EX-99.A1 2 ea141403exa1_chinacust.htm PROXY STATEMENT OF THE COMPANY DATED _MAY 20, 2021 (THE "PROXY STATEMENT")

Exhibit (a)-(1)

 

China Customer Relations Centers, Inc.

 

May 20, 2021

 

Shareholders of China Customer Relations Centers, Inc.

 

Re: Notice of Extraordinary General Meeting of Shareholders

 

Dear Shareholder:

 

You are cordially invited to attend an extraordinary general meeting of shareholders of China Customer Relations Centers, Inc. (the “Company”) to be held on June 18, 2021 at 9:00 a.m. (Beijing Time). The meeting will be held at the Company’s office at 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China. The attached notice of the extraordinary general meeting and proxy statement provide information regarding the matters to be considered and voted on at the extraordinary general meeting, including at any adjournment thereof.

 

On March 12, 2021, the Company entered into an agreement and plan of merger (the “merger agreement”) with Taiying Group Ltd., a BVI business company with limited liability incorporated under the laws of the British Virgin Islands (“Parent”) and Taiying International Inc., a BVI business company with limited liability incorporated under the laws of the British Virgin Islands (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “merger”) and cease to exist, with the Company continuing as the surviving company (the “surviving company”) and becoming a wholly-owned subsidiary of Parent. At the extraordinary general meeting you will be asked to consider and vote upon a proposal to authorize and approve the merger agreement, the plan of merger (the “plan of merger”) and the articles of merger required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands in connection with the merger, and the transactions contemplated by the merger agreement, including the merger. Copies of the merger agreement and the plan of merger are attached as Annex A to the accompanying proxy statement.

 

Each of Parent and Merger Sub is a BVI business company with limited liability formed solely for purposes of the merger. Parent, at the effective time of the merger, will be beneficially owned by the following persons and entities or the parties designated by them: (a) TAISHANBPO1 Holdings Limited, a BVI business company with limited liability and wholly-owned by Mr. Zhili Wang (the “Chairman”), the chief executive officer and chairman of the board of directors of the Company (the “Board”) and director of the Company, (b) TAISHANBPO2 Holdings Limited, a BVI business company with limited liability and wholly-owned by Mr. Debao Wang, director, the chief financial officer and vice president of the Company, (c) TAISHANBPO3 Holdings Limited, a BVI business company with limited liability and wholly-owned by Mr. Guoan Xu, director and vice president of the Company, (d) TAISHANBPO4 Holdings Limited, a BVI business company with limited liability and wholly-owned by Mr. Qingmao Zhang, (e) TAISHANBPO5 Holdings Limited, a BVI business company with limited liability and wholly-owned by Mr. Long Lin, (f) TAISHANBPO6 Holdings Limited, a BVI business company with limited liability and wholly-owned by Mr. Jishan Sun, (g) Harford Equity Limited, an international business company incorporated in the Republic of Seychelles beneficially owned by Mr. Yipeng Wang, (h) Sainsberry Limited, an international business company incorporated in the Republic of Seychelles beneficially owned by Mr. Ruixiu Wang, (i) Mr. Qiaolin Wang, (j) Ms. Yan Lyu, (k) Mr. Xianghui Li, (l) Singeton Management Limited, a private company with limited liability incorporated in Hong Kong beneficially owned by Ms. Ning Zou, (m) Mr. Liping Gao, (n) Ms. Yuxiang Qi and (o) Ms. Yanli Xu. The Chairman, Mr. Debao Wang, Mr. Guoan Xu, Mr. Qingmao Zhang, Mr. Long Lin and Mr. Jishan Sun are collectively referred to as the “Guarantors”. The Guarantors, persons listed in (g) to (o) above, Mr. Yipeng Wang, Mr. Ruixiu Wang, Ms. Ning Zou, Wilstein Limited, an international business company incorporated in the Republic of Seychelles beneficially owned by Mr. Lin Long, and Telecare Global Services Limited, a BVI business company beneficially owned by Mr. Jishan Sun, are collectively referred to as the “Rollover Shareholders”. Parent, Merger Sub, the persons listed in (a) to (f) above and the Rollover Shareholders are collectively referred to as the “Buyer Group”.

 

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As of the date of this proxy statement, the Rollover Shareholders collectively beneficially own, in the aggregate, 71.1% of the total issued and outstanding ordinary shares of the Company, par value $0.001 per share (each, a “Share”), (collectively, the “Rollover Shares”). If the merger is completed, the Company will continue its operations as a privately held company and will be beneficially owned by the Buyer Group and, as a result of the merger, the Shares will no longer be listed on The Nasdaq Capital Market (“NASDAQ”).

 

If the merger is completed, at the effective time of the merger (the “Effective Time”), each Share issued and outstanding immediately prior to the Effective Time, other than (a) the Rollover Shares, (b) Shares owned by Parent, Merger Sub, the Company (as treasury, if any) or any of their respective subsidiaries immediately prior to the Effective Time, (c) Shares reserved (but not yet allocated) by the Company for settlement upon exercise or vesting of any option to purchase the Shares granted under the Share Incentive Plan on or prior to the date of closing whether or not such option has become vested on or prior to the date of closing in accordance with the terms of the Share Incentive Plan (“Company Share Awards”) immediately prior to the Effective Time, and (d) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenter rights under the BVI Business Companies Act (the “BVI Business Companies Act”) (the “Dissenting Shares”) (Shares described under (a) through (d) above are collectively referred to herein as the “Excluded Shares”), shall be cancelled in exchange for the right to receive $6.50 in cash per Share without interest and net of any applicable withholding taxes. The Excluded Shares other than Dissenting Shares will be cancelled for no consideration. The Dissenting Shares will be cancelled and each holder thereof will be entitled to receive only the payment of the fair value of such Dissenting Shares in accordance with the BVI Business Companies Act.

 

In addition, at the Effective Time, the Company will terminate the Company’s 2018 Share Incentive Plan (the “Share Incentive Plan”) and any relevant award agreements entered into under the Share Incentive Plan.

 

The Buyer Group intends to fund the merger consideration and the merger costs through debt financing provided by China Merchants Bank Co., Ltd. pursuant to a debt commitment letter issued by China Merchants Bank Co., Ltd. (the “Debt Commitment Letter”). In calculating this amount, the Company and the Buyer Group did not consider the value of the Rollover Shares, which will be cancelled for no consideration pursuant to the merger agreement.

 

The Special Committee, consisting of three independent directors, Mr. Tianjun Zhang, Mr. Owens Meng and Mr. Jie Xu (the “Special Committee”) reviewed and considered the terms and conditions of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger. On March 12, 2021, the Special Committee unanimously (a) determined that it is in the best interests of the Company and its shareholders (other than the Rollover Shareholders and their affiliates), and declared it advisable, to enter into the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, (b) approved the execution, delivery and performance of the merger agreement, the plan of merger, the articles of merger and the consummation of the transactions contemplated under the merger agreement and thereby, including the merger, and (c) resolved to recommend that the shareholders of the Company authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger (and including, without limitation, the amended and restated memorandum of association and articles of association of the surviving company in the form attached as Appendix B of the plan of merger), in each case in accordance with the BVI Business Companies Act.

 

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On March 12, 2021, the Board, after carefully considering all relevant factors, including the unanimous determination and recommendation of the Special Committee, on behalf of the Company, (a) determined that it is in the best interests of the Company and its shareholders (other than the Rollover Shareholders and their affiliates), and declared it advisable, to enter into the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, (b) approved the execution, delivery and performance of the merger agreement, the plan of merger, the articles of merger and the consummation of the transactions contemplated under the merger agreement and thereby, including the merger, and (c) resolved to recommend that the shareholders of the Company authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger (and including, without limitation, the amended and restated memorandum of association and articles of association of the surviving company in the form attached as Appendix B of the plan of merger), in each case in accordance with the BVI Business Companies Act.

 

After careful consideration and upon the unanimous recommendation of the Special Committee composed solely of directors unrelated to any of the management members of the Company or any member of the Buyer Group, and on behalf of the Company, the Board authorized and approved the merger agreement and recommends that you vote FOR the proposal to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, FOR the proposal to authorize each of the members of the Special Committee to do all things necessary to give effect to the merger agreement, the plan of merger, and the transactions contemplated by the merger agreement, including the merger and FOR the proposal to instruct the chairman of the extraordinary general meeting to adjourn the extraordinary meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the resolutions to be proposed at the extraordinary general meeting.

 

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

 

Regardless of the number of Shares you own, your vote is very important. In order for the merger to be completed, the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger, must be authorized and approved by a resolution approved by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the shareholders holding the Shares were present at the extraordinary general meeting of the shareholders or an adjournment thereof in person or by proxy and being Shares in respect of which the votes were voted in accordance with the BVI Business Companies Act and the memorandum and articles of the Company. In considering the recommendation of the Special Committee and the Board, you should be aware that some of the Company’s directors or executive officers have interests in the merger that are different from, or in addition to, the interests of the shareholders generally. As of the date of this proxy statement, the Rollover Shareholders beneficially own approximately 71.1% of the total issued and outstanding Shares of the Company entitled to vote. Whether or not you plan to attend the extraordinary general meeting, please complete the enclosed proxy card, in accordance with the instructions set forth on your proxy card, as promptly as possible. The deadline to lodge your proxy card is June 16, 2021 at 9:00 a.m. (Beijing Time). Each shareholder has one vote for each Share held as of the close of business in the British Virgin Islands on May 17, 2021.

 

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Voting at the extraordinary general meeting will take place by poll voting, as the chairman of the Board has undertaken to demand poll voting at the meeting.

 

Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting and vote your Shares in person. Please note, however, that if your Shares are held of record by a broker, bank or other nominee and you wish to vote at the extraordinary general meeting in person, you must obtain from the registered holder a proxy issued in your name. If you submit a signed proxy card without indicating how you wish to vote, the Shares represented by your proxy card will be voted FOR the resolution to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, FOR the resolution to authorize each of the members of the Special Committee to do all things necessary to give effect to the merger agreement, the plan of merger, and the transactions contemplated by the merger agreement, including the merger, and FOR the resolution to instruct the chairman of the extraordinary general meeting to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies, in the event that there are insufficient proxies received to pass the resolutions to be proposed at the extraordinary general meeting, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.

 

Registered shareholders (ie. shareholders whose name is registered in the register of members of the Company) and wishing to dissent from the merger will be entitled to seek appraisal and have the right to receive payment of the fair value of their Shares in accordance with Section 179 of the BVI Business Companies Act if the merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the merger is taken at the extraordinary general meeting, a written objection to the merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act, as amended regarding the exercise of appraisal rights, a copy of which is attached as Annex C to the accompanying proxy statement. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the merger consideration you would receive pursuant to the merger agreement if you do not exercise appraisal rights with respect to your Shares.

 

IF YOU HOLD YOUR SHARES THROUGH A FINANCIAL INTERMEDIARY SUCH AS A BROKER OR BANK AND WISH TO DISSENT FROM THE MERGER, YOU MUST MAKE ALL NECESSARY ARRANGEMENTS WITH THE FINANCIAL INTERMEDIARY TO ENSURE THAT YOUR SHARES ARE REGISTERED IN YOUR OWN NAME IN THE REGISTER OF MEMBERS OF THE COMPANY such that you become a registered shareholder IN ORDER FOR YOU TO EXERCISE DISSENTERS’ RIGHTS. THE FINANCIAL INTERMEDIARY IS UNLIKELY TO EXERCISE OR ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF A BENEFICIAL OWNER OF THE SHARES REQUESTS THE FINANCIAL INTERMEDIARY TO DO SO. YOU MUST CONTACT YOUR FINANCIAL INTERMEDIARY PROMPTLY TO ENSURE THAT YOU BECOME A REGISTERED SHAREHOLDER IN SUFFICIENT TIME AHEAD OF THE DATE OF THE EXTRAORDINARY GENERAL MEETING, AS YOU MUST DELIVER TO THE COMPANY A WRITTEN OBJECTION TO THE MERGER BEFORE THE VOTE TO AUTHORIZE AND APPROVE THE MERGER IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING. YOU MUST SUBSEQUENTLY COMPLY WITH ALL PROCEDURES AND REQUIREMENTS OF SECTION 179 OF THE BVI BUSINESS COMPANIES ACT FOR THE EXERCISE OF DISSENTERS’ RIGHTS, A COPY OF WHICH IS ATTACHED AS ANNEX C TO THE ACCOMPANYING PROXY STATEMENT. IF THE MERGER IS NOT CONSUMMATED, THE COMPANY WILL CONTINUE TO BE A PUBLICLY TRADED COMPANY IN THE UNITED STATES AND THE SHARES WILL CONTINUE TO BE LISTED ON NASDAQ. AS A RESULT, IF YOU BECAME A REGISTERED SHAREHOLDER FOR PURPOSES OF EXERCISING DISSENTERS’ RIGHTS AND THE MERGER IS NOT CONSUMMATED, AND YOU WISH TO TRANSFER YOUR SHARES BACK TO A FINANCIAL INTERMEDIARY, YOU WILL NEED TO CONTACT THE FINANCIAL INTERMEDIARY TO MAKE ALL NECESSARY ARRANGEMENTS.

 

If you do not fully and precisely satisfy the procedural requirements of the Section 179 of the BVI Business Companies Act, you will lose your dissenters’ rights.

 

We encourage you to read the section of the accompanying proxy statement entitled “Appraisal Rights” beginning on page 92 as well as Annex C to the accompanying proxy statement carefully and we urge you to seek your own legal advice on BVI Business Companies Act in general from a licensed British Virgin Islands law firm if you wish to exercise your dissenters’ rights.

 

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

 

If you have any questions or need assistance in voting your Shares, you can contact Investor Relations, China Customer Relations Centers, Inc., at +1-718-213-7386 or at shunyu.zheng@weitian-ir.com.

 

Thank you for your cooperation and continued support.

 

  Sincerely, Sincerely,
     
  /s/ Tianjun Zhang   /s/ Zhili Wang  
  Mr. Tianjun Zhang Zhili Wang
  Chairman of the Special Committee Chairman of the Board

 

The accompanying proxy statement is dated May 20, 2021, and is first being mailed to the Company’s shareholders on or about May 20, 2021.

 

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China Customer Relations Centers, Inc.

 

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 18, 2021

 

Dear Shareholder:

 

Notice is hereby given that an extraordinary general meeting of shareholders of China Customer Relations Centers, Inc. (the “Company”) will be held on June 18, 2021 at 9:00 a.m. (Beijing Time) at the Company’s office at 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China.

 

Only registered holders of ordinary shares of the Company, par value $0.001 per share, (each, a “Share”), at the close of business in the British Virgin Islands on May 17, 2021, the Share record date of the extraordinary general meeting, or their proxy holders are entitled to attend or to vote at this extraordinary general meeting or any adjournment thereof. At the extraordinary general meeting, you will be asked to consider and vote upon the following resolutions:

 

THAT the agreement and plan of merger, dated as of March 12, 2021 (the “merger agreement”), among the Company, Taiying Group Ltd., a business company incorporated with limited liability under the laws of the British Virgin Islands (“Parent”) and Taiying International Inc., a business company incorporated with limited liability under the laws of the British Virgin Islands (“Merger Sub”) (such merger agreement being in the form attached to the proxy statement accompanying this notice of extraordinary general meeting and which will be produced and made available for inspection at the extraordinary general meeting), and the plan of merger (the “plan of merger”) (such plan of merger being substantially in the form attached to the merger agreement and which will be produced and made available for inspection at the extraordinary general meeting) and the articles of merger among the Company and Merger Sub required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands for the purposes of the merger, and any and all transactions contemplated by the merger agreement, including the merger (the “merger”) and the amendment and restatement of the existing memorandum and articles of association of the Company by their deletion in their entirety and the substitution in their place of a new memorandum and articles of association at the effective time of the merger, a copy of which is attached as Appendix B to the plan of merger, be authorized and approved;

 

THAT each of the members of the Special Committee (as defined below) be authorized to do all things necessary to give effect to the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger; and

 

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

 

Please refer to the accompanying proxy statement, which is attached to and made a part of this notice. A list of the Company’s shareholders will be available at its principal executive offices at c/o Shandong Taiying Technology Co., Ltd., 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, People’s Republic of China, during ordinary business hours for the two business days immediately prior to the extraordinary general meeting.

 

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After careful consideration and upon the unanimous recommendation of the Special Committee of the Board consisting of three independent directors, Mr. Tianjun Zhang, Mr. Owens Meng and Mr. Jie Xu (the “Special Committee”), and on behalf of the Company, the Board authorized and approved the merger agreement and recommends that you vote FOR the proposal to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, FOR the proposal to authorize each of the members of the Special Committee to do all things necessary to give effect to the merger agreement, the plan of merger, and the transactions contemplated by the merger agreement, including the merger, and FOR the proposal to instruct the chairman of the extraordinary general meeting to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the resolutions to be proposed at the extraordinary general meeting.

 

In order for the merger to be completed, the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger, must be authorized and approved by a resolution of the Company passed by a resolution approved by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the shareholders holding the Shares were present at the extraordinary general meeting of the shareholders or an adjournment thereof in person or by proxy and being Shares in respect of which the votes were voted in accordance with the BVI Business Companies Act and the memorandum and articles of the Company.

 

As of the date of this proxy statement, the Rollover Shareholders beneficially own approximately 71.1% of the total issued and outstanding Shares of the Company entitled to vote.

 

Regardless of the number of Shares that you own, your vote is very important. Even if you plan to attend the extraordinary general meeting in person, we request that you submit your proxy in accordance with the instructions set forth on the proxy card, which is attached as Annex E to the accompanying proxy statement, as promptly as possible. To be valid, your proxy card must be completed, signed and returned to the Company’s offices at c/o Shandong Taiying Technology Co., Ltd., 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, People’s Republic of China, attention: Wan Gao, so that the proxy card is received by the Company no later than June 16, 2021 at 9:00 a.m. (Beijing Time) (being not less than forty-eight (48) hours before the time appointed for holding the meeting). The proxy card is the “instrument appointing a proxy” as referred to in the Company’s articles of association. Voting at the extraordinary general meeting will take place by poll voting, as the chairman of the Board has undertaken to demand poll voting at the meeting. Each holder has one vote for each Share, in each case held as of the close of business in the British Virgin Islands on May 17, 2021. If you receive more than one proxy card because you own Shares that are registered in different names, please vote all of your Shares shown on each of your proxy cards in accordance with the instructions set forth on the proxy card.

 

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

 

If you abstain from voting, fail to cast your vote in person, fail to complete and return your proxy card in accordance with the instructions set forth on the proxy card, or fail to give voting instructions to your broker, dealer, commercial bank, trust company or other nominee, your vote will not be counted.

 

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When proxies are properly dated, executed and returned by holders of Shares, the Shares they represent will be voted at the extraordinary general meeting in accordance with the instructions of the shareholders. If no specific instructions are given by such shareholders, and the chairman of the meeting is appointed as your proxy, the chairman intends to vote such Shares FOR the proposals as described above, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.

  

Shareholders who dissent from the merger will be entitled to seek appraisal and have the right to receive payment of the fair value of their Shares in accordance with Section 179 of the BVI Business Companies Act if the merger is consummated, but only if they deliver to the Company, before the vote to authorize and approve the merger is taken at the extraordinary general meeting, a written objection to the merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act for the exercise of appraisal rights, a copy of which is attached as Annex C to the accompanying proxy statement. The fair value of their Shares as determined under that statute could be more than, the same as, or less than the merger consideration they would receive pursuant to the merger agreement if they do not exercise appraisal rights with respect to their Shares.

 

PLEASE DO NOT SEND YOUR SHARE CERTIFICATES AT THIS TIME. IF THE MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR SHARE CERTIFICATES.

 

If you have any questions or need assistance in voting your Shares, you can contact Investor Relations, China Customer Relations Centers, Inc., at +1-718-213-7386 or at shunyu.zheng@weitian-ir.com.

 

The merger agreement, the plan of merger, the articles of merger and the transactions, including the merger are described in the accompanying proxy statement. A copy of the merger agreement and a copy of the plan of merger are included as Annex A to the accompanying proxy statement. We urge you to read the entire accompanying proxy statement carefully.

 

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Notes:

 

1.Where there are joint holders of any Share any one of such joint holders may vote, either in person or by proxy, in respect of such Share on behalf of all joint holders, but if more than one of such joint holders be present at any meeting in person or by proxy, they must vote as one.

 

2.Execution of the instrument appointing a proxy may be accomplished by a shareholder or such shareholder’s authorized officer, director, employee or agent signing such instrument by any reasonable means, including, but not limited to, by facsimile signature. A shareholder may authorize another person or persons to act for such shareholder as proxy by transmitting or authorizing the transmission of such communication evidencing the shareholder’s intention to appoint a person or persons as his proxy by means of a telegram, cablegram, or other means of electronic transmission (including but not limited to, via internet or telephone) to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or the other means of electronic transmission (which must be supported by printed evidence thereof) must be either set forth or be submitted with written information from which it can be determined that the telegram, cablegram or printed evidence of the other electronic transmission was authorized by the shareholder. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

 

3.A proxy need not be a member (registered shareholder) of the Company.

  

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

 

BY ORDER OF THE BOARD,

 

  /s/ Zhili Wang
  Zhili Wang
  Chairman of the Board

  

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PROXY STATEMENT

Dated May 20, 2021

 

SUMMARY VOTING INSTRUCTIONS

 

Ensure that your Shares of China Customer Relations Centers, Inc. can be voted at the extraordinary general meeting by submitting your proxy card, or by contacting your broker, bank or other nominee.

 

If your Shares are registered in the name of a broker, bank or other nominee: check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your Shares are voted at the extraordinary general meeting.

 

If your Shares are registered in your name: submit your proxy as soon as possible by signing, dating and returning the accompanying proxy card in the enclosed postage-paid envelope, so that your Shares can be voted at the extraordinary general meeting.

 

If you submit your signed proxy card without indicating how you wish to vote, the Shares represented by your proxy will be voted in favor of the resolutions to be proposed at the extraordinary general meeting.

 

If you have any questions, require assistance with voting your proxy card, or need additional copies of proxy materials, please contact Investor Relations, China Customer Relations Centers, Inc., at +1-718-213-7386 or at shunyu.zheng@weitian-ir.com.

 

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TABLE OF CONTENTS

 

SUMMARY TERM SHEET 1
The Parties Involved in the Merger 1
The Merger 6
Merger Consideration 6
Treatment of Company Share Awards 6
Support Agreement 6
Record Date and Voting 7
Shareholder Vote Required to Authorize and Approve the Merger Agreement and Plan of Merger 7
Voting Information 7
Appraisal Rights 8
Purposes and Effects of the Merger 8
Plans for the Company after the Merger 8
Recommendations of the Special committee and the Board 9
Position of Buyer Group as to the Fairness of the Merger 9
Financing of the Merger 10
Limited Guarantees 10
Share Ownership of the Company Directors and Officers and Voting Commitments 10
Opinion of the Special committee’s Financial Advisor 10
Interests of the Company’s Executive Officers and Directors in the Merger 11
Conditions to the Merger 12
No Solicitation 13
Termination of the Merger Agreement 15
Material U.S. Federal Income Tax Consequences 17
Material PRC Income Tax Consequences 17
Material British Virgin Islands Tax Consequences 17
Market Price of the Shares 18
Fees and Expenses 18
Remedies 18
QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER 19
SPECIAL FACTORS 25
Background of the Merger 25
Reasons for the Merger and Recommendation of the Special committee and the Board 32

 

 

 

 

Position of the Buyer Group as to the Fairness of the Merger 40
Certain Financial Projections 43
Opinion of the Special committee’s Financial Advisor 44
Buyer Group’s Purpose of and Reasons for the Merger 50
Effect of the Merger on the Company 51
Effect of the Merger on the Company’s Net Book Value and Net Earnings 54
Plans for the Company after the Merger 54
Alternatives to the Merger 55
Effects on the Company if the Merger is not Completed 55
Financing 56
Limited Guarantees 57
Support Agreement 58
Remedies 59
Interests of Certain Persons in the Merger 59
Related Party Transactions 62
Fees and Expenses 63
Voting by the Rollover Shareholders at the Extraordinary General Meeting 63
Litigation Related to the Merger 63
Accounting Treatment of the Merger 63
Regulatory Matters 63
Appraisal Rights 64
Material U.S. Federal Income Tax Consequences 64
Material PRC Income Tax Consequences 68
Material British Virgin Islands Tax Consequences 69
MARKET PRICE OF THE SHARES, DIVIDENDS AND OTHER MATTERS 69
Market Price of the Shares 69
Dividend Policy 70
THE EXTRAORDINARY GENERAL MEETING 71
Date, Time and Place of the Extraordinary General Meeting 71
Proposals to be Considered at the Extraordinary General Meeting 71
Our Board’s Recommendation 72
Quorum 72
Record Date; Shares Entitled to Vote 72
Vote Required 72
Shareholders Entitled to Vote; Voting Materials 73
Voting of Proxies and Failure to Vote 73

 

 

 

 

Revocability of Proxies 74
Rights of Shareholders Who Object to the Merger 74
Whom to Call for Assistance 74
Solicitation of Proxies 74
Other Business 74
THE MERGER AGREEMENT AND PLAN OF MERGER 75
Structure and Completion of the Merger 75
Memorandum and Articles of Association; Directors and Officers of the Surviving Company 75
Merger Consideration 75
Treatment of Company Share Awards 76
Exchange Procedures 76
Representations and Warranties 76
Conduct of Business Pending the Merger 81
Shareholders’ Meeting 83
No Solicitation 83
Financing 85
Other Covenants 86
Conditions to the Merger 87
Termination of the Merger Agreement 88
Termination Fee 90
Remedies 91
Amendment 92
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS 92
APPRAISAL RIGHTS 92
Requirements for Exercising Appraisal Rights 93
FINANCIAL INFORMATION 94
Net Book Value per Share of the Shares 95
TRANSACTIONS IN THE SHARES 96
Purchases by the Company 96
Purchases by the Buyer Group 96
Prior Public Offerings 96
Transactions in Prior 60 Days 96

 

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY 97
FUTURE SHAREHOLDER PROPOSALS 97
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 98
WHERE YOU CAN FIND MORE INFORMATION 99
ANNEX A: AGREEMENT AND PLAN OF MERGER A-1
ANNEX B: OPINION OF HOULIHAN LOKEY (CHINA) LIMITED AS FINANCIAL ADVISOR B-1
ANNEX C: BVI BUSINESS COMPANIES ACT CAP. 22 (LAW 3 OF 1961, AS CONSOLIDATED AND REVISED) - Extract of Section 179 of the BVI Business Companies Act C-1
ANNEX D: DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON D-1
ANNEX E:  PROXY CARD E-1
ANNEX F: ROLLOVER AND SUPPORT AGREEMENT F-1
ANNEX G: LIMITED GUARANTEE G-1

  

 

 

 

SUMMARY TERM SHEET

 

This “Summary Term Sheet,” together with the “Questions and Answers about the Extraordinary General Meeting and the Merger,” highlights selected information contained in this proxy statement regarding the merger and may not contain all of the information that may be important to your consideration of the merger. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers for a more complete understanding of the matters being considered at the extraordinary general meeting. In addition, this proxy statement incorporates by reference important business and financial information about the Company. You are encouraged to read all of the documents incorporated by reference into this proxy statement and you may obtain such information without charge by following the instructions in “Where You Can Find More Information” beginning on page 99. In this proxy statement, the terms “we,” “us,” “our,” and the “Company” refer to China Customer Relations Centers, Inc. and its subsidiaries. All references to “dollars”, “US$” and “$” in this proxy statement are to U.S. dollars and all references to “RMB” in this proxy statement are to Renminbi, the lawful currency of the People’s Republic of China (“PRC” or “China”).

 

The Parties Involved in the Merger

 

The Company

 

The Company is a business company with limited liability incorporated under the laws of the British Virgin Islands and a leading e-commerce and financial services business process outsourcing service provider in China.

 

Our principal executive offices are located at 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China. The Company’s telephone number at this address is +86-538-691-8899.

 

For a description of the Company’s history, development, business and organizational structure, see the Company’s Annual Report on Form 20-F for the year ended December 31, 2020 filed on May 17, 2021, which is incorporated herein by reference. Please see “Where You Can Find More Information” beginning on page 99 for a description of how to obtain a copy of the Company’s Annual Report.

 

Parent

 

Taiying Group Ltd. (“Parent”) is a business company incorporated with limited liability under the laws of the British Virgin Islands. Parent was formed solely for the purpose of entering into the merger agreement and the related financing agreements and consummating the transactions contemplated by such agreements. The registered office of Parent is located at the offices of Ogier Global (BVI) Limited, Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola VG1110, British Virgin Islands, and its telephone number is +86-538-691-8899. The shareholders of Parent are TAISHANBPO1 Holdings Limited, TAISHANBPO2 Holdings Limited, TAISHANBPO3 Holdings Limited, TAISHANBPO4 Holdings Limited, TAISHANBPO5 Holdings Limited, and TAISHANBPO6 Holdings Limited.

 

Merger Sub

 

Taiying International Inc. (“Merger Sub”) is a business company with limited liability under the laws of the British Virgin Islands. Merger Sub was formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by such agreements. The registered office of Merger Sub is located at the offices of Ogier Global (BVI) Limited, Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola VG1110, British Virgin Islands, and its telephone number is +86-538-691-8899.

 

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TAISHANBPO1 Holdings Limited

 

TAISHANBPO1 Holdings Limited (“TAIHSANBPO1”) is a business company with limited liability under the laws of the British Virgin Islands. The registered office of TAIHSANBPO1 is located at the offices of Ogier Global (BVI) Limited, Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola VG1110, British Virgin Islands, and its telephone number is +86-538-691-8899. TAIHSANBPO1 is wholly-owned by Mr. Zhili Wang.

 

TAISHANBPO2 Holdings Limited

 

TAISHANBPO2 Holdings Limited (“TAIHSANBPO2”) is a business company with limited liability under the laws of the British Virgin Islands. The registered office of TAIHSANBPO2 is located at the offices of Ogier Global (BVI) Limited, Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola VG1110, British Virgin Islands, and its telephone number is +86-538-691-8899. TAIHSANBPO2 is wholly-owned by Mr. Debao Wang.

 

TAISHANBPO3 Holdings Limited

 

TAISHANBPO3 Holdings Limited (“TAIHSANBPO3”) is a business company with limited liability under the laws of the British Virgin Islands. The registered office of TAIHSANBPO3 is located at the offices of Ogier Global (BVI) Limited, Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola VG1110, British Virgin Islands, and its telephone number is +86-538-691-8899. TAIHSANBPO3 is wholly-owned by Mr. Guoan Xu.

 

TAISHANBPO4 Holdings Limited

 

TAISHANBPO4 Holdings Limited (“TAIHSANBPO4”) is a business company with limited liability under the laws of the British Virgin Islands. The registered office of TAIHSANBPO4 is located at the offices of Ogier Global (BVI) Limited, Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola VG1110, British Virgin Islands, and its telephone number is +86-13356699369. TAIHSANBPO4 is wholly-owned by Mr. Qingmao Zhang.

 

TAISHANBPO5 Holdings Limited

 

TAISHANBPO5 Holdings Limited (“TAIHSANBPO5”) is a business company with limited liability under the laws of the British Virgin Islands. The registered office of TAIHSANBPO5 is located at the offices of Ogier Global (BVI) Limited, Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola VG1110, British Virgin Islands, and its telephone number is +86-15168890909. TAIHSANBPO5 is wholly-owned by Mr. Long Lin.

 

TAISHANBPO6 Holdings Limited

 

TAISHANBPO6 Holdings Limited (“TAIHSANBPO6”) is a business company with limited liability under the laws of the British Virgin Islands. The registered office of TAIHSANBPO6 is located at the offices of Ogier Global (BVI) Limited, Ritter House, Wickhams Cay II, PO Box 3170, Road Town, Tortola VG1110, British Virgin Islands, and its telephone number is +86-13954887826. TAIHSANBPO6 is wholly-owned by Mr. Jishan Sun.

 

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The Rollover Shareholders

 

Mr. Zhili Wang

 

Mr. Zhili Wang (the “Chairman”) is the founder, chairman of the board of directors (the “Board”) and chief executive officer of the Company. His business address is c/o Shandong Taiying Technology Co., Ltd., 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, People’s Republic of China, and his telephone number is +86-538-691-8899. He is a citizen of the People’s Republic of China and his principal occupation is the chairman and chief executive officer of the Company.

 

Mr. Debao Wang

 

Mr. Debao Wang is a director, the chief financial officer and vice president of the Company. His business address is c/o Shandong Taiying Technology Co., Ltd., 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, People’s Republic of China, and his telephone number is +86-538-691-8899. He is a citizen of the People’s Republic of China and his principal occupation is the chief financial officer and vice president of the Company.

 

Mr. Guoan Xu

 

Mr. Guoan Xu is a director and vice president of the Company. His business address is c/o Shandong Taiying Technology Co., Ltd., 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, People’s Republic of China, and his telephone number is +86-538-691-8899. He is a citizen of the People’s Republic of China and his principal occupation is the vice president of the Company.

 

Mr. Qingmao Zhang

 

Mr. Qingmao Zhang is a citizen of the People’s Republic of China and his principal occupation is the Chairman of Shandong Yuanlian Information Technology Co., Ltd.. His business address is No. 502, Unit 2, Building 3, Zhonglian, Section 2, East Area of Huanshan Community, Lixia District, Jinan City, Shandong Province, 250000, People’s Republic of China, and his telephone number is +86-13356699369.

 

Mr. Long Lin

 

Mr. Long Lin is a citizen of the People’s Republic of China and his principal occupation is a self-employed businessman. His business address is No. 503, Unit 3, Building 8, Youdian Xincun, Shizhong District, Jinan City, Shandong Province, 250000, People’s Republic of China, and his telephone number is +86-15168890909.

 

Wilstein Limited

 

Wilstein Limited (“Wilstein”) is an international business company incorporated in the Republic of Seychelles. Its registered address is at the offices of Vistra (Seychelles) Limited, Vistra Corporate Services Centre, Suite 23, 1st Floor, Eden Plaza, Eden Island, Mahé, Republic of Seychelles, and its telephone number is +86-15168890909. Wilstein is beneficially-owned by Mr. Long Lin.

 

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Mr. Jishan Sun

  

Mr. Jishan Sun is a citizen of the People’s Republic of China and his principal occupation is a self-employed businessman. His business address is Room 201, Unit 1, Building A11, No. 1373, Aolan Road, Jimo City, Shandong Province, 266200, People’s Republic of China, and his telephone number is +86-13954887826.

 

Telecare Global Services Limited

 

Telecare Global Services Limited (“Telecare Global”) is a business company with limited liability incorporated under the laws of the British Virgin Islands. Its registered address is Morgan & Morgan Building, P.O. Box 958, Pasea Estate, Road Town, Tortola, British Virgin Islands, and its telephone number is +86-13954887826. Telecare Global is beneficially-owned by Mr. Jishan Sun.

 

Mr. Yipeng Wang

 

Mr. Yipeng Wang is a citizen of the People’s Republic of China and he is a self-employed businessman. His business address is No.1 Row 15, Nanmei Village, Meicun Town, Fangzi District, Weifang City, Shandong Province, 261000, People’s Republic of China, and his telephone number is +86-18864809789.

 

Harford Equity Limited

 

Harford Equity Limited (“Harford”) is an international business company incorporated in the Republic of Seychelles. Its registered address is the offices of Vistra (Seychelles) Limited, Vistra Corporate Services Centre, Suite 23, 1st Floor, Eden Plaza, Eden Island, Mahé, Republic of Seychelles, and its telephone number is +86-18864809789. Harford is beneficially-owned by Mr. Yipeng Wang.

 

Mr. Ruixiu Wang

 

Mr. Ruixiu Wang is a citizen of the People’s Republic of China and he is a self-employed businessman. His business address is No.3 Row 15, Nanmei Village, Meicun Town, Fangzi District, Weifang City, Shandong Province, 261000, People’s Republic of China, and his telephone number is +86-18864809789.

