRER14A PRER14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. 2)

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under Rule 14a-12

CELLULAR BIOMEDICINE GROUP, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name(s) of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

Cellular Biomedicine Group, Inc. common stock, par value $0.001 per share

  (2)  

Aggregate number of securities to which transaction applies:

 

11,768,545 shares of common stock, which consists of: (A) 10,181,058 shares of common stock outstanding as of September 28, 2020 (calculated as 19,450,353 shares of common stock outstanding as of September 28, 2020 minus 9,269,295 Rollover Shares (as defined in the accompanying proxy statement); (B) 1,476,742 shares of common stock issuable upon the exercise of options to purchase shares of common stock outstanding as of September 28, 2020, with a per share exercise price below $19.75; (C) 110,745 shares of common stock subject to restricted stock units outstanding as of September 28, 2020, other than restricted stock units held by the Management Rollover Stockholders (as defined in the accompanying proxy statement); and (D) 0 shares of common stock subject to performance-based restricted stock units outstanding as of September 28, 2020.

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

Solely for the purposes of calculating the filing fee, the maximum aggregate value was determined based upon the sum of: (A) 10,181,058 shares of common stock outstanding as of September 28, 2020 (calculated as 19,450,353 shares of common stock outstanding as of September 28, 2020 minus 9,269,295 Rollover Shares), multiplied by the merger consideration of $19.75 per share; (B) 1,476,742 shares of common stock issuable upon the exercise of options to purchase shares of common stock outstanding as of September 28, 2020, with a per share exercise price below $19.75, multiplied by $9.31 (the difference between the merger consideration of $19.75 per share and the weighted average per share exercise price of $10.44); (C) 110,745 shares of common stock subject to restricted stock units outstanding as of September 28, 2020, other than restricted stock units held by the Management Rollover Stockholders (as defined in the accompanying proxy statement), multiplied by the merger consideration of $19.75 per share; and (D) 0 shares of common stock subject to performance-based restricted stock units outstanding as of September 28, 2020, multiplied by the merger consideration of $19.75 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying the sum calculated in the preceding sentence by 0.0001091.

  (4)  

Proposed maximum aggregate value of transaction:

 

$217,011,577.27

  (5)  

Total fee paid:

 

$23,675.96

  Fee paid previously with preliminary materials.
  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.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

DATED DECEMBER 8, 2020

 

LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

[], 2020

To the Stockholders of Cellular Biomedicine Group, Inc.:

You are cordially invited to attend a special meeting of the stockholders of Cellular Biomedicine Group, Inc., a Delaware corporation (“CBMG,” the “Company,” “we,” “our” or “us”), which we will hold at [], on [], 2020 at [], Eastern Time. As part of our precautions regarding the coronavirus or COVID-19 pandemic, the special meeting may be held solely by means of remote communication in a virtual format on the above date and time. If we take this step after the dissemination of the accompanying proxy statement, we intend to announce the decision to do so at least 10 days prior to the special meeting in a press release that will be available on our website, https://www.cellbiomedgroup.com. We will also file the press release with the U.S. Securities and Exchange Commission as definitive additional proxy materials. The press release and additional proxy materials will include detailed instructions as to the logistical details of the virtual meeting, including how you can remotely access, participate in and vote at such meeting. If you plan to attend the special meeting, we recommend that you monitor our website for updated information and registration details in the event we determine to hold the special meeting solely by virtual means. We encourage you to vote by proxy—by mail, by telephone or over the Internet—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend the special meeting in person.

At the special meeting, holders of shares of our common stock, par value $0.001 per share (“Common Stock”), will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of August 11, 2020 (as it may be amended from time to time, the “Merger Agreement”), by and among CBMG Holdings, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), CBMG Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and the Company, pursuant to which Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Parent and Merger Sub are entities newly formed on behalf of a consortium consisting of (i) Tony (Bizuo) Liu (Chief Executive Officer of CBMG) and certain other members of CBMG management consisting of Yihong Yao, Li (Helen) Zhang and Chengxiang (Chase) Dai (such other members of CBMG management, together with Mr. Liu, collectively, the “Management Rollover Stockholders”), (ii) Dangdai International Group Co., Limited, Mission Right Limited, Wealth Map Holdings Limited, Earls Mill Limited, OPEA SRL, Maplebrook Limited, Full Moon Resources Limited, Viktor Pan and Zheng Zhou (together with the Management Rollover Stockholders, collectively, the “Consortium Rollover Stockholders”), and (iii) Yunfeng Fund III, L.P., TF Capital Fund III L.P., Velvet Investment Pte. Ltd. and Mr. Liu (in his capacity as an equity investor) (collectively, the “Equity Investors” and, together with Parent, Merger Sub and the Consortium Rollover Stockholders, collectively, the “Buyer Consortium”). In this letter to the stockholders of CBMG, we refer to the Buyer Consortium, together with Novartis AG, Novartis Pharma AG, Yunfeng Capital Limited, TF Capital Ranok Ltd., Winsor Capital Limited and TF I Ltd., collectively, as the “Participants.”

If the Merger is consummated, each share of Common Stock outstanding immediately prior to the effective time of the Merger (other than (i) shares of Common Stock owned by Parent, Merger Sub or any other direct or indirect wholly-owned subsidiary of Parent and shares of Common Stock owned by the Company, (ii) certain shares of Common Stock owned by the Consortium Rollover Stockholders and all of the shares of Common


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Stock owned by Novartis Pharma AG (together with the Consortium Rollover Stockholders, collectively, the “Rollover Stockholders”), and (iii) shares of Common Stock owned by stockholders who are entitled to, and who have timely perfected and have not withdrawn a demand for (or lost their right to), appraisal rights pursuant to Section 262 of the General Corporation Law of the State of Delaware) will be converted into the right to receive $19.75 in cash, without interest and subject to any applicable withholding taxes. The Merger is a “going private transaction” under U.S. Securities and Exchange Commission rules. If the Merger is consummated, the Company will be wholly owned by Parent, and Parent will be owned by the Equity Investors and the Rollover Stockholders.

The board of directors of the Company (the “Board”) formed a special committee comprised solely of four independent and disinterested directors of the Company (the “Special Committee”) to evaluate and, if applicable, negotiate the terms of the Merger and alternatives to the Merger. The Special Committee unanimously (i) determined that the terms of the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (ii) directed that the Merger Agreement be submitted to the Board for its approval and recommendation that the Company’s stockholders adopt the Merger Agreement, and (iii) recommended that the Board (a) approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, (b) declare that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (c) authorize and approve the Company’s entry into the Merger Agreement and consummation of the transactions contemplated thereby, including the Merger, (d) submit the adoption of the Merger Agreement for consideration by the Company’s stockholders at a meeting of the stockholders of the Company, and (e) recommend that the Company’s stockholders vote in favor of the adoption of the Merger Agreement.

The Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium), acting on behalf of the Company and upon the unanimous recommendation of the Special Committee with respect to the Merger Agreement and the transactions contemplated thereby, including the Merger, unanimously (i) determined that the Merger Agreement and other transaction documents and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (ii) authorized and approved the execution, delivery and performance by the Company of the Merger Agreement and other transaction documents and consummation of the transactions contemplated thereby, including the Merger, and (iii) directed that the Merger Agreement be submitted for adoption by the Company’s stockholders and recommended that the Company’s stockholders vote in favor of the adoption of the Merger Agreement. Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou abstained from the vote of the Board given their relationships with the Buyer Consortium. In evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger, the Special Committee consulted with its independent legal and financial advisors and, in making its recommendation to the Board, considered a number of factors, and, in evaluating the Merger Agreement and the transactions contemplated thereby, the Board consulted with its legal advisors and, in making its determination, including its recommendation to the Company’s stockholders, considered a number of factors, including the recommendation of the Special Committee, as such factors considered by the Special Committee and the Board are described more fully in the enclosed proxy statement. The Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium) unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement.

You will also be asked to consider and vote at the special meeting on (i) one or more proposals to approve the adjournment 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 proposal to adopt the Merger Agreement, and (ii) a non-binding, advisory proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the Merger. The Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium) unanimously recommends that you vote “FOR” each of these proposals.


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The Board is soliciting your proxy to ensure that a quorum exists and that your shares are represented and voted at the special meeting and any adjournments or postponements thereof. The Merger cannot be consummated unless the Merger Agreement is adopted by the affirmative vote of the holders of (i) at least a majority of the shares of Common Stock outstanding at the close of business, Eastern Time, on [], 2020, the record date for the special meeting, and (ii) at least a majority of the shares of Common Stock outstanding at the close of business, Eastern Time, on the record date excluding the votes of the Participants and their respective affiliates, in each case, in accordance with applicable law and the organizational documents of the Company.

Your vote is important, regardless of the number of shares of Common Stock you own. Whether or not you expect to attend the special meeting in person, please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. If you fail to return your proxy and fail to attend the special meeting in person, your shares will not be counted for purposes of determining whether a quorum exists at the special meeting and will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement. Similarly, if you hold your shares in “street name” and fail to instruct your broker, bank or other nominee as to how to vote your shares, your shares will not be counted for purposes of determining whether a quorum exists and will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement.

In considering the recommendation of the Board, you should be aware that certain of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally as further described in the accompanying proxy statement. You should also be aware that the Rollover Stockholders have interests in the Merger that are different from, or in addition to, the interests of the Company’s other stockholders, as further described in the accompanying proxy statement. At the close of business, Eastern Time, on the record date for the special meeting, the Rollover Stockholders collectively owned approximately []% of the outstanding shares of Common Stock. Pursuant to a Consortium Rollover and Support Agreement and a Novartis Rollover and Support Agreement (collectively, the “Rollover and Support Agreements”), as applicable, each entered into with Parent on August 11, 2020, each of the Rollover Stockholders has agreed, among other things, (i) to vote, or cause to be voted, all of the Common Stock held by such Rollover Stockholder in favor of the proposal to adopt the Merger Agreement and (ii) that certain shares of Common Stock held by the Consortium Rollover Stockholder (or in the case of Novartis Pharma AG, all of the shares of Common Stock held by Novartis Pharma AG) will be canceled at the closing of the Merger for no consideration. In consideration for such cancellation, the Rollover Stockholders will receive newly issued ordinary shares of Parent immediately prior to the consummation of the Merger. The Special Committee and the Board did not assess whether the Rollover and Support Agreements were fair to, and in the best interests of, the Rollover Stockholders.

The accompanying proxy statement provides you with more detailed information about the special meeting, the Merger Agreement and the transactions contemplated thereby, including the Merger. A copy of the Merger Agreement is attached as Annex A to the proxy statement. We encourage you to carefully read the entire proxy statement and its annexes, including the Merger Agreement and the documents referred to or incorporated by reference in the proxy statement. You may also obtain additional information about the Company from other documents that we have filed with the U.S. Securities and Exchange Commission.

Thank you in advance for your cooperation and continued support.

Sincerely,

Alan Au

Director and Chair of the Special Committee


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NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THE ACCOMPANYING PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The accompanying proxy statement is dated [], 2020, and is first being mailed to stockholders of the Company on or about [], 2020.


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LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON []

To the Stockholders of Cellular Biomedicine Group, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Cellular Biomedicine Group, Inc., a Delaware corporation (“CBMG,” the “Company,” “we,” “our” or “us”), will be held at [] on [], 2020 at [], Eastern Time, for the following purposes:

 

  (i)

To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of August 11, 2020 (as it may be amended from time to time, the “Merger Agreement”), by and among CBMG Holdings, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), CBMG Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and the Company, pursuant to which Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent (such proposal, the “Merger Agreement Proposal”). A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement.

 

  (ii)

To consider and vote on one or more proposals to approve the adjournment 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 Proposal (the “Adjournment Proposal”).

 

  (iii)

To consider and vote on a non-binding, advisory proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the Merger (the “Advisory Compensation Proposal”).

As part of our precautions regarding the coronavirus or COVID-19 pandemic, the special meeting may be held solely by means of remote communication in a virtual format on the above date and time. If we take this step after the dissemination of the accompanying proxy statement, we intend to announce the decision to do so at least 10 days prior to the special meeting in a press release that will be available on our website, https://www.cellbiomedgroup.com. We will also file the press release with the U.S. Securities and Exchange Commission as definitive additional proxy materials. The press release and additional proxy materials will include detailed instructions as to the logistical details of the virtual meeting, including how you can remotely access, participate in and vote at such meeting. If you plan to attend the special meeting, we recommend that you monitor our website for updated information and registration details in the event we determine to hold the special meeting solely by virtual means. We encourage you to vote by proxy—by mail, by telephone or over the Internet—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend the special meeting in person.

All holders of record of shares of our common stock, par value $0.001 per share (“Common Stock”), at the close of business, Eastern Time, on [], 2020, the record date for the special meeting, are entitled to notice of and to vote at the special meeting or at any adjournments or postponements thereof. All stockholders of record are cordially invited to attend the special meeting in person.

The board of directors of the Company (the “Board”) (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium) unanimously recommends that the stockholders of the Company vote “FOR” the Merger Agreement Proposal, “FOR” the Adjournment Proposal and “FOR” the Advisory Compensation Proposal.

Parent and Merger Sub are entities newly formed on behalf of a consortium consisting of (i) Tony (Bizuo) Liu (Chief Executive Officer of CBMG) and certain other members of CBMG management consisting of Yihong


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Yao, Li (Helen) Zhang and Chengxiang (Chase) Dai (such other members of CBMG management, together with Mr. Liu, collectively, the “Management Rollover Stockholders”), (ii) Dangdai International Group Co., Limited, Mission Right Limited, Wealth Map Holdings Limited, Earls Mill Limited, OPEA SRL, Maplebrook Limited, Full Moon Resources Limited, Viktor Pan and Zheng Zhou (together with the Management Rollover Stockholders, collectively, the “Consortium Rollover Stockholders”), and (iii) Yunfeng Fund III, L.P., TF Capital Fund III L.P., Velvet Investment Pte. Ltd. and Mr. Liu (in his capacity as an equity investor) (collectively, the “Equity Investors” and, together with Parent, Merger Sub and the Consortium Rollover Stockholders, collectively, the “Buyer Consortium”). In this notice, we refer to the Buyer Consortium, together with Novartis AG, Novartis Pharma AG, Yunfeng Capital Limited, TF Capital Ranok Ltd., Winsor Capital Limited and TF I Ltd., collectively, as the “Participants.”

If the Merger is consummated, each share of Common Stock outstanding immediately prior to the effective time of the Merger (other than (i) shares of Common Stock owned by Parent, Merger Sub or any other direct or indirect wholly-owned subsidiary of Parent and shares of Common Stock owned by the Company, (ii) certain shares of Common Stock owned by the Consortium Rollover Stockholders and all of the shares of Common Stock owned by Novartis Pharma AG (together with the Consortium Rollover Stockholders, collectively, the “Rollover Stockholders”), and (iii) shares of Common Stock owned by stockholders who are entitled to, and who have timely perfected and have not withdrawn a demand for (or lost their right to), appraisal rights pursuant to Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”)) will be converted into the right to receive $19.75 in cash, without interest and subject to any applicable withholding taxes. The Merger is a “going private transaction” under U.S. Securities and Exchange Commission rules. If the Merger is consummated, the Company will be wholly owned by Parent, and Parent will be owned by the Equity Investors and the Rollover Stockholders.

Your vote is important, regardless of the number of shares of Common Stock you own. The Board is soliciting your proxy to ensure that a quorum exists and that your shares are represented and voted at the special meeting and any adjournments and postponements thereof. The Merger cannot be consummated unless the Merger Agreement is adopted by the affirmative vote of the holders of (i) at least a majority of the shares of Common Stock outstanding at the close of business, Eastern Time, on the record date, and (ii) at least a majority of the shares of Common Stock outstanding at the close of business, Eastern Time, on the record date excluding the votes of the Participants and their respective affiliates, in each case, in accordance with applicable law and the organizational documents of the Company. If you fail to vote or you abstain from voting on the Merger Agreement Proposal, the effect will be the same as a vote “AGAINST” the Merger Agreement Proposal.

Assuming a quorum exists, approval of the Adjournment Proposal and the Advisory Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of Common Stock outstanding at the close of business, Eastern Time, on the record date that are present in person or represented by proxy at the special meeting. Approval of the Advisory Compensation Proposal and the Adjournment Proposal are not conditions to the consummation of the Merger.

As required by Section 262 of the DGCL, the Company is notifying all stockholders entitled to vote on the Merger that you are or may be entitled to assert appraisal rights in connection with the proposed Merger. The procedures you are required to follow in order to exercise your appraisal rights are summarized in the accompanying proxy statement in the section entitled “Rights of Appraisal” beginning on page 159, and a copy of Section 262 of the DGCL is included with the accompanying proxy statement as Annex C.

Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card to ensure that your shares will be represented at the special meeting if you are unable to attend. You also may submit your proxy card by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.

If you are a stockholder who holds your shares of Common Stock in “street name” through a broker, bank or other nominee, please be aware that you will need to follow the directions provided by such broker, bank or nominee regarding how to instruct it to vote your shares of Common Stock at the special meeting. If your shares


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are held by a broker, bank or other nominee and you wish to vote in person at the special meeting, you must bring to the special meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote in person at the special meeting. Please also bring to the special meeting your account statement evidencing your beneficial ownership of Common Stock at the close of business, Eastern Time, on the record date. All stockholders should also bring photo identification to the special meeting.

The proxy statement of which this notice forms a part provides a detailed description of the Merger, the Merger Agreement, the Merger Agreement Proposal, the Adjournment Proposal and the Advisory Compensation Proposal, and provides specific information concerning the special meeting. We urge you to read the proxy statement, including any documents incorporated therein by reference, and its annexes carefully and in their entirety. If you have any questions concerning the Merger or the proxy statement, would like additional copies of the proxy statement or need help voting your shares of Common Stock, please contact our Corporate Secretary by mail at 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877, or by telephone at +1 (301) 825-5320.

BY ORDER OF THE BOARD OF DIRECTORS

Andrew Chan

Chief Legal Officer (General Counsel), Corporate

Development and Secretary

Dated [], 2020


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TABLE OF CONTENTS

 

     Page  

SUMMARY TERM SHEET

     1  

The Parties Involved in the Merger

     2  

The Special Meeting

     6  

Record Date and Quorum

     7  

Required Vote

     7  

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger

     8  

Purposes of the Company for the Merger

     9  

Opinion of Jefferies LLC

     9  

Position of the Buyer Filing Persons as to the Fairness of the Merger

     10  

Structure of the Merger

     10  

Merger Consideration

     10  

Treatment of Company Equity Awards

     10  

Intent of the Company’s Directors and Executive Officers to Vote in Favor of the Merger

     11  

Interests of the Company’s Directors and Executive Officers in the Merger

     12  

Financing for the Merger

     12  

Rollover and Support Agreements

     13  

Interim Investors Agreement

     14  

Bridge Loan Agreements

     14  

CFIUS Clearance

     16  

Conditions to the Merger

     16  

Go-Shop Period; Solicitation of Acquisition Proposals

     17  

Adverse Recommendation Change

     18  

Termination of the Merger Agreement

     19  

Termination Fees

     20  

Specific Performance

     21  

Delisting and Deregistration of Our Common Stock

     21  

Rights of Appraisal

     21  

Material U.S. Federal Income Tax Consequences of the Merger

     21  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     22  

SPECIAL FACTORS

     33  

Background of the Merger

     33  

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger

     60  

Opinion of Jefferies LLC

     69  

Certain Company Forecasts

     74  

Purposes and Reasons of the Company for the Merger

     78  

Provisions for Unaffiliated Security Holders

     79  

Position of the Buyer Filing Persons as to the Fairness of the Merger

     79  

Purposes and Reasons of the Buyer Filing Persons for the Merger

     88  

Certain Effects of the Merger

     90  

Plans for the Company After the Merger

     91  

Effects on the Company if the Merger is Not Completed

     91  

Intent of the Company’s Directors and Executive Officers to Vote in Favor of the Merger

     92  

Interests of Certain Persons in the Merger

     92  

Financing for the Merger

     102  

 

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     Page  

Rollover and Support Agreements

     103  

Novartis Waivers

     106  

Interim Investors Agreement

     106  

Amendment Letter to TF Bridge Loan Agreement

     106  

Yunfeng Bridge Loan Agreement

     107  

Remedies and Limitation on Liability

     108  

Fees and Expenses

     109  

CFIUS Clearance

     109  

Effective Time of the Merger

     111  

Delisting and Deregistration of Common Stock

     111  

Payment of the Per Share Merger Consideration and Surrender of Stock Certificates

     111  

Material U.S. Federal Income Tax Consequences of the Merger

     113  

Anticipated Accounting Treatment of the Merger

     115  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

     116  

THE PARTIES INVOLVED IN THE MERGER

     118  

Cellular Biomedicine Group, Inc.

     118  

CBMG Holdings

     118  

CBMG Merger Sub Inc.

     118  

Yunfeng Capital

     118  

TF Capital

     119  

Velvet Investment

     119  

Tony (Bizuo) Liu

     120  

Other Management Rollover Stockholders

     120  

Other Consortium Rollover Stockholders

     120  

Novartis Filing Persons

     122  

THE SPECIAL MEETING

     123  

Date, Time and Place

     123  

Purpose of the Special Meeting

     123  

Recommendations of the Special Committee and the Board

     123  

Record Date and Quorum

     124  

Required Vote

     125  

Voting of Proxies

     126  

Revocation of Proxies

     126  

Abstentions and Broker Non-Votes

     127  

Failure to Vote

     127  

Attending the Special Meeting

     128  

Appraisal Rights

     128  

Adjournments and Postponements

     128  

Solicitation of Proxies

     128  

Additional Assistance

     129  

THE MERGER (THE MERGER AGREEMENT PROPOSAL—PROPOSAL 1)

     130  

THE MERGER AGREEMENT

     131  

The Merger

     131  

Closing and Effective Time of the Merger

     131  

Certificate of Incorporation and Bylaws; Directors and Officers

     132  

Per Share Merger Consideration

     132  

Exchange Procedures

     132  

Dissenting Shares

     133  

 

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     Page  

Treatment of Company Equity Awards

     134  

Representations and Warranties

     135  

Conduct of Business by the Company

     139  

Stockholders’ Meeting

     142  

Go-Shop Period; Solicitation of Acquisition Proposals

     142  

Adverse Recommendation Change

     145  

Expenses

     147  

Indemnification; Directors’ and Officers’ Insurance

     147  

Employee Benefits

     148  

CFIUS Clearance

     148  

Conversion of Bridge Loans

     149  

Notification of Certain Matters

     150  

Stockholder Litigation

     150  

Section 16 Matters

     150  

State Takeover Statutes

     150  

Stock Exchange Delisting

     150  

Other Covenants

     150  

Conditions to the Merger

     151  

Termination of the Merger Agreement

     152  

Termination Fees

     154  

Remedies; Specific Performance

     155  

Amendment

     156  

Special Committee

     156  

Governing Law

     156  

ADJOURNMENT OF THE SPECIAL MEETING (THE ADJOURNMENT PROPOSAL—PROPOSAL 2)

     157  

MERGER-RELATED EXECUTIVE COMPENSATION ARRANGEMENTS (THE ADVISORY COMPENSATION PROPOSAL—PROPOSAL 3)

     158  

RIGHTS OF APPRAISAL

     159  

Filing Written Demand

     160  

Notice by the Surviving Corporation

     161  

Filing a Petition for Appraisal

     161  

Determination of Fair Value

     162  

IMPORTANT INFORMATION REGARDING CELLULAR BIOMEDICINE GROUP, INC.

     165  

Company Background

     165  

Directors and Executive Officers

     165  

Market Price of the Common Stock and Dividend Information

     169  

Selected Historical Financial Data

     169  

Book Value Per Share

     170  

Ownership of Common Stock by the Participants

     170  

Transactions in Common Stock

     171  

Certain Transactions among the Company and the Buyer Filing Persons

     172  

Prior Public Offerings

     174  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     175  

IMPORTANT INFORMATION REGARDING THE BUYER FILING PERSONS

     178  

CBMG Holdings and CBMG Merger Sub Inc.

     178  

Yunfeng Capital

     178  

 

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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This proxy statement contains information relating to a special meeting of the stockholders of Cellular Biomedicine Group, Inc., a Delaware corporation, which will be held at [] on [], 2020 at [], Eastern Time, and any adjournments or postponements thereof, and is being furnished to stockholders of Cellular Biomedicine Group, Inc. as part of the solicitation of proxies by the board of directors of Cellular Biomedicine Group, Inc. for use at the special meeting. This proxy statement is dated [], 2020, and is first being mailed to stockholders of Cellular Biomedicine Group, Inc. on or about [], 2020.

SUMMARY TERM SHEET

This Summary Term Sheet highlights selected information contained in this proxy statement. We encourage you to read carefully this entire proxy statement, including its annexes and the documents referred to or incorporated by reference in this proxy statement, as this Summary Term Sheet may not contain all of the information that may be important to you. The items in this Summary Term Sheet include page references directing you to a more complete description of that topic in this proxy statement.

Because the Merger (as defined below under “—Certain Defined Terms”) is a “going private transaction,” Cellular Biomedicine Group, Inc. and the Buyer Filing Persons (as defined below under “—Certain Defined Terms”) have filed with the U.S. Securities and Exchange Commission a Transaction Statement on Schedule 13E-3 (the “Schedule 13E-3”) with respect to the Merger. You may obtain any additional information about the Schedule 13E-3 under the caption “Where You Can Find Additional Information.

Certain Defined Terms

In this proxy statement, we refer to (i) the Agreement and Plan of Merger, dated as of August 11, 2020, by and among CBMG Holdings, CBMG Merger Sub Inc., and Cellular Biomedicine Group, Inc., as it may be amended from time to time, as the “Merger Agreement,” (ii) the merger of CBMG Merger Sub Inc. with and into Cellular Biomedicine Group, Inc. pursuant to the Merger Agreement as the “Merger,” (iii) Cellular Biomedicine Group, Inc. as “CBMG,” the “Company,” “we,” “our,” “us,” or, after giving effect to the Merger, the “Surviving Corporation,” (iv) CBMG Holdings as “Parent,” and (v) CBMG Merger Sub Inc. as “Merger Sub.” We refer to (i) the board of directors of the Company as the “Board” and the special committee consisting solely of four independent and disinterested directors of the Company as the “Special Committee.”

In this proxy statement, we also refer to (i) the U.S. Securities and Exchange Commission as the “SEC,” (ii) the Securities Act of 1933, as amended, as the “Securities Act,” and (iii) the Securities Exchange Act of 1934, as amended, as the “Exchange Act.”

In this proxy statement, we further refer to (i) Yunfeng Fund III, L.P. and Yunfeng Capital Limited, collectively, as “Yunfeng Capital,” (ii) TF Capital Ranok Ltd., TF Capital Fund III L.P., Winsor Capital Limited and TF I Ltd., collectively, as “TF Capital,” (iii) Velvet Investment Pte. Ltd. as “Velvet Investment,” (iv) Tony (Bizuo) Liu, Yihong Yao, Li (Helen) Zhang and Chengxiang (Chase) Dai, collectively, as the “Management Rollover Stockholders,” (v) the Management Rollover Stockholders, Dangdai International Group Co., Limited, Mission Right Limited, Wealth Map Holdings Limited, Earls Mill Limited, OPEA SRL, Maplebrook Limited, Full Moon Resources Limited, Viktor Pan and Zheng Zhou, collectively, as the “Consortium Rollover Stockholders,” (vi) Novartis Pharma AG as “Novartis” and, together with Novartis AG, collectively, as the



 

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“Novartis Filing Persons,” (vii) the Consortium Rollover Stockholders and Novartis as the “Rollover Stockholders,” (viii) Yunfeng Fund III, L.P., TF Capital Fund III L.P., Velvet Investment and Mr. Liu (in his capacity as an equity investor), collectively, as the “Equity Investors,” (ix) the Consortium Rollover Stockholders, the Equity Investors, Parent and Merger Sub, collectively, as the “Buyer Consortium,” (x) the Consortium Rollover Stockholders, Yunfeng Fund III, L.P., Yunfeng Capital Limited, TF Capital Fund III L.P., TF Capital Ranok Ltd., Winsor Capital Limited, TF I Ltd., Parent and Merger Sub, collectively, as the “Consortium Filing Persons,” (xi) the Consortium Filing Persons and the Novartis Filing Persons, collectively, as the “Buyer Filing Persons,” (xii) the Buyer Consortium, the Novartis Filing Persons, Yunfeng Capital Limited, TF Capital Ranok Ltd., Winsor Capital Limited and TF I Ltd., collectively, as the “Participants,” and (xiii) the holders of common stock, par value $0.001 per share, of the Company that are not affiliates of the Company, collectively, as the “unaffiliated security holders.”

All references to “dollars” and “$” in this proxy statement, including in this Summary Term Sheet, are to U.S. dollars. Unless otherwise indicated, all dates and times referenced in this proxy statement refer to Eastern Time in the United States.

The Parties Involved in the Merger (page 118)

Cellular Biomedicine Group, Inc.

Cellular Biomedicine Group, Inc. is a Delaware corporation. Originally incorporated in Arizona in 2011 and known as EastBridge Investment Group Corporation, the Company is a clinical-stage biopharmaceutical company committed to using our proprietary cell-based technologies to develop immunotherapies for the treatment of cancer and stem cell therapies for the treatment of degenerative diseases. CBMG’s principal business address is 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877, and its telephone number is +1 (301) 825-5320.

Our common stock, par value $0.001 per share (“Common Stock”), is traded on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “CBMG.” Our corporate web address is https://www.cellbiomedgroup.com. The information provided on the Company’s website is not part of this proxy statement and is not incorporated in this proxy statement by reference or by any other reference to the Company’s website provided in this proxy statement.

See “Important Information Regarding Cellular Biomedicine Group, Inc.—Company Background” beginning on page 165 and “The Parties Involved in the Merger—Cellular Biomedicine Group, Inc.” beginning on page 118 for additional information.

Additional information about CBMG is contained in its public filings, which is incorporated by reference herein. See “Where You Can Find Additional Information” beginning on page 208.

CBMG Holdings

Parent is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is a holding company formed solely for the purpose of holding the equity interest in Merger Sub, entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement, including the Merger. The registered address of Parent is c/o Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands. The principal business address of Parent is Suite 3206, One Exchange Square, 8 Connaught Place, Hong Kong, and the telephone number of Parent is +852 2516 6363.

CBMG Merger Sub Inc.

Merger Sub is a Delaware corporation and a holding company that is wholly owned by Parent and formed solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated



 

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by the Merger Agreement, including the Merger. The registered address of Merger Sub is c/o Maples Fiduciary Services (Delaware) Inc., Suite 302, 4001 Kennett Pike, County of New Castle, Wilmington, Delaware 19807. The principal business address of Merger Sub is Suite 3206, One Exchange Square, 8 Connaught Place, Hong Kong. Merger Sub is wholly owned by Parent and the telephone number of Merger Sub is +852 2516 6363.

Yunfeng Capital

Yunfeng Fund III, L.P. is an exempted limited partnership established under the laws of the Cayman Islands. Yunfeng Fund III, L.P. is an investment fund which was established for the purpose of making portfolio investments in accordance with its investment guidelines and engaging in such other activities incidental or ancillary thereto, including, without limitation, holding interests in Parent and completing the transactions contemplated by the Merger Agreement, including the Merger and the related financing transactions. Yunfeng Fund III, L.P. has not engaged in any business except for activities permitted by its exempted limited partnership agreement (the “YF Fund III LPA”), including activities incidental to its formation and in connection with the transactions contemplated by the Merger Agreement, including the Merger. The principal business address of Yunfeng Fund III, L.P. is Suite 3206, One Exchange Square, 8 Connaught Place, Central, Hong Kong and the telephone number of Yunfeng Fund III, L.P. is +852 2516 6363.

Yunfeng Investment III, Ltd. is the general partner of Yunfeng Fund III, L.P. Yunfeng Investment III, Ltd. is an exempted company with limited liability incorporated under the laws of the Cayman Islands. The principal business of Yunfeng Investment III, Ltd. is to serve as the general partner of Yunfeng Fund III, L.P. and as the general partner (or in a similar capacity) for other investment partnerships or alternative investment vehicles established pursuant to the YF Fund III LPA and to engage in other lawful businesses under applicable laws and all things necessary or incidental thereto. The principal business address of Yunfeng Investment III, Ltd. is Suite 3206, One Exchange Square, 8 Connaught Place, Central, Hong Kong and the telephone number of Yunfeng Investment III, Ltd. is +852 2516 6363.

Yunfeng Capital Limited is an exempted company with limited liability incorporated and existing under the laws of the Cayman Islands and an affiliate of Yunfeng Fund III, L.P. The registered office of Yunfeng Capital Limited is c/o Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands and the telephone number of Yunfeng Capital Limited is +852 2516 6363. The principal business of Yunfeng Capital Limited is private equity investment activities.

TF Capital

TF Capital Ranok Ltd. is a company with limited liability incorporated under the laws of the British Virgin Islands. The registered office of TF Capital Ranok Ltd. is Trinity Chambers, PO Box 4301, Road Town, Tortola, British Virgin Islands. The principal business address of TF Capital Ranok Ltd. is Unit 705, Tower 1, 88 Keyuan Road, German Center, Pudong New District, Shanghai 201203, China. The telephone number of TF Capital Ranok Ltd. is +86 21 5019 8835. The principal business of TF Capital Ranok Ltd. is private equity investment activities. TF Capital Ranok Ltd. is a wholly-owned subsidiary of TF Capital Fund III L.P.

TF Capital Fund III L.P. is an exempted limited partnership established under the laws of the Cayman Islands. The general partner of TF Capital Fund III L.P. is Taitong Fund Management Co., Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands. The registered office of each of TF Capital Fund III L.P. and Taitong Fund Management Co., Ltd. is P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The principal business address of each of TF Capital Fund III L.P. and Taitong Fund Management Co., Ltd. is Unit 705, Tower 1, 88 Keyuan Road, German Center, Pudong New District, Shanghai 201203, China. The telephone number of each of TF Capital Fund III L.P. and Taitong Fund Management Co., Ltd. is +86 21 5019 8835. The principal business of each of TF Capital Fund III L.P. and Taitong Fund Management Co., Ltd. is private equity investment activities.



 

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Winsor Capital Limited is a company with limited liability incorporated under the laws of the British Virgin Islands. The registered office of Winsor Capital Limited is c/o SHRM Trustees (BVI) Limited of Trinity Chambers, PO Box 4301, Road Town, Tortola, British Virgin Islands. The principal business address of Winsor Capital Limited is Unit 705, Tower 1, 88 Keyuan Road, German Center, Pudong New District, Shanghai 201203, China. The telephone number of Winsor Capital Limited is +86 21 5019 8835. The principal business of Winsor Capital Limited is private equity investment activities. Winsor Capital Limited is a wholly-owned subsidiary of Taitong Late Stage Fund L.P. Taitong Late Stage Fund L.P. is an affiliate of TF Capital Fund III L.P.

TF I Ltd. is a company with limited liability incorporated under the laws of the British Virgin Islands. The registered office of TF I Ltd. is c/o SHRM Trustees (BVI) Limited of Trinity Chambers, PO Box 4301, Road Town, Tortola, British Virgin Islands. The principal business address of TFI Ltd. is Unit 705, Tower 1, 88 Keyuan Road, German Center, Pudong New District, Shanghai 201203, China. The telephone number of TF I Ltd. is +86 21 5019 8835. The principal business of TF I Ltd. is private equity investment activities. TF I Ltd. is a wholly-owned subsidiary of TF Capital Fund III L.P.

Velvet Investment

Velvet Investment Pte. Ltd. is a private company limited by shares formed under the laws of Singapore. Velvet Investment Pte. Ltd. is managed by GIC Special Investments Private Limited, which is wholly-owned by GIC Private Limited. GIC Special Investments Private Limited and GIC Private Limited are private companies limited by shares organized under the laws of the Republic of Singapore. Velvet Investment Pte. Ltd.’s principal business address is 168 Robinson Road, #37-01 Capital Tower, Singapore 068912 and its telephone number is +(65) 6889-8888. The principal business of Velvet Investment Pte. Ltd. is investment holding.

Tony (Bizuo) Liu

Mr. Liu is the Chief Executive Officer, the Chief Financial Officer and a director of the Company and is a citizen of the United States of America. His principal occupation is as a director and officer of the Company. The principal business address of Mr. Liu is c/o Cellular Biomedicine Group, Inc., 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877 and his telephone number is +1 (301) 825-5320.

Other Management Rollover Stockholders

Yihong Yao

Yihong Yao is the Chief Scientific Officer of the Company and is a citizen of the United States of America. His principal business address is c/o Cellular Biomedicine Group, Inc., 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877 and his telephone number is +1 (301) 825-5320.

Li (Helen) Zhang

Li (Helen) Zhang is the Chief Production Officer of the Company and is a citizen of the United States of America. Her principal business address is c/o Cellular Biomedicine Group, Inc., 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877 and her telephone number is +1 (301) 825-5320.

Chengxiang (Chase) Dai

Chengxiang (Chase) Dai is the General Manager of the Regenerative Medicine Business Unit of the Company. Mr. Dai has been General Manager of the Regenerative Medicine Business Unit of the Company since March 2018. He is a Chinese citizen. His principal business address is c/o Cellular Biomedicine Group, Inc., 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877 and his telephone number is +1 (301) 825-5320.

Other Consortium Rollover Stockholders

Dangdai International Group Co., Limited

Dangdai International Group Co., Limited is an exempted limited company incorporated under the laws of Hong Kong. The registered office of Dangdai International Group Co., Limited is Room 2105-07, 21/F, Man Yee Building, 68 Des Voeux Road Central, Central, Hong Kong. The principal business address of Dangdai International Group Co., Limited is Room 2105-07, 21/F, Man Yee Building, 68 Des Voeux Road Central, Central, Hong Kong. The telephone number of Dangdai International Group Co., Limited is +852 3892 2700. The principal business of Dangdai International Group Co., Limited is private equity investment activities.



 

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Mission Right Limited

Mission Right Limited is a company with limited liability incorporated under the laws of the British Virgin Islands. The registered office of Mission Right Limited is Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands. The principal business address of Mission Right Limited is Rooms 4503-5, 45th floor, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong. The telephone number of Mission Right Limited is +852 2856 9300. The principal business of Mission Right Limited is investment holding. Mission Right Limited is an entity jointly controlled by Zeacome Investment Limited and Yusen Holdings Limited.

Wealth Map Holdings Limited and Earls Mill Limited

Wealth Map Holdings Limited is a company with limited liability incorporated under the laws of the British Virgin Islands. The principal business address of Wealth Map Holdings Limited is c/o Unit 2006-08, 20/F Harbour Centre, 25 Harbour Road, Wan Chai, Hong Kong. The telephone number of Wealth Map Holdings Limited is +852 2630 2000. The principal business of Wealth Map Holdings Limited is investment holding.

Earls Mill Limited is a company with limited liability incorporated under the laws of the British Virgin Islands. The principal business address of Earls Mill Limited is c/o Unit 2006-08, 20/F Harbour Centre, 25 Harbour Road, Wan Chai, Hong Kong. The telephone number of Earls Mill Limited is +852 2630 2000. The principal business of Earls Mill Limited is investment holding.

Sailing Capital Overseas Investments Fund, L.P. (“Sailing Capital”) is an exempted limited partnership established under the laws of the Cayman Islands whose registered office is c/o Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands. The principal business address of Sailing Capital is Unit 2006-08, 20/F, Harbour Centre, 25 Harbour Road, Wan Chai, Hong Kong. The telephone number of Sailing Capital is +852 2630 2000. Sailing Capital is the sole shareholder of Wealth Map Holdings Limited and James Xiao Dong Liu, the Chairman of Sailing Capital, is the sole director of Earls Mill Limited. Sailing Capital is a global private equity firm focused on investments in the healthcare, technology and consumer sectors.

The general partner of Sailing Capital is Sailing Capital Overseas Investments GP, Ltd, an exempted company with limited liability incorporated under the laws of the Cayman Islands. The registered office of Sailing Capital Overseas Investments GP, Ltd is c/o Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands. The principal business address of Sailing Capital Overseas Investments GP, Ltd is Unit 2006-08, 20/F, Harbour Centre, 25 Harbour Road, Wan Chai, Hong Kong and its telephone number is +852 2630 2000. The principal business of Sailing Capital Overseas Investments GP, Ltd is to serve as the general partner of Sailing Capital and to engage in other lawful businesses under applicable laws and all things necessary or incidental thereto.

OPEA SRL

OPEA SRL is a company limited by shares incorporated under the laws of Italy and its registered address is Via Cesare Battisti 1, 20122 Milan, Italy. The principal business address of OPEA SRL is Via Cesare Battisti 1, 20122 Milan, Italy and its telephone number is +39 02 76011178. The principal business of OPEA SRL is private equity investment.

Maplebrook Limited

Maplebrook Limited is an exempted company with limited liability incorporated under the laws of the Cayman Islands. The registered office of Maplebrook Limited is P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1 – 1205 Cayman Islands. The principal business address of



 

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Maplebrook Limited is c/o Credit Suisse Trust Limited, 1 Raffles Link #05-02 Singapore 039393. The telephone number of Maplebrook Limited is +65 6212 6000. The principal business of Maplebrook Limited is financial and private equity investment activities.

Full Moon Resources Limited

Full Moon Resources Limited is a company with limited liability incorporated under the laws of the British Virgin Islands. The registered office of Full Moon Resources Limited is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. The principal business address of Full Moon Resources Limited is Room 1902-3, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong. The telephone number of Full Moon Resources Limited is +852 3900 8282. The principal business of Full Moon Resources Limited is investment holding.

Viktor Pan

Viktor Pan serves as a Managing Director of Infotech Electronics Ind. Inc. since February 1999. Mr. Pan is a citizen of Austria. His principal business address is 6th Floor, No.273, Sec.4, Hsin-Yi Road, Taipei, Republic of China and his business telephone number is +886 2 2325 7362.

Zheng Zhou

Zheng Zhou is a retiree and is a Hong Kong citizen. His address is Flat B, 25/F, Tower 6, Marinella, 9 Welfare Road, Aberdeen, Hong Kong.

Novartis Filing Persons

Novartis Pharma AG is a corporation organized under the laws of Switzerland. The address and telephone number of the principal business office of Novartis Pharma AG is Lichtstrasse 35, 4056 Basel, Switzerland and +41 61 324 1111. The principal business of Novartis Pharma AG is developing and marketing pharmaceuticals. Novartis Pharma AG is a wholly-owned subsidiary of Novartis AG.

Novartis AG, a corporation organized under the laws of Switzerland, is the publicly owned parent of a multinational group of companies specializing in the research, development, manufacturing and marketing of healthcare products, led by innovative pharmaceuticals and also including high-quality generic pharmaceuticals. The address and telephone number of the principal business office of Novartis AG is Lichtstrasse 35, 4056 Basel, Switzerland and +41 61 324 1111.

The Special Meeting (page 123)

This proxy statement is being furnished to the Company’s stockholders as part of the solicitation of proxies by the Board for use at the special meeting to be held at [] on [], 2020 at [], or at any adjournments or postponements thereof. At the special meeting, the Company’s stockholders will be asked to consider and vote upon:

 

   

a proposal to adopt the Merger Agreement (the “Merger Agreement Proposal”). A copy of the Merger Agreement is attached as Annex A to this proxy statement.

 

   

one or more proposals to approve the adjournment 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 Proposal (the “Adjournment Proposal”).

 

   

a non-binding, advisory proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the Merger (the “Advisory Compensation Proposal”).



 

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As part of our precautions regarding the coronavirus or COVID-19 pandemic, the special meeting may be held solely by means of remote communication in a virtual format on the above date and time. If we take this step after the dissemination of this proxy statement, we intend to announce the decision to do so at least 10 days prior to the special meeting in a press release that will be available on our website, https://www.cellbiomedgroup.com. We will also file the press release with the SEC as definitive additional proxy materials. The press release and additional proxy materials will include detailed instructions as to the logistical details of the virtual meeting, including how you can remotely access, participate in and vote at such meeting. If you plan to attend the special meeting, we recommend that you monitor our website for updated information and registration details in the event we determine to hold the special meeting solely by virtual means. We encourage you to vote by proxy—by mail, by telephone or over the Internet—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend the special meeting in person.

Record Date and Quorum (page 124)

The holders of record of shares of Common Stock outstanding at the close of business on [], 2020, the record date for the special meeting (the “record date”), will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements thereof. For each matter to be voted on at the special meeting, holders of record of Common Stock are entitled to one vote for each share of Common Stock they own of record at the close of business on the record date. At the close of business on the record date, [] shares of Common Stock were outstanding.

The presence at the special meeting, in person or represented by proxy, of the holders of a majority of the shares of Common Stock outstanding at the close of business on the record date will constitute a quorum at the special meeting. At the close of business on the record date, the Consortium Rollover Stockholders owned an aggregate of [] outstanding shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock), and Novartis owned an aggregate of 1,458,257 shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock). Pursuant to the Consortium Support Agreement and the Novartis Support Agreement (each as defined in the section entitled “—Rollover and Support Agreements”), each of the Rollover Stockholders has agreed, among other things, (i) to vote, or cause to be voted, all of the shares of Common Stock owned directly or indirectly by him, her or it in favor of the Merger Agreement Proposal, and (ii) until the earlier of the closing of the Merger and the termination of the Merger Agreement, not to, directly or indirectly, transfer any shares of Common Stock owned by him, her or it. Accordingly, assuming the Rollover Stockholders comply with their respective obligations under the applicable Rollover and Support Agreement, the presence of the shares of Common Stock owned by the Rollover Stockholders at the special meeting would ensure a quorum at the special meeting.

Required Vote (page 125)

The Merger cannot be consummated unless the Merger Agreement is adopted by the affirmative vote of the holders of (i) at least a majority of the shares of Common Stock outstanding at the close of business on the record date and (ii) at least a majority of the shares of Common Stock outstanding at the close of business on the record date excluding the votes of the Participants and their respective affiliates, in each case, in accordance with applicable law and the organizational documents of the Company (the approval described in the foregoing clause (ii), the “Company Majority of the Minority Stockholder Approval” and, the approvals described in the foregoing clauses (i) and (ii), collectively, the “Company Stockholder Approval”). Consummation of the Merger does not require approval of a majority of the shares of Common Stock held by all unaffiliated security holders because, although the votes of the Participants and their respective affiliates are excluded, the votes of our directors (other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) and officers (other than the Management Rollover Stockholders) are included. Given that [] shares of Common Stock owned by the Company’s stockholders other than the Participants and their respective affiliates were outstanding at the close of business on the record date,



 

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[] shares of Common Stock owned by such stockholders other than the Participants and their respective affiliates must be voted in favor of the Merger Agreement Proposal in order for the Merger Agreement Proposal to be approved.

Assuming a quorum exists, approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the shares of Common Stock outstanding at the close of business on the record date that are present in person or represented by proxy at the special meeting.

Assuming a quorum exists, approval of the Advisory Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of Common Stock outstanding at the close of business on the record date that are present in person or represented by proxy at the special meeting.

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger (page 60)

The Special Committee unanimously (i) determined that the terms of the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (ii) directed that the Merger Agreement be submitted to the Board for its approval and recommendation that the Company’s stockholders adopt the Merger Agreement, and (iii) recommended that the Board (a) approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, (b) declare that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (c) authorize and approve the Company’s entry into the Merger Agreement and consummation of the transactions contemplated thereby, including the Merger, (d) submit the adoption of the Merger Agreement for consideration by the Company’s stockholders at a meeting of the stockholders of the Company, and (e) recommend that the Company’s stockholders vote in favor of the adoption of the Merger Agreement.

The Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium), acting on behalf of the Company and upon the unanimous recommendation of the Special Committee with respect to the Merger Agreement and the transactions contemplated thereby, including the Merger, unanimously (i) determined that the Merger Agreement and other transaction documents and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (ii) authorized and approved the execution, delivery and performance by the Company of the Merger Agreement and other transaction documents and consummation of the transactions contemplated thereby, including the Merger, and (iii) directed that the Merger Agreement be submitted for adoption by the Company’s stockholders and recommended that the Company’s stockholders vote in favor of the adoption of the Merger Agreement.

Accordingly, the Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium) unanimously recommends that the stockholders of the Company vote “FOR” the Merger Agreement Proposal, “FOR” the Adjournment Proposal and “FOR” the Advisory Compensation Proposal.

For descriptions of the reasons considered and fairness determination made by the Special Committee and the Board in determining to recommend approval of the Merger Agreement Proposal, see “Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger” beginning on page 60.



 

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Purposes of the Company for the Merger (page 78)

The Company’s purpose for engaging in the Merger is to enable its stockholders to realize the value of their investment in the Company through their receipt of $19.75 per share of Common Stock in cash (the “Per Share Merger Consideration”), which represents:

 

   

a premium of approximately 31.9% over the closing price per share of Common Stock on August 10, 2020, the last full trading day before the Special Committee’s initial determination to recommend that the Board approve, adopt and declare advisable the Merger Agreement and the transactions contemplated thereby;

 

   

a premium of approximately 42.5% over the closing price per share of Common Stock seven days prior to August 10, 2020;

 

   

a premium of approximately 32.6% over the closing price per share of Common Stock 30 days prior to August 10, 2020;

 

   

a premium of approximately 36.9% over the closing price per share of Common Stock 90 days prior to August 10, 2020;

 

   

a premium of approximately 4% over the 52-week intraday high for the period ending on August 10, 2020;

 

   

a premium of approximately 79.9% over the 52-week intraday low for the period ending on August 10, 2020; and

 

   

a premium of approximately 11.8% over the closing price per share of Common Stock on November 8, 2019, the last trading day before the date of the November 11 Proposal (as defined in the section entitled “Special Factors—Background of the Merger” beginning on page 33).

For a further description of the Company’s purpose for engaging in the Merger, see “Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger” beginning on page 60 and “Special Factors—Purposes and Reasons of the Company for the Merger” beginning on page 78.

Opinion of Jefferies LLC (page 69 and Annex B)

The Company has retained Jefferies LLC (“Jefferies”) as the financial advisor to the Special Committee. In connection with this engagement, the Special Committee requested that Jefferies evaluate the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by holders of shares of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) pursuant to the Merger Agreement. At a meeting of the Special Committee held on August 10, 2020 to evaluate the Merger, Jefferies rendered its opinion to the Special Committee to the effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as described in its opinion, the Per Share Merger Consideration to be received by holders of shares of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.

The full text of Jefferies’ opinion, which describes various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Jefferies, is attached as Annex B to this proxy statement and is incorporated herein by reference. Jefferies’ opinion was provided for the use and benefit of the Special Committee (in its capacity as such) in its consideration of the Merger and did not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor did it address the



 

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underlying business decision by the Company to engage in the Merger or the terms of the Merger Agreement (other than the Per Share Merger Consideration to the extent expressly specified therein) or the documents referred to therein. Jefferies’ opinion did not constitute a recommendation as to how any holder of shares of Common Stock should vote on the Merger or any matter related thereto. See “Special FactorsOpinion of Jefferies LLC” beginning on page 69.

Position of the Buyer Filing Persons as to the Fairness of the Merger (page 79)

Each of the Buyer Filing Persons believes that the transactions contemplated by the Merger Agreement, including the Merger, are substantively and procedurally fair to the unaffiliated security holders. Their belief is based upon the factors discussed under the section entitled “Special Factors—Position of the Buyer Filing Persons as to the Fairness of the Merger” beginning on page 79.

Structure of the Merger

If the conditions to the parties’ obligations to consummate the Merger are satisfied or, if permitted, waived, Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly-owned subsidiary of Parent. As a result of the Merger, the Company will cease to be a publicly traded company and will instead be a wholly-owned subsidiary of Parent and, through Parent, beneficially owned by the Equity Investors and the Rollover Stockholders.

Merger Consideration

If the Merger is consummated, each share of Common Stock outstanding immediately prior to the effective time of the Merger (other than (i) shares of Common Stock owned by Parent, Merger Sub or any other direct or indirect wholly-owned subsidiary of Parent and shares of Common Stock owned by the Company, (ii) the Consortium Rollover Shares and the Novartis Rollover Shares (each as defined below under “—Rollover and Support Agreements”), and (iii) shares of Common Stock owned by stockholders who are entitled to, and who have timely perfected and have not withdrawn a demand for (or lost their right to), appraisal rights pursuant to Section 262 of the General Corporation Law of the State of Delaware (the “DGCL” and, the shares described in clauses (i) through (iii), collectively, the “Excluded Shares”) will be converted into the right to receive $19.75 in cash, without interest and subject to any applicable withholding taxes.

Treatment of Company Equity Awards (page 94)

Vested Company Equity Awards

The vested Stock Options, RSUs and PSUs (in each case, as defined below in this section) are referred to in this proxy statement as “Vested Company Equity Awards.” Certain outstanding equity awards granted under the Company’s 2014 Equity Incentive Plan, as amended, and the Company’s 2011 Incentive Stock Option Plan, as amended, will vest immediately prior to the Merger pursuant to their terms, and therefore will (unless otherwise agreed between the applicable holder and Parent) be treated as Vested Company Equity Awards in connection with the Merger.

Except as otherwise agreed to in writing between a holder of a Vested Company Equity Award and Parent, each outstanding Vested Company Equity Award will automatically be canceled immediately prior to the effective time of the Merger and will entitle its holder to receive (without interest) from the Surviving Corporation, as promptly as practicable after the effective time of the Merger:

(i) for each vested outstanding and unexercised option to purchase shares of Common Stock (“Stock Option”), an amount in cash equal to (A) the total number of shares of Common Stock subject to such Stock



 

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Option immediately prior to the effective time of the Merger multiplied by (B) the excess, if any, of the Per Share Merger Consideration over the exercise price per share of Common Stock under such Stock Option (subject to any applicable withholding taxes). Any vested Stock Option which has an exercise price per share of Common Stock that is greater than or equal to the Per Share Merger Consideration will be canceled at the effective time of the Merger for no consideration or payment, unless otherwise agreed to in writing between a holder of such vested Stock Option and Parent;

(ii) for each vested Company time-vesting restricted stock unit (“RSU”), an amount in cash equal to (A) the total number of shares of Common Stock subject to such vested RSU immediately prior to the effective time of the Merger multiplied by (B) the Per Share Merger Consideration (subject to any applicable withholding taxes); and

(iii) for each vested Company performance-vesting restricted stock unit (“PSU”), an amount in cash equal to (A) the number of shares of Common Stock subject to such vested PSU, calculated based on actual performance achieved in accordance with the terms of each vested PSU, immediately prior to the effective time of the Merger multiplied by (B) the Per Share Merger Consideration (subject to any applicable withholding taxes).

The Buyer Consortium expects to enter into arrangements with certain holders of Vested Company Equity Awards that provide for the rollover of such awards into ordinary shares of Parent.

Unvested Company Equity Awards

Except as otherwise agreed to in writing between a holder of an Unvested Company Equity Award (as defined below in this section) and Parent, each Unvested Company Equity Award outstanding immediately prior to the effective time of the Merger will be assumed by Parent as an equity award of the same type covering ordinary shares of Parent and will continue to have, and be subject to, the same terms and conditions (including vesting terms) set forth in the Company equity plan under which it was granted and the equity award agreements relating thereto, as in effect immediately prior to the effective time of the Merger, except that (i) the number of ordinary shares of Parent covered by each such assumed equity award will equal the number of shares of Common Stock subject to such equity award, multiplied by the Exchange Ratio (as defined below in this section), with the result rounded down to the nearest whole share, and (ii) the per share exercise price for the ordinary shares of Parent issuable upon exercise of an assumed equity award that is a Stock Option will be equal to the quotient obtained by dividing the exercise price per share of Common Stock at which such assumed equity award was exercisable immediately prior to the effective time of the Merger by the Exchange Ratio, rounded up to the nearest whole cent. The unvested Stock Options, RSUs and PSUs are referred to in this proxy statement as “Unvested Company Equity Awards.” The “Exchange Ratio” is the ratio of the Per Share Merger Consideration divided by the fair market value of one ordinary share of Parent as of the date the Merger is consummated. For a further description of the treatment of Stock Options, RSUs and PSUs in the Merger, see “Special Factors—Interests of Certain Persons in the Merger—Treatment of Company Equity Awards” beginning on page 94 and “The Merger Agreement—Treatment of Company Equity Awards” beginning on page 134.

Intent of the Company’s Directors and Executive Officers to Vote in Favor of the Merger (page 92)

Our directors and executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of the shares of Common Stock owned directly by them in favor of the Merger Agreement Proposal and each of the other proposals listed in this proxy statement. At the close of business on the record date, (i) our directors and executive officers directly owned, in the aggregate, [] shares of Common Stock, or approximately []% of the outstanding shares of Common Stock, and (ii) our directors (other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) and executive officers (other than the Management Rollover Stockholders) directly owned, in the aggregate, [] shares of Common Stock, or approximately []% of the outstanding shares of Common Stock.



 

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The affirmative votes by our directors (other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) and executive officers (other than the Management Rollover Stockholders) will count towards the Company Majority of the Minority Stockholder Approval. However, shares of Common Stock held by Tony (Bizuo) Liu, Darren O’Brien, Hansheng Zhou and the Management Rollover Stockholders will not count towards the Company Majority of the Minority Stockholder Approval, but their votes will count towards the affirmative votes to approve the Adjournment Proposal and the Advisory Compensation Proposal.

Interests of the Company’s Directors and Executive Officers in the Merger (page 92)

In considering the recommendations of the Special Committee and of the Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium) that you vote to approve the Merger Agreement Proposal, you should be aware that, aside from their interests as stockholders of the Company, the Company’s directors and executive officers (including Messrs. Liu and Yao, who are also Rollover Stockholders) have interests in the Merger that are different from, or in addition to, those of other stockholders of the Company. The members of the Special Committee were aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in making recommendations to the Board, which was also aware of and took into account these interests, among other matters, when making its recommendation to the stockholders of the Company that the Merger Agreement Proposal be approved. For additional details, see “Special FactorsInterests of Certain Persons in the Merger” beginning on page 92 and “Special FactorsGolden Parachute Compensation” beginning on page 98.

Financing for the Merger (page 102)

The Company and the Buyer Consortium estimate that the total amount of funds necessary to complete the transactions contemplated by the Merger Agreement, including (i) the cash payment of the Per Share Merger Consideration to holders of Common Stock (other than the Excluded Shares), (ii) the cash payment to holders of Vested Company Equity Awards, and (iii) fees and expenses in connection with the Merger, is approximately $210 million, assuming no exercise of appraisal rights by stockholders of the Company. In calculating this amount, the Company and the Buyer Consortium did not consider the value of the Excluded Shares, which will be canceled for no consideration pursuant to the Merger Agreement. The Buyer Consortium expects to provide this amount through cash contributions as contemplated by certain equity commitment letters, dated as of August 11, 2020, between Parent and each of Mr. Liu, Yunfeng Fund III, L.P., TF Capital Fund III L.P., and Velvet Investment Pte. Ltd., respectively (collectively, the “Equity Commitment Letters”).

As of the date of this proxy statement, there are no alternative financing arrangements or plans in place to acquire the funds necessary for the transactions contemplated by the Merger Agreement, including the Merger. See “Special Factors—Financing for the Merger” beginning on page 102 for additional information.

Equity Commitment Letters (page 102)

Pursuant to the Equity Commitment Letters, the Equity Investors have committed, subject to the terms and conditions therein, to purchase, or cause the purchase of, equity interests of Parent, at or prior to the closing of the Merger, in an aggregate cash amount of $210 million. The amount of each Equity Investor’s equity commitment under its respective Equity Commitment Letter is $10 million by Mr. Liu, $105 million by Yunfeng Fund III, L.P., $65 million by TF Capital Fund III L.P., and $30 million by Velvet Investment Pte. Ltd., in each case with such funds to be used by Parent solely for the purpose of financing the transactions contemplated by the Merger Agreement, including the Merger and other transaction costs and expenses. See “Special Factors—Financing for the Merger—Equity Commitment Letters” beginning on page 102 for additional information.



 

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Limited Guarantees (page 103)

Concurrently with the execution and delivery of the Merger Agreement, the Company and each of the Equity Investors entered into a limited guarantee, dated as of August 11, 2020, in favor of the Company (each, a “Limited Guarantee,” and, collectively, the “Limited Guarantees”). Under its respective Limited Guarantee, each Equity Investor has guaranteed, subject to the terms and conditions set forth therein, in favor of the Company a portion of the payment obligations of Parent under the Merger Agreement for the Parent Termination Fee (as defined below under “—Termination Fees”) and certain costs and expenses that may become payable to the Company by Parent under certain circumstances as set forth in the Merger Agreement. See “Special Factors—Financing for the Merger—Limited Guarantees” beginning on page 102 for additional information.

Rollover and Support Agreements (page 103)

Consortium Support Agreement (page 103)

Concurrently with the execution and delivery of the Merger Agreement, the Consortium Rollover Stockholders entered into a certain Rollover and Support Agreement (the “Consortium Support Agreement”) with Parent, pursuant to which each Consortium Rollover Stockholder has agreed, among other things, (i) to vote, or cause to be voted, all of the shares of Common Stock owned directly or indirectly by him, her or it in favor of the adoption of the Merger Agreement and the approval of the Merger and the other transactions contemplated by the Merger Agreement, and against any competing transaction or any action or transaction that could reasonably be expected to interfere with, delay or adversely affect the Merger Agreement and the transactions contemplated thereby, and (ii) that certain shares of Common Stock owned by each Consortium Rollover Stockholder (the “Consortium Rollover Shares”) will, in connection with and at the closing of the Merger, be canceled without any payment of, or the right to receive, the Per Share Merger Consideration. Certain other shares of Common Stock held by certain Consortium Rollover Stockholders will be canceled at the effective time of the Merger in exchange for the right to receive the Per Share Merger Consideration, as specified in the Consortium Support Agreement. In consideration for the cancellation of its Consortium Rollover Shares, each of the Consortium Rollover Stockholders will receive, immediately prior to the closing of the Merger, a number of newly issued ordinary shares of Parent equal to its respective number of Consortium Rollover Shares that are canceled in such manner at the closing of the Merger. Until the earlier of the closing of the Merger and the termination of the Merger Agreement pursuant to and in compliance with the terms therein, each of the Rollover Stockholders has agreed not to, without the prior written consent of Parent and the Board (at the direction of the Special Committee), directly or indirectly, transfer any shares of Common Stock owned by him, her or it.

At the close of business on the record date, the Consortium Rollover Stockholders owned an aggregate of [] outstanding shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock), of which [●] shares of Common Stock were Consortium Rollover Shares. Together with shares of Common Stock that are unissued as of the date of this proxy statement and that underlie certain Company equity awards subject to vesting and exercise immediately prior to the closing of the Merger that will be treated as Consortium Rollover Shares under the Consortium Support Agreement, it is contemplated that the total number of the Rollover Shares of the Rollover Stockholders at the closing of the Merger will be 10,232,704 shares of Common Stock. See “Special Factors—Rollover and Support Agreements—Consortium Support Agreement” beginning on page 103 for additional information.

Novartis Support Agreement (page 105)

Concurrently with the execution and delivery of the Merger Agreement, Novartis entered into a certain Rollover and Support Agreement (the “Novartis Support Agreement”) with Parent, pursuant to which, Novartis has agreed, among other things, (i) to vote, or cause to be voted, all of the shares of Common Stock owned



 

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directly or indirectly by Novartis (the “Novartis Rollover Shares” and, together with the Consortium Rollover Shares, the “Rollover Shares”) in favor of the adoption of the Merger Agreement and the approval of the Merger and the other transactions contemplated by the Merger Agreement, and against any competing transaction or any action or other transaction that could reasonably be expected to interfere with, delay or adversely affect the Merger Agreement and the transactions contemplated by the Merger Agreement, and (ii) that the Novartis Rollover Shares will, at the closing of the Merger, be canceled without any payment of, or the right to receive, the Per Share Merger Consideration. In consideration for the cancellation of the Novartis Rollover Shares, Novartis will receive, immediately prior to the closing of the Merger, a number of newly issued ordinary shares of Parent equal to the number of the Novartis Rollover Shares held by Novartis that are canceled in such manner at the closing of the Merger. Until the earlier of the closing of the Merger and the termination of the Merger Agreement pursuant to and in compliance with the terms therein, Novartis has agreed not to, without the prior written consent of Parent and the Board (at the direction of the Special Committee), directly or indirectly, transfer any shares of Common Stock owned by it.

At the close of business on the record date, Novartis owned an aggregate of 1,458,257 shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock), of which each share owned by Novartis is a “Novartis Rollover Share.” See “Special Factors—Rollover and Support Agreements—Novartis Support Agreement” beginning on page 105 for additional information.

Interim Investors Agreement (page 106)

Concurrently with the execution and delivery of the Merger Agreement, the Consortium Rollover Stockholders, the Equity Investors, Parent and Merger Sub entered into an interim investors agreement (the “Interim Investors Agreement”), which governs the relationship among the parties thereto with respect to the Merger Agreement and matters relating thereto until the termination of the Merger Agreement or the consummation of the Merger. The Interim Investors Agreement provides for, among other things, subject to certain limitations or exceptions therein, (i) the mechanism for making decisions relating to the equity financing of the Merger by the Buyer Consortium pending consummation of the Merger, (ii) the mechanism for making decisions relating to the Merger Agreement and ancillary agreements pending consummation of the Merger, and (iii) the arrangement for the sharing of certain fees and expenses among the Buyer Consortium. See “Special Factors—Interim Investors Agreement” beginning on page 106 for additional information.

Bridge Loan Agreements (page 106)

Amendment Letter to TF Bridge Loan Agreement (page 106)

On January 28, 2020, the Company and Winsor Capital Limited, an affiliate of TF Capital Fund III L.P., entered into a Bridge Loan Agreement (the “TF Bridge Loan Agreement”) pursuant to which Winsor Capital Limited agreed to provide an unsecured loan to the Company in an aggregate principal amount of $16 million in three tranches at a simple interest rate of 6% per annum (the “TF Bridge Loan”). Concurrently with the execution and delivery of the Merger Agreement, the Company and Winsor Capital Limited entered into an Amendment Letter (the “Amendment Letter”) in connection with the TF Bridge Loan Agreement. Pursuant to the TF Bridge Loan Agreement, as amended by the Amendment Letter, the Company and Winsor Capital Limited have agreed to revise the terms of the TF Bridge Loan to provide for a new maturity date for all tranches thereunder, which will be the earlier of (i) August 7, 2021 and (ii) the occurrence of an event of default (as specified in the TF Note (as defined in the section entitled “Special Factors—Amendment Letter to TF Bridge Loan Agreement” beginning on page 106) unless any such event of default has been remedied by the end of the applicable grace period. See “Special Factors—Amendment Letter to TF Bridge Loan Agreement” beginning on page 106 for additional information.



 

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Yunfeng Bridge Loan Agreement (page 107)

Concurrently with the execution and delivery of the Merger Agreement, the Company entered into a Bridge Loan Agreement (the “Yunfeng Bridge Loan Agreement”) with Yunfeng Capital Limited, an affiliate of Yunfeng Fund III, L.P., pursuant to which Yunfeng Capital Limited agreed to provide an unsecured loan to the Company in an aggregate principal amount of $25 million at a simple interest rate of 6% per annum (the “Yunfeng Bridge Loan”). The Company is required to repay all unpaid principal of the Yunfeng Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the convertible promissory note issued pursuant to the terms of the Yunfeng Bridge Loan Agreement (the “Yunfeng Loan Note”), the form of which is attached as Exhibit A to the Yunfeng Bridge Loan Agreement), unless any such event of default has been remedied by the end of the applicable grace period. See “Special Factors—Yunfeng Bridge Loan Agreement” beginning on page 107 for additional information.

Second TF Bridge Loan Agreement (page 107)

On October 23, 2020, the Company entered into a Bridge Loan Agreement (the “Second TF Bridge Loan Agreement”) with TF I Ltd., an affiliate of TF Capital Ranok Ltd., pursuant to which TF I Ltd. agreed to provide an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum (the “Second TF Bridge Loan”). The Company is required to repay all unpaid principal of the Second TF Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021 and (ii) the occurrence of an event of default (as specified in the convertible promissory note issued pursuant to the terms of the Second TF Bridge Loan Agreement in the form attached as Exhibit A to the Second TF Bridge Loan Agreement (the “Second TF Loan Note”)), unless any such event of default has been remedied by the end of the applicable grace period. See “Special Factors—Second TF Bridge Loan Agreement” beginning on page 107 for additional information.

Second Yunfeng Bridge Loan Agreement (page 107)

On October 23, 2020, the Company entered into a Bridge Loan Agreement (the “Second Yunfeng Bridge Loan Agreement”) with Yunfeng Capital Limited, pursuant to which Yunfeng Capital Limited agreed to provide an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum (the “Second Yunfeng Bridge Loan”). The Company is required to repay all unpaid principal of the Second Yunfeng Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the convertible promissory note issued pursuant to the terms of the Second Yunfeng Bridge Loan Agreement in the form attached as Exhibit A to the Second Yunfeng Bridge Loan Agreement (the “Second Yunfeng Loan Note”)), unless any such event of default has been remedied by the end of the applicable grace period. See “Special Factors—Second Yunfeng Bridge Loan Agreement” beginning on page 107 for additional information.

In connection with the execution and delivery of the Second TF Bridge Loan Agreement and the Second Yunfeng Bridge Loan Agreement, on October 23, 2020, Parent and the Company entered into a consent letter (the “Consent Letter”), pursuant to which Parent (i) consented to the execution by the Company of the Second TF Bridge Loan Agreement and the Second Yunfeng Bridge Loan Agreement and the consummation of the transactions contemplated thereby, including the Second TF Bridge Loan and the Second Yunfeng Bridge Loan, and (ii) acknowledged that the Second TF Bridge Loan and the Second Yunfeng Bridge Loan do not constitute “indebtedness” for purposes of the limitation on the Company’s ability to incur indebtedness prior to the closing of the Merger.



 

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CFIUS Clearance (page 109)

The obligations of each party to consummate the Merger are subject to, among other things, receipt of the CFIUS Clearance (as defined in the section entitled “The Merger Agreement—Conditions to the Merger” beginning on page 151).

Prior to the closing of the Merger, Parent, Merger Sub and the Company have agreed to use their respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under any applicable laws to consummate and make effective the Merger and the other transactions contemplated by the Merger Agreement as soon as practicable. In furtherance of this obligation, the Company and Parent have agreed, as promptly as practicable after the date of the Merger Agreement, to prepare and file with the Committee on Foreign Investment in the United States (“CFIUS”) a declaration pursuant to 31 C.F.R. § 800.402 (the “CFIUS Declaration”). The CFIUS Declaration was submitted by the parties on August 25, 2020 and was accepted by CFIUS on August 27, 2020.

The Company and Parent have also agreed to promptly prepare and submit a joint voluntary notice to CFIUS pursuant to 31 C.F.R. § 800.401(a) (a “Joint Voluntary Notice”) following CFIUS’ review of the CFIUS Declaration, and use their respective reasonable best efforts to respond as promptly as practicable to any information request from CFIUS in connection with the CFIUS assessment, review or investigation of the Merger, in the event that any of the following three conditions are met: (i) CFIUS requests that the Company and/or Parent submit a Joint Voluntary Notice; (ii) CFIUS initiates a unilateral review of the Merger; or (iii) the Company and Parent mutually agree to file a Joint Voluntary Notice after CFIUS is not able to conclude action at the conclusion of the 30-day declaration assessment period described in 31 C.F.R. § 800.405 with respect to the Merger. The parties have agreed that they will not submit a Joint Voluntary Notice under any other circumstances. On September 25, 2020, CFIUS requested that the parties to the CFIUS Declaration file a Joint Voluntary Notice regarding the Merger, and indicated that if the parties do not file a Joint Voluntary Notice, CFIUS may use other authorities available to it, including, without limitation, initiating a unilateral review of the Merger.

The Joint Voluntary Notice was submitted by the parties on October 21, 2020 and was accepted by CFIUS on October 28, 2020. In accordance with the letter of acceptance from CFIUS, the 45-day initial review period commenced on October 29, 2020 and will conclude no later than December 14, 2020. See “Special FactorsCFIUS Clearance” beginning on page 109 and “The Merger AgreementCFIUS Clearance” beginning on page  148 for additional information.

Conditions to the Merger (page 151)

The obligations of each party to consummate the Merger are subject to the satisfaction or waiver (to the extent permitted by applicable law and other than receipt of the Company Stockholder Approval, which may not be waived by either party) of the following conditions:

 

   

receipt of the Company Stockholder Approval;

 

   

receipt of the CFIUS Clearance; and

 

   

no order (whether temporary, preliminary or permanent) or proceeding having been issued, and no law having been enacted, issued, entered, promulgated or enforced, by any governmental entity of competent jurisdiction that restrains, enjoins or otherwise prohibits or makes illegal the consummation of the Merger and continues to be in effect.



 

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In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of the following conditions:

 

   

the accuracy of the Company’s representations and warranties contained in the Merger Agreement (subject to certain materiality qualifiers) (as further described in the section entitled “The Merger Agreement—Conditions to the Merger” beginning on page 151);

 

   

the Company having performed in all material respects all of its obligations under the Merger Agreement on or prior to the closing date of the Merger;

 

   

the absence of any development, fact, change, event, effect, occurrence or circumstance since August 11, 2020 that has or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect (as defined in the section entitled “The Merger Agreement—Representations and Warranties” beginning on page 135); and

 

   

Parent having received a certificate of the Company, dated as of the closing date of the Merger, signed by an officer of the Company certifying the fulfillment of the above conditions.

In addition, the obligations of the Company to consummate the Merger are subject to the satisfaction or waiver of the following conditions:

 

   

the accuracy of Parent’s and Merger Sub’s representations and warranties contained in the Merger Agreement (subject to certain materiality qualifiers) (as further described in the section entitled “The Merger Agreement—Conditions to the Merger” beginning on page 151);

 

   

each of Parent and Merger Sub having performed in all material respects all of their obligations under the Merger Agreement on or prior to the closing date of the Merger; and

 

   

the Company having received a certificate of Parent, dated as of the closing date of the Merger, signed by an officer of Parent, certifying the fulfillment of the above conditions.

Go-Shop Period; Solicitation of Acquisition Proposals (page 142)

Beginning on August 11, 2020 until 11:59 p.m., New York time, on September 10, 2020 (the “Go-Shop Period”), the Company and its subsidiaries and their respective officers, directors, employees, consultants, agents, financial advisors, attorneys, accountants, other advisors, affiliates and other representatives (“representatives”) had the right (acting under the direction of the Special Committee), subject to compliance with applicable terms and conditions of the Merger Agreement, to, directly or indirectly, solicit, initiate, facilitate and encourage, whether publicly or otherwise, Acquisition Proposals (as defined in the section entitled “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals” beginning on page 142) and enter into, engage in and maintain discussions or negotiations with any persons or groups of persons, or its or their representatives and financing sources, with respect to Acquisition Proposals (or inquiries, proposals or offers or other efforts or attempts that may reasonably be expected to lead to an Acquisition Proposal), and otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, offers, efforts, attempts, discussions or negotiations.

Except as expressly permitted under the Merger Agreement, from 12:00 a.m. on September 11, 2020 (the “No-Shop Period Start Date”) until the effective time of the Merger, or, if earlier, the termination of the Merger Agreement, the Company has agreed that the Company and its subsidiaries will not, and will cause each of its subsidiaries and will use commercially reasonable efforts to cause its and their respective representatives not to (and will not authorize or knowingly give permission to its and their respective representatives to), directly or indirectly:

 

   

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announcement of a proposal or offer that constitutes or that could reasonably be expected to lead to an Acquisition Proposal;

 

   

engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other person any non-public information in connection with or for the purpose of encouraging or facilitating, any Acquisition Proposal;

 

   

approve, endorse or recommend, or propose publicly to approve, endorse or recommend, any Acquisition Proposal;

 

   

enter into any Alternative Acquisition Agreement (as defined in the section entitled “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals” beginning on page 142);

 

   

take any action to make the provisions of any takeover law or any restrictive provision of any applicable anti-takeover provision in the organizational documents of the Company inapplicable to any transactions contemplated by any Acquisition Proposal; or

 

   

authorize, commit to or agree to do any of the foregoing.

Notwithstanding anything to the contrary in the foregoing paragraphs, if at any time after the No-Shop Period Start Date and prior to receipt of the Company Stockholder Approval, the Company or any of its representatives receives an Acquisition Proposal from any person or group of persons, which Acquisition Proposal did not result from any breach of the non-solicitation provisions of the Merger Agreement:

 

   

the Company and its representatives may contact and engage in discussions with such person or group of persons making the Acquisition Proposal or its or their representatives and financing sources solely to clarify the terms and conditions thereof or to request that any Acquisition Proposal made orally be made in writing or to notify such person or group of persons or its or their representatives of the applicable provisions of the Merger Agreement; and

 

   

if the Special Committee determines in good faith, after consultation with its financial advisor and outside legal counsel, that such Acquisition Proposal constitutes or would reasonably be expected to lead to a Superior Proposal (as defined in the section entitled “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals” beginning on page 142), then the Company and its representatives may, subject to their compliance with certain obligations set forth in the Merger Agreement, (i) furnish, pursuant to an acceptable confidentiality agreement, information with respect to the Company and its subsidiaries to the person or group of persons making such Acquisition Proposal and its or their respective representatives and financing sources and (ii) engage in or otherwise participate in discussions or negotiations with the person or group of persons making such Acquisition Proposal and its or their representatives.

See “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals” beginning on page 142 for additional information.

Adverse Recommendation Change (page 145)

Prior to receipt of the Company Stockholder Approval, the Board may, in response to a Superior Proposal (as defined in the section entitled “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals” beginning on page 142) or an Intervening Event (as defined in the section entitled “The Merger Agreement—Adverse Recommendation Change” beginning on page 145) make an Adverse Recommendation Change (as defined in the section entitled “The Merger Agreement—Adverse Recommendation Change” beginning on page 145) if, among other things, the Special Committee has determined in good faith, after consultation with its financial advisor and outside legal counsel, that failure to take such action would be reasonably likely to be inconsistent with the directors’ fiduciary duties under applicable law. See “The Merger Agreement—Adverse Recommendation Change” beginning on page 145.



 

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Termination of the Merger Agreement (page 152)

The Company (upon the recommendation of the Special Committee) and Parent, by mutual written consent, may terminate the Merger Agreement and abandon the Merger at any time prior to the effective time of the Merger, whether before or after receipt of the Company Stockholder Approval.

Either the Company (upon the recommendation of the Special Committee) or Parent may terminate the Merger Agreement and abandon the Merger at any time prior to the effective time of the Merger if:

 

   

the Merger has not been consummated by March 10, 2021, which date may be extended by two months by either Parent or the Company (upon the recommendation of the Special Committee) if CFIUS Clearance has not been received but all other conditions to the closing of the Merger have been satisfied or waived (other than those conditions that by their nature are to be satisfied or waived at the closing of the Merger (so long as such conditions are reasonably capable of being satisfied)) and such party seeking to extend has complied in all material respects with its obligations to use reasonable best efforts to consummate the Merger, including to use reasonable best efforts to obtain CFIUS Clearance (such date, as it may be extended, the “Outside Date,” and, such termination right, an “Outside Date Termination”);

 

   

the special meeting has been held and the Company Stockholder Approval has not been obtained at such special meeting or at any adjournments or postponements thereof (a “Stockholder Vote Termination”);

 

   

any order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger has become final and non-appealable (whether before or after the Company Stockholder Approval is obtained) (a “Restraints Termination”); or

 

   

(i) the President of the United States publicly announces a decision to suspend or prohibit the Merger pursuant to the DPA (as defined in the section entitled “The Merger Agreement—Conditions to the Merger” beginning on page 151) or (ii) after CFIUS notifies Parent or the Company in writing that CFIUS intends to send a report to the President of the United States recommending that the President of the United States act to suspend or prohibit the Merger pursuant to the DPA, Parent determines in good faith that the condition relating to CFIUS Clearance is unlikely to be satisfied on terms that do not give rise to a Burdensome Condition (as defined in the section entitled “Merger Agreement—CFIUS Clearance” beginning on page 148) and provides the Company with written notice of such determination (a “CFIUS Termination”).

The Company (upon the recommendation of the Special Committee) may terminate the Merger Agreement and abandon the Merger:

 

   

prior to receipt of the Company Stockholder Approval, in order to concurrently enter into an Alternative Acquisition Agreement that constitutes a Superior Proposal, if (i) the Company and its representatives have complied in all material respects with the requirements of the non-solicitation provisions of the Merger Agreement and (ii) the Company immediately prior to, or concurrently with, such termination pays to Parent in immediately available funds the applicable Termination Fee (as described below under “—Termination Fees”) (a “Superior Proposal Termination”);

 

   

prior to the effective time of the Merger, Parent or Merger Sub has breached any representation, warranty, covenant or agreement made by Parent or Merger Sub in the Merger Agreement such that certain closing conditions specifically set forth in the Merger Agreement would not be satisfied, and such breach or failure of a condition is not curable or, if curable, is not cured prior to the earlier of (i) the 30th day after written notice thereof is given by the Company to Parent and (ii) the date that is two business days prior to the Outside Date (a “Parent Breach Termination”); or



 

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prior to the effective time of the Merger, if all of the conditions to Parent’s obligation to consummate the Merger have been satisfied (other than those conditions that by their nature cannot be satisfied other than at the closing of the Merger) and Parent and Merger Sub fail to consummate the transactions contemplated by the Merger Agreement on the date the closing of the Merger should have occurred pursuant to the terms of the Merger Agreement if the Company has previously given to Parent three days’ written notice of its intention to terminate the Merger Agreement (a “Parent Closing Failure Termination”).

Parent may terminate the Merger Agreement and abandon the Merger if:

 

   

prior to receipt of the Company Stockholder Approval, the Board or any committee thereof (including the Special Committee) has made an Adverse Recommendation Change (an “Adverse Recommendation Change Termination”); or

 

   

prior to the effective time of the Merger, the Company has breached any representation, warranty, covenant or agreement made by the Company in the Merger Agreement such that certain closing conditions specifically set forth in the Merger Agreement would not be satisfied, and such breach or failure of a condition is not curable or, if curable, is not cured prior to the earlier of (i) the 30th day after written notice thereof is given by Parent to the Company and (ii) the date that is two business days prior to the Outside Date (a “Company Breach Termination”).

See “The Merger Agreement—Termination of the Merger Agreement” beginning on page 152 for additional information.

Termination Fees (page 154)

Under certain circumstances, the Company may be required to pay Parent a fee in connection with the termination of the Merger Agreement (the “Termination Fee”), or Parent may be required to pay the Company a fee in connection with the termination of the Merger Agreement (the “Parent Termination Fee”).

The Company is obligated to pay Parent a Termination Fee of $12 million in the following circumstances:

 

   

if (i) either Parent or the Company effects an Outside Date Termination or a Stockholder Vote Termination or Parent effects a Company Breach Termination, (ii) any person has announced, commenced, publicly disclosed, made or made known to the Company an Acquisition Proposal, and has not withdrawn such Acquisition Proposal, prior to the special meeting (in the case of a Stockholder Vote Termination) or such termination (in the case of an Outside Date Termination or Company Breach Termination), and (iii) within 12 months of such termination the Company has entered into a definitive agreement with respect to certain Acquisition Proposals or the transactions contemplated by certain Acquisition Proposals are consummated, then the Company will be obligated to pay Parent a Termination Fee of $12 million upon the earlier of entering into such definitive agreement with respect to such Acquisition Proposal and consummation of the transactions contemplated by such Acquisition Proposal;

 

   

if Parent effects an Adverse Recommendation Change Termination, then the Company will be obligated to pay such Termination Fee within two business days after the date of such termination; or

 

   

if the Company effects a Superior Proposal Termination, then the Company will be obligated to pay such Termination Fee immediately prior to, or concurrently with, such termination.

Parent is obligated to pay a Parent Termination Fee of $24 million no later than two business days after the Company effects a Parent Breach Termination or a Parent Closing Failure Termination or either the Company or



 

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Parent effects an Outside Date Termination (in circumstances in which the Company could have effected a Parent Breach Termination or a Parent Closing Failure Termination).

See “The Merger Agreement—Termination Fees” beginning on page 154 for additional information.

Specific Performance (page 155)

The parties to the Merger Agreement may be entitled to specific performance of the terms of the Merger Agreement, including an injunction or injunctions to prevent breaches of the Merger Agreement, subject to certain conditions set forth in the Merger Agreement.

Delisting and Deregistration of Our Common Stock (page 111)

If the Merger is consummated, our shares of Common Stock will be delisted from, and no longer traded on, Nasdaq and will be deregistered under the Exchange Act. If the Merger is consummated, the Company will no longer be a public company, and, as such, will no longer file reports with the SEC.

Rights of Appraisal (page 159 and Annex C)

Under Delaware law, holders of shares of Common Stock who do not vote in favor of the Merger Agreement Proposal, who properly demand appraisal of their shares of Common Stock and who otherwise comply with the requirements of Section 262 of the DGCL will be entitled to seek appraisal for, and obtain payment in cash for the judicially determined “fair value” (as defined pursuant to Section 262 of the DGCL) of, their shares of Common Stock in lieu of receiving the Per Share Merger Consideration if the Merger is consummated, but only if they comply with all applicable requirements of Delaware law. This appraised value could be more than, the same as, or less than, the Per Share Merger Consideration. Any holder of Common Stock intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to the Company prior to the vote on the Merger Agreement Proposal, must not vote in favor of the Merger Agreement Proposal and must otherwise comply with all of the procedures required by Section 262 of the DGCL, which is included as Annex C to this proxy statement. You are encouraged to read these provisions carefully and in their entirety.

Moreover, due to the complexity of the procedures for exercising the right to seek appraisal, stockholders who are considering exercising such appraisal rights are encouraged to seek the advice of legal counsel. Failure to comply strictly with these provisions may result in loss of the right of appraisal.

Material U.S. Federal Income Tax Consequences of the Merger (page 113)

If you are a U.S. holder (as defined in the section entitled “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 113), the receipt of cash for your shares of Common Stock pursuant to the Merger generally will be a taxable transaction for U.S. federal income tax purposes. If you are a non-U.S. holder (as defined in the section entitled “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 113), the receipt of cash for your shares of Common Stock pursuant to the Merger generally will not be subject to U.S. federal income taxation, unless you have certain connections to the United States. See “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 113 for a further discussion of the material U.S. federal income tax consequences of the Merger to holders of shares of Common Stock. You should consult your tax advisors regarding the particular tax consequences to you of the exchange of shares of Common Stock for cash pursuant to the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).



 

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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, the Merger Agreement and the Merger. These questions and answers may not address all questions that may be important to you as a stockholder 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. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions set forth in the section entitled “Where You Can Find Additional Information” beginning on page 208.

 

Q:

Why am I receiving this proxy statement?

 

A:

On August 11, 2020, we entered into the Merger Agreement providing for the merger of Merger Sub with and into the Company, with the Company surviving the Merger as a wholly-owned subsidiary of Parent. A copy of the Merger Agreement is attached to this proxy statement as Annex A.

You are receiving this proxy statement in connection with the solicitation of proxies by the Board in favor of the Merger Agreement Proposal and the other matters to be voted on at the special meeting and because you owned shares of Common Stock at the close of business on [], 2020, the record date for the special meeting. This proxy statement describes matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of Common Stock with respect to such matters.

Your vote is important, regardless of the number of shares of Common Stock you own. We encourage you to vote by proxy—by mail, by telephone or over the Internet—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend the special meeting in person.

 

Q:

What is a proxy?

 

A:

A proxy is your legal designation of another person to vote your shares of Common Stock. This written document describing the matters to be considered and voted on at the special meeting is called a proxy statement. The document used to designate a proxy to vote your shares of Common Stock is called a proxy card.

 

Q:

What is the proposed transaction?

 

A:

The proposed transaction is the merger of Merger Sub with and into the Company pursuant to the Merger Agreement. If the Merger is consummated, the Company will become a privately-held company that is wholly owned by Parent, and Parent will be owned by the Equity Investors and the Rollover Stockholders.

 

Q:

What matters will be voted on at the special meeting?

 

A:

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

 

   

to approve the Merger Agreement Proposal;

 

   

to approve the Adjournment Proposal; and

 

   

to approve the Advisory Compensation Proposal.

 

Q:

Where and when is the special meeting?

 

A:

The special meeting will be held at [] on [], 2020 at []. As part of our precautions regarding the coronavirus or COVID-19 pandemic, the special meeting may be held solely by means of remote

 

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  communication in a virtual format on the above date and time. If we take this step after the dissemination of this proxy statement, we intend to announce the decision to do so at least 10 days prior to the special meeting in a press release that will be available on our website, https://www.cellbiomedgroup.com. We will also file the press release with the SEC as definitive additional proxy materials. The press release and additional proxy materials will include detailed instructions as to the logistical details of the virtual meeting, including how you can remotely access, participate in and vote at such meeting. If you plan to attend the special meeting, we recommend that you monitor our website for updated information and registration details in the event we determine to hold the special meeting solely by virtual means. We encourage you to vote by proxy—by mail, by telephone or over the Internet—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend the special meeting in person.

 

Q:

Who can attend and vote at the special meeting?

 

A:

All stockholders of record at the close of business on the record date are entitled to receive notice of, attend and vote at the special meeting, or any adjournments or postponements thereof. You will need to demonstrate that you were a stockholder at the close of business on the record date to be admitted to the meeting and present valid government photo identification, such as a driver’s license or passport. If you hold shares in “street name,” you may vote them at the special meeting only if you obtain a signed proxy from the record holder (the broker, bank or other nominee) giving you the right to vote the shares. If your shares are held in the name of your broker, bank or other nominee, you will also need to bring evidence of your beneficial stock ownership, such as a recent account statement or voting instruction form provided by your broker, bank or other nominee or other similar evidence of ownership, along with proper identification. If you do not have proof that you owned Common Stock at the close of business on the record date, you may not be admitted to the meeting.

A complete list of stockholders entitled to vote at the special meeting, arranged in alphabetical order, showing the address of and number of shares of Common Stock held by each such stockholder, will be made available at the offices of the Company, 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877, for examination by any stockholder, for any purpose germane to the special meeting, during normal business hours, for a period of at least ten days prior to the special meeting.

 

Q:

How many shares of Common Stock must be present to constitute a quorum for the meeting? What if there is no quorum?

 

A:

The presence at the special meeting, in person or represented by proxy, of the holders of a majority of the shares of Common Stock outstanding at the close of business on the record date will constitute a quorum at the special meeting. There must be a quorum for business to be conducted at the special meeting. If a quorum is not present, the person presiding at the special meeting may adjourn the special meeting from time to time until a quorum exists. Failure of a quorum to be present at the special meeting will necessitate an adjournment or postponement of the special meeting and may subject the Company to additional expense. If the adjournment is for more than 30 days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At the close of business on the record date, there were [] shares of Common Stock outstanding. Accordingly, a sufficient number of shares of Common Stock representing at least [] votes must be present or represented by proxy at the special meeting to constitute a quorum.

At the close of business on the record date, the Consortium Rollover Stockholders owned an aggregate of [] outstanding shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock), and Novartis owned an aggregate of 1,458,257 shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock). Pursuant to the Consortium Support Agreement and the Novartis Support Agreement (each as defined in the section entitled “—Rollover and Support Agreements”), each of the Rollover Stockholders has agreed,

 

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among other things, (i) to vote, or cause to be voted, all of the shares of Common Stock owned directly or indirectly by him, her or it in favor of the Merger Agreement Proposal, and (ii) until the earlier of the closing of the Merger and the termination of the Merger Agreement, not to, directly or indirectly, transfer any shares of Common Stock owned by him, her or it. Accordingly, assuming the Rollover Stockholders comply with their respective obligations under the applicable Rollover and Support Agreement, the presence of the shares of Common Stock owned by the Rollover Stockholders at the special meeting would ensure a quorum at the special meeting.

 

Q:

What will I receive in the Merger?

 

A:

If the Merger is consummated, you will be entitled to receive $19.75 in cash, without interest and subject to any applicable withholding taxes, for each share of Common Stock that you own, unless you have timely perfected and not withdrawn a demand for (or lost your right to) appraisal rights pursuant to Section 262 of the DGCL. For example, if you own 100 shares of Common Stock, you will be entitled to receive $1,975 in cash in exchange for your shares of Common Stock, without interest and subject to any applicable withholding taxes. You will not be entitled to receive shares of the Surviving Corporation or Parent.

 

Q:

How does the Per Share Merger Consideration compare to the market price of shares of Common Stock prior to announcement of the Merger?

 

A:

The $19.75 Per Share Merger Consideration represents a premium of approximately (i) 31.9% over the closing price per share of Common Stock on August 10, 2020, the last full trading day before the Special Committee’s initial determination to recommend that the Board approve, adopt and declare advisable the Merger Agreement and the transactions contemplated thereby, (ii) 42.5% over the closing price per share of Common Stock seven days prior to August 10, 2020, (iii) 32.6% over the closing price per share of Common Stock 30 days prior to August 10, 2020, (iv) 36.9% over the closing price per share of Common Stock 90 days prior to August 10, 2020, (v) 4% over the 52-week intraday high for the period ending on August 10, 2020, (vi) 79.9% over the 52-week intraday low for the period ending on August 10, 2020 and (vii) 11.8% over the closing price per share of Common Stock on November 8, 2019, the last trading day before the date of the November 11 Proposal.

 

Q:

How will Stock Options, RSUs and PSUs be treated in the Merger?

 

A:

Except as otherwise agreed to in writing between a holder of a Vested Company Equity Award and Parent, each outstanding Vested Company Equity Award will automatically be canceled immediately prior to the effective time of the Merger and will entitle its holder to receive (without interest and subject to any applicable withholding taxes) from the Surviving Corporation, as promptly as practicable after the effective time of the Merger, (i) for each vested outstanding and unexercised Stock Option, an amount in cash equal to (A) the total number of shares of Common Stock subject to such Stock Option immediately prior to the effective time of the Merger multiplied by (B) the excess, if any, of the Per Share Merger Consideration over the exercise price per share of Common Stock under such Stock Option, (ii) for each vested RSU, an amount in cash equal to (A) the total number of shares of Common Stock subject to such vested RSU immediately prior to the effective time of the Merger multiplied by (B) the Per Share Merger Consideration, and (iii) for each vested PSU, an amount in cash equal to (A) the number of shares of Common Stock subject to such vested PSU, calculated based on actual performance achieved in accordance with the terms of each vested PSU, immediately prior to the effective time of the Merger multiplied by (B) the Per Share Merger Consideration. Except as otherwise agreed to in writing between a holder of a Vested Company Equity Award and Parent, any vested Stock Option which has an exercise price per share of Common Stock that is greater than or equal to the Per Share Merger Consideration will be canceled at the effective time of the Merger for no consideration or payment. Certain outstanding equity awards granted under the Company’s 2014 Equity Incentive Plan, as amended, and the Company’s 2011 Incentive Stock Option Plan, as amended, will vest immediately prior to the Merger pursuant to their terms, and therefore will (unless

 

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  otherwise agreed between the applicable holder and Parent) be treated as Vested Company Equity Awards in connection with the Merger.

