EX-99.(C)-(3) 3 tm2124244d1_ex99-c3.htm EXHIBIT (C)-(3)

 

Exhibit (c)-(3)

 

Exhibit_project oreo sc_page_01.jpg ProjectOreo P R E L I M I N A R Y D I S C U S S I O N M AT E R I A L S F O R T H E S P E C I A L C O M M I T T E E N O V E M B E R 1 7 , 2 0 2 0 P R E L I M I N A R Y A N D C O N F I D E N T I A L | S U B J E C T T O F U R T H E R R E V I E W A N D R E V I S I O N

 

 

 

 

Exhibit_project oreo sc_page_02.jpg Table of Contents Page 3 6 11 12 17 20 22 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Public Market Observations Selected Proposal Observations Glossary Disclaimer 4. 2 PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION

 

 

 

 

Exhibit_project oreo sc_page_03.jpg Page 3 6 11 22 1. 2. 3. 4. Executive Summary Preliminary Financial Analyses Appendices Disclaimer

 

 

 

 

Exhibit_project oreo sc_page_04.jpg Executive Summary Situation Overview Ossen Innovation Co., Ltd. (NasdaqCM:OSN) (“Ossen” or the “Company”) is a publicly traded company incorporated in the British Virgin Islands with a market capitalization of $28.81 million that manufactures and sells a wide variety of plain surface pre-stressed steel materials and rare earth coated and zinc coated pre-stressed steel materials predominately in China. The Company’s steel products are used in the construction of bridges, highways, and other infrastructure projects. On September 15, 2020, the Company’s board of directors (the “Board”) received a preliminary non-binding proposal letter from Pujiang International Group Limited (the “Buyer” or “Pujiang International”), a Cayman Islands company listed on the Hong Kong Stock Exchange, to acquire all of the outstanding ordinary shares of the Company that are not already held by the Buyer or its affiliates for a purchase price of $5.00 per ADS or $1.667 per ordinary share (each ADS represents three ordinary shares), in cash (the “Proposal”). The Buyer currently owns approximately 65.9% of the Company’s outstanding ADS equivalents, and the Company’s Chairman, Dr. Liang Tang, has been the Chairman of the board of the directors of Pujiang International since December 2018. No other shareholder holds more than 1% of the Company’s outstanding shares. On September 22, 2020, the Company announced that its Board had formed a special committee (the “Special Committee”) consisting of two independent, disinterested directors to evaluate and consider the Proposal. The Special Committee engaged DLP Piper as its international legal counsel. On October 2, 2020, Houlihan Lokey was engaged by the Special Committee to render a written opinion as to whether the consideration to be received by the unaffiliated shareholders of the Company pursuant to the Proposal is fair from a financial point of view. Source: Company management, public filings, Capital IQ. 1. As of 11/13/2020. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 4

 

 

 

 

Exhibit_project oreo sc_page_05.jpg Executive Summary Preliminary Proposal Overview Preliminary Implied Premiums to Historical Unaffected Closing ADS Trading Prices Preliminary Summary of Proposal Value (USD and ADS in millions, except per ADS values) (USD per ADS in actuals) Implied Premium of Per ADS Proposal Consideration over Average Closing / Closing ADS Price Per ADS Proposal Consideration ADS Equivalents Outstanding [1] Preliminary Implied Proposal Equity Value Proportionate Cash, Cash Equivalents & Restricted Cash as of 9/30/20 [2] Proportionate Debt as of 9/30/20 [3] Preliminary Implied Proportionate Proposal Enterprise Value Preliminary Implied Value of Non-Controlling Interest [4] $5.00 6.6 $33.0 (8.4) 56.0 $80.6 8.5 Unaffected Trading Period As of 9/15/2020 [6] Average Closing / Closing ADS Price [7] 5-Day Average Closing $3.60 38.8% 1-Month Average Closing $3.34 49.8% Corresponding Base Amount [5] Implied Multiple 6-Month Average Closing $2.65 88.6% Adjusted EBITDA LTM Ended (6/30/2020) CY 2020E CY 2021E CY 2022E $16.9 $16.3 $14.2 $15.7 5.3x 5.5x 6.3x 5.7x $4.79 4.4% 52-Week High Closing - 10/11/2019 1. Based on 19.8 million common shares outstanding and common share to ADS conversion ratio of 3-1. Per Company management, as of 11/13/2020, there are no outstanding options, restricted stock units or other dilutive securities. Represents the Company’s proportionate interest in cash, cash equivalents & restricted cash based on the entities at which cash amounts are held and the Company’s respective ownership % in each entity. Converted from RMB to USD at an exchange exchange rate of 0.15 based on the average rate from 9/30/2020 to 11/13/2020. Represents the Company’s proportionate interest in total debt based on the entities at which the debt is held and the Company’s respective ownership % in each entity. Includes one-year term loan from Pujiang International borrowed in May 2020 and certain bank acceptance notes. Converted from RMB to USD at an exchange rate of 0.15 based on the average exchange rate from 9/30/2020 to 11/13/2020. Represents 9.5% (midpoint of 9.0% - 10.0%) of the implied enterprise value of the Company on a consolidated basis. The Company has two primary consolidated operating subsidiaries, and effectively owns 81.0% of Ossen Innovation Materials Co. Ltd., and 96.1% of Ossen (Jiujiang) Innovation Materials Co., Ltd. Per Company management, the Company’s historical ownership in the earnings and cash flow of its subsidiaries was 90.0% - 91.0% and the Company expects its ownership in the consolidated cash flows to remain consistent in the forecast. As such, and at the direction of Company management, the value of the non-controlling interest is equal to 9.0% - 10.0% of the consolidated Company. Per Company management. Represents the last full trading day prior to announcement of the Proposal. Per Capital IQ. 2. 3. 4. 5. 6. 7. Sources: Company management, public filings, Capital IQ. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 5 52-Week Low Closing - 3/13/2020 $1.64 204.9% 1-Year Average Closing $2.95 69.5% Preliminary Implied Proposal Multiples 3-Month Average Closing $3.25 53.7% Preliminary Implied Proposal Enterprise Value $89.1 10-Day Average Closing $3.38 48.0% 1-Day Closing $3.68 35.9% Preliminary Selected Proposal Information