 

Sainsberry Limited

 

Sainsberry Limited (“Sainsberry”) is an international business company incorporated in the Republic of Seychelles. Its registered address is at the offices of Vistra (Seychelles) Limited, Vistra Corporate Services Centre, Suite 23, 1st Floor, Eden Plaza, Eden Island, Mahé, Republic of Seychelles, and its telephone number is +86-18864809789. Sainsberry is beneficially-owned by Mr. Ruixiu Wang.

 

Mr. Qiaolin Wang

 

Mr. Qiaolin Wang is a citizen of the People’s Republic of China and he is a self-employed businessman. His business address is No. 301, Unit 2, Building 2, Zhonglian, Section 2, East Area of Huanshan Community, Lixia District, Jinan City, Shandong Province, 250000, People’s Republic of China, and his telephone number is +86-15168890909.

 

Ms. Yan Lyu

 

Ms. Yan Lyu is a citizen of the People’s Republic of China she is a self-employed businesswoman. Her business address is 6-3-102 Yinchen Community, Feiyue Dadao, Lichen District, Jinan City, Shandong Province, 250100, People’s Republic of China, and her telephone number is +86-13685312525.

 

4

 

 

Mr. Xianghui Li

  

Mr. Xianghui Li is a citizen of the People’s Republic of China and he is a self-employed businessman. His business address is No.344 Xiangzhaozhuang Town, Xiajin County, Dezhou City, Shandong Province, 253200, People’s Republic of China, and his telephone number is +86-13685312525.

 

Ms. Ning Zou

 

Ms. Ning Zou is a citizen of the People’s Republic of China and she is a self-employed businesswoman. Her business address is D-910, Wego Plaza, Weihai City, Shandong Province, 264200, People’s Republic of China, and her telephone number is +86-13954887826.

 

Singeton Management Limited

 

Singeton Management Limited (“Singeton Management”) is a private company with limited liability incorporated in Hong Kong. Its registered address is Flat/RM A 12/F, Kiu Fu Commercial Building, 300 Lockhart Road, Wanchai, Hong Kong, and its telephone number is +86-13954887826. Singeton Management is beneficially-owned by Ms. Ning Zou.

 

Mr. Liping Gao

 

Mr. Liping Gao is a citizen of the People’s Republic of China and he is a self-employed businessman. His business address is Gate 1 No.242 Diyingzi Tun, Xingshugang Village, Hong Guang District, Daqing City, Heilongjiang Province, 163000, People’s Republic of China, and his telephone number is +86-13954887826.

 

Ms. Yuxiang Qi

 

Ms. Yuxiang Qi is a citizen of the People’s Republic of China and she is a self-employed businesswoman. Her business address is Room 2702, Building 3, Huamao Center, No. 89 Jianguo Road, Chaoyang District, Beijing, 100020, People’s Republic of China, and her telephone number is +86-18905381726.

 

Ms. Yanli Xu

 

Ms. Yanli Xu is a citizen of the People’s Republic of China and she is a self-employed businesswoman. Her business address is Room 2606, Building 7, Huamao Center, No. 89 Jianguo Road, Chaoyang District, Beijing, 100020, People’s Republic of China, and her telephone number is +86-18905381726.

 

Throughout this proxy statement, the Chairman, Mr. Debao Wang, Mr. Guoan Xu, Mr. Qingmao Zhang, Mr. Long Lin, Mr. Jishan Sun are collectively referred to as the “Guarantors”. The Guarantors, Wilstein, Telecare Global, Mr. Yipeng Wang, Harford, Mr. Ruixiu Wang, Sainsberry, Mr. Qiaolin Wang, Ms. Yan Lyu, Mr. Xianghui Li, Ms. Ning Zou, Singeton Management, Mr. Liping Gao, Ms. Yuxiang Qi and Ms. Yanli Xu are collectively referred to as the “Rollover Shareholders”. Parent, Merger Sub, TAIHSANBPO1, TAIHSANBPO2, TAIHSANBPO3, TAIHSANBPO4, TAIHSANBPO5, TAIHSANBPO6 and the Rollover Shareholders are collectively referred to as the “Buyer Group”.

 

5

 

 

The Merger (Page 75)

  

You are being asked to vote to authorize and approve the agreement and plan of merger, dated as of March 12, 2021 (the “merger agreement”), among the Company, Parent and Merger Sub, the plan of merger substantially in the form attached as Exhibit A to the merger agreement (the “plan of merger”) and the articles of merger required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands, and the transactions contemplated in the merger agreement, including the merger (the “merger”). Once the merger agreement and plan of merger are authorized and approved by the requisite vote of the shareholders of the Company and the other conditions to the consummation of the transactions contemplated by the merger agreement are satisfied or waived in accordance with the terms of the merger agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving company of the merger (“surviving company”) under the laws of the British Virgin Islands as a wholly-owned subsidiary of Parent. The Company, as surviving company, will continue to do business under the name “China Customer Relations Centers, Inc.” following the merger. If the merger is completed, the Company will cease to be a publicly traded company. Copies of the merger agreement and the plan of merger are attached as Annex A to this proxy statement. You should read the merger agreement and the plan of merger in their entirety because they, and not this proxy statement, are the legal documents that govern the merger.

 

Merger Consideration (Page 75)

 

Under the terms of the merger agreement, if the merger is completed, at the effective time of the merger (the “Effective Time”), each of the Company’s ordinary shares, par value $0.001 per share (each a “Share”), issued and outstanding immediately prior to the Effective Time, other than (a) Shares beneficially owned by the Rollover Shareholders (the “Rollover Shares”), (b) Shares owned by Parent, Merger Sub, the Company (as treasury, if any) or any of their respective subsidiaries immediately prior to the Effective Time, (c) Shares reserved (but not yet allocated) by the Company for settlement upon exercise or vesting of Company Share Awards (as defined below), immediately prior to the Effective Time, and (d) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenter rights under the BVI Business Companies Act (the “BVI Business Companies Act”) (the “Dissenting Shares”) (Shares described under (a) through (d) above are collectively referred to herein as the “Excluded Shares”), will be cancelled in exchange for the right to receive $6.50 in cash per Share without interest and net of any applicable withholding taxes.

 

The Excluded Shares other than Dissenting Shares will be cancelled for no consideration. The Dissenting Shares will be cancelled and each holder thereof will be entitled to receive only the payment of the fair value of such Dissenting Shares in accordance with the BVI Business Companies Act. Please see “Appraisal Rights” beginning on page 92 for additional information.

 

Treatment of Company Share Awards (Page 76)

 

At the Effective Time, the Company will terminate the Company’s 2018 Share Incentive Plan (the “Share Incentive Plan”) and any relevant award agreements entered into under the Share Incentive Plan.

 

Support Agreement (Page 58)

 

Concurrently with the execution and delivery of the merger agreement, the Rollover Shareholders entered into a support agreement (the “Support Agreement”) with Parent. Pursuant to the Support Agreement, each of the Rollover Shareholders agreed that, in connection with the consummation of the transactions contemplated by the merger agreement, he, she or it agrees to the cancellation of the Rollover Shares for no consideration at the Effective Time. Immediately prior to or simultaneously with the closing of the merger, each Rollover Shareholder will subscribe, or cause a party designated by him, her or it to subscribe, as the case may be, for a corresponding number of newly issued ordinary shares of Parent in accordance with the terms of the Support Agreement so that upon the issuance of such shares of Parent each Rollover Shareholder’s or his/her/its designee’s ownership percentage in Parent shall be based on his/her/its Rollover Shares.

 

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Pursuant to the terms of the Support Agreement, the Rollover Shares and all other Shares acquired by the Rollover Shareholders after the date of the Support Agreement will be voted in favor of the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, at the extraordinary general meeting of the Company.

 

Record Date and Voting (Page 72)

 

You are entitled to attend and vote at the extraordinary general meeting if you have Shares registered in your name in the Company’s register of members at the close of business in the British Virgin Islands on May 17, 2021, the Share record date for voting at the extraordinary general meeting. Each outstanding Share on the Share record date entitles the holder to one vote for each Share on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. As of the Share record date, there were 18,329,600 Shares issued and outstanding and entitled to vote at the extraordinary general meeting. If you have Shares registered in your name on the Share record date, the deadline for you to lodge your proxy card and vote is June 16, 2021 at 9:00 a.m. (Beijing Time). Please see “Summary Term Sheet– Voting Information” below.

 

Shareholder Vote Required to Authorize and Approve the Merger Agreement and Plan of Merger (Page 72)

 

In order for the merger to be completed, the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, must be authorized and approved by a resolution approved by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the shareholders holding the Shares were present at the extraordinary general meeting of the shareholders or an adjournment thereof in person or by proxy and being Shares in respect of which the votes were voted in accordance with the BVI Business Companies Act and the memorandum and articles of the Company (the “Requisite Company Vote”).

 

As of the date of this proxy statement, the Rollover Shareholders beneficially own approximately 71.1% of the total issued and outstanding Shares of the Company. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 97 for additional information. Pursuant to the terms of the Support Agreement, the Rollover Shares and all other Shares acquired by the Rollover Shareholders after the date of the Support Agreement will be voted in favor of the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, at the extraordinary general meeting of shareholders of the Company.

 

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

 

Voting Information (Page 73)

 

Before voting your Shares, we encourage you to read this proxy statement in its entirety, including all of the annexes, attachments, exhibits and materials incorporated by reference, and carefully consider how the merger will affect you. To ensure that your Shares can be voted at the extraordinary general meeting even in the event that you are unable to attend, please complete the enclosed proxy card in accordance with the instructions set forth on the proxy card as soon as possible. The deadline for you to lodge your proxy card is June 16, 2021 at 9:00 a.m. (Beijing Time).

 

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Appraisal Rights (Page 92)

 

Registered shareholders (i.e. shareholders whose name is registered in the register of members of the Company) and wishing to dissent from the merger will be entitled to seek appraisal and have the right to receive payment of the fair value of their Shares in accordance with Section 179 of the BVI Business Companies Act if the merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the merger is taken at the extraordinary general meeting, a written objection to the merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act, as amended regarding the exercise of appraisal rights, a copy of which is attached as Annex C to this proxy statement. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the merger consideration you would receive pursuant to the merger agreement if you do not exercise appraisal rights with respect to your Shares.

 

IF YOU HOLD YOUR SHARES THROUGH A FINANCIAL INTERMEDIARY SUCH AS A BROKER OR BANK AND WISH TO DISSENT FROM THE MERGER, YOU MUST MAKE ALL NECESSARY ARRANGEMENTS WITH THE FINANCIAL INTERMEDIARY TO ENSURE THAT YOUR SHARES ARE REGISTERED IN YOUR OWN NAME IN THE REGISTER OF MEMBERS OF THE COMPANY such that you become a registered shareholder IN ORDER FOR YOU TO EXERCISE DISSENTERS’ RIGHTS. THE FINANCIAL INTERMEDIARY IS UNLIKELY TO EXERCISE OR ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF A BENEFICIAL OWNER OF THE SHARES REQUESTS THE FINANCIAL INTERMEDIARY TO DO SO. YOU MUST CONTACT YOUR FINANCIAL INTERMEDIARY PROMPTLY TO ENSURE THAT YOU BECOME A REGISTERED SHAREHOLDER IN SUFFICIENT TIME AHEAD OF THE DATE OF THE EXTRAORDINARY GENERAL MEETING, AS YOU MUST DELIVER TO THE COMPANY A WRITTEN OBJECTION TO THE MERGER BEFORE THE VOTE TO AUTHORIZE AND APPROVE THE MERGER IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING. YOU MUST SUBSEQUENTLY COMPLY WITH ALL PROCEDURES AND REQUIREMENTS OF SECTION 179 OF THE BVI BUSINESS COMPANIES ACT FOR THE EXERCISE OF DISSENTERS’ RIGHTS, A COPY OF WHICH IS ATTACHED AS ANNEX C TO THIS PROXY STATEMENT. IF THE MERGER IS NOT CONSUMMATED, THE COMPANY WILL CONTINUE TO BE A PUBLICLY TRADED COMPANY IN THE UNITED STATES AND THE SHARES WILL CONTINUE TO BE LISTED ON NASDAQ. AS A RESULT, IF YOU BECAME A REGISTERED SHAREHOLDER FOR PURPOSES OF EXERCISING DISSENTERS’ RIGHTS AND THE MERGER IS NOT CONSUMMATED, AND YOU WISH TO TRANSFER YOUR SHARES BACK TO A FINANCIAL INTERMEDIARY, YOU WILL NEED TO CONTACT THE FINANCIAL INTERMEDIARY TO MAKE ALL NECESSARY ARRANGEMENTS.

 

If you do not fully and precisely satisfy the procedural requirements of the Section 179 of the BVI Business Companies Act, you will lose your dissenters’ rights.

 

We encourage you to read the section of this proxy statement entitled “Appraisal Rights” beginning on page 92 as well as Annex C to this proxy statement carefully and we urge you to seek your own legal advice on BVI Business Companies Act in general from a licensed British Virgin Islands law firm if you wish to exercise your dissenters’ rights.

 

Purposes and Effects of the Merger (Page 50)

 

The purpose of the merger is to enable Parent to acquire 100% control of the Company in a transaction in which the Company’s shareholders other than the holders of Excluded Shares will be cashed out in exchange for $6.50 in cash per Share, so that Parent will bear the rewards and risks of the sole ownership of the Company after the merger, including any future earnings and growth of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses. Please see “Special Factors – Buyer Group’s Purpose of and Reasons for the Merger” beginning on page 50 for additional information.

 

Shares of the Company are currently listed on The Nasdaq Capital Market (“NASDAQ”) under the symbol “CCRC.” It is expected that, immediately following the completion of the merger, the Company will cease to be a publicly traded company and will instead become a privately-held company beneficially owned by the Buyer Group. Following the completion of the merger, the Shares will cease to be listed on the NASDAQ, and price quotations with respect to sales of the Shares in the public market will no longer be available. In addition, registration of the Shares under the Exchange Act may be terminated upon the Company’s application to the SEC if the Shares are not listed on a national securities exchange and there are fewer than 300 registered holders of the Shares. Ninety days after the filing of Form 15 in connection with the completion of the merger or such longer period as may be determined by the SEC, registration of the Shares under the Exchange Act will be terminated. At such time, the Company will no longer be required to file periodic reports with the SEC or otherwise be subject to the United States federal securities laws, including Sarbanes-Oxley Act, applicable to public companies. After the completion of the merger, the Company’s shareholders will no longer enjoy the rights or protections that the United States federal securities laws provide, including reporting obligations for directors, officers and principal securities holders of the Company. Please see “Special Factors – Effect of the Merger on the Company” beginning on page 51 for additional information.

 

Plans for the Company after the Merger (Page 54)

 

After the Effective Time, the Buyer Group anticipates that the Company’s operations will be conducted substantially as they are currently being conducted, except that the Company will cease to be a publicly traded company and will instead be a wholly-owned subsidiary of Parent. Please see “Special Factors – Plans for the Company after the Merger” beginning on page 54 for additional information.

 

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Recommendations of the Special Committee and the Board (Page 32)

  

The Special Committee unanimously (a) determined that it is in the best interests of the Company and its shareholders (other than the Rollover Shareholders and their affiliates), and declared it advisable, to enter into the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, (b) approved the execution, delivery and performance of the merger agreement, the plan of merger, the articles of merger and the consummation of the transactions contemplated under the merger agreement and thereby, including the merger, and (c) resolved to recommend that the shareholders of the Company authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger (and including, without limitation, the amended and restated memorandum of association and articles of association of the surviving company in the form attached as Appendix B of the plan of merger), in each case in accordance with the BVI Business Companies Act.

 

The Board, acting upon the unanimous recommendation of the Special Committee, on behalf of the Company (a) determined that it is in the best interests of the Company and its shareholders (other than the Rollover Shareholders and their affiliates), and declared it advisable, to enter into the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, (b) approved the execution, delivery and performance of the merger agreement, the plan of merger, the articles of merger and the consummation of the transactions contemplated under the merger agreement and thereby, including the merger, and (c) resolved to recommend that the shareholders of the Company authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger (and including, without limitation, the amended and restated memorandum of association and articles of association of the surviving company in the form attached as Appendix B of the plan of merger), in each case in accordance with the BVI Business Companies Act.

 

ACCORDINGLY, THE BOARD ON BEHALF OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AUTHORIZE AND APPROVE THE MERGER AGREEMENT, THE PLAN OF MERGER, THE ARTICLES OF MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER, FOR THE PROPOSAL TO AUTHORIZE EACH OF THE MEMBERS OF THE SPECIAL COMMITTEE TO DO ALL THINGS NECESSARY TO GIVE EFFECT TO MERGER AGREEMENT, THE PLAN OF MERGER, AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER, AND FOR THE PROPOSAL TO INSTRUCT THE CHAIRMAN OF THE EXTRAORDINARY GENERAL MEETING TO ADJOURN THE EXTRAORDINARY GENERAL MEETING IN ORDER TO ALLOW THE COMPANY TO SOLICIT ADDITIONAL PROXIES IN THE EVENT THAT THERE ARE INSUFFICIENT PROXIES RECEIVED TO PASS THE RESOLUTIONS TO BE PROPOSED AT THE EXTRAORDINARY GENERAL MEETING.

 

For a detailed discussion of the material factors considered by the Special Committee and the Board in determining to recommend the approval of the merger agreement and the approval of the transactions, including the merger, and in determining that the merger is fair to and in the best interest of the unaffiliated security holders, see “Special Factors—Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 32 and “Special Factors—Effect of the Merger on the Company—Primary Benefits and Detriments of the Merger” beginning on page 52. The foregoing summary is qualified in its entirety by reference to these sections.

 

Position of Buyer Group as to the Fairness of the Merger (Page 40)

 

Each member of the Buyer Group believes that the merger is substantively and procedurally fair to the unaffiliated security holders. Their belief is based upon the factors discussed under the caption “Special Factors—Position of the Buyer Group as to the Fairness of the Merger” beginning on page 40.

 

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Each member of the Buyer Group is making the statements included in this paragraph solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of each member of the Buyer Group as to the fairness of the merger are not intended to be and should not be construed as a recommendation to any shareholder of the Company as to how that shareholder should vote on the proposal to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger.

 

Financing of the Merger (Page 56)

 

The Company and the Buyer Group estimate that the total amount of funds necessary to complete the merger and the related transactions is approximately $34.5 million (assuming no exercise of dissenter rights by shareholders of the Company). In calculating this amount, the Company and the Buyer Group did not consider the value of the Rollover Shares, which will be cancelled for no consideration pursuant to the merger agreement. This amount includes (i) the cash to be paid to the Company’s unaffiliated security holders, and (ii) the related costs and expenses, in connection with the merger and related transactions. The merger and the related transactions are expected to be funded by debt financing contemplated by the debt commitment letter (the “Debt Commitment Letter”), by and between Parent and China Merchants Bank Co., Ltd.. Subject to the terms and conditions of the Debt Commitment Letter, the China Merchants Bank Co., Ltd. committed to arrange and provide a secured term facility of up to $42.0 million (the “Facility”) in principal amount for Parent to consummate the merger. The borrower under the Facility is Parent as of the date of the Debt Commitment Letter.

 

Limited Guarantee (Page 57)

 

Concurrently with the execution of the merger agreement, the Guarantors entered into a limited guarantee (the “Limited Guarantee”). Under the Limited Guarantee, the Guarantors have collectively guaranteed in favor of the Company the entire portion of the Parent’s payment obligations with respect to the termination fee, if and when required under the merger agreement, up to a defined maximum amount, and the cost and expenses actually incurred or accrued in connection with the collection under and enforcement of Parent’s payment obligations with respect to the termination fee. The Limited Guarantee will terminate on the earliest of (a) the Effective Time, (b) the payment in full of the guaranteed obligation under such Limited Guarantee, (c) the termination of the merger agreement in accordance with its terms by mutual consent of Parent and the Company or under circumstances in which Parent and Merger Sub would not be obligated to pay the termination fee in accordance with the merger agreement.

 

Share Ownership of the Company Directors and Officers and Voting Commitments (Page 97)

 

As of the Share record date, we expect that the Buyer Group will beneficially own, in the aggregate, approximately 71.1% of the issued and outstanding Shares. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 97 for additional information.

 

Pursuant to the Support Agreement, the Rollover Shareholders have agreed to vote all of the Shares they beneficially own in favor of the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger.

 

Opinion of the Special Committee’s Financial Advisor (Page 44)

  

The Special Committee retained Houlihan Lokey (China) Limited (“Houlihan Lokey”) to act as its financial advisor in connection with the merger. On March 12, 2021, Houlihan Lokey orally rendered to the Special Committee its opinion (which was subsequently confirmed in writing by delivery on the same date of Houlihan Lokey’s written opinion addressed to the Special Committee) as to the fairness, from a financial point of view, of the per Share merger consideration to be received by the holders of the Shares (other than holders of Excluded Shares) (the “Unaffiliated Shareholders”) in the merger pursuant to the merger agreement and the plan of merger, as of the date of such opinion, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Houlihan Lokey in preparing its opinion.

 

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Houlihan Lokey’s opinion was directed to the Special Committee (in its capacity as such) and only addressed the fairness, from a financial point of view, of the per Share merger consideration to be received by the Unaffiliated Shareholders pursuant to the merger agreement, as of the date of such opinion and did not address any other aspect or implication of the merger or any other agreement, arrangement, or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex B to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Special Committee, the Board, any shareholder or any other person as to how to act with respect to any matter relating to the merger. See “Special Factors — Opinion of the Special Committee’s Financial Advisor” beginning on Page 44.

 

Interests of the Company’s Executive Officers and Directors in the Merger (Page 59)

 

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

 

the beneficial ownership of equity interests in Parent by the Chairman, Mr. Debao Wang and Mr. Guoan Xu;

 

the potential enhancement or decline of share value of Parent’s shares directly or indirectly held by the Chairman, Mr. Debao Wang and Mr. Guoan Xu as a result of the merger and future performance of the surviving company;

 

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

 

the monthly compensation of RMB5,000 (equivalent to US$775) of members of the Special Committee in exchange for their services in such capacity (or, in the case of the chairman of the Special Committee, monthly compensation of RMB10,000 (equivalent to US$1,549)) (the payment of which is not contingent upon the completion of the merger or the Special Committee’s or the Board’s recommendation of the merger); and

 

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

  

As of the date of this proxy statement, the Chairman, Mr. Debao Wang and Mr. Guoan Xu, being members of the Buyer Group, beneficially own 5,151,099 issued and outstanding Shares entitled to vote. All such Shares held by the Chairman, Mr. Debao Wang and Mr. Guoan Xu will be cancelled in the merger and not be converted into the right to receive the merger consideration at the Effective Time. Instead, the Chairman, Mr. Debao Wang and Mr. Guoan Xu will directly and/or indirectly receive newly issued ordinary shares of Parent.

 

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As of the date of this proxy statement, none of the directors and executive officers of the Company (as set forth in “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 97), as a group and other than the members of the Buyer Group, held of record or beneficially own any Shares or options to purchase shares.

 

The Special Committee and the Board were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions and recommendations with respect to the merger agreement and related matters. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 59 for additional information.

 

Conditions to the Merger (Page 87)

 

The obligations of the Company, Parent, and Merger Sub to consummate the transactions contemplated by the merger agreement, including the merger, are subject to the satisfaction or waiver at or prior to the closing of the merger (the “Closing”) of the following conditions:

 

the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement being approved by a resolution by holders of Shares constituting the Requisite Company Vote at the extraordinary general meeting of shareholders; and

 

no governmental entity or court of competent jurisdiction having enacted, issued, promulgated, enforced, entered or deemed applicable any law or order that is in effect that enjoins, restrains, prohibits or otherwise makes the consummation of the merger illegal.

 

The obligations of Parent and Merger Sub to consummate the merger are also subject to the satisfaction or waiver at or prior to the Closing of the following conditions:

 

(i) other than those regarding capitalization, Company Share Awards, corporate authority and fairness, compliance with anti-corruption laws, absence of Company Material Adverse Effect, absence of brokerage fees other than to the Company Financial Advisor, and inapplicability of anti-takeover provisions, the representations and warranties of the Company contained in the merger agreement being true and correct in all respects as of the date of the merger agreement and as of the Closing, as though made on such date (except to the extent expressly made as of a specified date, in which case as of such specified date), in each case, disregarding for this purpose any limitation or qualification by materiality or Company Material Adverse Effect, except to the extent such failures to be true and correct in the aggregate would not have a Company Material Adverse Effect; (ii) the representations and warranties regarding corporate authority and fairness being true and correct in all material respects as of the date of the merger agreement and as of the Closing, as though made on such date (except to the extent expressly made as of a specified date, in which case as of such specified date), in each case, disregarding for this purpose any limitation or qualification by materiality or Company Material Adverse Effect; and (iii) the representations and warranties regarding capitalization, Company Share Awards, compliance with anti-corruption laws, absence of Company Material Adverse Effect, absence of brokerage fees other than to the Company Financial Advisor, and inapplicability of anti-takeover provisions being true and correct in all respects (except for de minimus inaccuracies) as of the date of the merger agreement and as of the Closing, as though made on such date (except to the extent expressly made as of a specified date, in which case as of such specified date (except for de minimus inaccuracies) in all material respects as of such specified date);

 

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the Company having performed or complied in all material respects all agreements and covenants required to be performed or complied by it under the merger agreement at or prior to the Closing;

 

since the date of the merger agreement, there not having occurred a Company Material Adverse Effect;

 

the amount of Dissenting Shares being less than 20% of the total outstanding Shares immediately prior to the Effective time; and

 

the Company having delivered to Parent a certificate of an executive officer of the Company dated as of the date of Closing confirming the above conditions have been satisfied.

 

The obligations of the Company to consummate the merger are also subject to the satisfaction or waiver at the Closing of the following conditions:

 

the representations and warranties of Parent and Merger Sub contained in the merger agreement being true and correct in all material respects as of the date of the merger agreement and as of the closing, as though made on such date (except to the extent expressly made as of a specified date, in which case as of such specified date), except to the extent such failures to be true and correct would not individually or in the aggregate, prevent, materially delay or materially impede the performance by Parent and Merger Sub of its obligations under the merger agreement;

 

Parent and Merger Sub having performed or complied in all material respects all agreements and covenants required to be performed or complied by it under the merger agreement on or prior to the Closing; and

 

the Company having received a certificate of an executive officer of Parent dated as of the date of Closing confirming the above conditions have been satisfied.

 

No Solicitation (Page 83)

 

From the date of the merger agreement until the earlier of the Effective Time or the valid termination of the merger agreement, the Company will not, will instruct its subsidiaries and their respective representatives not to:

 

initiate, solicit, propose, encourage or take any action to facilitate, any inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, an acquisition proposal;

 

engage in, continue or otherwise participate in discussions or negotiations with, or provide any non-public information concerning the Company or its subsidiary to any person with the intent to induce the making, submission or announcement of, or the intent to encourage, facilitate or assist any acquisition proposal or any proposal or offer that could reasonably be expected to lead to an acquisition proposal;

  

grant any waiver, amendment or release under any standstill or confidentiality agreement to which the Company is a party or any anti-takeover law, or otherwise knowingly facilitate any effort or attempt by any person to make an acquisition proposal;

 

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approve, endorse, recommend, execute or enter into any letter of intent, agreement in principle, merger agreement, acquisition agreement or other similar agreement relating to an acquisition proposal or any proposal or offer that could reasonably be expected to lead to an acquisition proposal, or that conflicts with or is inconsistent with the merger agreement or requires the Company to abandon the merger agreement or the merger; or

 

resolve, propose, agree or publicly announce an intention to do any of the above actions.

 

The Company will immediately cease and cause to be terminated all discussion with any third parties existing as of the date of the merger agreement regarding an acquisition proposal.

 

Prior to obtaining the Requisite Company Vote, if the Company receives an unsolicited, written and bona fide acquisition proposal from any person that did not result from a breach by the Company of its obligations set forth in the above paragraph, (i) the Special Committee may directly or indirectly through the Company and its representatives contact such person to clarify and understand the terms and conditions of the proposal so as to determine whether such proposal constitutes or is reasonably expected to result in a superior proposal, and (ii) if the Special Committee determines in good faith, after consultation with and based upon the advice of its financial advisor and outside legal counsel, that such proposal constitutes or is reasonably likely to result in a superior proposal, then the Special Committee may directly or indirectly through the Company and its representatives, pursuant to an executed confidentiality agreement on terms no less favorable to the Company in the aggregate than those contained in the merger agreement, furnish information to the person who has made such proposal, provided that the Company will concurrently make available to Parent any non-public information provided to such person that was not previously made available to Parent or its representatives.

 

Prior to obtaining the Requisite Company Vote, (a) if the Company has received a written bona fide acquisition proposal that did not arise or result from a breach of the Company’s “no solicitation” obligations described above that is not withdrawn and that the Board determines, upon the recommendation of the Special Committee and in its good faith judgment, that (i) such acquisition proposal constitutes a superior proposal, and (ii) the failure to change its recommendation to the Company’s shareholders would be inconsistent with its fiduciary duties to the Company and its shareholders under applicable law (after consultation with its financial advisor and outside legal counsel), the Board may change its recommendation and/or authorize the Company to terminate the merger agreement to enter into an alternative acquisition agreement with respect to such superior proposal. However, prior to taking any such action, the Board must give Parent at least five business days’ prior written notice of its intention to take such action and a description of the material terms and conditions of such proposal and identifying the person making such proposal. Further, the Company must provide to Parent any confidential information disclosed to the person making the superior proposal but not previously disclosed to Parent, negotiate in good faith with Parent during such notice period, to the extent Parent wishes to negotiate, to enable Parent to revise the terms of the merger agreement, so that the proposal would cease to constitute a superior proposal, and permit Parent to make a presentation of any amendments to the Board and the Special Committee (to the extent Parent wishes to make such presentation).

  

Prior to obtaining the Requisite Company Vote, the board of directors of the Company (based on the recommendation of the Special Committee) or the Special Committee may effect a Company Adverse Recommendation Change and direct the Company to terminate the merger agreement, if (a) a material development or change in circumstances has occurred or arisen after the date of the merger agreement that was not known to, nor reasonably foreseeable by, any member of the Special Committee as of or prior to the date of the merger agreement and did not result from or arise out of the announcement or pendency of, or any actions required to be taken by the Company (or to be refrained from being taken by the Company) pursuant to, the merger agreement (an “Intervening Event”), (b) the failure to change its recommendation to the Company’s shareholders would reasonably be expected inconsistent with its directors’ duties to the Company and its shareholders under applicable law (after consultation with its outside legal counsel), (c) 5 business days have elapsed since the Company has given notice of its termination of the merger agreement in response to such Intervening Event to Parent advising that it intends to take such action and specifying the reasons, (d) during the notice period, the Company has considered and engaged in good faith discussions with Parent (if requested by Parent), any adjustment or modification to the merger agreement proposed by Parent, (e) following the notice period, taking into account any adjustment or modification to the terms of the merger agreement proposed by Parent, the failure to change its recommendation to the Company’s shareholders would reasonably be expected inconsistent with its directors’ duties to the Company and its shareholders under applicable law (after consultation with its outside legal counsel).

 

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Termination of the Merger Agreement (Page 88)

 

The merger agreement may be terminated at any time prior to the Effective Time:

 

by mutual written consent of Parent and the Company;

 

by either Company or Parent, if:

 

the merger is not consummated by 11:59 p.m. on September 30, 2021 (Beijing Time);

 

any governmental entity of competent jurisdiction has enacted, issued, promulgated, enforced or entered any order that has or would have the effect of enjoining the transactions contemplated by the merger agreement, which shall have become final and non-appealable, or there is any law that makes the consummation of the merger illegal or prohibited, provided that each of the parties have used its reasonable best efforts to resist, appeal, obtain consent under, resolve or lift, as applicable the order or law and has complied in all material respects with its obligations to use reasonable best efforts to consummate the merger; or

 

the merger agreement is not approved by Requisite Company Vote at the extraordinary general meeting or any adjournment thereof,

 

provided, however, the right to terminate the merger agreement pursuant to the circumstances described in the foregoing shall not be available to any party whose failure to fulfil any obligation under the merger agreement or other breach has been the primary cause of, or resulted in, the failure of the applicable condition(s) being satisfied;

 

by the Company, if:

 

Parent or Merger Sub has breached any representation, warranty, covenant or agreement set forth in the merger agreement, such that the corresponding condition to Closing would not be satisfied and such breach cannot be cured, or if capable of being cured, is not cured (i) within 30 calendar days following receipt of written notice by Parent or Merger Sub of such breach from the Company or (ii) any shorter period of time that remains between the date the Company provides written notice of such breach and 11:59 p.m. on September 30, 2021 (Beijing Time), provided that, the Company will not have this termination right if it is then in breach of any representation, warranty, covenant or agreement under the merger agreement that would result in the failure to satisfy the corresponding condition to Closing;

 

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(i) all of the conditions to the merger regarding obtaining Requisite Company Vote and no governmental injunction and all of the conditions to be performed by the Company are satisfied (other than those conditions that by their nature are only to be satisfied at the Closing), (ii) the Company has delivered to Parent an irrevocable confirmation in writing that all of the conditions to be performed by Parent and Merger Sub (other than those conditions by their nature are to be satisfied by actions taking at the Closing) have been satisfied or waived by the Company and that the Company is ready, willing and able to consummate the Closing, and (iii) Parent and Merger Sub fail to complete the Closing within 5 business days following the date on which the Closing should have occurred on after the satisfaction of the closing conditions;

 

prior to obtaining the Requisite Company Vote, (i) in order to enter into any letter of intent, agreement in principle or definitive acquisition agreement, (a) the Board determines (in its good faith judgment upon the recommendation of the Special Committee), that failure to enter into a definitive agreement relating to a superior proposal would be inconsistent with its fiduciary duties under applicable law, and authorizes the Company to enter into such definitive agreement, (b) such superior proposal did not result from any breach by the Company’s non-solicitation obligations under the merger agreement, (c) the Company has delivered notice of such superior proposal to Parent, and if requested by Parent, has made its representatives available to Parent to discuss proposed changes to the merger agreement to an Acquisition Proposal, or (ii) in response to an Intervening Event, provided that the Company shall have paid the termination fee to Parent within 2 business days after such termination of the merger agreement in accordance with the terms of the merger agreement.

 

by Parent, if:

 

the Company has breached any representation, warranty, covenant or agreement set forth in the merger agreement, such that the corresponding condition to Closing would not be satisfied and such breach cannot be cured, or if capable of being cured, is not cured: (i) (x) within 5 calendar days following receipt of written notice by the Company from Parent of such breach with respect to the “no solicitation” obligations, or (y) within 30 calendar days following receipt of written notice by the Company from Parent or Merger Sub of such breach with respect to any other representation, warranty or covenant, or (ii) any shorter period of time that remains between the date Parent or Merger Sub provides written notice of such breach and 11:59 p.m. on September 30, 2021 (Beijing Time), provided that, Parent will not have this termination right if it is then in breach of any representation, warranty, covenant or agreement under the merger agreement that would result in the failure to satisfy the corresponding condition to Closing;

 

the Board has changed its recommendation to the shareholders of the Company relating to the approval of the merger in a manner adverse to Parent or Merger Sub;

 

the Board has approved any acquisition proposal or fails to publicly recommend against any acquisition proposal;

  

the Board has failed to include the recommendation to the shareholders of the Company to approve the merger agreement, the plan of merger and the transaction contemplated under the merger agreement in this proxy statement;

 

the Board has entered into any letter of intent, agreement in principle, definitive acquisition agreement for an acquisition proposal or similar document with respect to any acquisition proposal, or has authorized the Company to enter into a definitive agreement with respect to such proposal; or

 

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the Board has taken any other action or made any other public statement that is inconsistent with its recommendation to the shareholders of the Company relating to the approval of the merger.

 

Material U.S. Federal Income Tax Consequences (Page 64)

 

For a U.S. Holder (as defined under “Special Factors – Material U.S. Federal Income Tax Consequences), the receipt of cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local and other tax laws. Please see “Special Factors – Material U.S. Federal Income Tax Consequences” beginning on page 64 for additional information. The U.S. federal income tax consequences of the merger to you will depend upon your personal circumstances. You should consult your tax advisors for a full understanding of the U.S. federal, state, local, non-U.S. and other tax consequences of the merger to you.