The Buyer Consortium expects to enter into arrangements with certain holders of Vested Company Equity Awards that provide for the rollover of such awards into ordinary shares of Parent.

Except as otherwise agreed to in writing between a holder of an Unvested Company Equity Award and Parent, each Unvested Company Equity Award that is outstanding immediately prior to the effective time of the Merger will be assumed by Parent as an equity award of the same type covering ordinary shares of Parent and will continue to have, and be subject to, the same terms and conditions (including vesting terms) set forth in the Company equity plan under which it was granted and the equity award agreements relating thereto, as in effect immediately prior to the effective time of the Merger, except that (i) the number of ordinary shares of Parent covered by each such assumed equity award will equal the number of shares of Common Stock subject to such equity award, multiplied by the Exchange Ratio, rounded down to the nearest whole share, and (ii) the per share exercise price for the ordinary shares of Parent issuable upon the exercise of an assumed equity award that is a Stock Option will be equal to the quotient obtained by dividing the exercise price per share of Common Stock at which such assumed Unvested Company Equity Award was exercisable immediately prior to the effective time of the Merger by the Exchange Ratio, rounded up to the nearest whole cent. For a further description of the treatment of Stock Options, RSUs and PSUs in the Merger, see “Special Factors—Interests of Certain Persons in the Merger—Treatment of Company Equity Awards” beginning on page 92 and “The Merger Agreement—Treatment of Company Equity Awards” beginning on page 134.

 

Q:

Is the Merger expected to be taxable to me?

 

A:

If you are a U.S. holder (as defined below), the receipt of cash for your shares of Common Stock pursuant to the Merger generally will be a taxable transaction for U.S. federal income tax purposes. If you are a non-U.S. holder (as defined below), the receipt of cash for your shares of Common Stock pursuant to the Merger generally will not be subject to U.S. federal income taxation, unless you have certain connections to the United States. See “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 113 for a further discussion of the material U.S. federal income tax consequences of the Merger to holders of shares of Common Stock. You should consult your tax advisors regarding the particular tax consequences to you of the exchange of shares of Common Stock for cash pursuant to the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).

 

Q:

What vote of our stockholders is required to approve the Merger Agreement Proposal?

 

A:

The Merger cannot be consummated unless the Merger Agreement is adopted by the affirmative vote of the holders of (i) at least a majority of the shares of Common Stock outstanding at the close of business on the record date and (ii) at least a majority of the shares of Common Stock outstanding at the close of business on the record date excluding the votes of the Participants and their respective affiliates, in each case, in accordance with applicable law and the organizational documents of the Company. Consummation of the Merger requires the approval of a majority of the outstanding shares of Common Stock entitled to vote on such proposal excluding such shares held by the Participants and their respective affiliates, but does not require approval of a majority of the shares of Common Stock held by all unaffiliated security holders because, although the votes of the Participants and their respective affiliates are excluded, the votes of our directors (other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) and officers (other than the Management Rollover Stockholders) are included.

At the close of business on the record date, there were [] shares of Common Stock outstanding. Given that [] shares of Common Stock owned by the Company’s stockholders other than the Participants and their respective affiliates were outstanding at the close of business on the record date, [] shares of Common

 

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Stock owned by such stockholders other than the Participants and their respective affiliates must be voted in favor of the Merger Agreement Proposal in order for the Merger Agreement Proposal to be approved. At the close of business on the record date, the Consortium Rollover Stockholders owned an aggregate of [] outstanding shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock), and Novartis owned an aggregate of 1,458,257 shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock). Pursuant to the Consortium Support Agreement and the Novartis Support Agreement, each of the Rollover Stockholders has agreed, among other things, (i) to vote, or cause to be voted, all of the shares of Common Stock owned directly or indirectly by him, her or it in favor of the Merger Agreement Proposal, and (ii) until the earlier of the closing of the Merger and the termination of the Merger Agreement, not to, directly or indirectly, transfer any shares of Common Stock owned by him, her or it. Accordingly, assuming the Rollover Stockholders comply with their respective obligations under the applicable Rollover and Support Agreement, the presence of the shares of Common Stock owned by the Rollover Stockholders at the special meeting would ensure a quorum at the special meeting. However, given that the Rollover Stockholders are Participants, shares of Common Stock held by the Rollover Stockholders and their respective affiliates will not count towards the Company Majority of the Minority Stockholder Approval, but their votes will count towards the affirmative votes to approve the Adjournment Proposal and the Advisory Compensation Proposal.

 

Q:

What vote of our stockholders is required to approve the Adjournment Proposal and the Advisory Compensation Proposal?

 

A:

Assuming a quorum exists, each of the Adjournment Proposal and the Advisory Compensation Proposal will be approved if the holders of a majority of the shares of Common Stock outstanding at the close of business on the record date that are present or represented by proxy at the special meeting vote “FOR” each such proposal.

 

Q:

How does the Board recommend that I vote?

 

A:

The Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium), acting on behalf of the Company and upon the unanimous recommendation of the Special Committee, unanimously recommends that our stockholders vote:

 

   

“FOR” the Merger Agreement Proposal;

 

   

“FOR” the Adjournment Proposal; and

 

   

“FOR” the Advisory Compensation Proposal.

You should read “Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger” beginning on page 60 for a discussion of the factors that the Special Committee and the Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium) considered in determining to recommend the approval of the Merger Agreement. See also “Special Factors—Interests of Certain Persons in the Merger beginning on page 92 for additional information.

 

Q:

What if I abstain from voting on any proposal?

 

A:

If you attend the special meeting in person or if you submit a proxy by duly executing and returning a proxy card, by telephone or over the Internet and you do not otherwise revoke your proxy, and you abstain from voting, your shares of Common Stock will still be counted for purposes of determining whether a quorum exists at the special meeting, but will not be voted on the proposals. As a result, if you mark “ABSTAIN” on your proxy card or otherwise indicate that you are abstaining from voting when you submit your proxy by

 

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  telephone or over the Internet, your abstention from voting will have the same effect as a vote “AGAINST” the Merger Agreement Proposal, the Adjournment Proposal and the Advisory Compensation Proposal.

 

Q:

What is a broker non-vote?

 

A:

Broker non-votes are shares held in “street name” by brokers, banks and other nominees that are present in person or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares as to how to vote on a particular proposal and such broker, bank or other nominee does not otherwise have discretionary voting power on such proposal. Under Nasdaq rules, brokers, banks and other nominees holding shares in “street name” do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement. Therefore, if a beneficial owner of shares of Common Stock held in “street name” does not give voting instructions to the broker, bank or other nominee, then those shares will not be counted as present in person or represented by proxy at the special meeting. The failure to issue voting instructions to your broker, bank or other nominee will have no effect on the outcome of the Adjournment Proposal or the Advisory Compensation Proposal, assuming that a quorum exists. However, the vote to approve the Merger Agreement Proposal is based on the total number of shares of Common Stock outstanding at the close of business on the record date, not just the shares that are counted as present in person or represented by proxy at the special meeting. As a result, if you fail to issue voting instructions to your broker, bank or other nominee, it will have the same effect as a vote “AGAINST” the Merger Agreement Proposal.

 

Q:

Will my shares held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?

 

A:

No. Because any shares you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, any shares held in “street name” will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card (or submit a proxy by telephone or over the Internet) for each of those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an individual retirement account must be voted under the rules governing the account.

 

Q:

Will my shares be voted if I do not sign and return my proxy card or vote by telephone, over the Internet or in person at the special meeting?

 

A:

If you are a stockholder of record of the Company and you do not attend the special meeting in person, sign and return your proxy card by mail, or submit your proxy by telephone or over the Internet, your shares will not be voted at the special meeting and will not be counted as present for purposes of determining whether a quorum exists. The failure to submit a proxy or otherwise vote your shares at the special meeting will have no effect on the outcome of the Adjournment Proposal or the Advisory Compensation Proposal, assuming that a quorum exists. However, the vote to approve the Merger Agreement Proposal is based on the total number of shares of Common Stock outstanding at the close of business on the record date, not just the shares that are counted as present in person or represented by proxy at the special meeting. As a result, if you fail to submit a proxy or otherwise vote your shares at the special meeting, it will have the same effect as a vote “AGAINST” the Merger Agreement Proposal.

You will have the right to receive the Merger consideration if the Merger Agreement Proposal is approved and the Merger is consummated even if your shares are not voted at the special meeting. However, if your shares are not voted at the special meeting, it will have the same effect as a vote “AGAINST” the Merger Agreement Proposal.

 

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Q:

How will our directors and executive officers vote on the Merger Agreement Proposal, the Adjournment Proposal and the Advisory Compensation Proposal?

 

A:

Our directors and executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of the shares of Common Stock owned directly by them in favor of the Merger Agreement Proposal and each of the other proposals listed in this proxy statement. At the close of business on the record date, (i) our directors and executive officers directly owned, in the aggregate, [] shares of Common Stock, or approximately []% of the outstanding shares of Common Stock, and (ii) our directors (other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) and executive officers (other than the Management Rollover Stockholders) directly owned, in the aggregate, [] shares of Common Stock, or approximately []% of the outstanding shares of Common Stock.

The affirmative votes by our directors (other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) and executive officers (other than the Management Rollover Stockholders) will count towards the Company Majority of the Minority Stockholder Approval. However, shares of Common Stock held by Tony (Bizuo) Liu, Darren O’Brien, Hansheng Zhou and the Management Rollover Stockholders will not count towards the Company Majority of the Minority Stockholder Approval, but their votes will count towards the affirmative votes to approve the Adjournment Proposal and the Advisory Compensation Proposal.

 

Q:

Why am I being asked to consider and vote on the Advisory Compensation Proposal?

 

A:

Section 14A of the Exchange Act requires the Company to provide its stockholders with the opportunity to cast an advisory (non-binding) vote on certain “golden parachute” compensation that may be payable to its named executive officers in connection with the consummation of the Merger. Approval of the Advisory Compensation Proposal is not required to consummate the Merger.

 

Q:

What is “golden parachute” compensation?

 

A:

“Golden parachute” compensation is certain compensation that, whether present, deferred or contingent, is based on or otherwise relates to the Merger and may be payable to the Company’s named executive officers in connection with the consummation of the Merger. For additional details, see “Special FactorsInterests of Certain Persons in the Merger” and “Special FactorsGolden Parachute Compensation” beginning on page 98.

 

Q:

What will happen if stockholders do not approve the Advisory Compensation Proposal?

 

A:

Approval of the Advisory Compensation Proposal is not a condition to the consummation of the Merger. This vote is an advisory vote and will not be binding on the Company. Therefore, if stockholders approve the Merger Agreement Proposal by the majority required for the Company Stockholder Approval and the Merger is consummated, the payments that are the subject of the vote may become payable to the named executive officers regardless of the outcome of such vote.

 

Q:

Am I entitled to exercise appraisal rights instead of receiving the Per Share Merger Consideration for my shares of Common Stock?

 

A:

Stockholders who do not vote in favor of the Merger Agreement Proposal are entitled to statutory appraisal rights under Delaware law in connection with the Merger. This means that if you comply with the requirements of Section 262 of the DGCL, you are entitled to have the “fair value” (as defined pursuant to Section 262 of the DGCL) of your shares of Common Stock determined by the Court of Chancery of the State of Delaware and to receive payment based on that valuation instead of receiving the Per Share Merger Consideration. The ultimate amount you would receive in an appraisal proceeding may be more than, the same as, or less than, the amount you would have received under the Merger Agreement. To exercise your appraisal rights, you must comply with the requirements of the DGCL. See “Rights of Appraisal” beginning on page 159 and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex C to this proxy statement, for additional information.

 

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Q:

What effects will the Merger have on the Company?

 

A:

The Common Stock is currently registered under the Exchange Act and is quoted on Nasdaq under the symbol “CBMG.” As a result of the Merger, the Company will cease to have publicly traded equity securities and will be wholly owned by Parent. Following the consummation of the Merger, the registration of Common Stock and our reporting obligations under the Exchange Act with respect to such registration will be terminated upon application to the SEC. In addition, upon the consummation of the Merger, the Common Stock will no longer be listed on Nasdaq or any other stock exchange.

 

Q:

Who will own the Company immediately after the Merger?

 

A:

If the Merger is consummated, the Company will be wholly owned by Parent, which will be owned by the Equity Investors and the Rollover Stockholders.

 

Q:

When is the Merger expected to be completed?

 

A:

We currently expect to consummate the Merger during the first quarter of calendar year 2021. Since the Merger is subject to receipt of the Company Stockholder Approval, the CFIUS Clearance and other conditions, it is possible that factors outside the control of the Company or Parent could result in the Merger being consummated at a later time, or not at all. There may be a substantial amount of time between the special meeting and the consummation of the Merger. We expect to consummate the Merger promptly following the receipt of all required approvals and the satisfaction or waiver of the other conditions precedent as described in the Merger Agreement. See “The Merger Agreement—Conditions to the Merger” beginning on page 151 for additional information.

 

Q:

What happens if the Merger is not consummated?

 

A:

If the Merger Agreement Proposal is not approved by the Company’s stockholders, the CFIUS Clearance is not obtained or if the Merger is not consummated for any other reason, the Company’s stockholders will not receive any payment for their shares of Common Stock in connection with the Merger. Instead, the Company will remain a public company and shares of Common Stock will continue to be listed and traded on Nasdaq. Under specified circumstances, the Company may be required to pay Parent a termination fee. See “The Merger Agreement—Termination Fees” beginning on page 152 for additional information.

 

Q:

What happens if the CFIUS Clearance is not obtained?

 

A:

The obligations of each party to consummate the Merger are subject to, among other things, receipt of the CFIUS Clearance. If the CFIUS Clearance is not obtained prior to the Outside Date, then either the Company or Parent may terminate the Merger Agreement. In addition, either the Company (upon the recommendation of the Special Committee) or Parent may terminate the Merger Agreement if the President of the United States publicly announces a decision to suspend or prohibit the Merger pursuant to the DPA or, after CFIUS notifies Parent or the Company in writing that CFIUS intends to send a report to the President of the United States recommending that the President of the United States act to suspend or prohibit the Merger pursuant to the DPA, Parent determines in good faith that the condition relating to CFIUS Clearance is unlikely to be satisfied on terms that do not give rise to a Burdensome Condition and provides the Company with written notice of such determination. See “Special FactorsCFIUS Clearance” beginning on page 109, “The Merger AgreementCFIUS Clearance” beginning on page 148, “The Merger Agreement—Conditions to the Merger” beginning on page 151 and “The Merger Agreement—Termination of the Merger Agreement” beginning on page 152 for additional information.

 

Q:

What do I need to do now?

 

A:

We urge you to read this proxy statement carefully, including its annexes and the documents referred to as incorporated by reference in this proxy statement, and to consider how the Merger affects you. If your

 

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  shares are registered directly in your name with our transfer agent, you are considered a “stockholder of record.” Stockholders of record can vote their shares of Common Stock in the following four ways:

 

   

By Mail—You may vote by mail by indicating your vote by completing, signing and dating the proxy card where indicated and by mailing or otherwise returning the card in the envelope provided to you. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), indicate your name and title or capacity.

 

   

By Telephone—You may submit your proxy by dialing 1-866-752-VOTE (8683) and by following the recorded instructions.

 

   

Over the Internet—You may submit your proxy by going to https://www.iproxydirect.com/CBMG and by following the instructions on how to complete an electronic proxy card.

 

   

At the Special Meeting—If you are a stockholder of record and prefer to vote your shares at the special meeting, you must present valid government photo identification, such as a driver’s license or passport, along with your notice of this special meeting or proof of ownership.

Even if you plan to attend the special meeting in person, we encourage you to submit a proxy in advance by mail, by telephone or over the Internet so that your shares will be represented and voted at the special meeting if you later decide not to attend the special meeting in person. Telephone and Internet facilities for the submission of a proxy to vote shares will be available 24 hours a day and will close at 11:59 p.m. on []. Proxy cards mailed must be received no later than [] in order to be counted in the vote.

If your shares are held by your broker, bank or other nominee, you are considered the beneficial owner of shares held in “street name” and you will receive a form from your broker, bank or other nominee seeking instruction from you as to how your shares should be voted. If you beneficially own your shares and receive a voting instruction form, you can vote by following the instructions on your voting instruction form. Please refer to information from your broker, bank or other nominee on how to submit voting instructions. Stockholders who hold their shares in “street name” are not able to vote at the special meeting unless they have a “legal proxy,” executed in their favor, from the stockholder of record (i.e., the broker, bank or other nominee) giving them the right to vote the shares at the special meeting.

 

Q:

If a stockholder gives a proxy, how are the shares voted?

 

A:

Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way you indicate. When completing the Internet or telephone process for submitting a proxy, you may specify whether your shares would be voted “FOR” or “AGAINST” or to abstain from voting on all, some or none of the proposals to come before the special meeting.

If you properly sign and return your proxy card or submit your proxy by telephone or over the Internet but do not include instructions on how your shares of Common Stock should be voted on a matter, the shares of Common Stock represented by your unrevoked proxy will be voted “FOR” the Merger Agreement Proposal, “FOR” the Adjournment Proposal and “FOR” the Advisory Compensation Proposal.

 

Q:

Should I send in my stock certificates or other evidence of ownership now?

 

A:

No. After the Merger is consummated, you will be sent a letter of transmittal with detailed written instructions for exchanging your shares of Common Stock for the Per Share Merger Consideration. If your shares of Common Stock are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the Per Share Merger Consideration. Do not send in your certificates now.

 

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Q:

What happens if I sell my shares of Common Stock before consummation of the Merger?

 

A:

If you transfer your shares of Common Stock, you will have transferred your right to receive the Per Share Merger Consideration in the Merger. In order to receive the Per Share Merger Consideration, you must hold your shares of Common Stock through consummation of the Merger.

 

Q.

Can I change or revoke my proxy after it has been submitted?

 

A.

Yes. You can change or revoke your proxy at any time before the final vote at the special meeting. If you are the stockholder of record, you may change or revoke your proxy by:

 

   

sending a written statement to that effect to our Corporate Secretary, provided such statement is received no later than [];

 

   

submitting a new proxy by telephone or over the Internet at a later time before the closing of those voting facilities at 11:59 p.m. on [];

 

   

submitting a properly signed proxy card with a later date that is received no later than []; or

 

   

attending the special meeting and voting in person.

If you hold shares in “street name,” you may submit new voting instructions by contacting your broker, bank or other nominee and you may also change your vote or revoke your proxy in person at the special meeting if you obtain a proxy, executed in your favor, from the stockholder of record (i.e., the broker, bank or other nominee) giving you the right to vote the shares.

If you submit a proxy or provide instructions to vote your shares and do not otherwise revoke such proxy or change such instructions in accordance with one of the methods set forth above, your shares will be represented and voted at the special meeting in accordance with such proxy or instructions.

 

Q:

What does it mean if I get more than one proxy card or voting instruction card?

 

A:

If your shares are registered differently or are held in more than one account, you will receive more than one proxy or voting instruction card. Please complete and return all of the proxy cards or voting instruction cards you receive (or submit each of your proxies by telephone or the Internet, if available to you) to ensure that all of your shares are voted.

 

Q:

What is householding and how does it affect me?

 

A:

The SEC permits companies to send a single set of proxy materials to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the applicable company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of Common Stock held through brokerage firms. If your family has multiple accounts holding Common Stock, you may have already received a 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 will count the votes?

 

A:

All votes will be counted by Issuer Direct Corporation as inspector of election appointed for the special meeting.

 

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Q:

Will any proxy solicitors be used in connection with the special meeting?

 

A:

No. The Company does not plan to engage a proxy solicitor to assist in the solicitation of proxies.

 

Q:

Who can help answer my other questions?

 

A:

If you have more questions about the Merger, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, please contact our Corporate Secretary by mail at 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877, or by telephone at: +1 (301) 825-5320. If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

 

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SPECIAL FACTORS

Background of the Merger

As part of the Company’s strategic planning process, the Board regularly reviews and discusses with senior management the Company’s performance, business strategy, prospects for growth and competitive position in the industry in which it operates. In addition, the Board and senior management regularly review and evaluate various strategic alternatives, including acquisitions, dispositions, commercial partnerships and other strategic transactions, as part of their ongoing efforts to strengthen the Company’s overall business, including its product development programs, cell therapy initiatives and commercialization efforts, and enhance stockholder value. Since the Company became a publicly-traded company as a result of its merger with EastBridge Investment Group Corporation in 2013, these reviews and evaluations included discussions regarding strategic alternatives to address the liquidity constraints of the Company given that the Company is a clinical-stage biopharmaceutical company that does not presently generate meaningful revenue. Given the existing liquidity pressure on the Company, these strategic alternatives included, among other things, financing ongoing operations by raising capital, which would result in significant dilution to the Company’s existing stockholders, entering into collaboration agreements with third parties, which could require the Company to relinquish certain rights to its technology or product or therapy candidates and share future revenues associated with the partnered product or therapy, or financing operations through debt financing facilities, which would cause the diversion of funds that could otherwise be available to support clinical or commercialization activities towards servicing the interest and principal repayment obligations under such facilities.

On September 25, 2018, the Company entered into a Share Purchase Agreement with Novartis, pursuant to which the Company agreed to sell, and Novartis agreed to purchase from the Company, 1,458,257 shares of Common Stock at a purchase price of $27.43 per share for total gross proceeds of approximately $40 million, and a Registration Rights Agreement with respect to such shares of Common Stock. Also on September 25, 2018, the Company, together with certain of its subsidiaries and certain other entities controlled by the Company, and Novartis entered into a License and Collaboration Agreement (the “Collaboration Agreement”), pursuant to which, among other things, the Company agreed to collaborate with Novartis in connection with the manufacture and supply of a cell therapy. Pursuant to the Collaboration Agreement, during the term of the Collaboration Agreement, the Company (together with such subsidiaries and controlled entities) agreed not to, and agreed to cause its affiliates, licensees, and sublicensees not to, directly or indirectly, (i) license, transfer, sell, or otherwise grant to any third party any right to develop, manufacture, or commercialize certain therapies of the Company (or such subsidiaries or controlled entities) or (ii) enter into a definitive agreement providing for a transaction or series of transactions that would constitute a change of control of the Company, in each case, without first complying with the provisions of the Collaboration Agreement relating to a right of first negotiation granted in favor of Novartis. In addition, the Collaboration Agreement provides that, if the Company were to breach such right of first negotiation, Novartis could have the right to terminate the Collaboration Agreement. On December 21, 2018, the Company, Shanghai Cellular Biopharmaceutical Group Ltd., an entity controlled by the Company, Novartis, and Beijing Novartis Pharma Co., Ltd., an affiliate entity of Novartis, entered into a Toll Manufacturing and Supply Agreement (the “Supply Agreement”) in connection with the manufacture and supply of such cell therapy.

On March 3, 2019, the Board held a telephonic meeting to receive an update regarding the status of the Company’s efforts to evaluate potential capital raising opportunities. At the invitation of the Board, Andrew Chan, Chief Legal Officer, Corporate Development and Secretary of the Company, and representatives of Ellenoff Grossman & Schole, legal counsel to the Company at the time (“EGS”), also attended the meeting. During this meeting, among other things, Tony (Bizuo) Liu, Director, Chief Executive Officer and Chief Financial Officer of the Company, updated the Board regarding recent meetings with investment banks relating to a possible registered public offering of Common Stock. Following discussion, the Board authorized a registered public offering of Common Stock for aggregate proceeds of between $20 million and $30 million at a per share price of at least $18.00 and established a Pricing Committee for the purposes of approving certain terms

 

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of the offering in the event that the proposed price at which the shares of Common Stock are to be sold is less than $18.00 per share. Subsequently, on March 21, 2019, the Pricing Committee of the Board approved, by unanimous written consent, a registered public offering of Common Stock at a per share price of $17.00, and the Company entered into an underwriting agreement with Cantor Fitzgerald & Co. and Robert W. Baird & Co. Incorporated (“Baird”), as representatives of a syndicate of underwriters, in connection with the offering.

On July 9, 2019, the Board held a telephonic meeting to discuss additional potential sources of financing. At the invitation of the Board, Mr. Chan and representatives of EGS also attended the meeting. During this meeting, among other things, in connection with the Board’s regular review of the Company’s liquidity and cash flow positions, Mr. Liu sought the Board’s authorization to engage an investment bank to aid the Board in identifying additional potential sources of financing. Following discussion, the Board authorized management to identify and engage an investment bank to evaluate certain business opportunities for further consideration by the Board and to explore options to obtain financing of between $20 million and $30 million, with the material terms of such financing to be presented to the Board at a later date.

At various times between July 9, 2019 and early October 2019, Mr. Liu and other members of the Company’s management held various meetings and otherwise worked with representatives of Baird to explore the viability of raising substantial additional capital through a registered public offering of Common Stock, including assessment of market conditions and timing for such offering. Following these efforts, the Company management determined that, at that time and in light of market conditions and various other related factors, in order for a registered public offering of Common Stock to be viable, it would likely need to be priced at a per share price significantly less than the per share price received in the March 2019 registered public offering.

On September 12, 2019, Mr. Liu met with representatives of Hillhouse Bio Holdings, L.P. (“HBH”) to discuss certain publicly available information regarding the Company’s clinical program and liquidity and cash flow positions. Representatives of the Company previously had introductory meetings with representatives of HBH in 2019. Representatives of the Company first met with representatives of HBH in January 2019 at an industry conference in San Francisco and later, at the Company’s offices in Shanghai, met with representatives of HBH in January 2019 and again in August 2019. However, such meetings did not involve any discussions regarding the terms of any potential transaction or any information of the Company that was not publicly available. Additionally, on September 12, 2019, representatives of TF Capital, which had previously invested in the Company, met with representatives of the Company to discuss a potential financing transaction. Between September 12, 2019 and November 11, 2019, Mr. Liu continued to engage in discussions with other third parties to explore a potential financing transaction.

During late September 2019 and early October 2019, Mr. Liu held various telephonic and in-person meetings with representatives of HBH in China to discuss the possibility of a potential transaction involving the Company and HBH, including potential equity or debt financing transactions, based on publicly available information of the Company.

On October 12, 2019, the Board held a meeting to receive an update regarding the status of the Company’s efforts to evaluate potential financing opportunities. At the invitation of the Board, Mr. Chan, Yihong Yao, Chief Scientific Officer of the Company, and representatives of EGS also attended the meeting. During this meeting, among other things, Mr. Liu updated the Board regarding the Company’s liquidity and cash flow positions and potential financing opportunities. Following discussion, the Board instructed Mr. Liu to continue his ongoing efforts to identify potential alternative sources of financing for the Company. Following the October 12, 2019 Board meeting, Mr. Liu discussed with Hansheng Zhou, a member of the Board affiliated with Dangdai International Group Co., Limited (“Dangdai”), the Company’s difficulties raising third party financing in light of the current stock price and Dangdai’s 2016 investment in the Company at a price of $19.00 per share.

On multiple occasions during October 2019, Mr. Liu continued to engage in discussions with representatives of each of HBH and TF Capital to explore a potential transaction that could address the Company’s capital needs and/or allow the Company to improve its competitive position in a business segment

 

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that was becoming increasingly competitive. The discussions between Mr. Liu, on the one hand, and representatives of HBH and TF Capital, on the other hand, that occurred during this time were based on publicly available information of the Company and were preliminary in nature and did not involve any in-depth discussions regarding the terms of any potential transaction. However, following the October 12, 2019 Board meeting, Mr. Liu and representatives of HBH began discussing the idea of pursuing a “going private transaction” involving the acquisition of all outstanding shares of Common Stock as a potential alternative transaction.

On November 2, 2019, Mr. Liu contacted Messrs. Yao and Dai and Ms. Zhang, each a member of the Company’s management team and a stockholder of the Company, to discuss the feasibility of a “going private transaction” and to ascertain their interest in considering such a potential transaction. These discussions were preliminary in nature and did not result in any in-depth discussions regarding the terms of, or any understanding or agreement with respect to, any potential transaction.

Between November 2, 2019 and November 9, 2019, Mr. Liu engaged in discussions with representatives of HBH and TF Capital to explore structures for a potential “going private transaction” in which HBH and TF Capital would partner with each other and obtain support from other stockholders of the Company, including Messrs. Liu, Yao and Dai and Ms. Zhang, for submitting a buyout proposal to the Company. During that same week, Mr. Liu contacted representatives of Dangdai, an existing stockholder of the Company, to ascertain Dangdai’s interest in considering a potential “going private transaction” involving the Company, including whether it would be interested in rolling over its shares of Common Stock as part of the proposed transaction. These discussions were based on publicly available information of the Company, and, as of such time, none of HBH, TF Capital or Dangdai had entered into a confidentiality agreement with the Company, nor had they received from the Company any due diligence information (including any confidential information) with respect to the Company.

On November 5, 2019, Mr. Liu contacted representatives of Mission Right Limited (“Mission Right”), an existing stockholder of the Company, and discussed the possibility of a “going private transaction” involving the Company and whether Mission Right was interested in potentially being involved in such a proposed transaction, including whether it would be interested in rolling over its shares of Common Stock as part of the proposed transaction. The discussion was preliminary in nature and did not involve any in-depth discussions regarding the terms of such going private transaction. Mission Right had not entered into a confidentiality agreement with the Company, nor had it received from the Company any due diligence information (including any confidential information) with respect to the Company.

On November 6, 2019, HBH sent a draft of a consortium agreement to Mr. Liu and TF Capital. Thereafter, representatives of Kirkland & Ellis LLP (“Kirkland”), which was at the time acting as U.S. legal counsel to HBH, HBH and TF Capital held various calls with Mr. Liu to discuss the draft consortium agreement.

From November 6, 2019 to November 9, 2019, Mr. Liu, HBH and TF Capital and their respective legal counsels negotiated and finalized the terms of the consortium agreement, including the per share merger consideration to be offered in connection with a non-binding proposal to acquire all outstanding shares of Common Stock not already owned by such parties. During this time, Mr. Liu also participated on calls with Messrs. Yao and Dai, Ms. Zhang and representatives of Dangdai and Mission Right to apprise them of the status of discussions with HBH and TF Capital and the terms of the Consortium Agreement.

On November 9, 2019, Messrs. Liu, Yao and Dai, Ms. Zhang, HBH and TF Capital entered into the consortium agreement (the “Consortium Agreement”) pursuant to which each party agreed, among other things, to form a consortium the members of which would work exclusively with one another to undertake a transaction to acquire all of the outstanding shares of Common Stock not already owned by such parties in a “going private transaction,” and that HBH, Mr. Liu and TF Capital would be designated as the lead investors (with authority to negotiate on behalf of the Buyer Consortium) under the Consortium Agreement. For purposes of this section

 

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entitled “—Background of the Merger,” references to the “Buyer Consortium” mean the Buyer Consortium as it was comprised at the relevant point in time.

On November 9 and 10, 2019, Mr. Liu contacted each of the directors to inform them of a forthcoming indication of interest from the Buyer Consortium.

On November 10, 2019 and November 11, 2019, each of Dangdai and Mission Right, respectively, entered into an adherence agreement pursuant to which they agreed to become a party to the Consortium Agreement and join the Buyer Consortium, which at the time was comprised of Messrs. Liu, Yao and Dai, Ms. Zhang, HBH and TF Capital.

On November 11, 2019, the Buyer Consortium delivered to the Company a non-binding indication of interest in acquiring all outstanding shares of Common Stock (other than those shares held by members of the Buyer Consortium that may be rolled over in the proposed transaction) for $19.50 per share in cash (the “November 11 Proposal”). The November 11 Proposal stated that $19.50 per share represented a 10.4% premium to the closing price for Common Stock on the last trading day prior to the date of such proposal and a premium of 16.1% and 30.3% to the volume-weighted average price for Common Stock during the 30- and 60-trading day periods preceding the last trading day prior to the date of such proposal, respectively. The Buyer Consortium noted that it proposed to finance the transaction with a combination of cash and the rollover of certain equity interests in the Company, it would submit a new proposal that is subject to appropriate procedural protections if a meaningful number of the Company’s stockholders agreed to roll over shares of Common Stock held by such stockholders, and the members of the Buyer Consortium did not intend to sell their equity interests in the Company to any third party. The Buyer Consortium also expressed a willingness to extend to the Company a bridge loan on terms to be mutually agreed by the Buyer Consortium and the Company in order to address any potential short-term liquidity needs of the Company. The November 11 Proposal reported that the members of the Buyer Consortium beneficially owned approximately 23.3% of the Company’s capital stock based on the number of outstanding shares of Common Stock as of November 1, 2019.

Following receipt of the November 11 Proposal, the Board held a telephonic meeting to discuss the proposal. At the invitation of the Board, representatives of EGS also attended the meeting. During this meeting, Mr. Liu explained to the other members of the Board that he and certain other members of management were concerned with the Company’s ability to raise capital on reasonable terms through a secondary public offering, the Company’s liquidity position and the Company’s recent stock price performance, in addition to the Company’s need for significant capital to execute its business plan. Mr. Liu noted that the Management Rollover Stockholders, HBH and TF Capital, together with certain stockholders of the Company, formed the Buyer Consortium and determined to submit the November 11 Proposal to the Board in light of the various challenges facing the Company at that time (particularly those set forth under the section entitled “Special Factors—Purposes and Reasons of the Buyer Filing Persons for the Merger” beginning on page 88).

Following discussion of the November 11 Proposal, at this meeting, the Board unanimously resolved to establish the Special Committee consisting of Chun Kwok Alan Au, Edward Schafer, Terry A. Belmont and Dr. Steve (Wentao) Liu, each having been determined by the Board to be disinterested and independent for all purposes under Delaware law with respect to the November 11 Proposal. The Board delegated to the Special Committee the full power and authority of the Board to take all actions the Special Committee considers necessary, desirable or convenient in connection with the identification, evaluation and negotiation of, and the making of recommendations to the Board regarding, the November 11 Proposal and any alternatives thereto, including the express power and authority to review and to evaluate the terms and conditions, and determine the advisability, of the November 11 Proposal and any alternatives thereto, to negotiate with any party the Special Committee deems appropriate with respect to the terms and conditions of the November 11 Proposal or any alternatives thereto, to determine whether the November 11 Proposal or any alternatives thereto is beneficial to the Company and its stockholders and on arm’s-length terms and conditions, to recommend to the Board what actions, if any, should be taken by the Board with respect to the November 11 Proposal and any alternatives

 

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thereto, including, without limitation, to approve or elect not to pursue the November 11 Proposal and any alternatives thereto, to act on behalf of the Company in connection with any matters ancillary or related to the November 11 Proposal and any alternatives thereto (including, without limitation, the ability to authorize and enter into contracts of any nature, commence litigation and adopt defensive measures), and to retain such legal counsel, financial advisors and other outside professionals, consultants and agents, each to perform such services and render such advice or opinions, as the Special Committee may deem necessary, desirable or convenient to assist it in connection with the discharge of its duties. The Board also resolved that it would not approve or recommend to the stockholders of the Company the November 11 Proposal or any alternatives thereto without the prior favorable recommendation of the Special Committee. Mr. Au was designated as the Chair of the Special Committee. As Chair, Mr. Au was consulted regularly by the Special Committee’s advisors and would inform the other members of the Special Committee of developments with respect to the proposed transaction when a meeting was not held.

On that same day, following the Board meeting, the Company issued a press release disclosing receipt of the November 11 Proposal, the formation of the Special Committee and that the Special Committee, with the assistance of its advisors, would consider the November 11 Proposal and any response thereto in connection with its ongoing review of strategic alternatives.

Over the following days, the Company filed a current report on Form 8-K, an affiliate of HBH (“HBH Advisor”) and Mr. Liu each filed a Schedule 13D and Dangdai amended its Schedule 13D, in each case, to disclose, among other things, the November 11 Proposal. Following public announcement of the November 11 Proposal, no inbound indications of interest from third parties relating to strategic alternatives were received by the Company. However, following such public announcement, certain stockholders of the Company, consisting of Viktor Pan, Zheng Zhou, Wealth Map Holdings Limited (“Wealth Map”), Earls Mill Limited (“Earls Mill”), OPEA SRL, Maplebrook Limited (“Maplebrook”) and Full Moon Resources Limited (“Full Moon”), each communicated with Mr. Liu to inquire about the proposed transaction.

On November 12, 2019, Mr. Liu contacted representatives of Novartis to discuss the November 11 Proposal and to provide additional information regarding the members of the Buyer Consortium. During these discussions, Mr. Liu informed Novartis of what he believed to be various benefits to the Company in moving forward with a “going private transaction” as contemplated by the November 11 Proposal, including the potential financial and competitive benefits to the Company, and expressed his desire to continue the Company’s business collaboration with Novartis and its affiliates regardless of whether any potential transaction was consummated.

On November 14, 2019, Mr. Au contacted a representative of White & Case LLP (“White & Case”) to discuss potential negotiation strategies, the duties and responsibilities of the Special Committee and the directors’ fiduciary duties in general and in the context of the November 11 Proposal. Mr. Au also requested that representatives of White & Case meet with the Special Committee telephonically to discuss a potential engagement by the Special Committee of White & Case to act as outside legal counsel to the Special Committee.

The Special Committee subsequently engaged White & Case as its outside legal counsel. The Special Committee’s decision was based on, among other factors, White & Case’s qualifications and experience with mergers and acquisitions transactions, including its prior representation of special committees. The Special Committee also determined that the ongoing relationships between White & Case and an affiliate of HBH, as previously disclosed by White & Case to the Special Committee, and between White & Case and Novartis, as later disclosed by White & Case to the Special Committee when discussions began regarding a waiver by Novartis of the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement, were not material to the Special Committee’s evaluation of a transaction involving a consortium that included HBH or a transaction involving Novartis.

On or about November 15, 2019, representatives of Velvet Investment also contacted Mr. Liu and expressed an interest in participating in a potential transaction involving the Company along with the Buyer Consortium.

 

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These discussions were based on publicly available information of the Company, were preliminary in nature and did not result in any firm offer or proposal for, any in-depth discussions regarding the terms of, or any understanding or agreement with respect to, joining the Buyer Consortium or any potential transaction involving the Company. Following this initial outreach by and discussions with representatives of Velvet Investment, on or about November 17, 2019, Mr. Liu introduced representatives of Velvet Investment to certain members of the Buyer Consortium.

On November 18, 2019, the Board held a telephonic meeting. At the invitation of the Board, Mr. Chan and representatives of EGS also attended the meeting. During this meeting, among other things, Mr. Liu updated the Board regarding the Company’s liquidity position, including Mr. Liu’s expectation that the Company’s existing cash reserves were sufficient to fund ongoing operations for approximately six months.

On November 25, 2019, the Special Committee held a telephonic meeting to discuss the November 11 Proposal and to discuss certain preliminary matters relating to the formation of the Special Committee. At the invitation of the Special Committee, representatives of White & Case also attended the meeting. At the meeting, representatives of White & Case reviewed with the Special Committee the duties and responsibilities of the Special Committee and the directors’ fiduciary duties in general and in the context of the November 11 Proposal and also reviewed with the Special Committee the terms of the November 11 Proposal. Representatives of White & Case then discussed with the Special Committee the importance of retaining an independent financial advisor to assist the Special Committee in its evaluation of the November 11 Proposal and other strategic alternatives and to advise the Special Committee on other potential means to address the Company’s liquidity position.

On November 26, 2019, the Special Committee, with the assistance of White & Case, separately interviewed three financial advisors by telephone, including Jefferies, to discuss their respective interest in serving, and qualifications to serve, as a financial advisor to the Special Committee in connection with a potential transaction involving the Company and to receive their respective fee proposals. During the interview with Jefferies, representatives of Jefferies described Jefferies’ qualifications to serve as financial advisor to the Special Committee, including certain relationships of Jefferies with affiliates of HBH and the absence of any material relationships between Jefferies and the Company during the two-year period prior to the date of the interview, and reviewed with the Special Committee various strategies that the Company could pursue to address its liquidity position. The Special Committee discussed numerous aspects of the information provided by Jefferies. At the conclusion of the Special Committee’s interview of Jefferies, the Special Committee requested additional disclosure from Jefferies regarding its relationships with affiliates of HBH, which relationships Jefferies characterized as immaterial to Jefferies. On the following day, Mr. Au informed a representative of White & Case that the Special Committee had discussed Jefferies’ qualifications and determined to engage Jefferies as the Special Committee’s financial advisor, subject to satisfactory negotiation of the terms of Jefferies’ engagement, including the fees payable to Jefferies and confirmation of Jefferies’ relationships with members of the Buyer Consortium and the absence of any material relationships between Jefferies and the Company.

On or about November 26, 2019, representatives of HBH contacted representatives of Velvet Investment to discuss Velvet Investment’s potential interest in participating in the Buyer Consortium. During the period between November 26, 2019 and March 30, 2020, Velvet Investment had multiple telephonic meetings with representatives of Kirkland with respect to the structure and general timetable of a potential privatization transaction involving the Company and continued to evaluate the possibility of participating in such transaction based on publicly available information.

On December 5, 2019, as previously requested by the Special Committee, representatives of Jefferies provided to representatives of White & Case disclosures regarding Jefferies’ relationships with members of the Buyer Consortium and the absence of any material relationships between Jefferies and the Company during the two-year period prior to December 5, 2019. On the following day, Mr. Au met telephonically with representatives of White & Case to discuss Jefferies’ qualifications and relationships with a company in which

 

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HBH or its affiliate maintained a material (but less than a majority) equity position, which relationships Jefferies had previously disclosed and characterized as immaterial to Jefferies. Subsequently, on December 11, 2019 and December 13, 2019, representatives of White & Case discussed with representatives of Jefferies the disclosures by Jefferies of its relationships with the company in which HBH or its affiliates maintained an equity position, as well as the terms of a possible engagement by the Special Committee of Jefferies.

On December 9, 2019, White & Case provided to Kirkland, which at that time was serving as outside legal counsel to the Buyer Consortium, an initial draft confidentiality agreement.

Between December 10, 2019 and February 21, 2020, representatives of the Buyer Consortium (which at that time consisted of Messrs. Liu, Yao and Dai, Ms. Zhang, HBH, TF Capital, Dangdai and Mission Right) held various calls with Mr. Pan, Zheng Zhou and representatives of Wealth Map, Earls Mill, OPEA SRL, Maplebrook and Full Moon regarding the possibility of such parties joining the Buyer Consortium. During this time, representatives of Kirkland provided each of Mr. Pan, Zheng Zhou, Wealth Map, Earls Mill, OPEA SRL, Full Moon and Maplebrook with copies of the Consortium Agreement and drafts of an adherence agreement that were in substantially the same form as the adherence agreements that Dangdai and Mission Right entered into on November 10, 2019 and November 11, 2019, respectively.

On December 13, 2019, and again on December 16, 2019, representatives of Velvet Investment visited the Company’s offices in Shanghai and further discussed with Mr. Liu the possibility of Velvet Investment participating in the potential privatization transaction involving the Company contemplated by the November 11 Proposal.

Later on December 13, 2019, the Special Committee held a telephonic meeting to discuss, among other things, the Special Committee’s engagement of Jefferies as its financial advisor. At the invitation of the Special Committee, representatives of White & Case also attended the meeting. After discussion of the information that had been provided previously by Jefferies and the matters previously discussed between White & Case and Jefferies, including the terms of a possible engagement of Jefferies, the consensus of the Special Committee was that Jefferies should be engaged as financial advisor to the Special Committee on the terms discussed with the Special Committee. The Special Committee selected Jefferies as its financial advisor because, among other factors, Jefferies is an internationally recognized investment banking firm with substantial experience in merger and acquisition transactions, including substantial experience advising special committees in transactions similar to the proposed transaction and advising healthcare companies, and its reputation. The Special Committee also determined that any relationships between Jefferies and members of the Buyer Consortium previously disclosed by Jefferies to the Special Committee were not material to the Special Committee’s evaluation of a transaction involving the Buyer Consortium. The Special Committee subsequently engaged Jefferies to act as its financial advisor and the Company issued a press release announcing such engagement and the engagement of White & Case as the Special Committee’s outside legal counsel.

On December 18, 2019, the Special Committee held a telephonic meeting to discuss certain preliminary matters with respect to evaluating the November 11 Proposal. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended the meeting. Representatives of Jefferies explained to the Special Committee that, in order to commence preparation of financial information with respect to the proposed transaction, Jefferies would require certain financial due diligence from the Company, as well as certain financial forecasts for the Company prepared by Company management, which the Special Committee would also need in order to evaluate the November 11 Proposal. In that regard, the Special Committee directed Jefferies to contact Company management to discuss the status of management’s preparation of financial forecasts for the Company. Representatives of Jefferies also reviewed with the Special Committee certain strategic parties that could have potential interest in a transaction involving the Company, and representatives of White & Case and Jefferies discussed with the Special Committee the process of conducting outreach to potential acquirors. Mr. Au then inquired about potential avenues to address the Company’s short term liquidity position in light of information recently provided to the Board that indicated that the Company would likely run out of

 

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operating capital sometime during the second quarter of 2020. Representatives of Jefferies explained that, in light of the publicly announced November 11 Proposal, the Company would have difficulty securing third party debt or equity financing on acceptable terms from a party that is not affiliated with the Buyer Consortium. Following further discussion, the Special Committee directed Jefferies to explore potential third party sources of financing, including by discussing with Company management any potential alternative sources of financing that might be available to the Company and with members of the Buyer Consortium as to whether any such members would be willing to provide bridge financing to the Company while the Special Committee continued to evaluate the November 11 Proposal.

From December 20, 2019 through January 6, 2020, in accordance with the Special Committee’s directives, representatives of Jefferies conducted discussions with Company management, including with respect to financing alternatives that might be available to the Company and the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement. Jefferies and Company management discussed how such right of first negotiation could delay the Company from entering into a definitive agreement for at least six months while Novartis evaluated such right of first negotiation pursuant to the terms of the Collaboration Agreement. From December 20, 2019 through July 23, 2020, at the direction of the Special Committee, representatives of Jefferies continued to conduct discussions with Company management regarding certain financial forecasts for the Company that were being prepared by Company management.

On January 6, 2020, Mr. Liu delivered to Jefferies initial drafts of documentation for a bridge loan to the Company in an aggregate principal amount equal to $14 million that were provided to him by Winsor Capital Limited, an affiliate of TF Capital.

On January 10, 2020, the Special Committee held a telephonic meeting to continue discussions regarding process and next steps, including with respect to evaluating the November 11 Proposal, the status of Company management’s preparation of certain financial forecasts for the Company, the status of the outreach process conducted by Jefferies, in accordance with the Special Committee’s directives, to potential alternative third party financing sources, the proposed terms of the bridge loan from Winsor Capital Limited and the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Representatives of White & Case discussed with the Special Committee the right of first negotiation granted in favor of Novartis and its potentially adverse effect on the Special Committee’s ability to seek and obtain indications of interest from other potential acquirors. In that regard, representatives of White & Case and Jefferies also discussed with the Special Committee the advisability of obtaining a waiver from Novartis of its right of first negotiation. After further discussion, the Special Committee directed White & Case and Jefferies to contact Novartis to seek such a waiver. Also during this meeting, following a discussion of the terms of the proposed bridge loan from Winsor Capital Limited and an update from Jefferies regarding its discussions with Company management regarding potential alternative sources of financing that might be available to the Company, the Special Committee directed White & Case and Jefferies to propose to Mr. Liu that the amount of the proposed bridge loan be increased from $14 million to $22 million and that the terms of the bridge loan be modified to allow for conversion of any outstanding amounts into equity securities of the Company under certain circumstances. The Special Committee also directed Jefferies to continue to explore other alternative sources of financing together with Company management and with oversight from Mr. Belmont. Thereafter, from January 14, 2020 through January 23, 2020, the Special Committee, with the assistance of Jefferies and White & Case, continued to negotiate the terms of the proposed bridge loan from Winsor Capital Limited, and agreed, subject to approval of the Board, to a bridge loan in an aggregate amount of $16 million, with certain outstanding amounts being convertible into equity securities of the Company under certain circumstances.