 

 

 

 

Exhibit_project oreo sc_page_06.jpg Page 3 6 11 22 1. 2. 3. 4. Executive Summary Preliminary Financial Analyses Appendices Disclaimer

 

 

 

 

Exhibit_project oreo sc_page_07.jpg Preliminary Financial Analyses Summary Preliminary Implied Per ADS Value Reference Range (USD in actuals) Perpetual Growth Rate 0.00% – 1.00% Discount Rate: 17.0% – 21.0% $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 . Note: Based on 6.6 million ADS equivalents outstanding, per Company management. Source: Company management, public filings, Capital IQ, Bloomberg. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 7 $4.02$6.53 Preliminary Discounted Cash Flow Analysis

 

 

 

 

Exhibit_project oreo sc_page_08.jpg Preliminary Financial Analyses Summary (cont.) Preliminary Implied Per ADS Value Reference Range (ADS outstanding and USD in millions, except per ADS values) Perpetual Growth Rate 0.00% --1.00% Discount Rate 17.0% --21.0% Preliminary Implied Enterprise Value Reference Range $82.4 --$99.6 Preliminary Implied Value Attributable to Non-Controlling Interest at 9.0% - 10.0% [1] (8.2) --(9.0) Preliminary Implied Proportionate Enterprise Value Reference Range $74.1 --$90.7 Proportionate Cash, Cash Equivalents & Restricted Cash as of 9/30/2020 [2] 8.4 --8.4 Proportionate Total Debt as of 9/30/2020 [3] (56.0) --(56.0) Preliminary Implied Total Equity Value Reference Range $26.5 --$43.1 ADS Equivalents Outstanding [4] 6.6 --6.6 Preliminary Implied Per ADS Value Reference Range $4.02 --$6.53 1. The Company has two primary consolidated operating subsidiaries, and effectively owns 81.0% of Ossen Innovation Materials Co. Ltd., and 96.1% of Ossen (Jiujiang) Innovation Materials Co., Ltd. Per Company management, the Company’s historical ownership in the earnings and cash flow of its subsidiaries was 90.0% - 91.0% and the Company expects its ownership in the consolidated cash flows to remain consistent in the forecast. As such, and at the direction of Company management, the value of the non-controlling interest is equal to 9.0% - 10.0% of the consolidated Company. Represents the Company’s proportionate interest in cash, cash equivalents & restricted cash based on the entities at which cash amounts are held and the Company’s respective ownership % in each entity. Converted from RMB to USD at an exchange rate of 0.15 based on the average exchange rate from 9/30/2020 to 11/13/2020. Represents the Company’s proportionate interest in total debt based on the entities at which the debt is held and the Company’s respective ownership % in each entity. Includes one-year term loan from Pujiang International borrowed in May 2020 and certain bank acceptance notes. Converted from RMB to USD at an exchange rate of 0.15 based on the average exchange rate from 9/30/2020 to 11/13/2020. Based on 19.8 million common shares outstanding and common share to ADS conversion ratio of 3-1. Per Company management, as of 11/13/2020, there are no outstanding options, restricted stock units or other dilutive securities. 2. 3. 4. Source: Company management, public filings, Capital IQ, Bloomberg. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 8 Preliminary Discounted Cash Flow Analysis

 

 

 

 