 

Material PRC Income Tax Consequences (Page 68)

 

The Company does not believe that it should be considered a resident enterprise under the PRC Enterprise Income Tax Law (the “EIT Law”) or that the gain recognized on the receipt of consideration for the Company’s Shares should otherwise be subject to PRC tax to holders of such Shares that are not PRC tax residents. However, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a resident enterprise or that PRC tax would otherwise apply. If the PRC tax authorities were to determine that the Company should be considered a resident enterprise then the gain recognized on the receipt of consideration for the Company’s Shares by the holders of such Shares that are not PRC tax residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of 10% in the case of enterprises or 20% in the case of individuals (subject to applicable tax treaty relief, if any). Furthermore, even in the event that the Company is not considered a resident enterprise, gain recognized on the receipt of cash for Shares is subject to PRC tax if the holders of such Shares are PRC resident individuals. The Company does not believe that the Merger is without reasonable commercial purpose for purposes of the Bulletin on the Source of Deduction of Income Tax for Non-resident Enterprises (“Bulletin 37”) issued by the State Administration of Taxation of PRC, which became effective on December 1, 2017 and the Bulletin on Certain Issues Relating to Indirect Transfer of Assets by Non-resident Enterprises (“Bulletin 7”) issued by the State Administration of Taxation, which became effective on February 3, 2015, and, as a result, the Company (as transferee and withholding agent) will not withhold any PRC tax (under Bulletin 7 and Bulletin 37) from the merger consideration to be paid to holders of Shares. However, neither Parent nor Merger Sub intends to withhold any PRC taxes on the consideration provided to non-PRC resident shareholders of the Company in connection with the Merger. You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you, including any PRC tax consequences. Please see “Special Factors – Material PRC Income Tax Consequences” beginning on page 68 for additional information.

  

Material British Virgin Islands Tax Consequences (Page 69)

 

The British Virgin Islands currently has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will be payable (either by direct assessment or withholding) to the government or other taxing authority in the British Virgin Islands under the laws of the British Virgin Islands in respect of the merger or the receipt of cash for our Shares under the terms of the merger. This is subject to the qualification that registration fees will be payable by the Company to the Registrar of Corporate Affairs of the British Virgin Islands to file and/or register the articles of merger, the amended and restated memorandum and articles of association of the surviving company in the form attached as Appendix B of the plan of merger) together with a copy of the resolution of the Company’s shareholders adopting the same and the updated register of directors of the surviving company. Please see “Special Factors — Material British Virgin Islands Tax Consequences” beginning on page 69 for additional information.

 

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Market Price of the Shares (Page 69)

 

The closing price of the Shares on the NASDAQ on November 27, 2020, the last trading date immediately prior to the Company’s announcement on November 30, 2020 that it had received a going-private proposal, was $4.72 per Share. The merger consideration of approximately $6.50 per Share, to be paid in the merger represents a premium of approximately 37.7% to that closing price.

 

Fees and Expenses (Page 63)

 

Except for the circumstances where either the Company or Parent is required to pay a termination fee as appropriate under the merger agreement, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring such expenses, whether or not the merger is consummated.

 

Remedies (Page 59)

 

The parties to the merger agreement may be entitled to the payment of a termination fee or the grant of specific performance of the terms of the merger agreement, including an injunction or injunctions to prevent breaches of the merger agreement, in addition to any other remedy at law or equity. Specifically, the Company is entitled to seeking an injunction, specific performance or other equitable remedies to enforce Parent’s or Merger Sub’s obligation to cause the financing for the merger to be funded at the Effective Time, and shall be subject to the satisfaction of the following conditions: (i) all conditions to Parent’s and Merger Sub’s obligations to consummate the merger (other than those conditions that by their terms are to be satisfied at the Closing) have been satisfied or waived, (ii) the Company has irrevocably confirmed in writing that if the financing is funded, then it would take such actions that are within its control to cause the consummation of the transactions contemplated by the merger agreement to occur, and (iii) the financing has not been funded and Parent and Merger Sub fail to consummate the merger.

 

While the parties may pursue both a grant of specific performance and monetary damages until such time as the other party pays a termination fee (as applicable under the merger agreement), none of them will be permitted or entitled to receive both a grant of specific performance and monetary damages.

 

Subject to the equitable remedies the parties may be entitled to as discussed above, the maximum aggregate liabilities of Parent, on the one hand, and the Company, on the other hand, for monetary damages in connection with the merger agreement are limited to the Parent termination fee of $3,000,000 and the Company termination fee of $1,500,000, respectively, and reimbursement of certain expenses accrued in the event that Company or Parent fails to pay the applicable termination fee when due and in accordance with the requirements of the merger agreement, as the case may be.

 

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QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER

 

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

 

Q:Why am I receiving this proxy statement?

 

A:On March 12, 2021, we entered into the merger agreement with Parent and Merger Sub. You are receiving this proxy statement in connection with the solicitation of proxies by the Board on behalf of the Company in favor of the proposal to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions, including the merger, at an extraordinary general meeting or at any adjournment of such extraordinary general meeting.

 

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

 

  A: The extraordinary general meeting will take place on June 18, 2021, at 9:00 a.m. (Beijing Time) at the Company’s office at 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China.

 

Q:What am I being asked to vote on?

 

A:You will be asked to consider and vote on the following proposals: (a) to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions, including the merger; (b) to authorize each of the members of the Special committee of the Board (the “Special Committee”) to do all things necessary to give effect to the merger agreement, the plan of merger, the articles of merger and the transactions, including the merger; and (c) if necessary, to approve that the chairman of the extraordinary general meeting be instructed to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the resolutions to be proposed at the extraordinary general meeting.

 

Q:What is the merger?

 

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

 

Q:What will I receive in the merger?

  

A:If you own Shares and the merger is completed, you will be entitled to receive $6.50 in cash for each Share (other than the Rollover Shares) you own as of the Effective Time (unless you validly exercise and have not effectively withdrawn or lost your dissenter rights under Section 179 of the BVI Business Companies Act with respect to the merger, in which event you will be entitled to the fair value of each Share pursuant to the BVI Business Companies Act).

 

Please see “Special Factors – Material U.S. Federal Income Tax Consequences,” “Special Factors – Material PRC Income Tax Consequences” and “Special Factors – Material British Virgin Islands Tax Consequences” beginning on page 64 for a more detailed description of the tax consequences of the merger. You should consult with your own tax advisor for a full understanding of how the merger will affect your U.S. federal, state, local, non-U.S. and other taxes.

 

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Q:How will the Company’s options be treated in the merger?

 

A:If the merger is completed, at the Effective Time, the Company will terminate the Company’s 2018 Share Incentive Plan (the “Share Incentive Plan”) and any relevant award agreements entered into under the Share Incentive Plan.

 

Q:After the merger is completed, how will I receive the merger consideration for my Shares?

 

A:If you are a registered holder of Shares, promptly after the Effective Time (in any event within five business days after the Effective Time), a paying agent appointed by Parent will mail you (a) a letter of transmittal specifying how the delivery of the merger consideration to you will be effected and (b) instructions for effecting the surrender of share certificates in exchange for the applicable merger consideration. You will receive cash for your Shares from the paying agent after you comply with these instructions. Upon surrender of your share certificates or a declaration of loss or non-receipt, you will receive an amount equal to the number of your Shares multiplied by $6.50 in cash, without interest and net of any applicable withholding tax, in exchange for the cancellation of your Shares. The merger consideration may be subject to U.S. federal income tax backup withholding if the paying agent has not received from you a properly completed and signed U.S. Internal Revenue Service Form W-8 or W-9.

 

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

 

Q:What vote of our shareholders is required to authorize and approve the merger agreement and the plan of merger?

 

  A: In order for the merger to be completed, the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, must be authorized and approved by a resolution approved by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the shareholders holding the Shares were present at the extraordinary general meeting of the shareholders or an adjournment thereof in person or by proxy and being Shares in respect of which the votes were voted in accordance with the BVI Business Companies Act and the memorandum and articles of the Company. At the close of business in the British Virgin Islands on May 17, 2021, the Share record date for the extraordinary general meeting, there were 18,329,600 Shares issued and outstanding and entitled to vote at the extraordinary general meeting. Pursuant to the Support Agreement, the Rollover Shareholders have agreed to vote all of the Shares beneficially owned by them in favor of the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger. As of the date of this proxy statement, the Rollover Shareholders beneficially own approximately 71.1% of the total issued and outstanding Shares of the Company entitled to vote.

 

Q:What vote of our shareholders is required to approve the proposal to adjourn and postpone the extraordinary general meeting, if necessary, to solicit additional proxies?

 

A:The authorization and approval of the merger agreement, the plan of merger, the articles of merger and the merger must be authorized and approved by a resolution approved by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the shareholders holding the Shares were present at the extraordinary general meeting of the shareholders or an adjournment thereof in person or by proxy and being Shares in respect of which the votes were voted in accordance with the BVI Business Companies Act and the memorandum and articles of the Company. If there are insufficient votes at the time of the extraordinary general meeting to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, you will also be asked to vote on the proposal to adjourn the extraordinary general meeting to allow us to solicit additional proxies.

 

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The proposal to adjourn and postpone the extraordinary general meeting, if necessary, to solicit additional proxies must be authorized and approved by a resolution approved by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the shareholders holding the Shares were present at the extraordinary general meeting of the shareholders or an adjournment thereof in person or by proxy and being Shares in respect of which the votes were voted in accordance with the BVI Business Companies Act and the memorandum and articles of the Company.

 

Q:How does the Board recommend that I vote on the proposals?

 

A:After careful consideration and upon the unanimous recommendation of the Special Committee and on behalf of the Company, our Board recommends that you vote:

 

FOR the proposal to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger;

 

FOR the proposal to authorize each of the members of the Special Committee to do all things necessary to give effect to the merger agreement, the plan of merger, and the transactions contemplated by the merger agreement, including the merger; and

 

FOR the proposal to instruct the chairman of the extraordinary general meeting to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the resolutions to be proposed at the extraordinary general meeting.

 

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

 

  A: The Share record date is May 17, 2021. Only shareholders entered in the register of members of the Company at the close of business in the British Virgin Islands on the Share record date or their proxy holders are entitled to vote at the extraordinary general meeting or any adjournment thereof.

 

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

 

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

 

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

  

A:As a result of the merger, the Company will cease to be a publicly-traded company and will be beneficially owned by the Buyer Group. Your Shares in the Company will be cancelled, and you will no longer have any interest in our future earnings or growth. Following consummation of the merger, the registration of our Shares and our reporting obligations with respect to our Shares under the Exchange Act, will be terminated upon application to the SEC. In addition, upon completion of the merger, our Shares will no longer be listed or traded on any stock exchange, including the NASDAQ.

 

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

 

A:We are working toward completing the merger as quickly as possible and currently expect the merger to close in the second quarter of 2021. In order to complete the merger, we must obtain the Requisite Company Vote of the merger at the extraordinary general meeting and the other closing conditions under the merger agreement must be satisfied or waived in accordance with the merger agreement.

 

Q:What happens if the merger is not completed?

 

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

 

Under specified circumstances in which the merger agreement is terminated, the Company may be required to pay Parent a termination fee, or Parent may be required to pay the Company a termination fee, in each case, as described under the caption “The Merger Agreement and Plan of Merger – Termination Fee” beginning on page 90.

 

Q:What do I need to do now?

 

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

 

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

 

A:If Shares are registered in your name as of the Share record date, you have four voting options:

 

By Internet, which we encourage if you have Internet access, at the address shown on your proxy card;
By email, by emailing your signed proxy card to vote@vstocktransfer.com;
By mail, by completing, signing and returning the enclosed proxy card; or
By fax, by faxing your signed proxy card to 646-536-3179.

 

You should simply indicate on your proxy card how you want to vote, and sign and mail your proxy card in the enclosed return envelope as soon as possible but in any event at least 48 hours before the time of the extraordinary general meeting so that your Shares will be represented and may be voted at the extraordinary general meeting.

  

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

 

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

 

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

 

Q:What will happen if I abstain from voting or fail to vote on the proposal to authorize and approve the merger agreement and the plan of merger?

 

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

 

Q:May I change my vote?

 

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

 

first, you may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting before the extraordinary general meeting commences. Any written notice revoking a proxy should be sent to c/o Shandong Taiying Technology Co., Ltd., 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China;

 

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

 

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

 

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

 

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

  

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

 

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

 

A:No. After the merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your share certificates for the merger consideration. Please do not send in your certificates now.

 

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

 

Q:What happens if I sell my Shares before the extraordinary general meeting?

 

A:The share record date for determining shareholders entitled to vote at the extraordinary general meeting is earlier than the date of the extraordinary general meeting and the date that the merger is expected to be consummated. If you transfer your Shares after the share record date but before the extraordinary general meeting, you will retain your right to vote at the extraordinary general meeting unless you have given, and not revoked, a valid proxy to the person to whom you transfer your Shares, but will transfer the right to receive the merger consideration in cash without interest to such person, so long as such person is registered as the owner of such Shares when the merger is consummated. In such case, your vote is still very important and you are encouraged to vote.

 

Q:Am I entitled to appraisal rights?

 

  A:

Registered shareholders (i.e. shareholders whose name is registered in the register of members of the Company) and wishing to dissent from the merger will be entitled to seek appraisal and have the right to receive payment of the fair value of their Shares in accordance with Section 179 of the BVI Business Companies Act if the merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the merger is taken at the extraordinary general meeting, a written objection to the merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act, as amended regarding the exercise of appraisal rights, a copy of which is attached as Annex C to this proxy statement. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the merger consideration you would receive pursuant to the merger agreement if you do not exercise appraisal rights with respect to your Shares.

 

If you hold your shares through a financial intermediary such as a broker or bank and wish to dissent from the merger, you must make all necessary arrangements with the financial intermediary to ensure that your shares are registered in your own name in the register of members of the Company such that you become a registered shareholder in order for you to exercise dissenters’ rights. The financial intermediary is unlikely to exercise or attempt to exercise any dissenters’ rights with respect to any of the shares that it holds, even if a beneficial owner of the shares requests the financial intermediary to do so. You must contact your financial intermediary promptly to ensure that you become a registered shareholder in sufficient time ahead of the date of the extraordinary general meeting, as you must deliver to the Company a written objection to the merger before the vote to authorize and approve the merger is taken at the extraordinary general meeting. You must subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex C to this proxy statement. If the merger is not consummated, the Company will continue to be a publicly traded company in the United States and the shares will continue to be listed on NASDAQ. As a result, if you became a registered shareholder for purposes of exercising dissenters’ rights and the merger is not consummated, and you wish to transfer your shares back to a financial intermediary, you will need to contact the financial intermediary to make all necessary arrangements.

 

If you do not fully and precisely satisfy the procedural requirements of the Section 179 of the BVI Business Companies Act, you will lose your dissenters’ rights.

 

We encourage you to read the section of this proxy statement entitled “Appraisal Rights” beginning on page 92 as well as Annex C to this proxy statement carefully and we urge you to seek your own legal advice on BVI Business Companies Act in general from a licensed British Virgin Islands law firm if you wish to exercise your dissenters’ rights.

 

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

 

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

 

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

 

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

  

the beneficial ownership of equity interests in Parent by (a) Mr. Zhili Wang, the chairman of the Board and chief executive officer of the Company, (b) Mr. Debao Wang, director, chief financial officer and vice president of the Company and (c) Mr. Guoan Xu, director and vice president of the Company;

 

the potential enhancement or decline of share value of Parent’s shares directly or indirectly held by the Chairman, Mr. Debao Wang and Mr. Guoan Xu as a result of the merger and future performance of the surviving company;

 

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

 

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the monthly compensation of RMB5,000 (equivalent to US$775) of members of the Special Committee in exchange for their services in such capacity (or, in the case of the chairman of the Special Committee, monthly compensation of RMB10,000 (equivalent to US$1,549)) (the payment of which is not contingent upon the completion of the merger or the Special Committee’s or the Board’s recommendation of the merger); and

 

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

 

Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 59 for a more detailed discussion of how some of our Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our shareholders generally.

 

Q:How will our directors and executive officers vote on the proposal to authorize and approve the merger agreement and the plan of merger?

 

  A: Pursuant to the Support Agreement, each of the Rollover Shareholders, including the Chairman, Mr. Debao Wang and Mr. Guoan Xu, has agreed to vote all of the Shares beneficially owned by such person in favor of the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger. As of the Share record date, the Rollover Shareholders beneficially owned approximately 71.1% of the total issued and outstanding Shares of the Company entitled to vote.

 

Q:Who can help answer my questions?

 

A:If you have any questions or need assistance in voting your Shares, you can contact Investor Relations, China Customer Relations Centers, Inc., at +1-718-213-7386 or at shunyu.zheng@weitian-ir.com.

 

SPECIAL FACTORS

 

Background of the Merger

 

Events leading to the execution of the merger agreement described in this Background of the Merger occurred in China and Hong Kong. As a result, China Standard Time is used for all dates and times given. The term “Buyer Group” used at various times refers to the consortium consisting of the Guarantors, Wilstein, Telecare Global, Mr. Yipeng Wang, Harford, Mr. Ruixiu Wang, Sainsberry, Mr. Qiaolin Wang, Ms. Yan Lyu, Mr. Xianghui Li, Ms. Ning Zou, Singeton Management, Mr. Liping Gao, Ms. Yuxiang Qi and Ms. Yanli Xu, as applicable, as the relevant parties formed or joined the Consortium at different times described below.

  

The Board and senior management of the Company have been reviewing periodically the Company’s long-term strategic plan with the goal of maximizing shareholder value. As part of this ongoing process, the Board and senior management of the Company have also periodically reviewed strategic alternatives that may be available to the Company.

 

On November 10, 2018, the Chairman and Guangzhou Cornerstone Asset Management Co., Ltd. (“Cornerstone”), formed a consortium (collectively, the “2018 Buyer Group”) and submitted a preliminary, non-binding letter (the “2018 Proposal”) to the Board, proposing to acquire all of the Shares of the Company not already owned by the consortium at US$16.00 per share in cash in a take-private transaction. Under the 2018 Proposal, the 2018 Buyer Group would fund the proposed transaction through a combination of equity and debt financing. The equity financing would be in the form of rolling over the Shares of the Company owned by each member of the 2018 Buyer Group; while the debt financing would be provided by the members of 2018 Buyer Group and other sponsors. The 2018 Buyer Group engaged China Renaissance as their financial advisor, Skadden, Arps, Slate, Meagher & Flom LLP as their U.S. legal counsel, and Conyers Dill & Pearman as their British Virgin Islands legal counsel.

 

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After receiving the 2018 Proposal, the Board of the Company formed an independent committee (the “2018 Independent Committee”) of disinterested directors to evaluate and review the proposal. The 2018 Independent Committee was composed of the following independent directors of the Company: Mr. Tianjun Zhang, Mr. Owens Meng and Mr. Jie Xu, with Mr. Tianjun Zhang serving as chairman of the 2018 Independent Committee. The 2018 Independent Committee was responsible for evaluating, negotiating and recommending to the Board any proposals involving a strategic transaction by the Company with one or more third parties. On November 13, 2018, the Company issued a press release regarding the establishment of the 2018 Independent Committee, and furnished the press release as an exhibit to its current report on Form 6-K.

 

As of November 29, 2018, the 2018 Independent Committee had retained Duff & Phelps, LLC and Duff & Phelps Securities, LLC as the 2018 Independent Committee’s independent financial advisors, Sidley Austin LLP as its U.S. legal counsel and Maples and Calder (Hong Kong) LLP as its British Virgin Islands legal counsel in connection with its review and evaluation of the 2018 Proposal. On November 29, 2018, the Company issued a press release regarding the engagement of the financial advisors and legal counsels by the 2018 Independent Committee, and furnished the press release as an exhibit to its current report on Form 6-K.

 

No definitive agreement or understanding was reached because the 2018 Buyer Group was unable to obtain the necessary financing commitment to fund the proposed transaction. On May 25, 2020, Cornerstone withdrew from the 2018 Buyer Group and informed the Board that it no longer intended to participate in the proposed transaction as contemplated under the 2018 Proposal. Subsequently, on May 29, 2020, the Board received a letter from the Chairman confirming his withdrawal of the 2018 Proposal. On May 29, 2020, the Company issued a press release regarding the withdrawal of the 2018 Proposal by the 2018 Buyer Group, and furnished the press release as an exhibit to its current report on Form 6-K.

 

After Cornerstone’s withdrawal from the 2018 Buyer Group, the Chairman periodically reviewed the Company’s business operations, the general conditions of the Chinese economy, the Company’s industrial sector and generally assessed strategic alternatives, including, but not limited to, a plan that would maintain the Company’s NASDAQ listing and, alternatively, a going private transaction.

 

In November 2020, the Chairman seriously considered strategic alternatives. The primary factors that influenced the Chairman’s consideration of strategic alternatives included the material adverse impact caused by the outbreak of the COVID-19 pandemic on the Company’s business, the sustained low trading price of the Company’s Shares, and the increasing expenses and burden to comply with the U.S. federal laws, including the U.S. securities laws.

  

On November 24, 2020, the Chairman, Mr. Debao Wang, Mr. Guoan Xu, Mr. Qingmao Zhang, Mr. Long Lin, Mr. Jishan Sun and their respective affiliated entities engaged Commerce & Finance Law Offices (“C&F”) as its legal advisor in connection with a potential going private transaction involving the Company.

 

On November 27, 2020, the Chairman, Mr. Debao Wang, Mr. Guoan Xu, Mr. Qingmao Zhang, Mr. Long Lin, Mr. Jishan Sun and their respective affiliated entities (the “Initial Consortium Members”) entered into a consortium agreement to form a consortium (the “Initial Consortium Agreement”) and the Initial Consortium Members jointly delivered to the Board a preliminary non-binding proposal (the “Proposal”), announcing their intent to acquire all outstanding Shares that are not owned by the Buyer Group for cash consideration equal to US$5.37 per share (the “Proposed Transaction”).

 

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On November 28, 2020, the Board held a telephonic meeting to discuss, among other things, the Proposal. The Board determined that it was in the best interests of the Company to establish a special committee (the “Special Committee”) consisting of three independent and disinterested directors, Mr. Tianjun Zhang, Mr. Owens Meng and Mr. Jie Xu with Mr. Tianjun Zhang serving as the chairman of the Special Committee, each of whom currently serves as an independent director on the Board and is unaffiliated with the Buyer Group and has the time and experience required for discharging his responsibility as a member of the Special Committee, to consider and evaluate the Proposal. The Special Committee was granted, by way of unanimous written resolutions by the Board on November 28, 2020, the power and authority to (i) establish, approve, modify, monitor and direct the process and procedures related to the review and evaluation of the Proposed Transaction and any alternative transaction, including the authority to determine not to proceed with any such process, procedures, review or evaluation, (ii) respond to any communications, inquiries or proposals regarding the Proposed Transaction or any alternative transaction, (iii) review, evaluate, investigate, pursue and negotiate the terms and conditions of the Proposed Transaction or any alternative transaction, (iv) solicit expressions of interest or other proposals for alternative transactions to the extent the Special Committee deems appropriate, (v) recommend to the Board and the Company whether the Proposed Transaction or any alternative transaction is advisable and is fair to, and in the best interests of, the Company and its shareholders (or any subset of the shareholders of the Company that the Special Committee determines to be appropriate), (vi) recommend rejection or approval of the Proposed Transaction or any alternative transaction to the Board, (vii) effect or recommend to the Board the consummation of the Proposed Transaction or any alternative transaction, (viii) review, analyse, evaluate and monitor all proceedings and activities of the Company related to the Proposed Transaction or any alternative transaction, (ix) take such actions as the Special Committee may deem to be necessary or appropriate in connection with anti-takeover provisions, including, without limitation, actions with respect to the adoption, amendment or redemption of a shareholder rights plan, (x) investigate the Company and any prospective acquirers, the Proposed Transaction or alternative transaction and matters related thereto as it deems appropriate, (xi) review and comment upon any and all documents and other instruments used in connection with the Proposed Transaction or any alternative transaction, including any and all materials to be filed with the SEC and other governmental and non-governmental persons and entities, (xii) authorize the issuance of press releases and other public statements, including filings with the SEC and other governmental and non-governmental persons and entities as the Special Committee considers appropriate regarding the Proposed Transaction or any alternative transaction or consideration thereof, and (xiii) take such other actions as the Special Committee may deem to be necessary or appropriate for the Special Committee to discharge its duties.

 

On the same day, the Special Committee held its first telephonic meeting. The Special Committee determined to retain Hogan Lovells as its U.S. legal advisor and Houlihan Lokey as its independent financial advisor to assist the Special Committee in evaluating and negotiating the Proposed Transaction or any alternative transaction involving the Company. The Special Committee’s decision was based on, among other factors, Hogan Lovells’ and Houlihan Lokey’s extensive experiences in mergers and acquisitions transactions, their strong reputations, their significant experience dealing with China-based companies, and their lack of existing material relationships with the Company or the Buyer Group.

  

On November 29, 2020, the Special Committee convened a meeting by telephone with Hogan Lovells and Houlihan Lokey. Hogan Lovells gave a detailed explanation of the Special Committee’s fiduciary duties as directors of the Company in the Proposed Transaction. Houlihan Lokey then briefly discussed the financial advisor’s responsibilities in the Proposed Transaction and the financial due diligence work it needed to conduct in order to conduct its financial analysis of the Company and assess the offer. The Special Committee then authorized Houlihan Lokey to commence its due diligence on the Company as necessary for Houlihan Lokey to conduct its financial analysis of the Company. The Special Committee then discussed draft communications and confidentiality guidelines prepared by Hogan Lovells for directors, officers and employees of the Company to follow in light of and in connection with the Proposed Transaction and any alternative transaction. The guidelines were adopted by the Special Committee and subsequently delivered to the management of the Company on November 29, 2020.

 

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During the meeting, the Special Committee also requested that Hogan Lovells and Houlihan Lokey seek to obtain clarification from the Buyer Group as to whether the Buyer Group intends to participate in any alternative transaction involving third parties.

  

On November 30, 2020, the Company issued a press release regarding its receipt of the Proposal, the establishment of the Special Committee and the appointment of Hogan Lovells as its U.S. legal advisor and the appointment of Houlihan Lokey as its financial advisor, and furnished the press release as an exhibit to its current report on Form 6-K.

  

On November 30, 2020, representatives of Houlihan Lokey reached out to the Company to commence its financial due diligence with respect to the Company.

 

On December 5, 2020, Houlihan Lokey and Hogan Lovells held a telephonic meeting with Mr. Debao Wang, the representative of the Buyer Group. Mr. Debao Wang confirmed that the Buyer Group would be open to third party participating in the Buyer Group, but would not consider selling their shares in the Company to any third party. Later on the same day, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. The Special Committee considered the Buyer Group’s unwillingness to potentially sell their shares to any third party and further discussed how to best assess whether the Proposed Transaction is likely the best alternative available.

 

On December 7, 2020, the Chairman, Mr. Qingmao Zhang, Mr. Debao Wang jointly filed a Schedule 13D with the SEC announcing the execution of the Initial Consortium Agreement and the execution and the submission of the Proposal to the Board.

 

On December 10, 2020, Houlihan Lokey presented to the Special Committee a letter from a private equity firm (“Party A”) that it received on December 3, 2020, which expresses Party A’s interest in the Company.

 

On December 12, 2020, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. The Special Committee considered the letter from Party A and instructed Houlihan Lokey to get in touch with Party A to further understand Party A’s interest and in potentially making an offer to acquire the Company. The Special Committee further discussed with its advisors whether to perform a market check. After robust discussion with its advisors, and taking into consideration all available facts, including (i) the Buyer Group owned shares in the Company representing approximately 43% of the outstanding voting power, (ii) the Buyer Group’s clear indication that it was committed to the current proposal and not any potential proposal from a third party, (iii) third parties may approach the Special Committee proactively to express an interest in a transaction with the Company, the Special Committee then came to the view that although it would not pursue a market check at this stage of the privatization process, it would remain open to any competing bids received or alternative transactions available.

  

On December 16, 2020, Houlihan Lokey had a telephonic meeting with Party A to discuss Party A’s interest and determine whether they were prepared to make a proposal to acquire the Company, including their proposed financing plan for an acquisition.

 

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On December 19, 2020, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Houlihan Lokey reported that Party A indicated it was interested in acquiring the Company and had sufficient funds available to immediately fund a potential transaction. The Special Committee noted that the indication expressed by Party A, once formalized, would need to be evaluated by the Special Committee, together with the proposal by the Buyer Group and other strategic alternatives, as to which alternative would be in the best interest of the public shareholders of the Company. After robust discussions with its advisors, the Special Committee instructed Houlihan Lokey to convey the message to Party A that the Special Committee would be open to an alternative transaction, and that if Party A were interested in making an offer, they should do so in writing with specific conditions of their offer and demonstrate ability to fund their proposed transaction. On December 21, 2020, Houlihan Lokey relayed such message to Party A through a telephone call.

 

On December 22, 2020, C&F sent an initial draft of the merger agreement to Hogan Lovells.

 

On December 26, 2020, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Houlihan Lokey reported that it had not received any further update from Party A since December 21, 2020, and did not hear back from Party A thereafter.

 

At the same meeting, Hogan Lovells provided the Special Committee with an overview of principal issues contained in the first draft of the merger agreement that Hogan Lovells received from C&F on December 22, 2020, which include, among other things: (i) the Buyer Group’s plan to finance the Proposed Transaction through a combination of rollover financing from the rollover shareholders and debt financing, (ii) the absence of a “majority of the minority vote” requirement, (iii) the closing condition for the benefit of the Buyer Group that shareholders representing no more than 10% of the outstanding shares had exercised dissenters rights, and (iv) certain trigger events for the termination of the merger agreement and the payment of termination fees. After lengthy discussion and considering the views of its advisors, the Special Committee agreed on a proposed response to the key issues in the merger agreement, including, among other things, requesting the “majority of the minority vote”, rejecting the closing condition relating to the exercise of dissenters rights, requesting the ability for the Company to terminate the agreement if it received a superior proposal following execution of a definitive agreement or an intervening event occurs, etc.

 

On December 31, 2020, Hogan Lovells sent the revised draft merger agreement to C&F.

 

On January 15, 2021, C&F sent the revised draft of the merger agreement, the first draft of the limited guarantee to be issued by the members of the Buyer Group to the Company, and the first draft of the rollover and support agreement to Hogan Lovells.

 

On January 16, 2021, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Houlihan Lokey conveyed to the Special Committee the key assumptions and outputs of the management projections for the years 2020 to 2025 that it had received from the Company. The Special Committee discussed the management projections with its advisors thoroughly, in particular the underlying assumptions in relation to revenue grow rates, methodologies utilized, and the reasons for the projected profit margin decrease. The Special Committee further discussed with its advisors the revised draft of the merger agreement sent from C&F on January 15, 2021.

  

On January 23, 2021, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Houlihan Lokey provided an update on Houlihan Lokey’s discussions with the Company regarding the management projections, in particular, the underlying assumptions of revenue growth rates and reasons for the projected gross profit margin decrease. After robust discussions with its advisors, the Special Committee authorized Houlihan Lokey to adopt the management projections for use in its financial analysis.

 

On January 26, 2021, Hogan Lovells sent C&F revised drafts of the merger agreement, rollover and support agreement and limited guarantee.

 

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On January 28, 2021, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Houlihan Lokey reported that based on its still-in-process preliminary financial analysis, the offer price proposed by the Buyer Group is at the lower end of its valuation range of the Company. After discussion, the Special Committee then instructed its advisors to communicate with Buyer Group that the Special Committee is requesting a price increase.

 

On January 29, 2021, Houlihan Lokey had a telephonic meeting with Mr. Debao Wang, a representative of the Buyer Group, and conveyed the Special Committee’s view that the current offer price was insufficient and were requesting that the Buyer Group increase its offer price. The request was not made for a specific price or range of prices.

 

On February 6, 2021, representative of the Buyer Group had a telephonic meeting with Houlihan Lokey offering to increase the offer price to US$5.60 per share.

 

On February 10, 2021, C&F sent Hogan Lovells revised drafts of the merger agreement, rollover and support agreement and limited guarantee.

 

On February 25, 2021, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Houlihan Lokey reported to the Special Committee that the Buyer Group had offered to increase the offer price to US$5.60 per share. Houlihan Lokey also communicated to the Special Committee with respect to its preliminary financial analysis. The Special Committee engaged in robust discussions about the factors surrounding the updated financial analysis, including the business operations of the Company, the valuation methodologies adopted, any in-bound interest in relation to the take-private transaction, etc. The Special Committee believed that there was room for an additional price increase and instructed Houlihan Lokey to request a further price increase with the Buyer Group. Hogan Lovells then reported to the Special Committee that Hogan Lovells had received the revised merger agreement and other ancillary transaction documents from the Buyer Group on February 10, 2021. The Buyer Group had agreed to most of the terms proposed by the Special Committee and the only remaining key item is the “majority of minority approval”.

 

Following the meeting, Houlihan Lokey reached out to the representative of the Buyer Group requesting the Buyer Group to an increase in the offer price. The request was not made for a specific price or range of prices. Later on the same day, the representative of the Buyer Group offered to increase the offer price to US$6.00 per share.

 

On February 27, 2021, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Houlihan Lokey reported to the Special Committee that the Buyer Group had offered to increase the offer price to US$6.00 per share. After discussion with its advisors, the Special Committee believed that there was room for an additional price increase and instructed Houlihan Lokey to request a further price increase with the Buyer Group.

  

Following the meeting, Houlihan Lokey reached out to the representative of the Buyer Group requesting the Buyer Group to increase the offer price. The request was not made for a specific price or range of prices.

 

On March 2, 2021, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Houlihan Lokey presented its preliminary financial analysis to the Special Committee and the Special Committee discussed various aspects of the financial analysis with Houlihan Lokey. The Special Committee instructed Houlihan Lokey to continue negotiating the offer price with the Buyer Group.

 

On the same day, Hogan Lovells sent the revised draft merger agreement to C&F.

 

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In the evening of March 2, 2021, representative of the Buyer Group had a telephonic meeting with Houlihan Lokey offering its final and best offer of US$6.50 per share.

 

On March 3, 2021, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. During the meeting, Houlihan Lokey reported to the Special Committee that the Buyer Group has offered their “final and best offer” at US$6.50 per share. After discussion, the Special Committee considered accepting such price, subject to the receipt of the debt commitment letter to the satisfaction of the Special Committee and the finalization of the definitive agreements.

 

The Initial Consortium Members intended to invite more shareholders to join the consortium to consummate the merger. On March 11, 2021, the Initial Consortium Agreement was terminated by the Initial Consortium Members in its entirety.

 

On March 11, 2021, the Board convened a meeting. After fully disclosing the directors’ interests in the proposed transaction (which interests are described under the heading titled “Special Factors –Interests of Certain Persons in the Merger”), Mr. Zhili Wang, Mr. Debao Wang, Mr. Guoan Xu have recused themselves from the rest of the meeting after answering questions raised by other directors of the Company. The directors of the Company then appointed Mr. Tianjun Zhang as the substitute chairman of the meeting and had a discussion regarding the proposed transaction and the New Consortium Agreement (as defined below) and determined that it is advisable and in the best interests of the Company to approve the New Consortium Agreement, and approved the execution, delivery and performance of the New Consortium Agreement by the parties thereto.

 

Upon the approval of the Board, on March 11, 2021, Mr. Yipeng Wang, Mr. Ruixiu Wang, Mr. Qiaolin Wang, Ms. Yan Lyu, Mr. Xianghui Li, Ms. Ning Zou, Mr. Liping Gao, Ms. Yuxiang Qi, Ms. Yanli Xu and the Initial Consortium Members entered into the New Consortium Agreement (the “New Consortium Agreement”).

 

On March 11, 2021, China Merchants Bank Co., Ltd. issued a debt commitment letter to Parent, a copy of which was provided by C&F to Hogan Lovells on March 11, 2021.

 

During the ensuing days, C&F and Hogan Lovells continued to negotiate and finalize the merger agreement and the related documentation.