On January 23, 2020, representatives of White & Case participated on an introductory call with representatives of Kirkland to discuss certain preliminary matters, including the status of the Buyer Consortium’s comments to the draft confidentiality agreement provided by the Company on December 9, 2019. During this discussion, representatives of Kirkland explained that they did not believe a confidentiality agreement among the

 

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Company and the Buyer Consortium was necessary at such time given that the Buyer Consortium was evaluating the Company based on publicly available information of the Company, and, as of such time, did not require from the Company any due diligence information (including any confidential information) with respect to the Company.

On January 27, 2020, in accordance with the Special Committee’s directives, representatives of White & Case and Jefferies discussed with representatives of Novartis the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement. At that time, the representatives of Novartis would not agree to a waiver of Novartis’ right of first negotiation with respect to a transaction with the Buyer Consortium or a third party acquiror, but expressed a willingness to reconsider its position if and when the Company proposed to enter into a definitive agreement with the Buyer Consortium or a third party.

On January 28, 2020, the Board, by written consent, unanimously approved, and the Company entered into, the TF Bridge Loan Agreement, receipt of funds from which were not conditioned on entry into a transaction with the Buyer Consortium. On January 30, 2020, the Company received funding in an amount equal to $7 million from Winsor Capital Limited for the first tranche of the TF Bridge Loan.

On January 30, 2020, Mr. Liu (and certain other members of the Buyer Consortium that had joined in Mr. Liu’s filing) and HBH Advisor, and on February 3, 2020, Dangdai, each amended their respective Schedule 13Ds to disclose that the members of the Buyer Consortium collectively may be deemed to be the beneficial owner of 24.7% of the outstanding shares of Common Stock. Also on February 3, 2020, Winsor Capital Limited filed a Schedule 13D disclosing, among other things, the TF Bridge Loan Agreement.

On February 3, 2020, the Special Committee held a telephonic meeting to continue discussions regarding process and next steps, including with respect to evaluating the November 11 Proposal, the status of Company management’s preparation of certain financial forecasts for the Company, the status of the outreach process conducted by Jefferies, in accordance with the Special Committee’s directives, to potential alternative third party financing sources, the potential outreach to certain strategic parties to gauge their respective interest in a potential transaction involving the Company, the terms of the TF Bridge Loan, and the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Representatives of Jefferies reviewed the terms of the TF Bridge Loan Agreement and the unsuccessful efforts to identify potential alternative third party sources of financing. Representatives of Jefferies explained to the Special Committee that Jefferies believed it was unlikely that more favorable terms were reasonably available to the Company at that time than the terms included in the TF Bridge Loan Agreement. Following discussion, the Special Committee unanimously ratified the Board’s approval of the TF Bridge Loan Agreement. Representatives of White & Case then provided an update regarding its January 27, 2020 discussion with representatives of Jefferies and Novartis regarding the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement. Following discussion, the consensus of the Special Committee was that the Special Committee would engage with Novartis about waiving Novartis’ right of first negotiation at a later date. Representatives of Jefferies then reviewed with the Special Committee a list of potential strategic parties that could have a potential interest in a transaction involving the Company, which included selected global pharmaceutical companies that had made recent acquisitions in cell therapy, other well capitalized global pharmaceutical companies (including Novartis), well capitalized oncology companies, Chinese pharmaceutical companies and life sciences manufacturing companies, and reviewed with the Special Committee certain preliminary information that Jefferies proposed to provide to potential acquirors. After further discussion with the Special Committee, Jefferies agreed to consider whether certain growth funds of private equity sponsors would be interested in a potential transaction involving the Company.

On February 10, 2020, Mr. Liu met with representatives of Casdin Partners Master Fund, L.P. (“Casdin”), at Casdin’s request, to discuss Casdin’s potential interest in participating in the Buyer Consortium. Representatives of Casdin had previously met on multiple occasions with representatives of the Company over the preceding

 

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years at various industry conferences and indicated that Casdin had been following the Company for some time. During the period between February 10, 2020 and March 30, 2020, Casdin continued to evaluate the possibility of participating in a potential “going private transaction” involving the Company based on publicly available information.

On February 12, 2020, Jefferies provided to the Special Committee for its consideration an updated list of potential acquirors that could have a potential interest in a transaction involving the Company, consisting of 13 biopharma and oncology companies, nine other selected Chinese companies, eight manufacturing companies and one financial sponsor, as well as a revised preliminary information that Jefferies proposed to provide to potential acquirors. Following review of such updated information and the proposed list of potential acquirors, the Special Committee directed Jefferies to proceed with the outreach to such potential acquirors.

On February 13, 2020, at the direction of the Special Committee, Jefferies commenced the outreach to the potential acquirors discussed with the Special Committee on the prior day, which continued until March 12, 2020.

On February 21, 2020, Mr. Pan, Zheng Zhou, Wealth Map, Earls Mill, OPEA SRL and Maplebrook, each entered into an adherence agreement to the Consortium Agreement and joined the Buyer Consortium. On or about that time, representatives of Full Moon informed representatives of the Buyer Consortium that, after further internal discussion and consideration, Full Moon, as of such time, had decided not to join the Buyer Consortium.

Also on February 21, 2020, the Company received a revised non-binding indication of interest (the “February 21 Proposal”) from the Buyer Consortium, which at such time also included Mr. Pan, Zheng Zhou, Wealth Map, Earls Mill, OPEA SRL and Maplebrook. According to the February 21 Proposal, the Buyer Consortium collectively was the beneficial owner of 45.2% of the outstanding shares of Common Stock at the time of the February 21 Proposal. The February 21 Proposal reaffirmed the proposed consideration of $19.50 per share in cash and provided that consummation of the transaction contemplated by the February 21 Proposal would be subject to non-waivable conditions requiring approval by a properly functioning special committee and approval by stockholders holding at least a majority of all the issued and outstanding shares of Common Stock not affiliated with any member of the Buyer Consortium. On that same date, Winsor Capital Limited, HBH Advisor, Mr. Liu (and certain other members of the Buyer Consortium that had joined in Mr. Liu’s filing) and Sailing Capital each amended their respective Schedule 13Ds to disclose, among other things, the February 21 Proposal. The Company also filed a current report on Form 8-K confirming receipt of the February 21 Proposal and indicating that the Special Committee, with the assistance of its advisors, would consider the February 21 Proposal and any response thereto in connection with its ongoing review of strategic alternatives.

On March 3, 2020, the Special Committee held a telephonic meeting to continue discussions regarding process and next steps, including with respect to evaluating the February 21 Proposal, the status of the outreach process conducted by Jefferies, in accordance with the Special Committee’s directives, to potential acquirors to gauge their respective interest in a potential transaction involving the Company, the status of Company management’s preparation of certain financial forecasts for the Company, and the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. During this meeting, representatives of Jefferies informed the Special Committee that, in accordance with the Special Committee’s directives, Jefferies had contacted the 31 potential acquirors previously discussed with the Special Committee, of which, in connection with the initial outreach, 10 declined to evaluate a business combination with the Company and 21 had not been responsive despite repeated outreach. The reasons cited by those who declined to proceed included lack of strategic fit and/or a lack of interest in cell therapy or oncology. Following discussion, the Special Committee directed Jefferies to again attempt to initiate contact with such 21 parties that did not respond to the initial outreach, while continuing to follow up with Company management regarding the status of its preparation of certain financial forecasts for the Company to facilitate the Special Committee’s evaluation of the

 

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February 21 Proposal. Subsequent to the March 3, 2020 meeting and prior to the time the Board and Special Committee approved the Merger Agreement, except for parties that later became Participants, eight of such 21 parties declined to evaluate a business combination with the Company, and the remaining parties had not responded in any meaningful manner notwithstanding such additional outreach.

On or about March 9, 2020, representatives of Maplebrook indicated to the other members of the Buyer Consortium that, after further internal discussion and consideration, Maplebrook would not be able to participate in a potential transaction as a member of the Buyer Consortium due to timing constraints required to obtain internal approvals to roll over its shares of Common Stock in a potential transaction, and therefore desired to withdraw from the Buyer Consortium.

On March 12, 2020, the Company entered into confidentiality agreements with each of the members of the Buyer Consortium. Each of the executed confidentiality agreements contains, in addition to customary limitations regarding the use and disclosure of the Company’s confidential information, standstill provisions that prohibit the counterparty and its affiliates from taking certain actions during the 18-month period after the date of the confidentiality agreement, including prohibitions on acquiring, agreeing to acquire or proposing to acquire securities or any material assets of the Company, or rights to vote or direct the voting of securities of the Company. Although the executed confidentiality agreements provide that such standstill obligations would terminate upon, among other things, entry into the merger agreement or commencement of a tender offer or exchange offer with respect to the Company, none of the executed confidentiality agreements contains a “don’t ask, don’t waive” restriction. Prior to this time, no member of the Buyer Consortium had received from the Company any due diligence information (including any confidential information) with respect to the Company.

Between March 12, 2020 and the signing of the Merger Agreement, representatives of the Buyer Consortium and its financial, legal and accounting advisors had various discussions with the management of the Company regarding the business, operations and financial performance of the Company and conducted preliminary legal, business, financial and accounting due diligence on the Company.

On March 18, 2020, the Special Committee held a telephonic meeting to review certain financial forecasts for the Company prepared by Company management for the fiscal years ending December 31, 2020 through December 31, 2030 (the “March Management Forecasts”). At the invitation of the Special Committee, representatives of White & Case and Jefferies and certain members of senior management of the Company, including Mr. Liu, Angela Jiang, Vice President of Finance of the Company, Charles Zhou, a financial analyst employed by the Company, and Mr. Chan also attended the meeting. Charles Zhou presented the March Management Forecasts to the Special Committee and discussed with the Special Committee certain assumptions underlying the March Management Forecasts, including certain assumptions with respect to the probability of success of certain products under development. After the Special Committee members asked, and Mr. Liu and Charles Zhou answered, questions regarding the March Management Forecasts, all members of Company management in attendance were excused from the meeting, and the Special Committee continued to discuss the March Management Forecasts with representatives of Jefferies and White & Case. At the conclusion of such discussion, the Special Committee instructed Jefferies to prepare preliminary financial information regarding the Company and the February 21 Proposal utilizing the March Management Forecasts.

From March 18, 2020 to March 27, 2020, representatives of Kirkland circulated drafts of an amendment to the Consortium Agreement to HBH, TF Capital, Mr. Liu, Velvet Investment, Casdin and other members of the Buyer Consortium for their consideration and the members of the Buyer Consortium, Velvet Investment and Casdin negotiated and finalized the terms of such amendment.

On March 22, 2020, the Special Committee held a telephonic meeting to discuss preliminary financial information prepared by Jefferies as previously requested by the Special Committee. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Jefferies reviewed with the Special Committee certain preliminary financial information regarding the Company, including the

 

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March Management Forecasts (including Company management’s assumptions underlying such forecasts), and certain preliminary financial aspects of the February 21 Proposal. At the conclusion of the meeting and after further discussion, the consensus of the Special Committee was that the proposed consideration of $19.50 per share in cash was not compelling, that the Special Committee would provide a counterproposal to the Buyer Consortium of $22.00 per share in cash, and that Mr. Au would contact Mr. Liu to inquire about timing of a draft merger agreement.

On March 23, 2020, after Mr. Au requested an update about timing of a draft merger agreement as previously discussed with the Special Committee, Mr. Liu informed Mr. Au that a draft merger agreement would be forthcoming in approximately 24 hours. Later on March 23, 2020, Mr. Au discussed with a representative of Jefferies that Mr. Au would deliver the Special Committee’s counterproposal of $22.00 per share in cash upon the Special Committee’s receipt of the draft merger agreement.

On March 24, 2020, Kirkland delivered to White & Case a draft merger agreement. The draft merger agreement provided for, among other things, the rollover of all vested and unvested equity awards into awards settled in stock of Parent, a condition in favor of Parent that the number of dissenting shares not exceed a specified percentage of the total outstanding shares of Common Stock, a termination right in favor of Parent (and payment of a termination fee) if the Company breached the no-shop covenant, reimbursement of Parent’s and the Buyer Consortium’s expenses in the event that the Company was obligated to pay the termination fee, and a cap on Parent’s liability for all breaches under the merger agreement.

Following receipt of the draft merger agreement, on March 25, 2020, Mr. Au communicated to Mr. Liu the Special Committee’s counterproposal of $22.00 per share in cash.

On March 29, 2020, a representative of Jefferies participated on a call with a representative of HBH to discuss the Special Committee’s counterproposal. During this call, the representative of HBH indicated that the Buyer Consortium intended to revise the February 21 Proposal to reflect a reduction in the proposed consideration for Common Stock from $19.50 per share in cash. The representative of HBH cited the impact of the COVID-19 pandemic on the Company’s operations, the recent volatility in trading markets and the regulatory advancement of a drug that would potentially compete with a customer-collaborated product manufactured by the Company as reasons for reducing the proposed per share consideration contemplated by the February 21 Proposal. The representative of HBH advised the representative of Jefferies that a revised proposal would be forthcoming in the coming days and that the Buyer Consortium was seeking additional equity investors to reduce the financial exposure of the existing members of the Buyer Consortium.

On March 30, 2020, the Consortium Agreement was amended to reflect the addition of Velvet Investment and Casdin to the Buyer Consortium and the termination of the Consortium Agreement with respect to Maplebrook.

On March 30, 2020, each of HBH Advisor, Dangdai, Mr. Liu (and certain other members of the Buyer Consortium that had joined in Mr. Liu’s filing), Winsor Capital and Sailing Capital amended its Schedule 13D to disclose that Maplebrook had exited the Buyer Consortium, but that Velvet Investment and Casdin had joined the Buyer Consortium. These amendments disclosed that the Buyer Consortium may be deemed to beneficially own approximately 39.7% of the outstanding shares of Common Stock.

On April 2, 2020, representatives of Jefferies participated on a call with representatives of HBH. During this call, the representatives of HBH communicated that the Buyer Consortium’s revised proposal was for the Buyer Consortium to acquire all outstanding shares of Common Stock (other than those shares held by members of the Buyer Consortium that may be rolled over in the proposed transaction) for $18.00 per share in cash (the “April 2 Proposal”). The representatives of HBH reiterated that the reduced per share consideration was attributable to the impact of the COVID-19 pandemic on the Company’s operations, the recent volatility in trading markets and the regulatory advancement of a drug that would potentially compete with a customer-collaborated product manufactured by the Company.

 

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Later that day, the Special Committee held a telephonic meeting to discuss the April 2 Proposal. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. At this meeting, representatives of Jefferies updated the Special Committee with respect to their discussions with representatives of HBH on March 29 and April 2. Following discussion of the Jefferies representatives’ March 29, 2020 and April 2, 2020 discussions with representatives of HBH and the April 2 Proposal, the consensus of the Special Committee was that the COVID-19 pandemic did have an impact on the Company’s operations, and, given the liquidity position of the Company and lack of reasonable financing alternatives, the Company should continue to explore a transaction with the Buyer Consortium. However, the consensus of the Special Committee was that the reduction in per share consideration proposed by the Buyer Consortium was not acceptable. The Special Committee then directed Jefferies to communicate to HBH a counterproposal of $19.50 per share in cash, the per share consideration contemplated by the November 11 Proposal and the February 21 Proposal.

On April 4, 2020, representatives of Jefferies participated on a call with representatives of HBH. During this call, in accordance with the Special Committee’s directives, the representatives of Jefferies communicated to the representatives of HBH the Special Committee’s counterproposal of $19.50 per share in cash. The representatives of HBH reiterated that the per share consideration should reflect a reduced valuation of the Company as result of the impact of the COVID-19 pandemic on the Company’s operations, the recent volatility in trading markets and the regulatory advancement of a drug that would potentially compete with a customer-collaborated product manufactured by the Company. Representatives of Jefferies provided an update regarding this discussion by email to the Special Committee on April 6, 2020.

On April 7, 2020, representatives of White & Case delivered to Kirkland a revised draft merger agreement. The revised draft merger agreement provided for, among other things, the cash out of equity awards based on the per share merger consideration, a 45-day “go-shop” period, and payment by Parent of a reverse termination fee in the event that Parent failed to close when required to do so pursuant to the terms of the merger agreement or in the event of certain material breaches by Parent and payment by the Company of a termination fee equal to the termination fee proposed in the draft delivered by Kirkland to White & Case on March 24, 2020 (and a lesser amount if in connection with the “go-shop” provisions) and removed, among other things, the closing condition based on the number of dissenting shares, the termination right based on a breach of the no-shop covenant, reimbursement of Parent’s and the Buyer Consortium’s expenses in the event that the Company is obligated to pay the termination fee, and the cap on Parent’s liability for all breaches under the merger agreement as proposed in such draft delivered by Kirkland to White & Case.

On April 14, 2020 and April 20, 2020, the Special Committee and the Company entered into a confidentiality agreement with Casdin and Velvet Investment, respectively. These confidentiality agreements contain, in addition to customary limitations regarding the use and disclosure of the Company’s confidential information, standstill provisions that prohibit the counterparty and its affiliates from taking certain actions during the 18-month period after the date of the confidentiality agreement, including prohibitions on acquiring, agreeing to acquire or proposing to acquire securities or any material assets of the Company, or rights to vote or direct the voting of securities of the Company. Although each confidentiality agreement provides that such standstill obligations would terminate upon, among other things, entry into the merger agreement or commencement of a tender offer or exchange offer with respect to the Company, such agreements do not contain “don’t ask, don’t waive” restrictions.

Also on April 14, 2020, representatives of Jefferies participated on a call with a representative of HBH. During this call, the representative of HBH communicated a revised proposal for the Buyer Consortium to acquire all outstanding shares of Common Stock (other than those shares held by members of the Buyer Consortium that may be rolled over in the proposed transaction) for $18.50 per share in cash (the “April 14 Proposal”). Representatives of Jefferies provided an update regarding this discussion to the Special Committee later that day.

 

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On April 15, 2020, the Special Committee held a telephonic meeting to discuss the April 14 Proposal. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Representatives of Jefferies provided an update regarding the April 14, 2020 call among representatives of Jefferies and representatives of HBH regarding the April 14 Proposal. Following discussion of such matters, as well as the liquidity position of the Company and the Company’s limited access to capital on acceptable terms, the Special Committee directed Jefferies to communicate to the Buyer Consortium that the April 14 Proposal was not compelling and that the Special Committee would consider a revised proposal of $19.00 per share in cash assuming resolution of the issues in the merger agreement in a manner acceptable to the Special Committee.

On April 17, 2020, representatives of Jefferies participated on a call with representatives of HBH. During this call, in accordance with the Special Committee’s directives, a representative of Jefferies communicated to the representatives of HBH that the April 14 Proposal was not compelling to the Special Committee and that the Special Committee would consider a revised proposal of $19.00 per share in cash. During that call, representatives of HBH agreed to the per share consideration of $19.00 in cash. Representatives of Jefferies reported to the Special Committee the Buyer Consortium’s agreement to per share consideration of $19.00 in cash.

On April 18, 2020, a representative of HBH called a representative of Jefferies to convey that, notwithstanding the acceptance communicated during the April 17, 2020 call, the Buyer Consortium was reverting to its April 14 Proposal of $18.50 per share in cash.

On April 20, 2020, Kirkland delivered to White & Case a revised draft merger agreement. The revised draft merger agreement provided for, among other things, the rollover of all vested and unvested equity awards into awards settled in stock of Parent, a condition in favor of Parent that the number of dissenting shares not exceed a specified percentage of the total outstanding shares of Common Stock, a termination right in favor of Parent (and payment of a termination fee equal to the termination fee proposed in the draft delivered by White & Case to Kirkland on April 7, 2020) if the Company breached the no-shop covenant, reimbursement of Parent’s and the Buyer Consortium’s expenses in the event that the Company was obligated to pay a termination fee, and a cap on Parent’s liability for all breaches under the merger agreement and removed, among other things, the “go-shop” provisions and the reverse termination fee.

From April 20, 2020 to April 28, 2020, Kirkland, White & Case and Novartis exchanged drafts of a confidentiality agreement contemplated to be entered into among the Special Committee, the Company and Novartis. However, Novartis’ continuing position was that it would not agree to enter into a confidentiality agreement that contained a standstill provision. On April 28, 2020, after consultation with Mr. Au, it was determined that Novartis would not be required to enter into the proposed confidentiality agreement, given the existing confidentiality restrictions contained in the Collaboration Agreement and certain other agreements to which the Company and Novartis were parties.

On April 21, 2020, representatives of HBH and Jefferies continued discussions regarding the April 14 Proposal. During this discussion, a representative of HBH explained that certain other members of the Buyer Consortium were lacking sufficient capital to proceed with a revised proposal of $19.00 per share in cash and would not be able to participate in the proposed transaction at that price.

Later on April 21, 2020, the Special Committee held a telephonic meeting to continue discussions regarding the April 14 Proposal in light of the recent discussions among representatives of Jefferies and HBH. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Representatives of Jefferies updated the Special Committee regarding the explanation provided by HBH for the acceptance (and later rejection) of a revised proposal of $19.00 per share in cash. Following discussion of the Special Committee’s concerns that certain of the Buyer Consortium members might withdraw from their consideration of a proposed transaction due to the lack of sufficient capital if the Special Committee insisted at such time on per share consideration of $19.00 in cash, the current operations of the Company and the effects of

 

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the COVID-19 pandemic, the ongoing liquidity position of the Company, the Company’s limited access to capital on acceptable terms and the proposed terms of the merger agreement, the Special Committee directed Jefferies to communicate to representatives of HBH that the Special Committee would accept the April 14 Proposal if the Buyer Consortium substantially agreed to the terms of a transaction reflected in the revised draft merger agreement provided by White & Case on April 7, 2020.

On April 22, 2020, representatives of Jefferies participated on a call with representatives of HBH. During this call, in accordance with the Special Committee’s directives, representatives of Jefferies communicated to the representatives of HBH the Special Committee’s conditional acceptance of the April 14 Proposal subject to the Buyer Consortium agreeing to the terms of a transaction reflected in the revised draft merger agreement provided by White & Case on April 7, 2020.

On April 24, 2020, Kirkland and White & Case participated on a call to discuss process and next steps with respect to the proposed transaction.

On April 25, 2020, White & Case delivered to Kirkland a revised draft merger agreement. The revised draft merger agreement provided for, among other things, the cash out of equity awards based on the per share merger consideration, a 30-day “go-shop” period and payment of a reverse termination fee by Parent equal to the reverse termination fee proposed in the draft delivered by White & Case to Kirkland on April 7, 2020 in the event that Parent failed to close when required to do so pursuant to the terms of the merger agreement or in the event of certain material breaches by Parent and payment by the Company of a termination fee equal to the termination fee proposed in such draft delivered by White & Case to Kirkland under certain circumstances and removed, among other things, the closing condition based on the number of dissenting shares, the termination right based on a breach of the no-shop covenant, the reimbursement of Parent’s and the Buyer Consortium’s expenses in the event that the Company was obligated to pay the termination fee, and the cap on Parent’s liability for all breaches under the merger agreement.

On April 28, 2020, representatives of White & Case and Kirkland participated on a call to discuss certain proposed terms of the merger agreement, including, among other things, the “go-shop” period, the circumstances in which the Company would be liable to Parent for a termination fee or Parent would be liable to the Company for a reverse termination fee, the amounts of the termination fees and the reverse termination fee, the conduct of the Company’s operations during the period between signing of the merger agreement and closing of the merger, and the treatment of equity awards in the merger.

On April 29, 2020, the Board held a telephonic regular meeting. At the invitation of the Board, Mr. Chan also attending this meeting. During this meeting, Mr. Liu updated the Board regarding various matters relating to the Company’s business, including the Company’s intention to provide notice to Novartis pursuant to the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement of the development of one of the Company’s products, recent clinical results relating to such product, and the Company’s liquidity position and potential means to address the Company’s working capital needs.

On April 30, 2020, the Special Committee held a telephonic meeting to discuss certain proposed terms of the merger agreement and the positions communicated by Kirkland with respect to those terms. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. At this meeting, representatives of White & Case reviewed with the Special Committee the status of negotiations with Kirkland and the open points in the merger agreement. Following discussion, the Special Committee directed White & Case to communicate the Special Committee’s positions with respect to those issues to Kirkland. Later that day, White & Case and Kirkland participated on a call to discuss those issues.

On May 1, 2020, Kirkland delivered to White & Case a revised draft merger agreement. The revised draft merger agreement provided for, among other things, the rollover of all vested and unvested options and performance stock units and all unvested restricted stock units into awards settled in stock of Parent, the cash out

 

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of all vested RSUs based on the per share merger consideration, a termination right in favor of Parent (and payment of a termination fee by the Company in an amount greater than the termination fee proposed in the draft delivered by White & Case to Kirkland on April 25, 2020 if the Company breached the no-shop covenant, and payment of a reverse termination fee by Parent in an amount less than the reverse termination fee proposed in such draft delivered by White & Case to Kirkland if the merger agreement was terminated because Parent failed to close when required to do so pursuant to the terms of the merger agreement.

On May 5, 2020, White & Case delivered to Kirkland a revised draft merger agreement. The revised draft merger agreement provided for, among other things, the cash out of all equity awards based on the per share merger consideration, payment of a termination fee by the Company in an amount less than the termination fee proposed in the draft delivered by Kirkland to White & Case on May 1, 2020 (and a lesser amount if in connection with the “go-shop” provisions) under certain circumstances and payment of a reverse termination fee by Parent in an amount greater than the reverse termination fee proposed in such draft delivered by Kirkland to White & Case in the event that Parent failed to close when required to do so pursuant to the terms of the merger agreement or in the event of certain material breaches by Parent and removed, among other things, the termination right based on a breach of the no-shop covenant.

On May 6, 2020, representatives of White & Case and Kirkland participated on a call to discuss certain proposed terms of the merger agreement. During this discussion, the parties agreed, among other things, that the termination fee payable by the Company under certain circumstances would be equal to the termination fee proposed in the draft delivered by White & Case to Kirkland on May 5, 2020 (including a lesser amount if in connection with the “go-shop” provisions), a reverse termination fee equal to the reverse termination fee proposed in such draft delivered by White & Case to Kirkland would be payable by Parent in the event that Parent failed to close when required to do so pursuant to the terms of the merger agreement or in the event of certain material breaches by Parent, and Parent would not be permitted to terminate the merger agreement solely on the basis that the Company breached the no-shop covenant.

Later that day, representatives of Kirkland delivered to White & Case a revised draft merger agreement. The revised draft merger agreement provided for, among other things, the rollover of all vested and unvested options and performance stock units and all unvested restricted stock units into awards settled in stock of Parent, and the cash out of all vested RSUs based on the per share merger consideration, as well as certain terms agreed between White & Case and Kirkland earlier that day. From that date through May 21, 2020, Kirkland and White & Case, after regular consultation with and guidance from the Special Committee, continued to negotiate the terms of the merger agreement, including the treatment of equity awards thereunder, as well as the forms of equity commitment letter and limited guarantee to be delivered by certain members of the Buyer Consortium.

On May 9, 2020, the Special Committee held a telephonic meeting to discuss certain proposed terms of the merger agreement, including the treatment of equity awards. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. At this meeting, representatives of White & Case reviewed with the Special Committee the status of negotiations with Kirkland and the open terms of the merger agreement. Following discussion, the consensus of the Special Committee was that Mr. Au would contact Mr. Liu to discuss certain matters relating to the Company’s employees and treatment of equity awards. On May 11, 2020, Mr. Au discussed with Mr. Liu certain modifications to the merger agreement relating to the treatment of equity awards.

On May 15, 2020, representatives of Gibson, Dunn & Crutcher LLP, outside legal counsel to the Company (“Gibson Dunn”), participated on a telephone conference with representatives of CFIUS to discuss the proposed transaction.

On May 16, 2020, White & Case delivered to Kirkland an initial draft of the Company’s confidential disclosure letter.

On June 1, 2020, representatives of TF Capital introduced Mr. Liu to representatives of Yunfeng Capital.

 

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On or about June 5, 2020, Mr. Liu met with representatives of Yunfeng Capital in Shanghai to discuss Yunfeng Capital’s potential interest in participating in the Buyer Consortium.

Between June 6, 2020 and June 8, 2020, Mr. Liu participated on various calls with representatives of HBH to discuss the status of the proposed transaction. During these calls, representatives of HBH informed Mr. Liu that, in light of various recent developments, including the impact of the COVID-19 pandemic on the Company’s operations, the recent volatility in trading markets and the regulatory advancement of a drug that would potentially compete with a customer-collaborated product manufactured by the Company, HBH was reconsidering its participation in the Buyer Consortium and required further internal deliberation regarding whether it was prepared to move forward with the proposed transaction on the terms contemplated at that time.

On June 8, 2020, June 10, 2020 and June 11, 2020, Mr. Liu and representatives of Yunfeng Capital held several meetings (with representatives of TF Capital also in attendance at some of those meetings) to explore the possibility and feasibility of Yunfeng Capital replacing HBH as a member of the Buyer Consortium and one of the designated lead investors under the Consortium Agreement in the event that HBH determined to withdraw from the Buyer Consortium and not proceed with the proposed transaction. On or about June 11, 2020, representatives of Yunfeng Capital informed Mr. Liu and TF Capital that Yunfeng Capital was interested in potentially joining the Buyer Consortium, subject to further internal deliberation as well as further evaluation of the Company and its business based on publicly available information of the Company. On or about June 11, 2020, Yunfeng Capital engaged O’Melveny & Myers LLP (“O’Melveny”) to assist it in its evaluation of the proposed transaction and potentially joining the Buyer Consortium and Mr. Liu engaged Wilson Sonsini Goodrich & Rosati, P.C. to serve as his U.S. legal counsel in connection with the proposed transaction.

On June 11, 2020, the Special Committee held a telephonic meeting to discuss certain updates relating to the proposed transaction and the operations of the Company. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. During this meeting, the Special Committee discussed the possibility that HBH could withdraw from the Buyer Consortium. The Special Committee also discussed recent clinical results relating to one of the Company’s products and the potential impact of such results on the Company.

From June 12, 2020 to June 16, 2020, representatives of Yunfeng Capital and O’Melveny conducted due diligence on the Company based solely on publicly available information and evaluated various considerations relating to Yunfeng Capital’s potential involvement in the proposed transaction and membership in the Buyer Consortium, including legal and regulatory matters that might be implicated by a “going private transaction” involving the Company. Yunfeng Capital had not entered into any confidentiality agreement with the Company at that time, nor had Yunfeng Capital received from the Company any due diligence information (including any confidential information) with respect to the Company.

On June 13, 2020, the Board held a telephonic special meeting. At the invitation of the Board, Mr. Chan and representatives of Gibson Dunn also attended the meeting. During this meeting, among other things, Mr. Liu informed the Board that, while there had not been any formal change to the Buyer Consortium’s composition as of such time, the composition might change in the near future. Mr. Liu also provided an overview of certain recent clinical results and informed the Board that notice was provided to Novartis pursuant to the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement of the development of one of the Company’s products as previously discussed during the April 29, 2020 meeting of the Board. Mr. Liu also updated the Board regarding the Company’s liquidity position and his intention to seek third party debt financing.

On June 18, 2020, representatives of O’Melveny provided a draft termination agreement to HBH relating to HBH’s withdrawal from the Buyer Consortium. During this time, representatives of O’Melveny also provided updates to other members of the Buyer Consortium and provided for their consideration drafts of the termination agreement as well as a draft of an amended and restated consortium agreement (which was in substantially the

 

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same form as the Consortium Agreement, except that Yunfeng Capital would replace HBH as a member of the Buyer Consortium and one of the lead investors thereunder).

Between June 18, 2020 and June 24, 2020, representatives of O’Melveny negotiated the terms of the termination agreement with representatives of HBH and its outside legal counsel.

On June 24, 2020, HBH and each of the other members of the Buyer Consortium at that time (consisting of Messrs. Liu, Yao and Dai, Ms. Zhang, TF Capital, Velvet Investment, Casdin, Dangdai, Mission Right, Mr. Pan, Zheng Zhou, Wealth Map, Earls Mill and OPEA SRL) entered into the termination agreement (the “Termination Agreement”) pursuant to which HBH terminated its involvement and participation in the transactions contemplated under the Consortium Agreement and withdrew from the Buyer Consortium as of that date. Later on that same day, Yunfeng Capital and the members of the Buyer Consortium at that time (other than HBH, which had terminated its involvement in the Buyer Consortium earlier that day under the Termination Agreement) entered into an amended and restated consortium agreement (the “A&R Consortium Agreement”), which superseded the Consortium Agreement in its entirety on substantially the same terms as the Consortium Agreement, to provide for, among other things, the inclusion of Yunfeng Capital as a new member of the Buyer Consortium and as one of the lead investors (together with Mr. Liu and TF Capital) that was authorized and empowered to negotiate the terms of the potential transaction involving the Company on behalf of the Buyer Consortium with the Special Committee and its advisors.

Also on June 24, 2020, HBH Advisor amended its Schedule 13D to disclose HBH’s withdrawal from the Buyer Consortium. Mr. Liu (and certain other members of the Buyer Consortium that had joined in Mr. Liu’s filing) and Dangdai each amended their respective Schedule 13Ds to disclose that Yunfeng Capital would be added as a member of the Buyer Consortium. These amendments also disclosed that the reconstituted Buyer Consortium may be deemed to beneficially own approximately 38.5% of the outstanding shares of Common Stock.

On June 25, 2020, representatives of Kirkland sent to O’Melveny, which at that time had been appointed as outside legal counsel to the Buyer Consortium pursuant to the terms of the A&R Consortium Agreement, the latest drafts of the transaction documents that Kirkland had been negotiating with White & Case prior to HBH’s decision to enter into the Termination Agreement and withdraw from the Buyer Consortium. That same day, O’Melveny participated on an introductory call with White & Case. During this call, representatives of White & Case updated O’Melveny with respect to the negotiations to date and the status of the merger agreement and other transaction documents.

On June 26, 2020, and again on July 1, 2020, representatives of White & Case, O’Melveny and Gibson Dunn participated on calls to review Gibson Dunn’s interactions with CFIUS regarding the proposed transaction, and to discuss potential future interactions with CFIUS, with respect to the proposed transaction.

Also on June 26, 2020, the Board held a telephonic meeting. At the invitation of the Board, Mr. Chan and representatives of Gibson Dunn also attended the meeting. During this meeting, among other things, Mr. Liu reminded the Board that notice was provided to Novartis pursuant to the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement of the development of one of the Company’s products and provided an overview of the competitive landscape with respect to such product.

Between June 28, 2020 and July 3, 2020, representatives of O’Melveny evaluated the latest drafts of the transaction documents, including the merger agreement, with the lead members of the Buyer Consortium (consisting of Yunfeng Capital, Mr. Liu and TF Capital), during which time such parties discussed, among other matters, the open points in the merger agreement and other transaction documents, regulatory matters, and next steps and timeline with respect to the signing of definitive agreements. During these discussions, the lead members agreed to attempt to maintain consistency in approach on the merger agreement and the terms of the other transaction documents as previously negotiated with the Special Committee (to the extent feasible and

 

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supported by legal and commercial considerations of the Buyer Consortium as reconstituted by the A&R Consortium Agreement). Following these discussions, representatives of O’Melveny and the lead members of the Buyer Consortium determined that the key open points with respect to the proposed transaction were the Special Committee’s request that the Equity Investors be jointly and severally liable under their respective limited guarantees for the entire reverse termination fee that would be payable to the Company under certain circumstances and the desire by the Buyer Consortium to formally submit the proposed transaction to CFIUS for review.

On July 3, 2020, the Special Committee and the Company entered into a confidentiality agreement with Yunfeng Capital that provided for substantially similar confidentiality and standstill provisions as the confidentiality agreements previously executed by the other members of the Buyer Consortium. Following the execution of the confidentiality agreement, Yunfeng Capital and its advisors were granted access to due diligence materials provided by the Company and began their commercial, financial, regulatory and legal due diligence review of the Company (which was completed on or about August 1, 2020).

On July 7, 2020, the Special Committee held a telephonic meeting to discuss recent updates with respect to the proposed transaction. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Representatives of White & Case reviewed with the Special Committee the recent discussions among White & Case, O’Melveny and Gibson Dunn regarding CFIUS matters, including Yunfeng Capital’s intention (as communicated by representatives of O’Melveny on July 1, 2020) to formally clear the transaction with CFIUS prior to consummation of the merger. The Special Committee discussed the timing of a proposed transaction, including potential SEC and CFIUS review, and the impact of such timing on the Company’s liquidity position, which could result in the Company not having sufficient capital to fund its ongoing operations given that the first tranche of the TF Bridge Loan would mature on October 30, 2020 (or upon the occurrence of an earlier event of default). The Special Committee also continued discussions regarding recent clinical results relating to one of the Company’s products and the potential impact of such results on the Company. Following discussion of potential means to address the Company’s liquidity position prior to consummation of the proposed transaction, the consensus of the Special Committee was that the Special Committee would discuss with Mr. Liu the impact of the recent clinical results relating to such product on the March Management Forecasts and the need to secure short-term liquidity support. Following this meeting, Mr. Belmont contacted Mr. Liu to arrange a discussion with Mr. Liu and other members of Company management to review all ongoing projects relating to the Company’s products.

On July 8, 2020, the Special Committee held a telephonic meeting to receive an update from Company management regarding each of the Company’s products then under development. At the invitation of the Special Committee, Messrs. Liu, Yao and Chan, and Dr. Michael Humphries, Head of Development & Strategy of the Company, as well as representatives of White & Case and Jefferies, also attended this meeting. Messrs. Yao and Liu led a discussion with the Special Committee regarding the Company’s ongoing clinical programs and recent clinical results, including discussion of delays in certain clinical programs resulting from the impact of the COVID-19 pandemic, and a discussion of recent clinical results relating to one of the Company’s products. Company management was then excused from the meeting, and the Special Committee continued to discuss with its advisors the clinical results provided by Company management and its potential impact on the Company. Following further discussion, the consensus of the Special Committee was that Company management should revise the March Management Forecasts to reflect more recent clinical data and that the Board should discuss with Company management financing alternatives that might be available to address the Company’s liquidity position, including additional financing from Winsor Capital Limited or equity financing from another third party.

From July 10, 2020 until July 13, 2020, representatives of O’Melveny negotiated the terms of the merger agreement, form of equity commitment letter, form of limited guarantee and certain other transaction documents with certain members of the Buyer Consortium and their respective outside legal counsels. From time to time during this process, representatives of O’Melveny discussed the issues arising under the merger agreement (in

 

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particular, with respect to the CFIUS process and consequences of any failure to obtain CFIUS clearance) and under the interim investors agreement (in particular, with respect to draft proposed post-closing governance terms that were to be later negotiated), and positions to be taken in negotiations with the Special Committee and its advisors.

On July 13, 2020, O’Melveny delivered to White & Case revised drafts of the merger agreement, form of equity commitment letter, form of limited guarantee and certain other transaction documents. The revised draft merger agreement provided for, among other things, the rollover of all unvested equity awards into awards settled in stock of Parent, and the cash out of all vested equity awards based on the per share merger consideration, a condition that the transaction is cleared by CFIUS (as well as a termination right if the transaction is not cleared by CFIUS under certain circumstances), and a condition that Novartis waives the right of first negotiation with respect to the proposed transaction granted in favor of Novartis by the Company under the Collaboration Agreement.

On July 14, 2020, the Board held a telephonic special meeting. At the invitation of the Board, Mr. Chan and representatives of Gibson Dunn were also present. During this meeting, Mr. Liu provided to the Board an overview of the Company’s projected cash flows for the remainder of calendar year 2020. Mr. Liu also informed the Board that TF Capital would agree to extend the maturity of the TF Bridge Loan by six months, that Yunfeng Capital would be willing to provide an additional $25 million of bridge financing on terms substantially similar to those contained in the TF Bridge Loan Agreement and that he was participating in discussions with potential third party lenders for additional financing to satisfy the Company’s working capital needs.

On July 16, 2020, the Special Committee held a telephonic meeting to discuss certain terms of the draft merger agreement, form of equity commitment letter and form of limited guarantee provided by O’Melveny, the proposed bridge financing arrangements, the status of Company management’s preparation of revised financial forecasts for the Company, and the possible public disclosure of certain clinical data. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. The Special Committee agreed that White & Case should continue to negotiate the transaction documents with O’Melveny so that definitive agreements could be executed without delay if the Buyer Consortium proposed per share consideration that was acceptable to the Special Committee.

Later that day, Mr. Au contacted Dr. Albert Huang, Executive Director of Yunfeng Capital, to request a draft of the bridge loan agreement with Yunfeng Capital, which O’Melveny then delivered to White & Case on July 17, 2020. The draft agreement contained terms that were substantially similar to those contained in the TF Bridge Loan Agreement, except that the outstanding amounts under the loan to be provided by Yunfeng Capital would not be convertible into equity securities of the Company. From July 17, 2020, through August 11, 2020, the Special Committee and its advisors continued to negotiate the terms of the amendment to the TF Bridge Loan Agreement and the terms of the Yunfeng Capital bridge loan agreement.

On July 14, 2020, Mr. Belmont and Dr. Liu contacted Mr. Liu to discuss the proposed consideration to be paid to holders of Common Stock in the proposed transaction.

On July 20, 2020, representatives of White & Case and O’Melveny participated on a call to discuss, among other things, certain terms of the merger agreement, form of equity commitment letter and form of limited guarantee, and the status of any revised proposal which might be forthcoming from the Buyer Consortium, given that the composition of the Buyer Consortium had recently changed. During these discussions, representatives of O’Melveny informed White & Case that Yunfeng Capital proposed that the Yunfeng Capital bridge loan agreement would be signed concurrently with a merger agreement (and not earlier) because Yunfeng Capital was unwilling to provide an unsecured loan to the Company on the terms contemplated under the Yunfeng Capital bridge loan agreement unless it had some reasonable level of assurance that the Company would be able to repay the loan. Following this discussion, White & Case delivered to O’Melveny revised drafts of the merger agreement, form of equity commitment letter and form of limited guarantee. The revised draft merger agreement

 

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provided for, among other things, payment of a reverse termination fee by Parent equal to 6% of the equity value of the Company in the event that the merger agreement is terminated due to a failure to obtain CFIUS clearance. The revised draft form of limited guarantee provided, among other things, that each of the guarantors would be jointly and severally liable for the entire reverse termination fee.

Also on July 20, 2020, representatives of O’Melveny contacted Novartis to discuss the status of the transaction and to inquire whether Novartis would be interested in rolling over its shares of Common Stock as part of the proposed transaction. In connection with this outreach, O’Melveny provided representatives of Novartis with the latest drafts of the transaction documents, including a rollover and support agreement to be entered into by certain stockholders of the Company, as well as draft waivers to be provided by Novartis with respect to certain obligations of the Company under the Collaboration Agreement, including a waiver by Novartis of the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement with respect to the proposed transaction, and certain obligations of the Company under the Supply Agreement. On that same day, representatives of Novartis informed representatives of the Buyer Consortium that Novartis had not decided whether to roll over its shares of Common Stock in connection with the proposed transaction, but would consider providing the requested waivers.

On July 23, 2020, the Special Committee held a telephonic meeting to discuss certain updates to the March Management Forecasts (the “July Management Forecasts”), which updates reflected certain developments with respect to the Company’s individual products, including certain assumptions as to probability of success and certain product development delays resulting from the COVID-19 pandemic. At the invitation of the Special Committee, Mr. Liu, Ms. Jiang and Charles Zhou of the Company, as well as representatives of White & Case and Jefferies, also attended this meeting. Charles Zhou reviewed the July Management Forecasts with the Special Committee and addressed certain questions posed by the Special Committee regarding the July Management Forecasts and certain assumptions with respect to the Company’s products under development. Following discussion, Company management was excused from the meeting, and the Special Committee discussed with its advisors the status of, among other things, the draft merger agreement and the Yunfeng Capital bridge loan agreement, including Yunfeng Capital’s proposal that the Yunfeng Capital bridge loan agreement would be signed concurrently with a merger agreement (and not earlier) and the circumstances under which the Yunfeng Capital bridge loan would be required to be repaid prior to its maturity. At the conclusion of the meeting, the Special Committee directed Jefferies to update its preliminary financial information regarding the Company using the July Management Forecasts.

On July 24, 2020, the Special Committee held a telephonic meeting to discuss updated preliminary financial information prepared by Jefferies as previously requested by the Special Committee. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Jefferies reviewed with the Special Committee certain updated preliminary financial information regarding the Company. Following discussion, and in view of the potential future financial performance of the Company indicated by the July Management Forecasts and recent clinical data relating to one of the Company’s products, the Special Committee directed Jefferies to inform the Buyer Consortium that if the Buyer Consortium reconfirmed its proposal of $18.50 per share, as communicated by the Buyer Consortium in the April 14 Proposal, that per share consideration was now deemed insufficient by the Special Committee.

Also on July 24, 2020, Hogan Lovells, outside legal counsel to Novartis, provided, on behalf of Novartis, comments to the draft waivers to be provided by Novartis with respect to certain obligations of the Company under the Collaboration Agreement, including a waiver by Novartis of the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement with respect to the proposed transaction, and certain obligations of the Company under the Supply Agreement.

On July 26, 2020, O’Melveny delivered to White & Case revised drafts of the merger agreement, form of equity commitment letter, form of limited guarantee and certain other transaction documents. The revised draft merger agreement provided for, among other things, the removal of Parent’s obligation to pay the reverse

 

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termination fee in the event that the merger agreement was terminated due to a failure to obtain CFIUS clearance and the inclusion of certain limitations on the guarantor’s obligations to provide to CFIUS certain non-public information. The revised draft limited guarantee provided, among other things, that the guarantors would not be jointly and severally liable for the entire reverse termination fee.

Later that day, representatives of Jefferies contacted Dr. Huang of Yunfeng Capital to communicate the Special Committee’s position that the April 14 Proposal was insufficient. In response, Dr. Huang communicated to Jefferies a revised proposal for the Buyer Consortium to acquire all outstanding shares of Common Stock (other than those shares held by members of the Buyer Consortium that may be rolled over in the proposed transaction) for $19.00 per share in cash, contingent on the Special Committee’s acceptance of the terms set forth in the draft transaction documents delivered by O’Melveny to White & Case earlier that day. Representatives of Jefferies provided an update regarding this discussion to the Special Committee.

On July 28, 2020, O’Melveny delivered to White & Case its comments to the draft of the Company’s confidential disclosure letter. White & Case and O’Melveny continued to exchange drafts of the Company’s confidential disclosure letter through August 11, 2020.

On July 29, 2020, the Special Committee held a telephonic meeting to discuss certain terms of the merger agreement and the other transaction documents and whether to submit a counterproposal to the Buyer Consortium’s latest proposal of $19.00 per share in cash. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Following discussion, the Special Committee directed Jefferies to communicate a counterproposal to Dr. Huang of $20.75 per share in cash.