Exhibit_project oreo sc_page_09.jpg Selected Historical and Projected Financial Data Fiscal Year Ended December 31, LTM Ended 6/30/2020 Fiscal Year Ending December 31, CAGR 2019 to 2024E (USD in millions) 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Rare Earth Coated PC Wires and PC Strands Zinc Coated PC Wires and PC Strands Plain Surface PC Strands Others $112.4 12.0 6.0 1.9 $103.4 26.8 4.8 1.1 $107.3 26.1 2.8 2.7 $97.7 25.5 3.1 2.4 $108.3 28.2 2.8 0.0 $108.3 30.9 2.8 0.0 $108.3 33.6 2.8 0.0 $108.3 36.3 2.8 0.0 $108.3 39.1 2.9 0.0 0.2% 8.5% 0.4% NMF Growth % Cost of Goods Sold Gross Profit Margin % 2.8% (115.6) 2.1% (116.5) 0.3% (117.2) 1.9% (121.0) 1.9% (123.0) 1.9% (125.0) 1.9% (127.0) (117.7) (106.2) $14.7 11.1% $20.5 15.1% $22.4 16.1% $22.5 17.5% $22.1 15.9% $21.0 14.8% $21.7 15.0% $22.5 15.3% $23.3 15.5% Selling Expenses General & Administrative Expenses [1] Research & Development Expenses Depreciation & Amortization (0.6) (1.7) (4.3) 0.8 (0.3) (1.9) (3.3) 0.6 (0.4) (1.7) (4.4) 0.6 (0.4) (1.6) (4.1) 0.6 (0.4) (1.7) (4.3) 0.7 (0.4) (3.5) (4.5) 1.7 (0.4) (3.6) (4.6) 2.6 (0.4) (3.7) (4.7) 2.6 (0.4) (3.8) (4.8) 2.6 Margin % Growth % 6.7% 11.4% 75.9% 11.8% 5.7% 13.2% 11.7% -0.9% 10.0% -12.8% 10.9% 10.7% 11.1% 4.0% 11.3% 4.0% Depreciation & Amortization (0.8) (0.6) (0.6) (0.6) (0.7) (1.7) (2.6) (2.6) (2.6) Margin % Growth % 6.1% 11.0% 85.4% 11.4% 6.1% 12.7% 11.2% -1.3% 8.8% -19.7% 9.1% 4.6% 9.3% 4.6% 9.6% 4.7% Additional Financial Information 1. General & Administrative Expenses primarily projected to increase in 2021 due to increase in Depreciation & Amortization and increased salary expenses associated with the new facility in Jiujiang. 2. Increase in Capital Expenditures in 2021 are related to the construction of a new facility in Jiujiang. 3. Converted from RMB to USD at an exchange rate of 0.15 based on the average exchange rate from 9/30/2020 to 11/13/2020. Source: Company management. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 9 Net Working Capital as of 9/30/2020: $188.33 Capital Expenditures [2] $0.0 $0.1 $0.1 $0.1 $1.1 $18.8 $0.1 $0.1 $0.1 Net Working Capital $130.8 $135.2 $149.9 $153.0 $166.1 $154.9 $156.6 $158.3 $160.0 Change in Net Working Capital ($25.0) ($4.4) ($14.7) ($16.2) $11.1 ($1.7) ($1.7) ($1.7) -1.9% Adjusted EBIT $8.1 $14.9 $15.8 $16.4 $15.6 $12.6 $13.1 $13.7 $14.4 0.7% Adjusted EBITDA $8.8 $15.6 $16.5 $16.9 $16.3 $14.2 $15.7 $16.4 $17.0 1.6% Total Revenue $132.4 $136.1 $138.9 $128.7 $139.3 $142.0 $144.7 $147.5 $150.3

 

 

 

 

Exhibit_project oreo sc_page_10.jpg Preliminary Discounted Cash Flow Analysis (USD in millions) Projected Fiscal Year Ending December 31, Total Revenue Growth % $42.2 $142.0 1.9% $144.7 1.9% $147.5 1.9% $150.3 1.9% $150.3 Discount Rate 0.00% 4.7x 4.5x 4.3x 4.1x 3.9x 0.50% 4.9x 4.6x 4.4x 4.2x 4.0x 1.00% 5.1x 4.8x 4.5x 4.3x 4.1x 17.00% 18.00% 19.00% 20.00% 21.00% Cost of Goods Sold Selling Expenses General & Administrative Expenses Research & Development Expenses Depreciation & Amortization Adjusted EBITDA Margin % Depreciation & Amortization Adjusted EBIT Taxes [2] Unlevered Earnings Depreciation & Amortization Capital Expenditures Change in Net Working Capital Unlevered Free Cash Flows (36.3) (0.1) (0.5) (1.4) 0.2 (121.0) (0.4) (3.5) (4.5) 1.7 (123.0) (0.4) (3.6) (4.6) 2.6 (125.0) (0.4) (3.7) (4.7) 2.6 (127.0) (0.4) (3.8) (4.8) 2.6 (124.5) (0.4) (3.8) (4.8) 0.1 $4.1 9.7% (0.2) $14.2 10.0% (1.7) $15.7 10.9% (2.6) $16.4 11.1% (2.6) $17.0 11.3% (2.6) $17.0 11.3% (0.1) $3.9 (0.6) $12.6 (1.9) $13.1 (2.0) $13.7 (2.1) $14.4 (2.2) $16.9 (2.5) Discount Rate 0.00% 43.5% 41.6% 39.8% 38.1% 36.5% 0.50% 44.3% 42.4% 40.6% 38.8% 37.2% 1.00% 45.2% 43.2% 41.3% 39.6% 37.9% $3.3 0.2 (0.6) 22.2 $10.7 1.7 (18.8) 11.1 $11.2 2.6 (0.1) (1.7) $11.7 2.6 (0.1) (1.7) $12.2 2.6 (0.1) (1.7) $14.4 0.1 (0.1) (1.7) 17.00% 18.00% 19.00% 20.00% 21.00% $25.2 $4.7 $12.0 $12.5 $13.0 $12.6 Discount Rate 0.00% $42.0 $38.4 $35.3 $32.5 $30.1 0.50% $43.5 $39.7 $36.4 $33.5 $31.0 1.00% $45.0 $41.1 $37.6 $34.6 $31.9 0.00% $96.6 $92.4 $88.7 $85.4 $82.4 0.50% $98.1 $93.7 $89.9 $86.4 $83.3 1.00% $99.6 $95.1 $91.1 $87.4 $84.2 17.00% 18.00% 19.00% 20.00% 21.00% $54.0 $53.4 $52.9 $52.4 $51.8 $0.6 $0.6 $0.5 $0.5 $0.5 + + = Note: Mid-year convention applied. Present values as of 11/13/2020. 1. Represents a 3.0 month stub period. Calculated based on 2020E forecast and year-to-date results as provided by Company management. 2. Tax at 15.0%, per Company management. 3. Implied from corresponding discount rate and perpetual growth rate applied to 2024 unlevered free cash flow. 4. Represents the present value of tax savings from depreciation associated with the new production facility from 2025 - 2031. Calculated based on 10 year useful life and 15.0% tax rate as provided by Company management. Source: Company management. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 10 Implied Enterprise Value PV of Depr. From New Facility [4] (2025 - 2031) PV of Terminal Value Based on Perpetual Growth Rate for 2024 Unlevered Free Cash Flow Present Value of Cash Flows (2020 - 2024) PV of Terminal Value as a % of Enterprise Value 2020E [1] 2021E 2022E 2023E 2024E Implied 2024E Adjusted EBITDA Terminal Multiple [3] Terminal Value Assumptions