  

On March 12, 2021, the Special Committee held a telephonic meeting with Hogan Lovells and Houlihan Lokey. Hogan Lovells reviewed the fiduciary duties applicable to the Special Committee in connection with the Proposed Transaction and the key terms in the merger agreement and the related transaction documents. Houlihan Lokey then presented its financial analysis to the Special Committee and provided its oral opinion, which was subsequently confirmed in writing and is attached hereto as Annex B, to the effect that, as of March 12, 2021, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth in the opinion, the $6.50 per share cash merger consideration (without interest thereon and less any required withholding taxes) to be received by the holders of Shares (other than holders of Excluded Shares), pursuant to the merger agreement was fair, from a financial point of view, to such holders (without giving effect to any impact of the merger on any particular holder of Shares other than in its capacity as a holder of Shares). Please see “Special Factors – Opinion of the Special Committee’s Financial Advisor” beginning on page 44 for additional information regarding the financial analysis performed by Houlihan Lokey and the opinion rendered by Houlihan Lokey to the Special Committee. After considering the presentations of Hogan Lovells and Houlihan Lokey, including Houlihan Lokey’s fairness opinion, and taking into account the other factors described below under the heading titled “Special Factors–Reasons for the Merger and Recommendation of the Special Committee and the Board”, the Special Committee then unanimously (a) determined that it is in the best interests of the Company and its shareholders (other than the Rollover Shareholders and their affiliates), and declared it advisable, to enter into the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, (b) approved the execution, delivery and performance of the merger agreement, the plan of merger, the articles of merger and the consummation of the transactions contemplated under the merger agreement and thereby, including the merger, and (c) resolved to recommend that the shareholders of the Company authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger (and including, without limitation, the amended and restated memorandum of association and articles of association of the surviving company in the form attached as Appendix B of the plan of merger), in each case in accordance with the BVI Business Companies Act.

 

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Following the meeting of the Special Committee, the Board convened a meeting with Hogan Lovells and Houlihan Lokey. After fully disclosing his interests in the proposed transaction (which interests are described under the heading titled “Special Factors –Interests of Certain Persons in the Merger”), the Chairman, Mr. Debao Wang and Mr. Guoan Xu left the meeting and did not participate in or vote upon any matters discussed during the meeting. The Special Committee then provided to the Board an overview of the proposed transaction and presented its recommendation to the Board. After considering the proposed terms of the merger agreement, the other transaction agreements and the unanimous determination and recommendation of the Special Committee, the Board, on behalf of the Company, (a) determined that it is in the best interests of the Company and its shareholders (other than the Rollover Shareholders and their affiliates), and declared it advisable, to enter into the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, (b) approved the execution, delivery and performance of the merger agreement, the plan of merger, the articles of merger and the consummation of the transactions contemplated under the merger agreement and thereby, including the merger, and (c) resolved to recommend that the shareholders of the Company authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger (and including, without limitation, the amended and restated memorandum of association and articles of association of the surviving company in the form attached as Appendix B of the plan of merger), in each case in accordance with the BVI Business Companies Act. See “Special Factors – Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 32 for a full description of the resolutions of the Board at this meeting.

 

Later in the evening on March 12, 2021, the Company, Parent and Merger Sub executed the merger agreement. Other transaction documents, including the limited guarantee and the rollover and support agreement were also executed on March 12, 2021. The Company then issued a press release announcing the execution of the merger agreement and the ancillary documents, and furnished the press release as an exhibit to its current report on Form 6-K.

 

Reasons for the Merger and Recommendation of the Special Committee and the Board

  

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

 

Additionally, as an SEC-reporting company, the Company’s management and accounting staff, which comprises a handful of individuals, must devote significant time to SEC reporting and compliance. The Company is also required to disclose a considerable amount of business information to the public, some of which would otherwise be considered proprietary and competitively sensitive and would not be disclosed by a non-reporting company. As a result, the Company’s actual or potential competitors, customers, suppliers, lenders and vendors all have access to this information which potentially may help them compete against us or make it more difficult for us to negotiate favorable terms with them, as the case may be.

 

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Our Board, acting upon the unanimous recommendation of the Special Committee, which the Special Committee acted with the advice and assistance of our management (other than the Chairman, Mr. Debao Wang and Mr. Guoan Xu, members of the Buyer Group, owing to their respective interests in the proposed transaction) and its financial and legal advisors, and on behalf of the Company, evaluated the merger, including the terms and conditions of the merger agreement.

 

At a meeting on March 12, 2021, the Special Committee unanimously recommended that the Company’s Board adopt resolutions that:

 

determined that it was fair (both substantively and procedurally) to and in the best interests of the Company and the unaffiliated security holders, and declared it advisable, to enter into the merger agreement and the transaction agreements contemplated by the merger agreement;

 

authorized and approved the execution, delivery and performance of the merger agreement and the transaction agreements contemplated by the merger agreement and the consummation of the transactions contemplated thereby, including the merger; and

 

resolved to direct that the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the merger be submitted to a vote at an extraordinary general meeting of the shareholders with the recommendation of the Board that the shareholders of the Company authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger.

 

On March 12, 2021, the Board (other than the Chairman, Mr. Debao Wang and Mr. Guoan Xu, members of the Buyer Group, who did not attend, participate in or vote upon any matters discussed during the Board meeting, owing to their respective interests in the proposed transaction) approved and adopted the resolutions recommended by the Special Committee.

 

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

 

the current and historical market prices of the Shares, including the fact that per Share merger consideration of $6.50 representing a premium of 37.7% over the Company’s closing price of $4.72 per Share on November 27, 2020, the last trading day prior to November 30, 2020, the date that it announced that it had received a going-private proposal, and a 35.4% and 37.8% premium over the Company’s 30 and 60 trading day volume-weighted average closing prices as quoted by the NASDAQ on November 27, 2020;

 

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the possibility that it could take a considerable period of time before the trading price of the Shares would reach and sustain a per Share price equal to or greater than the per Share merger consideration of $6.50, as adjusted for present value, particularly in light of (i) the trading price of the Company’s Shares prior to announcing the receipt of the going-private proposal, and (ii) the Board’s recognition of the challenges involved in increasing shareholder value as an independent publicly traded company; (iii) the material adverse impact on the Company’s performance and operations caused by the outbreak of COVID-19 which is expected to continue throughout 2021; and (iv) the recent statement given by the chairman of the SEC and chairman of the Public Company Accounting Oversight Board warning the disclosure, financial reporting and other risks of Chinese listed companies, as well as the evolving trade tension between the U.S. and China, which are expected to lead to lower valuation of China-based companies by the U.S. stock markets;

 

the all-cash merger consideration, which will allow the unaffiliated security holders to immediately realize liquidity for their investment and provide them with a specific amount of cash consideration for their Shares;

 

the negotiations with respect to the merger consideration and the Special Committee’s determination that, following extensive negotiations with the Buyer Group and the multiple increases in the merger consideration by the Buyer Group, $6.50 per Share was the highest price that the Buyer Group would agree to pay, with the Special Committee basing its belief on a number of factors, including the duration, tenor and process of negotiations and the experience of the Special Committee’s advisors;

 

the fact that the Rollover Shareholders, who collectively own approximately 71.1% of the total outstanding Shares of the Company, have agreed, (i) to participate in the proposed transaction, (ii) to vote for the proposed transaction and vote against any competing proposal, and (iii) not to sell their respective Shares in the Company;

 

the financial analysis reviewed and discussed with the Special Committee by representatives of Houlihan Lokey, as well as the oral opinion of Houlihan Lokey to the Special Committee on March 12, 2021 (which was subsequently confirmed by delivery of a written opinion of Houlihan Lokey dated the same date) with respect to the fairness, from a financial point of view, the $6.50 per Share cash merger consideration to be received by the holders of Company’s Shares, respectively (other than holders of Excluded Shares), pursuant to the merger agreement, as of March 12, 2021, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing their opinion. Please see “Special Factors – Opinion of the Special Committee’s Financial Advisor” beginning on page 44 for additional information; The Special Committee notes that the opinion delivered by Houlihan Lokey addresses the fairness, from a financial point of view, of the $6.50 per share merger consideration to be received by holders of the Shares (other than the Excluded Shares), including the Company’s director and officer security holders (other than the Chairman, Mr. Debao Wang and Mr. Guoan Xu). These director and officer security holders who may receive consideration as a result of the merger (other than the Chairman, Mr. Debao Wang and Mr. Guoan Xu) are treated in the same way as the unaffiliated security holders in connection with the merger, and will receive the same amount of per share merger consideration as the unaffiliated security holders. The Special Committee does not believe the inclusion of these director and officer security holders (other than the Chairman, Mr. Debao Wang and Mr. Guoan Xu) in the opinion affects its ability to rely on the opinion of Houlihan Lokey as one of the factors, based on which the Special Committee determines that the merger is fair to the unaffiliated security holders. However, the Special Committee has not made any determination, nor does it intend to express any view, as to the fairness of the merger to any security holder who is an affiliate of the Company, such as the director and officer stockholders identified in the preceding sentence (including, the Rollover Shareholders). The Special Committee and the Board expressly adopted these analyses and opinions of Houlihan Lokey as their own, among other factors considered, in reaching their respective determination as to the fairness of the transactions contemplated by the merger agreement, including the merger;

 

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

 

the increased costs of regulatory compliance for public companies;

 

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

 

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

 

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

 

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

 

the belief of the Special Committee that the terms of the merger agreement, including the parties’ representations, warranties and covenants and the conditions to their respective obligations, are reasonable;

 

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

 

the absence of a financing condition in the merger agreement;

 

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

 

the fact the merger agreement provides that, in the event of a failure of the merger to be completed under certain circumstances, Parent will pay the Company a $3,000,000 termination fee and the guarantee of such payment obligation by the Guarantors;

  

the Special Committee’s belief that it was unlikely that any transaction with a third party could be completed at this time in light of the Rollover Shareholders’ express intent not to sell or offer to sell their Shares to any third party;

 

the consideration and negotiation of the merger agreement was conducted entirely under the control and supervision of the Special Committee, which consists of three independent directors, each of whom is an outside, non-employee director, and that no limitations were placed on the Special Committee’s authority.

 

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In addition, the Special Committee and the Board believed that sufficient procedural safeguards were and are present to ensure that the merger is procedurally fair to the unaffiliated security holders and to permit the Special Committee and the Board to represent effectively the interests of such unaffiliated security holders. These procedural safeguards, which are not listed in any relative order of importance, are discussed below:

 

in considering the merger with the Buyer Group, the Special Committee, which consists of three independent directors, acted solely to represent the interests of the unaffiliated security holders, and the Special Committee had independent control of the negotiations with the Buyer Group and its legal advisor on behalf of such unaffiliated security holders;

 

all of the directors serving on the Special Committee during the entire process were and are independent directors and free from any affiliation with the Buyer Group. In addition, none of such directors is or ever was an employee of the Company or any of its subsidiaries or affiliates and none of such directors has any financial interest in the merger that is different from that of the unaffiliated security holders other than (i) the directors’ receipt of board compensation in the ordinary course, (ii) Special Committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the Special Committee’s or Board’s recommendation of the merger), and (iii) the director’s indemnification and liability insurance rights under the merger agreement;

 

following its formation, the Special Committee’s independent control of the sale process with the advice and assistance of Houlihan Lokey as its financial advisor and Hogan Lovells, as its legal advisors, each reporting solely to the Special Committee;

 

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

 

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

 

the Special Committee held 13 telephonic meetings to consider and review the terms of the merger agreement and the merger;

 

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

  

the recognition by the Special Committee and the Board that, under the terms of the merger agreement, it has the ability to consider any proposal regarding a competing transaction that is reasonably likely to lead to a “superior proposal” (as defined in the merger agreement and further explained under the caption “The Merger Agreement and Plan of Merger – No Solicitation” beginning on page 83) until the date the Company’s shareholders vote upon and authorize and approve the merger agreement;

 

the ability of the Company to terminate the merger agreement in connection with a “superior proposal” or an “intervening event” (as defined in the merger agreement and further explained under the caption “The Merger Agreement and Plan of Merger – No Solicitation” beginning on page 83) subject to compliance with the terms and conditions of the merger agreement; and

 

the availability of appraisal rights to the shareholders, other than the Rollover Shareholders, who comply with all of the required procedures under the BVI Business Companies Act for exercising dissenters’ and appraisal rights, which allow such holders to seek appraisal of the fair value of their Shares as determined by independent appraisers.

 

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

 

the fact that authorization and approval of the merger agreement are not subject to approval of at least a majority of unaffiliated security holders;

 

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

 

the restrictions on the conduct of the Company’s business prior to the completion of the merger. See “The Merger Agreement and Plan of Merger – Conduct of Business Pending the Merger” beginning on page 81 for additional information;

 

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

 

the Company will be required to, under certain circumstances, pay Parent a termination fee of $1,500,000 in connection with the termination of the merger agreement;

 

the fact that Parent and Merger Sub are newly formed corporations with essentially no assets, and that the Company’s legal remedy in the event of breach of the merger agreement by Parent or Merger Sub is limited to receipt of a termination fee of $3,000,000 under certain circumstances, and that the Company may not be entitled to a termination fee at all if, among other things, the Company’s shareholders do not approve the merger agreement at the extraordinary general meeting. See “The Merger Agreement and Plan of Merger – Termination of the Merger Agreement” beginning on page 88 and “The Merger Agreement and Plan of Merger – Termination Fee” beginning on page 90 for additional information;

  

the merger agreement precludes the Company from actively soliciting alternative transaction proposals;

 

the fact that the Chairman, Mr. Debao Wang and Mr. Guoan Xu may have interests in the transaction that are different from, or in addition to, those of the unaffiliated security holders, as well as the other interests of the Company’s directors and officers in the merger. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 59 for additional information;

 

the rights of Parent under the merger agreement not to consummate the merger and/or to terminate the merger agreement if certain events that are not within the Company’s control take place, including, among other events, the occurrence of any material adverse effect or the holders of more than 20% of the outstanding Share having validly served notice of objection prior to the vote on the merger at the extraordinary general meeting;

 

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

 

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

 

the taxability of an all-cash transaction to the unaffiliated security holders.

 

The Special Committee and the Board noted that, as a result, the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, are not subject to approval by a majority of unaffiliated security holders. Nevertheless, the Special Committee and the Board believe the merger is procedurally fair to unaffiliated security holders because, among other things and in addition to all the procedural safeguards described above, (i) the majority-of-the-minority voting requirement is not customary in going-private transactions involving British Virgin Islands companies, and (ii) various safeguards and protective steps have been adopted to ensure the procedural fairness of the transactions, including without limitation (a) the Board's formation of the Special Committee and granting to the Special Committee of the authority to review, evaluate, and negotiate (and to ultimately either authorize or reject) the terms of the merger agreement, (b) the Special Committee's retention of, and receipt of advice from, unaffiliated, competent and experienced legal counsel and financial advisor, and (c) the right of the Company to evaluate bona fide, unsolicited alternative acquisition proposals that may arise between the date of the merger agreement and the Effective Time of the merger.

 

In the course of reaching its conclusion regarding the fairness of the merger to the unaffiliated security holders and its decision to recommend the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, the Special Committee considered financial analyses presented by Houlihan Lokey as an indication of the going concern value of the Company. These analyses included, among others, an illustrative selected public companies analysis and a discounted cash flow analysis. The Special Committee and the Board noted that the financial analyses performed by Houlihan Lokey relied only on a discounted cash flows analysis while also presenting information with respect to selected companies for illustrative purposes. The Special Committee and the Board also noted Houlihan Lokey’s view that the results derived from the selected companies analysis and selected transactions analysis do not provide a meaningful comparison to the Company because (i) there were not a sufficient number of meaningfully comparable companies to the Company to serve as a basis of comparison for the selected companies analysis, and (ii) there were not a sufficient number of transactions involving target companies that were meaningfully comparable to the Company for the selected transactions analysis. After reviewing the information with respect to selected companies presented by Houlihan Lokey and making inquiries about the availability of comparable companies and transactions for which financial information was publicly available, the Special Committee and the Board concluded that the results derived from the selected company analysis and selected transactions analysis would not provide a meaningful comparison to the Company. The Special Committee and the Board adopted Houlihan Lokey’s financial analyses as a whole, including its determinations that the selected companies analysis and transactions analysis did not result in meaningful comparisons with respect to the Company and the merger. All of the material analyses as presented to the Special Committee on March 12, 2021 are summarized below under the caption “Special Factors – Opinion of the Special Committee’s Financial Advisor” beginning on page 44. The Special Committee expressly adopted these analyses and the opinion of Houlihan Lokey, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the merger agreement, including the merger.

 

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Neither the Special Committee nor the Board considered the liquidation value of Company’s assets because each considers the Company to be a viable going concern business where value is derived from cash flows generated from its continuing operations. In addition, the Special Committee and the Board believe that the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going concern value on the following grounds: (i) the realization of value in a liquidation would involve selling many distinct operating entities and such a process would likely be complex and time consuming, as buyers for each asset would need to be found, agreements negotiated and various regulatory approvals would be required, which might delay or impede such a process, (ii) a liquidation of some (but not all) assets would risk leaving unattractive, orphaned assets that would be difficult to monetize, (iii) the tax implications in a liquidation are difficult to quantify, and could be significant relative to a sale of the Company as a going concern, (iv) neither the Special Committee nor the Board were aware of any precedents of U.S.-listed PRC companies liquidating their entire business and returning the proceeds to shareholders and (v) liquidation value analysis does not take into account any value that may be attributed to the Company’s ability to build and attract new business.

 

Each of the Special Committee and the Board believes the analyses and additional factors it reviewed provided an indication of the Company’s going concern value. The Board and management of the Company have been dedicated to maximizing shareholder value. Taking into account the historical trading prices of Shares and the current condition of the U.S. stock market, each of the Special Committee and the Board believes that the per Share merger consideration offered by the Buyer Group appropriately reflects the intrinsic present value of Shares, while allowing sufficient potential for future growth to attract the Buyer Group to enter into the merger agreement and complete the merger. Each of the Special Committee and the Board also considered the purchase prices paid in previous purchases as described under the caption “Transactions in the Shares” beginning on page 96. Neither the Special Committee nor the Board considered the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the shareholders of the Company, as a factor. The Special committee and the Board believe that net book value is not a material indicator of the value of the Company as a going concern. The Company’s net book value per Share as of June 30, 2020 was $4.05, based on the 18,329,600 issued and outstanding Shares as of June 30, 2020. Net book value does not take into account the future prospects of the Company, market conditions, trends in the industry related to e-commerce and financial services business process outsourcing or the business risks inherent in competing with other companies in that industry. The Company is not aware of any firm offers made by any unaffiliated person, other than the filing persons, during the past two years for (i) the merger or consolidation of the Company with or into another company, or vice-versa; (ii) the sale or other transfer of all or any substantial part of the assets of the Company; or (iii) a purchase of the Company’s securities that would enable the holder to exercise control of the Company.

  

In reaching its determination that the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, including the merger, are fair to and in the best interests of the Company and the unaffiliated security holders and its decision to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, including the merger, and recommend the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, including the merger, by the Company’s shareholders, the Board, on behalf of the Company, considered the analysis and recommendation of the Special Committee and the factors examined by the Special Committee as described above under this section and under “Special Factors – Background of the Merger,” and adopted such recommendations and analysis. During its consideration of the merger agreement, the plan of merger and the consummation of the transactions, including the merger, the Board was also aware that some of the Company’s directors and shareholders, including the Chairman, and other employees of the Company, have interests with respect to the merger that are, or may be, different from, or in addition to those of the unaffiliated security holders generally, as described under the section entitled “Special Factors —Interests of Certain Persons in the Merger” beginning on page 59.

 

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For the foregoing reasons, each of the Company and the Board believes that the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, including the merger, are substantively and procedurally fair to and in the best interests of the Company and the unaffiliated security holders.

 

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

 

Under SEC rules governing “going private” transactions, each member of the Buyer Group is deemed to be an affiliate of the Company and is required to express its beliefs as to the fairness of the merger to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act. Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Buyer Group as to the fairness of the merger are not intended to be and should not be construed as a recommendation to any shareholder of the Company as to how to vote on the proposal to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions, including the merger. The Buyer Group has interests in the merger that are different from, and/or in addition to, those of the unaffiliated security holders of the Company by virtue of its continuing interests in the surviving company after the consummation of the merger. These interests are described under the caption “— Interests of Certain Persons in the Merger —Interests of the Buyer Group” beginning on page 59.

 

The Buyer Group believes that the interests of the Company’s unaffiliated security holders were represented by the Special Committee, which negotiated the terms and conditions of the merger agreement with the assistance of its legal and financial advisors. The Buyer Group did not participate in the deliberations of the Special Committee regarding, and did not receive any advice from the Special Committee’s advisors as to, the fairness of the merger to the Company’s unaffiliated security holders. The Buyer Group attempted to negotiate a transaction that would be most favorable to it, and not to the Company’s unaffiliated security holders and, accordingly, did not negotiate the merger agreement with a goal of obtaining terms that were substantively and procedurally fair to such holders. The members of the Buyer Group did not perform, or engage a financial advisor to perform, any special valuation or other analysis to assist them in assessing the substantive and procedural fairness of the merger consideration to the Company’s unaffiliated security holders.

  

Based on their knowledge and analysis of available information regarding the Company, as well as discussions with the Company’s management regarding the Company and its business, and the factors considered by, and the conclusions of, the Special Committee and the Board discussed in “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 32, the Buyer Group believes the merger is both substantively and procedurally fair to the Company’s unaffiliated security holders based upon the following factors, which are not listed in any relative order of importance:

 

in considering the merger with the Buyer Group, the Special Committee, which consists of three independent directors, acted solely to represent the interests of the unaffiliated security holders, and the Special Committee had independent control of the negotiations with the Buyer Group and its legal advisor on behalf of such unaffiliated security holders;

 

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all of the directors serving on the Special Committee during the entire process were and are independent directors and free from any affiliation with the Buyer Group. In addition, none of such directors is or ever was an employee of the Company or any of its subsidiaries or affiliates and none of such directors has any financial interest in the merger that is different from that of the unaffiliated security holders other than (i) the director’s receipt of board compensation in the ordinary course, (ii) Special Committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the Special Committee’s or Board’s recommendation of the merger), and (iii) the director’s indemnification and liability insurance rights under the merger agreement;

 

the Special Committee retained and was advised by legal and financial advisors experienced in assisting committees such as the Special Committee in similar transactions;

 

neither the Special Committee nor the Board had any obligation to recommend authorization or approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, including the merger, or any other transaction;

 

the current and historical market prices of the Shares, including the fact that per Share merger consideration of $6.50 representing a premium of 37.7% over the Company’s closing price of $4.72 per Share on November 27, 2020, the last trading day prior to November 30, 2020, the date that it announced that it had received a going-private proposal, and a 35.4% and 37.8% premium over the Company’s 30 and 60 trading day volume-weighted average closing prices as quoted by the NASDAQ on November 27, 2020;

 

the fact that the merger consideration is all cash, which provides a specific amount of cash consideration for Share held by, and liquidity to, unaffiliated security holders and allows the unaffiliated security holders not to be exposed to risks and uncertainties relating to the prospects of the Company;

 

the fact that the Special Committee received from its financial advisor an opinion, dated March 12, 2021, as to the fairness, from a financial point of view and as of such date, of the per Share merger consideration to be received by holders of Shares (other than holders of Excluded Shares);

 

the fact that, under the terms of the merger agreement, the Company has the ability to consider any proposal regarding a competing transaction that is reasonably likely to lead to a “superior proposal” (as defined in the merger agreement and further explained under the caption “The Merger Agreement and Plan of Merger – No Solicitation” beginning on page 83) until the date the Company’s shareholders vote upon and authorize and approve the merger agreement;

  

the ability of the Company to terminate the merger agreement in connection with a “superior proposal” (as defined in the merger agreement and further explained under the caption “The Merger Agreement and Plan of Merger – No Solicitation” beginning on page 83) subject to compliance with the terms and conditions of the merger agreement;

 

the availability of dissenter rights to the shareholders, other than the Rollover Shareholders, who comply with all of the required procedures under the BVI Business Companies Act for exercising dissenter rights, which allow such holders to receive the fair value of their Shares as determined by the independent appraisers;

 

the fact that the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the merger is subject to approval by a resolution approved by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the shareholders holding the Shares were present at the extraordinary general meeting of the shareholders or an adjournment thereof in person or by proxy and being Shares in respect of which the votes were voted in accordance with the BVI Business Companies Act and the memorandum and articles of the Company;

 

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that the Board was fully informed about the extent to which the interests of the Rollover Shareholders in the merger differed from those of the Company’s unaffiliated security holders; and

 

the fact that none of the directors related to the Rollover Shareholders or the management of the Company participated in or sought to influence the deliberative process of the Special Committee.

 

The Buyer Group did not consider the Company’s net book value, which is defined as total assets minus total liabilities, as a factor because it believed that net book value is not a material indicator of the Company’s value as a going concern.

 

In its consideration of the fairness of the proposed merger, the Buyer Group did not undertake an appraisal of the assets of the Company to determine the Company’s liquidation value for the Company’s unaffiliated security holders due to the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, since it considered the Company to be a viable going concern where value is derived from cash flows generated from its continuing operations, and because the Company will continue to operate its business following the merger.

 

The Buyer Group did not seek to establish a pre-merger going concern value for the Company’s Shares to determine the fairness of the merger consideration to the Company’s unaffiliated security holders because following the merger the Company will have a significant different capital structure. However, to the extent the pre-merger going concern value was reflected in the pre-announcement price of the Company’s Shares, the merger consideration represented a premium to the going concern value of the Company.

 

The Buyer Group believes that the merger is procedurally fair to the Company’s unaffiliated security holders, notwithstanding the fact that the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, are not subject to the approval by a majority of unaffiliated security holders, in view of (i) the majority-of-the-minority voting requirement is not required under the BVI Business Companies Act, and is not customary in going-private transactions involving British Virgin Islands companies; (ii) the Special Committees approval of the terms of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger; (iii) the merger agreement, the plan of merger and the consummation of the merger and the other transactions relating thereto, have been approved by all of the directors who are neither employees of the Company nor affiliated to Buyer Group; and (iv) the fact that the Special Committee received an opinion from Houlihan Lokey regarding the fairness, from a financial point of view, of the per Share merger consideration to the Company’s unaffiliated security holders.

 

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Certain Financial Projections

 

The Company’s management does not, as a matter of course, make available to the public financial projections. However, in connection with Houlihan Lokey’s financial analysis of the consideration to be paid in the merger, the Company’s management provided financial projections for the fiscal year ending December 31, 2020 through the fiscal year ending December 31, 2025 (the “Management Projections”) to Houlihan Lokey, as the financial advisor to the Special Committee, on January 11, 2021. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the Company’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of the Company.

   

   Management Projections 
   Fiscal Year Ending December 31, 
   2020E   2021E   2022E   2023E   2024E   2025E 
   (in RMB million except percentage) 
Net revenue   1,637.4    1,911.8    2,110.3    2,269.4    2,368.1    2,439.8 
Growth rate   36.7%   16.8%   10.4%   7.5%   4.3%   3.0%
                               
Cost of revenues   1,216.4    1,485.2    1,655.2    1,806.4    1,906.6    1,988.7 
                               
Gross profit   421.0    426.6    455.1    463.0    461.4    451.1 
% margin   25.7%   22.3%   21.6%   20.4%   19.5%   18.5%
                               
Total operating expenses   245.6    275.3    304.5    327.9    348.6    370.7 
                               
Depreciation & amortization   29.3    26.8    30.1    32.9    40.8    53.5 
                               
EBITDA   204.7    178.1    180.8    168.0    153.6    133.9 
% margin   12.5%   9.3%   8.6%   7.4%   6.5%   5.5%
                               
Income from operations   175.4    151.3    150.7    135.1    112.8    80.4 
% margin   10.7%   7.9%   7.1%   6.0%   4.8%   3.3%
                               
Total other income   15.0    10.0    5.0    3.0    2.0    0.0 
                               
Income before provision for income taxes   190.4    161.3    155.7    138.1    114.8    80.4 
                               
Income tax provisions   28.6    24.2    23.4    20.7    17.2    12.1 
                               
Net Income   161.8    137.1    132.3    117.4    97.6    68.4 
% margin   9.9%   7.2%   6.3%   5.2%   4.1%   2.8%

  

For the reasons discussed in this proxy statement, including the bases and assumptions on which the financial projections and forecasts were compiled, the inclusion of specific portions of the financial projections and forecasts in this proxy statement should not be regarded as an indication that the Company, the Special Committee and its advisors or the Board considers such financial projections or forecasts to be an accurate prediction of future events, and the projections and forecasts should not be relied on as such an indication. No one has made any representation to any shareholders of the Company or anyone else regarding the information included in the financial projections and forecasts discussed above.

 

The financial projections and forecasts included in this proxy statement should not be considered in isolation or in lieu of the Company’s operating and other financial information prepared in accordance with U.S. GAAP.

 

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NONE OF THE COMPANY OR ITS AFFILIATES, ADVISORS, OFFICERS, DIRECTORS OR REPRESENTATIVES HAS MADE OR MAKES ANY REPRESENTATION TO ANY SHAREHOLDER OR OTHER PERSON REGARDING THE ULTIMATE PERFORMANCE OF THE COMPANY COMPARED TO THE INFORMATION CONTAINED IN THE PROJECTIONS OR THAT PROJECTED RESULTS WILL BE ACHIEVED.

 

BY INCLUDING IN THIS PROXY STATEMENT A SUMMARY OF ITS INTERNAL FINANCIAL PROJECTIONS, THE COMPANY UNDERTAKES NO OBLIGATIONS TO UPDATE, OR PUBLICLY DISCLOSE ANY UPDATE TO, THESE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THESE PROJECTIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE SHOWN TO BE IN ERROR OR CHANGE, EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL SECURITIES LAW.

 

The financial projections are forward-looking statements. For information on factors which may cause the Company’s future financial results to materially vary, please see “Cautionary Note Regarding Forward-Looking Statements” beginning on page 98, and “Item 3. Key Information— D. Risk Factors” included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2020, incorporated by reference into this proxy statement.

 

Opinion of the Special Committee’s Financial Advisor

 

The Special Committee retained Houlihan Lokey to act as its financial advisor in connection with the merger, and on March 12, 2021, Houlihan Lokey rendered its oral opinion, which it subsequently confirmed in writing, to the Special Committee as to the fairness, from a financial point of view, of the per Share merger consideration to be received by the Unaffiliated Shareholders in the merger pursuant to the Merger Agreement and the Plan of Merger, as of the date of such opinion, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by Houlihan Lokey in preparing its opinion.

 

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

 

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

 

reviewed the draft dated March 12, 2021 of the merger agreement and plan of merger by and among Parent, Merger Sub and the Company;
  
reviewed certain publicly available business and financial information relating to the Company that Houlihan Lokey deemed to be relevant;
  
reviewed certain information relating to the historical, current and future operations, financial condition and prospects of the Company made available to Houlihan Lokey by the Company, including Management Projections (and adjustments thereto) prepared by the management of the Company;
  
spoke with certain members of the management of the Company regarding the respective businesses, operations, financial condition and prospects of the Company, the merger and related matters;
  
compared the financial and operating performance of the Company with that of other public companies that Houlihan Lokey deemed to be relevant;
  
reviewed the current and historical market prices and trading volume for certain of the Company’s publicly traded securities, and the current and historical market prices and trading volume of the publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant;
  
reviewed certificates and/or confirmation emails addressed to Houlihan Lokey from senior management of the Company which contained, among other things, representations regarding the accuracy of the information, data and other materials (financial or otherwise) provided to, or discussed with, Houlihan Lokey by or on behalf of the Company; and
  
conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate.

 

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In giving its opinion, Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, management of the Company advised Houlihan Lokey, and Houlihan Lokey assumed, that the Management Projections (and adjustments thereto) reviewed by it were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of the Company and the other matters covered thereby, and Houlihan Lokey expressed no opinion with respect to such projections or the assumptions on which they were based. Houlihan Lokey relied upon and assumed, without independent verification, that there had been no change in the businesses, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would be material to its analyses or its opinion, and that there was no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading. In addition, management of the Company advised Houlihan Lokey, and Houlihan Lokey assumed without independent verification, that the management of the Company expected certain regulations in China related to the payment of social insurance benefits for its employees would be more strictly enforced over the next few years and therefore the Management Projections provided by the management of the Company assumed increasing compliance over the forecast with full compliance assumptions reached in 2025. The credit, financial and stock markets have recently been experiencing unusual volatility and Houlihan Lokey expressed no opinion or view as to any potential effects of such volatility on the merger, and its opinion did not purport to address potential developments in any such markets. In addition, Houlihan Lokey expressed no view as to, and its opinion did not address, foreign currency exchange risks (if any) associated with the merger, the Management Projections or otherwise.

  

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

 

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

 

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

 

Houlihan Lokey’s opinion was furnished for the use of the Special Committee (in its capacity as such) in connection with the Special Committee’s evaluation of the merger, and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion was not intended to be, and did not constitute, a recommendation to the Special Committee, the Board, any security holder, or any other party as to how to act or vote with respect to any matter relating to the merger or otherwise. Houlihan Lokey has consented to the inclusion in the Schedule 13E-3 and this proxy statement of its opinion in its entirety and the description thereof and the related disclosure content.

 

The discussion materials (the “Discussion Materials”), as set out in Exhibit (c)-(2) and Exhibit (c)–(3) to the Schedule 13E-3, were prepared by Houlihan Lokey for the information of the Special Committee in connection with the Special Committee’s consideration of the merger. Subject to the assumptions and qualifications set forth in the Discussion Materials, the Unaffiliated Shareholders may rely upon the information disclosed in the Discussion Materials. Houlihan Lokey has consented to the inclusion of the Discussion Materials in its entirety as exhibits to the Schedule 13E-3.

 

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

 

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

 

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

 

Financial Analyses

  

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

 

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The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with the preparation of its opinion and reviewed with the Special Committee on March 12, 2021. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey.

 

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

 

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

 

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

 

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

 

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

 

Discounted Cash Flow Analysis. Houlihan Lokey performed a discounted cash flow analysis of the Company by calculating the estimated net present value of the projected unlevered, after-tax free cash flows of the Company based on the Management Projections. Houlihan Lokey calculated terminal values for the Company by applying a range of terminal value Adjusted EBITDA multiples of 4.0x to 6.0x to the Company’s 2025 Adjusted EBITDA. The net present values of the Company’s projected future cash flows and terminal values were then calculated using discount rates ranging from 15.0% to 20.0%, which was derived based on certain financial metrics, including betas, capital structures and tax rates for the Company and the selected companies as presented in Houlihan Lokey’s discussion materials for the Special Committee, as well as risk-free rates for the U.S. and China, and size premium data as provided by third party sources. The discounted cash flow analysis indicated an implied per Share reference range of $5.87 to $7.61 per Share, as compared to per Share merger consideration of $6.50.

  

Houlihan Lokey was engaged by the Special Committee to act as its financial advisor in connection with the merger and provide financial advisory services to the Special Committee, including an opinion as to the fairness from a financial point of view of the per Share merger consideration to be received by the Unaffiliated Shareholders. The Special Committee engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to provide financial advisory services in connection with mergers and acquisitions, financings, and financial restructurings. Pursuant to its engagement by the Special Committee, Houlihan Lokey is entitled to a fixed fee of US$400,000, US$200,000 of which was payable within seven business days upon execution of Houlihan Lokey’s engagement letter, US$200,000 of which became payable upon the earlier of the execution of Merger Agreement or the delivery of Houlihan Lokey’s opinion. No portion of Houlihan Lokey’s fee is contingent upon any conclusions set forth in Houlihan Lokey’s opinion. The Company has also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates, and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws, arising out of or related to Houlihan Lokey’s engagement.

 

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

 

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

 

Buyer Group’s Purpose of and Reasons for the Merger

  

Under SEC rules governing “going private” transactions, each member of the Buyer Group is deemed to be engaged in a “going private” transaction and is required to express its reasons for the merger to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act. Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. For the Buyer Group, the purpose of the merger is to enable Parent to acquire 100% control of the Company, in a transaction in which unaffiliated holders of the Shares will be cashed out in exchange for $6.50 per share, without interest and net of any applicable withholding taxes, so Parent will bear the rewards and risks of the sole ownership of the Company after all of the Shares are cancelled, including any increases in value of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses.