Later that day, O’Melveny delivered to White & Case a revised draft of the Yunfeng Capital bridge loan agreement, which provided that the amounts outstanding could be convertible into equity securities of the Company under certain circumstances. White & Case then delivered to O’Melveny revised drafts of the merger agreement, form of equity commitment letter, form of limited guarantee and certain other transaction documents. The revised draft merger agreement provided for, among other things, removal of the limitations on the guarantor’s obligations to provide to CFIUS certain non-public information and an obligation on the part of Parent to pay a reverse termination fee equal to 3% of the equity value of the Company in the event that the merger agreement was terminated due to a failure to obtain CFIUS clearance.

On July 31, 2020, representatives of Jefferies discussed with Dr. Huang the Special Committee’s counterproposal of $20.75 per share in cash. In response, Dr. Huang communicated a revised proposal for the Buyer Consortium to acquire all outstanding shares of Common Stock (other than those shares held by members of the Buyer Consortium that may be rolled over in the proposed transaction) for per share consideration of $19.25 in cash (the “July 31 Proposal”).

Later that day, O’Melveny delivered to White & Case revised drafts of the merger agreement, form of equity commitment letter, form of limited guarantee and certain other transaction documents. The draft merger agreement provided for, among other things, the removal of Parent’s obligation to pay the reverse termination fee in the event that the merger agreement was terminated due to a failure to obtain CFIUS clearance and the inclusion of certain limitations on the guarantor’s obligations to provide to CFIUS certain non-public information.

On August 3, 2020, representatives of White & Case and O’Melveny participated on a call to discuss certain unresolved terms of the merger agreement relating to CFIUS clearance. Representatives of O’Melveny also conveyed that the July 31 Proposal was premised on acceptance of the terms relating to CFIUS clearance contained in O’Melveny’s most recent draft of the merger agreement, and that the Buyer Consortium might consider a proposal of $19.50 per share in cash, although no formal revised proposal was made by the Buyer Consortium at such time. White & Case provided to the Special Committee a summary of certain unresolved terms of the merger agreement and related transaction documents, including those with respect to CFIUS clearance.

 

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Also on August 3, 2020, representatives of Novartis indicated that, while Novartis had not decided whether to roll over its shares of Common Stock in connection with the proposed transaction, it had decided not to join the Buyer Consortium or enter into the A&R Consortium Agreement or an interim investors agreement being negotiated by the members of the Buyer Consortium. Representatives of Novartis then provided a markup of a separate rollover and support agreement that reflected certain points for consideration in the event Novartis did ultimately decide to roll over its shares of Common Stock in connection with the proposed transaction.

On August 4, 2020, representatives of Maplebrook informed Mr. Liu that, after further internal deliberation, Maplebrook was interested in participating in the proposed transaction and joining the Buyer Consortium, but needed to first review and assess the relevant transaction documents. On that same day, representatives of O’Melveny sent to representatives of Maplebrook the latest drafts of the transaction documents (including the merger agreement, the rollover and support agreement and the interim investors agreement) and thereafter provided additional support to inform Maplebrook of the terms of the proposed transaction and the transaction documents to which Maplebrook would be a party should it decide to participate in the proposed transaction and join the Buyer Consortium.

Also on August 4, 2020, the Special Committee held a telephonic meeting to discuss whether to submit a counterproposal to the July 31 Proposal and to discuss certain terms of the merger agreement relating to CFIUS clearance. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Representatives of White & Case updated the Special Committee about their August 3, 2020 discussion with representatives of O’Melveny, including that O’Melveny explained that the July 31 Proposal was premised on acceptance of the terms relating to CFIUS clearance contained in O’Melveny’s most recent draft of the merger agreement, and that the Buyer Consortium might consider a proposal of $19.50 per share in cash. Following discussion of certain terms of the merger agreement relating to CFIUS clearance, the July 31 Proposal and the directors’ fiduciary duties in general and in the context of the July 31 Proposal, the Special Committee directed Jefferies to communicate a counterproposal to Dr. Huang of $19.95 per share in cash and an obligation on the part of Parent to reimburse the Company’s expenses (subject to a cap of 3% of the equity value of the Company) in the event that the merger agreement was terminated due to a failure to obtain CFIUS clearance. The consensus of the Special Committee was also that the members of the Special Committee would discuss with Mr. Liu this counterproposal following the regularly scheduled Board meeting later that day.

Following the meeting, White & Case delivered to O’Melveny revised drafts of the merger agreement, form of equity commitment letter and form of limited guarantee. The draft merger agreement provided for, among other things, an obligation on the part of Parent to reimburse the Company’s expenses (subject to a cap of 3% of the equity value of the Company) in the event that the merger agreement is terminated due to a failure to obtain CFIUS clearance.

Also following the meeting, in accordance with the Special Committee’s directives, representatives of Jefferies communicated to Dr. Huang the Special Committee’s counterproposal of $19.95 per share in cash. In response, Dr. Huang explained that he was not authorized to propose per share consideration greater than $19.50 in cash, but that he would advise the other members of the Buyer Consortium of the proposal. Dr. Huang also explained that Yunfeng Capital would not accept an obligation to reimburse the Company’s expenses or to pay a reverse termination fee if CFIUS clearance is not obtained, and if the Company insisted on such a provision, Yunfeng Capital likely would not proceed with the proposed transaction.

Later that day, the Special Committee met with Mr. Liu following a regularly-scheduled meeting of the Board to discuss the proposed per share consideration and certain terms of the merger agreement relating to CFIUS clearance. During that discussion, the Special Committee proposed to Mr. Liu that, if the per share consideration were increased, the Special Committee would not insist on an obligation on the part of Parent to reimburse the Company’s expenses or to pay a reverse termination fee if CFIUS clearance is not obtained.

On August 4, 2020, the Board approved the Company’s entry into the Amendment Letter and the Yunfeng Bridge Loan Agreement.

 

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On August 5, 2020 and August 6, 2020, O’Melveny delivered to White & Case drafts of the proposed waivers to be provided by Novartis with respect to certain obligations of the Company under the Collaboration Agreement, including a waiver by Novartis of the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement with respect to the proposed transaction, and certain obligations of the Company under the Supply Agreement.

Also on August 5, 2020, representatives of Full Moon informed Mr. Liu that, after further internal discussion and consideration, Full Moon was interested in participating in the proposed transaction and joining the Buyer Consortium, but needed to continue to review and assess the relevant transaction documents.

On August 6, 2020, O’Melveny delivered to White & Case revised drafts of the merger agreement, form of equity commitment letter, and form of limited guarantee. O’Melveny and White & Case continued to exchange drafts of these and other transaction documents through August 11, 2020

On August 7, 2020, White & Case delivered to O’Melveny a revised draft of the waiver relating to the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement, which provided, among other things, that Novartis’ waiver of its right of first negotiation extended to acquisition proposals that are superior proposals under the merger agreement. Later that day, a representative of O’Melveny explained to White & Case that Novartis was unwilling to expand the scope of the waiver in the manner proposed by White & Case.

Also on August 7, 2020, at the direction of the Special Committee, representatives of Jefferies contacted representatives of Yunfeng Capital to request a status update regarding any revised proposals that might be forthcoming.

At various times on August 7, 2020 and August 8, 2020, Mr. Liu and representatives of Yunfeng Capital, TF Capital and Velvet Investment discussed the open points in the merger agreement and the proposed per share consideration and resolved to make a best and final offer to the Special Committee of $19.75 per share in cash, contingent on the Special Committee’s agreement to remove any termination fee associated with termination of the merger agreement due to failure to obtain CFIUS clearance, as reflected in the revised draft merger agreement that O’Melveny proposed to circulate to White & Case.

On August 8, 2020, representatives of O’Melveny sent to representatives of Full Moon various background materials as well as the latest drafts of the transaction documents (including the drafts of the merger agreement, the rollover and support agreement and the interim investors agreement) and thereafter provided additional support to inform Full Moon of the terms of the proposed transaction and the transaction documents to which Full Moon would be party should it decide to participate in the proposed transaction and join the Buyer Consortium.

Also on August 8, 2020, O’Melveny circulated final drafts of the transaction documents, including the merger agreement, to the members of the Buyer Consortium, Novartis, Maplebrook and Full Moon. On or about that same day, representatives of Novartis informed representatives of O’Melveny that, subject to the resolution of the remaining open points with respect to the scope of the proposed Novartis waiver of its right of first negotiation, Novartis had decided to roll over its shares of Common Stock in the proposed transaction and would execute the Novartis Rollover and Support Agreement, but as previously communicated to O’Melveny, it had decided not to join the Buyer Consortium or sign the interim investors agreement. Representatives of Maplebrook and Full Moon each informed Mr. Liu and representatives of O’Melveny that they were satisfied with the terms of the transaction documents, including the merger agreement, rollover and support agreement, and the interim investors agreement, and were prepared to execute the rollover and support agreement and interim investors agreement and thereby join the Buyer Consortium. During that same day, representatives of O’Melveny discussed with representatives of Hogan Lovells the request from the Special Committee and its advisors that Novartis’ waiver of its right of first negotiation extend to acquisition proposals that are superior

 

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proposals under the merger agreement, to which the response was that Novartis was unwilling to provide an advanced and irrevocable waiver in respect of an indistinct transaction with respect to which Novartis did not know, among other things, the counterparties or the terms of the proposed transaction that would constitute a superior proposal.

Further on August 8, 2020, representatives of Jefferies participated on a call with representatives of Yunfeng Capital. During this call, the representatives of Yunfeng Capital communicated a revised proposal for the Buyer Consortium to acquire all outstanding shares of Common Stock (other than those shares held by members of the Buyer Consortium that may be rolled over in the proposed transaction) for $19.75 per share in cash, contingent on acceptance of the terms reflected in the revised draft merger agreement that would be forthcoming from O’Melveny. Jefferies then provided an update to the Special Committee regarding the revised proposal just received from the Buyer Consortium.

Shortly thereafter, the revised proposal of $19.75 per share in cash was also communicated by email from O’Melveny to White & Case. Later that day, O’Melveny delivered to White & Case revised drafts of the merger agreement, form of equity commitment letter, form of limited guarantee and certain other transaction documents, and stated that Hogan Lovells (on behalf of Novartis) reiterated that Novartis would not agree to an advance waiver of its right of first negotiation without knowing the counterparties or terms of the transaction, and this included an advance waiver of any acquisition proposal which would constitute a superior proposal under the merger agreement.

During the evening of August 8, 2020, representatives of White & Case and O’Melveny participated on a call to discuss, among other things, the methodology used to calculate the termination fees and the reverse termination fee reflected in the revised draft merger agreement.

On August 9, 2020, Jefferies provided to White & Case updated disclosure regarding Jefferies’ relationships with the members of the Buyer Consortium and the absence of any material relationships between Jefferies and the Company during the two-year period prior to August 9, 2020, which White & Case delivered to the Special Committee on August 10, 2020. Other than its engagement as a financial advisor to the Special Committee in connection with the Merger, Jefferies’ updated disclosure revealed that no material relationships existed in the past two years between Jefferies’ financial advisory business and the Company, Parent or any of the Participants, including any material relationship pursuant to which any compensation was received from the Company, Parent or any of the Participants for financial advisory or financing services.

The following day, on August 10, 2020, representatives of White & Case discussed the scope of the waiver of the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement with representatives of Hogan Lovells. During that discussion, the representatives of Hogan Lovells reiterated that Novartis would not agree to expand the scope of the waiver to include a waiver of its right of first negotiation with respect to acquisition proposals that are superior proposals under the merger agreement.

On August 10, 2020, Mr. Liu received a message from representatives of Casdin that, in light of the newly-revised proposal of $19.75 per share in cash, Casdin may need additional time to evaluate its involvement in the Buyer Consortium and its participation in the proposed transaction.

During the evening of August 10, 2020, the Special Committee held a telephonic meeting. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Representatives of White & Case reviewed with the Special Committee the directors’ fiduciary duties in general and in the context of the proposed Merger Agreement. White & Case then reviewed the Merger Agreement and other transaction documents, including the limited scope of the waiver of the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement. Also at this meeting, at the Special Committee’s request, Jefferies reviewed its financial analysis of the Per Share Merger Consideration with the Special Committee. After discussion of the financial analysis among members of the Special Committee and

 

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representatives of Jefferies, Jefferies rendered its opinion to the Special Committee to the effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as described in its opinion, the Per Share Merger Consideration to be received by holders of shares of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. After careful consideration of various reasons to approve the Merger Agreement and the risks associated therewith, the Special Committee unanimously (i) determined that the terms of the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (ii) directed that the Merger Agreement be submitted to the Board for its approval and recommendation that the Company’s stockholders adopt the Merger Agreement, and (iii) recommended that the Board (a) approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, (b) declare that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (c) authorize and approve the Company’s entry into the Merger Agreement and consummation of the transactions contemplated thereby, including the Merger, (d) submit the adoption of the Merger Agreement for consideration by the Company’s stockholders at a meeting of the stockholders of the Company, and (e) recommend that the Company’s stockholders vote in favor of the adoption of the Merger Agreement. The Special Committee also approved, and ratified all actions previously taken by the Board with respect to, the Amendment Letter and the Yunfeng Bridge Loan Agreement.

Shortly after the Special Committee meeting during the evening of August 10, 2020, Mr. Liu informed the other members of the Board that the meeting of the Board that was to occur immediately following the Special Committee meeting would be postponed for 24 hours, and representatives of O’Melveny contacted representatives of White & Case to convey that they received indications that suggested that Casdin might not be prepared to participate in the proposed transaction.

During the evening of August 10, 2020 through the morning of August 11, 2020, after discussions among certain members of the Buyer Consortium, Mr. Liu agreed to increase his capital contribution under his equity commitment letter by $5 million to a total of $10 million, Dangdai agreed to increase the number of its rollover shares from 1,513,333 shares of Common Stock to 1,766,498 shares of Common Stock, Yunfeng Capital agreed to increase its equity commitment under its equity commitment letter by $5 million to a total of $105 million and TF Capital agreed to increase its equity commitment under its equity commitment letter by $5 million to a total of $65 million, in each case, to cover any shortfall resulting from Casdin’s withdrawal from the Buyer Consortium.

During the morning of August 11, 2020, representatives of O’Melveny confirmed to White & Case that Casdin would not be participating in the proposed transaction and confirmed that the Buyer Consortium had agreed to reallocate Casdin’s portion of the equity commitment and guaranteed obligations among the participating members of the Buyer Consortium.

During the evening of August 11, 2020, the Special Committee held a telephonic meeting. At the invitation of the Special Committee, representatives of White & Case and Jefferies also attended this meeting. Representatives of White & Case reviewed with the Special Committee the changes to the composition of the Buyer Consortium and the changes that were made to the transaction documents to reflect such changes. During this meeting, the Special Committee confirmed its prior recommendation to the Board.

Later that evening, the Board held a telephonic meeting. At the invitation of the Board, certain members of Company senior management, as well as representatives of White & Case and Gibson Dunn, also attended this meeting. Dr. Liu, in his capacity as Chairman of the Compensation Committee of the Board, reported on the recent meeting of the Compensation Committee at which the Compensation Committee reviewed the terms of certain incentive plans sponsored by the Company. The Compensation Committee then recommended to the

 

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Board that the Board adopt the treatment of equity awards as contemplated by the Merger Agreement, and the Board thereafter adopted such treatment (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium). Mr. Au, on behalf of the Special Committee, then reviewed with the Board the Special Committee’s process, and conveyed the Special Committee’s recommendation to the Board. In reviewing with the Board the Special Committee’s process, Mr. Au reported that the Special Committee, among other things, had carefully reviewed and considered (i) the advice of its legal advisors regarding the terms and conditions of the Merger Agreement and the Merger and (ii) the opinion rendered to the Special Committee by its financial advisor, Jefferies, as to the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by holders of shares of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) pursuant to the Merger Agreement, and, in conveying the Special Committee’s recommendation to the Board, stated that the Special Committee recommended that the Board (a) approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, (b) declare that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (c) authorize and approve the Company’s entry into the Merger Agreement and consummation of the transactions contemplated thereby, including the Merger, (d) submit the adoption of the Merger Agreement for consideration by the Company’s stockholders at a meeting of the stockholders of the Company, and (e) recommend that the Company’s stockholders vote in favor of the adoption of the Merger Agreement. After careful consideration, the Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium), acting on behalf of the Company and upon the unanimous recommendation of the Special Committee with respect to the Merger Agreement and the transactions contemplated thereby, including the Merger, unanimously (i) determined that the Merger Agreement and other transaction documents and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (ii) authorized and approved the execution, delivery and performance by the Company of the Merger Agreement and other transaction documents and consummation of the transactions contemplated thereby, including the Merger, and (iii) directed that the Merger Agreement be submitted for adoption by the Company’s stockholders and recommended that the Company’s stockholders vote in favor of the adoption of the Merger Agreement.

Following the adjournment of such meeting, the Company, Parent and Merger Sub entered into the Merger Agreement, and the related transaction documents, including the Novartis Waivers (as defined in “—Position of the Participants as to the Fairness of the Merger—Novartis’ Position”), the Amendment Letter and the Yunfeng Bridge Loan Agreement were also executed. Prior to the opening of the financial markets in the United States on August 12, 2020, the Company issued a press release announcing the execution of the Merger Agreement and other transaction documents and filed a Current Report on Form 8-K, including copies of the Merger Agreement and the press release as exhibits.

On August 12, 2020, Mr. Liu (and certain other members of the Buyer Consortium that had joined in Mr. Liu’s filing) and Dangdai each amended their respective Schedule 13Ds to disclose the execution of the Merger Agreement and other transaction documents.

On August 14, 2020, Novartis filed its Schedule 13D to disclose that Novartis executed the Novartis Rollover and Support Agreement and the Novartis Waivers to the Collaboration Agreement and the Supply Agreement on August 11, 2020 in connection with the execution of the Merger Agreement between the Company and the Buyer Consortium.

The Merger Agreement permits the Company (at the direction of the Special Committee) to actively solicit and negotiate Acquisition Proposals from third parties during the Go-Shop Period (as described in the section entitled “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals” beginning on page 142). During the Go-Shop Period, Jefferies, under the direction of the Special Committee, contacted again the

 

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potential acquirors that were part of the initial outreach from February 13, 2020 through March 12, 2020 (other than parties that later became Participants). As of the No-Shop Period Start Date, nine of such parties declined to evaluate a business combination with the Company, and the remaining parties had not responded in any meaningful manner. As a result, as of the No-Shop Period Start Date, there were no Excluded Parties.

On October 7, 2020, upon the request of Mr. Au on behalf of the Special Committee, Mr. Liu participated in discussions with TF Capital and Yunfeng Capital regarding the provision of additional bridge financing to the Company to address the Company’s liquidity position through the closing of the Merger. Following these discussions, on October 7, 2020, Mr. Liu notified the Special Committee that each of TF Capital and Yunfeng Capital agreed to provide a bridge loan of $10 million dollars to the Company on the terms substantially similar to the terms of the Yunfeng Bridge Loan Agreement. On October 11, 2020, White & Case delivered to O’Melveny initial drafts of the bridge loan agreements. From October 11, 2020 through October 17, 2020, White & Case and O’Melveny continued to negotiate the terms of the bridge loan agreements. The Board approved the Company’s entry into the Second TF Bridge Loan and the Second Yunfeng Bridge Loan on October 16, 2020, and the parties executed the Second TF Bridge Loan Agreement, the Second Yunfeng Bridge Loan Agreement and the Consent Letter on October 23, 2020.

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger

Both the Special Committee and the Board believe, based on their consideration of the factors described below, that the Merger Agreement and the transactions contemplated thereby, including the Merger, are substantively and procedurally fair, to the Company’s stockholders (including the Company’s unaffiliated security holders).

Recommendation of the Special Committee

The Special Committee, with the advice and assistance of its independent legal and financial advisors, evaluated and directed the negotiation of the Merger Agreement and the transactions contemplated thereby, including the Merger. At a telephonic meeting held on August 10, 2020 (described above in the section entitled “—Background of the Merger”), the Special Committee unanimously (i) determined that the terms of the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (ii) directed that the Merger Agreement be submitted to the Board for its approval and recommendation that the Company’s stockholders adopt the Merger Agreement, and (iii) recommended that the Board (a) approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, (b) declare that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (c) authorize and approve the Company’s entry into the Merger Agreement and consummation of the transactions contemplated thereby, including the Merger, (d) submit the adoption of the Merger Agreement for consideration by the Company’s stockholders at a meeting of the stockholders of the Company, and (e) recommend that the Company’s stockholders vote in favor of the adoption of the Merger Agreement. In this section entitled “—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger,” references to the Board refer to the Board without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium. The Special Committee further believes that the Merger is substantively and procedurally fair to the Company’s unaffiliated security holders.

In evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger, the Special Committee consulted with the Special Committee’s independent legal counsel and financial advisor and with Company management and, in the course of making the determinations described above, the Special

 

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Committee considered the following factors relating to the Company, its business and prospects, and the risks and challenges facing it, and to the Merger Agreement and the transactions contemplated thereby, including the Merger (which are not necessarily presented in any relative order of importance):

Merger Consideration

 

   

the immediacy and certainty of the value of the cash consideration to be paid to the Company’s unaffiliated security holders in the Merger, as compared to the long-term and recent historical trading prices of Common Stock, the potential long-term business and execution risk to the Company’s stockholders and other potential forms of consideration and the fact that such liquidity may not otherwise be available to the Company’s unaffiliated security holders. In addition, the unaffiliated security holders will have the opportunity to liquidate their ownership of Common Stock without incurring the transaction costs typically associated with market sales;

 

   

the current and historical market prices of shares of Common Stock, and the fact that the Per Share Merger Consideration of $19.75 represents:

 

   

a premium of approximately 31.9% over the closing price per share of Common Stock on August 10, 2020, the last full trading day before the Special Committee’s initial determination to recommend that the Board approve, adopt and declare advisable the Merger Agreement and the transactions contemplated thereby;

 

   

a premium of approximately 42.5% over the closing price per share of Common Stock seven days prior to August 10, 2020;

 

   

a premium of approximately 32.6% over the closing price per share of Common Stock 30 days prior to August 10, 2020;

 

   

a premium of approximately 36.9% over the closing price per share of Common Stock 90 days prior to August 10, 2020;

 

   

a premium of approximately 4% over the 52-week intraday high for the period ending on August 10, 2020;

 

   

a premium of approximately 79.9% over the 52-week intraday low for the period ending on August 10, 2020; and

 

   

a premium of approximately 11.8% over the closing price per share of Common Stock on November 8, 2019, the last trading day before the date of the November 11 Proposal;

 

   

the fact that the Special Committee negotiated an increase in the Per Share Merger Consideration to $19.75 per share in cash from the Buyer Consortium’s initial proposal of $19.50 per share in cash on November 11, 2019, notwithstanding the several changes in the composition of the Buyer Consortium, the Buyer Consortium’s attempt to reduce the per share consideration to below $19.50 per share in cash and the uncertainty related to the spread of the COVID-19 pandemic and the consequences of such pandemic on the financial markets and the possibility for the pandemic to continue to negatively impact the price of shares of Common Stock;

 

   

the Special Committee’s belief that, based on the negotiations between the parties and their respective advisors, the Per Share Merger Consideration of $19.75 was the highest per share consideration that the Buyer Consortium was willing to pay at the time of those negotiations, and that the combination of the Buyer Consortium’s agreement to pay the Per Share Merger Consideration of $19.75 and pre-signing market check conducted by the Special Committee, with the assistance of Jefferies, resulted in a sale of the Company at the highest per share consideration that was reasonably attainable, particularly in light of the Special Committee’s concern that certain Buyer Consortium members might withdraw from their consideration of a proposed transaction due to the lack of sufficient capital if the Special Committee insisted on greater per share consideration;

 

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the financial analysis reviewed by Jefferies with the Special Committee as well as the opinion of Jefferies rendered to the Special Committee on August 10, 2020 as to the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by holders of shares of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) pursuant to the Merger Agreement, which financial analysis and conclusion the Special Committee and, acting on behalf of the Company, the Board expressly adopted as their own. See “—Opinion of Jefferies LLC” beginning on page 69;

 

   

the belief that the price per share of Common Stock was not likely to trade at or above the Per Share Merger Consideration for any extended period of time in the foreseeable future in the event the Merger were not consummated, which belief was based on a number of factors, including the directors’ knowledge and understanding of the Company and its industry, the July Management Forecasts (as further described in the section entitled “—Certain Company Forecasts” and the section entitled “—Background of the Merger”), and the Company’s operating plans;

Stockholder Approval and Availability of Appraisal Rights

 

   

the non-waivable conditions that the Merger Agreement must be adopted not only by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock entitled to vote thereon, but also by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock held by stockholders entitled to vote thereon excluding the votes of the Participants and their respective affiliates;

 

   

the availability of appraisal rights under Delaware law to holders of shares of Common Stock who do not vote in favor of the adoption of the Merger Agreement and who comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have the Delaware Court of Chancery determine the fair value of shares of Common Stock held by such stockholders, which may be more than, less than, or the same as, the amount such stockholders would have received pursuant to the Merger Agreement;

Available Alternatives

 

   

information with respect to the Company’s business, operations, financial condition, earnings and prospects and long-range plans, and the risk of failing to achieve those plans, including the possibility that, if the Company did not proceed with the Merger, the Company may not have sufficient capital to meet the Company’s expected cash requirements for the next 12 months or over the longer term and, if the Company is unable to find alternative sources of financing or restructure its existing debt and other obligations, the Company might not have enough cash and working capital to fund the operations of the Company beyond the near term;

 

   

industry, economic and market conditions and trends, the impact on the Company of macro-economic developments and other risks and uncertainties discussed in the Company’s public filings with the SEC;

 

   

current financial market conditions, and historical market prices, volatility and trading information with respect to the Common Stock, as well as the general risks of market conditions that could reduce the price per share of Common Stock;

 

   

the prospects of the Company if it were to remain an independent, stand-alone company, including the competitive landscape and the fact that the Company’s expenses and fixed costs associated with its operations exceed its revenues, that the Company’s available cash is declining, and that the Company’s ability to raise capital in the future may continue to be limited;

 

   

the Special Committee’s review, with the assistance of Jefferies, of the strategic alternatives available to the Company, including seeking to continue to execute on the Company’s existing business plan,

 

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and seeking alternative sources of capital or a sale to, or merger with, another buyer, all of which had significant risks and uncertainties and, in light of the Special Committee’s outreach to alternative sources of capital and to other potential acquirors, did not appear to be reasonably available;

 

   

the fact that the Company publicly announced on November 11, 2019 its receipt of the November 11 Proposal and that the Special Committee had been formed to evaluate strategic alternatives for the Company; however, since that time, no inbound offers from third parties relating to strategic alternatives for the Company had been received prior to execution and announcement of the Merger Agreement;

 

   

the fact that, before the Company entered into the Merger Agreement, at the direction of the Special Committee, Jefferies contacted 31 parties considered to be potential acquirors of the Company and that, of those 31 parties, 18 had indicated prior to the time the Board and the Special Committee approved the Merger Agreement that such parties were not interested in pursuing a transaction with the Company, and the remaining parties had not responded in any meaningful manner prior to the time the Board and Special Committee approved the Merger Agreement notwithstanding additional outreach conducted by Jefferies, at the direction of the Special Committee, to such remaining parties;

 

   

the statement in the November 11 Proposal that the Buyer Consortium would not be willing to sell its equity stake in the Company, and the fact that, because the Participants now own a majority of the Company’s voting power, any alternative transaction requiring a stockholder vote would require the Participants’ approval;

 

   

the limited scope of the waiver of the right of first negotiation granted in favor of Novartis by the Company under the Collaboration Agreement, pursuant to which Novartis waived its right of first negotiation solely with respect to the Merger and not with respect to any other potential change of control transaction, including any Superior Proposal, which resulted in the Merger having greater certainty of closing than any other potential change of control transaction;

 

   

public disclosure of the Per Share Merger Consideration, together with the “go-shop” process (as further described in the section entitled “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals” beginning on page 142), would likely result in a sale of the Company at the highest price per share that was reasonably attainable;

Negotiations with the Buyer Consortium

 

   

the course of negotiations regarding the Merger Agreement and the transactions contemplated thereby, including the Merger, among the Company and the Buyer Consortium resulting in more favorable terms to the Company than those originally proposed by the Buyer Consortium, including, among other things, the addition of the Go-Shop Period of 30 days following entry into the Merger Agreement, more favorable closing conditions, and the payment by Parent to the Company of a reverse termination fee of $24 million if the Merger Agreement is terminated under certain circumstances, and the Special Committee members’ belief, based on the course of negotiations, that the Merger Agreement reflected overall the most favorable terms and conditions that the Buyer Consortium was willing to agree to or that were reasonably attainable from any third party;

 

   

in connection with the Merger Agreement, Yunfeng Capital Limited agreed to provide the Company with the $25 million Yunfeng Bridge Loan and Winsor Capital Limited agreed to extend the maturity of the TF Bridge Loan;

 

   

the fact that the consideration and negotiation of the Merger Agreement was conducted through arm’s-length negotiations by a special committee comprised entirely of disinterested and independent directors, who were fully empowered to say “no” definitively to any transaction and to take all actions the Special Committee considered necessary, desirable or convenient in connection with identifying, evaluating, negotiating and making recommendations to the Board regarding the November 11 Proposal and any alternative transactions;

 

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Likelihood of Consummation

 

   

the probability that the Merger will be consummated, based on, among other matters:

 

   

the relatively limited number of conditions to Parent’s obligations to consummate the Merger under the Merger Agreement, as more fully described under “The Merger Agreement—Conditions to the Merger” beginning on page 151;

 

   

the absence of a financing condition to Parent’s obligation to consummate the Merger;

 

   

the Buyer Consortium having obtained committed equity financing for the transaction to cover the full amount of the aggregate merger consideration such that no debt financing is required, the limited number and nature of the conditions to the equity financing, the fact that the Company has customary third party beneficiary rights to seek specific performance of the funding obligations under the Equity Commitment Letters and the reputation and financial condition of the Equity Investors, as more fully described under “—Financing for the Merger” beginning on page 102;

 

   

the requirement that, in the event of a failure of the Merger to be consummated under certain circumstances, Parent pay the Company a termination fee of $24 million, and the guarantee of such payment obligation by the Equity Investors pursuant to the Limited Guarantees, as more fully described under “—Financing for the Merger” beginning on page 102;

 

   

the commitment of the parties to use reasonable best efforts to consummate the Merger and the other transactions contemplated by the Merger Agreement, as more fully described under “The Merger Agreement—CFIUS Clearance” beginning on page 148; and

 

   

the perceived absence of any significant regulatory impediments to the Merger;

Terms of the Merger Agreement and Certain Other Agreements

 

   

the terms and conditions of the Merger Agreement, including:

 

   

the Company’s right, acting under the direction of the Special Committee, to solicit, initiate, facilitate and encourage Acquisition Proposals during the Go-Shop Period;

 

   

the ability of Board (acting on the Special Committee’s recommendation) to change, qualify, withhold, withdraw or modify the Board’s recommendation that the stockholders of the Company adopt the Merger Agreement under the circumstances described in the Merger Agreement and under “The Merger Agreement—Adverse Recommendation Change” beginning on page 145;

 

   

the Company’s right, after complying with the terms of the Merger Agreement and the Collaboration Agreement, to terminate the Merger Agreement in order to enter into an agreement with respect to a Superior Proposal, upon payment by the Company of the applicable Termination Fee as more fully described under “The Merger Agreement—Adverse Recommendation Change” beginning on page 145;

 

   

the Special Committee’s belief that the size of the Termination Fee of $12 million (or $6 million under certain circumstances) that the Company would be required to pay to Parent under certain circumstances likely would not deter any interested third party from making, or inhibit the Special Committee from approving, a Superior Proposal and that the size of the Termination Fee is typical of such fees in similar transactions;

 

   

the requirement that, in the event of a failure of the Merger to be consummated under certain circumstances, Parent would be required to pay the Company a Parent Termination Fee of $24 million (as further described in the section entitled “The Merger Agreement—Termination Fees” beginning on page 154);

 

   

the Company’s ability to seek specific performance to prevent breaches of the Merger Agreement by Parent or Merger Sub and to enforce specifically the terms of the Merger Agreement; and

 

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that the Merger Agreement contains terms that, taken as a whole, the Special Committee believed (i) provided a significant degree of certainty that the Merger will be consummated on a reasonably prompt basis, (ii) while restricting the Company from taking certain actions during the pendency of the Merger, would not unduly interfere with the Company’s ability to operate its business in the ordinary course, and (iii) were of a customary nature for mergers involving companies of the Company’s size and operating in the Company’s industry; and

 

   

the terms and conditions of the Equity Commitment Letters and the Merger Agreement relating to the equity commitment under the Equity Commitment Letters, including the fact that:

 

   

the Company has customary third party beneficiary rights in such Equity Commitment Letters to the extent of Parent’s right to cause each of the Equity Investors to fund his or its equity commitment thereunder;

 

   

the Equity Investors have committed to provide Parent with an equity contribution of an aggregate amount of $210 million immediately prior to consummation of the Merger; and

 

   

Parent and Merger Sub have represented to the Company in the Merger Agreement that, following the funding of the equity commitment under the Equity Commitment Letters, Parent will have cash on hand sufficient to consummate the Merger and the other transactions contemplated by the Merger Agreement, including the payment by Parent and Merger Sub of the aggregate Per Share Merger Consideration and any fees and expenses of or payable by Parent and Merger Sub.

In the course of reaching the determinations and making the recommendation described above, the Special Committee also considered the following factors relating to the procedural safeguards that it believed would ensure the fairness of the Merger and permit the Special Committee to represent effectively the interests of the Company’s unaffiliated security holders:

Process of the Special Committee

 

   

the Special Committee consists solely of directors of the Company who are independent, disinterested with respect to the Merger and not otherwise affiliated with the Company, the Buyer Consortium or Parent; in addition, none of the Special Committee members is 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 Company’s unaffiliated security holders other than the members’ receipt of Board compensation and Special Committee compensation (which are not contingent upon the consummation of the Merger or the Special Committee’s or the Board’s recommendation and/or authorization and approval of the Merger) and their rights to indemnification from the Company, subject to the terms of the applicable indemnification agreement, the Company’s organizational documents, the DGCL and the terms of the Merger Agreement;

 

   

the Special Committee was provided a clear mandate to retain independent legal counsel and financial advisors and to determine whether to proceed with a transaction with the Buyer Consortium, and, if a decision was made to so proceed, to review and negotiate any such transaction;

 

   

the Special Committee was fully empowered to say “no” definitively to any transaction;

 

   

the Board resolved that it would not approve or authorize a potential transaction involving the Company and the Buyer Consortium without the prior favorable recommendation of the Special Committee;

 

   

the Special Committee was advised by White & Case, as its independent legal counsel, and by Jefferies, as its independent financial advisor, each a globally recognized firm selected by the Special Committee;

 

   

the November 11 Proposal stated that the Buyer Consortium would submit a new proposal that is subject to appropriate procedural protections if a meaningful number of the Company’s existing

 

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stockholders agreed to roll over shares of Common Stock held by such stockholders and the Buyer Consortium required in its February 21 Proposal that any transaction contemplated by such proposal would be subject to non-waivable conditions requiring approval by a properly functioning special committee and approval by stockholders holding at least a majority of all the issued and outstanding shares of Company common stock not affiliated with any member of the Buyer Consortium;

 

   

the adoption of the Merger Agreement is conditioned on the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock entitled to vote thereon excluding the votes of the Participants and their respective affiliates;

 

   

the Special Committee, together with its legal and financial advisors, met on 22 occasions prior to the Company’s entry into the Merger Agreement, to discuss and evaluate extensively the Merger and alternatives to the Merger;

 

   

with the assistance of its financial and legal advisors, the Special Committee conducted arm’s-length negotiations with the Buyer Consortium; and

Terms of the Merger Agreement

 

   

the terms and conditions of the Merger Agreement, including provisions relating to the Company’s ability to enforce the terms of the Merger Agreement, allow the Company to ensure that the Merger is consummated as negotiated by the Special Committee.

In the course of reaching the determinations and decisions and making the recommendation described above, the Special Committee considered the following risks and potentially negative factors relating to the Merger Agreement and the transactions contemplated thereby, including the Merger (which are not necessarily presented in any relative order of importance):

 

   

the Company’s unaffiliated security holders will have no ongoing equity participation in the Company following the Merger, and that such stockholders will cease to participate in the Company’s future earnings or growth, if any, and to benefit from increases, if any, in the value of the shares of Common Stock, and will not participate in any potential future sale of the Company to a third party;

 

   

the fact that there can be no assurance that all conditions to the parties’ obligations to consummate the Merger, including receipt of the CFIUS Clearance, will be satisfied, and, as a result, that the Merger may not be consummated even if the Merger Agreement is adopted by the Company’s stockholders;

 

   

the risks and costs to the Company if the Merger is not consummated in a timely manner or at all, including the potential adverse effect on the Company’s ability to attract and retain key personnel, the diversion of management and employee attention and the potential disruptive effect on the Company’s day-to-day operations and relationships with third parties, any or all of which risks and costs, among other things, could adversely affect the Company’s overall competitive position and the trading price of shares of Common Stock;

 

   

uncertainty about the effect of the proposed Merger on the Company’s employees, customers and other parties, which may impair the Company’s ability to attract, retain and motivate key personnel, and could cause customers, suppliers, financial counterparties and others to seek to change existing business relationships with the Company;

 

   

the Merger Agreement’s restrictions on the conduct of the Company’s business prior to the consummation of the Merger, which may delay or prevent the Company from pursuing business opportunities that would otherwise be in its best interest as a stand-alone company;

 

   

the limited scope of the waiver of Novartis’ right of first negotiation under the Collaboration Agreement, which may have discouraged, and may in the future discourage, third parties from submitting Acquisition Proposals with terms and conditions, including price, that may be superior to the Merger;

 

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the fact that the Rollover Stockholders own shares in the Company representing approximately 51.5% of the outstanding shares of Common Stock and have expressed an unwillingness to sell their stake in the Company to a third party, which may have discouraged, and may in the future discourage, third parties from submitting Acquisition Proposals with terms and conditions, including price, that may be superior to the Merger;

 

   

certain restrictions that the Merger Agreement imposes on soliciting competing Acquisition Proposals after the Go-Shop Period ends;

 

   

the fact that the Company would be obligated to pay the applicable Termination Fee to Parent if the Merger Agreement is terminated under certain circumstances set forth in the Merger Agreement, which may discourage third parties from submitting Acquisition Proposals, but which the Special Committee believes would not be a meaningful deterrent;

 

   

the fact that Parent and Merger Sub are newly formed companies with essentially no assets other than the equity commitment under the Equity Commitment Letters;

 

   

the significant costs involved in connection with negotiating the Merger Agreement and consummating the Merger, including in connection with any litigation that may result from the announcement or pendency of the Merger, and the fact that if the Merger is not consummated, the Company may be required to bear such costs; and

 

   

the fact that the Per Share Merger Consideration will generally be taxable to the Company’s stockholders for U.S. federal income tax purposes.

The Special Committee concluded that the potential benefits that it expected the Company’s stockholders (other than the Participants and their respective affiliates) would achieve as a result of the Merger outweighed the risks and the potentially negative factors relevant to the Merger. The foregoing discussion of the information and factors considered by the Special Committee is not intended to be exhaustive but includes the material factors considered by the Special Committee. In view of the variety of factors considered in connection with its evaluation of the Merger, the Special Committee did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual members of the Special Committee may have given different weights to different factors. The Special Committee did not undertake to make any specific determination as to whether any factor or any particular aspect of any factor supported or did not support its ultimate determination. Accordingly, the Special Committee recommended to the Board that the Merger Agreement and the Merger be approved based upon the totality of the information it considered.

In addition, the Special Committee was aware of and considered the fact that certain of the Company’s directors and executive officers have financial interests in the transactions contemplated by the Merger Agreement that may be different from, or in addition to, those of the Company’s stockholders generally, including those interests that are a result of employment and compensation arrangements with the Company, as more fully described in the section entitled “—Interests of Certain Persons in the Merger” beginning on page 92.

In its analysis of the fairness of the Merger, the Special Committee did not consider the liquidation value of the Company, and did not believe it to be a relevant methodology, because it considered the Company to be a viable going concern and it considered determining a liquidation value to be impracticable given the significant execution risk involved in any breakup of the Company and that the Company will continue to operate its business following the Merger. For the foregoing reasons, the Special Committee did not consider liquidation value to be a relevant methodology. Further, the Special Committee did not consider net book value as a factor because they believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs and because net book value does not take into account the prospects of the Company, market conditions, trends in the industry in which the Company operates or the business risks inherent in that industry.

 

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The Special Committee did not seek to establish a pre-Merger going concern value for the Company, and therefore no such value was considered by the Board in making its fairness determination on behalf of the Company. Rather, the Special Committee believed that the financial analyses of Jefferies, as more fully summarized in the section entitled “—Opinion of Jefferies LLC,” which financial analyses the Special Committee expressly adopted as its own, were indicative of going concern values for the Company as it continues to operate its business.

Recommendation of the Board of Directors

On August 11, 2020, the Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium), acting on behalf of the Company and upon the unanimous recommendation of the Special Committee with respect to the Merger Agreement and the transactions contemplated thereby, including the Merger, unanimously (i) determined that the Merger Agreement and other transaction documents and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the Participants and their respective affiliates), (ii) authorized and approved the execution, delivery and performance by the Company of the Merger Agreement and other transaction documents and consummation of the transactions contemplated thereby, including the Merger, and (iii) directed that the Merger Agreement be submitted for adoption by the Company’s stockholders and recommended that the Company’s stockholders vote in favor of the adoption of the Merger Agreement. The Board further believes that the Merger is substantively and procedurally fair to the Company’s unaffiliated security holders. The Board produced the foregoing fairness determinations on behalf of the Company and, in so doing, expressly adopted the Special Committee’s determinations, analyses and conclusions in their entirety. In adopting the Special Committee’s recommendations and concluding that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of the Company and its stockholders, the Board consulted with outside legal counsel, considered and relied upon the same factors and considerations that the Special Committee relied upon, as described above.

In the course of making such determinations, the Board considered the following additional factors (which factors are not in any relative order of importance):

 

   

the fact that the Special Committee was unanimous in its determination to recommend that the Board approve the Merger Agreement and recommend the Company’s stockholders adopt the Merger Agreement;

 

   

the fact that the Special Committee consists of four independent and disinterested directors of the Company; and

 

   

the fact that the Special Committee was fully empowered to say “no” definitively to any transaction and to take all actions the Special Committee considers necessary, desirable or convenient in connection with identifying, evaluating, negotiating and making recommendations to the Board regarding the November 11 Proposal and any alternative transactions.

The Board concluded that the potential benefits that it expected the Company’s stockholders (other than the Participants and their respective affiliates) would achieve as a result of the Merger outweighed the risks and the potentially negative factors relevant to the Merger. The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive but includes the material factors considered by the Board. In view of the variety of factors considered in connection with its evaluation of the Merger, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The Board did not undertake to make any specific determination as to whether any factor or any particular aspect of any factor supported or did not support its ultimate determination. Accordingly, the Board approved the Merger Agreement and the Merger based upon the totality of the information it considered.

 

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During the two years prior to the Board’s approval of the Merger and the Company’s entry into the Merger Agreement, the Company did not repurchase any shares of Common Stock other than as disclosed in the section entitled “Important Information Regarding Cellular Biomedicine Group, Inc.—Transactions in Common Stock” and the Company did not receive any offers (firm or otherwise) in respect of a merger, consolidation, sale of all or a substantial part of the Company’s assets or purchase of a controlling equity interest in the Company other than as disclosed in the section entitled “—Background of the Merger.” Accordingly, the Board could not consider any such purchase or offer in its fairness determination (other than to the extent the Board considered the absence of any such offers (in particular, in response to the pre-signing market check) in making its determinations, as discussed above).

The Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium) unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement.

The Board believes, based on its consideration of the factors described above, that the Merger Agreement and the transactions contemplated thereby, including the Merger, are substantively and procedurally fair, to the Company’s unaffiliated security holders. The Board produced the foregoing fairness determinations on behalf of the Company and, in so doing, expressly adopted the Special Committee’s determinations, analyses and conclusions in their entirety. In adopting the Special Committee’s recommendations and concluding that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of the Company and its stockholders, the Board consulted with outside legal counsel, considered and relied upon the same factors and considerations that the Special Committee relied upon, as described above, including the financial analyses of Jefferies, as more fully summarized in the section entitled “ —Opinion of Jefferies LLC” beginning on page 69, which financial analysis and conclusion the Board, acting on behalf of the Company, expressly adopted as its own.

The Company entered into the Merger Agreement at this time because it believes that, in light of the Company’s near-term liquidity position and the risk that the Company would not be able to continue as a long-term going concern absent a capital raise or other significant liquidity event, as well as other information with respect to the Company’s business, operations, financial condition, earnings and prospects, the Company’s long-range plans, and the risk in achieving those prospects and plans, it will be challenging for the Company to compete as a public company. The Company believes that, as a private company it will have greater operating flexibility, and management will be able to more effectively concentrate on long-term growth and reduce its focus on the quarter-to-quarter performance often emphasized by the public markets. Additionally, the per share consideration offered under the Merger Agreement represents a significant premium to the historical trading prices for Common Stock and is payable in cash, providing the Company’s stockholders (other than the Rollover Stockholders) an opportunity to receive a defined value for their shares of Common Stock. The Company believes that providing such liquidity to its stockholders at such a premium at this time is also in the best interests of the unaffiliated security holders.

Opinion of Jefferies LLC

The Company has retained Jefferies as the financial advisor to the Special Committee in connection with a possible financing or refinancing for the Company or a sale, disposition or other business transaction or series of transactions involving all or substantially all of the consolidated assets or a majority of the outstanding equity of the Company, whether directly or indirectly and through any form of transaction, including the Merger. In connection with this engagement, the Special Committee requested that Jefferies evaluate the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by holders of shares of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) pursuant to the Merger Agreement. At a meeting of the Special Committee held on August 10, 2020 to evaluate the Merger, Jefferies rendered its opinion to the Special Committee to the effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the

 

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review undertaken as described in its opinion, the Per Share Merger Consideration to be received by holders of shares of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.

The full text of Jefferies’ opinion, which describes various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Jefferies, is attached as Annex B to this proxy statement and is incorporated herein by reference. Jefferies’ opinion was provided for the use and benefit of the Special Committee (in its capacity as such) in its consideration of the Merger and did not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor did it address the underlying business decision by the Company to engage in the Merger or the terms of the Merger Agreement (other than the Per Share Merger Consideration to the extent expressly specified therein) or the documents referred to therein. Jefferies’ opinion did not constitute a recommendation as to how any holder of shares of Common Stock should vote on the Merger or any matter related thereto. The following summary is qualified in its entirety by reference to the full text of Jefferies’ opinion.

In arriving at its opinion, Jefferies, among other things:

 

   

reviewed a draft dated August 10, 2020 of the Merger Agreement;

 

   

reviewed certain publicly available financial and other information about the Company;

 

   

reviewed certain information furnished to Jefferies by the Company’s management, including probability adjusted financial forecasts and other information, relating to the business, operations and prospects of the Company (for further information regarding such financial forecasts, see “—Certain Company Forecasts”);

 

   

held discussions with members of senior management of the Company concerning the matters described in the two bullets immediately above;

 

   

reviewed the share trading price history for the Common Stock; and

 

   

conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.