 

 

 

 

Exhibit_project oreo sc_page_11.jpg Page 3 6 11 12 17 20 22 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Public Market Observations Selected Proposal Observations Glossary Disclaimer 4.

 

 

 

 

Exhibit_project oreo sc_page_12.jpg Page 3 6 11 12 17 20 22 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Public Market Observations Selected Proposal Observations Glossary Disclaimer 4.

 

 

 

 

Exhibit_project oreo sc_page_13.jpg Trading Snapshot Market Trading Overview (USD and ADS in millions, except per ADS values and where otherwise noted) Current ADS Price as of 11/13/2020 Unaffected ADS Price as of 9/15/2020 Current as of 11/13/2020 Unaffected as of 9/15/2020 Closing ADS Price ADS Equivalents Outstanding [1] Market Value of Equity Total Cash [2] Total Debt [2] Non-Controlling Interest [2] Public Market Enterprise Value $4.37 6.6 $28.8 (11.9) 37.2 15.4 $3.68 6.6 $24.3 (11.9) 37.2 15.4 52-Week High Closing Price 52-Week Low Closing Price $4.65 $1.64 $4.79 $1.64 Current as of 11/13/2020 Unaffected as of 9/15/2020 $69.6 $65.0 90-Day Average Daily Trading Value % of Market Value of Equity 90-Day Average Daily Trading Volume (in thousands) % of Total ADS Outstanding % of Total Public Float $0.4 1.33% 88.3 1.34% 3.93% $0.4 1.45% 89.0 1.35% 3.96% Total Public Float [4] % of Total ADS Outstanding 2.2 34.1% 2.2 34.1% Enterprise Value / Adjusted EBITDA LTM Ended 6/30/20 $16.9 4.1x 3.8x 1. 2. 3. 4. Based on ADS count per public filings for the period ended 12/31/2019. Per public filings’ income statements and balance sheets as of 6/30/2020. Total Debt includes one-year term loan from Pujiang International, borrowed in May 2020. Per Capital IQ as of 11/13/2020 and 9/15/2020, respectively. Represents outstanding equivalent ADS excluding those held by Pujiang International. Source: Public filings, Capital IQ, Bloomberg. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 13 Selected Implied Trading Multiples Other Market Information [3] Selected Trading Information [3] Public Market Enterprise Value Derivation

 

 

 

 

Exhibit_project oreo sc_page_14.jpg Timeline and ADS Trading History Closing ADS Price (US $) Daily Volume (MMs) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Volume (in millions) Closing Price Unaffected Closing ADS price as of 09/15/2020 Selected Events borrowed from the Buyer. The Company stated it would use intention of using the proceeds of such loans for planned capital expenditures in the expansion of zinc coated production 1. Represents the unaffected closing ADS price as of 9/15/2020. Sources: Public information, Capital IQ as of 11/13/2020. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 14 Event Date Comment A 5/28/2019 Announced a $2.6 million one-year loan with 8% interest ~$1.7 million of the proceeds million for paying off the balance due to Dr. Liang Tang and ~$0.9 million for general corporate purposes. B 6/26/2019 Announced that subsidiary, Ossen (Jiujiang) Innovation Materials Co., Ltd., borrowed two loans for an aggregate $18.9 million from the Bank of Shanghai at an interest rate of 3.915% with the capacity. Event Date Comment C 8/27/2019 Reported 1H19 financial results with a YoY increase in EPS of 20.8% from the comparable period in the prior year. D 3/23/2020 Pre-announced full year 2019 results reporting a ~5% YoY increase in net income. E 9/16/2020 Announced receipt of a preliminary non-binding proposal from the Buyer to acquire all outstanding shares not already owned for $5.00 in cash per ADS. Unaffected Closing ADS Price = $3.681 E C AB D