 

The Buyer Group believes the operating environment has changed in a significant manner since the Company’s initial public offering. There is greater domestic competition in the businesses in which the Company operates. These changes have increased the uncertainty and volatility inherent in the business models of companies similar to the Company. As a result, the Buyer Group is of the view that there is potential for considerably greater short- and medium-term volatility in the Company’s earnings. Responding to current market challenges will require tolerance for volatility in the performance of the Company’s business and a willingness to make business decisions focused on improving the Company’s long-term profitability. The Buyer Group believes that these strategies would be most effectively implemented in the context of a private company structure. As a privately held entity, the Company’s management will have greater flexibility to focus on improving long-term profitability without the pressures exerted by the public market’s valuation of the Company and its emphasis on short-term period-to-period performance.

 

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Further, 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 Sarbanes-Oxley Act of 2002.

 

The Buyer Group decided to undertake the “going private” transaction at this time because it wants to take advantage of the benefits of the Company being a privately held company as described above. In the course of considering the “going private” transaction, the Buyer Group did not consider alternative transaction structures because the Buyer Group believed the merger was the most direct and effective way to enable the Buyer Group to acquire ownership and control of the Company.

 

Effect of the Merger on the Company

 

Private Ownership

 

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

 

Under the terms of the merger agreement, if the merger is completed, at the Effective Time, each of the Shares, issued and outstanding immediately prior to the Effective Time, other than the Excluded Shares, will be cancelled in exchange for the right to receive $6.50 in cash per Share without interest and net of any applicable withholding taxes. The Excluded Shares other than Dissenting Shares will be cancelled for no consideration. The Dissenting Shares will be cancelled for their fair value determined in accordance with the BVI Business Companies Act.

 

In addition, at the Effective Time, the Company will terminate the Share Incentive Plan and any relevant award agreements entered into under the Share Incentive Plan.

 

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

 

If the merger is completed, the current memorandum and articles of association of the Company will be replaced in its entirety by the memorandum and articles of association in the form attached as Appendix B to the plan of merger (which is substantially the form of the memorandum and articles of association of Merger Sub, as in effect prior to the completion of the merger, except that at the Effective Time, the memorandum and articles of association shall refer to the name of the surviving company as “China Customer Relations Centers, Inc.”). In addition, the director(s) of Merger Sub immediately prior to the effective time (identified below in “Annex D – Directors and Executive Officers of each Filing Person”) will become the director(s) of the surviving company and the officers of the Company immediately prior to the effective time will become the officers of the surviving company.

 

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Primary Benefits and Detriments of the Merger

 

The primary benefits of the merger to the unaffiliated security holders include, without limitation, the following:

 

the receipt by such security holders of $6.50 per Share in cash, representing a premium of 37.7% over the Company’s closing price of $4.72 per Share on November 27, 2020, the last trading day prior to November 30, 2020, the date that it announced that it had received a going-private proposal, and a premium of 37.8% over the 60 trading day volume-weighted average trading price prior to November 30, 2020; and

 

the avoidance of the risk associated with any possible decrease in the Company’s future revenues and free cash flow, growth or value, and the risks related to the Company’s substantial leverage, following the merger.

 

The primary detriments of the merger to the unaffiliated security holders include, without limitation, the following:

 

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

 

in general, for a U.S. Holder (as defined under “Special Factors – Material U.S. Federal Income Tax Consequences”), the receipt of cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under other applicable tax laws. As a result, a U.S. Holder (as defined under “Special Factors – Material U.S. Federal Income Tax Consequences”) of the Shares who receives cash in exchange for all of such U.S. Holder’s Shares in the merger generally will be required to recognize gain or loss equal to the difference, if any, between the amount of cash received and such U.S. Holder’s aggregate adjusted tax basis in such Shares.

  

The primary benefits of the merger to the Company’s directors and executive officers (other than the Chairman) include, without limitation, the following:

 

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

 

the monthly compensation of RMB5,000 (equivalent to US$775) of members of the Special Committee in exchange for their services in such capacity (or, in the case of the chairman of the Special Committee, monthly compensation of RMB10,000 (equivalent to US$1,549)) (the payment of which is not contingent upon the completion of the merger or the Special Committee’s or the board’s recommendation of the merger); and

 

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

 

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The primary detriments of the merger to the Company’s directors and executive officers (other than the Chairman, Mr. Debao Wang and Mr. Guoan Xu) include, without limitation, the following:

 

certain directors and officers, to the extent and in their capacity as shareholders of the Company, will no longer benefit from possible increases in the future revenues and free cash flow, growth or value of the Company or payment of dividends on the Shares, if any; and

 

in general, the receipt of cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under other applicable tax laws.

 

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

 

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

 

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

 

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

 

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

 

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

  

there will be a reduction of the costs and administrative burden associated with operating the Company as a U.S. publicly traded company, including the costs associated with regulatory filings and compliance requirements. In 2021, such costs that would be reduced as a result of the Company no longer being publicly listed totaled approximately $600,000 and included, but were not limited to, (i) fees and expenses related to Sarbanes-Oxley compliance and valuation services, (ii) fees and expenses of U.S. securities counsel and investor relations firm, (iii) printing costs and (iv) and directors’ and officers’ liability insurance. Such cost savings will directly benefit the Buyer Group following the closing, and will be recurring in nature if and for so long as the Company remains private.

 

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

 

all of the risk of any possible decrease in the Company’s revenues, free cash flow or value following the merger will be borne by the Buyer Group;

 

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

 

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

 

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an equity investment in the surviving company by the Buyer Group following the merger will involve substantial risk resulting from the limited liquidity of such an investment; and

 

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

 

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

 

Following consummation of the merger, Parent will own 100% of the issued shares of the Company and will have a corresponding interest in our net book value and net earnings.

 

Our net income attributable to our shareholders as of and for the year ended December 31, 2020 was approximately $24,860,799 and our net tangible book value as of and for the year ended December 31, 2020 was approximately $95,515,798.

 

The Table below sets out the direct or indirect interest in the Company’s net earnings and net tangible book value for the Rollover Shareholders before and immediately after the merger, based on the historical net tangible book value and net earnings of the Company as of and for the year ended December 31, 2020.

 

    Ownership Prior to the Merger(1)     Ownership After the Merger(2)  
    Earnings     Net Tangible Book Value     Earnings     Net Tangible Book Value  
Name   $’000     %     $’000     %     $’000     %     $’000     %  
Rollover Shareholders     17,666.6       71.1       67,875.4       71.1       24,860.8       100.0       95,515.8       100.0  
                                                                 

 

(1)Ownership percentages are based on 18,329,600 Shares issued and outstanding as of the date of this proxy statement.

 

(2)Ownership percentages are subject to adjustment pursuant to the terms and conditions of the merger agreement and the Support Agreement and are on a fully diluted basis.

 

Plans for the Company after the Merger

  

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

 

Other than as described in this proxy statement and transactions already under consideration by the Company, there are no present plans or proposals that relate to or would result in any of the following:

 

an extraordinary corporate transaction involving the Company’s corporate structure, business, or management, such as a merger, reorganization, liquidation, relocation of any material operations;

 

sale or transfer of a material amount of assets; or

 

any other material changes in the Company’s business.

 

However, the Buyer Group will continue to evaluate the Company’s entire business and operations from time to time, and may propose or develop plans and proposals which they consider to be in the best interests of the Company and its equity holders, including the disposition or acquisition of material assets, alliances, joint ventures, and other forms of cooperation with third parties or other extraordinary transactions, including the possibility of relisting the Company or a substantial part of its business on another stock exchange.

 

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Alternatives to the Merger

 

The Board did not independently determine to initiate a process for the sale of the Company. The Special Committee was formed on November 28, 2020, in response to the receipt of the going-private proposal letter from the Buyer Group (which at that time comprised of the Guarantors and their respective affiliated entities) on November 27, 2020. In light of (i) the Buyer Group’s intention to work together exclusively in pursuit of any acquisition of the Company and its combined beneficial ownership of approximately 71.1% of the total issued and outstanding Shares (as of the dates of this proxy statement), (ii) no attempt was made to contact third parties who might otherwise consider an acquisition of the Company, and (iii) since the Company’s receipt of the proposal letter from the Buyer Group (which at that time comprised of the Guarantors and their respective affiliated entities) on November 30, 2020, the Company has not received any actionable offer from any third party for (a) a merger or consolidation of the Company with another company, (b) the sale or transfer of all or substantially all of the Company’s assets or (c) the purchase of all or a substantial portion of the Shares that would enable such person to exercise control of or significant influence over the Company, the Special Committee determined that there was no viable alternative to the proposed sale of the Company to the Buyer Group.

 

The Special Committee also took into account that, prior to the receipt of shareholder approval, the Company, subject to compliance with the terms and conditions of the merger agreement, can terminate the merger agreement in order to enter into an acquisition agreement with respect to a superior proposal, subject to the payment of a termination fee to the extent provided in the merger agreement. In this regard, the Special Committee recognized that it has flexibility under the merger agreement to respond to an alternative transaction proposed by a third party that is or is reasonably likely to result in a superior proposal, including the ability to provide information to and engage in discussions and negotiations with such party (and, if such proposal is a superior proposal, recommend such proposal to the Company’s shareholders).

  

In addition, the Special Committee also considered the alternative for the Company to remain as a public company. However, the Special Committee did not believe such options to be equally or more favorable in enhancing shareholder value, after considering factors such as the forecasts of future financial performance prepared by management, the increased costs of regulatory compliance for public companies, the challenges to the Company’s efforts to increase shareholder value as an independent publicly-traded company, and the requirement, as an SEC-reporting company, to disclose a considerable amount of business information to the public which will limit the Company’s ability to compete in the market. The Special Committee has concluded that it is more beneficial to the unaffiliated security holders to enter into the merger agreement and pursue the consummation of the transactions, including the merger, and become a private company rather than to remain a public company.

 

Effects on the Company if the Merger is not Completed

 

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

 

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Under specified circumstances in which the merger agreement is terminated, the Company may be required to pay Parent a termination fee of $1,500,000, or Parent may be required to pay the Company a termination fee of $3,000,000 (which amount is reduced to $1,500,000 if such circumstances are in connection with the failure of the condition regarding the amount of Dissenting Shares represent no less than 20% of the total outstanding Shares immediately prior to the Effective Time), in each case, as described under the caption “The Merger Agreement and Plan of Merger—Termination Fee” beginning on page 90.

 

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

 

Financing

 

The Buyer Group estimates that the total amount of funds necessary to complete the transactions contemplated under the merger agreement, including the merger, will be approximately US$34.5 million, assuming no exercise of dissenters’ rights by shareholders of the Company. This amount includes the cash to be paid to the shareholders (other than the Rollover Shareholders), as well as the related costs and expenses, in connection with the merger and other transactions contemplated under the merger agreement. It does not include the value of the Excluded Shares (which includes the Rollover Shares), which will be cancelled for no consideration in the merger. For a discussion of the Rollover Shares and the transactions contemplated by the Support Agreement, please see “Special Factors—Interests of Certain Persons in the Merger—Interests of Rollover Shareholders” beginning on page 60.

 

The total amount of funds necessary to consummate the transactions contemplated under the merger agreement, including the merger, is expected to be provided through the aggregate debt financing commitments of up to US$42.0 million as set forth in the Debt Commitment Letter (as discussed below). As of the date of this proxy statement, there are no alternative financing arrangements or plans in place to obtain the funds necessary for the consummation of transactions contemplated under the merger agreement, including the merger.

 

On March 11, 2021, Parent received the Debt Commitment Letter from China Merchants Bank Co., Ltd. (the “Commitment Party”), pursuant to which and subject to the conditions set forth therein, the Commitment Party committed to arrange and provide a secured term facility of up to US$42.0 million in aggregate principal amount (the “Facility”) for Parent to finance the merger.

 

The Debt Commitment Letter shall terminate upon the earlier of (i) a notice to terminate the Debt Commitment Letter by the Commitment Party, only if (a) Parent informs the Commitment Party in writing that Parent is withdrawing the offer for the merger or is otherwise abandoning the merger; (b) the offer for the merger is rejected or the merger process of the merger is terminated; (c) the merger agreement is terminated in accordance with its terms; or (d) the Effective Time does not occur by September 30, 2021, (ii) the date falling 12 months after the date of the Debt Commitment Letter and (iii) the date on which a facility agreement is duly executed by Parent and the Commitment Party (the “Facility Agreement”).

 

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The Commitment Party’s commitments to provide the debt financing to Parent are subject to, among other things:

 

(a)execution of the Facility Agreement as soon as reasonably practicable following the issuance of the Debt Commitment Letter and in any event by or on the date falling six (6) months after the date of the Debt Commitment Letter;

 

(b)satisfaction of (or waiver by Parent) (i) all conditions precedent to the availability and funding of the Facility set out in the Debt Commitment Letter; (ii) the conditions precedent as specified in the term sheet annexed thereto; and (iii) the conditions precedent set out in the Facility Agreement; and

 

(c)after the date of the Debt Commitment Letter, it will not become unlawful for the Commitment Party (or any of its affiliates) in an applicable jurisdiction to fund and make available the Facility and perform its obligations under the Debt Commitment Letter and the Facility Agreement.

 

The Debt Commitment Letter and the commitments thereunder will not be assignable by any party thereto without the prior written consent of each other party thereto.

 

The foregoing summary of the Debt Commitment Letter does not purport to be complete and is qualified in its entirety by reference to the Debt Commitment Letter.

 

Limited Guarantee

 

Concurrently with the execution and delivery of the merger agreement, the Guarantors entered into a limited guarantee (the “Limited Guarantee”) with the Company, pursuant to which each Guarantor guaranteed, severally but not jointly, to the Company, on the terms and subject to the conditions set forth therein, the due and punctual payment, performance and discharge of its respective percentage as set forth opposite to such Guarantor’s name on Schedule A thereto (for each such Guarantor, the “Guaranteed Percentage”) of the obligations of Parent, to pay the Company (i) the Parent termination fee if and when required pursuant to Section 8.2(c) of the merger agreement and (ii) the costs and expenses actually incurred or accrued in connection with the collection under and the enforcement of Section 8.2(c) of the merger agreement if and when required pursuant to Section 8.2(d) of the merger agreement (collectively, the “Guaranteed Obligation”).

  

A Guarantor’s liability under the Limited Guarantee shall not exceed an amount equal to its Guaranteed Percentage of the Guaranteed Obligation.

 

The Limited Guarantee will terminate upon the earliest to occur of (a) the Effective Time, (b) the payment in full of the Guaranteed Obligation, (c) the termination of the merger agreement in accordance with its terms by mutual consent of Parent and the Company or under circumstances in which Parent and Merger Sub would not be obligated to pay the Parent termination fee in accordance with the merger agreement. Notwithstanding the immediately preceding parenthetical, all obligations of the Guarantors thereunder shall expire automatically three months after the termination of the merger agreement for any reason without any further obligations of the Guarantors thereunder, unless a claim for payment of the Guaranteed Obligation is made prior to the end of such three-month period.

 

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Support Agreement

 

Concurrently with the execution and delivery of the merger agreement, the Rollover Shareholders entered into the Support Agreement with Parent. Pursuant to the Support Agreement, each of the Rollover Shareholders agreed that, in connection with the consummation of the transactions contemplated by the merger agreement, he, she or it agrees to the cancellation of the Rollover Shares in accordance with the terms of the Support Agreement for no consideration at the Effective Time. Immediately prior to or simultaneously with the closing of the merger, each Rollover Shareholder will subscribe, or cause a party designated by him, her or it to subscribe, as the case may be, for a corresponding number of newly issued ordinary shares of Parent in accordance with the terms of the Support Agreement so that upon the issuance of such shares of Parent each Rollover Shareholder’s or his/her/its designee’s ownership percentage in Parent shall be based on his/her/its Rollover Shares.

 

Each Rollover Shareholder further agreed, with respect to the Rollover Shares beneficially owned by such Rollover Shareholder, to vote, (i) in favor of the authorization and approval of the merger agreement, the merger and other transactions contemplated by the merger agreement and any actions required in furtherance thereof, (ii) against any alternative acquisition proposal or any other transaction, proposal, agreement or action made in opposition to authorization and approval of the merger, (iii) against any action, agreement or transaction that is intended, that could reasonably be expected, or the effect of which could reasonably be expected, to materially impede, interface with, delay or postpone, discourage or adversely affect the transaction contemplated by the merger agreement or the performance by such Rollover Shareholder of its/his/her obligations under the Support Agreement, (iv) against any action, proposal, transaction or agreement that would reasonably be expected to result in a breach in any respect of any covenant, representation or warranty or other obligation or agreement of the Company contained in the merger agreement, or of any Rollover Shareholder contained in the Support Agreement, (v) in favor of any adjournment or postponement of the extraordinary general meeting of the Company’s shareholders as may be reasonably requested by Parent, and (vi) in favor of any matters necessary for the consummation of the transactions contemplated by the merger agreement. Subject to applicable laws, each Rollover Shareholder irrevocably appoints Parent and any designee of Parent as its/his/her proxy and attorney-in-fact in connection with the voting of the Rollover Shares beneficially owned by such Rollover Shareholder.

  

In addition, from the date of the Support Agreement until its termination, each Rollover Shareholder will not, without the prior approval of the other Rollover Shareholders, directly or indirectly, (i) sell (constructively or otherwise) or transfer any of the securities of the Company owned by such Rollover Shareholder, or enter into any contract, option or other arrangement or understanding with respect to the sale or transfer of any of the securities of the Company owned by such Rollover Shareholder, including, without limitation, through any derivative transaction that involves any of the securities of the Company owned by such Rollover Shareholder and (x) has, or would reasonably be expected to have, the effect of reducing or limiting such Rollover Shareholder’s economic interest in such securities of the Company owned by such Rollover Shareholder and/or (y) grants a third party the right to vote or direct the voting of such securities of the Company owned by such Rollover Shareholder, (ii) deposit any securities into a voting trust or enter into a voting agreement or grant any voting proxy that is inconsistent with the Support Agreement, (iii) convert or exchange, or take any action which would result in the conversion or exchange, of any of the securities of the Company owned by such Rollover Shareholder, (iv) knowingly take any action that would make any representation or warranty of such Rollover Shareholder set forth in the Support Agreement untrue or incorrect or have the effect of preventing, disabling, or delaying such Rollover Shareholder from performing any of its/his/her obligations under the Support Agreement, or (v) agree (whether or not in writing) to take any of the actions referred to in the foregoing clauses (i) through (iv).

 

The Support Agreement will terminate immediately upon the earlier to occur (a) the Effective Time, or (b) the valid termination of the merger agreement.

 

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Remedies

 

The parties to the merger agreement may be entitled to the payment of a termination fee or the grant of specific performance of the terms of the merger agreement, including an injunction or injunctions to prevent breaches of the merger agreement, in addition to any other remedy at law or equity. Specifically, the Company is entitled to seeking an injunction, specific performance or other equitable remedies to enforce Parent’s or Merger Sub’s obligation to cause the financing for the merger to be funded at the Effective Time, and shall be subject to the satisfaction of the following conditions: (i) all conditions to Parent’s and Merger Sub’s obligations to consummate the merger (other than those conditions that by their terms are to be satisfied at the Closing) have been satisfied or waived, (ii) the Company has irrevocably confirmed in writing that if the financing is funded, then it would take such actions that are within its control to cause the consummation of the transactions contemplated by the merger agreement, and (iii) the financing has not been funded and Parent and Merger Sub fail to consummate the merger.

 

While the parties may pursue both a grant of specific performance and payment of termination fee (as applicable under the merger agreement), none of them will be permitted or entitled to receive both a grant of specific performance and termination fee (or any other monetary damages).

 

Subject to the equitable remedies the parties may be entitled to as discussed above, the maximum aggregate liabilities of Parent, on the one hand, and the Company, on the other hand, for monetary damages in connection with the merger agreement are limited to the Parent termination fee of $3,000,000 and the Company termination fee of $1,500,000, respectively, and reimbursement of certain expenses accrued in the event that Company or Parent fails to pay the applicable termination fee when due and in accordance with the requirements of the merger agreement, as the case may be.

 

Interests of Certain Persons in the Merger

 

In considering the recommendation of the Special Committee and our Board with respect to the merger, you should be aware that each of the Buyer Group has interests in the transaction that are different from, and/or in addition to, the interests of our shareholders generally. The Board and Special Committee were aware of such interests and considered them, among other matters, in reaching their decisions to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, and recommend that our shareholders vote in favor of authorizing and approving the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger.

  

Interests of the Buyer Group

 

As a result of the merger, Parent will own 100% of the equity interest in the surviving company and the Buyer Group will own, directly or indirectly, 100% of the equity interest in Parent immediately following the completion of the merger. Because of Parent’s equity interest in the surviving company, each member of the Buyer Group will directly or indirectly enjoy the benefits from any future earnings and growth of the Company after the merger which, if the Company is successfully managed, could exceed the value of their original investments in the Company. The Buyer Group will also directly bear the corresponding risks of any possible decreases in the future earnings, growth or value of the Company. The Buyer Group’s investment in the surviving company will be illiquid, with no public trading market for the surviving company’s shares and no certainty that an opportunity to sell its shares in the surviving company at an attractive price, or that dividends paid by the surviving company will be sufficient to recover its investment.

 

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

 

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Interests of the Rollover Shareholders

 

Concurrently with the execution and delivery of the merger agreement, the Rollover Shareholders entered into the Support Agreement with Parent. Pursuant to the Support Agreement, at the Effective Time, the Rollover Shares will be cancelled pursuant to the merger agreement. Immediately prior to or simultaneously with the Closing, each Rollover Shareholder will subscribe, or cause any party designated by him, her or it to subscribe, as the case may be, for a corresponding number of newly issued ordinary shares of Parent in accordance with the terms of the Support Agreement.

 

Given the Company will become a privately-held company following the completion of the merger, the Rollover Shareholders’ interests in the surviving company will be illiquid, with no public trading market for the surviving company’s shares and no certainty of an opportunity to sell their beneficial interests in the surviving company at an attractive price, or that any dividends paid by the surviving company will be sufficient to recover their investment. Each of the Rollover Shareholders may also enjoy benefits from future earnings and growth of the surviving company.

 

Shares Held by Officers and Directors

 

As of the date of this proxy statement, none of the Company’s directors and executive officers (as set forth in “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 97), as a group and excluding the Chairman, Mr. Debao Wang and Mr. Guoan Xu, held of record or beneficially own any Shares or options to purchase shares.

 

At the Effective Time, the Company will terminate the Share Incentive Plan and any relevant award agreements entered into under the Share Incentive Plan.

 

The table below sets forth for each of our directors and officers:

 

the number of issued and outstanding Shares beneficially held by such person as of the date of this proxy statement;

  

the maximum amount of cash payment to be received by such person, calculated by adding the product of (i) the number of issued and outstanding Shares beneficially held by such person as of the date of this proxy statement and (ii) $6.50 per Share.

 

Name  Shares   Maximum Cash
Consideration
Upon
Completion
of the
Merger
Zhili Wang (1)   3,958,763   Nil
Debao Wang   1,069,936   Nil
Guoan Xu   122,400   Nil
Qingbo Zhao   Nil   Nil
Tianjun Zhang   Nil   Nil
Weixin Wang   Nil   Nil
Jie Xu   Nil   Nil
Owens Meng   Nil   Nil
All directors and executive officers as a group   5,151,099   Nil

   

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(1)Mr. Zhili Wang, Mr. Debao Wang and Mr. Guoan Xu will rollover all the Shares beneficially held by each of them in exchange for a right to receive the shares of Parent at the Effective Time.

 

After the completion of the merger, the maximum amount of cash payments our directors and executive officers (other than Mr. Zhili Wang, Mr. Debao Wang and Mr. Guoan Xu being members of the Buyer Group) may receive in respect of their Shares is $Nil.

 

Indemnification and Insurance

 

Pursuant to the merger agreement, it has been agreed, among other provisions, that:

 

From and after the Effective Time, the surviving company will comply with all of its obligations under the memorandum and articles of association of any Group Company to indemnify and hold harmless the present and former officers and directors thereof against all kinds of liabilities incurred in connection with any action arising out of or relating to the services performed by such officers or directors at request of the Group Company.

 

The memorandum and articles of association of the surviving company will contain provisions no less favorable with respect to exculpation and indemnification that are set forth in the memorandum and articles of association of the Company as in effect on the date of the merger agreement, which provisions will not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who, at or prior to the Effective Time, were directors or officers of the Company, unless such modification is required by law.

  

Prior to the Effective Time, to the extent practicable, the Company will, and, if the Company is unable to, Parent will cause the surviving company, as of the Effective Time to, obtain and maintain in effect for six years from the Effective Time the current directors’ and officers’ liability insurance policies maintained by the Company with respect to matters occurring at or prior to the Effective Time, with terms at least as favorable as the coverage provided under the Company’s existing policy, provided that neither Parent or the surviving company will be required to expend for such policy an annual premium in excess of 300% of the current annual premium paid by the Company.

 

The Special Committee

 

On November 28, 2020, the Board established a Special Committee to consider the proposal from the Buyer Group (which at that time comprised of the Guarantors and their respective affiliated entities) and to take any actions it deems appropriate to assess the fairness and viability of such proposal. The Special Committee is composed of independent directors Mr. Tianjun Zhang, Mr. Owens Meng and Mr. Jie Xu. All such directors are free from any affiliation with the Buyer Group, and none of such directors is or was ever an employee of the Company or any of its subsidiaries or has any financial interest in the merger that is different from that of the unaffiliated security holders other than (i) the director’s receipt of board compensation in the ordinary course, (ii) Special Committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the Special Committee’s or Board’s recommendation of the merger), and (iii) the director’s indemnification and liability insurance rights under the merger agreement. The Board did not place any limitations on the authority of the Special Committee regarding its investigation and evaluation of the merger.

 

The Company has compensated the members of the Special Committee in exchange for their service in such capacity a monthly amount of RMB5,000 (equivalent to US$775) per member (or, in the case of the chairman of the Special Committee, a monthly amount of RMB10,000 (equivalent to US$1,549), the payment of which is not contingent upon the completion of the merger or the Special Committee’s or the Board’s recommendation of the merger.

 

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Position with the Surviving Company

 

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

 

Related Party Transactions

 

The related parties had transactions for the years ended December 31, 2020, 2019 and 2018 consist of the following:

 

Name of Related Party   Nature of Relationship
Beijing Taiying Anrui Holding Co., Ltd. (“Beijing Taiying”)   Sole Shareholder
     
Guangxi Shenggu Human Resource Management Co., Ltd. (“GSHR”)   Controlled by Gary Wang (the Chairman)
     
Beijing Jiate Information Technology Co., Ltd. (“Jiate”)   Noncontrolling shareholder of HTCC prior to November 8, 2020
     
Jiangsu Sound Valley Human Resource Management Co., Ltd. (“JSVH”)   Controlled by Gary Wang (the Chairman)
     
Beijing Shenggu Education Investment Co., Ltd. (“BSEI”)   Controlled by Gary Wang (the Chairman)
     
Shenzhen Shenggu Human Resources Management Co., Ltd. (“SSHR”)   Controlled by Gary Wang (the Chairman)
     
Tai’an Taiying Wealth and Equity Investment and Management Co., Ltd. (“TWIC”)   David Wang (Mr. Debao Wang) being the legal person of TWIC

 

Significant balances and transactions with related parties are as follows:

 

   December 31,    
Name of Related Party  2020   2019   Nature of Transaction Associated with the Balance
PREPAYMENTS - RELATED PARTIES           
Beijing Taiying  $81,192   $90,429   Prepayment for services
SSHR   277,950    -   Prepayment for services
Prepayments - related parties, total  $359,142   $90,429    
              
DUE FROM RELATED PARTIES, CURRENT             
JSVH  $240,286   $-   A loan bearing annual interest of 4.35%. Loan matures on December 14, 2021.
Beijing Taiying   229,790    -   Interest-free loan payable on demand
Due from related parties, current, total  $470,076   $-    
              
DUE FROM RELATED PARTY, NON-CURRENT             
JSVH  $-   $215,307   A loan bearing annual interest rate of 4.35%
Due from related party, non-current, total  $-   $215,307    
              
ACCOUNTS PAYABLE - RELATED PARTIES             
JSVH  $18,775   $60,664   Outstanding unpaid human resource service fee
SSHR   242,015    88,994   Outstanding unpaid human resource service fee
Accounts payable - related parties, total  $260,790   $149,658    
              
EQUITY INVESTMENT             
TWIC  $1,532   $1,435   Equity investment (See Note 4)
Equity investment, total  $1,532   $1,435    

 

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Related party lease

 

BSEI leased certain office space at Zaozhuang Software and Service Industrial Park with a total area of 18,000 square meters, of which 6,500 square meters were subleased to ZSEC at a price of RMB0.5 per square meter per day, from July 1, 2018 to January 1, 2021 and the Company anticipates to renew the lease for another year. Lease expense incurred associated with the BSEI lease for the years ended December 31, 2020, 2019 and 2018 was approximately $170,000, $164,000 and $88,000, respectively. The Company does not have any outstanding balance owed to BSEI as of December 31, 2020 and 2019.

 

Related party advances

 

For the year ended December 31, 2020, the Company made RMB2 million (approximately $294,000) loan to Beijing Taiying. The loan is interest-free and due on demand. During the year ended December 31, 2020, Beijing Taiying repaid RMB500,000 (approximately $77,000) to the Company, with the remainder paid in full in January 2021.

 

For the year ended December 31, 2020, the Company made RMB617,400 (approximately $89,000) loan to SSHR. The loan is interest-free and due on demand. During the year ended December 31, 2020, SSHR repaid the loan in full.

 

The Company has adopted an audit committee charter, which requires the audit committee to review and approve all proposed related party transactions as defined in Item 404 of Regulation S-K on an ongoing basis. For a description of our related party transactions, please see “Item 7. Major Shareholders and Related Party Transactions” included in our annual report on Form 20-F for the fiscal year ended December 31, 2020, incorporated by reference into this proxy statement. Please see “Where You Can Find More Information” for a description of how to obtain a copy of our annual report.

 

Fees and Expenses

 

Fees and expenses incurred or to be incurred by the Company and the Buyer Group in connection with the merger are estimated at the date of this proxy statement and set forth in the table below. Such fees are subject to change pending completion of the merger.

 

Description  Amount 
   (US$ in ‘000) 
     
Legal fees and expenses  $975 
      
Financial advisory fees and expenses  $440 
      
Special Committee fees  $10 
      
Miscellaneous (including printing, filing fees, and mailing costs)  $22 
      
Total  $1,447 

  

These expenses will not reduce the merger consideration to be received by the Company shareholders. If the merger is completed, the party incurring any costs and expenses in connection with the merger and the merger agreement will pay those costs and expenses.

 

Voting by the Rollover Shareholders at the Extraordinary General Meeting

 

Pursuant to the Support Agreement, the Rollover Shareholders have agreed to vote all of the Shares they beneficially own in favor of the approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, at the extraordinary general meeting of the Company. As of the Share record date, the Rollover Shareholders collectively beneficially owned, in the aggregate, approximately 13,025,356 outstanding Shares, which represents approximately 71.1% of the total outstanding Shares entitled to vote.

 

Litigation Related to the Merger

 

The Company is not aware of any lawsuit that challenges the merger, the merger agreement or any of the transactions contemplated thereby.

 

Accounting Treatment of the Merger

 

The merger is expected to be accounted for, as a merger of entities under common control in accordance with Accounting Standards Codification 805-50, “Business Combinations—Related Issues.”

 

Regulatory Matters

 

The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with the merger other than (i) the approvals, filings or notices required under the federal securities laws, and (ii) the registration of the articles of merger (and supporting documentation as specified in the BVI Business Companies Act) with the Registrar of Corporate Affairs of the British Virgin Islands.

 

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Appraisal Rights

 

Please see “Appraisal Rights” beginning on page 92.

 

Material U.S. Federal Income Tax Consequences

 

The following is a discussion of U.S. federal income tax consequences to U.S. Holders (as defined below) that exchange Shares for cash pursuant to the merger agreement. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), final and temporary U.S. Treasury Regulations promulgated thereunder, the income tax treaty between the United States and the PRC (the “Treaty”), administrative pronouncements, and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis, and to differing interpretation, which may result in tax consequences different from those described below. This discussion is not binding on the U.S. Internal Revenue Service (the “IRS”), and the IRS or a court in the event of an IRS dispute may challenge any of the conclusions set forth below.

 

This discussion does not address any U.S. federal estate, gift, or other non-income tax, or any state, local, or non-U.S. tax consequences of the merger. This discussion is a summary for general information purposes only and does not consider all aspects of U.S. federal income taxation that may be relevant to particular shareholders in light of their individual investment circumstances or to certain types of shareholders subject to special tax rules, including (i) holders that are banks, financial institutions, or insurance companies, regulated investment companies, mutual funds, or real estate investment trusts, brokers or dealers in securities or currencies or traders in securities that elect to apply a mark-to-market accounting method, or tax-exempt organizations, (ii) holders that own Shares as part of a straddle, hedge, constructive sale, conversion transaction, or other integrated investment, (iii) holders that acquired Shares in connection with the exercise of employee share options or otherwise as compensation for services, (iv) holders that have a “functional currency” other than the U.S. dollar, (v) retirement plans, individual retirement accounts, or other tax-deferred accounts, (vi) U.S. expatriates, (vii) holders that are subject to alternative minimum tax, (viii) holders that actually or constructively own 10% or more of our voting stock, (ix) S corporations, (x) partnerships or other entities classified as partnerships for U.S. federal income tax purposes, or (xi) holders that dissent from the merger. This discussion assumes that Shares are held as “capital assets” (generally, property held for investment) under the Code.

 

As used herein, a “U.S. Holder” is any beneficial owner of Shares that is (i) an individual citizen or resident of the United States for U.S. federal income tax purposes, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust which (a) is subject to the primary jurisdiction of a court within the United States and for which one or more U.S. persons have authority to control all substantial decisions, or (b) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person for U.S. federal income tax purposes.

 

If a partnership (including any entity classified as a partnership for U.S. federal income tax purposes) is a beneficial owner of Shares, the U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A U.S. Holder that is a partner of a partnership holding Shares is urged to consult its own tax advisor.

 

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

 

Consequences of Participation in the Merger or an Exercise of Dissenter Rights

 

The receipt of cash, either as consideration in the merger or as a result of a U.S. Holder exercising its Dissenter Rights (as described under the section entitled “Appraisal Rights”), will be a taxable transaction for U.S. federal income tax purposes, and a U.S. Holder who so exchanges Shares for cash will generally recognize gain or loss in an amount equal to the difference between (i) the amount of cash received and (ii) such U.S. Holder’s adjusted tax basis in the Shares exchanged therefor. Subject to the discussion under “Passive Foreign Investment Company” below, such recognized gain or loss will generally be capital gain or loss, and will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the Shares exchanged is greater than one year at the Effective Time.

 

Long-term capital gains of non-corporate U.S. Holders are currently subject to U.S. federal income tax at a reduced rate. The ability to use any capital loss to offset other income or gain is subject to certain limitations under the Code. If a U.S. Holder acquired different blocks of Shares at different times and different prices, such U.S. Holder must determine the adjusted tax basis and holding period separately with respect to each such block of Shares.

 

Any gain or loss recognized by U.S. Holders will generally be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. However, in the event that we are deemed to be a PRC “resident enterprise” under the PRC tax law and gain from the disposition of Shares is regarded as gain sourced from the PRC and is subject to tax in the PRC (see “—Material PRC Income Tax Consequences”) or you are subject to PRC income tax pursuant to Bulletin 7 as described below under the “—Material PRC Income Tax Consequences,” you may be eligible to elect to treat such gain as PRC source gain under the income tax treaty between the United States and the PRC (the “Treaty”). If we are not eligible for the benefits of the Treaty or you fail to make the election to treat any gain as PRC source, then you may not be able to use the foreign tax credit arising from any PRC tax imposed on the exchange of Shares pursuant to the merger agreement unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from non-U.S. sources. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if PRC tax is imposed on gain on a disposition of the Shares, including the availability of the foreign tax credit under their particular circumstances.