In its review and analysis and in rendering its opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by the Company or that was publicly available to Jefferies (including, without limitation, the information described above) or otherwise reviewed by Jefferies. Jefferies relied on assurances of the management of the Company that it was not aware of any facts or circumstances that would make such information inaccurate or misleading. In its review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, the Company, and Jefferies was not furnished with any such evaluations or appraisals, and assumed no responsibility to obtain any such evaluations, appraisals or physical inspections.

With respect to the financial forecasts provided to and examined by Jefferies, Jefferies noted that projecting future results of any company is inherently subject to uncertainty. However, the Company informed Jefferies, and Jefferies assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future financial performance of the Company. Jefferies expressed no opinion as to the Company’s financial forecasts or the assumptions on which they were based.

Jefferies relied upon the assessments of the management of the Company as to, among other things, (i) the potential impact on the Company of market, competitive and other conditions, trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or affecting, the biopharmaceutical

 

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industry, including with respect to the pricing of and/or reimbursement for pharmaceutical products, (ii) matters relating to the Company’s products and product candidates, including the potential use and indications for such products and product candidates, related technology and intellectual property (including the validity and duration of licenses and patents) and regulatory approval processes and risks, the probability and timing for achieving the Company’s expected use and indications for such products and product candidates, the research and development, clinical testing, manufacturing and commercialization of such products and product candidates and the potential for generic competition, and (iii) the Company’s existing and future agreements and arrangements with, and ability to attract, retain and/or replace, key employees and consultants, customers, suppliers and manufacturers, and other commercial and collaboration relationships, including financial and other terms and ongoing obligations associated with the Company’s collaboration, licensing, royalty and other agreements and arrangements. Jefferies assumed that there would not be any developments with respect to any such matters that would be meaningful in any respect to Jefferies’ analyses or opinion.

Jefferies’ opinion was based on economic, monetary, regulatory, market and other conditions existing, and which could be evaluated, as of the date of Jefferies’ opinion. Jefferies expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which Jefferies becomes aware after the date of its opinion. As the Special Committee was aware, the credit, financial and stock markets, the industry in which the Company operates and the securities of the Company have experienced and may continue to experience volatility, and Jefferies expressed no view or opinion as to any potential effects of such volatility on the Company or the Merger.

Jefferies made no independent investigation of any legal or accounting matters affecting the Company, and Jefferies assumed the correctness in all respects material to its analyses of all legal and accounting advice given to the Company and the Special Committee, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Merger Agreement to the Company and its stockholders. In addition, in preparing its opinion, Jefferies did not take into account any tax consequences of the transaction to any holder of Common Stock. Jefferies assumed that the Merger would be consummated in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any term, condition or agreement and in compliance with applicable laws, documents and other requirements and that the final form of the Merger Agreement would be substantially similar to the last draft of the Merger Agreement reviewed by Jefferies. Jefferies also assumed that, in the course of obtaining the necessary regulatory or third-party approvals, consents and releases for the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the Merger in any respect meaningful to Jefferies’ analysis or opinion.

Jefferies’ opinion did not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor did it address the underlying business decision by the Company to engage in the Merger or the terms of the Merger Agreement (other than the Per Share Merger Consideration to the extent expressly specified therein) or the documents referred to therein. Jefferies was not asked to address, and its opinion did not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company, other than the holders of shares of Common Stock. Jefferies expressed no view or opinion as to the price at which shares of Common Stock will trade at any time. Furthermore, Jefferies did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of the Company’s officers, directors or employees, or any class of such persons, in connection with the Merger relative to the Per Share Merger Consideration or otherwise. Jefferies’ opinion was authorized by Jefferies’ fairness committee.

In connection with rendering its opinion to the Special Committee, Jefferies performed certain financial and comparative analyses, including those described below. The following summary is not a complete description of all analyses performed and factors considered by Jefferies in connection with its opinion. The preparation of a financial opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description.

 

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Jefferies believes that its analyses and the summary below must be considered as a whole and in context and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Jefferies’ analyses and opinion. Jefferies did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion, but rather arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole.

The estimates of the future performance of the Company in or underlying Jefferies’ analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing its analyses, Jefferies considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. Estimates of the financial value of companies or businesses do not purport to be appraisals or necessarily reflect the prices at which companies, businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the implied reference ranges resulting from, any particular analysis described below are inherently subject to substantial uncertainty and should not be taken as Jefferies’ view of the actual value of the Company or its businesses or securities.

The terms of the Merger were determined through negotiations between the Special Committee and the Buyer Consortium, and the decision by the Special Committee to recommend to the Board that the Company enter into the Merger Agreement was solely that of the Special Committee. Jefferies’ opinion and financial analyses were only one of many factors considered by the Special Committee and should not be viewed as determinative of the views of the Special Committee with respect to the Merger or the consideration payable in the Merger.

Jefferies Materials

Jefferies delivered to the Special Committee preliminary discussion materials on March 22, 2020 and July 24, 2020 and a presentation on August 10, 2020 (together, the “Jefferies Materials”). The summaries of the Jefferies Materials in this proxy statement are qualified in their entirety by reference to the full text of the Jefferies Materials, copies of which have been attached as exhibits to the transaction statement on Schedule 13E-3.

August 10, 2020 Presentation

Financial Analyses

The summary of the financial analyses described in this section entitled “—Financial Analyses” is a summary of the material financial analyses reviewed with the Special Committee and performed by Jefferies in connection with its opinion. 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 Jefferies’ financial analyses. The order in which the financial analyses summarized below appear does not necessarily reflect the relative importance or weight given to such analyses.

Discounted Cash Flow Analysis. Jefferies performed a discounted cash flow analysis of the Company by calculating the estimated present value of the standalone unlevered, after-tax free cash flows that the Company was forecasted to generate during the second half of the calendar year ending December 31, 2020 through the calendar year ending December 31, 2030 using the July Management Forecasts, which were based on probability-weighted and tax-affected estimates of the Company’s management and adjusted in the terminal year to set depreciation and amortization equal to capital expenditures and to normalize the change in working capital to reflect the perpetuity growth rate. For purposes of this analysis, stock-based compensation was treated as a cash expense. The implied terminal value of the Company was derived by applying a selected range of perpetuity

 

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growth rates of 2.5% to 3.5% to the Company’s normalized unlevered after-tax free cash flow in the terminal year. The present values (as of June 30, 2020) of the cash flows and terminal values were then calculated using a selected discount rate range of 12.5% to 14.5%, which was based on the Company’s estimated weighted average cost of capital. Jefferies determined implied enterprise values for the Company, then added the Company’s net cash as of June 30, 2020 (after reducing the Company’s balance sheet indebtedness by $7 million to reflect the equity repayment terms of the Company’s first tranche of the TF Bridge Loan, which was treated as equity), and divided by the number of fully diluted shares of Common Stock as of August 10, 2020 (calculated using the treasury stock method), each as provided or based upon information furnished to Jefferies by Company management. This analysis indicated a range of implied equity values per share of Common Stock of approximately $16.91 to $29.69, as compared to the Per Share Merger Consideration of $19.75.

Certain Additional Information

Premiums Paid Analysis. Jefferies observed certain additional information that was not considered part of Jefferies’ financial analysis with respect to its opinion but was noted for informational purposes, including the implied premiums paid or proposed to be paid in 49 selected merger and acquisition transactions involving U.S. listed Chinese acquisition transactions announced since January 1, 2015. Applying a selected range of implied premiums of 14.2% to 28.2% (reflecting the overall 25th and 75th percentile implied premiums derived from such transactions based on the closing stock prices of the target companies involved in such transactions one trading day prior to public announcement of such transactions) to the closing price of shares of Common Stock on November 8, 2019 and August 10, 2020, indicated a range of implied equity values per share of Common Stock of approximately $20.18 to $22.65 and $17.10 to $19.19, respectively.

Other Jefferies Materials

July 24, 2020 Discussion Materials

The July 24, 2020 discussion materials included preliminary financial analyses that were substantially similar to those contained in the August 10, 2020 presentation based on the July Management Forecasts and the then-current market information and share capitalization for the Company provided by Company management. The preliminary discounted cash flow analysis, utilizing the selected ranges of perpetuity growth rates and discount rates described above under “—August 10, 2020 Presentation,” indicated a range of implied equity values per share of Common Stock of approximately $16.77 to $29.45. The preliminary premiums paid analysis, which was provided for informational purposes and was based on the implied premiums paid or proposed to be paid in 48 selected merger and acquisition transactions involving U.S. listed Chinese acquisition transactions announced since January 1, 2015, applied a selected range of implied premiums of 15% to 28% (reflecting the overall 25th and 75th percentile implied premiums derived from such transactions based on the closing stock prices of the target companies involved in such transactions one trading day prior to public announcement of such transactions) to the closing price of shares of Common Stock on November 8, 2019 and July 23, 2020, which indicated a range of implied equity values per share of Common Stock of approximately $20.32 to $22.62 and $16.09 to $17.91, respectively.

March 22, 2020 Discussion Materials

The March 22, 2020 discussion materials included preliminary financial analyses that were substantially similar to those contained in the July 24, 2020 discussion materials based on the March Management Forecasts, the then-current market information, and publicly available information as to the Company’s share capitalization and balance sheet information, in each case publicly available at the time of the March 22, 2020 discussion materials. The discounted cash flow analysis, utilizing the selected range of perpetuity growth rates described above under “—August 10, 2020 Presentation” and selected ranges of discount rates of 12.8% to 14.8% based on market data as of March 20, 2020 and 13.5% to 15.5% based on market data as of February 21, 2020, which was the last trading day prior to the receipt of the February 21 Proposal, in each case based on the Company’s

 

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estimated weighted average cost of capital as of such dates, indicated a range of implied equity values per share of Common Stock of approximately $14.90 to $26.41 based on market data as of March 20, 2020 and approximately $12.58 to $22.42 based on market data as of February 21, 2020. The preliminary premiums paid analysis, which was provided for informational purposes and was based on the implied premiums paid or proposed to be paid in 37 selected merger and acquisition transactions involving U.S. listed Chinese acquisition transactions announced since January 1, 2015, applied a selected range of implied premiums of 13% to 26% (reflecting the overall 25th and 75th percentile implied premiums derived from such transactions based on the closing stock prices of the target companies involved in such transactions one trading day prior to public announcement of such transactions) to the closing price of shares of Common Stock on November 8, 2019 and March 20, 2020, which indicated a range of implied equity values per share of Common Stock of approximately $19.97 to $22.26 and $15.99 to $17.83, respectively. The March 22, 2020 discussion materials also included a preliminary discounted cash flow analysis, which was provided for informational purposes, utilizing the selected range of perpetuity growth rates described above under “—August 10, 2020 Presentation” and a selected range of discount rates of 12.8% to 18% to display a discount rate range calculated during the trading week ending on March 20, 2020 and the resulting volatility in the observed implied equity values per share. The low end of such range (12.8%) was calculated based on market data as of March 20, 2020 (based on the low end of the discount rate range calculated as of that day), and the high end of such range (18%) was calculated based on market data as of March 18, 2020 (based on the high end of the discount rate range calculated as of that day), in each case based on the Company’s estimated weighted average cost of capital as of such dates. This preliminary discounted cash flow analysis indicated a range of implied equity values per share of Common Stock of approximately $6.25 to $26.41.

Miscellaneous

The Company has agreed to pay Jefferies for its financial advisory services to the Special Committee in connection with the Merger an aggregate fee of $1.5 million, which was payable upon delivery of Jefferies’ opinion (regardless of the conclusion set forth therein) to the Special Committee. In addition, the Company agreed to reimburse Jefferies for expenses, including fees and expenses of counsel, incurred in connection with Jefferies’ engagement and to indemnify Jefferies and related parties against liabilities, including liabilities under federal securities laws, arising out of or in connection with the services rendered and to be rendered by Jefferies under its engagement.

During the two years prior to the date of its opinion, Jefferies did not receive any fees from the Company or any of the Company’s affiliates, Parent or any of the Participants for financial advisory or financing services. In the ordinary course of business, Jefferies and its affiliates may trade or hold securities or financial instruments (including loans and other obligations) of the Company and/or its affiliates for Jefferies’ own account and for the accounts of Jefferies’ customers and, accordingly, may at any time hold long or short positions or otherwise effect transactions in those securities or financial instruments.

Jefferies was selected as the financial advisor to the Company in connection with the Merger because, among other things, Jefferies is an internationally recognized investment banking firm with substantial experience in merger and acquisition transactions. Jefferies is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.

Certain Company Forecasts

The Company does not as a matter of course make public forecasts as to future performance, earnings or other results due to the unpredictability of the underlying assumptions and estimates. However, in connection with the Special Committee’s evaluation of a potential transaction involving the Buyer Consortium, in March 2020, Company management presented to and discussed with the Special Committee certain unaudited prospective financial information prepared by Company management for fiscal years 2020 through 2030

 

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comprising the March Management Forecasts and certain assumptions underlying the March Management Forecasts, including assumptions with respect to the probability of success of certain products under development. The March Management Forecasts also were provided to Jefferies. In July 2020, Company management presented to and discussed with the Special Committee the July Management Forecasts, which reflected certain updates to the March Management Forecasts prepared by Company management with respect to the Company’s individual products. In particular, the July Management Forecasts reflected an improved probability of success with respect to the Company’s Anti-19/20 BiCar product from 5% to 20% as a result of continuing patient enrollment in the ongoing clinical trial, the initial clinical safety readout, and early efficacy signals in evaluable participants in the ongoing clinical trial. In addition, as a result of the COVID-19 pandemic, the Company experienced delays in the recruitment of patients for its Phase II clinical trial for its Rejoin® product, and the assumptions underlying the July Management Forecasts reflect a resulting delayed launch of that product by one year. The assumptions underlying the July Management Forecasts also reflect that the Company’s potential revenue would be delayed by one year as a result of clinical development delays caused by the COVID-19 pandemic. As a result, earnings before interest, taxes, depreciation and amortization (“EBITDA”) reflected in the July Management Forecasts were lower than EBITDA reflected in the March Management Forecasts for fiscal years 2021 through 2025, but higher for fiscal years 2026 through 2030. The July Management Forecasts were otherwise substantially similar to the March Management Forecasts. The July Management Forecasts superseded the March Management Forecasts in all respects. The July Management Forecasts also were provided to Jefferies for its use and reliance in connection with its opinion and related financial analyses, as described in the section entitled “—Opinion of Jefferies LLC” beginning on page 69. The summary below of the July Management Forecasts is not being included in this proxy statement to influence a stockholder’s decision whether to adopt the Merger Agreement and thereby approve the Merger, but is being included to provide the Company’s stockholders with certain unaudited prospective financial information that was made available to the Special Committee, the Board and Jefferies.

Cautionary Note About the July Management Forecasts

The July Management Forecasts, while necessarily presented with numerical specificity, were based on numerous variables and assumptions that are inherently uncertain and many of which are beyond the Company’s control. The July Management Forecasts reflected numerous estimates and assumptions made by Company management, based on information available at the time the July Management Forecasts were developed, with respect to industry performance and competition, regulatory conditions, general business, economic, market and financial conditions and matters specific to the Company’s product candidates, including probability of success of such product candidates, all of which are difficult to predict and many of which are beyond the Company’s control. As a result, there can be no assurance that the July Management Forecasts accurately reflect future trends or accurately estimate the future market for the Company’s product candidates. There also can be no assurance of the approval, or timing of such approval, of any of the Company’s clinical-stage product candidates, and it is possible that other therapeutic scenarios will be preferable. The July Management Forecasts further reflect assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgement and, thus, are susceptible to multiple interpretations and periodic revisions based on actual experience and further or future business developments. Important factors that may affect actual results and result in the July Management Forecasts not being achieved include, but are not limited to, the timing of regulatory approvals and introduction of new products, market acceptance of new products, success of clinical testing, availability of third-party reimbursement, impact of competitive products and pricing, the effect of regulatory actions, the effect of global economic conditions, fluctuations in foreign currency exchange rates, the cost and effect of changes in tax and other legislation and other risk factors described in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. In addition, the July Management Forecasts may be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. The July Management Forecasts cover multiple years and, by their nature, become less predictive with each successive year. Accordingly, there can be no assurance that the July Management Forecasts will be realized, and actual results may vary materially from those shown. The July Management Forecasts should be evaluated, if at all, in light of the assumptions made by Company management

 

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and in conjunction with other information regarding the Company contained elsewhere in this proxy statement and the Company’s public filings with the SEC. See the section entitled “Cautionary Statement Concerning Forward-Looking Information” beginning on page 116 and the section entitled “Where You Can Find Additional Information” beginning on page 208 for additional information. The Company can give no assurance that the July Management Forecasts and the underlying estimates and assumptions will be realized.

Modeling and forecasting the future commercialization of clinical stage drug candidates is a highly speculative endeavor. In addition to the various estimates, assumptions and factors described above, there can also be no assurance that the Company will obtain and maintain any of the regulatory approvals necessary for the commercialization of its product candidates, or that the Company’s competitors will not commercialize products that are safer, more effective, or more successfully marketed and sold than any product that the Company may commercialize. Since the July Management Forecasts cover a long period of time, the July Management Forecasts by their nature are unlikely to anticipate each circumstance that will have an effect on the commercial value of the Company’s product candidates.

In light of the foregoing estimates, assumptions and factors and the uncertainties inherent in the July Management Forecasts, holders of Common Stock are cautioned not to place undue reliance on the July Management Forecasts. The July Management Forecasts were not prepared with a view toward public disclosure. The inclusion of the July Management Forecasts in this proxy statement should not be regarded as an indication that the Company, any Participant or any of their respective affiliates, advisors, officers, directors or other representatives or any other recipient of this information considered or now considers the July Management Forecasts to be necessarily predictive of actual future events or events which have occurred since the date of such forecasts, and the July Management Forecasts should not be relied upon as such or construed as financial guidance. Neither the Company nor any of its affiliates, advisors, officers, directors or other representatives can give any assurance that actual results will not differ from the July Management Forecasts, and none of them undertakes any obligation to update or otherwise revise or reconcile the July Management Forecasts to reflect circumstances existing after the date the July Management Forecasts were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the July Management Forecasts are shown to be in error. The Company does not intend to make publicly available any update or other revision to the July Management Forecasts, except as otherwise required by law. Neither the Company nor any of its affiliates, advisors, officers, directors or other representatives has made or makes any representation or warranty to any holders of Common Stock regarding the ultimate performance of the Company compared to the information contained in the July Management Forecasts, the likelihood that the July Management Forecasts will be achieved or otherwise. The July Management Forecasts were prepared based on the Company’s continued operation as a stand-alone company and do not take into account the Merger, including the effect of any business or strategic decision or action that has been or will be taken as a result of the execution of the Merger Agreement. The Company can give no assurance that, had the July Management Forecasts been prepared either as of the date of the Merger Agreement or as of the date of this proxy statement, similar estimates and assumptions would be used.

The July Management Forecasts were not prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts (“GAAP”). Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by the Company may not be comparable to similarly titled amounts used by other companies. In addition, the July Management Forecasts were not prepared with the assistance of, or reviewed, compiled or examined by, independent accountants. The July Management Forecasts may differ from publicly available analyst estimates, and the July Management Forecasts do not take into account any events or circumstances after the date they were prepared, including the announcement of the Merger.

In light of the foregoing estimates, assumptions and factors and the uncertainties inherent in the July Management Forecasts, and considering that the special meeting will be held several months after the July

 

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Management Forecasts were prepared, stockholders are cautioned not to place undue reliance on the July Management Forecasts. Since the date the July Management Forecasts were prepared, the Company has made publicly available its actual results of operations for the quarter ended June 30, 2020. You should review the Company’s Current Report on Form 8-K filed on August 12, 2020 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, filed on August 12, 2020, to obtain this information. See the section entitled “Where You Can Find More Information” beginning on page 208 of this proxy statement.

July Management Forecasts

The following is a summary of the July Management Forecasts (figures are rounded to the nearest million dollars):

 

     2020E     2021E     2022E     2023E     2024E     2025E     2026E     2027E     2028E     2029E     2030E  
     ($ in millions)  

Revenue

     —         —       $ 2     $ 21     $ 48     $ 110     $ 210     $ 294     $ 399     $ 485     $ 606  

COGS

     —         —       $ 2     $ 16     $ 33     $ 59     $ 102     $ 127     $ 160     $ 195     $ 232  

Gross Profit

     —         —         —       $ 5     $ 15     $ 52     $ 107     $ 167     $ 239     $ 290     $ 374  

Operating Expenses

   $ 66     $ 74     $ 76     $ 79     $ 49     $ 46     $ 53     $ 72     $ 94     $ 111     $ 136  

Operating Income (EBIT)

   $ (66   $ (74   $ (76   $ (74   $ (34   $ 6     $ 54     $ 95     $ 146     $ 179     $ 238  

EBITDA

   $ (58   $ (63   $ (63   $ (59   $ (17   $ 17     $ 66     $ 107     $ 158     $ 192     $ 252  

Stock-based Compensation

   $ (4   $ (4   $ (4   $ (4   $ (4   $ (4   $ (4   $ (4   $ (4   $ (4   $ (4

NOPBT

   $ (70   $ (78   $ (80   $ (78   $ (38   $ 2     $ 50     $ 91     $ 141     $ 175     $ 234  

NOPAT

   $ (70   $ (78   $ (80   $ (78   $ (38   $ 1     $ 43     $ 77     $ 120     $ 148     $ 199  

Depreciation & Amortization

   $ 8     $ 11     $ 13     $ 15     $ 17     $ 11     $ 11     $ 12     $ 12     $ 13     $ 14  

Capital Expenditures

   $ (5   $ (10   $ (11   $ (11   $ (12   $ (12   $ (13   $ (13   $ (14   $ (15   $ (16

Change in Working Capital

     —         —         —       $ (3   $ (4   $ (9   $ (15   $ (13   $ (16   $ (13   $ (18

Free Cash Flow (1)

   $ (67   $ (77   $ (78   $ (77   $ (36   $ (9   $ 26     $ 63     $ 103     $ 134     $ 179  

Note:    The July Management Forecasts are adjusted for probability of success assumptions per Company management.

 

(1)

Free Cash Flow was calculated by Jefferies for fiscal years 2020 through 2030, based on figures provided by the Company’s management in the July Management Forecasts, as NOPAT, plus Depreciation & Amortization, minus Capital Expenditures, minus Change in Working Capital. Free Cash Flow for the second half of fiscal year 2020 in the amount of approximately ($39) million was calculated by Jefferies based on figures provided by the Company’s management in the July Management Forecasts for fiscal year 2020 and the historical financial information of the Company for the six-month period ended June 30, 2020.

The July Management Forecasts are based on various assumptions, including the following:

 

   

certain assumptions relating to the probability of success of certain products being developed by the Company, including:

 

   

with respect to the C-CAR088 product, a probability of success of 40%;

 

   

with respect to the Anti-CD19/20 BiCar product, a probability of success of 20%;

 

   

with respect to the TIL product, a probability of success of 35%;

 

   

with respect to the AFP TCR-T product, a probability of success of 10%;

 

   

with respect to the AlloJoin® product, a probability of success of 40%; and

 

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with respect to the ReJoin® product, a probability of success of 40%;

 

   

research and development and general and administrative expenses are based on 2020 budgeted amounts;

 

   

research and development expenses for pipeline products are adjusted to reflect probability of success based on the development phase of the applicable product;

 

   

unallocated research and development expenses are adjusted to reflect probability of success with reference to approximately 30% blended probability of success from and after 2025;

 

   

sales and marketing expenses assumed as 20% of total revenue adjusted by probability of success;

 

   

sales tax refers to the city construction tax and education surcharges associated with value added tax;

 

   

depreciation and amortization expenses are embedded in research and development and general and administrative expenses;

 

   

stock-based compensation is assumed to be flat;

 

   

EBITDA is determined before stock-based compensation expenses;

 

   

15% tax rate is assumed applicable upon positive net operating profit before tax from and after 2025;

 

   

no tax credits assumed;

 

   

change in working capital is 15% of the annual change in sales;

 

   

capital expenditures are assumed to have a five-year life with no residual value and straight-line depreciation; and

 

   

product commercialization in the United States is not taken into account.

Certain of the financial projections above were not prepared in accordance with GAAP, including EBITDA and free cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company’s calculation of non-GAAP financial measures may differ from others in the industry and EBITDA and free cash flow are not necessarily comparable with similar titles used by other companies. The non-GAAP financial measures were relied upon by Jefferies for purposes of its financial analyses and opinion and by the Special Committee in connection with its consideration of the Merger. Financial measures provided to a financial advisor in connection with a business combination transaction are excluded from the definition of non-GAAP financial measures and therefore are not subject to SEC rules regarding disclosures of non-GAAP financial measures, which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Reconciliations of non-GAAP financial measures were not relied upon by Jefferies for purposes of its financial analyses and opinion or by the Special Committee in connection with its consideration of the Merger. Accordingly, we have not provided a reconciliation of the financial measures.

Purposes and Reasons of the Company for the Merger

The Company’s purpose for engaging in the Merger is to enable its stockholders to realize the value of their investment in the Company through their receipt of $19.75 per share of Common Stock in cash, subject to any applicable withholding taxes, which Per Share Merger Consideration represents:

 

   

a premium of approximately 31.9% over the closing price per share of Common Stock on August 10, 2020, the last full trading day before the Special Committee’s initial determination to recommend that the Board approve, adopt and declare advisable the Merger Agreement and the transactions contemplated thereby;

 

   

a premium of approximately 42.5% over the closing price per share of Common Stock seven days prior to August 10, 2020;

 

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a premium of approximately 32.6% over the closing price per share of Common Stock 30 days prior to August 10, 2020;

 

   

a premium of approximately 36.9% over the closing price per share of Common Stock 90 days prior to August 10, 2020;

 

   

a premium of approximately 4% over the 52-week intraday high for the period ending on August 10, 2020;

 

   

a premium of approximately 79.9% over the 52-week intraday low for the period ending on August 10, 2020; and

 

   

a premium of approximately 11.8% over the closing price per share of Common Stock on November 8, 2019, the last trading day before the date of the November 11 Proposal.

The Company believes its long-term objectives can best be pursued as a private company. The Company has determined to undertake the Merger at this time based on the factors, determinations and conclusions of the Special Committee and the Board described in detail above under “—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger” beginning on page 60.

Provisions for Unaffiliated Security Holders

No provision has been made (i) to grant the unaffiliated security holders access to the corporate files of the Company, any other party to the Merger or any of their respective affiliates, or (ii) to obtain counsel or appraisal services at the expense of the Company, any other party to the Merger or any of their respective affiliates. The Special Committee did not retain an unaffiliated representative to act solely on behalf of unaffiliated security holders for purposes of negotiating the terms of the Merger or preparing a report concerning the fairness of the Merger.

Position of the Buyer Filing Persons as to the Fairness of the Merger

Under SEC rules governing “going private transactions,” each of the Buyer Filing Persons is required to express his, her or its belief as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger, to the unaffiliated security holders.

Each of the Buyer Filing Persons is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Buyer Filing Persons as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger, are not intended to be and should not be construed as a recommendation to any stockholder of the Company as to how that stockholder should vote on the Merger Agreement Proposal. The Buyer Filing Persons have interests in the transactions contemplated by the Merger Agreement, including the Merger, that are different from, and/or in addition to, those of the other stockholders of the Company by virtue of the Buyer Filing Persons’ continuing interests in the Company after the consummation of the transactions contemplated by the Merger Agreement, including the Merger. These interests are described under the section entitled “—Interests of Certain Persons in the Merger—Interests of the Participants” beginning on page 93.

The Consortium Filing Persons’ Position

Each of the Consortium Filing Persons believes that the interests of the unaffiliated security holders 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 Consortium Filing Persons attempted to negotiate a transaction that would be most favorable to them, and not to the unaffiliated security holders and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were substantively or procedurally fair to the unaffiliated security holders. None of the Consortium Filing Persons or their respective

 

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affiliates participated in the deliberations of the Special Committee regarding, nor received any advice from the Special Committee’s independent legal or financial advisors as to, the fairness of the transactions contemplated by the Merger Agreement, including the Merger, to the unaffiliated security holders.

Furthermore, the Consortium Filing Persons did not themselves undertake a formal evaluation of the fairness of the transactions contemplated by the Merger Agreement, including the Merger. No financial advisor provided any of the Consortium Filing Persons or their affiliates with any analysis or opinion with respect to the fairness of the Per Share Merger Consideration to the unaffiliated security holders.

Based on their knowledge and assessment of available information regarding the Company, discussions with the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Special Committee and the Board discussed under “—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger” beginning on page 60, each of the Consortium Filing Persons believes that the transactions contemplated by the Merger Agreement, including the Merger, are substantively fair to unaffiliated security holders based on the following factors, which are not listed in any relative order of importance:

 

   

the Per Share Merger Consideration of $19.75 represents approximately an 11.8% premium over the Company’s closing stock price on November 8, 2019, the last trading day before the Company’s public announcement that the November 11 Proposal was made to the Board, and a premium of approximately 31.4% over the 30 trading-day average price of shares of Common Stock as of August 11, 2020, the last trading day prior to the announcement relating to the execution of the Merger Agreement;

 

   

shares of Common Stock traded as high as $20.63 per share as reported on Nasdaq during the 52-week period prior to the announcement of receipt of the November 11 Proposal and as high as $18.99 per share as reported on Nasdaq during the 52-week period prior to August 11, 2020;

 

   

shares of Common Stock traded as low as $10.98 per share as reported on Nasdaq during the 52-week period prior to the announcement of receipt of the November 11 Proposal and during the 52-week period prior to August 11, 2020;

 

   

the Special Committee consists solely of directors who are unaffiliated with the Participants and the members of the management of the Company and do not have any interests in the Merger different from, or in addition to, those of the unaffiliated security holders, other than (i) the members’ receipt of Board compensation in the ordinary course and Special Committee compensation in connection with its evaluation and negotiation of the Merger (none of which is contingent upon the consummation of the Merger or the Special Committee’s or the Board’s recommendation of the Merger), (ii) their indemnification and liability insurance rights under the Merger Agreement, and (iii) the cash payment in respect of Vested Company Equity Awards held by the members of the Special Committee. In addition, none of the members of the Special Committee is an employee of the Company or any of its subsidiaries or affiliates;

 

   

notwithstanding that the opinion of Jefferies was delivered to the Special Committee only, receipt by the Special Committee of the opinion of Jefferies, dated August 10, 2020, to the Special Committee, as to the fairness, from a financial point of view, to holders of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) of the Per Share Merger Consideration provided for in the Merger pursuant to the Merger Agreement, which opinion was based on and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Jefferies as more fully described under the section entitled “—Opinion of Jefferies LLC”;

 

   

the Special Committee and, acting upon the unanimous recommendation of the Special Committee, the Board, determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the unaffiliated security holders;

 

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

 

   

the Company has the ability, under certain circumstances, to specifically enforce the respective Equity Commitment Letter between each of the Equity Investors and Parent, in its capacity as an express third-party beneficiary;

 

   

the Merger is not conditioned on any financing being obtained by Parent or Merger Sub, thus increasing the likelihood that the Merger will be consummated and the Per Share Merger Consideration will be paid to the unaffiliated security holders;

 

   

the consideration to be paid to the unaffiliated security holders in the Merger is all cash, allowing the unaffiliated security holders to promptly realize a certain and fair value for all of their shares of Common Stock after the consummation of the transactions contemplated by the Merger Agreement;

 

   

concurrently with the execution of the Merger Agreement and pursuant to the Amendment Letter, Winsor Capital Limited has agreed to extend the maturity date of the TF Bridge Loan Agreement to August 7, 2021 (from October 30, 2020 with respect to the first tranche), providing the Company with more time to repay the amounts outstanding under the TF Bridge Loan Agreement; and

 

   

concurrently with the execution of the Merger Agreement, the Company entered into the Yunfeng Bridge Loan Agreement with Yunfeng Capital Limited, pursuant to which it received an unsecured loan in a principal amount of $25,000,000 due on August 7, 2021 at a simple interest rate of 6% per annum, which provided the Company with liquidity on favorable terms.

The Consortium Filing Persons’ consideration of the factors described above reflects their assessment of the fairness of the Per Share Merger Consideration payable in the Merger to the unaffiliated security holders in relation to the going-concern value of the Company on a stand-alone basis. The Consortium Filing Persons implicitly considered the value of the Company in a sale as a going concern by taking into account the Company’s current and anticipated business, financial condition, results and operations, prospects and other forward-looking matters. The Consortium Filing Persons did not, however, explicitly calculate a stand-alone pre-Merger going-concern value of the Company as a public company because the Company will have a significantly different capital structure following the Merger. Therefore, the Consortium Filing Persons do not believe that the going-concern value of the Company is an appropriate indicator to determine the fairness of Per Share Merger Consideration payable in the Merger to the unaffiliated security holders. However, to the extent the pre-Merger going concern value was reflected in the pre-announcement price of the shares of Common Stock, the Per Share Merger Consideration represented a premium to the going concern value of the Company.

The Consortium Filing Persons did not consider the liquidation value of the Company because they consider the Company to be a viable going concern and views the trading history of the shares of Common Stock as an indication of the Company’s going concern value and, accordingly, did not believe liquidation value to be relevant to a determination as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger.

The Consortium Filing Persons did not consider net book value, which is an accounting concept, as a factor, because they believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs and therefore not a relevant measure in the determination as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger. The Consortium Filing Persons note, however, that Per Share Merger Consideration of $19.75 receivable by the unaffiliated security holders in connection with the Merger is substantially higher than the net book value of the shares of Common Stock as of September 30, 2020 of $0.89 (based on 19,450,353 outstanding shares of Common Stock as of that date). See “Where You Can Find Additional Information” beginning on page 208 for a description of how to obtain a copy of the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2020.

Except as set forth under “—Background of the Merger” beginning on page 33, the Consortium Filing Persons are not aware of, and thus did not consider, any offers or proposals made by any unaffiliated person,

 

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other than the Buyer Consortium, during the past two years for (a) the merger or consolidation of the Company with or into another company, or vice versa, (b) an acquisition of the Company, (c) a tender offer or other acquisition of any class of the Company’s securities, (d) the sale or other transfer of a material amount of the assets of the Company, or (e) a purchase of the Company’s securities that would enable the purchaser to exercise control over the Company.

The Consortium Filing Persons did not perform or (prior to the execution of the Merger Agreement) receive any independent reports, opinions or appraisals from any third party related to the transactions contemplated by the Merger Agreement, including the Merger, and thus did not consider any such reports, opinions or appraisals in determining the substantive and procedural fairness of the transactions contemplated by the Merger Agreement, including the Merger, to unaffiliated security holders.

The Consortium Filing Persons believe that the transactions contemplated by the Merger Agreement, including the Merger, are procedurally fair to the unaffiliated security holders based on the following factors, which are not listed in any relative order of importance:

 

   

all members of the Special Committee during the Company’s sale process were and are independent directors and were and are unaffiliated with any of the Participants; in addition, none of such Special Committee members is an employee of the Company or any of its subsidiaries or affiliates;

 

   

the Special Committee was established and given authority to, among other things, review, evaluate and negotiate the terms of the Merger and to recommend to the Board what action should be taken by the Company, including not to engage in the Merger;

 

   

members of the Special Committee do not have any interests in the Merger different from, or in addition to, those of the unaffiliated security holders, other than (i) the members’ receipt of Board compensation in the ordinary course and Special Committee compensation in connection with its evaluation and negotiation of the Merger (none of which is contingent upon the consummation of the Merger or the Special Committee’s or the Board’s recommendation of the Merger), (ii) their indemnification and liability insurance rights under the Merger Agreement, and (iii) the cash payment in respect of Vested Company Equity Awards held by the members of the Special Committee;

 

   

the Special Committee retained and was advised by its legal and financial advisors who are experienced in advising committees such as the Special Committee in similar transactions;

 

   

the Special Committee met regularly to consider and review the terms of the Merger Agreement and the transactions contemplated thereby;

 

   

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 Consortium and its advisors, on the other hand, over the course of approximately nine months;

 

   

the Special Committee was empowered to exercise any power or authority of the Board that the Special Committee determined was necessary or advisable in carrying out and fulfilling its duties and responsibilities;

 

   

the Special Committee and the Board had no obligation to recommend the approval and authorization of the Merger Agreement and the transactions contemplated thereby, including the Merger, or any other transaction and under the delegation of authority by the Board to the Special Committee, the Merger Agreement and the transactions contemplated thereby require approval from the Special Committee;

 

   

none of the Participants participated in or sought to influence the deliberative process of, or the conclusions reached by, the Special Committee or the negotiating positions of the Special Committee;

 

   

the Special Committee and the Board were fully informed about the extent to which the interests of certain stockholders of the Company who are also Participants in the Merger differed from those of the unaffiliated security holders;

 

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the condition that the “going private” proposal from the Buyer Consortium was conditioned on the approval of the Special Committee;

 

   

the condition that the “going private” proposal from the Buyer Consortium included a non-waivable condition requiring the approval of the proposal by the Company’s stockholders other than the members of the Buyer Consortium and their respective affiliates (i.e., a “majority-of-the-minority vote”), while not the same as a requirement that the Merger Agreement be adopted by the holders of a majority of the shares of Common Stock held by the unaffiliated security holders (which would exclude all executive officers and directors of the Company), was nevertheless considered by the Consortium Filing Persons, for purposes of the Consortium Filing Persons’ fairness determination, to be a close approximation of such threshold given that the executive officers and directors of the Company other than those that are members of the Buyer Consortium or affiliated with members of the Buyer Consortium (i.e., executive officers other than the Management Rollover Stockholders and directors other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) directly owned, in the aggregate, approximately 2.1 % of the outstanding voting power of the Company as of the date of this proxy statement (not taking into account any unexercised equity awards) (See “Special Factors—Intent of the Company’s Directors and Executive Officers to Vote in Favor of the Merger” beginning on page 92);

 

   

under the terms of the Merger Agreement, in certain circumstances prior to obtaining the requisite stockholder approval of the Merger, the Company is permitted to provide information to and participate in discussions or negotiations with persons making Acquisition Proposals, and the Board is permitted to withdraw or modify its recommendation of the Merger Agreement if the proposal constitutes a Superior Proposal;

 

   

the ability of the Company to terminate the Merger Agreement (in accordance with the terms of the Merger Agreement) in order to enter into an acquisition agreement relating to a Superior Proposal (as further explained under “The Merger Agreement—Go-Shop Period; Acquisition Proposals” beginning on page 142);

 

   

the Board’s ability, under certain circumstances, to change, withhold, withdraw, qualify or modify the recommendation of the Board that the Company’s stockholders vote to authorize and approve the Merger Agreement and the transactions contemplated thereby, including the Merger;

 

   

the Company has conducted a 30-day “go-shop” process, during which it was permitted to solicit, initiate, facilitate and encourage Acquisition Proposals and to participate in discussions and negotiations with respect to any Acquisition Proposal. Following the Go-Shop Period, the Company may respond to certain unsolicited Acquisition Proposals and, during the first 15-day period following the Go-Shop Period, the Company had the right to continue to engage with certain third parties that have made Acquisition Proposals during the Go-Shop Period, in each case, subject to the terms and conditions of the Merger Agreement. The Company will have the right to terminate the definitive agreement to accept a Superior Proposal, if one is received, subject to the terms and conditions of the Merger Agreement. However, the Consortium Filing Persons acknowledge that the fact that the Rollover Stockholders owned shares in the Company representing approximately 51.5% of the outstanding shares of Common Stock of the Company and their ability to veto any other transaction at a stockholders’ meeting, and their expressed unwillingness to sell their stake in the Company to a third party, may have discouraged, and may in the future discourage, third parties from submitting Acquisition Proposals with terms and conditions, including price, that may be superior to the Merger;

 

   

the Merger Agreement requires Parent to pay a Parent Termination Fee of $24,000,000 to the Company if the Merger Agreement is terminated under certain circumstances; and

 

   

the availability of appraisal rights under Delaware law to holders of shares of Common Stock who do not vote in favor of the adoption of the Merger Agreement and who comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have the Delaware Court of Chancery determine the fair value of their shares, which may be more than,

 

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less than, or the same as, the amount such stockholders would have received under the Merger Agreement.

The foregoing is a summary of the information and factors considered and given weight by the Consortium Filing Persons in connection with its evaluation of the fairness of the transactions contemplated by the Merger Agreement, including the Merger, to the unaffiliated security holders, which is not intended to be exhaustive, but is believed by the Consortium Filing Persons to include all material factors considered by them. The Consortium Filing Persons did not find it practicable to assign, and did not assign, relative weights to the individual factors considered in reaching their conclusion as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger, to the unaffiliated security holders. Rather, their fairness determination was made after consideration of all of the foregoing factors as a whole.

The Consortium Filing Persons believe these factors provide a reasonable basis for their belief that the transactions contemplated by the Merger Agreement, including the Merger, are both substantively and procedurally fair to the unaffiliated security holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Consortium Filing Persons to any stockholder of the Company as to how such stockholder should vote with respect to the Merger Agreement Proposal.

Novartis Filing Persons’ Position

The Novartis Filing Persons believe that the interests of the unaffiliated security holders were represented by the Special Committee, which it understood had negotiated the terms and conditions of the Merger Agreement with the assistance of its independent legal and financial advisors. The Novartis Filing Persons 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 unaffiliated security holders. Additionally, the Novartis Filing Persons did not participate in the negotiation of the Merger other than entering into the Novartis Support Agreement and executing the Novartis Waivers (as defined below in this section) in respect of the transactions contemplated by the Merger Agreement, including the Merger. No financial advisor provided the Novartis Filing Persons with any analysis or opinion with respect to the fairness of the Per Share Merger Consideration to the unaffiliated security holders. Furthermore, the Novartis Filing Persons did not themselves undertake a formal evaluation of the fairness of the transactions contemplated by the Merger Agreement, including the Merger. The Novartis Filing Persons, however, have reviewed and evaluated the reasons due to which the Consortium Filing Persons believe that the transactions contemplated by the Merger Agreement, including the Merger, are fair to the unaffiliated security holders and the Novartis Filing Persons have adopted the reasoning and analysis of the Consortium Filing Persons set forth above under the section entitled “—The Consortium Filing Persons’ Position” beginning on page 79. Based on their knowledge and assessment of available information regarding the Company (which did not include confidential information regarding the Company received by the Buyer Consortium as the Novartis Filing Persons did not participate in the negotiations of the Merger other than entering into the Novartis Support Agreement and the Novartis Waivers), as well as the factors considered by, and findings of, the Special Committee and the Board discussed under the section entitled “—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger” beginning on page 60, the Novartis Filing Persons believe that the transactions contemplated by the Merger Agreement, including the Merger, are substantively fair to unaffiliated security holders based on the following factors, which are not listed in any relative order of importance:

 

   

the Per Share Merger Consideration of $19.75 represents approximately an 11.8% premium over the Company’s closing stock price on November 8, 2019, the last trading day before the Company’s public announcement that the November 11 Proposal was made to the Board, and a premium of approximately 31.4% over the 30 trading-day average price of shares of Common Stock as of August 11, 2020, the last trading day prior to the announcement relating to the execution of the Merger Agreement;

 

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shares of Common Stock traded as high as $20.63 per share as reported on Nasdaq during the 52-week period prior to the announcement of receipt of the November 11 Proposal and as high as $18.99 per share as reported on Nasdaq during the 52-week period prior to August 11, 2020;

 

   

shares of Common Stock traded as low as $10.98 per share as reported on Nasdaq during the 52-week period prior to the announcement of receipt of the November 11 Proposal and during the 52-week period prior to August 11, 2020;

 

   

the Special Committee consists solely of directors who are unaffiliated with the Participants and the members of the management of the Company and do not have any interests in the Merger different from, or in addition to, those of the unaffiliated security holders, other than (i) the members’ receipt of Board compensation in the ordinary course and Special Committee compensation in connection with its evaluation and negotiation of the Merger (none of which is contingent upon the consummation of the Merger or the Special Committee’s or the Board’s recommendation of the Merger), (ii) their indemnification and liability insurance rights under the Merger Agreement, and (iii) the cash payment in respect of Vested Company Equity Awards held by the members of the Special Committee. In addition, none of the members of the Special Committee is an employee of the Company or any of its subsidiaries or affiliates;

 

   

notwithstanding that the opinion of Jefferies was delivered to the Special Committee only, receipt by the Special Committee of the opinion of Jefferies, dated August 10, 2020, to the Special Committee, as to the fairness, from a financial point of view, to holders of Common Stock (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates) of the Per Share Merger Consideration provided for in the Merger pursuant to the Merger Agreement, which opinion was based on and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Jefferies as more fully described under the section entitled “—Opinion of Jefferies LLC”;

 

   

the Special Committee and, acting upon the unanimous recommendation of the Special Committee, the Board, determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the unaffiliated security holders;

 

   

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

 

   

the Merger is not conditioned on any financing being obtained by Parent or Merger Sub, thus increasing the likelihood that the Merger will be consummated and the Per Share Merger Consideration will be paid to the unaffiliated security holders; and

 

   

the consideration to be paid to the unaffiliated security holders in the Merger is all cash, allowing the unaffiliated security holders to promptly realize a certain and fair value for all of their shares of Common Stock after the consummation of the transactions contemplated by the Merger Agreement.

The Novartis Filing Persons’ consideration of the factors described above reflects their assessment of the fairness of the Per Share Merger Consideration payable in the Merger to the unaffiliated security holders in relation to the going-concern value of the Company on a stand-alone basis. The Novartis Filing Persons implicitly considered the value of the Company in a sale as a going concern by taking into account the Company’s current and anticipated business, financial condition, results and operations, prospects and other forward-looking matters. The Novartis Filing Persons did not, however, explicitly calculate a stand-alone pre-Merger going-concern value of the Company as a public company because the Company will have a significantly different capital structure following the Merger. Therefore, the Novartis Filing Persons do not believe that the going-concern value of the Company is an appropriate indicator to determine the fairness of the Per Share Merger Consideration payable in the Merger to the unaffiliated security holders. However, to the extent the pre-Merger going concern value was reflected in the pre-announcement price of the shares of Common Stock, the Per Share Merger Consideration represented a premium to the going concern value of the Company.

 

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The Novartis Filing Persons did not consider the liquidation value of the Company because they consider the Company to be a viable going concern and view the trading history of the shares of Common Stock as an indication of the Company’s going concern value and, accordingly, did not believe liquidation value to be relevant to a determination as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger.

The Novartis Filing Persons did not consider net book value, which is an accounting concept, as a factor, because they believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs and therefore not a relevant measure in the determination as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger. The Novartis Filing Persons note, however, that the Per Share Merger Consideration of $19.75 receivable by the unaffiliated security holders in connection with the Merger is substantially higher than the net book value of the shares of Common Stock as of September 30, 2020 of $0.89 per share (based on 19,450,353 outstanding shares of Common Stock as of that date). See “Where You Can Find Additional Information” beginning on page 208 for a description of how to obtain a copy of the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2020.

Except as set forth under “—Background of the Merger” beginning on page 33, the Novartis Filing Persons are not aware of, and thus did not consider, any offers or proposals made by any unaffiliated person, other than the Buyer Consortium, during the past two years for (a) the merger or consolidation of the Company with or into another company, or vice versa, (b) an acquisition of the Company, (c) a tender offer or other acquisition of any class of the Company’s securities, (d) the sale or other transfer of a material amount of the assets of the Company, or (e) a purchase of the Company’s securities that would enable the purchaser to exercise control over the Company.