 

 

 

 

Exhibit_project oreo sc_page_15.jpg ADS Trading Activity Since Proposal ADS Price Performance Since Proposal (per ADS values in actuals, ADS in millions) ADS Price Daily Volume (mm) $5.50 1.0 $5.00 0.8 9/16/20 Announced appointment of $5.00/ADS. ADS closed at 0.6 closed at $4.43/ADS $4.50 0.4 $4.00 0.2 $3.50 0.0 9/15/2020 9/22/2020 9/29/2020 10/6/2020 10/13/2020 10/20/2020 10/27/2020 11/3/2020 11/10/2020 Volume (in millions) Closing Price Source: Capital IQ as of 11/13/2020, public filings. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 15 Proposal Price: $5.00 per ADS 10/2/20 Proposal announced atindependent financial advisor $4.65/ADSto the Special Committee. ADS 9/22/20 Announced formation of Special Committee. ADS closed at $4.25/ADS

 

 

 

 

Exhibit_project oreo sc_page_16.jpg Selected ADS Trading Activity Prior to Proposal (9/16/2020) Twelve Months Prior to Initial Proposal (9/16/2020) Nine Months Prior to Initial Proposal (9/16/2020) Volume (thousands) Volume (thousands) 4,000 5,000 4,500 3,500 4,143 4,000 3,500 3,000 2,500 3,000 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 0 500 0 $5.10 % of Total % of Total Six Months Prior to Initial Proposal (9/16/2020) Three Months Prior to Initial Proposal (9/16/2020) Volume (thousands) Volume (thousands) 3,500 3,500 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 0 $5.10 % of Total % of Total 1. Based on VWAP over specified period (last twelve months, last nine months, last six months or last three months). Reference to “Month” is based on Calendar months. VWAP in USD. Source: Bloomberg. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 16 3,001 2,852 243 587 0 295 00 $1.50 - $1.95 0.0% $1.95 - $2.40 0.0% $2.40 - $2.85 3.5% $2.85 - $3.30 43.0% $3.30 - $3.75 4.2% $3.75 - $4.20 8.4% $4.20 - $4.65 40.9% $4.65 - 0.0% 3,135 421374 2,852 587 0 295 104 $1.50 - $1.95 1.3% $1.95 - $2.40 5.4% $2.40 - $2.85 4.8% $2.85 - $3.30 40.4% $3.30 - $3.75 3.8% $3.75 - $4.20 7.6% $4.20 - $4.65 36.7% $4.65 - $5.10 0.0% Volume: 7.8 million VWAP1: $3.90 Volume: 6.9 million VWAP1: $4.09 4,416 710 481 1,393 626 1,067 134 $1.50 - $1.95 1.0% $1.95 - $2.40 3.7% $2.40 - $2.85 5.5% $2.85 - $3.30 34.0% $3.30 - $3.75 8.2% $3.75 - $4.20 10.7% $4.20 - $4.65 31.9% $4.65 - 4.8% 3,574 481571 2,852 587 387 0 134 $1.50 - $1.95 1.6% $1.95 - $2.40 5.6% $2.40 - $2.85 6.6% $2.85 - $3.30 41.6% $3.30 - $3.75 4.5% $3.75 - $4.20 6.8% $4.20 - $4.65 33.2% $4.65 - $5.10 0.0% Volume: 8.6 million VWAP1: $3.80 Volume: 13.0 million VWAP1: $3.87

 

 

 

 

Exhibit_project oreo sc_page_17.jpg Page 3 6 11 12 17 20 22 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Public Market Observations Selected Proposal Observations Glossary Disclaimer 4.

 

 

 

 