 

Passive Foreign Investment Company

 

We believe that we were not a passive foreign investment company or “PFIC” for our taxable year ended December 31, 2020 or any previous taxable years, and we do not expect to be a PFIC in the current taxable year. However, our PFIC status is tested each year and is dependent on the composition of our assets and income and the value of our assets from time to time. Because we currently hold, and expect to continue to hold, a substantial amount of cash and other passive assets, and because the value of our assets is to be determined in large part by reference to the market price of our Shares, which is likely to fluctuate over time, there can be no assurance that we will not be a PFIC for 2021.

 

In general, we will be a PFIC for any taxable year in which (i) at least 75% of our gross income is passive income or (ii) at least 50% of the value of our assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). If we own, directly or indirectly, at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income. The determination of whether we are a PFIC is made annually. Our actual PFIC status for the current taxable year will not be determinable until the close of the current taxable year. As described below, the U.S. federal income tax treatment of a U.S. Holder’s disposition of Shares pursuant to the merger or exercise of Appraisal Rights will depend on whether we have been a PFIC in any taxable year in which the U.S. Holder held Shares.

 

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Disposition of Shares Pursuant to the Merger or Exercise of Appraisal Rights 

 

The receipt of cash, either as consideration in the merger or as a result of a U.S. Holder exercising its Appraisal Rights, in exchange for Shares will be a taxable transaction for U.S. federal income tax purposes, and a U.S. Holder will be taxed in the same manner as with respect to any other sale or taxable disposition of Shares, including a sale on a securities exchange. A U.S. Holder that receives cash, either as consideration in the merger or as a result of the U.S. Holder exercising its Appraisal Rights, will recognize gain or loss in an amount equal to the difference between (i) the amount of cash received and (ii) such U.S. Holder’s adjusted tax basis in the Shares exchanged therefor. If a U.S. Holder acquired different blocks of Shares at different times and different prices, such U.S. Holder must determine the adjusted tax basis and holding period separately with respect to each such block of Shares. 

 

If we are a PFIC and the U.S. Holder has not made a valid mark-to-market election, as discussed below, or we were a PFIC in a prior taxable year during which a U.S. Holder held Shares and the U.S. Holder did not make a deemed sale election when we ceased to be a PFIC, any gain recognized by a U.S. Holder on the disposition of Shares pursuant to the merger or the exercise of Appraisal Rights would be allocated ratably over such U.S. Holder’s holding period for the Shares. The amount allocated to the taxable year of the disposition and to any year before we became a PFIC would be treated as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for that year and the interest charge applicable to underpayments of tax would be imposed on the resulting tax attributable to each such year. The tax liability for amounts allocated to years prior to the year of disposition cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Shares cannot be treated as capital gains, even if a U.S. Holders holds the Shares as capital assets.

  

If a U.S. Holder has made a valid mark-to-market election with respect to its Shares, any gain the U.S. Holder recognizes would be treated as ordinary income and any loss would be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in applicable U.S. Treasury Regulations. Our Shares are traded on the NASDAQ Capital Market, or NASDAQ, which should be a qualified exchange for purposes of the applicable U.S. Treasury Regulations. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs that we own, a U.S. Holder would have continued to be subject to the PFIC rules with respect to its indirect interest in any investments held by us that are treated as equity interest in a PFIC for U.S. federal income tax purposes even if it had made a valid mark-to-market election. A timely mark-to-market election is made by filing IRS Form 8621 with an original or amended U.S. federal income tax return for the first taxable year in which a non-U.S. corporation is a PFIC and a U.S. Holder holds an equity interest in the PFIC by the due date of the return (including extensions). A U.S. Holder who directly holds our Shares, should consult its tax advisors as to the availability of a mark-to-market election and the application of the mark-to-market election to a disposition of shares pursuant to the merger or an exercise of Appraisal Rights. 

 

If we are a PFIC for the current taxable year or have been a PFIC during any prior year in which a U.S. Holder held Shares, a U.S. Holder would be required to file IRS Form 8621 (or any other form specified by the U.S. Department of the Treasury) with respect to the disposition of Shares, generally with the U.S. Holder’s federal income tax return for the year of merger. The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the applicable consequences of the merger to it if we are a PFIC or have been a PFIC during any prior year in which a U.S. Holder held Shares. 

 

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Subject to certain limitations, a U.S. person may make a “qualified electing fund” election (“QEF Election”), which serves as a further alternative to the foregoing rules, with respect to such person’s investment in a PFIC in which such person owns shares (directly or indirectly) of the PFIC. Because we did not and do not intend to provide U.S. Holders with the information needed to make such an election, the QEF election has not been and will not be available to U.S. Holders.

 

If we are not a PFIC for the current taxable year and have not been a PFIC in any previous taxable year in a U.S. Holder’s holding period for its Shares, any gain or loss recognized will be capital gain or loss, and will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the Shares exchanged is greater than one year at the Effective Time. Long-term capital gains of non-corporate U.S. Holders are currently subject to U.S. federal income tax at a reduced rate. The ability to use any capital loss to offset other income or gain is subject to certain limitations under the Code. 

 

Any gain or loss recognized by a U.S. Holder generally should be treated as U.S. source gain or loss for U.S. foreign tax credit limitation purposes. As discussed below under Material PRC Income Tax Consequences” beginning on page 68, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a PRC “resident enterprise” under the EIT Law. However, in the event that we are deemed to be a PRC resident enterprise and gain from the disposition of the Shares is subject to tax in the PRC, a U.S Holder may be eligible to treat such gain as PRC-source gain under the income tax treaty between the United States and the PRC (the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion With Respect to Taxes on Income, or the “Treaty”). If a U.S. Holder is not eligible for the benefits of the Treaty, then such U.S. Holder may not be able to use the foreign tax credit arising from any PRC tax imposed on the exchange of Shares pursuant to the merger agreement unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if PRC tax is imposed on gain on a disposition of our Shares, including the availability of the foreign tax credit under their particular circumstances.

 

Information Reporting and Backup Withholding

 

A U.S. Holder may be subject, under certain circumstances, to information reporting and backup withholding with respect to the amount of cash received in the merger. Under the backup withholding rules, a U.S. Holder may be subject to backup withholding unless the U.S. Holder is an exempt recipient and, when required, demonstrates this fact or provides a taxpayer identification number, makes certain certifications on IRS Form W-9, and otherwise complies with the applicable requirements. A U.S. Holder that does not provide its correct taxpayer identification number may also be subject to penalties imposed by the IRS.

 

Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability, if any, provided that the required procedures are followed. U.S. Holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such an exemption.

 

Certain U.S. Holders may be required to report information with respect to their investment in our Shares not held through a custodial account with a U.S. financial institution to the IRS. U.S. Holders should consult their tax advisors regarding their reporting obligation with respect to the disposition of their Shares.

 

Consequences to the Company

 

No gain or loss is expected to be recognized by the Company.

 

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Material PRC Income Tax Consequences

 

Under the PRC Enterprise Income Tax Law (the “EIT Law”), which took effect on January 1, 2008, and was amended on December 29, 2018, enterprises established outside of China whose “de facto management bodies” are located in the PRC are considered “resident enterprises,” and thus will generally be subject to the enterprise income tax at the rate of 25% on their global income. On December 6, 2007, the State Council adopted the Regulation on the Implementation of PRC Enterprise Income Tax Law, effective as of January 1, 2008, and as amended on April 23, 2019, which defines the “de facto management body” as an establishment that has substantial management and control over the business, personnel, accounts and properties of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies (“Circular 82”) on April 22, 2009, and as amended on December 29, 2017. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China. Under the EIT Law and its implementation regulations, the PRC income tax at the rate of 10% is applicable to any gain recognized on receipt of consideration by a “non-resident enterprise” from transfer of its equity in a PRC resident enterprise, provided that the “non-resident enterprise” does not have a de facto management body in the PRC and also (a) does not have an establishment or place of business in the PRC or (b) has an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business, to the extent such gain is derived from sources within the PRC. Under the Individual Income Tax Law, an individual who disposes a capital asset in China is subject to PRC individual income tax at the rate of 20%. Relief from these taxes may be sought under applicable Income Tax Treaties with China.

 

As there has not been a definitive determination of the Company’s status by the PRC tax authorities, the Company cannot confirm whether it would be considered a PRC resident enterprise under the EIT Law or whether the gain recognized on the receipt of consideration for Shares would otherwise be subject to PRC tax to holders of such Shares that are not PRC tax residents.

 

In addition, under the Bulletin on Certain Issues Relating to Indirect Transfer of Assets by Non-resident Enterprises (“Bulletin 7”) issued by the State Administration of Taxation, which became effective on February 3, 2015 and the Bulletin on the Source of Deduction of Income Tax for Non-resident Enterprises (“Bulletin 37”) issued by the State Administration of Taxation of PRC, which became effective on December 1, 2017, if a non-resident enterprise transfers PRC taxable assets indirectly by disposing of equity interests in an overseas holding company directly or indirectly holding such PRC taxable assets without any reasonable commercial purpose, the non-resident enterprise may be subject to a 10% PRC income tax on the gain from such equity transfer, unless (i) the non-resident enterprise derives income from the indirect transfer of PRC taxable assets by acquiring and selling shares of an overseas listed company which holds such PRC taxable assets on a public market or (ii) where there is an indirect transfer of PRC taxable assets, but if the non-resident enterprise had directly held and disposed of such PRC taxable assets, the income from the transfer would have been exempted from PRC enterprise income tax under an applicable tax treaty or arrangement. According to Bulletin 7, where a non-resident enterprise indirectly holds and transfers equity of a PRC resident enterprise held through an offshore holding company, a list of factors set out by Bulletin 7 should be taken into consideration to assess whether the transfer arrangement would be deemed as having a reasonable commercial purpose. Where non-resident enterprises indirectly transfer PRC resident enterprises’ equity and avoid obligations to pay enterprise income tax through arrangement without a reasonable commercial purpose, PRC taxation authorities have the power to redefine and deem the transaction as a direct transfer of PRC resident enterprises’ equity and impose a 10% income tax on the gain from such offshore share transfer. Pursuant to Bulletin 37, where the party responsible to withhold such income tax did not or was unable to withhold, and non-resident enterprises receiving such income failed to declare and pay the taxes that should have been withheld to the relevant tax authority, both the transferor and the transferee may be subject to penalties under PRC tax laws. Bulletin 37 or Bulletin 7 may be determined by the PRC tax authorities to be applicable to the merger where non-PRC resident corporate shareholders were involved, if the merger is determined by the PRC tax authorities to lack reasonable commercial purpose. The Company does not believe that the Merger is without reasonable commercial purpose for purposes of Bulletin 37 and Bulletin 7, and, as a result, the Company (as transferee and withholding agent) will not withhold any PRC tax (under Bulletin 7 and Bulletin 37) from the Merger consideration to be paid to holders of Shares. However, if PRC tax authorities were to invoke Bulletin 37 or Bulletin 7 and impose tax on the receipt of consideration for Shares, then any gain recognized on the receipt of consideration for such Shares pursuant to the merger by the Company’s non-PRC-resident shareholders could be treated as PRC-source income and thus be subject to PRC income tax at a rate of 10% (subject to applicable treaty relief).

 

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

 

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Material British Virgin Islands Tax Consequences

 

The British Virgin Islands currently has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will payable (either by direct assessment or withholding) to the government or other taxing authority in the British Virgin Islands under the laws of the British Virgin Islands in respect of the merger or the receipt of cash for our Shares under the terms of the merger. This is subject to the qualification that registration fees will be payable to the Registrar of Corporate Affairs of the British Virgin Islands to file and/or register the articles of merger, the amended and restated memorandum and articles of association of the surviving company in the form attached as Appendix B of the plan of merger) together with a copy of the resolution of the Company’s shareholders adopting the same and the updated register of directors of the surviving company.

 

MARKET PRICE OF THE SHARES, DIVIDENDS AND OTHER MATTERS

 

Market Price of the Shares

 

The following table provides the high and low sales prices for the Shares on the NASDAQ under the symbol “CCRC” for the periods indicated:

 

  

Sales Price Per Share

(in $)

 
   High   Low 
Quarterly:        
2019        
First quarter   13.5    10.09 
Second quarter   12.88    9.63 
Third quarter   16.05    8.7252 
Fourth quarter   16.14    8.6808 
2020          
First quarter   10.99    3.32 
Second quarter   6.5    4.1101 
Third quarter   5.6    3.704 
Fourth quarter   10    3.34 
2021          
First quarter   6.28    3.45 
Second quarter (through May 19, 2021)   6.32    6.01 

  

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On November 27, 2020, the last trading day immediately prior to the Company’s announcement on November 30, 2020 that it had received a preliminary going private proposal, the reported closing price of our Shares on the NASDAQ was $4.72 per Share. The merger consideration of $6.50 per Share, represents a premium of 37.7% over the closing price of $4.72 per Share on November 27, 2020, and a 35.4% and 37.8% premium over the Company’s 30 and 60 trading day volume-weighted average closing price as quoted by the NASDAQ on November 27, 2020, respectively. On May 19, 2021, the most recent practicable date before the date of this proxy statement, the high and low reported sales prices of our Shares were $6.25 and $6.17, respectively. You are urged to obtain a current market price quotation for your Shares in connection with voting your Shares.

 

Dividend Policy

 

The Company has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. The Company currently intends to retain the Company’s available funds and any future earnings to operate and expand the Company’s business.

 

Under the terms of the merger agreement, the Company is not permitted to pay any dividends (whether payable in cash, stock, property or a combination thereof) with respect to any of its shares (other than dividends paid by a Company Subsidiary to the Company or to any other Company Subsidiary wholly-owned by Company) or repurchase any of the Shares pending consummation of the merger.

 

In the event the merger agreement is terminated for any reason and the merger is not consummated, the payment of future dividends will be subject to the discretion of the Board. Even if the Board decides to pay dividends, the form, frequency and amount will depend upon the Company’s future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board may deem relevant. Cash dividends on the Shares, if any, will be paid in U.S. dollars.

 

We are a holding company incorporated in the British Virgin Islands. We rely substantially on dividends from our subsidiaries in the PRC to fund our payment of dividends, if any, to our shareholders. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside a certain amount of its accumulated after-tax profits, if any, based on PRC accounting standards each year to their general reserves until the accumulative amount of such reserves reach a certain percent of their registered capital, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Further, if our subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Cash transfers from our PRC subsidiaries to us are subject further to the PRC government’s foreign exchange control policy, and our PRC subsidiaries may not be able to obtain the relevant approvals or complete the requisite registrations for distributing dividends to us. Any failure by any of the Company’s shareholders or any beneficial owner of Shares who is a PRC resident to comply with the approval or registration requirements imposed by the State Administration of Foreign Exchange with respect to their investment in us could also subject us to legal sanctions, including a restriction on our PRC subsidiaries’ ability to distribute dividends to us. Furthermore, the EIT Law eliminates the exemption of enterprise income tax on dividends derived by foreign investors from foreign invested enterprises and imposes on our subsidiaries in China an obligation to withhold tax on dividend distributions to their non-PRC shareholders, provided that such non-PRC shareholders are not classified as resident enterprises.

 

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THE EXTRAORDINARY GENERAL MEETING

 

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

 

Date, Time and Place of the Extraordinary General Meeting

 

The extraordinary general meeting will be held on June 18, 2021, at 9:00 a.m. (Beijing Time) at the Company’s office at 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China.

 

Proposals to be Considered at the Extraordinary General Meeting

 

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

 

THAT the agreement and plan of merger, dated as of March 12, 2021 (the “merger agreement”) among the Company, Parent and Merger Sub (such merger agreement being in the form attached as Annex A to this proxy statement, which will be produced and made available for inspection at the extraordinary general meeting), the plan of merger (such plan of merger being substantially in the form attached to the merger agreement and which will be produced and made available for inspection at the extraordinary general meeting) and the articles of merger and among the Company and Merger Sub required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands for the purposes of the merger and any and all transactions contemplated by the merger agreement, including the merger (the “merger”) and the amendment and restatement of the existing memorandum and articles of association of the Company by their deletion in their entirety and the substitution in their place of a new memorandum and articles of association at the effective time of the merger, a copy of which is attached as Appendix B to the plan of merger, be authorized and approved;

 

THAT each of the members of the Special Committee be authorized to do all things necessary to give effect to the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger; and

 

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

 

If the merger is completed, at the Effective Time, each outstanding Share, other than (a) the Shares beneficially owned by the Rollover Shareholders (the “Rollover Shares”), (b) the Shares owned by Parent, Merger Sub, the Company (as treasury, if any) or any of their respective subsidiaries immediately prior to the Effective Time, (c) the Shares reserved (but not yet allocated) by the Company for settlement upon exercise or vesting of Company Share Awards immediately prior to the Effective Time, and (d) the Dissenting Shares (Share described under (a) through (d) above are collectively referred to herein as the “Excluded Shares”), will be cancelled in exchange for the right to receive $6.50 in cash without interest and net of any applicable withholding taxes. At the Effective Time, all of the Shares will be cancelled and cease to exist. Each Dissenting Share will be cancelled and thereafter represent only the right to receive the fair value of such Dissenting Share in accordance with the BVI Business Companies Act. At the Effective Time, each Excluded Share other than Dissenting Shares will be cancelled for no consideration. Each ordinary share of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into and become one validly issued, fully paid and non-assessable ordinary share, par value $0.001 per share, of the surviving company.

 

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Our Board’s Recommendation

 

The Board, acting upon the unanimous recommendation of the Special Committee and on behalf of the Company:

 

determined that it was fair (both substantively and procedurally) to and in the best interests of the Company and its unaffiliated security holders, and declared it advisable, to enter into the merger agreement and the transaction agreements contemplated by the merger agreement;

 

authorized and approved the execution, delivery and performance of the merger agreement and the transaction agreements contemplated by the merger agreement and the consummation of the contemplated transactions, including the merger; and

 

resolved to direct that the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the merger be submitted to a vote at an extraordinary general meeting of the shareholders with the recommendation of the Board that the shareholders of the Company authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger.

 

Quorum

 

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

 

Record Date; Shares Entitled to Vote

 

You are entitled to attend and vote at the extraordinary general meeting if you have Shares registered in your name at the close of business in the British Virgin Islands on May 17, 2021. Each outstanding Share on the Share record date entitles the holder to one vote for each Share on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. As of the Share record date, there were 18,329,600 Shares entitled to be voted at the extraordinary general meeting. If you have Shares registered in your name on the Share record date, the deadline for you to lodge your proxy card and vote is June 16, 2021 at 9:00 a.m. (Beijing Time). Please see “—Shareholders Entitled to Vote; Voting Materials” below for additional information. If the merger is not completed, the Company would continue to be a public company in the U.S. and the Shares would continue to be listed on The NASDAQ Capital Market (“NASDAQ”). The Company’s Shares are not listed and cannot be traded on any stock exchange other than the NASDAQ.

 

Vote Required

 

We cannot complete the merger unless the merger agreement, plan of merger, and the transactions contemplated by the merger agreement are authorized and approved by a resolution approved by the affirmative vote of a majority of the votes of the Shares entitled to vote thereon in respect of which the shareholders holding the Shares were present at the extraordinary general meeting of the shareholders or an adjournment thereof in person or by proxy and being Shares in respect of which the votes were voted in accordance with the BVI Business Companies Act and the memorandum and articles of the Company (the “Requisite Company Vote”). As of the date of this proxy statement, the Rollover Shareholders beneficially owned approximately 71.1% of the total issued and outstanding Shares of the Company entitled to vote. Pursuant to the terms of the Support Agreement, these Shares will be voted in favor of the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger at the extraordinary general meeting of the Company.

 

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Shareholders Entitled to Vote; Voting Materials

 

Only holders of Shares entered in the register of members of the Company at the close of business on May 17, 2021 (British Virgin Islands Time), the Share record date, will receive the final proxy statement and proxy card directly from the Company. Shareholders registered in the register of members of the Company as of the Share record date or their proxy holders are entitled to vote and may participate in the extraordinary general meeting or any adjournment thereof. Shareholders who have acquired Shares after the close of business on the Share record date may not attend the extraordinary general meeting unless they receive a proxy from the person or entity who had sold them the Shares. Each holder has one vote for each Share held as of the close of business on May 17, 2021 (British Virgin Islands Time). Shareholders wanting to vote by proxy should indicate on their proxy card how they want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event so that it is received by the Company no later than 9:00 a.m. on June 16, 2021 (Beijing Time). Shareholders can also attend the extraordinary general meeting and vote in person.

 

Persons who have acquired Shares and whose names are entered in the Company’s register of members before the close of business on May 17, 2021 (British Virgin Islands Time) will receive the proxy form (including the voting material) before the extraordinary general meeting. Shareholders who have acquired Shares after the close of business on May 17, 2021 (British Virgin Islands Time), the Share record date, may not attend the extraordinary general meeting unless they receive a proxy from the person or entity who had sold them the Shares.

 

Proxy Holders for Registered Shareholders

 

Shareholders registered in the register of members of the Company as of the Share record date who are unable to attend the extraordinary general meeting may appoint another person (including another shareholder, a third party or the chairman of the meeting) as their proxy to attend the meeting and to vote their Shares on their behalf, by completing and returning the proxy card in accordance with the instructions printed thereon. With regard to the items listed on the agenda and without any explicit instructions to the contrary, the chairman as proxy holder will vote in favor of the resolutions proposed at the extraordinary general meeting according to the recommendation of the Board. If new proposals (other than those on the agenda) are put forth before the extraordinary general meeting, the chairman as proxy holder will vote in accordance with the position of the Board.

 

Voting of Proxies and Failure to Vote

 

All Shares represented by valid proxies will be voted at the extraordinary general meeting in the manner specified by the holder. If a shareholder returns a properly signed proxy card but does not indicate how the shareholder wants to vote, the chairman of the meeting intends to vote the Shares represented by that proxy card FOR the proposal to authorize and approve the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, FOR the proposal to authorize each of the members of the Special Committee to do all things necessary to give effect to the merger agreement, the plan of merger, and the transactions contemplated by the merger agreement, including the merger, and FOR the proposal to instruct the chairman of the extraordinary general meeting to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the resolutions to be proposed at the extraordinary general meeting unless the shareholder appoints a person other than the chairman of the meeting as proxy, in which case the Shares represented by that proxy card will be voted (or not submitted for voting) as the proxy determines. Shareholders who fail to cast their vote in person or by proxy will not have their votes counted.

 

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Revocability of Proxies

 

Registered holders of the Company’s Shares may revoke their proxies in one of three ways:

 

first, a registered shareholder may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting before the extraordinary general meeting commences. Any written notice revoking a proxy should be sent to c/o Shandong Taiying Technology Co., Ltd., 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China;

 

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

 

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

 

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

 

Rights of Shareholders Who Object to the Merger

 

Registered shareholders (i.e. shareholders whose name is registered in the register of members of the Company) and wishing to dissent from the merger will be entitled to seek appraisal and have the right to receive payment of the fair value of their Shares in accordance with Section 179 of the BVI Business Companies Act if the merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the merger is taken at the extraordinary general meeting, a written objection to the merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act, as amended regarding the exercise of appraisal rights, a copy of which is attached as Annex C to this proxy statement. The fair value of your Shares as determined under that statute could be more than, the same as, or less than the merger consideration you would receive pursuant to the merger agreement if you do not exercise appraisal rights with respect to your Shares.

 

If you hold your shares through a financial intermediary such as a broker or bank and wish to dissent from the merger, you must make all necessary arrangements with the financial intermediary to ensure that your shares are registered in your own name in the register of members of the Company such that you become a registered shareholder in order for you to exercise dissenters’ rights. The financial intermediary is unlikely to exercise or attempt to exercise any dissenters’ rights with respect to any of the shares that it holds, even if a beneficial owner of the shares requests the financial intermediary to do so. You must contact your financial intermediary promptly to ensure that you become a registered shareholder in sufficient time ahead of the date of the extraordinary general meeting, as you must deliver to the Company a written objection to the merger before the vote to authorize and approve the merger is taken at the extraordinary general meeting. You must subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex C to this proxy statement. If the merger is not consummated, the Company will continue to be a publicly traded company in the United States and the shares will continue to be listed on NASDAQ. As a result, if you became a registered shareholder for purposes of exercising dissenters’ rights and the merger is not consummated, and you wish to transfer your shares back to a financial intermediary, you will need to contact the financial intermediary to make all necessary arrangements.

 

If you do not fully and precisely satisfy the procedural requirements of the Section 179 of the BVI Business Companies Act, you will lose your dissenters’ rights.

 

We encourage you to read the section of this proxy statement entitled “Appraisal Rights” beginning on page 92 as well as Annex C to this proxy statement carefully and we urge you to seek your own legal advice on BVI Business Companies Act in general from a licensed British Virgin Islands law firm if you wish to exercise your dissenters’ rights.

 

Whom to Call for Assistance

 

If you need assistance, including help in changing or revoking your proxy, please contact Investor Relations, China Customer Relations Centers, Inc., at +1-718-213-7386 or at shunyu.zheng@weitian-ir.com.

 

Solicitation of Proxies

 

The Company does not plan to engage a proxy solicitor to assist in the solicitation of proxies. Instead, proxies may be solicited by mail, in person, by telephone, by internet or by facsimile by certain of our officers, directors and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed for reasonable out-of-pocket expenses. We will reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable expenses in forwarding copies of this proxy statement to the beneficial owners of our Shares and in obtaining voting instructions from those owners. We will pay all expenses of filing, printing and mailing this proxy statement.

 

Other Business

 

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

 

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THE MERGER AGREEMENT AND PLAN OF MERGER

 

This section of the proxy statement describes the material terms of the merger agreement but does not purport to describe all of the terms of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. You should read the merger agreement in its entirety because it, and not this proxy statement, is the legal document that governs the merger. This description of the merger agreement has been included to provide you with information regarding its terms.

 

Structure and Completion of the Merger

 

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, of the merger agreement, with the Company as the surviving company of the merger. If the merger is completed, the Company will cease to be a publicly traded company. Unless otherwise mutually agreed between the Company, Parent and Merger Sub, the closing will take place as soon as practicable after, and in any event no later than the fifth business day immediately after all the closing conditions have been satisfied or waived (other than those that by their nature are to be satisfied or waived at the closing). At the closing, Merger Sub and the Company will execute a plan of merger and the articles of merger and file the articles of merger and other related documents with the Registrar of Corporate Affairs of the British Virgin Islands. The merger will become effective on the date specified in the articles of merger.

 

We expect that the merger will be completed during the second quarter of 2021, after all conditions to the merger have been satisfied or waived. We cannot specify when, or assure you that, all conditions to the merger will be satisfied or waived; however, the parties intend to complete the merger as promptly as practicable.

 

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

 

Upon completion of the merger, the current memorandum and articles of association of the Company would be replaced in their entirety by the memorandum and articles of association in the form attached to the plan of merger, which are substantially in the form of the memorandum and articles of association of Merger Sub, as in effect prior to the completion of the merger except that at the Effective Time, all references to the name “Taiying International Inc. shall be amended to “China Customer Relations Centers, Inc.” and all references to the authorized share capital of Merger Sub will be amended as necessary to correctly describe the authorized share capital of the surviving company as provided in the plan of merger. In addition, the director(s) of Merger Sub immediately prior to the Effective Time will become the initial director(s) of the surviving company and the officers of the Company immediately prior to the Effective Time will become the initial officers of the surviving company.

 

Merger Consideration

 

Under the terms of the merger agreement, if the merger is completed, at the Effective Time, each of the Company’s Share issued and outstanding immediately prior to the Effective Time, other than the Excluded Shares, will be cancelled in exchange for the right to receive $6.50 in cash per Share without interest, net of any applicable withholding taxes. The Excluded Shares other than Dissenting Shares will be cancelled for no consideration. The Dissenting Shares will be cancelled and each holder thereof will be entitled to receive only the payment of the fair value of such Dissenting Shares in accordance with the BVI Business Companies Act. Please see “Appraisal Rights” beginning on page 92 for additional information.

 

At the Effective Time, each ordinary share of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into one validly issued, fully paid and non-assessable ordinary share of the surviving company. Such conversion shall be effected by means of the cancellation of each such ordinary share of Merger Sub, in exchange for the right to receive one ordinary share of the surviving company.

 

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Treatment of Company Share Awards

 

At the Effective Time, the Company will terminate the Share Incentive Plan and any relevant award agreements entered into under the Share Incentive Plan.

 

Exchange Procedures

 

At or prior to the Effective Time, Parent will deposit (or cause to be deposited) with the paying agent for the benefit of the holders of the Shares (other than the Excluded Shares (excluding the Dissenting Shares)) an amount in cash equal to the aggregate consideration to which holders of Company Shares (other than the Excluded Shares (excluding the Dissenting Shares)) become entitled under the merger agreement (with respect to Dissenting Shares, an amount equal to the number of Dissenting Shares multiplied by the per share merger consideration). Promptly after the Effective Time (and in any event not later than five business days following the Closing), Parent and the surviving company shall cause the paying agent to mail, to each person who was, as of immediately prior to the Effective Time, a registered holder of Shares entitled to receive the per Share merger consideration (i) a letter of transmittal in customary form specifying how the delivery of the merger consideration to registered holders of Shares (other than Excluded Shares) will be effected; and (ii) instructions for effecting the surrender of share certificates representing the Shares (the “Share Certificates”) or affidavits of loss in lieu of the Share Certificates, or non-certificated Shares represented by book entry (the “Uncertificated Shares”). Promptly after a dissenting shareholder has effectively withdrawn or lost his, her or its appraisal rights under the BVI Business Companies Act, Parent shall cause the paying agent to mail to such dissenting shareholder such letter of transmittal and instructions. Upon surrender of any Share Certificate (or affidavit of loss in lieu of the Share Certificate) or cancellation of Uncertificated Shares, each registered holder of Shares represented by such Share Certificate and each registered holder of Uncertificated Shares will receive an amount equal to (x) the number of Shares (other than the Excluded Shares) represented by such Share Certificate (or affidavit of loss in lieu of the Share Certificates) or the number of Uncertificated Shares multiplied by (y) the per share merger consideration.

 

No interest will be paid or accrued on any amount payable in respect of the Shares.

 

Representations and Warranties

 

The merger agreement contains representations and warranties made by the Company to Parent and Merger Sub and representations and warranties made by Parent and Merger Sub to the Company, in each case, as of specific dates. The statements embodied in those representations and warranties were made for purposes of the merger agreement and are subject to important qualifications and limitations agreed by the parties in connection with negotiating the terms of the merger agreement. In addition, some of those representations and warranties may be subject to a contractual standard of materiality different from that generally applicable to shareholders, may have been made for the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to close the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise and allocating risks between the parties to the merger agreement rather than establishing matters as facts. Moreover, the representations and warranties made by the Company were qualified by its public disclosures with the SEC since January 1, 2019 and prior to the date of the merger agreement and a disclosure schedule delivered by the Company to Parent and Merger Sub concurrently with the execution of the merger agreement.

 

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

 

due organization, existence, good standing and authority to carry on the businesses of the Company and its subsidiaries;

 

the furnishing by the Company to Parent of accurate memorandum and articles of association, and its compliance with the terms thereof;

 

the capitalization of the Company and the absence of preemptive or other similar rights with respect to securities of the Company and its subsidiaries (any of which a “Group Company”), or any encumbrances on Company securities that would give their holders the right to vote with the Company’s shareholders;

 

the absence of contracts binding the any Group Company with respect to capital contribution and voting;

 

the absence of secured creditors;

 

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

 

the required vote of the Company’s shareholders to adopt the merger agreement;

 

the declaration of advisability and recommendation to the shareholders of the Company (other than the Rollover Shareholders) of the merger agreement, the plan of merger, the articles of merger and the merger (including without limitation, the amended and restated memorandum of association and articles of association of the surviving company in the form attached as Appendix B of the plan of merger by the Special Committee and by the Board (acting upon the unanimous recommendation of the Special Committee), and the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated under the merger agreement, including the merger, by the Board (acting upon the unanimous recommendation of the Special Committee);

 

the receipt of a fairness opinion from the financial advisor to the Special Committee;

 

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

 

  the obtaining of all governmental consents and approvals in connection with the transactions contemplated by the merger agreement;

 

compliance with applicable laws (including anti-corruption laws) and possession of licenses and permits;

 

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the completeness and accuracy of the Company’s SEC filings since January 1, 2019 and the financial statements included therein;

 

the accuracy of the information provided in the Schedule 13E-3 and this proxy statement;

 

compliance in all material respects with the applicable listing and corporate governance rules and regulations of the NASDAQ;

 

the Company’s internal control over financial reporting;

 

the absence of undisclosed liabilities;

 

the absence of any “Company Material Adverse Effect” (as defined below) or certain other changes or events since June 30, 2020 (excluding any actions taken or not taken due to COVID-19);

 

labor and employment matters;

 

validity of material contracts and the absence of any breach thereof which would have a Company Material Adverse Effect;

 

the absence of material litigation against any Group Company;

 

environmental matters;

 

intellectual property;

 

tax matters;

 

insurance matters;

 

real property;

 

the absence of certain transactions with the directors, officers or certain shareholders of the Company;

 

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

 

the absence of a shareholder rights or “poison pill” plan which the Company is a party to;

 

the Company’s subsidiaries incorporated under the PRC laws; and

 

the absence of any other representations and warranties by the Company to Parent and Merger Sub, other than the representations and warranties made by the Company in the merger agreement.

 

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Many of the representations and warranties in the merger agreement made by the Company are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the merger agreement, a “Company Material Adverse Effect” means any fact, event, circumstance, development, condition, occurrence, change or effect (“Effect”) that, individually or in the aggregate with all other Effects, has or would reasonably be expected to have a material adverse effect on the business, properties, assets, liabilities, condition (financial or otherwise) or results of operations of the Company and its subsidiaries taken as a whole, or the Company’s ability to timely perform its obligations under the merger agreement and consummate the transactions contemplated by the merger agreement. However, none of the followings will constitute a Company Material Adverse Effect itself, or will be considered in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur:

 

(a)changes affecting the economy or financial markets generally in the PRC;

 

(b)changes in GAAP or any interpretation thereof after the date of the merger agreement;

 

(c)changes that are the result of factors generally affecting the principal industries in which the Group Companies operate;

 

(d)the consummation of the transactions contemplated under the merger agreement or the public announcement of the merger agreement (including the initiation of a shareholder litigation or similar legal proceedings relating to the merger agreement or the transactions contemplated under the merger agreement);

 

(e)any outbreak or escalation of hostilities, declared or undeclared acts of war, sabotage or terrorism, act of God or natural disasters, epidemics, pandemics (including COVID-19) or similar events;

 

(f)changes in the market price or trading volume of Shares (it being understood that the underlying cause of such change may, except as otherwise provided in the other clauses of this proviso, be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur);

 

(g)actions or omissions of any Group Company (a) that are required by the merger agreement, (b) taken with the consent of Parent or Merger Sub or (c) taken at the written request of Parent or Merger Sub;

 

(h)any breach of the merger agreement by Parent or Merger Sub;

 

(i)the failure by the Group Companies to meet any internal or industry estimates, expectations, forecasts, projections or budgets for any period (it being understood that the underlying cause of such change may, except as otherwise provided in the other clauses of this proviso, be taken into account in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur); or

 

(j)any change resulting or arising from the identity of, or any facts, events, circumstances, developments, conditions, changes, occurrences or effects relating to Parent, Merger Sub or any of their respective affiliates (other than the Company and its subsidiaries);

 

provided, further, that the Effects set forth in clauses (a), (b), (c) and (e) above will be taken into account in determining whether a “Company Material Adverse Effect” has occurred or would reasonably be expected to occur if and to the extent such Effects individually or in the aggregate have a materially disproportionate adverse impact on the Group Companies, taken as a whole, relative to the other participants in the same industries and geographic markets in which the Group Companies conduct their businesses.