The Novartis Filing Persons did not perform or receive any independent reports, opinions or appraisals from any third party related to the transactions contemplated by the Merger Agreement, including the Merger, and thus did not consider any such reports, opinions or appraisals in determining the substantive and procedural fairness of the transactions contemplated by the Merger Agreement, including the Merger, to unaffiliated security holders.

The Novartis Filing Persons believe that the transactions contemplated by the Merger Agreement, including the Merger, are procedurally fair to the unaffiliated security holders based on the following factors, which are not listed in any relative order of importance:

 

   

all of the members of the Special Committee during the entire process were and are independent directors and were and are unaffiliated with any of the Participants; in addition, none of such Special Committee members is an employee of the Company or any of its subsidiaries or affiliates;

 

   

the members of the Special Committee do not have financial interests in the Merger different from, or in addition to, those of the unaffiliated security holders, other than (i) the members’ receipt of Board compensation in the ordinary course and Special Committee compensation in connection with its evaluation and negotiation of the Merger (none of which is contingent upon the consummation of the Merger or the Special Committee’s or the Board’s recommendation of the Merger), (ii) their indemnification and liability insurance rights under the Merger Agreement, and (iii) the cash payment in respect of Vested Company Equity Awards held by the members of the Special Committee;

 

   

the Special Committee retained and was advised by its legal and financial advisors who are experienced in advising committees such as the Special Committee in similar transactions;

 

   

the Board had resolved that it would not approve or authorize a potential transaction involving the Company and the Buyer Consortium without the prior favorable recommendation of the Special Committee;

 

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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 Consortium and in connection with the transactions contemplated by the Merger Agreement from the date the Special Committee was established;

 

   

the Special Committee and the Board had no obligation to recommend the approval and authorization of the Merger Agreement and the transactions contemplated thereby, including the Merger, or any other transaction and under the delegation of authority by the Board to the Special Committee, the Merger Agreement and the transactions contemplated thereby require approval from the Special Committee;

 

   

the Novartis Filing Persons 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;

 

   

under the terms of the Merger Agreement, in certain circumstances prior to obtaining the requisite stockholder approval of the Merger, the Company is permitted to provide information to and participate in discussions or negotiations with persons making Acquisition Proposals, and the Board is permitted to withdraw or modify its recommendation of the Merger Agreement if the proposal constitutes a Superior Proposal;

 

   

the ability of the Company to terminate the Merger Agreement (in accordance with the terms of the Merger Agreement) in order to enter into an acquisition agreement relating to a Superior Proposal (as further explained under “The Merger Agreement—Go-Shop Period; Acquisition Proposals” beginning on page 142);

 

   

the Board’s ability, under certain circumstances, to change, withhold, withdraw, qualify or modify the recommendation of the Board that the Company’s stockholders vote to authorize and approve the Merger Agreement and the transactions contemplated thereby, including the Merger;

 

   

the Merger Agreement requires the approval not only by the affirmative vote of the holders of at least a majority of the shares of Common Stock, but also the affirmative vote of the holders of at least a majority of the shares of Common Stock excluding the votes of the Participants and their respective affiliates, which approval, while not the same as a requirement that the Merger Agreement be adopted by the holders of a majority of the shares of Common Stock held by the unaffiliated security holders (which would exclude all executive officers and directors of the Company), was nevertheless considered by the Novartis Filing Persons, for purposes of the Novartis Filing Persons’ fairness determination, to be a close approximation to such threshold given that the executive officers and directors of the Company other than those that are members of the Buyer Consortium or affiliated with members of the Buyer Consortium (i.e., executive officers other than the Management Rollover Stockholders and directors other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) directly owned, in the aggregate, approximately 2.1% of the outstanding voting power of the Company as of the date of this proxy statement (not taking into account any unexercised equity awards) (See “Special Factors—Intent of the Company’s Directors and Executive Officers to Vote in Favor of the Merger” beginning on page 92);

 

   

the Company has conducted a 30-day “go-shop” process, during which it was permitted to solicit, initiate, facilitate and encourage Acquisition Proposals and to participate in discussions and negotiations with respect to any Acquisition Proposal. Following the Go-Shop Period, the Company may respond to certain unsolicited Acquisition Proposals and, during the first 15-day period following the Go-Shop Period, the Company had the right to continue to engage with certain third parties that have made Acquisition Proposals during the Go-Shop Period, in each case, subject to the terms and conditions of the Merger Agreement. The Company will have the right to terminate the definitive agreement to accept a Superior Proposal, if one is received, subject to the terms and conditions of the Merger Agreement. However, the Novartis Filing Persons acknowledge that the fact that the Rollover Stockholders owned shares in the Company representing approximately 51.5% of the outstanding shares of Common Stock of the Company and their ability to veto any other transaction at a stockholders’ meeting, and their

 

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expressed unwillingness to sell their stake in the Company to a third party, may have discouraged, and may in the future discourage, third parties from submitting Acquisition Proposals with terms and conditions, including price, that may be superior to the Merger; and

 

   

the availability of appraisal rights under Delaware law to holders of shares of Common Stock who do not vote in favor of the adoption of the Merger Agreement and comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have the Delaware Court of Chancery determine the fair value of their shares, which may be more than, less than, or the same as, the amount such stockholders would have received under the Merger Agreement.

The Novartis Filing Persons are not members of the Buyer Consortium. However, pursuant to the Novartis Support Agreement, Novartis has agreed, among other things, that the Novartis Rollover Shares will be canceled for no consideration in the Merger and that it will subscribe for newly issued ordinary shares of Parent immediately prior to the closing of the Merger and, until the earlier of the effective time of the Merger and the termination of the Merger Agreement, that it will vote all of its shares of Common Stock (i) in favor of the adoption of the Merger Agreement and any related action reasonably required in furtherance thereof, (ii) against any other acquisition proposal, (iii) against any action, agreement or proposal which could reasonably be expected to impede, interfere with, delay or adversely affect the Merger Agreement, the Merger or the Novartis Support Agreement, and (iv) against any action, proposal, transaction or agreement that could reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of Parent and Merger Sub under the Merger Agreement, or of Novartis under the Novartis Support Agreement.

In addition, concurrently with the execution and delivery of the Merger Agreement, Novartis also executed certain waivers (the “Novartis Waivers”) pursuant to which Novartis agreed, with respect to the Merger, to waive (i) certain early termination rights set forth in the Supply Agreement, and (ii) certain rights of first negotiation and early termination rights set forth in the Collaboration Agreement. Novartis agreed to execute and deliver the Novartis Waivers in light of its familiarity with certain members of the Buyer Consortium and the fact that, following the Merger, Mr. Liu would continue to operate the Company. See “—Novartis Waivers” beginning on page 106 for additional information.

The foregoing is a summary of the information and factors considered and given weight by the Novartis Filing Persons in connection with their evaluation of the fairness of the transactions contemplated by the Merger Agreement, including the Merger to the unaffiliated security holders, which is not intended to be exhaustive, but is believed by the Novartis Filing Persons to include all material factors considered by them. The Novartis Filing Persons did not find it practicable to assign, and did not assign, relative weights to the individual factors considered in reaching its conclusion as to the fairness of the transactions contemplated by the Merger Agreement, including the Merger, to the unaffiliated security holders. Rather, their fairness determination was made after consideration of all of the foregoing factors as a whole.

The Novartis Filing Persons believe these factors provide a reasonable basis for their belief that the transactions contemplated by the Merger Agreement, including the Merger, are both substantively and procedurally fair to the unaffiliated security holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Novartis Filing Persons to any stockholder of the Company as to how such stockholder should vote with respect to the authorization and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger.

Purposes and Reasons of the Buyer Filing Persons for the Merger

Under SEC rules governing “going private transactions,” each of the Buyer Filing Persons is required to express his, her or its reasons for the Merger to the unaffiliated security holders.

For the Buyer Filing Persons, the purpose of the Merger is to enable Parent to acquire 100% ownership and control of the Company in a transaction in which the Company’s stockholders (other than the holders of

 

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Excluded Shares) will be cashed out in exchange for Per Share Merger Consideration of $19.75, so that Parent will bear the rewards and risks of the sole ownership of the Company after the Merger, including any increase in value of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses. In addition, the consummation of the transactions contemplated by the Merger Agreement, including the Merger, will enable Mr. Liu to increase his ownership percentage in the Company through his indirect ownership in Parent and maintain a leadership role with the Surviving Corporation, and for the Consortium Rollover Stockholders to maintain a significant portion of their investment through their respective direct or indirect ownership in Parent, each as described under “—Interests of Certain Persons in the Merger—Interests of the Participants.”

The Consortium Filing Persons believe the operating environment has changed in a significant manner since the Company’s initial public offering. In particular:

 

   

heightened U.S.-China trade tensions have caused uncertainty regarding the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs;

 

   

companies that primarily operate in China whose securities are listed on U.S. securities exchanges may be subject to additional costs and burdens to comply with various proposals (if enacted) relating to changes in listing and compliance rules in the future; and

 

   

the far-reaching impact of the outbreak of COVID-19 and uncertainty regarding the potential further impact of the COVID-19 pandemic and of measures implemented by various governments to control its spread, including travel restrictions, quarantines, temporary shutdowns of businesses, have had and will continue to have significant consequences on the Company’s business, financial condition and results of operation.

These changes have increased the uncertainty and volatility inherent in the business models of companies similar to the Company. Furthermore, to stay competitive, to devote efforts to developing the Company’s product candidates and to support clinical development, the Company may need to continue investing in research and development. Responding to current market challenges will require tolerance for volatility in the performance of the Company’s business, commitment, ability to make capital expenditures and a willingness to make business decisions focused on improving the Company’s long-term performance. The Consortium Filing Persons believe that these strategies would be most effectively implemented in the context of a private company structure. As a privately held company, the Company’s management will have greater flexibility to focus on raising additional capital, seeking and forming strategic alliances, and improving long-term performance without the pressures exerted by the public market’s valuation of the Company and its emphasis on short-term period-to-period performance. Each of the Consortium Filing Persons also believes that the Merger will provide the Company with flexibility to pursue transactions with a risk profile that may be unacceptable to many unaffiliated security holders, and that these transactions can be more effectively executed as a private company.

As a privately held company, the Company will be relieved of many of the expenses, burdens and constraints imposed on companies that are subject to the public reporting requirements under the U.S. federal securities laws, including the Exchange Act and the United States Sarbanes-Oxley Act of 2002. The need for the management of the Company to be responsive to the concerns of the unaffiliated security holders and to engage in an ongoing dialogue with unaffiliated security holders can at times distract management’s time and attention from the effective operation and improvement of the business. It is estimated that the Company will save approximately $2 million per year as a result of no longer being a public company separately subject to the reporting requirements of U.S. federal securities laws.

The Consortium Filing Persons decided to undertake the transactions contemplated by the Merger Agreement at this time because it wants to take advantage of the benefits of the Company being a privately held company as described above. In the course of considering the transactions contemplated by the Merger Agreement, the Consortium Filing Persons did not consider alternative transaction structures, because the

 

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Consortium Filing Persons believed the Merger was the most direct and effective way to enable the Buyer Consortium to acquire ownership and control of the Company.

The Novartis Filing Persons decided to participate in the Merger by rolling over the Novartis Rollover Shares because they wished to retain their investment in the Surviving Corporation after the closing of the Merger and participate in the future prospects of the Surviving Corporation through such investment. The Novartis Filing Persons did not consider alternative transaction structures other than the Merger, which was initiated by the Buyer Consortium and negotiated between the Company and the Buyer Consortium. The Novartis Filing Persons did not participate in the negotiations of the transactions contemplated by the Merger Agreement other than entering into the Novartis Support Agreement and the Novartis Waivers.

Certain Effects of the Merger

If the conditions to the parties’ obligations to consummate the Merger are satisfied or, if permitted, waived, (i) Merger Sub will be merged with and into the Company, with the Company surviving the Merger as a wholly-owned subsidiary of Parent and (ii) each share of Common Stock outstanding immediately prior to the effective time of the Merger (other than the Excluded Shares) will be converted into the right to receive $19.75 in cash, without interest and subject to any applicable withholding taxes. As a result of the Merger, the Company will cease to be a publicly traded company and will instead be a wholly-owned subsidiary of Parent and, through Parent, beneficially owned by the Equity Investors and the Rollover Stockholders.

Benefits of the Merger for the Unaffiliated Security Holders

The primary benefit of the Merger to the unaffiliated security holders will be their right to receive the Per Share Merger Consideration, which represents:

 

   

a premium of approximately 31.9% over the closing price per share of Common Stock on August 10, 2020, the last full trading day before the Special Committee’s initial determination to recommend that the Board approve, adopt and declare advisable the Merger Agreement and the transactions contemplated thereby;

 

   

a premium of approximately 42.5% over the closing price per share of Common Stock seven days prior to August 10, 2020;

 

   

a premium of approximately 32.6% over the closing price per share of Common Stock 30 days prior to August 10, 2020;

 

   

a premium of approximately 36.9% over the closing price per share of Common Stock 90 days prior to August 10, 2020;

 

   

a premium of approximately 4% over the 52-week intraday high for the period ending on August 10, 2020;

 

   

a premium of approximately 79.9% over the 52-week intraday low for the period ending on August 10, 2020; and

 

   

a premium of approximately 11.8% over the closing price per share of Common Stock on November 8, 2019, the last trading day before the date of the November 11 Proposal.

Additionally, such stockholders will avoid the risk of any possible decrease in the Company’s future earnings, growth or value.

Detriments of the Merger for the Unaffiliated Security Holders

The primary detriments of the Merger to such stockholders include, without limitation, the following:

 

   

such stockholders will cease to have an interest in the Company and, therefore, will no longer benefit from potential future earnings, growth or value of the Company and will not be entitled to receive any dividend that the Company might pay on the shares of Common Stock in the future;

 

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the receipt of cash in exchange for shares of Common Stock pursuant to the Merger will generally be a taxable transaction for U.S. federal income tax purposes to U.S. holders (as defined in the section entitled “—Material U.S. Federal Income Tax Consequences of the Merger” below) who surrender shares of Common Stock in the Merger;

 

   

since the Common Stock began trading on Nasdaq in June 2014, the highest historical closing price per share of Common Stock was $47.06, which is significantly higher than the Per Share Merger Consideration of $19.75.

Plans for the Company After the Merger

Following the consummation of the Merger, Parent will own 100% of the equity interests in the Surviving Corporation. The Buyer Consortium anticipates that the Surviving Corporation will continue to conduct its operations substantially as they are currently being conducted, except that it will cease to be a publicly-traded company and will instead be a wholly-owned subsidiary of Parent and, through Parent, beneficially owned by the Equity Investors and the Rollover Stockholders. In addition, the Surviving Corporation will no longer be subject to the Exchange Act and Nasdaq compliance and reporting requirements and the related direct and indirect costs and expenses, and may experience positive effects on profitability as a result of the elimination of such costs and expenses.

The Buyer Consortium has advised the Company that, except as set forth in this proxy statement and except for the transactions already under consideration by the Company, the Buyer Consortium does not have any current plans, proposals or negotiations that relate to or would result in an extraordinary corporate transaction involving the Company’s corporate structure, business, or management, such as a merger, reorganization, liquidation, relocation of any material operations, or sale or transfer of a material amount of the Company’s assets. However, subsequent to the consummation of the Merger, the Surviving Corporation’s management and board of directors will continuously evaluate and review the Surviving Corporation’s entire business and operations from time to time, and may propose or develop plans and proposals, including (i) any of the foregoing actions and any actions to address the challenges referred to in “—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board; Fairness of the Merger” above, and (ii) the disposition or acquisition of material assets or other extraordinary transactions, including the possibility of relisting the Surviving Corporation or a substantial part of its business on another internationally recognized stock exchange, in each case, which they consider to be in the best interests of the Surviving Corporation and its stockholders. The Buyer Consortium expressly reserves the right to make any changes they deem appropriate to the operation of the Surviving Corporation in light of such evaluation and review as well as any future developments.

Effects on the Company if the Merger is Not Completed

If our stockholders do not approve the Merger Agreement or if the Merger is not consummated for any other reason, our stockholders will not receive any payment for shares of Common Stock held by such stockholders provided by the Merger Agreement. Instead, unless the Company is sold to another third party, the Company will remain a publicly-traded company, and Company management would expect to operate the business in a manner similar to that in which it is being operated today. Our shares of Common Stock will continue to be listed and traded on Nasdaq, provided that the Company continues to meet Nasdaq listing requirements. In addition, the Company will remain subject to SEC reporting obligations. Therefore, if the Merger is not consummated, our stockholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of shares of Common Stock. If the Merger is not consummated, there is no assurance as to the effect of these risks and opportunities on the future value of shares of Common Stock, including the risk that the market price of shares of Common Stock may decline to the extent that the current market price of our stock reflects a market assumption that the Merger will be consummated.

From time to time, the Board will evaluate and review the business operations, properties and capitalization of the Company and, among other things, make such changes as are deemed appropriate and continue to seek to

 

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maximize stockholder value. If our stockholders do not approve the Merger Agreement Proposal or the Merger is not consummated 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. If the Merger is not consummated for any reason, we will be subject to a number of material risks, including the disruption to our business resulting from the announcement of the signing of the Merger Agreement, the diversion of management’s attention from our day-to-day business, and the substantial restrictions imposed by the Merger Agreement on the operation of our business during the period before the consummation of the Merger, which may make it difficult for us to achieve our business goals if the Merger does not occur. In addition, the Rollover Stockholders would continue to hold a substantial portion of the outstanding shares of Common Stock.

Also, under specified circumstances in which the Merger Agreement is terminated, the Company may be required to pay Parent a termination fee, or Parent may be required to pay the Company a termination fee, in each case, as described in the section entitled “The Merger Agreement—Termination Fees beginning on page 154.

Intent of the Company’s Directors and Executive Officers to Vote in Favor of the Merger

Our directors and executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of the shares of Common Stock owned directly by them in favor of the Merger Agreement Proposal and each of the other proposals listed in this proxy statement. At the close of business on the record date, (i) our directors and executive officers directly owned, in the aggregate, [] shares of Common Stock, or approximately []% of the outstanding shares of Common Stock, and (ii) our directors (other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) and executive officers (other than the Management Rollover Stockholders) directly owned, in the aggregate, [] shares of Common Stock, or approximately []% of the outstanding shares of Common Stock.

The affirmative votes by our directors (other than Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou) and executive officers (other than the Management Rollover Stockholders) will count towards the Company Majority of the Minority Stockholder Approval. However, shares of Common Stock held by Tony (Bizuo) Liu, Darren O’Brien, Hansheng Zhou and the Management Rollover Stockholders will not count towards the Company Majority of the Minority Stockholder Approval, but their votes will count towards the affirmative votes to approve the Adjournment Proposal and the Advisory Compensation Proposal.

Interests of Certain Persons in the Merger

In considering the recommendations of the Special Committee and the Board (without the participation of Tony (Bizuo) Liu, Darren O’Brien and Hansheng Zhou, who abstained from voting given their relationships with the Buyer Consortium) that you vote to approve the Merger Agreement Proposal, you should be aware that, aside from their interests as stockholders of the Company, certain directors and executive officers of the Company (including Messrs. Liu and Yao, who are also Rollover Stockholders) and members of the Buyer Consortium have agreements or arrangements that provide them with interests in the Merger, including financial interests, that may be different from, or in addition to, the interests of the other stockholders of the Company. Interests of executive officers and directors that may be different from or in addition to the interests of the Company’s stockholders are described in more detail below, and include:

 

   

the Company’s executive officers hold Unvested Company Equity Awards that may become fully vested and canceled in exchange for the right to receive the Per Share Merger Consideration;

 

   

the Company’s executive officers have entered into individual agreements that provide for certain severance protections upon a qualifying termination;

 

   

the Company’s executive officers may enter into arrangements with Parent prior to or following the closing;

 

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the Rollover Stockholders will receive ordinary shares of Parent in exchange for cancellation of the Rollover Shares;

 

   

beginning November 2019, members of the Special Committee received monthly compensation in an aggregate amount of $22,500 for their services in evaluating and negotiating the Merger Agreement and the transactions contemplated thereby, including the Merger, which was not contingent upon the Special Committee’s recommendation of the Merger and is not contingent on the consummation of the Merger; and

 

   

the Company’s directors and executive officers are entitled to continued indemnification and insurance coverage under the Merger Agreement and under indemnification agreements.

The Board and the Special Committee were aware of these interests during their respective deliberations of the merits of the Merger and in determining to recommend that the Company’s stockholders vote in favor of the Merger Agreement Proposal.

Interests of the Participants

If the Merger is consummated, the Surviving Corporation will be wholly owned by Parent. Mr. Liu, Yunfeng Capital, TF Capital, Velvet Investment, the other Consortium Rollover Stockholders and Novartis will beneficially own approximately 7.19%, 25.48%, 15.77%, 7.28%, 36.83% and 6.99%, respectively, of the equity interests in Parent immediately following the consummation of the Merger, subject to adjustments set forth in the Interim Investors Agreement. Because of Parent’s equity interest in the Surviving Corporation, each Participant will directly or indirectly enjoy the benefits from any future earnings and growth of the Surviving Corporation after the Merger which, if the Surviving Corporation is successfully managed, could exceed the value of their original investments in the Company. Parent will also directly bear the corresponding risks of any possible decreases in the future earnings, growth or value of the Surviving Corporation. Parent’s investment in the Surviving Corporation will be illiquid, with no public trading market for the Surviving Corporation’s shares and no certainty that an opportunity to sell its shares in the Surviving Corporation at an attractive price, or that dividends paid by the Surviving Corporation, will be sufficient to recover its investment.

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

 

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The Company’s Net Book Value and Net Earnings (Losses)

The table below summarizes the indirect interest in the Company’s net book value and net earnings for each of the Participants before and after the Merger, based on the historical net book value and net earnings of the Company as of September 30, 2020. The Company’s net losses for the nine-month period ended September 30, 2020 were approximately $(42,117,590), and its net book value as of September 30, 2020 was approximately $17,323,600.

 

Name

   Ownership Interest Prior to the
Merger
    Ownership Interest After the Merger  
   Net Book Value     Net Losses     Net Book Value     Net Losses  
   $’000      %(1)     $’000     %(1)     $’000      %     $’000     %  

Yunfeng Capital

     —          —         —         —         4,434.2        25.6     (10,780.5     25.6

TF Capital

     —          —         —         —         2,745.0        15.9     (6,673.6     15.9

Velvet Investment

     —          —         —         —         1,266.9        7.3     (3,080.1     7.3

Tony (Bizuo) Liu

     207.2        1.2     (503.8     1.2     1,251.0        7.2     (3,041.5     7.2

Yihong Yao

     44.7        0.3     (108.6     0.3     120.1        0.7     (291.9     0.7

Li (Helen) Zhang

     21.2        0.1     (51.6     0.1     4.3        0.02     (10.4     0.02

Chengxiang (Chase) Dai

     17.2        0.5     (41.8     0.5     3.2        0.02     (7.8     0.02

Dangdai International Group Co., Limited

     2,023.0        11.7     (4,918.3     11.7     1,473.3        8.5     (3,582.0     8.5

Mission Right Limited

     923.3        5.3     (2,244.7     5.3     864.1        5.0     (2,100.8     5.0

Wealth Map Holdings Limited

     1,251.6        7.2     (3,043.0     7.2     1,171.4        6.8     (2,848.0     6.8

Earls Mill Limited

     274.9        1.6     (668.2     1.6     257.2        1.5     (625.4     1.5

OPEA SRL

     18.8        0.1     (45.6     0.1     17.6        0.1     (42.7     0.1

Maplebrook Limited

     984.7        5.7     (2,394.0     5.7     763.0        4.4     (1,855.0     4.4

Full Moon Resources Limited

     633.1        3.7     (1,539.3     3.7     592.6        3.4     (1,440.6     3.4

Viktor Pan

     891.2        5.1     (2,166.6     5.1     834.0        4.8     (2,027.8     4.8

Zheng Zhou

     330.6        1.9     (803.8     1.9     309.4        1.8     (752.3     1.8

Novartis

     1,299.6        7.5     (3,159.5     7.5     1,216.3        7.0     (2,957.0     7.0

 

(1)

Ownership interest percentages are based on 19,439,166 shares of Common Stock issued and outstanding as of August 31, 2020.

Prior to the closing of the Merger, each of our directors and officers has an interest in our net book value and net earnings in proportion to his or her ownership interest in the Company (as described in “Special Factors—Interests of Certain Persons in the Merger—Treatment of Company Equity Awards, Security Ownership of Certain Beneficial Owners and Management” and “Important Information Regarding Cellular Biomedicine Group, Inc.—Ownership of Common Stock by the Participants). Immediately after the closing of the Merger, none of our directors and officers (other than Tony (Bizuo) Liu, Yihong Yao, Li (Helen) Zhang and Chengxiang (Chase) Dai) will have any direct or indirect interest in the Company’s net book value and net earnings.

Treatment of Company Equity Awards

The Company’s named executive officers each hold outstanding options to purchase shares of the Stock Options, RSUs and PSUs. Certain outstanding equity awards granted under the Company’s 2014 Equity Incentive Plan, as amended, will vest immediately prior to the Merger pursuant to their terms, and therefore will (unless otherwise agreed between the applicable named executive officer and Parent) be treated as Vested Company Equity Awards in connection with the Merger.

Vested Stock Options. Except as otherwise agreed to in writing, each outstanding and unexercised Stock Option that is vested will automatically be canceled immediately prior to the effective time of the Merger and

 

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entitle the holder to receive (without interest and subject to any applicable withholding taxes) as promptly as practicable after the effective time of the Merger, an amount in cash equal to (A) the total number of shares of Common Stock subject to such Stock Option multiplied by (B) the excess, if any, of the Per Share Merger Consideration over the exercise price per share of Common Stock under such Stock Option, unless such Stock Option has an exercise price per share of Common Stock that is greater than or equal to the Per Share Merger Consideration, in which case such Stock Option will be canceled at the effective time of the Merger for no consideration or payment (except as otherwise agreed to in writing between the Stock Option holder and Parent).

Notwithstanding the foregoing, Parent may seek, prior to the consummation of the Merger, to agree with an individual holder of a vested Stock Option that all or a portion of such holder’s vested Stock Option will be converted into or assumed into an option to acquire ordinary shares of Parent.

Vested RSUs. Except as otherwise agreed to in writing, each outstanding RSU that is vested will automatically be canceled immediately prior to the effective time of the Merger and entitle the holder to receive (without interest and subject to any applicable withholding taxes) as promptly as practicable after the effective time of the Merger, an amount in cash equal to (A) the total number of shares of Common Stock subject to such vested RSU immediately prior to the effective time of the Merger multiplied by (B) the Per Share Merger Consideration.

Vested PSUs. Except as otherwise agreed to in writing, each outstanding PSU that is vested will automatically be canceled immediately prior to the effective time of the Merger and entitle the holder to receive (without interest and subject to any applicable withholding taxes) as promptly as practicable after the effective time of the Merger, an amount in cash equal to (A) the number of shares of Common Stock subject to such vested PSU, calculated based on actual performance achieved in accordance with the terms of each vested PSU, immediately prior to the effective time of the Merger multiplied by (B) the Per Share Merger Consideration.

As further described below under “—Employment Agreements with Executive Officers” beginning on page 97, pursuant to their employment agreements with the Company, each named executive officer’s initial long-term incentive plan equity awards pursuant to the Company’s Long-Term Incentive Plan (“LTIP”), each of which awards were granted effective March 3, 2017, will be accelerated and vested in full in the event of a change in control such as the Merger. As a result, such initial long-term incentive plan stock options, RSUs and PSUs will be treated as Vested Company Equity Awards in connection with the Merger Agreement.

The Buyer Consortium expects to enter into arrangements with certain holders of Vested Company Equity Awards that provide for the rollover of such awards into ordinary shares of Parent.

Unvested Company Equity Awards. With respect to Unvested Company Equity Awards, at the effective time of the Merger, unless otherwise agreed to in writing between the award holder and Parent, each Unvested Company Equity Award will be assumed by Parent as an equity award of the same type covering ordinary shares of Parent, subject to the same terms and conditions (including vesting terms) set forth in the Company’s equity plan under which such equity award was granted and the equity award agreements relating thereto, as in effect immediately prior to the effective time of the Merger. The number of ordinary shares of Parent covered by each such assumed Unvested Company Equity Award will equal (A) the number of shares of Common Stock subject to such Unvested Company Equity Award multiplied by (B) the Exchange Ratio, with the result rounded down to the nearest whole share. The per share exercise price for ordinary shares of Parent issuable upon exercise of an assumed Unvested Company Equity Award that is a Stock Option will equal (A) the quotient obtained by dividing the exercise price per share of Common Stock at which such assumed Unvested Company Equity Award was exercisable immediately prior to the effective time of the Merger by (B) the Exchange Ratio, with the result rounded up to the nearest whole cent.

 

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The table below sets forth the estimated value of unvested Stock Options and RSUs as of November 9, 2020, the last practicable date prior to the date of this proxy statement, held by the Company’s executive officers and non-employee Directors, based on the Per Share Merger Consideration. Depending on when the Merger is consummated, certain outstanding equity awards shown in the table below may become vested in accordance with their terms without regard to the Merger.

 

Named Executive Officer    Number of
securities
underlying
unvested Stock
Options (#)
     Stock Option
exercise
price ($)
     Number of
unvested
RSUs (#)
     Market
value of
unvested
RSUs
($)(7)
     Number of
unvested
PSUs (#)
     Market
value of
unvested
PSUs ($)(7)
 

Tony (Bizuo) Liu (1)

     10,000      $ 12.40      —          —          —          —    

Andrew Chan (2)

     1,924      $ 12.40      —          —          —          —    

Yihong Yao (3)

     2,212      $ 12.40      —          —          —          —    

Tony (Bizuo) Liu (4)

     —          —          10,000        172,900        240,000      4,149,600  

Andrew Chan (5)

     —          —          5,264        91,015        48,000      829,920  

Yihong Yao (6)

     —          —          2,212        38,245        54,000      933,660  

 

(1)

Represents an option granted pursuant to the LTIP to purchase up to 120,000 shares that were issued on March 3, 2017 with a monthly vesting schedule over a 48-month period, an exercise price of $12.40 and an expiration date of March 3, 2027.

(2)

Represents an option granted pursuant to the LTIP to purchase up to 23,000 shares that were issued on March 3, 2017 with a monthly vesting schedule over a 48-month period, an exercise price of $12.40 and an expiration date of March 3, 2027.

(3)

Represents an option granted pursuant to the LTIP to purchase up to 26,500 shares that were issued on March 3, 2017 with a monthly vesting schedule over a 48-month period, an exercise price of $12.40 and an expiration date of March 3, 2027.

(4)

Pursuant to the LTIP, Tony (Bizuo) Liu holds 10,000 unvested RSUs, which vest pro-rata on a monthly basis through February 27, 2021. In addition, Mr. Liu holds PSUs, which vest in linear 1% increments when the Common Stock’s 20-day volume weighted average price (“VWAP”) is over $30 per share and up to $60 per share at closing between February 27, 2017 and February 27, 2021. The number of shares received in settlement of the PSUs could vary from 60,000 shares to 240,000 shares based on the Company’s VWAP achievement during the four-year performance period, provided that, as described below in the section entitled “Special Factors—Golden Parachute Compensation” beginning on page 98, the PSUs vest and pay out at maximum in connection with the Merger and so are reported herein at the maximum level.

(5)

Pursuant to the LTIP, Andrew Chan holds 5,264 unvested RSUs, which vest pro-rata on a monthly basis through February 27, 2021. In addition, Mr. Chan holds PSUs, which vest in linear 1% increments when the Common Stock’s 20-day VWAP is over $30 per share and up to $60 per share at closing between February 27, 2017 and February 27, 2021. The number of shares received in settlement of the PSUs could vary from 12,000 shares to 48,000 shares based on the Company’s VWAP achievement during the four-year performance period, provided that, as described below in the section entitled “Special Factors—Golden Parachute Compensation” beginning on page 98, the PSUs vest and pay out at maximum in connection with the Merger and so are reported herein at the maximum level.

(6)

Pursuant to the LTIP, Yihong Yao holds 2,212 unvested RSUs, which vest pro-rata on a monthly basis through February 27, 2021. In addition, Mr. Yao holds PSUs, which vest in linear 1% increments when the Common Stock’s 20-day VWAP is over $30 per share and up to $60 per share at closing between February 27, 2017 and February 27, 2021. The number of shares received in settlement of the PSUs will be delivered on February 27, 2021 and could vary from 13,500 shares to 54,000 shares based on the Company’s VWAP achievement during the four-year performance period, provided that, as described below in the section entitled “Special Factors—Golden Parachute Compensation” beginning on page 98, the PSUs vest and pay out at maximum in connection with the Merger and so are reported herein at the maximum level.

(7)

The amounts reflected in these columns represent the number of stock awards reported in the immediately preceding column, multiplied by the closing price of our Common Stock on November 9, 2020.

 

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Employment Agreements with Executive Officers

The Company has entered into employment agreements with each of Messrs. Liu, Chan and Yao. The Merger will constitute a “Change in Control” and/or “Change of Control” for purposes of the employment agreements. Under the employment agreements:

 

   

if (a) the employment of such executive officer is terminated by the Company at any time without “Cause” (as defined in the employment agreements and summarized below) or (b) within one year following a “Change in Control” (as defined in the employment agreement and which includes the consummation of the Merger, also referred to as a “Change of Control”), such executive officer resigns for “Good Reason” (as defined in the employment agreements and summarized below) or is terminated by the Company without “Cause” (as summarized below), and if he signs a general release of claims and complies with the covenants described below, then he will be entitled to: (i) severance in an aggregate amount equal to two times such officer’s base salary; (ii) payment of a pro-rated portion of the officer’s bonus for the Company fiscal year in which such termination occurs; (iii) a cash payment equal to the Company’s portion of such officer’s Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) (or equivalent health insurance) premiums (on an after-tax basis) for 12 months of continuation coverage, with such payment to be made in the same month for which the continuation coverage was otherwise to be provided but no less than 30 days after the termination date for the executive and his eligible family members; (iv) up to $35,000 in reimbursement for outplacement services paid by the Company promptly following receipt of appropriate documentation substantiating the expense but no later than the end of the second calendar year following the calendar year in which the executive’s termination occurs; and (v) full acceleration of any outstanding equity awards (with any outstanding options having a post-termination exercise period of 15 months);

 

   

Each Unvested Company Equity Award granted on March 3, 2017 to Messrs. Liu, Chan and Yao will accelerate and vest in full automatically upon the consummation of the Merger, and therefore will be treated as a Vested Company Equity Award under the Merger Agreement; and

 

   

Messrs. Liu, Chan and Yao each covenant not to compete with the Company, not to solicit the employees of the Company and not to solicit the clients or customers of the Company for competing business, in each case, during each such officer’s employment and for a period of two years following termination.

As used in the Employment Agreements:

 

   

“Good Reason” includes: (i) a material reduction in base salary; (ii) a relocation by more than 50 miles; and (iii) for Messrs. Liu and Chan, a material adverse change in title, duties or responsibilities, in each case subject to certain notice and cure provisions.

 

   

“Cause” includes: (i) material and intentional breach of the agreement (subject to notice and cure); (ii) willful and continued failure to substantially perform duties (subject to notice and cure); (iii) intentional misconduct causing material harm to the Company or any of its subsidiaries; (iv) conviction (or plea of no contest) or indictment for any felony (provided that if the executive is terminated for “cause” based on an indictment that is thereafter resolved other than by a conviction or plea of no contest, the executive will be entitled to his severance benefits (or economic equivalent thereof); (v) intentional or knowing violation of any material antifraud provisions of federal or state securities laws; (vi) as determined in a court order or administrative proceeding, commission of willful misconduct or criminal activity that is materially harmful to the interests of the Company or any Subsidiary; (vii) current use or abuse of illegal substance that affects work performance; and (viii) knowing and material violations of the Company’s code of conduct and ethics that causes significant harm to the Company.

Each of the employment agreements was amended and restated on March 3, 2017, and each has a four-year initial term with automatic 12-month renewals, unless either party provides the other party with notice of non-renewal prior to the end of the applicable term.

 

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For a tabular discussion of severance benefits payable to the above-mentioned executives see the Golden Parachute Compensation table below.

Benefits Continuation Pursuant to the Merger Agreement

For the one-year period beginning at the effective time of the Merger, Parent has agreed to provide each employee of the Company or any subsidiary of the Company who remains employed following the effective time of the Merger (including each of the Company’s executive officers who remains employed following the effective time of the Merger) with (i) a base salary and annual cash bonus opportunities (excluding long-term incentive opportunities and equity-based arrangements), except as otherwise agreed between an employee and Parent or its affiliates, that are no less than the base salary or annual cash bonus opportunities provided to such employee immediately prior to the effective time of the Merger, and (ii) with respect to the employees as a group, employee benefits and perquisites (excluding long term incentives and equity based incentives, defined benefit pension plans and post-employment welfare benefits) that are substantially comparable in the aggregate to the employee benefits provided to such employees immediately prior to the effective time of the Merger.

Agreements with Parent

Prior to or following the closing of the Merger, certain executive officers of the Company may discuss or enter into agreements with Parent or any of its affiliates regarding employment with, or the right to purchase or participate in the equity of, Parent or one or more of its affiliates. As of the date of this proxy statement, no new employment or compensation arrangements between such persons and Parent or the Surviving Corporation for post-closing periods have been discussed, negotiated or established.

Indemnification and Insurance

Pursuant to the terms of the Merger Agreement, following the effective time of the Merger, the Company’s current and former directors and officers will be entitled to certain ongoing rights of indemnification and to coverage under directors’ and officers’ liability insurance policies. For a description of such ongoing indemnification and insurance obligations, refer to the section entitled “The Merger Agreement—Indemnification; Directors’ and Officers’ Insurance” beginning on page 147.

Golden Parachute Compensation

The following table sets forth the information required by Item 402(t) of Regulation S-K promulgated under the Exchange Act regarding the compensation for Messrs. Liu, Chan and Yao (the “named executive officers”), that may be payable in connection with the consummation of the Merger under existing arrangements between the Company and such officers. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in the section entitled “Merger-Related Executive Compensation Arrangements (The Advisory Compensation Proposal—Proposal 3),” we use such term to describe the Merger-related compensation payable to our named executive officers, assuming the following:

 

   

the Per Share Merger Consideration is $19.75;

 

   

the Merger closed on November 30, 2020; and

 

   

the named executive officers were terminated without “cause” or resigned for “good reason” immediately following a change in control on November 30, 2020.

 

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The Company’s executive officers will not receive pension payments, nonqualified deferred compensation benefits or tax reimbursements in connection with the Merger.

Golden Parachute Compensation

 

Name

   Cash
Severance ($)(1)
     Unvested
Equity ($)(2)
     Perquisites/
Benefits ($)(3)
     Other ($)(4)      Total ($)  

Tony (Bizuo) Liu

   $ 948,609      $ 4,943,250      $ 13,273      $ 35,000      $ 5,940,132  

Andrew Chan

   $ 748,563      $ 1,036,673      $ 57,269      $ 35,000      $ 1,877,505  

Yihong Yao

   $ 717,846      $ 1,111,486      $ 29,621      $ 35,000      $ 1,893,953  

 

(1)

This column reflects the severance entitlements of our named executive officers pursuant to their respective employment agreements and represent the sum of (a) the value of two times such officer’s base salary, plus (b) the value of the pro-rated portion of the officer’s target annual cash bonus amount. These benefits are “double trigger” in that there needs to be a “change in control” (as defined under the employment agreement, which will include the consummation of the Merger) and Messrs. Liu, Chan and Yao need to have their employment terminated, as applicable, on account of an involuntary termination of employment within one year after a change in control for any reason other than “cause,” or voluntary resignation for “good reason” by the respective named executive officer within one year following a “change in control.” Messrs. Liu, Chan and Yao may also become entitled to these benefits if they are terminated without “cause” at any time, even if such termination occurs more than one year after a change in control. Details regarding the terms of these payments (including payments due to the named executive officers upon their termination outside of the context of a “change in control”), are set forth in “—Employment Agreements with Executive Officers” beginning on page 97. These components of the named executive officers’ severance are set forth in the following table:

 

Name

   Cash Severance
Payment ($)
     Target Annual
Cash Bonus
Award ($)
 

Tony (Bizuo) Liu

   $ 771,750      $ 192,938  

Andrew Chan

   $ 609,000      $ 152,250  

Yihong Yao

   $ 584,010      $ 146,003  

 

(2)

This column represents the value of unvested Stock Options, RSUs and PSUs that would be outstanding as of November 30, 2020 and that would vest automatically and without action on the part of the holder of such award upon the consummation of the Merger in accordance with the terms of the employment agreements entered into with each named executive officer and the terms of the Company’s 2014 Equity Incentive Plan, as amended. Such vesting pursuant to these awards under the Company’s 2014 Equity Incentive Plan, as amended, and the named executive officers’ employment agreements is “single trigger,” as the acceleration will occur in connection with the Merger without the occurrence of any subsequent event (such as termination of employment) requirement. Details regarding the acceleration of such unvested Stock Options, RSUs and PSUs (including acceleration upon the termination of the named executive officers outside of the context of a “change in control”), are set forth in “—Employment Agreements with Executive Officers” beginning on page 97.

 

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Stock Options

The table below provides information on the estimated value of unvested Stock Options held by our named executive officers that will vest in connection with the Merger as described above. The amounts shown with respect to each Stock Option represent the product of (a) the excess, if any, of $19.75 over the applicable exercise price per share of the Common Stock subject to such Stock Option, multiplied by (b) the number of shares of Common Stock subject to such Stock Option:

 

Name

   Number of Shares
Subject to Unvested
Stock Options
Outstanding (#)
     Weighted Average
Exercise Price ($)
     Estimated
Value of
unvested
Stock
Options ($)
 

Tony (Bizuo) Liu

     7,500      $ 12.40      $ 55,125  

Andrew Chan

     1,445      $ 12.40      $ 10,621  

Yihong Yao

     1,660      $ 12.40      $ 12,201  

RSUs

The following table provides details on the estimated value of the RSUs held by our named executive officers that will vest in connection with the Merger as described above. Amounts represent the product of (a) $19.75, which is the Per Share Merger Consideration and (b) the number of shares of Common Stock subject to such RSU.

 

Name

   Number of Shares Subject
to unvested RSUs
Outstanding (#)
     Value of Awards ($)  

Tony (Bizuo) Liu

     7,500      $ 148,125  

Andrew Chan

     3,952      $ 78,052  

Yihong Yao

     1,660      $ 32,785  

PSUs

The table below provides details on the estimated value of PSUs held by our named executive officers based upon the number of units or shares payable under the respective award agreements. The value of awards shown in the table represent the product of (a) $19.75, which is the Per Share Merger Consideration and (b) the number of shares of Common Stock that would vest in connection with the Merger as described above pursuant to the respective employment agreements of the named executive officers, assuming payout at maximum level of performance (200% of target) in accordance with the terms of the employment agreements.

 

Name

   Number of Shares that Vest and are
Payable with Respect
to unvested PSUs
Outstanding (#)
     Value of Awards ($)  

Tony (Bizuo) Liu

     240,000      $ 4,740,000  

Andrew Chan

     48,000      $ 948,000  

Yihong Yao

     54,000      $ 1,066,500  

 

(3)

This column represents the value of the Company’s portion of COBRA (or equivalent health insurance coverage comparable to the terms in effect immediately prior to the closing of the Merger) premiums for continued medical coverage for Messrs. Liu, Chan and Yao for 12 months. These continuation benefits are “double-trigger.” Details regarding these continuation benefits (including payment for such benefits due to the named executive officers upon their termination outside of the context of a “change in control”) are set

 

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  forth in “—Employment Agreements with Executive Officers” beginning on page 97. The table below provides details on the value of continued participation in health and welfare benefits.

 

Name

   Value of Continued
Participation in Health and
Welfare Benefits ($)
 

Tony (Bizuo) Liu

   $ 13,273  

Andrew Chan

   $ 57,269  

Yihong Yao

   $ 29,621  

 

(4)

This column represents the value of outplacement services reimbursable to each of Messrs. Liu, Chan and Yao up to a maximum amount of $35,000. These outplacement service reimbursements are “double-trigger.” Details regarding the terms of the outplacement benefit (including such benefit due to the named executive officers upon their termination outside of the context of a “change in control”) are set forth in “—Employment Agreements with Executive Officers” beginning on page 97.

Narrative to Golden Parachute Compensation Table

The Company has entered into employment agreements with each of Messrs. Liu, Chan and Yao. The employment agreements have “double-trigger” severance provisions, which means that they provide for severance payments to each executive if there is a “change in control” of the Company (which will include the consummation of the Merger) and Messrs. Liu, Chan and Yao have their employment terminated on account of (a) an involuntary termination of employment within one year after a change in control for any reason other than “cause,” or (b) a voluntary termination of employment for “good reason” within one year following a change in control. Messrs. Liu, Chan and Yao may also become entitled to these benefits if they are terminated without “cause” at any time, even if such termination occurs more than one year after a change in control. The amount of cash severance following such a qualifying termination for each of Messrs. Liu, Chan and Yao is, the sum of (i) an aggregate amount equal to two times such officer’s base salary, plus (ii) the pro-rated portion of the officer’s target annual cash bonus amount for the Company fiscal year in which such termination occurs for each of Messrs. Liu, Chan and Yao.

The employment agreements also provide that if there is a “change in control” of the Company (which will include the consummation of the Merger) and Messrs. Liu, Chan and Yao have their respective employment terminated on account of (a) an involuntary termination of employment within one year after a “change in control” for any reason other than “cause,” or (b) a voluntary termination of employment for “good reason” within one year following a change in control, each such executive is entitled to a cash payment equal to the value of the Company’s portion of COBRA premiums (or premiums for equivalent health insurance coverage comparable to the terms in effect immediately prior to the change in control) (on an after-tax basis) for continued medical coverage for Messrs. Liu, Chan and Yao (and their eligible family members) for 12 months. Messrs. Liu, Chan and Yao may also become entitled to these benefits if they are terminated without “cause” at any time, even if such termination occurs more than one year after a change in control.

Pursuant to their respective employment agreements, each Unvested Company Equity Award held by the named executive officers will accelerate and vest in full automatically and without action on the part of the holder of such award immediately upon the consummation of the Merger, with PSUs vesting at maximum level of performance. Pursuant to the Merger Agreement, all vested Stock Options, RSUs and PSUs (which includes any Stock Options, PSUs and RSUs granted under the Company’s 2011 Incentive Stock Option Plan, as amended, and Company’s 2014 Equity Incentive Plan, as amended, that automatically vest immediately prior to the consummation of the Merger pursuant to their terms) will automatically be canceled and entitle the holder to be paid out in cash, except as otherwise agreed to between the award holder and Parent. For further information regarding the treatment of company Stock Options, RSUs and PSUs, see the section entitled “—Treatment of Company Equity Awards” beginning on page 94.

 

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The employment agreements also provide outplacement service benefits to each executive if there is a “change in control” of the Company (which will include the consummation of the Merger) and Messrs. Liu, Chan and Yao have their employment terminated on account of (a) an involuntary termination of employment within one year after a change in control for any reason other than “cause,” or (b) a voluntary termination of employment for “good reason” within one year after a change in control that is reimbursable in an amount up to $35,000. Messrs. Liu, Chan and Yao may also become entitled to these benefits if they are terminated without “cause” at any time, even if such termination occurs more than one year after a change in control.

For further information regarding the details of the employment agreements (including payments due to the named executive officers upon their termination outside of the context of a “change in control”), see the section entitled “—Employment Agreements with Executive Officers” beginning on page 97.