Exhibit_project oreo sc_page_18.jpg Illustrative Premiums / (Discounts) to Historical Unaffected Prices ADS Implied Premiums / (Discounts) of Illustrative Proposal Prices to Historical Unaffected ADS Prices (USD in actuals) Illustrative Proposal Price per ADS Premium to Proposal Price --2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% 26.0% 28.0% 30.0% Average Closing / Closing ADS Price [1] Unaffected Trading Period as of 9/15/2020 5-Day Average Closing $3.60 38.8% 41.6% 44.4% 47.1% 49.9% 52.7% 55.5% 58.2% 61.0% 63.8% 66.6% 69.3% 72.1% 74.9% 77.7% 80.5% 1-Month Average Closing $3.34 49.8% 52.8% 55.8% 58.8% 61.8% 64.8% 67.8% 70.8% 73.8% 76.8% 79.8% 82.8% 85.8% 88.8% 91.8% 94.7% 6-Month Average Closing $2.65 88.6% 92.4% 96.1% 99.9% 103.7% 107.5% 111.2% 115.0% 118.8% 122.6% 126.3% 130.1% 133.9% 137.6% 141.4% 145.2% 52-Week High Closing - 10/11/2019 $4.79 4.4% 6.5% 8.6% 10.6% 12.7% 14.8% 16.9% 19.0% 21.1% 23.2%25.3% 27.3% 29.4% 31.5%33.6% 35.7% 1. Per Capital IQ. Source: Capital IQ and public filings. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 18 52-Week Low Closing - 3/13/2020$1.64204.9% 211.0% 217.1% 223.2% 229.3% 235.4% 241.5% 247.6% 253.7% 259.8% 265.9% 272.0% 278.0% 284.1% 290.2% 296.3% 1-Year Average Closing$2.9569.5%72.9%76.3%79.7%83.1%86.4%89.8%93.2%96.6% 100.0% 103.4% 106.8% 110.2% 113.6% 117.0% 120.3% 3-Month Average Closing$3.2553.7%56.8%59.8%62.9%66.0%69.1%72.1%75.2%78.3%81.3%84.4%87.5%90.6%93.6%96.7%99.8% 10-Day Average Closing$3.3848.0%50.9%53.9%56.8%59.8%62.8%65.7%68.7%71.6%74.6%77.6%80.5%83.5%86.4%89.4%92.4% 1-Day Closing$3.6835.9%38.6%41.3%44.0%46.7%49.5%52.2%54.9%57.6%60.3%63.0%65.8%68.5%71.2%73.9%76.6% $5.00$5.10$5.20$5.30$5.40$5.50$5.60$5.70$5.80$5.90$6.00$6.10$6.20$6.30$6.40$6.50

 

 

 

 

Exhibit_project oreo sc_page_19.jpg Illustrative Aggregate Consideration to Unaffiliated Shareholders Sensitivities Implied EV1/Adjusted EBITDA Multiples of Illustrative Proposal Prices (USD in millions, except per ADS values) Illustrative Proposal Price per ADS Premium to Proposal Price --2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% 26.0% 28.0% 30.0% Adjusted EBITDA CY 2020E $16.3 5.5x 5.5x 5.6x 5.6x 5.6x 5.7x 5.7x 5.8x 5.8x 5.9x 5.9x 6.0x 6.0x 6.0x 6.1x 6.1x CY 2022E $15.7 5.7x 5.7x 5.7x 5.8x 5.8x 5.9x 5.9x 6.0x 6.0x 6.1x 6.1x 6.2x 6.2x 6.3x 6.3x 6.4x Aggregate Consideration to Unaffiliated ADS Holders at Illustrative Proposal Prices (USD in millions, except per ADS values) Illustrative Proposal Price per ADS Premium to Proposal Price --2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% 26.0% 28.0% 30.0% Illust. Consideration to Unaffiliated Holders [2] $11.2 $11.5 $11.7 $11.9 $12.1 $12.4 $12.6 $12.8 $13.0 $13.3 $13.5 $13.7 $13.9 $14.2 $14.4 $14.6 Incremental Consideration Required [3] Pujiang International: % Cash Balance [4] % Equity Value [5] --$0.2 $0.4 $0.7 $0.9 $1.1 $1.3 $1.6 $1.8 $2.0 $2.2 $2.5 $2.7 $2.9 $3.1 $3.4 ---- 0.2% 0.1% 0.5% 0.1% 0.7% 0.2% 1.0% 0.3% 1.2% 0.4% 1.5% 0.4% 1.7% 0.5% 2.0% 0.6% 2.2% 0.7% 2.5% 0.7% 2.7% 0.8% 3.0% 0.9% 3.2% 0.9% 3.4% 1.0% 3.7% 1.1% 1. 2. 3. 4. 5. Based on 6.6 million ADS equivalents outstanding. Per Company management, as of 11/13/2020, there are no outstanding options, restricted stock units or other dilutive securities. Based on 2.2 million ADS equivalents held by unaffiliated holders. Represents the incremental investment required by Pujiang International at the corresponding illustrative Proposal price per ADS in excess of the Proposal of $5.00 per ADS. Based on Pujiang International 6/30/2020 cash and cash equivalents balance of ¥645.2 million, converted from RMB to USD at an exchange rate of 0.14 based on the 6/30/2020 exchange rate, per Capital IQ. Based on Pujiang International Equity Value, denominated in USD, as of 11/13/2020, per Capital IQ. Source: Company management, Capital IQ and public filings. PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION 19 $5.00 $5.10 $5.20 $5.30 $5.40 $5.50 $5.60 $5.70 $5.80 $5.90 $6.00 $6.10 $6.20 $6.30 $6.40 $6.50 CY 2021E $14.2 6.3x 6.3x 6.4x 6.4x 6.5x 6.5x 6.6x 6.6x 6.7x 6.7x 6.8x 6.8x 6.9x 6.9x 7.0x 7.0x LTM Ended (6/30/2020) $16.9 5.3x 5.3x 5.3x 5.4x 5.4x 5.5x 5.5x 5.6x 5.6x 5.7x 5.7x 5.7x 5.8x 5.8x 5.9x 5.9x $5.00 $5.10 $5.20 $5.30 $5.40 $5.50 $5.60 $5.70 $5.80 $5.90 $6.00 $6.10 $6.20 $6.30 $6.40 $6.50

 

 

 

 

Exhibit_project oreo sc_page_20.jpg Page 3 6 11 12 17 20 22 1. 2. 3. Executive Summary Preliminary Financial Analyses Appendices Selected Public Market Observations Selected Proposal Observations Glossary Disclaimer 4.