 

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

 

their due organization, existence and good standing;

 

their memorandum and articles of association being in full force and effect;

 

the capitalization of Parent and Merger Sub, Parent’s ownership of Merger Sub and the operations of Parent and Merger Sub;

 

their corporate power and authority to execute, deliver and perform their obligations under the merger agreement, plan of merger, the articles of merger and to consummate the transactions contemplated by the merger agreement, and the enforceability of the merger agreement against them;

 

the absence of violations of, or conflicts with, the governing documents of Parent or Merger Sub, applicable laws and certain agreements of Parent or Merger Sub as a result of the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated by the merger agreement by Parent and Merger Sub;

 

the obtaining of all governmental consents and approvals in connection with the transactions contemplated by the merger agreement;

 

the absence of material legal proceedings against Parent, Merger Sub;

 

the delivery of the financing documents and the absence of any breach or default under these financing documents;

 

sufficiency of funds to consummate the merger and the other transactions contemplated by the merger agreement, subject to certain conditions set forth in the financing documents;

 

the non-existence of any economic interest in the Company by Parent or Merger Sub other than interests contemplated by the transactions contemplated under the merger agreement or the Support Agreement;

 

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

 

the execution and delivery of the limited guarantee;

 

solvency of and the surviving company at the Effective Time after payments of all amounts required to be paid in connection with the consummation of transactions contemplated by the merger agreement;

 

other than the merger agreement, the Support Agreement, the Limited Guarantee, the Debt Commitment Letter, the absence of any other agreements (i) between Parent, Merger Sub or any of their affiliates on one hand, and any member of the Group Company’s management, directors, employees or shareholders, on the other, that relate to the transactions contemplated by the merger agreement or (ii) pursuant to which any holder of Shares would be entitled to receive consideration different than the merger consideration or pursuant to which a shareholder agreed to vote to approve the merger agreement or against any superior proposal; and

 

the acknowledgment of the Parent and Merger Sub as to their non-reliance on any estimates, forecasts, projections, plans and budgets provided by the Group Companies.

 

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Conduct of Business Pending the Merger

 

The Company has agreed that from the date of the merger agreement until the earlier of the Effective Time and the termination of the merger agreement, it will conduct its business in the ordinary course, use reasonable best efforts to keep available the service of its current officers, key employees and consultants, and preserve its current relationships with key customers, suppliers and any other persons with whom it has material relations.

 

From the date of the merger agreement until the earlier of the Effective Time and the termination of the merger agreement, without the prior written consent of Parent, the Company will not and will not permit any of its subsidiaries to, among other things:

 

amend its memorandum and articles of association or equivalent organizational documents;

 

issue, deliver, sell, pledge, transfer, encumber or otherwise dispose of any equity securities, or authorize, propose or agree to do the same or agree or commit to do the same, except for expressly required by any contract in effect on the date of the merger agreement;

 

declare, set aside, establish a record date for, or pay any dividend or other distribution with respect to any of its shares (other than dividends paid by any of its subsidiary to the Company or to any other subsidiary wholly-owned by the Company), or enter into any agreement with respect to the voting of its shares;

 

reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire or offer to acquire, directly or indirectly, any of its shares or other equity securities, except pursuant to employee severance, retention, termination, change of control and other contractual rights existing on the date of the merger agreement on the terms in effect on the date of the merger agreement;

 

acquire any interest in any person or any assets, or make any loan, advance or capital contribution to, or investment in, any person, except any such acquisitions, loans, advances, contributions or investments that are consistent with past practice and are for consideration not in excess of $10,000,000 individually and $10,000,000 in the aggregate for all such transactions by the Group Companies;

 

redeem, repurchase, prepay, defease, cancel, incur or otherwise acquire, or modify the terms of, any indebtedness or issue any debt securities or other contracts evidencing indebtedness or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any person for indebtedness, except for (i) indebtedness incurred under the Group Companies’ existing credit facilities as in effect on the date of the merger agreement in an aggregate amount up to the maximum amount authorized under the contracts evidencing such indebtedness, (ii) indebtedness for borrowed money incurred in the ordinary course of business consistent with past practices in a principal amount up to $10,000,000 for all such indebtedness by the Group Companies in the aggregate and (iii) indebtedness owed by any wholly-owned subsidiary of the Company to the Company or any other wholly-owned subsidiary;

 

sell, transfer, lease, license, assign or otherwise dispose of any entity, business, assets, rights or properties of the Group Companies having a current value in excess of $10,000,000 in the aggregate;

 

grant any lien on any of its assets, other than liens granted in connection with any indebtedness permitted under the merger agreement;

 

sell, transfer, assign, license, grant any other rights under, or otherwise dispose of, abandon, permit to lapse, permit to be subject to any lien, or fail to maintain or protect in full force and effect, any intellectual property exclusively owned by the Company, or disclose to any person any confidential information (except for disclosure of confidential information in the ordinary course of business consistent with past practice and pursuant to appropriate confidentiality agreements, and non-exclusive licenses of intellectual property granted by any Group Company in the ordinary course of business consistent with past practice);

 

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authorize, or make any commitment with respect to, any single capital expenditure in excess of $10,000,000 or capital expenditures for the Group Companies in excess of $10,000,000 in the aggregate;

 

enter into any new line of business outside of its existing business segments that is material to the Group Companies taken as a whole;

 

(i) grant or announce incentive awards, (ii) increase the compensation payable by any Group Company to its employees, directors, shareholders or other service providers having a total annual compensation opportunity in excess of $10,000,000, except under certain permitted circumstances, (iii) hire any employees having a total annual compensation opportunity in excess of $10,000,000, (iv) pay or agree to pay any pension, severance pay, bonus or other employee benefit not required by any existing company benefit plan, or (v) adopt, renew, amend or terminate any existing company benefit plan;

 

change the Company’s methods of accounting, except as required by concurrent changes in GAAP or applicable law;

 

materially change any method of tax accounting, make or change any material tax election, adopt or change any material accounting method, file any amended material tax return, settle or compromise any material tax liability, agree to an extension or waiver of the statute of limitations with respect to the assessment or determination of taxes, enter into any material closing agreement with respect to any tax, surrender any right to claim a material tax refund, fail to pay any material taxes as due and payable, or take any other similar action relating to the filing of tax return or the payment of tax;

 

settle, release, waive or compromise any pending or threatened action of or against any Group Company (i) for an amount in excess of $10,000,000 in the aggregate, (ii) entailing the incurrence of any obligation or liability of any Group Company in excess of such amount, or obligations that would impose material restrictions on the business of the Group Companies, or (iii) that is brought by or on behalf of any holder of securities of the any Group Company relating to the merger or other transactions contemplated by the merger agreement;

 

enter into, terminate or materially amend any material contract, VIE contract or contract that would have been a material contract if in effect on the date of the merger agreement, or waive any material default under, or release, settle or compromise any material claim against any Group Company or liability or obligation owing to any Group Company under any material contract or VIE contract;

 

fail to maintain material insurance policies covering the Group Companies and their properties, assets and businesses consistent with past practice;

 

adopt or enter into a plan of liquidation, merger or reorganization of any Group Company (other than the merger or any merger or consolidation among wholly-owned subsidiaries of the Company);

 

take any action that would result in failure of any condition to the merger or that would reasonably be expected to prevent, delay or impair the Company’s ability to consummate the merger; or

 

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

 

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Shareholders’ Meeting

 

As promptly as practicable after the SEC confirms that it has no further comments on the Schedule 13E-3 and proxy statement filed in connection with the transactions contemplated by the merger agreement, the Company will, subject to certain exceptions, take all action necessary to duly call, give notice of, set a record date for and convene a general meeting of its shareholders for the purpose of obtaining the Requisite Company Vote, which meeting shall be held within 45 days after the date on which this proxy statement is mailed to the shareholders. The Company may adjourn the general meeting of its shareholders (i) with the prior written consent of Parent, or (ii) to allow reasonable time for the filing and mailing of any supplemental or amended disclosure and such supplemental or amended disclosure to be disseminated and reviewed by the Company’s shareholders prior to such adjourned meeting.

 

Unless the Board has (i) changed its recommendation to the shareholders relating to the approval of the merger in a manner adverse to Parent or Merger Sub, (ii) approved any acquisition proposal, (iii) failed to publicly recommend against any acquisition proposal, (iv) failed to recommend against any acquisition proposal subject to Regulation 14D under the Exchange Act in a Solicitation/Recommendation Statement on Schedule 14D-9 within 10 business days after the commencement of such acquisition proposal, (v) failed to include the recommendation to the shareholders of the Company to approve the merger agreement, the plan of merger and the transaction contemplated under the merger agreement in this proxy statement, (vi) entered into any letter of intent, contract, memorandum of understanding or similar document with respect to any acquisition proposal, or authorized the Company to enter into a definitive agreement with respect to such proposal, or (vii) taken any other action or made any other public statement that is inconsistent with its recommendation to the shareholders of the Company relating to the approval of the merger (any action described in above (i) through (vii), a “Company Adverse Recommendation Change”), in each case, in accordance with the merger agreement, the Board will (a) make a recommendation to the shareholders to approve the merger agreement, the plan of merger and the merger, and include such recommendation in this proxy statement and (b) will take all lawful actions to solicit the Requisite Company Vote. In the event that the Board has effected any Company Adverse Recommendation Change after the date of the merger agreement, the Company shall have the right not to submit the merger agreement, the plan of merger and the transactions to the shareholders of the Company for authorization and approval at the shareholders meeting.

 

No Solicitation

 

From the date of the merger agreement until the earlier of the Effective Time or the valid termination of the merger agreement, the Company will not, will instruct its subsidiaries and their respective representatives not to:

 

initiate, solicit, propose, encourage or take any action to facilitate, any inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, an acquisition proposal;

 

engage in, continue or otherwise participate in discussions or negotiations with, or provide any non-public information concerning the Company or its subsidiary to any person with the intent to induce the making, submission or announcement of, or the intent to encourage, facilitate or assist any acquisition proposal or any proposal or offer that could reasonably be expected to lead to an acquisition proposal;

 

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grant any waiver, amendment or release under any standstill or confidentiality agreement to which the Company is a party or any anti-takeover law, or otherwise knowingly facilitate any effort or attempt by any person to make an acquisition proposal;

 

approve, endorse, recommend, execute or enter into any letter of intent, agreement in principle, merger agreement, acquisition agreement or other similar agreement relating to an acquisition proposal or any proposal or offer that could reasonably be expected to lead to an acquisition proposal, or that conflicts with or is inconsistent with the merger agreement or requires the Company to abandon the merger agreement or the merger; or

 

resolve, propose, agree or publicly announce an intention to do any of the above actions.

 

The Company will immediately cease and cause to be terminated all discussion with any third parties existing as of the date of the merger agreement regarding an acquisition proposal.

 

Prior to obtaining the Requisite Company Vote, if the Company receives an unsolicited, written and bona fide acquisition proposal from any person that did not result from a breach by the Company of its obligations set forth in the above paragraph, (i) the Special Committee may directly or indirectly through the Company and its representatives contact such person to clarify and understand the terms and conditions of the proposal so as to determine whether such proposal constitutes or is reasonably expected to result in a superior proposal, and (ii) if the Special Committee determines in good faith, after consultation with and based upon the advice of its financial advisor and outside legal counsel, that such proposal constitutes or is reasonably likely to result in a superior proposal, then the Special Committee may directly or indirectly through the Company and its representatives, pursuant to an executed confidentiality agreement on terms no less favorable to the Company in the aggregate than those contained in the merger agreement, furnish information to the person who has made such proposal, provided that the Company will concurrently make available to Parent any non-public information provided to such person that was not previously made available to Parent or its representatives.

 

Prior to obtaining the Requisite Company Vote, (a) if the Company has received a written bona fide acquisition proposal that did not arise or result from a breach of the Company’s “no solicitation” obligations described above that is not withdrawn and that the Board determines, upon the recommendation of the Special Committee and in its good faith judgment, that (i) such acquisition proposal constitutes a superior proposal, and (ii) the failure to change its recommendation to the Company’s shareholders would be inconsistent with its fiduciary duties to the Company and its shareholders under applicable law (after consultation with its financial advisor and outside legal counsel), the Board may change its recommendation and/or authorize the Company to terminate the merger agreement to enter into an alternative acquisition agreement with respect to such superior proposal. However, prior to taking any such action, the Board must give Parent at least five business days’ prior written notice of its intention to take such action and a description of the material terms and conditions of such proposal and identifying the person making such proposal. Further, the Company must provide to Parent any confidential information disclosed to the person making the superior proposal but not previously disclosed to Parent, negotiate in good faith with Parent during such notice period, to the extent Parent wishes to negotiate, to enable Parent to revise the terms of the merger agreement, so that the proposal would cease to constitute a superior proposal, and permit Parent to make a presentation of any amendments to the Board and the Special Committee (to the extent Parent wishes to make such presentation).

 

Prior to obtaining the Requisite Company Vote, the board of directors of the Company (based on the recommendation of the Special Committee) or the Special Committee may effect a Company Adverse Recommendation Change and direct the Company to terminate the merger agreement, if (a) a material development or change in circumstances has occurred or arisen after the date of the merger agreement that was not known to, nor reasonably foreseeable by, any member of the Special Committee as of or prior to the date of the merger agreement and did not result from or arise out of the announcement or pendency of, or any actions required to be taken by the Company (or to be refrained from being taken by the Company) pursuant to, the merger agreement (an “Intervening Event”), (b) the failure to change its recommendation to the Company’s shareholders would reasonably be expected inconsistent with its directors’ duties to the Company and its shareholders under applicable law (after consultation with its outside legal counsel), (c) 5 business days have elapsed since the Company has given notice of its termination of the merger agreement in response to such Intervening Event to Parent advising that it intends to take such action and specifying the reasons, (d) during the notice period, the Company has considered and engaged in good faith discussions with Parent (if requested by Parent), any adjustment or modification to the merger agreement proposed by Parent, (e) following the notice period, taking into account any adjustment or modification to the terms of the merger agreement proposed by Parent, the failure to change its recommendation to the Company’s shareholders would reasonably be expected inconsistent with its directors’ duties to the Company and its shareholders under applicable law (after consultation with its outside legal counsel).

 

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Directors’ and Officers’ Indemnification and Insurance

 

Pursuant to the merger agreement, it has been agreed, among other provisions, that:

 

From and after the Effective Time, the surviving company will comply with all of its obligations under the memorandum and articles of association of any Group Company to indemnify and hold harmless the present and former officers and directors thereof against all kinds of liabilities incurred in connection with any action arising out of or relating to the services performed by such officers or directors at request of the Group Company.

 

The memorandum and articles of association of the surviving company will contain provisions no less favorable with respect to exculpation and indemnification that are set forth in the memorandum and articles of association of the Company as in effect on the date of the merger agreement, which provisions will not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who, at or prior to the Effective Time, were directors or officers of the Company, unless such modification is required by law.

 

Prior to the Effective Time, to the extent practicable, the Company will, and, if the Company is unable to, Parent will cause the surviving company, as of the Effective Time to, obtain and maintain in effect for six years from the Effective Time the current directors’ and officers’ liability insurance policies maintained by the Company with respect to matters occurring at or prior to the Effective Time, with terms at least as favorable as the coverage provided under the Company’s existing policy, provided that neither Parent or the surviving company will be required to expend for such policy an annual premium in excess of 300% of the current annual premium paid by the Company.

 

Financing

 

As of the date of the merger agreement, Parent has delivered to the Company copies of (a) the Debt Commitment Letter, pursuant to which China Merchants Bank Co., Ltd. has agreed to provide a term loan to Parent in the aggregate amount set forth in such Debt Commitment Letter and the proceeds of which will be used to finance the consummation of the merger and the other transactions contemplated by the merger agreement, and (b) the Support Agreement from the Rollover Shareholders.

 

Parent and Merger Sub will use their reasonable best efforts to (a) maintain in full force and effect the Debt Commitment Letter, (b) satisfy all conditions in the Debt Commitment Letter on a timely basis that are within Parent and/or Merger Sub’s control, (c) fully enforce its rights under the Debt Commitment Letter, (d) negotiate and execute a definitive debt financing agreement substantially on the terms set out in the Debt Commitment Letter and (e) assuming all conditions precedent in the Debt Commitment Letter have been satisfied, subject to conditions of closing, draw upon and consummate the debt financing at or prior to the closing. However, Parent and/or Merger Sub may not amend the terms of any financing agreement without the prior written consent of the Company if such amendments (a) reduce the aggregate amount of the debt financing or (b) impose new or additional conditions to the debt financing or amend the debt financing in a manner that would reasonably be expected to (i) prevent or materially delay the ability of Parent or Merger Sub or consummate the merger and the transactions contemplated by the merger agreement, or (ii) adversely affect in any materially respect the ability of Parent or Merger Sub to enforce its rights against other parties to any financing agreement.

 

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If any portion of the debt financing has become or is likely to be unavailable, Parent and Merger Sub must promptly so notify the Company and use their reasonable best efforts to arrange and obtain alternative financing from alternative sources and enter into new definitive agreements with respect to such alternative financing in an amount sufficient (assuming the Rollover Shares are cancelled without payment of consideration as contemplated under the Support Agreement) to consummate the transactions contemplated under the merger agreement, with terms and conditions that are not less favorable in the aggregate from the standpoint of the Company than those set forth in the Debt Commitment Letter as promptly as practicable. The Company shall provide cooperation as reasonably requested by Parent and Merger Sub in connection with obtaining financing from alternative sources.

 

Other Covenants

 

The merger agreement contains additional agreements between the Company and Parent and/or Merger Sub relating to, among other things:

 

the filing of this proxy statement and the Rule 13e-3 transaction statement on Schedule 13E-3 with the SEC (and cooperation in response to any comments from the SEC with respect to either statement);

 

reasonable access by Parent and Parent’s authorized representatives to the offices, properties, books and records of the Group Companies from the date of the merger agreement and until the earlier of the Effective Time and the valid termination of the merger agreement (subject to all applicable law and the contractual obligations and restrictions);

 

reasonable best efforts of each party to consummate the transactions contemplated by this merger agreement;

 

ensure the compliance of Merger Sub with its obligations under the merger agreement;

 

coordination of press releases and other public announcements or filings relating to the merger;

 

notification of certain events;

 

participation in litigation relating to the merger or the merger agreement;

 

resignation of the directors of the Company pursuant to Parent’s request;

 

matters relating to takeover statutes;

 

delisting and deregistration of the Shares;

 

Parent, Merger Sub or their respective affiliates shall not enter into arrangement with management and employees of the Company, which prohibits or restricts them from discussing, negotiating or entering into arrangements with any third party in connection with an acquisition proposal; and

 

exculpation for actions taken at the direction of the Rollover Shareholders without the Board’s approval (acting with the concurrence of the Special Committee).

 

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Conditions to the Merger

 

The obligations of the Company, Parent, and Merger Sub to consummate the transactions contemplated by the merger agreement, including the merger, are subject to the satisfaction or waiver at or prior to the Closing of the following conditions:

 

the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement being approved by a resolution by holders of Shares constituting the Requisite Company Vote at the shareholders’ meeting; and

 

no governmental entity or court of competent jurisdiction having enacted, issued, promulgated, enforced, entered or deemed applicable any law or order that is in effect that enjoins, restrains, prohibits or otherwise makes the consummation of the merger illegal.

 

The obligations of Parent and Merger Sub to consummate the merger are also subject to the satisfaction or waiver at or prior to the Closing of the following conditions:

 

other than those regarding capitalization, Company Share Awards, corporate authority and fairness, compliance with anti-corruption laws, absence of Company Material Adverse Effect, absence of brokerage fees other than to the Company Financial Advisor, and inapplicability of anti-takeover provisions, the representations and warranties of the Company contained in the merger agreement being true and correct in all respects as of the date of the merger agreement and as of the Closing, as though made on such date (except to the extent expressly made as of a specified date, in which case as of such specified date), in each case, disregarding for this purpose any limitation or qualification by materiality or Company Material Adverse Effect, except to the extent such failures to be true and correct in the aggregate would not have a Company Material Adverse Effect; (ii) the representations and warranties regarding corporate authority and fairness being true and correct in all material respects as of the date of the merger agreement and as of the Closing, as though made on such date (except to the extent expressly made as of a specified date, in which case as of such specified date), in each case, disregarding for this purpose any limitation or qualification by materiality or Company Material Adverse Effect; and (iii) the representations and warranties regarding capitalization, Company Share Awards, compliance with anti-corruption laws, absence of Company Material Adverse Effect, absence of brokerage fees other than to the Company Financial Advisor, and inapplicability of anti-takeover provisions being true and correct in all respects (except for de minimus inaccuracies) as of the date of the merger agreement and as of the Closing, as though made on such date (except to the extent expressly made as of a specified date, in which case as of such specified date (except for de minimus inaccuracies) in all material respects as of such specified date);

 

the Company having performed or complied in all material respects all agreements and covenants required to be performed or complied by it under the merger agreement at or prior to the Closing;

 

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since the date of the merger agreement, there not having occurred a Company Material Adverse Effect;

 

the amount of Dissenting Shares being less than 20% of the total outstanding Shares immediately prior to the Effective time; and

 

the Company having delivered to Parent a certificate of an executive officer of the Company dated as of the date of Closing confirming the above conditions have been satisfied.

 

The obligations of the Company to consummate the merger are also subject to the satisfaction or waiver at the Closing of the following conditions:

 

the representations and warranties of Parent and Merger Sub contained in the merger agreement being true and correct in all material respects as of the date of the merger agreement and as of the closing, as though made on such date (except to the extent expressly made as of a specified date, in which case as of such specified date), except to the extent such failures to be true and correct would not individually or in the aggregate, prevent, materially delay or materially impede the performance by Parent and Merger Sub of its obligations under the merger agreement;

 

Parent and Merger Sub having performed or complied in all material respects all agreements and covenants required to be performed or complied by it under the merger agreement on or prior to the Closing; and

 

the Company having received a certificate of an executive officer of Parent dated as of the date of Closing confirming the above conditions have been satisfied.

 

Termination of the Merger Agreement

 

The merger agreement may be terminated at any time prior to the Effective Time:

 

by mutual written consent of Parent and the Company;

 

by either Company or Parent, if:

 

the merger is not consummated by 11:59 p.m. on September 30, 2021 (Beijing Time);

 

any governmental entity of competent jurisdiction has enacted, issued, promulgated, enforced or entered any order that has or would have the effect of enjoining the transactions contemplated by the merger agreement, which shall have become final and non-appealable, or there is any law that makes the consummation of the merger illegal or prohibited, provided that each of the parties have used its reasonable best efforts to resist, appeal, obtain consent under, resolve or lift, as applicable the order or law and has complied in all material respects with its obligations to use reasonable best efforts to consummate the merger; or

 

the merger agreement is not approved by Requisite Company Vote at the extraordinary general meeting or any adjournment thereof,

 

provided, however, the right to terminate the merger agreement pursuant to the circumstances described in the foregoing shall not be available to any party whose failure to fulfil any obligation under the merger agreement or other breach has been the primary cause of, or resulted in, the failure of the applicable condition(s) being satisfied;

 

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by the Company, if:

 

Parent or Merger Sub has breached any representation, warranty, covenant or agreement set forth in the merger agreement, such that the corresponding condition to Closing would not be satisfied and such breach cannot be cured, or if capable of being cured, is not cured (i) within 30 calendar days following receipt of written notice by Parent or Merger Sub of such breach from the Company or (ii) any shorter period of time that remains between the date the Company provides written notice of such breach and 11:59 p.m. on September 30, 2021 (Beijing Time), provided that, the Company will not have this termination right if it is then in breach of any representation, warranty, covenant or agreement under the merger agreement that would result in the failure to satisfy the corresponding condition to Closing;

 

all of the conditions to the merger regarding obtaining Requisite Company Vote and no governmental injunction and all of the conditions to be performed by the Company are satisfied (other than those conditions that by their nature are only to be satisfied at the Closing), (ii) the Company has delivered to Parent an irrevocable confirmation in writing that all of the conditions to be performed by Parent and Merger Sub (other than those conditions by their nature are to be satisfied by actions taking at the Closing) have been satisfied or waived by the Company and that the Company is ready, willing and able to consummate the Closing, and (iii) Parent and Merger Sub fail to complete the Closing within 5 business days following the date on which the Closing should have occurred on after the satisfaction of the closing conditions;

 

prior to obtaining the Requisite Company Vote, (i) in order to enter into any letter of intent, agreement in principle or definitive acquisition agreement, (a) the Board determines (in its good faith judgment upon the recommendation of the Special Committee), that failure to enter into a definitive agreement relating to a superior proposal would be inconsistent with its fiduciary duties under applicable law, and authorizes the Company to enter into such definitive agreement, (b) such superior proposal did not result from any breach by the Company’s non-solicitation obligations under the merger agreement, (c) the Company has delivered notice of such superior proposal to Parent, and if requested by Parent, has made its representatives available to Parent to discuss proposed changes to the merger agreement to an Acquisition Proposal, or (ii) in response to an Intervening Event, provided that the Company shall have paid the termination fee to Parent within 2 business days after such termination of the merger agreement in accordance with the terms of the merger agreement.

 

by Parent, if:

 

the Company has breached any representation, warranty, covenant or agreement set forth in the merger agreement, such that the corresponding condition to Closing would not be satisfied and such breach cannot be cured, or if capable of being cured, is not cured: (i) (x) within 5 calendar days following receipt of written notice by the Company from Parent of such breach with respect to the “no solicitation” obligations, or (y) within 30 calendar days following receipt of written notice by the Company from Parent or Merger Sub of such breach with respect to any other representation, warranty or covenant, or (ii) any shorter period of time that remains between the date Parent or Merger Sub provides written notice of such breach and 11:59 p.m. on September 30, 2021 (Beijing Time), provided that, Parent will not have this termination right if it is then in breach of any representation, warranty, covenant or agreement under the merger agreement that would result in the failure to satisfy the corresponding condition to Closing;

 

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the Board has changed its recommendation to the shareholders of the Company relating to the approval of the merger in a manner adverse to Parent or Merger Sub;

 

the Board has approved any acquisition proposal or fails to publicly recommend against any acquisition proposal;

 

the Board has failed to include the recommendation to the shareholders of the Company to approve the merger agreement, the plan of merger and the transaction contemplated under the merger agreement in this proxy statement;

 

the Board has entered into any letter of intent, agreement in principle, definitive acquisition agreement for an acquisition proposal or similar document with respect to any acquisition proposal, or has authorized the Company to enter into a definitive agreement with respect to such proposal; or

 

the Board has taken any other action or made any other public statement that is inconsistent with its recommendation to the shareholders of the Company relating to the approval of the merger.

 

Termination Fee

 

The Company will pay to Parent or its designees a termination fee of $1,500,000, if the merger agreement is terminated:

 

by Parent where (i) the Company has breached any representation, warranty, covenant or agreement set forth in the merger agreement, such that the corresponding condition to Closing would not be satisfied and such breach cannot be cured, or if capable of being cured, is not cured within the requisite time period, or (ii) the Board (a) has changed its recommendation to the shareholders of the Company relating to the approval of the merger in a manner adverse to Parent or Merger Sub, (b) has approved any acquisition proposal or fails to publicly recommended against any acquisition proposal, (c) has failed to include the recommendation to the shareholders of the Company to approve the merger agreement, the plan of merger and the transaction contemplated under the merger agreement in this proxy statement, (d) has entered into any letter of intent, agreement in principle, definitive acquisition agreement for an acquisition proposal or similar document with respect to any acquisition proposal, or has authorized the Company to enter into a definitive agreement with respect to such proposal, or (e) or has taken any other action or made any other public statement that is inconsistent with its recommendation to the shareholders of the Company relating to the approval of the merger;

 

by the Company where, prior to obtaining the Requisite Company Vote, (i) in order to enter into any letter of intent, agreement in principle or definitive acquisition agreement, (a) the Board has determined (in its good faith judgment upon the recommendation of the Special Committee), that failure to enter into a definitive agreement relating to a superior proposal would be inconsistent with its fiduciary duties under applicable law, and authorized the Company to enter into such definitive agreement, (b) such superior proposal did not result from any breach by the Company’s non-solicitation obligations under the merger agreement, and (c) the Company has delivered notice of such superior proposal to Parent, and if requested by Parent, has made its representatives available to Parent to discuss proposed changes to the merger agreement, or (ii) in response to an Intervening Event;

 

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by the Company or Parent where either (i) the merger is not consummated by 11:59 p.m. on September 30, 2021 (Beijing Time), or (ii) the Requisite Company Vote is not obtained, and where (a) neither Parent nor Merger Sub has breached any representation, warranty or covenant under the merger agreement in any material respect, and (b) at or prior to the time of such termination, the Company has received a bona fide acquisition proposal from a third party that is not withdrawn (other than any acquisition proposal derived from an indication of interest or any other similar circumstances that were known to, or reasonably foreseeable by, any member of the Special Committee prior to the date of the merger agreement), and (c) enters into a definitive agreement with respect to such acquisition proposal (other than any acquisition proposal derived from an indication of interest or any other similar circumstances that were known to, or reasonably foreseeable by, any member of the Special Committee prior to the date of the merger agreement) within 12 months following such termination; or

 

Parent will pay to the Company a termination fee of $3,000,000 (or $1,500,000 in certain circumstances described below), if the merger agreement is terminated:

 

by the Company where Parent or Merger Sub has breached any representation, warranty, covenant or agreement set forth in the merger agreement, such that the corresponding condition to Closing would not be satisfied and such breach cannot be cured, or if capable of being cured, is not cured within the requisite time period; or

 

by the Company where (i) all of the conditions to the merger regarding obtaining Requisite Company Vote and no governmental injunction and all of the conditions to be performed by the Company are satisfied (other than those conditions that by their nature are only to be satisfied at the Closing), (ii) the Company has delivered to Parent in irrevocable confirmation in writing that all of the conditions to be performed by Parent and Merger Sub (other than those conditions by their nature are to be satisfied by actions taking at the Closing) have been satisfied or waived by the Company and that the Company is ready, willing and able to consummate the Closing, and (iii) Parent and Merger Sub fail to complete the Closing within 5 business days following the date on which the Closing should have occurred on after the satisfaction of the closing conditions.

 

If Parent decides not to proceed to consummate the merger due to the failure of the condition regarding the amount of Dissenting Shares represent no less than 20% of the total outstanding Shares immediately prior to the Effective Time, then Parent will pay to Company or its designees a termination fee of $1,500,000.

 

Remedies

 

The parties to the merger agreement may be entitled to the payment of a termination fee or the grant of specific performance of the terms of the merger agreement, including an injunction or injunctions to prevent breaches of the merger agreement, in addition to any other remedy at law or equity. Specifically, the Company is entitled to seeking an injunction, specific performance or other equitable remedies to enforce Parent’s or Merger Sub’s obligation to cause the financing for the merger to be funded at the Effective Time, and shall be subject to the satisfaction of the following conditions: (i) all conditions to Parent’s and Merger Sub’s obligations to consummate the merger (other than those conditions that by their terms are to be satisfied at the Closing) have been satisfied or waived, (ii) the Company has irrevocably confirmed in writing that if the financing is funded, then it would take such actions that are within its control to cause the consummation of the transactions contemplated by the merger agreement, and (iii) the financing has not been funded and Parent and Merger Sub fail to consummate the merger.

 

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While the parties may pursue both a grant of specific performance and payment of termination fee (as applicable under the merger agreement), none of them will be permitted or entitled to receive both a grant of specific performance and termination fee (or any other monetary damages).

 

Subject to the equitable remedies the parties may be entitled to as discussed above, the maximum aggregate liabilities of Parent, on the one hand, and the Company, on the other hand, for monetary damages in connection with the merger agreement are limited to the Parent termination fee of $3,000,000 and the Company termination fee of $1,500,000, respectively, and reimbursement of certain expenses accrued in the event that Company or Parent fails to pay the applicable termination fee when due and in accordance with the requirements of the merger agreement, as the case may be.

 

Amendment

 

The merger agreement may be amended by the parties by action taken by or on behalf of their respective boards of directors (or in the case of the Company, the Special Committee) at any time prior to the Effective Time; provided that, after the receipt of approval of the shareholders of the Company, no amendment may be made without shareholders’ approval again. The merger agreement may only be amended by an instrument in writing signed by the Company and Parent.

 

PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS

 

No provision has been made to (a) grant the Company’s shareholders access to corporate files of the Company and other parties to the merger or any of their respective affiliates or (b) to obtain counsel or appraisal services at the expense of the Company or any other such party or affiliate.

 

APPRAISAL RIGHTS

 

The following is a brief summary of the rights of holders of the Shares to dissent from the merger and receive cash equal to the appraised fair value of their Shares (“Appraisal Rights”). This summary is not a complete statement of the law, and is qualified in its entirety by the complete text of Section 179 of the BVI Business Companies Act, as amended (the “BVI Business Companies Act”), a copy of which is attached as Annex C to this proxy statement. If you are contemplating the possibility of dissenting from the merger, you should carefully review the text of Annex C, particularly the procedural steps required to perfect Appraisal Rights. These procedures are complex and you are advised to consult your British Virgin Islands legal counsel. If you do not fully and precisely satisfy the procedural requirements of the BVI Business Companies Act, you will lose your Appraisal Rights.

 

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Requirements for Exercising Appraisal Rights

 

A registered Dissenting Shareholder of the Company is entitled to payment of the fair value of his Shares upon dissenting from the merger.

  

The enforcement of your Appraisal Rights will exclude the enforcement of any other rights by virtue of holding Shares in connection with the merger, other than the right to institute proceedings to obtain relief on the grounds that the merger is illegal. To preserve your Appraisal Rights, the following procedures must be followed:

 

you must give written objection to the merger (“Notice of Objection”) to the Company prior to the vote to approve the merger. The Notice of Objection must include a statement that you propose to demand payment for all your Shares if the merger takes place;

 

within twenty (20) days immediately following the date on which the vote approving the merger is taken, the Company must give written notice of the approval (“Approval Notice”) to all shareholders who gave Notice of Objection, except those shareholders who voted for the merger;

 

within twenty (20) days immediately following the date on which the Approval Notice is given (the “Dissent Period”), a Shareholder who was entitled to receive the Approval Notice must give a written notice of his decision to elect to dissent (a “Notice of Dissent”) to the Company stating his name and address, the number and class of the Shares with respect to which he dissents and a demand for payment of the fair value of his Shares. A Dissenting Shareholder must dissent in respect of all the Shares which he holds;

 

within seven (7) days immediately following (a) the date of expiry of the Dissent Period or (b) the date on which the merger becomes effective, whichever is later, the Company, as the surviving company, must make a written offer (a “Fair Value Offer”) to each Dissenting Shareholder to purchase his Shares at a price determined by the Company to be the fair value of such Shares;

 

if within thirty (30) days immediately following the date of the Fair Value Offer, the Company and the Dissenting Shareholder agree on the price at which the Company will purchase the Dissenting Shareholder’s Shares, the Company will pay to the Dissenting Shareholder the amount in money upon the surrender of the certificates (if any) representing the Dissenting Shareholder’s Shares;

 

if, within thirty (30) days immediately following the date of the Fair Value Offer, the Company and the Dissenting Shareholder fail to agree on a price at which the Company will purchase the Dissenting Shareholder’s Shares, then, within twenty (20) days immediately following the date of the expiry of such 30-day period:

 

the Company and the Dissenting Shareholder shall each designate an appraiser;

 

the two designated appraisers together shall designate a third appraiser;

 

the three appraisers shall fix the fair value of the Dissenting Shareholder Shares; and

 

under the BVI Business Companies Act the fair value of the Dissenting Shares will be determined at the close of business on the day prior to the date on which the vote to approve the merger was taken, excluding any appreciation or depreciation in the value of the Shares, directly or indirectly, induced by announcement of the merger. The value determined by the appraisers is binding on the Company and the Dissenting Shareholder for all purposes. Upon the surrender of the Dissenting Shareholder’s certificates representing their Shares, the Company will pay, in cash, the fair value of the Shares determined by the appraisers.

 

You must be a registered holder of Shares (i.e. your name is registered in the register of members of the Company) in order to exercise your dissenters’ rights. All notices and petitions must be executed by or for the shareholder of record, fully and correctly, as such shareholder’s name appears on the register of members of the Company. If the Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, these notices must be executed by or for the fiduciary. If the Shares are owned by or for more than one person such notices and petitions must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the notices or petitions for a shareholder of record; however, the agent must identify the record owner and expressly disclose the fact that, in exercising the notice, he is acting as agent for the record owner. A person having a beneficial interest in Shares held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized above and in a timely manner to perfect whatever Appraisal Rights attach to the Shares.