Financing for the Merger

The Company and the Buyer Consortium estimate that the total amount of funds necessary to complete the transactions contemplated by the Merger Agreement, including (i) the cash payment of the Per Share Merger Consideration to holders of Common Stock (other than the Excluded Shares), (ii) the cash payment to holders of Vested Company Equity Awards, and (iii) fees and expenses in connection with the Merger, is approximately $210 million, assuming no exercise of appraisal rights by stockholders of the Company. In calculating this amount, the Company and the Buyer Consortium did not consider the value of the Excluded Shares, which will be canceled for no consideration pursuant to the Merger Agreement. The Buyer Consortium expects to provide this amount through equity contributions in cash as contemplated by the Equity Commitment Letters.

As of the date of this proxy statement, there are no alternative financing arrangements or alternative plans in place to obtain the funds necessary for the consummation of the Merger and the other transactions contemplated by the Merger Agreement.

Equity Commitment Letters

Pursuant to the Equity Commitment Letters, the Equity Investors have committed, subject to the terms and conditions therein, to purchase, or cause the purchase of, equity interests of Parent, at or prior to the effective time of the Merger, in an aggregate cash amount of $210 million.

The amount of each Equity Investor’s equity commitment under its respective Equity Commitment Letter is $10 million by Mr. Liu, $105 million by Yunfeng Fund III, L.P., $65 million by TF Capital Fund III L.P., and $30 million by Velvet Investment Pte. Ltd., in each case with such funds to be used by Parent solely for the purpose of financing the transactions contemplated by the Merger Agreement, including the Merger.

The funding of each Equity Investor’s equity commitment under its Equity Commitment Letter is conditioned upon (i) the satisfaction or waiver (if permissible) of each of the conditions to Parent’s and Merger Sub’s obligations to consummate the Merger under the Merger Agreement (other than any conditions that by their nature are to be satisfied at the closing of the Merger but subject to the prior or substantially concurrent satisfaction of such conditions), (ii) the substantially contemporaneous consummation of the closing of the Merger, and (iii) the substantially contemporaneous funding to Parent of the contributions contemplated by the other Equity Commitment Letters.

The obligation of each of the Equity Investors to fund its equity commitment under its Equity Commitment Letter will terminate automatically and immediately upon the earliest to occur of (i) the closing of the Merger, at which time such obligation will be discharged, subject to the performance of such obligation, (ii) the valid termination of the Merger Agreement in accordance with its terms, and (iii) the commencement of any proceeding by the Company or any of its affiliates acting at the Company’s direction (excluding the Rollover Stockholders) against such Equity Investor, Parent or certain related parties of Parent as described in the Equity

 

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Commitment Letter relating to the Equity Commitment Letter, the Limited Guarantee, the Merger Agreement or any of the transactions contemplated thereby, in each case, other than any proceeding initiated, by (i) the Company against Parent or Merger Sub under the Merger Agreement seeking only specific performance against Parent or Merger Sub or payment of the Parent Termination Fee, in each case in accordance with, and solely to the extent permitted under the Merger Agreement, (ii) the Company to enforce its rights under the confidentiality agreement entered into between the Company and such Equity Investor (or an affiliate of such Equity Investor), and (iii) the Company against Parent or such Equity Investor (or his, her or its successors or permitted assigns) seeking (A) payment of his, her or its guaranteed obligations under the relevant Limited Guarantee in accordance with, and solely to the extent permitted under, such Limited Guarantee or (B) specific performance of such Equity Investor’s obligation to fund his, her or its equity commitment in accordance with, and solely to the extent permitted under the terms of the Merger Agreement or the Equity Commitment Letter.

The Company is an express third-party beneficiary of each of the Equity Commitment Letters to the extent of Parent’s right to cause each Equity Investor to fund his or its equity commitment if and only if permitted by the Merger Agreement and subject to the conditions to such Equity Investor’s funding obligations under such Equity Commitment Letter.

Each of the Equity Investors may assign or delegate all or a portion of his or its obligations to fund his or its equity commitment to any of such Equity Investor’s affiliates or any investment funds managed or advised by such Equity Investor or any of his or its affiliates so long as such Equity Investor remains liable for the obligations under his or its Equity Commitment Letter.

Limited Guarantees

Concurrently with the execution and delivery of the Merger Agreement, the Company and each of the Equity Investors entered into the applicable Limited Guarantee. Under each Limited Guarantee, the applicable Equity Investor has guaranteed, subject to the terms and conditions set forth therein, in favor of the Company a portion of the payment obligations of Parent under the Merger Agreement for the Parent Termination Fee and certain costs and expenses that may become payable to the Company by Parent under certain circumstances as set forth in the Merger Agreement.

Each Limited Guarantee will terminate upon the payment in full of the obligations under such Limited Guarantee or otherwise on the earliest to occur of (i) the closing of the Merger, (ii) receipt in full in cash by the Company of the payment of the guaranteed obligations of Parent, and (iii) the termination of the Merger Agreement in accordance with its terms so long as, in addition thereto, any of the following is true: (a) payment in full of the Parent Termination Fee and any payable costs and expenses in relation thereto under the Merger Agreement has been made; (b) the parties to the Limited Guarantee otherwise agree in writing; (c) under the circumstances, Parent and Merger Sub are not obligated to pay the Parent Termination Fee pursuant to the provisions of the Merger Agreement; or (d) 120 days have elapsed following the termination of the Merger Agreement unless a claim for payment of the guaranteed obligations under such Limited Guarantee has been presented in writing by the Company to the Equity Investor on or prior to the last day of such 120-day period (in which case, termination will occur, as further detailed in the Limited Guarantee, when such claim has been resolved or satisfied).

Rollover and Support Agreements

Consortium Support Agreement

Concurrently with the execution and delivery of the Merger Agreement, the Consortium Rollover Stockholders entered into the Consortium Support Agreement with Parent.

Pursuant to the Consortium Support Agreement, each Consortium Rollover Stockholder will vote, or cause to be voted, all of the shares of Common Stock owned directly or indirectly by him, her or it in favor of (w) the

 

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adoption of the Merger Agreement, (x) the approval of the Merger, (y) the other transactions contemplated by the Merger Agreement, and (z) any other action reasonably requested by Parent that is necessary for the consummation of the Merger and the other transactions contemplated in the Merger Agreement. In addition, pursuant to the Consortium Support Agreement, the Consortium Rollover Stockholders also agreed that, until the closing of the Merger or the termination of the Merger Agreement, (i) when a meeting of the stockholders of the Company is held, to appear at such meeting or otherwise cause its shares of Common Stock to be counted as present for purposes of calculating a quorum, and (ii) to vote or cause to be voted at such meeting all of its shares of Common Stock against (A) any action, agreement or proposal which could reasonably be expected to impede, interfere with, delay or adversely affect the Merger Agreement, the Merger or the Consortium Support Agreement, (B) any Acquisition Proposal (as defined in the Merger Agreement and further explained under the section entitled “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals beginning on page 142) or (C) any action, proposal, transaction or agreement that could reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of Parent and Merger Sub under the Merger Agreement, or of the Consortium Rollover Stockholder under the Consortium Support Agreement. Pursuant to the Consortium Support Agreement, each Consortium Rollover Stockholder has appointed Parent, and any other designee of Parent, such Consortium Rollover Stockholder’s irrevocable (for the period until termination of the Consortium Support Agreement in accordance with its terms) proxy and attorney-in-fact (with full power of substitution) to vote its respective shares of Common Stock as indicated above.

In addition, pursuant to the Consortium Support Agreement, Consortium Rollover Shares will, in connection with and at the closing of the Merger, be canceled without any payment of, or the right to receive, the Per Share Merger Consideration. In consideration for the cancellation of its Consortium Rollover Shares, each of the Consortium Rollover Stockholders will receive, immediately prior to the closing of the Merger, a number of newly issued ordinary shares of Parent equal to its respective number of Consortium Rollover Shares that are canceled in such manner at the closing of the Merger. The remaining shares of Common Stock held by certain Consortium Rollover Stockholders will be canceled at the effective time of the Merger in exchange for the right to receive the Per Share Merger Consideration, as specified in the Merger Agreement.

Until the earlier of the closing of the Merger and the termination of the Merger Agreement pursuant to and in compliance with the terms therein, each of the Consortium Rollover Stockholders has agreed that he, she or it will not, without the prior written consent of Parent and the Board (at the direction of the Special Committee), directly or indirectly, sell, short sell, transfer, exchange, offer, pledge, assign, hypothecate, encumber, tender or otherwise dispose of shares of Common Stock owned by such Consortium Rollover Stockholder. The Consortium Support Agreement provides that any transfer in violation of the foregoing will be of no effect and null and void.

The consummation of the subscription for and issuance of shares of Parent contemplated by the Consortium Support Agreement is subject to the satisfaction in full (or waiver, if permissible) of all of the conditions to Parent’s and Merger Sub’s obligations to consummate the Merger under the Merger Agreement (other than those conditions that by their nature are to be satisfied or waived, as applicable, at the closing of the Merger).

The Consortium Support Agreement will terminate immediately upon the earliest to occur of (i) the closing of the Merger and (ii) the date of termination of the Merger Agreement in accordance with its terms (however, the termination clause and certain miscellaneous clauses will survive the termination of the Consortium Support Agreement).

At the close of business on the record date, the Consortium Rollover Stockholders owned an aggregate of [] outstanding shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock), of which [] shares of Common Stock are Consortium Rollover Shares. Together with shares of Common Stock that are unissued as of the date of this proxy statement and that underlie certain company equity awards subject to vesting and exercise immediately prior to the closing of the Merger

 

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that will be treated as Consortium Rollover Shares under the Consortium Support Agreement, it is contemplated that the total number of the Rollover Shares of the Rollover Stockholders at the closing of the Merger will be 10,232,704 shares of Common Stock.

Novartis Support Agreement

Concurrently with the execution and delivery of the Merger Agreement, Novartis entered into the Novartis Support Agreement with Parent.

Pursuant to the Novartis Support Agreement, among other things, Novartis will vote, or cause to be voted, the Novartis Rollover Shares in favor of (w) the adoption of the Merger Agreement, (x) the approval of the Merger, (y) the other transactions contemplated by the Merger Agreement, and (z) any other action reasonably requested by Parent that is necessary for the consummation of the Merger and the other transactions contemplated in the Merger Agreement. In addition, pursuant to the Novartis Support Agreement, Novartis also agreed that, until the closing of the Merger or the termination of the Merger Agreement, (i) when a meeting of the stockholders of the Company is held, to appear at such meeting or otherwise cause its shares of Common Stock to be counted as present for purposes of calculating a quorum, and (ii) to vote or cause to be voted at such meeting all of its shares of Common Stock against (A) any action, agreement or proposal which could reasonably be expected to impede, interfere with, delay or adversely affect the Merger Agreement, the Merger or the Novartis Support Agreement, (B) any Acquisition Proposal (as defined in the Merger Agreement and further explained in the section entitled “The Merger Agreement—Go-Shop Period; Solicitation of Acquisition Proposals beginning on page 142) and (C) any action, proposal, transaction or agreement that could reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of Parent and Merger Sub under the Merger Agreement, or of Novartis under the Novartis Support Agreement. Pursuant to the Novartis Support Agreement, Novartis has appointed Parent and any other designee of Parent as Novartis’s irrevocable (for the period until termination of the Novartis Support Agreement in accordance with its terms) proxy and attorney-in-fact (with full power of substitution) to vote its shares of Common Stock as indicated above.

In addition, the Novartis Rollover Shares will, in connection with and at the closing of the Merger, be canceled without any payment of, or the right to receive, the Per Share Merger Consideration. In consideration for the cancellation of the Novartis Rollover Shares, Novartis will receive, immediately prior to the closing of the Merger, a number of newly issued ordinary shares of Parent equal to the number of the Novartis Rollover Shares that are canceled in such manner at the closing of the Merger.

Until the earlier of the closing of the Merger and the termination of the Merger Agreement pursuant to and in compliance with the terms therein, Novartis has agreed that it will not, without the prior written consent of Parent and the Board (at the direction of the Special Committee), directly or indirectly, sell, short sell, transfer, exchange, offer, pledge, assign, hypothecate, encumber, tender or otherwise dispose of shares of Common Stock owned by Novartis. The Consortium Support Agreement provides that any transfer in violation of the foregoing will be of no effect and null and void.

The consummation of the subscription for and issuance of shares of Parent contemplated by the Novartis Support Agreement is subject to the satisfaction in full (or waiver, if permissible) of all of the conditions to Parent’s and Merger Sub’s obligations to consummate the Merger under the Merger Agreement (other than those conditions that by their nature are to be satisfied or waived, as applicable, at the closing of the Merger).

The Novartis Support Agreement will terminate immediately upon the earliest to occur of (i) the closing of the Merger, and (ii) the date of termination of the Merger Agreement in accordance with its terms (however, the termination clause and certain miscellaneous clauses will survive the termination of the Novartis Support Agreement).

 

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At the close of business on the record date, Novartis owned an aggregate of 1,458,257 shares of Common Stock (which represented approximately []% of the total number of outstanding shares of Common Stock, of which each share owned by Novartis is a “Novartis Rollover Share”).

Novartis Waivers

Concurrently with the execution and delivery of the Merger Agreement, Novartis executed the Novartis Waivers, pursuant to which Novartis agreed, with respect to the Merger, to waive (i) any early termination rights it may have under the Supply Agreement, and (ii) its rights of first negotiation and any early termination rights it may have under the Collaboration Agreement. Under the Novartis Waivers, Novartis also explicitly acknowledges that none of the members of the Buyer Consortium, other than Mr. Liu, Parent and Merger Sub, will be subject to any obligations under the Supply Agreement and the Collaboration Agreement as a result of their participation in the Merger. The Novartis Waivers will terminate if the Merger Agreement is terminated without the Merger having been consummated.

Interim Investors Agreement

Concurrently with the execution and delivery of the Merger Agreement, the Consortium Rollover Stockholders, the Equity Investors, Parent and Merger Sub entered into the Interim Investors Agreement, which governs the relationship among the parties thereto with respect to the Merger Agreement and matters relating thereto until the termination of the Merger Agreement or consummation of the Merger.

The Interim Investors Agreement provides for, among other things, subject to certain limitations or exceptions therein, (i) the mechanism for making decisions relating to the equity financing pending consummation of the Merger, (ii) the mechanism for making decisions relating to the Merger Agreement and ancillary agreements pending consummation of the Merger, and (iii) the arrangement for the sharing of certain fees and expenses among the Buyer Consortium.

Amendment Letter to TF Bridge Loan Agreement

On January 28, 2020, the Company and Winsor Capital Limited entered into the TF Bridge Loan Agreement, pursuant to which Winsor Capital Limited agreed to provide an unsecured loan to the Company in an aggregate principal amount of $16 million in three tranches at a simple interest rate of 6% per annum. Pursuant to the TF Bridge Loan Agreement, if a consortium of investors acquires 100% of the shares of the Company or takes the Company private by way of merger or otherwise (an “acquisition”), at the election of Winsor Capital Limited, all unpaid principal amount together with accrued but unpaid interest payable under all tranches of the TF Bridge Loan may be converted into shares of Common Stock at a conversion price equal to the price per share payable in such acquisition. Under the Convertible Promissory Note, dated January 28, 2020, issued by the Company to Winsor Capital Limited with respect to the first $7 million tranche of the TF Bridge Loan pursuant to the terms of the TF Bridge Loan Agreement (the “TF Note”), the Company agreed to repay all unpaid principal amount together with the accrued but unpaid interest under the TF Note on the maturity date, which was the earlier of (i) October 30, 2020, or (ii) the occurrence of an event of default (as specified in the TF Note) unless such event of default has been remedied by the end of the applicable grace period, in each case of (i) and (ii), by converting such amounts outstanding into shares of Common Stock at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the 30 trading days prior to and including such maturity date, in each case subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the TF Note, which conversion will be subject to the consent of Winsor Capital Limited if an acquisition has occurred on or prior to such maturity date. In the event that Winsor Capital Limited elects not to convert (if an acquisition has occurred) such amounts outstanding into shares of Common Stock in accordance with the preceding sentence, such amounts outstanding will be repaid by the Company in cash.

 

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Concurrently with the execution and delivery of the Merger Agreement, the Company and Winsor Capital Limited entered into the Amendment Letter in connection with the TF Bridge Loan Agreement. Pursuant to the TF Bridge Loan Agreement, as amended by the Amendment Letter, the Company and Winsor Capital Limited have agreed to revise the terms of the TF Bridge Loan to provide for a new maturity date for all tranches thereunder, which will be the earlier of (i) August 7, 2021 and (ii) the occurrence of an event of default (as specified in the TF Note) unless such event of default has been remedied by the end of the applicable grace period.

Yunfeng Bridge Loan Agreement

Concurrently with the execution and delivery of the Merger Agreement, the Company entered into the Yunfeng Bridge Loan Agreement with Yunfeng Capital Limited, an affiliate of Yunfeng Fund III, L.P., pursuant to which Yunfeng Capital Limited agreed to provide an unsecured loan to the Company in an aggregate principal amount of $25 million at a simple interest rate of 6% per annum. The Company is required to repay all unpaid principal of the Yunfeng Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the Yunfeng Loan Note), unless any such event of default has been remedied by the end of the applicable grace period.

Pursuant to the Yunfeng Loan Note, Yunfeng Capital Limited has the right, at its option, to convert all (but not part) of the unpaid principal amount together with the accrued but unpaid interest under the Yunfeng Loan Note (i) on the close of business on the maturity date into Common Stock at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the 30 trading days prior to and including the maturity date, subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Yunfeng Loan Note or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the Merger) prior to the maturity date, at a conversion price equal to the price per share of Common Stock payable (or deemed payable) in such acquisition.

Second TF Bridge Loan Agreement

On October 23, 2020, the Company entered into the Second TF Bridge Loan Agreement with TF I Ltd., pursuant to which TF I Ltd. agreed to provide an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum. The Company is required to repay all unpaid principal of the Second TF Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the Second TF Loan Note), unless any such event of default has been remedied by the end of the applicable grace period.

Pursuant to the Second TF Loan Note, TF I Ltd. has the right, at its option, to convert all (but not part) of the unpaid principal amount together with the accrued but unpaid interest under the Second TF Loan Note (i) on the close of business on the maturity date into Common Stock at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the 30 trading days prior to and including the maturity date, subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Second TF Loan Note or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the Merger) prior to the maturity date, at a conversion price equal to the price per share of Common Stock payable (or deemed payable) in such acquisition.

Second Yunfeng Bridge Loan Agreement

On October 23, 2020, the Company entered into the Second Yunfeng Bridge Loan Agreement with Yunfeng Capital Limited, pursuant to which Yunfeng Capital Limited agreed to provide an unsecured loan to the

 

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Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum. The Company is required to repay all unpaid principal of the Second Yunfeng Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the Second Yunfeng Loan Note), unless any such event of default has been remedied by the end of the applicable grace period.

Pursuant to the Second Yunfeng Loan Note, Yunfeng Capital Limited has the right, at its option, to convert all (but not part) of the unpaid principal amount together with the accrued but unpaid interest under the Second Yunfeng Loan Note (i) on the close of business on the maturity date into Common Stock at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the 30 trading days prior to and including the maturity date, subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Second Yunfeng Loan Note or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the Merger) prior to the maturity date, at a conversion price equal to the price per share of Common Stock payable (or deemed payable) in such acquisition.

In connection with the execution and delivery of the Second TF Bridge Loan Agreement and the Second Yunfeng Bridge Loan Agreement, on October 23, 2020, Parent and the Company entered into the Consent Letter, pursuant to which Parent (i) consented to the execution by the Company of the Second TF Bridge Loan Agreement and the Second Yunfeng Bridge Loan Agreement and the consummation of the transactions contemplated thereby, including the Second TF Bridge Loan and the Second Yunfeng Bridge Loan, and (ii) acknowledged that the Second TF Bridge Loan and the Second Yunfeng Bridge Loan do not constitute “indebtedness” for purposes of the limitation on the Company’s ability to incur indebtedness prior to the closing of the Merger.

Remedies and Limitation on Liability

The parties to the Merger Agreement may be entitled to specific performance of the terms of the Merger Agreement, including an injunction or injunctions to prevent breaches of the Merger Agreement. The Company’s right to obtain an injunction or injunctions, or other appropriate form of specific performance or equitable relief, in each case with respect to causing the equity financing from the Equity Investors to be funded at any time or to effect the closing of the Merger, is, however, subject to (i) the satisfaction or waiver of each of the mutual conditions to the parties’ obligations to consummate the Merger and the conditions to Parent’s and Merger Sub’s obligations to consummate the Merger (other than those conditions that, by their terms, cannot be satisfied until the closing of the Merger but which are fully capable of being satisfied and will be satisfied at the closing of the Merger), (ii) Parent and Merger Sub failing to consummate the Merger by the date on which the closing of the Merger is required to have occurred pursuant to the Merger Agreement, and (iii) the Company having irrevocably confirmed in writing that (a) all of the conditions to the Company’s obligations to consummate the Merger have been satisfied or that it is willing to waive any of such conditions to the extent not so satisfied, and (b) if specific performance is granted and the equity financing is funded, then the Company will proceed with the closing of the Merger.

Subject to the Company’s rights to specific performance, the sole and exclusive remedy of the Company, its subsidiaries and certain related parties as described in the Merger Agreement, against the Buyer Consortium and certain related parties as described in the Merger Agreement for any loss or damage suffered as a result of the failure of the Merger or the other transactions contemplated by the Merger Agreement to be consummated or for a breach of any representation, warranty, covenant or agreement or other failure to perform under the Merger Agreement or any other document in connection therewith or otherwise or in respect of any oral representation made or alleged to have been made in connection therewith is the Company’s right, if applicable, to (i) receive from Parent the Parent Termination Fee in an amount of $24 million, and (ii) receive reimbursement of costs and expenses, together with interest, if such termination fee is not paid when due and in accordance with the Merger

 

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Agreement. See the section entitled “The Merger Agreement—Termination Fees,” beginning on page 154 for additional information.

Subject to Parent’s and Merger Sub’s rights to specific performance, the sole and exclusive remedy of the Buyer Consortium and certain related parties as described in the Merger Agreement, against the Company, its subsidiaries and certain related parties as described in the Merger Agreement, for any loss or damage suffered as a result of the failure of the Merger or the other transactions contemplated by the Merger Agreement to be consummated or for a breach of any representation, warranty, covenant or agreement or other failure to perform under the Merger Agreement or any other document in connection therewith or otherwise or in respect of any oral representation made or alleged to have been made in connection therewith is Parent’s right, if applicable, to (i) receive from the Company the Termination Fee in an amount of $12 million or $6 million (as applicable), and (ii) receive reimbursement of costs and expenses, together with interest, if such termination fee is not paid when due and in accordance with the Merger Agreement. See the section entitled “The Merger Agreement—Termination Fees,” beginning on page 154 for additional information.

While the parties may pursue both a grant of specific performance and payment of the applicable termination fee, none of them will be permitted or entitled to receive both a grant of specific performance that results in the consummation of the Merger and the applicable termination fee. See the section entitled “The Merger Agreement—Remedies; Specific Performance,” beginning on page 155 for additional information.

Fees and Expenses

Whether or not the Merger is consummated and except as described under the section entitled “The Merger Agreement—Termination Fees,” in general, all fees and expenses incurred in connection with the Merger will be paid by the party incurring those fees and expenses. Total fees and expenses incurred or to be incurred by the Company in connection with the Merger are estimated at this time to be as follows:

 

     Amount to
be Paid
 
     (in thousands)  

Financial advisors fee and expenses

   $ 1,543  

SEC filing fee

   $ 24  

Printing costs, mailing costs and other special meeting costs

   $ 45  

Miscellaneous (including accounting fees and expenses)

   $ 226  
  

 

 

 

Total estimated fees and expenses

   $ 1,838  

In addition to the estimated fees and expenses described above, the Company anticipates that it will incur legal expenses in connection with the Merger, including fees and expenses of counsel to the Special Committee and counsel to the Company. The Company is not able to estimate the amount of such fees and expenses as of the date of this proxy statement. These fees and expenses will not reduce the Per Share Merger Consideration to be received by our stockholders.

CFIUS Clearance

Under the DPA, the President of the United States, acting on his own or through CFIUS, is authorized to review transactions involving foreign persons that could result in control of a U.S. business engaged in interstate commerce in the United States (or, for certain U.S. businesses, non-passive investments by foreign persons that do not result in control of the U.S. business) if the President determines that there is credible evidence that the transaction threatens to impair the national security of the United States, and if other provisions of existing law do not provide adequate and appropriate authority to protect national security. CFIUS may clear a proposed transaction unconditionally or impose mitigation requirements as a condition of such clearance. CFIUS may also recommend that the President issue an executive order prohibiting a transaction or requiring a divestiture.

 

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Pursuant to the DPA, a party or parties to a proposed transaction may voluntarily submit a notification of such transaction to CFIUS (and the President or CFIUS may also initiate a review of a transaction on their own initiative, without any submission by the parties). The CFIUS Declaration was submitted by the parties on August 25, 2020 and was accepted by CFIUS on August 27, 2020. In response to the CFIUS Declaration, CFIUS could have (i) concluded action, (ii) notified the parties to the CFIUS Declaration that it is not able to conclude action under the DPA but is not requesting that the parties submit a Joint Voluntary Notice, (iii) requested a Joint Voluntary Notice in connection with the transactions contemplated by the Merger Agreement, or (iv) initiated a unilateral CFIUS review of the transactions contemplated by the Merger Agreement. If CFIUS took either actions (i) or (ii), the CFIUS Clearance would have been received. If CFIUS took either actions (iii) or (iv), the CFIUS Clearance would not have been received. On September 25, 2020, CFIUS requested that the parties to the CFIUS Declaration file a Joint Voluntary Notice regarding the Merger, and indicated that if the parties do not file a Joint Voluntary Notice, CFIUS may use other authorities available to it, including, without limitation, initiating a unilateral review of the Merger. The Joint Voluntary Notice was submitted by the parties on October 21, 2020 and was accepted by CFIUS on October 28, 2020.

Following the acceptance of the Joint Voluntary Notice by CFIUS, on October 29, 2020, CFIUS initiated a 45 calendar day review period, at the end of which, if it determines that there are no unresolved national security concerns, it will conclude all action under the DPA. If CFIUS determines that certain circumstances warrant additional review, it will commence a 45 calendar day investigation no later than the end of the initial 45 day review period. If CFIUS has no unresolved national security concerns at the end of the investigation, it will conclude all action under the DPA. On the other hand, if CFIUS has unresolved national security concerns at the end of such investigation, it will send a report to the President of the United States, who may act to suspend or prohibit the Merger. At any time during the course of CFIUS review or investigation, CFIUS may request that the parties take actions to mitigate any national security concerns it has identified, and in connection with such request, may afford the parties the opportunity to withdraw and refile the Joint Voluntary Notice in order to allow additional time to negotiate the terms of mitigation. A withdrawal and refiling of the Joint Voluntary Notice will restart the aforementioned review period or investigation period timing (depending on whether CFIUS commences the subsequent cycle with a review or investigation). Where CFIUS has completed all action with respect to the Merger or the President of the United States has announced a decision not to exercise his authority under the DPA with respect to the Merger, the President and CFIUS cannot further exercise the authority available to them under the DPA (absent material misstatement or omission in the CFIUS filing), including divestment authority, thereby providing a “safe harbor” for the transaction.

The parties will be obligated to consummate the Merger only if one of the following three circumstances are met:

 

   

the parties receive written notice from CFIUS stating either that (i) CFIUS has concluded that the transactions contemplated by the Merger Agreement are not subject to Section 721 of the DPA or (ii) CFIUS has concluded all actions under Section 721 of the DPA with respect to the transactions contemplated by the Merger Agreement and CFIUS has determined that there are no unresolved national security concerns with respect to the transactions contemplated by the Merger Agreement;

 

   

if CFIUS has sent a report to the President of the United States requesting the President’s decision with respect to the transactions contemplated by the Merger Agreement, and either (i) the President has announced a decision not to take any action to suspend, prohibit or place any limitations on the transactions contemplated by the Merger Agreement, or (ii) the President has taken no action within 15 days after receiving the report from CFIUS; or

 

   

in circumstances in which the Company and Parent have not agreed to file a Joint Voluntary Notice, on the basis of the CFIUS Declaration, the parties have received written notification from CFIUS to the effect that (i) CFIUS has concluded all actions under the DPA with respect to the transactions contemplated by the Merger Agreement and determined there are no unresolved national security concerns regarding the same, or (ii) CFIUS is not able to conclude action under the DPA with respect

 

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to the transactions contemplated by the Merger Agreement, but CFIUS has not requested that the parties submit a Joint Voluntary Notice in connection with the transactions contemplated by the Merger Agreement, and has not initiated a unilateral CFIUS review of the transactions contemplated by the Merger Agreement.

Any of the three circumstances described above constitutes CFIUS Clearance.

Although Parent and the Company expect that the CFIUS Clearance will be obtained, there can be no assurance that the CFIUS Clearance will be obtained prior to the Outside Date, obtained at all or that the granting of the CFIUS Clearance will not involve the imposition of certain conditions which are defined as Burdensome Conditions under the Merger Agreement and that Parent is not obligated under the Merger Agreement to accept.

Effective Time of the Merger

If the Merger Agreement is adopted at the special meeting of the Company’s stockholders, then, assuming timely satisfaction or waiver (if permissible) of the other necessary closing conditions, we currently anticipate that the Merger will be consummated during the first quarter of calendar year 2021. The Merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware (or at such later date and time as the Company and Parent may agree and specify in the certificate of merger). Since the Merger is subject to various regulatory clearances and approvals and other conditions, it is possible that factors outside the control of the Company or Parent could result in the Merger being consummated at a later time, or not at all. There may be a substantial amount of time between the special meeting of the Company’s stockholders and the consummation of the Merger. We expect to consummate the Merger promptly following the receipt of all required approvals and the satisfaction or waiver of the other conditions precedent as described in the Merger Agreement.

Delisting and Deregistration of Common Stock

If the Merger is consummated, our shares of Common Stock will be delisted from, and no longer traded on, Nasdaq and will be deregistered under the Exchange Act. If the Merger is consummated, the Company will no longer be a public company, and, as such, will no longer file reports with the SEC.

Payment of the Per Share Merger Consideration and Surrender of Stock Certificates

At the effective time of the Merger, each share of Common Stock 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, without interest and subject to any applicable withholding taxes. At the effective time of the Merger, all of our shares of Common Stock will cease to be outstanding, will be cancelled and will cease to exist, and each certificate formerly representing shares of Common Stock or non-certificated shares of Common Stock held in book-entry form will thereafter represent only the right to receive the Per Share Merger Consideration for each such share of Common Stock, without interest and subject to any applicable withholding taxes.

Parent, with the Company’s prior approval, will select a paying agent (the “paying agent”) to make the cash payments of the Per Share Merger Consideration to the Company’s stockholders contemplated by the Merger Agreement. At or prior to the effective time of the Merger, Parent will deposit, or will cause to be deposited, with the paying agent, for the benefit of the holders of shares of Common Stock (other than the Excluded Shares) and pursuant to a paying agent agreement in customary form that is reasonably acceptable to the Company, cash in immediately available funds in the aggregate amount necessary for the paying agent to make the payments of the Per Share Merger Consideration in respect of Common Stock required under the Merger Agreement. If a holder of Dissenting Shares (as defined in the section entitled “Merger Agreement—Per Share Merger Consideration” beginning on page 132) fails to perfect or effectively withdraws or loses his or her dissenters’ rights pursuant to the DGCL, such shares of Common Stock will cease to be Excluded Shares and Parent will make available or

 

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cause to be made available to the paying agent additional funds in an amount equal to the product of the number of Dissenting Shares for which such holder of Dissenting Shares has failed to perfect or effectively withdrawn or lost his or her dissenters’ rights pursuant to the DGCL and the Per Share Merger Consideration.

Promptly (and in any event within three business days) after the effective time of the Merger, Parent and the Surviving Corporation will cause the paying agent to mail to each holder of record of a certificate formerly representing shares of Common Stock (other than certificates formerly representing Excluded Shares) immediately prior to the effective time of the Merger (i) a letter of transmittal specifying that delivery will be effected, and risk of loss and title to the certificate formerly representing shares of Common Stock will pass, only upon delivery of the certificate (or affidavit of loss in lieu thereof) to the paying agent, such letter of transmittal to be in customary form and to have such other provisions as Parent and the Company may reasonably agree, and (ii) instructions for use in effecting the surrender of the certificate (or affidavit of loss in lieu thereof) in exchange for the amount to which such holder is entitled as a result of the Merger pursuant to the Merger Agreement. If any shares of Common Stock represented by a certificate cease to be Excluded Shares, the Surviving Corporation will cause the paying agent promptly (and in any event within three business days) after such shares of Common Stock cease to be Excluded Shares to mail to the applicable holder the letter of transmittal and instructions referred to in the immediately preceding sentence, with respect to such certificate. Upon delivery of the letter of transmittal duly executed by the applicable holder and the surrender of a certificate (or affidavit of loss in lieu thereof) to the paying agent in accordance with the terms of such letter of transmittal, the holder of such certificate will be entitled to receive in exchange therefor a cash amount in immediately available funds equal to the product of (i) the number of shares of Common Stock represented by such certificate (or affidavit of loss in lieu thereof), and (ii) the Per Share Merger Consideration, and the certificate so surrendered will be cancelled.

Promptly (and in any event within three business days) after the effective time of the Merger, Parent and the Surviving Corporation has agreed to cause the paying agent to (i) mail to each holder of record of shares of Common Stock held in book-entry form materials advising such holder of the effectiveness of the Merger and the conversion of its shares of Common Stock into the right to receive the Per Share Merger Consideration and (ii) subject to receipt by the paying agent of an “agent’s message” in customary form if reasonably required by the paying agent, pay to each holder of shares of Common Stock held in book-entry form a cash amount in immediately available funds equal to the product of (i) the number of shares of Common Stock held in book-entry form and (ii) the Per Share Merger Consideration. In the event of a transfer of ownership of shares of Common Stock that is not registered in the transfer records of the Company, payment of cash to be delivered upon due surrender of the certificate or shares held in book-entry form may be made to such transferee if the certificate formerly representing shares of Common Stock or shares held in book-entry form formerly representing such shares of Common Stock is presented to the paying agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable. Interest will not be paid or accrue in respect of any cash payments of the Per Share Merger Consideration. The paying agent will reduce the amount of any merger consideration paid by any applicable withholding taxes.

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

If you are the registered holder of a certificate formerly representing shares of Common Stock and any certificate has been lost, stolen or destroyed, you will be required to provide an affidavit of that fact and, if reasonably required by Parent, post a bond in reasonable and customary amount and upon such terms as may be reasonably required by Parent as indemnity against any claim that may be made against it or the Surviving Corporation with respect to such certificate. The instructions accompanying the letter of transmittal will inform you as to what to do in these circumstances.

After the consummation of the Merger, you will cease to have any rights as a stockholder of the Company.

 

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The paying agent will return to the Surviving Corporation all funds in its possession one year after the Merger occurs. After that time, if you have not received payment of the Per Share Merger Consideration, you may look only to the Surviving Corporation for payment of the Per Share Merger Consideration, without interest and subject to any applicable withholding taxes, subject to applicable abandoned property, escheat and similar laws. Any merger consideration remaining unclaimed by former holders of shares of Common Stock as of a date that is immediately prior to such time as such amounts would otherwise escheat to or become property of any governmental entity will, to the fullest extent permitted by applicable law, become the property of the Surviving Corporation free and clear of any claims or interest of any person previously entitled thereto.

Material U.S. Federal Income Tax Consequences of the Merger

The following is a general discussion of the material U.S. federal income tax consequences of the Merger to holders of shares of Common Stock whose shares of Common Stock are exchanged for cash pursuant to the Merger. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury regulations promulgated thereunder, judicial opinions and administrative rulings and published positions of the Internal Revenue Service (the “IRS”), each as in effect as of the date of this proxy statement. These authorities are subject to change, possibly on a retroactive basis, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address any tax considerations under state, local or non-U.S. laws or U.S. federal laws other than those pertaining to U.S. federal income tax.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Common Stock that is:

 

   

a citizen or individual resident of the United States;

 

   

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

   

a trust if (i) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more United States persons (as defined under Section 7701(a)(30) of the Code) are authorized to control all substantial decisions of the trust or (ii) such trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person (as defined under Section 7701(a)(30) of the Code); or

 

   

an estate the income of which is subject to U.S. federal income tax regardless of its source.

For purposes of this discussion, a “non-U.S. holder” is a beneficial owner of shares of Common Stock, other than a partnership or other entity taxable as a partnership for U.S. federal income tax purposes, that is not a U.S. holder.

If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of Common Stock, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. If you are a partner of a partnership holding shares of Common Stock, you should consult your tax advisor.

This discussion applies only to beneficial owners of shares of Common Stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that may be relevant to a holder in light of its particular circumstances, or that may apply to a holder that is subject to special treatment under the U.S. federal income tax laws (including, for example, insurance companies, controlled foreign corporations, passive foreign investment companies, dealers or brokers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting, holders liable for the alternative minimum tax, U.S. holders that have a functional currency other than the U.S. dollar, tax-exempt organizations, banks and certain other financial institutions, mutual funds, certain expatriates, partnerships or other pass-through entities or

 

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investors in partnerships or such other entities, holders who hold shares of Common Stock as part of a hedge, straddle, constructive sale or conversion transaction, holders who will hold, directly or indirectly, an equity interest in the Surviving Corporation (including the Rollover Stockholders), holders who acquired their shares of Common Stock through the exercise of employee stock options or other compensation arrangements, and holders that are required to report income no later than when such income is reported in an “applicable financial statement”). This discussion does not address the effect of the Medicare tax on net investment income. It also does not address the receipt of cash in connection with the cancellation of RSUs, PSUs, Stock Options, or any other options to purchase shares of Common Stock, and does not address any other matters relating to equity compensation or benefit plans.

Holders of shares of Common Stock should consult their tax advisors as to the specific tax consequences to them of the Merger, including the applicability and effect of the alternative minimum tax, and any state, local, foreign or other tax laws.

Consequences to U.S. Holders

The receipt of cash by U.S. holders in exchange for shares of Common Stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, for U.S. federal income tax purposes, a U.S. holder who receives cash in exchange for shares of Common Stock pursuant to the Merger will recognize capital gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received and (2) the U.S. holder’s adjusted tax basis in such shares. If a U.S. holder’s holding period in the shares of Common Stock surrendered in the Merger is greater than one year as of the date of the Merger, such gain or loss generally will be long-term capital gain or loss. Long-term capital gains of certain non-corporate holders, including individuals, generally are subject to U.S. federal income tax at preferential rates. The deductibility of capital losses is subject to limitations. If a U.S. holder acquired different blocks of Common Stock at different times or different prices, such U.S. holder must determine its adjusted tax basis and holding period separately with respect to each block of Common Stock.

Consequences to Non-U.S. Holders

A non-U.S. holder generally will not be subject to U.S. federal income taxation upon the receipt of cash in exchange for shares of Common Stock pursuant to the Merger unless:

 

   

gain resulting from the Merger is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment of such non-U.S. holder);

 

   

the non-U.S. holder is an individual who is present in the United States for 183 days or more in the individual’s taxable year in which the Merger occurs and certain other conditions are satisfied; or

 

   

shares of Common Stock constitute a U.S. real property interest (a “USRPI”) by reason of the Company’s status as a U.S. real property holding corporation (a “USRPHC”) for U.S. federal income tax purposes at any applicable time within the shorter of the five year period preceding the effective date of the Merger or the non-U.S. holder’s holding period for the Common Stock.

Any gain recognized by a non-U.S. holder described in the first bullet above generally will be subject to U.S. federal income tax on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a “United States person” (as defined under Section 7701(a)(30) of the Code). A non-U.S. holder that is a corporation may also be subject to an additional “branch profits tax” at a rate of 30% of its effectively connected earnings and profits or such lower rate as may be specified by an applicable income tax treaty.

Gain described in the second bullet above generally will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital

 

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losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

With respect to the third bullet above, we believe that the Company is not currently, and has not been during the preceding five-year period, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance that we currently are not a USRPHC or have not been a USRPHC during the preceding five-year period. Even if we are or were a USRPHC, gain arising from a non-U.S. holder’s receipt of cash in exchange for shares of Common Stock pursuant to the Merger will not be subject to U.S. federal income tax if the Common Stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and such non-U.S. holder owned, actually and constructively, 5% or less of the Common Stock throughout the shorter of the five-year period ending on the effective date of the Merger or the non-U.S. holder’s holding period in the Common Stock.

Information Reporting and Backup Withholding

Payments made to holders in exchange for shares of Common Stock pursuant to the Merger may be subject, under certain circumstances, to information reporting and backup withholding (currently at a rate of 24%). To avoid backup withholding, a U.S. holder that does not otherwise establish an exemption should complete and return IRS Form W-9, certifying that such U.S. holder is a United States person, the taxpayer identification number provided is correct and such U.S. holder is not subject to backup withholding. A U.S. holder that does not provide a correct taxpayer identification number may be subject to penalties imposed by the IRS. In general, a non-U.S. holder will not be subject to U.S. federal backup withholding and information reporting with respect to cash payments to the non-U.S. holder pursuant to the Merger if the non-U.S. holder has provided an IRS Form W-8BEN (or an IRS Form W-8ECI if the non-U.S. holder’s gain is effectively connected with the conduct of a U.S. trade or business).

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the IRS in a timely manner.

Anticipated Accounting Treatment of the Merger

The Merger will be accounted for as a business combination using the acquisition method of accounting for financial reporting purposes.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement and the documents incorporated by reference into this proxy statement include “forward-looking statements” that reflect our current views as to future events and financial performance with respect to our operations, the expected completion and timing of the Merger and other information relating to the Merger. All forward-looking statements included in this document are based on information available to the Company on the date hereof. These statements are identifiable because they do not relate strictly to historical or current facts. There are forward-looking statements throughout this proxy statement, including, among others, under the headings “Summary Term Sheet,” “Questions and Answers About the Special Meeting and the Merger,” “The Special Meeting,” “Special Factors” and “Important Information Regarding Cellular Biomedicine Group, Inc.,” and in statements containing the words “aim,” “anticipate,” “are confident,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “could,” “should,” “will,” and “may” and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance or other future events. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect Company management’s views only as of the date as of which the statements were made. We cannot guarantee any future results, levels of activity, performance or achievements. In addition to other factors and matters contained in or incorporated by reference in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

   

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;

 

   

the inability to complete the proposed Merger due to the failure to obtain the required stockholder approvals or the failure to satisfy other conditions to the consummation of the proposed Merger;

 

   

the parties may be unable to obtain CFIUS Clearance, or CFIUS may delay the Merger or result in the imposition of conditions that could cause the parties to abandon the Merger;

 

   

the risk that the financing under the Equity Commitment Letters delivered pursuant to the Merger Agreement is not provided as required, or the failure of the Merger to close for any other reason;

 

   

risks related to disruption of Company management’s attention from the Company’s ongoing business operations due to the Merger;

 

   

the outcome of any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted against the Company and others relating to the Merger;

 

   

developments beyond the parties’ control, including but not limited to, changes in economic, industry-specific, employment and competitive conditions;

 

   

the possibility that Acquisition Proposals will or will not be made;

 

   

our announcement and pursuit of the Merger may disrupt our business and make it more difficult to maintain our business and operational relationships, and the restrictions imposed on us prior to the closing of the Merger or termination of the Merger Agreement may prevent us from growing our business or operating outside of the ordinary course of business without the consent of Parent and/or Merger Sub;

 

   

the potential difficulties in employee retention as a result of the pendency of the Merger;

 

   

the risk associated with the timing of the closing of the Merger, including the risk that the conditions to the Merger are not satisfied on a timely basis, or at all, and the failure of the Merger to close for any other reason;

 

   

unanticipated difficulties or expenditures relating to the Merger, the response of business partners and retention as a result of the announcement and pendency of the Merger;

 

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the recent outbreak of the novel coronavirus (COVID-19) pandemic, including the effect of the COVID-19 pandemic on CBMG’s business and on global financial, business, travel, political, public health and other conditions, circumstances, requirements and practices;

 

   

the amount of the costs, fees, expenses and charges related to the Merger; and

 

   

additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements, which are discussed under “Risk Factors” and elsewhere in reports we have filed with the SEC, including our most recent filings on Forms 10-Q and 10-K. See “Where You Can Find Additional Information” beginning on page 208.

Forward-looking statements speak only as of the date of this proxy statement or the date of any document incorporated by reference in this document. All subsequent written and oral forward-looking statements concerning the Merger or other matters addressed in this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this proxy statement, to reflect the occurrence of unanticipated events or for any other reason.

 

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THE PARTIES INVOLVED IN THE MERGER

Cellular Biomedicine Group, Inc.

Cellular Biomedicine Group, Inc. is a Delaware corporation. Originally incorporated in Arizona in 2011 and known as EastBridge Investment Group Corporation, the Company is a clinical-stage biopharmaceutical company committed to using our proprietary cell-based technologies to develop immunotherapies for the treatment of cancer and stem cell therapies for the treatment of degenerative diseases. CBMG’s principal business address is 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877, and its telephone number is +1 (301) 825-5320.

Our Common Stock is traded on Nasdaq under the ticker symbol “CBMG.” Our corporate web address is https://www.cellbiomedgroup.com. The information provided on the Company’s website is not part of this proxy statement and is not incorporated in this proxy statement by reference or by any other reference to the Company’s website provided in this proxy statement.

See “Important Information Regarding Cellular Biomedicine Group, Inc.—Company Background” beginning on page 165 for additional information.

Additional information about CBMG is contained in its public filings, which is incorporated by reference herein. See “Where You Can Find Additional Information” beginning on page 208.

CBMG Holdings

Parent is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is a holding company formed solely for the purpose of holding the equity interest in Merger Sub, entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement, including the Merger. The registered address of Parent is c/o Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands. The principal business address of Parent is Suite 3206, One Exchange Square, 8 Connaught Place, Hong Kong, and the telephone number of Parent is +852 2516 6363.

CBMG Merger Sub Inc.

Merger Sub is a Delaware corporation and a holding company that is wholly owned by Parent and formed solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement, including the Merger. The registered address of Merger Sub is c/o Maples Fiduciary Services (Delaware) Inc., Suite 302, 4001 Kennett Pike, County of New Castle, Wilmington, Delaware 19807. The principal business address of Merger Sub is Suite 3206, One Exchange Square, 8 Connaught Place, Hong Kong. Merger Sub is wholly owned by Parent and the telephone number of Merger Sub is +852 2516 6363.

Yunfeng Capital

Yunfeng Fund III, L.P. is an exempted limited partnership established under the laws of the Cayman Islands and is an investment fund which was established for the purpose of making portfolio investments in accordance with its investment guidelines and engaging in such other activities incidental or ancillary thereto, including, without limitation, holding interests in Parent and completing the transactions contemplated by the Merger Agreement, including the Merger and the related financing transactions. Yunfeng Fund III, L.P. has not engaged in any business except for activities permitted by the YF Fund III LPA, including activities incidental to its formation and in connection with the transactions contemplated by the Merger Agreement, including the Merger. The principal business address of Yunfeng Fund III, L.P. is Suite 3206, One Exchange Square, 8 Connaught Place, Central, Hong Kong and the telephone number of Yunfeng Fund III, L.P. is +852 2516 6363.

 

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