 

 

 

 

Exhibit_project oreo sc_page_21.jpg Glossary of Terms Definition Description Adjusted EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization, adjusted for certain other non-recurring items CAGR Compound Annual Growth Rate E Estimated H Half NMF Not Meaningful Figure RMB Chines Yuan (Renminbi) VWAP Volume-Weighted Average Price YTD Year to Date 21 PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION YoYYear Over Year USDUnited States Dollar QQuarter LTMLatest Twelve Months or the Most Recently Completed 12-Month Period for which Financial Information has been Made Public FYFiscal Year CYCalendar Year ADSAmerican Depository Shares Adjusted EBITEarnings Before Interest and Taxes, adjusted for certain other non-recurring items

 

 

 

 

Exhibit_project oreo sc_page_22.jpg Page 3 6 11 22 1. 2. 3. 4. Executive Summary Preliminary Financial Analyses Appendices Disclaimer

 

 

 

 

Exhibit_project oreo sc_page_23.jpg Disclaimer This presentation, and any supplemental information (written or oral) or other documents provided in connection therewith (collectively, the “materials”), are provided solely for the information of the Special Committee (the “Committee”) of the Board of Directors (the “Board”) of Ossen Innovation Co., Ltd. (the “Company”) by Houlihan Lokey in connection with the Committee’s consideration of a potential transaction (the “Transaction”) involving the Company. This presentation is incomplete without reference to, and should be considered in conjunction with, any supplemental information provided by and discussions with Houlihan Lokey in connection therewith. Any defined terms used herein shall have the meanings set forth herein, even if such defined terms have been given different meanings elsewhere in the materials. The materials are for discussion purposes only. Houlihan Lokey expressly disclaims any and all liability, whether direct or indirect, in contract or tort or otherwise, to any person in connection with the materials. The materials were prepared for specific persons familiar with the business and affairs of the Company for use in a specific context and were not prepared with a view to public disclosure or to conform with any disclosure standards under any state, federal or international securities laws or other laws, rules or regulations, and none of the Committee, the Company or Houlihan Lokey takes any responsibility for the use of the materials by persons other than the Committee. The materials are provided on a confidential basis solely for the information of the Committee and may not be disclosed, summarized, reproduced, disseminated or quoted or otherwise referred to, in whole or in part, without Houlihan Lokey’s express prior written consent. Notwithstanding any other provision herein, the Company (and each employee, representative or other agent of the Company) may disclose to any and all persons without limitation of any kind, the tax treatment and tax structure of any transaction and all materials of any kind (including opinions or other tax analyses, if any) that are provided to the Company relating to such tax treatment and structure. However, any information relating to the tax treatment and tax structure shall remain confidential (and the foregoing sentence shall not apply) to the extent necessary to enable any person to comply with securities laws. For this purpose, the tax treatment of a transaction is the purported or claimed U.S. income or franchise tax treatment of the transaction and the tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed U.S. income or franchise tax treatment of the transaction. If the Company plans to disclose information pursuant to the first sentence of this paragraph, the Company shall inform those to whom it discloses any such information that they may not rely upon such information for any purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey is not an expert on, and nothing contained in the materials should be construed as advice with regard to, legal, accounting, regulatory, insurance, tax or other specialist matters. Houlihan Lokey’s role in reviewing any information was limited solely to performing such a review as it deemed necessary to support its own advice and analysis and was not on behalf of the Committee. The materials necessarily are based on financial, economic, market and other conditions as in effect on, and the information available to Houlihan Lokey as of, the date of the materials. As you are aware, the credit, financial and stock markets have been experiencing unusual volatility and we express no opinion or view as to the effects of such volatility on the Transaction or the Company and this presentation does not address or purport to address any potential changes or developments in such markets or volatility. Furthermore, as you are aware, there is significant uncertainty as to the potential direct and indirect business, financial, economic and market implications and consequences of the spread of the coronavirus and associated illnesses and the actions and measures that countries, central banks, international financing and funding organizations, stock markets, businesses and individuals may take to address the spread of the coronavirus and associated illnesses including, without limitation, those actions and measures pertaining to fiscal or monetary policies, legal and regulatory matters and the credit, financial and stock markets (collectively, the “Pandemic Effects”), and the Pandemic Effects could have a material impact on our analyses and this presentation. Although subsequent developments may affect the contents of the materials, Houlihan Lokey has not undertaken, and is under no obligation, to update, revise or reaffirm the materials, except as may be expressly contemplated by Houlihan Lokey’s engagement letter. The materials are not intended to provide the sole basis for evaluation of the Transaction and do not purport to contain all information that may be required. The materials do not address the underlying business decision of the Company or any other party to proceed with or effect the Transaction, or the relative merits of the Transaction as compared to any alternative business strategies or transactions that might be available for the Company or any other party. The materials do not constitute any opinion, nor do the materials constitute a recommendation to the Board, the Committee, the Company, any security holder of the Company or any other party as to how to vote or act with respect to any matter relating to the Transaction or otherwise or whether to buy or sell any assets or securities of any company. Houlihan Lokey’s only opinion is the opinion, if any, that is actually delivered to the Committee. In preparing the materials Houlihan Lokey has acted as an independent contractor and nothing in the materials is intended to create or shall be construed as creating a fiduciary or other relationship between Houlihan Lokey and any party. The materials may not reflect information known to other professionals in other business areas of Houlihan Lokey and its affiliates. 23 PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION

 

 

 

 

Exhibit_project oreo sc_page_24.jpg Disclaimer (cont.) The preparation of the materials was a complex process involving quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaption and application of these methods to the unique facts and circumstances presented and, therefore, is not readily susceptible to partial analysis or summary description. Furthermore, Houlihan Lokey did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, the analyses contained in the materials must be considered as a whole. Selecting portions of the analyses, analytic methods and factors without considering all analyses and factors could create a misleading or incomplete view. The materials reflect judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond the control of the participants in the Transaction. Any estimates of value contained in the materials are not necessarily indicative of actual value or predictive of future results or values, which may be significantly more or less favorable. Any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which any assets, businesses or securities may actually be sold. The materials do not constitute a valuation opinion or credit rating. The materials do not address the consideration to be paid or received in, the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the Transaction or otherwise. Furthermore, the materials do not address the fairness of any portion or aspect of the Transaction to any party. In preparing the materials, Houlihan Lokey has not conducted any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (contingent or otherwise) of the Company or any other party and has no obligation to evaluate the solvency of the Company or any other party under any law. All budgets, projections, estimates, financial analyses, reports and other information with respect to operations (including estimates of potential cost savings and expenses) reflected in the materials have been prepared by management of the relevant party or are derived from such budgets, projections, estimates, financial analyses, reports and other information or from other sources, which involve numerous and significant subjective determinations made by management of the relevant party and/or which such management has reviewed and found reasonable. The budgets, projections and estimates (including, without limitation, estimates of potential cost savings and synergies) contained in the materials may or may not be achieved and differences between projected results and those actually achieved may be material. Houlihan Lokey has relied upon representations made by management of the Company and other participants in the Transaction that such budgets, projections and estimates have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management (or, with respect to information obtained from public sources, represent reasonable estimates), and Houlihan Lokey expresses no opinion with respect to such budgets, projections or estimates or the assumptions on which they are based. The scope of the financial analysis contained herein is based on discussions with the Company (including, without limitation, regarding the methodologies to be utilized), and Houlihan Lokey does not make any representation, express or implied, as to the sufficiency or adequacy of such financial analysis or the scope thereof for any particular purpose. Houlihan Lokey has assumed and relied upon the accuracy and completeness of the financial and other information provided to, discussed with or reviewed by it without (and without assuming responsibility for) independent verification of such information, makes no representation or warranty (express or implied) in respect of the accuracy or completeness of such information and has further relied upon the assurances of the Company and other participants in the Transaction that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. In addition, Houlihan Lokey has relied upon and assumed, without independent verification, that there has been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company or any other participant in the Transaction since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to, discussed with or reviewed by Houlihan Lokey that would be material to its analyses, and that the final forms of any draft documents reviewed by Houlihan Lokey will not differ in any material respect from such draft documents. The materials are not an offer to sell or a solicitation of an indication of interest to purchase any security, option, commodity, future, loan or currency. The materials do not constitute a commitment by Houlihan Lokey or any of its affiliates to underwrite, subscribe for or place any securities, to extend or arrange credit, or to provide any other services. In the ordinary course of business, certain of Houlihan Lokey’s affiliates and employees, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade or otherwise effect transactions, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, the Company, any Transaction counterparty, any other Transaction participant, any other financially interested party with respect to any transaction, other entities or parties that are mentioned in the materials, or any of the foregoing entities’ or parties’ respective affiliates, subsidiaries, investment funds, portfolio companies and representatives (collectively, the “Interested Parties”), or any currency or commodity that may be involved in the Transaction. Houlihan Lokey provides mergers and acquisitions, restructuring and other advisory and consulting services to clients, which may have in the past included, or may currently or in the future include, one or more Interested Parties, for which services Houlihan Lokey has received, and may receive, compensation. Although Houlihan Lokey in the course of such activities and relationships or otherwise may have acquired, or may in the future acquire, information about one or more Interested Parties or the Transaction, or that otherwise may be of interest to the Board, the Committee, or the Company, Houlihan Lokey shall have no obligation to, and may not be contractually permitted to, disclose such information, or the fact that Houlihan Lokey is in possession of such information, to the Board, the Committee, or the Company or to use such information on behalf of the Board, the Committee, or the Company. Houlihan Lokey’s personnel may make statements or provide advice that is contrary to information contained in the materials. 24 PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION

 

 

 

 

Exhibit_project oreo sc_page_25.jpg CORPORATE FINANCE FINANCIAL RESTRUCTURING FINANCIAL AND VALUATION ADVISORY HL.com 25 PRELIMINARY AND CONFIDENTIAL | SUBJECT TO FURTHER REVIEW AND REVISION