 

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If you do not satisfy each of these requirements, you cannot exercise Appraisal Rights and will be bound by the terms of the merger agreement. Submitting a proxy card that does not direct how the Shares represented by that proxy are to be voted will give the proxy discretion to vote as it determines appropriate. In addition, failure to vote your Shares, or a vote against the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement, including the merger, will not alone satisfy the objection requirement referred to above. You must send all objections and notices to the Company at 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China, Attention: Wan Gao.

 

If you hold your Shares through a financial intermediary such as a broker or bank and wish to dissent from the merger, you must make all necessary arrangements with the financial intermediary to ensure that your Shares are registered in your own name in the register of members of the Company such that you become a registered shareholder in order for you to exercise dissenters’ rights. The financial intermediary is unlikely to exercise or attempt to exercise any dissenters’ rights with respect to any of the Shares that it holds, even if a beneficial owner of the Shares requests the financial intermediary to do so. You must contact your financial intermediary promptly to ensure that you become a registered shareholder in sufficient time ahead of the date of the extraordinary general meeting, as you must deliver to the Company a written objection to the merger before the vote to authorize and approve the merger is taken at the extraordinary general meeting. You must subsequently comply with all procedures and requirements of Section 179 of the BVI Business Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex C to this proxy statement. If the merger is not consummated, the Company will continue to be a publicly traded company in the United States and the Shares will continue to be listed on NASDAQ. As a result, if you became a registered shareholder for purposes of exercising dissenters’ rights and the merger is not consummated, and you wish to transfer your Shares back to a financial intermediary, you will need to contact the financial intermediary to make all necessary arrangements.

 

If you are considering dissenting, you should be aware that the fair value of your Shares determined under Section 179 of the BVI Business Companies Act could be more than, the same as, or less than the $6.50 in cash without interest for each Share of the Company that you would otherwise receive as consideration in the merger. In addition, in any proceedings for determination of the fair value of the Shares covered by a Notice of Dissent, the Company and the Buyer Group intend to assert that the per Share merger consideration of $6.50 is equal to the fair value of each of your Shares.

 

The provisions of Section 179 of the BVI Business Companies Act are technical and complex. If you fail to comply strictly with the procedures set forth in Section 179, you will lose your Appraisal Rights. You are advised to consult your British Virgin Islands legal counsel if you wish to exercise Appraisal Rights.

 

FINANCIAL INFORMATION

 

The following sets forth certain selected historical consolidated financial information of the Company for each of the two years ended December 31, 2019 and 2020. The historical consolidated financial information as of and for the years ended December 31, 2019 and December 31, 2020 has been derived from the audited financial statements filed as part of the Company’s Annual Report on Form 20-F for the year ended December 31, 2020, beginning on page F-1, which are incorporated into this proxy statement by reference. The selected historical balance sheet data as of December 31, 2020 and as of December 31, 2019 have been derived from the audited financial statements filed as part of the Company’s Annual Report on Form 20-F for the year ended December 31, 2020, beginning on page F-1, which are incorporated into this proxy statement by reference. The information set forth below is not necessarily indicative of future results and should be read in conjunction with the financial statements and the related notes and other financial information contained in such Annual Report on Form 20-F. Please see “Where You Can Find More Information” for a description of how to obtain a copy of such Annual Report on Form 20-F.

 

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Consolidated Statements of Operations

 

   For The Years Ended December 31, 
   2020   2019 
         
Revenues, net  $240,316,024   $173,409,113 
Cost of revenues   188,725,246    134,504,540 
Gross profit   51,590,778    38,904,573 
Operating expenses:          
Selling, general & administrative expenses   27,772,891    26,318,771 
Total operating expenses   27,772,891    26,318,771 
Income from operations   23,817,887    12,585,802 
Interest expense   (176,422)   (190,808)
Government grants   2,989,897    1,825,402 
Other income   1,803,014    1,547,788 
Other expense   (434,048)   (202,688)
Total other income   4,182,441    2,979,694 
Income before provision for income taxes   28,000,328    15,565,496 
Income tax provision   3,069,477    2,391,371 
Net income   24,930,851    13,174,125 
Less: net income attributable to noncontrolling interest   70,052    118,114 
Net income attributable to China Customer Relations Centers, Inc.  $24,860,799   $13,056,011 
           
Comprehensive income          
Net income  $24,930,851   $13,174,125 
Other comprehensive income (loss)          
Foreign currency translation adjustment   5,855,857    (828,331)
Total Comprehensive income   30,786,708    12,345,794 
Less: Comprehensive income attributable to noncontrolling interest   56,759    109,238 
Comprehensive income attributable to China Customer Relations Centers, Inc.  $30,729,949   $12,236,556 
           
Earnings per share attributable to China Customer Relations Centers, Inc.          
Basic  $1.36   $0.71 
Diluted  $1.36   $0.71 
Weighted average common shares outstanding          
Basic   18,329,600    18,329,600 
Diluted   18,329,600    18,329,600 

 

     
   As of December 31, 
Selected Balance Sheet Data  2020   2019 
(In U.S. dollars)          
Cash and cash equivalents  $43,669,538   $25,328,486 
Total current assets   114,870,576    74,543,209 
Total non-current assets   29,087,284    24,019,533 
Total assets   143,957,860    98,562,742 
Total current liabilities   40,805,723    27,043,612 
Total non-current liabilities   7,636,339    6,068,702 
Total liabilities   48,442,062    33,112,314 
Total equity   95,515,798    65,450,428 
Total liabilities and equity  $143,957,860   $98,562,742 

  

Net Book Value per Share of the Shares

 

The Company’s net book value per Share as of December 31, 2019 was $3.54, based on the 18,329,600 issued and outstanding Shares for the applicable period. The Company’s net book value per Share as of December 31, 2020 was $5.21, based on the 18,329,600 issued and outstanding Shares for the applicable period.

 

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TRANSACTIONS IN THE SHARES

 

Purchases by the Company

 

The Company has not repurchased any Shares at any time within past two years.

 

Purchases by the Buyer Group

 

On February 17, 2021, Singeton Management Limited bought an aggregate of 129,810 Shares in a block trade at a price of US$4.00 per share from Ms. Ning Zou’s husband, Mr. Dong Wang.

 

On February 26, 2021, Mr. Liping Gao bought an aggregate of 71,500 Common Shares in a block trade at a price of US$4.00 per share from his wife, Ms. Yan Shao.

 

On February 26, 2021, Mr. Liping Gao bought an aggregate of 340,800 Common Shares in a block trade at a price of US$4.00 per share from WIN Forex Limited, a company beneficially owned by his daughter, Ms. Yang Gao.

 

On February 10, 2021, Ms. Yuxiang Qi bought an aggregate of 216,016 Common Shares in a block trade at a price of US$4.00 per share from Wistron International Limited, a company beneficially owned by her daughter, Ms. Dandan Liu.

 

On February 11, 2021, Ms. Yuxiang Qi bought an aggregate of 163,421 Common Shares in a block trade at a price of US$4.00 per share from her daughter, Ms. Dandan Liu.

 

On February 16, 2021, Ms. Yanli Xu bought an aggregate of 516,920 Common Shares in a block trade at a price of US$4.00 per share from Tai Shan Investments Limited.

 

Prior Public Offerings

 

Our Shares have been listed on the NASDAQ since December 2015 under the symbol “CCRC.” In December 2015, we completed our initial public offering, in which we offered and sold 2,400,000 Shares, raising $9,600,000 in proceeds before expenses to us. We have not made any underwritten public offering of our securities since then.

 

Transactions in Prior 60 Days

 

Other than the transactions discussed above under this caption titled “Purchases by the Buyer Group”, the merger agreement and agreements entered into in connection therewith including the Support Agreement, there have been no transactions in the Company’s Shares during the past 60 days by us, any of the Company’s officers or directors (including the Chairman), Parent, Merger Sub, or any other person with respect to which disclosure is provided in Annex D or any associate or majority-owned subsidiary of the foregoing (excluding any independently managed or operated portfolio companies or platforms affiliated with the foregoing).

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY

 

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of the Company’s ordinary shares, as of the date of this proxy statement, by:

 

each of the Company’s directors and executive officers who beneficially own the Company’s ordinary shares;

 

all directors and executive officers as a group; and

 

each person known to us to beneficially own more than 5.0% of the Company’s ordinary shares.

 

Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them. Percentage of beneficial ownership is based on 18,329,600 ordinary shares outstanding as of the date of this proxy statement.

 

   Shares Beneficially Owned(1) 
   Number   % 
Directors and Executive Officers:        
Zhili Wang (Gary Wang)   3,958,763    21.6%
Debao Wang (David Wang)   1,069,936    5.8%
Guoan Xu   122,400    * 
Qingbo Zhao   0    0 
Weixin Wang   0    0 
Jie Xu   0    0 
Tianjun Zhang   0    0 
Owens Meng   0    0 
All Directors and Executive Officers as a Group   5,151,099    28.1%
Principal Shareholders:          
Qingmao Zhang   1,174,000    6.4%

  

 
*Beneficially owns less than 1% of outstanding Shares.

 

(1)Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, and includes voting or investment power with respect to the common shares or the power to receive the economic benefit of common shares.

 

FUTURE SHAREHOLDER PROPOSALS

 

If the merger is completed, we will not have public shareholders and there will be no public participants in any future shareholders’ meeting. However, if the merger is not completed, an annual general meeting is expected to be held in the fourth quarter of 2021.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this proxy statement, the documents attached hereto and the documents incorporated by reference in this proxy statement are forward-looking statements based on estimates and assumptions. These include statements as to such things as our financial condition, results of operations, plans, objectives, future performance and business, as well as forward-looking statements relating to the merger. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made. Forward-looking statements are also based on current expectations, estimates and projections about our business and the merger, the accurate prediction of which may be difficult and involve the assessment of events beyond our control. The forward-looking statements are further based on assumptions made by management. Forward-looking statements can be identified by forward-looking language, including words such as “believes,” “anticipates,” “expects,” “estimates,” “intends,” “may,” “plans,” “predicts,” “projects,” “will,” “would” and similar expressions, or the negative of these words. These statements are not guarantees of the underlying expectations or future performance and involve risks and uncertainties that are difficult to predict. Readers of this proxy statement are cautioned to consider these risks and uncertainties and not to place undue reliance on any forward- looking statements.

 

The following factors, among others, could cause actual results or matters related to the merger to differ materially from what is expressed or forecasted in the forward-looking statements:

 

the satisfaction of the conditions to completion of the merger, including the authorization and approval of the merger agreement by our shareholders;

 

the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;

 

the cash position of the Company and its subsidiaries at the Effective Time;

 

debt financing may not be funded at the Effective Time because of the failure of Parent to meet the closing conditions or for other reasons, which may result in the merger not being completed promptly or at all;

 

the effect of the announcement or pendency of the merger on our business relationships, operating results and business generally;

 

the risk that the merger may not be completed in a timely manner or at all, which may adversely affect our business and the prices of our Shares;

 

the potential adverse effect on our business, properties and operations because of certain covenants we agreed to in the merger agreement;

 

diversion of our management’s attention from our ongoing business operations;

 

loss of our senior management;

 

the amount of the costs, fees, expenses and charges related to the merger and the actual terms of the financings that will be obtained for the merger;

 

the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted against us and others relating to the merger or any other matters; and

 

  other risks detailed in our filings with the SEC, including the information set forth under the caption “Item 3. Key Information—D. Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2020. Please see “Where You Can Find More Information” beginning on page 99 for additional information.

 

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Furthermore, the forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, dividends or investments made by the parties. We believe that the assumptions on which our forward-looking statements are based are reasonable. However, forward-looking statements involve inherent risks, uncertainties and assumptions. In addition, many of the factors that will determine our future results are beyond our ability to control or predict and we cannot guarantee any future results, levels of activity, performance or achievements. We cannot assure you that the actual results or developments we anticipate will be realized or, if realized, that they will have the expected effects on our business or operations. In light of the significant uncertainties inherent in the forward-looking statements, readers should not place undue reliance on forward-looking statements, which speak only as of the date on which the statements were made and it should not be assumed that the statements remain accurate as of any future date. 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. Further, forward-looking statements speak only as of the date they are made and, except as required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect future events or circumstances.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers and we file or furnish our annual and current reports and other information with the SEC. You may read and copy these reports and other information at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C. 20549 at prescribed rates. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The information we file or furnish is also available free of charge on the SEC’s website at http://www.sec.gov.

 

You also may obtain free copies of the documents the Company files with the SEC by going to our website at www.ccrc.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference.

 

Because the merger is a going-private transaction, the Company and the Buyer Group have filed with the SEC a transaction statement on Schedule 13E-3 with respect to the merger. The Schedule 13E-3, including any amendments and exhibits filed or incorporated by reference therein, is available for inspection as set forth above. The Schedule 13E-3 will be amended to report promptly any material changes in the information set forth in the most recent Schedule 13E-3 filed with the SEC.

 

99

 

 

Statements contained in this proxy statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document attached as an exhibit hereto. The SEC allows us to “incorporate by reference” information into this proxy statement. This means that we can disclose important information by referring to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this proxy statement. Information that we later file with the SEC may update and supersede the information in this proxy statement where it is provided in a manner reasonably calculated to inform security holders. The Company’s Annual Report on Form 20-F for the year ended December 31, 2020 filed with the SEC on May 17, 2021 is incorporated herein by reference. The Company’s reports on Form 6-K filed with the SEC and furnished to the SEC on and since June 1, 2020, including, without limitation, the reports on Form 6-K filed with the SEC on September 17, 2020, October 20, 2020, November 23, 2020, November 30, 2020, December 18, 2020, March 12, 2021 and May 7, 2021 are incorporated herein by reference. To the extent that any of the periodic reports incorporated by reference in this proxy statement contain references to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to forward-looking statements, we note that these safe harbor provisions do not apply to any forward-looking statements we make in connection with the going-private transaction described in this proxy statement.

  

We undertake to provide without charge to each person to whom a copy of this proxy statement has been delivered, upon request, by first-class mail or other equally prompt means, within one business day of receipt of the request, a copy of any or all of the documents incorporated by reference into this proxy statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information that this proxy statement incorporates.

 

Requests for copies of our filings should be directed to Investor Relations, China Customer Relations Centers, Inc., at +1-718-213-7386 or at shunyu.zheng@weitian-ir.com.

 

The opinion of Houlihan Lokey, the Special Committee's financial advisor, is attached as Annex B to this proxy statement. In addition, Houlihan Lokey's opinion will be made available for inspection and copying at the Company's principal executive offices at the 1366 Zhongtianmen Dajie, Xinghuo Science and Technology Park, High-tech Zone, Taian City, Shandong Province, 271000, the People’s Republic of China during the Company's regular business hours by any interested unaffiliated security holder or a representative of any interested unaffiliated security holder who has been so designated in writing.

 

If you have any questions or need assistance in voting your Shares, you can contact Investor Relations, China Customer Relations Centers, Inc., at +1-718-213-7386 or at shunyu.zheng@weitian-ir.com.

 

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE EXTRAORDINARY GENERAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT.

 

THIS PROXY STATEMENT IS DATED MAY 20, 2021. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

 

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Annex A

 

AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

  

Taiying Group Ltd.

  

Taiying International Inc.

  

and

  

China Customer Relations Centers, Inc.

  

Dated as of March 12, 2021

 

A-1

 

 

TABLE OF CONTENTS

 

Article I Defined Terms and Interpretation   A-5
Section 1.1 Certain Definitions   A-5
Section 1.2 Terms Defined Elsewhere   A-14
Section 1.3 Interpretation   A-16
     
Article II The Merger   A-16
Section 2.1 The Merger   A-16
Section 2.2 Closing   A-16
Section 2.3 Effective Time   A-17
Section 2.4 Effect of the Merger   A-17
Section 2.5 Company Memorandum and Articles of Association   A-17
Section 2.6 Directors and Officers.   A-17
     
Article III Effect of Merger on Issued Share Capital; Merger Consideration; Exchange of Certificates   A-18
Section 3.1 Share Capital   A-18
Section 3.2 Exchange of Certificates   A-19
Section 3.3 No Further Ownership Rights   A-21
Section 3.4 Lost, Stolen or Destroyed Certificates   A-21
Section 3.5 Fair Value   A-22
Section 3.6 Necessary Further Actions   A-22
     
Article IV Representations and Warranties of the Company   A-22
Section 4.1 Organization and Qualification   A-22
Section 4.2 Capitalization.   A-23
Section 4.3 Corporate Authority; Approval and Fairness.   A-24
Section 4.4 No Conflict; Required Filings and Consents.   A-25
Section 4.5 Compliance with Laws; Permits.   A-25
Section 4.6 SEC Filings; Financial Statements.   A-26
Section 4.7 No Undisclosed Liabilities   A-28
Section 4.8 Absence of Certain Changes or Events   A-28
Section 4.9 Company Plans; Employees and Employment Practices.   A-28
Section 4.10 Labor and Employment Matters   A-28
Section 4.11 Contracts.   A-29
Section 4.12 Litigation   A-29
Section 4.13 Environmental Matters   A-30
Section 4.14 Intellectual Property   A-30
Section 4.15 Taxes   A-32
Section 4.16 Insurance   A-33
Section 4.17 Real Estate   A-34
Section 4.18 Affiliate Transactions.   A-34
Section 4.19 Brokers   A-34
Section 4.20 Anti-Takeover Provisions.   A-35
Section 4.21 PRC Subsidiaries.   A-35
Section 4.22 No Additional Representations.   A-36

 

A-2

 

 

Article V Representations and Warranties of Parent and Merger Sub   A-36
Section 5.1 Organization and Qualification   A-36
Section 5.2 Capitalization   A-37
Section 5.3 Authority   A-37
Section 5.4 No Conflict; Required Filings and Consents   A-38
Section 5.5 Litigation   A-38
Section 5.6 Financing   A-39
Section 5.7 Ownership of Equity Interests   A-40
Section 5.8 Brokers   A-40
Section 5.9 Limited Guarantee   A-40
Section 5.10 Solvency   A-40
Section 5.11 Certain Arrangements   A-40
Section 5.12 No Reliance on Company Estimates   A-40
     
Article VI Covenants   A-41
Section 6.1 Conduct of Business by the Company Pending the Closing   A-41
Section 6.2 Proxy Statement; Schedule 13E-3; Company Shareholders Meeting   A-45
Section 6.3 Access to Information; Confidentiality   A-48
Section 6.4 No Solicitation of Transactions   A-48
Section 6.5 Reasonable Best Efforts   A-53
Section 6.6 Financing.   A-54
Section 6.7 Assistance   A-56
Section 6.8 Notices of Certain Events   A-56
Section 6.9 Transaction Litigation   A-56
Section 6.10 Publicity   A-56
Section 6.11 Resignation of Directors   A-57
Section 6.12 Indemnification of Directors and Officers   A-57
Section 6.13 Anti-takeover Law   A-59
Section 6.14 Stock Exchange De-Listing   A-59
Section 6.15 Management   A-59
Section 6.16 Actions Taken at Direction of the Rollover Securityholders   A-59
     
Article VII Closing Conditions   A-59
Section 7.1 Conditions to Obligations of Each Party Under This Agreement   A-59
Section 7.2 Additional Conditions to Obligations of Parent and Merger Sub   A-60
Section 7.3 Additional Conditions to Obligations of the Company   A-60
Section 7.4 Frustration of Closing Conditions   A-61
     
Article VIII Termination, Amendment and Waiver   A-61
Section 8.1 Termination   A-61
Section 8.2 Effect of Termination; Termination Fee   A-63
Section 8.3 Extension; Waiver   A-67
Section 8.4 Amendment   A-67
     
Article IX General Provisions   A-68
Section 9.1 Non-Survival of Representations, Warranties and Covenants   A-68
Section 9.2 Notices   A-68
Section 9.3 Fees and Expenses   A-69
Section 9.4 Severability   A-69
Section 9.5 Entire Agreement   A-69
Section 9.6 Specific Performance   A-69
Section 9.7 Governing Law; Jurisdiction; Waiver of Jury Trial   A-70
Section 9.8 No Third-Party Beneficiaries   A-71
Section 9.9 Assignment   A-71
Section 9.10 Obligations of Parent and of the Company   A-72
Section 9.11 Mutual Drafting   A-72
Section 9.12 Headings   A-72
Section 9.13 Counterparts   A-72

 

A-3

 

 

This AGREEMENT AND PLAN OF MERGER (including the exhibits and disclosure schedules attached hereto, this “Agreement”), dated as of March 12, 2021 by and among Taiying Group Ltd., a business company with limited liability incorporated under the Laws of the British Virgin Islands (“Parent”), Taiying International Inc., a business company with limited liability incorporated under the Laws of the British Virgin Islands, all of the issued and outstanding shares of which are owned by Parent (“Merger Sub”), and China Customer Relations Centers, Inc., a business company with limited liability incorporated under the Laws of the British Virgin Islands (the “Company”). Each of Parent, Merger Sub and the Company is referred to herein as a “Party” and together as “Parties”.

 

WHEREAS, the Parties intend that Merger Sub will merge with and into the Company in accordance with the British Virgin Islands Business Companies Act, 2004, as amended (the “BVI Companies Act”) and the terms and conditions of this Agreement (the “Merger”), with the Company surviving the Merger and becoming a wholly-owned Subsidiary of Parent as a result of the Merger;

 

WHEREAS, the board of directors of the Company (the “Company Board”), acting upon the unanimous recommendation of a special committee of the Company Board consisting of independent directors (the “Special Committee”), has (i) determined that it is in the best interests of the Company and its shareholders (other than the Rollover Securityholders (as defined below) and their Affiliates), and declared it advisable, to enter into this Agreement, the Plan of Merger (as defined below), the Articles of Merger (as defined below) and the transactions contemplated hereby, (ii) approved the execution, delivery and performance of this Agreement, the Plan of Merger, the Articles of Merger and the consummation of the transactions contemplated hereby and thereby, including the Merger, and (iii) resolved to recommend that the shareholders of the Company authorize and approve this Agreement, the Plan of Merger, the Articles of Merger and the transactions contemplated hereby, including the Merger (and including, without limitation, the Amended and Restated Memorandum of Association and Articles of Association of the Surviving Company in the form attached as Appendix B of the Plan of Merger), in each case in accordance with the BVI Companies Act;

 

WHEREAS, the respective sole director of Parent and Merger Sub has each (i) determined that it is in the best interests of Parent and Merger Sub (as the case may be) to enter into this Agreement, the Plan of Merger, the Articles of Merger and the transactions contemplated hereby and (ii) approved, among others, the execution, delivery and performance of this Agreement, the Plan of Merger, the Articles of Merger and the consummation of the transactions contemplated hereby, including the Merger, and Parent, as the sole shareholder of Merger Sub, has authorized and approved, among others, this Agreement, the Plan of Merger, the Articles of Merger and the Merger, in each case in accordance with the BVI Companies Act;

 

WHEREAS, as an inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, concurrently with the execution and delivery of this Agreement, Mr. Zhili Wang, Mr. Debao Wang, Mr. Guoan Xu, Mr. Qingmao Zhang, Mr. Long Lin, and Mr. Jishan Sun and certain other shareholders of the Company (each a “Rollover Securityholder”, and collectively, the “Rollover Securityholders”) and Parent have executed a rollover and support agreement, dated as of the date hereof (the “Support Agreement”), providing that, among other things, the Rollover Securityholders will (i) vote all of the Company Shares held by them as of the date hereof, together with any other Company Shares acquired (whether beneficially or of record) by such Rollover Securityholders after the date hereof and prior to the earlier of the Effective Time and the termination of such Rollover Securityholders’ obligations under the Support Agreement, including any Company Shares acquired by means of purchase, dividend or distribution, or issued upon conversion of any convertible securities or otherwise, in favor of the authorization and approval of this Agreement, the Plan of Merger and the other transactions contemplated herein and (ii) agree, upon the terms and subject to the conditions in the Support Agreement, to receive no consideration for the cancellation of certain Company Shares held by each of them as set forth in the Support Agreement (the “Rollover Securities”) in accordance with this Agreement; and

 

A-4

 

 

WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the willingness of the Company to enter into this Agreement, Mr. Zhili Wang, Mr. Debao Wang, Mr. Guoan Xu, Mr. Qingmao Zhang, Mr. Long Lin, and Mr. Jishan Sun (each, a “Guarantor”, and collectively, the “Guarantors”) are entering into a limited guarantee in favor of the Company with respect to certain obligations of Parent under this Agreement (the “Limited Guarantee”).

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and intending to be legally bound hereby, the Parties agree as follows:

 

Article I
Defined Terms and Interpretation

 

Section 1.1 Certain Definitions. For purposes of this Agreement, the term:

 

(a) Acquisition Proposal” shall mean any inquiry, proposal or offer relating to (i) the acquisition, directly or indirectly, of twenty percent (20%) or more of the Equity Interests in the Company (by vote or by value) by any Person, (ii) any merger, consolidation, business combination, amalgamation, scheme of arrangement, reorganization, share exchange, sale, lease, license, exchange, transfer or other disposition of assets, recapitalization, equity investment, joint venture, liquidation, dissolution or other transaction which would result in any Person acquiring assets or business of the Company (including share(s) or share capital of or interest in any Subsidiary or Affiliate of the Company) representing, directly or indirectly, twenty percent (20%) or more of the net revenues, net income, earnings before interest, taxes and depreciation or assets of the Company and the Company Subsidiaries, taken as a whole, (iii) the acquisition (whether by merger, consolidation, equity investment, share exchange, joint venture or otherwise) by any Person, directly or indirectly, of any Equity Interest in any entity that would result in such Person holding assets representing, directly or indirectly, twenty percent (20%) or more of the net revenues, net income, earnings before interest, taxes and depreciation or assets of the Company and the Company Subsidiaries, taken as a whole, (iv) any tender offer or exchange offer, as such terms are defined under the Exchange Act, that, if consummated, would result in any Person beneficially owning directly or indirectly twenty percent (20%) or more of the outstanding Company Shares (by vote or by value) and any other voting securities of the Company, or (v) any combination of the foregoing, in each case other than the Merger.

 

(b) “Affiliate” of a Person shall mean any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the first-mentioned Person, where “control” (including the terms “controlled by” and “under common control with”) shall mean the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or as trustee or executor, by Contract or otherwise.

 

A-5

 

 

(c) Business Day” shall mean any day other than a Saturday, Sunday and any day which is a legal holiday under the Laws of New York, British Virgin Islands, Hong Kong or PRC or is a day on which banking institutions located in New York, British Virgin Islands, Hong Kong or PRC are authorized or required by Law or other action of any Governmental Entity to close.

 

(d) Code” shall mean the United States Internal Revenue Code of 1986, as amended.

 

(e) Company Disclosure Schedule” shall mean the disclosure schedule, dated as of the date of this Agreement and delivered by the Company to Parent concurrently with the execution and delivery of this Agreement (it being understood that (i) any matter disclosed in any section of the Company Disclosure Schedule shall be deemed to apply and qualify the section of this Agreement to which it corresponds in number, (ii) any matter disclosed in any section of the Company Disclosure Schedule shall be deemed to be disclosed in any other section of the Company Disclosure Schedule to the extent that it is reasonably apparent from the face of such disclosure that such disclosure is applicable to such other section, and (iii) the disclosure of any matter or item in the Company Disclosure Schedule shall not be deemed to constitute an acknowledgement that such matter or item is required to be disclosed therein or is material to a representation or warranty set forth in this Agreement and shall not be used as a basis for interpreting the terms “material,” “materially,” “materiality” or “Company Material Adverse Effect” or any word or phrase of similar import and does not mean that such matter or item would, alone or together with any other matter or item, have a Company Material Adverse Effect).

 

(f)  Company IT Systems” shall mean all computer and information technology systems, platforms and networks owned by the Company or any Company Subsidiary or used or held for use in the conduct of any business of the Company or any Company Subsidiary, as currently conducted and as currently proposed to be conducted, including Company Software, Software, hardware, data processing, data, information, record keeping, communications, telecommunications, networks, network equipment, information technology, mobile and other platforms, peripherals computer systems, and computerized, automated, or other similar systems, platforms, and networks, in each case, whether outsourced or not, as well as data and information stored or contained in, or transmitted by, any of the foregoing, and documentation relating to any of the foregoing.

 

A-6

 

 

(g) “Company Material Adverse Effect” shall mean any fact, event, circumstance, development, condition, change, occurrence or effect that has or would reasonably be expected to have, individually or in the aggregate with all other facts, events, circumstances, developments, conditions, changes, occurrences or effects, a material adverse effect on (i) the business, properties, assets, liabilities, condition (financial or otherwise) or results of operations of the Company and the Company Subsidiaries taken as a whole, or (ii) the ability of the Company to timely perform its obligations under and consummate the transactions contemplated by this Agreement in accordance with its terms; provided that in no event shall any of the following in and of itself constitute a Company Material Adverse Effect or be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur: (A) changes affecting the economy or financial markets generally in the PRC; (B) changes in GAAP or any interpretation thereof after the date hereof; (C) changes that are the result of factors generally affecting the principal industries in which the Company and the Company Subsidiaries operate; (D) the consummation of the transactions contemplated hereby or the public announcement of this Agreement (including the initiation of a shareholder litigation or similar legal proceedings relating to this Agreement or the transactions contemplated hereby); (E) any outbreak or escalation of hostilities, declared or undeclared acts of war, sabotage or terrorism, act of God or natural disasters, epidemics, pandemics (including COVID-19) or similar events; (F) changes in the market price or trading volume of Company Shares (it being understood that the underlying cause of such change may, except as otherwise provided in the other clauses of this proviso, be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur); (G) actions or omissions of the Company or any Company Subsidiaries (x) that are required by this Agreement, (y) taken with the written consent of Parent or Merger Sub or (z) taken at the written request of Parent or Merger Sub; (H) any breach of this Agreement by Parent or Merger Sub; (I) the failure by the Company or any Company Subsidiary to meet any internal or industry estimates, expectations, forecasts, projections or budgets for any period (it being understood that the underlying cause of such change may, except as otherwise provided in the other clauses of this proviso, be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur) or (J) any change resulting or arising from the identity of, or any facts, events, circumstances, developments, conditions, changes, occurrences or effects relating to Parent, Merger Sub or any of their respective Affiliates (other than the Company and Company Subsidiaries), provided that facts, events, circumstances, developments, conditions, changes, occurrences or effects set forth in clauses (A), (B), (C) and (E) above shall be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur if and to the extent such facts, events, circumstances, developments, conditions, changes, occurrences or effects individually or in the aggregate have a materially disproportionate adverse impact on the Company and the Company Subsidiaries, taken as a whole, relative to the other participants in the principal industries and geographic markets in which the Company and the Company Subsidiaries conduct their business.

 

(h) Company Memorandum and Articles” shall mean the Memorandum and Articles of Association of the Company, as currently in effect in the British Virgin Islands, set forth in the Company’s registration statement on Form F-1, declared effective on December 9, 2015 (File No. 333-199306).

 

A-7

 

 

(i) “Company Share Award” shall mean any option to purchase Company Shares granted under the Company Share Plan on or prior to the Closing Date whether or not such option has become vested on or prior to the Closing Date in accordance with the terms thereof.

 

(j) Company Share Plan” shall mean the 2018 Share Incentive Plan of the Company, as amended and restated from time to time.

 

(k) Company Shares” shall mean the shares of the Company, par value of $0.001 per share.

 

(l) Company Software” shall mean the Software owned by the Company or any Company Subsidiary, whether complete or under development, that have been, are or currently proposed to be developed, manufactured, marketed, sold, offered for sale, licensed, distributed, made available, imported, exported, hosted, implemented, provided as a service, provided via a network as a service or application, used, maintained, supported, or otherwise commercialized by the Company or any Company Subsidiary, in each case together with any versions (including Chinese, English and foreign language versions), supplements, modifications, updates, upgrades, corrections and enhancements to any of the foregoing, and any documentation relating to the foregoing.

 

(m) Company Termination Fee” shall mean an amount in cash equal to $1,500,000.

 

(n) Contract” shall mean any note, bond, mortgage, indenture, lease, license, permit, concession, franchise, contract, deed of trust, agreement, arrangement, plan or other instrument, right or obligation.

 

(o) Environmental Laws” shall mean, whenever in effect, any Law relating to pollution, the protection of the environment, public health and safety, occupational health and safety or fire safety.

 

(p) Equity Interest” shall mean any share, share capital, registered capital, partnership, member or similar interest in any entity and any option, warrant, right or security convertible, exchangeable or exercisable therefor or any other instrument or right the value of which is based on any of the foregoing.

 

(q) Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

(r)  Excluded Shares” shall mean (i) Company Shares owned by Parent, Merger Sub, the Company (as treasury shares, if any) or any of their respective Subsidiaries immediately prior to the Effective Time, (ii) any Company Shares reserved (but not yet allocated) by the Company for settlement upon exercise or vesting of any Company Share Awards immediately prior to the Effective Time, (iii) Dissenting Shares (if any), and (iv) Rollover Securities.

 

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(s)  GAAP” shall mean generally accepted accounting principles as applied in the United States.

 

(t) Governmental Entity” shall mean any and all PRC (including any subdivision, municipality, province or locality of the PRC), United States federal, state or local or other non-United States or non-PRC governmental, administrative, judicial or regulatory Person or any instrumentality thereof, authority, agency, department, bureau, commission, body, court, self-regulatory organization, or other legislative or judicial governmental entity or arbitrator.

 

(u) Indebtedness” shall mean, without duplication, (i) any indebtedness for borrowed money or issued in substitution for, or in exchange of, indebtedness for borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture or other debt security or under any swap, cap, future or other derivative financial instrument, (iii) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business), (iv) any obligation in respect of outstanding letters of credit, acceptances and similar obligations created for the account of such Person, (v) any commitment by which a Person assures a creditor against loss (including contingent reimbursement obligations with respect to letters of credit), (vi) any obligations under capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, (vii) any indebtedness secured by a Lien on a Person’s assets and (viii) any guarantee (including guarantees in the form of an agreement to repurchase or reimburse) of any indebtedness, including such obligations described in clauses (i) through (vii) of this definition.

 

(v) “Intellectual Property” shall mean, collectively, all intellectual property and proprietary rights in any jurisdiction throughout the world and tangible embodiments thereof, including all (i) patents, patent applications (including provisional applications), patent disclosures, invention disclosures, utility models, design patents, certificates of invention, supplementary protection certificates, and industrial designs, and applications for any of the foregoing, including continuations, continuations-in-part, divisionals, substitutions, re-examinations, re-issues, additions, renewals, extensions, patent term extensions, confirmations, registrations, requests for continued examinations, and foreign counterparts, (ii) trademarks, service marks, certification marks, trade dress, trade styles, logos, designs, slogans, taglines, brands, product names, trade names, corporate names, domain names, websites, uniform resource locators, web addresses, other names and locators associated with the Internet, rights to social media accounts, and other indicia of source, origin or quality, and registrations and applications for registration for each of the foregoing, including renewals, and any translations, adaptations, derivations and combinations of any of the foregoing, together with all goodwill of any business symbolized by any of the foregoing, (iii) copyrights, copyrightable works, works of authorship, content, website content, moral rights, data and database rights, and mask works, and registrations and applications for registration for each of the foregoing, including renewals, (iv) trade secrets and confidential or proprietary information (including ideas, discoveries, improvements, recipes, specifications, concepts, methods, processes, techniques, instructions, formulae, compositions, inventions (whether or not patentable or reduced to practice), know-how, technology, research and development information, data, databases, records, notebooks, drawings, blueprints, flowcharts, diagrams, sketches, specifications, designs, models, methodologies, documentation, plans, proposals, technical and non-technical data, test results, pricing, sales, marketing and cost data and information, financial and marketing plans, and customer and supplier lists and information), (v) Software, (vi) privacy rights and data protection rights, and rights of publicity, (vii) other registrations and applications for any of the foregoing, and (viii) other intellectual property and proprietary rights.

 

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(w) Knowledge” shall mean (i) in the case of the Company, the actual knowledge of the individuals listed in Section 1.1(w) of the Company Disclosure Schedule after reasonable inquiry, and (ii) in the case of Parent, Merger Sub or any other member of the Parent Group, the actual knowledge of each director thereof after reasonable inquiry.

 

(x) Law” shall mean any Order or any PRC (including any subdivision, municipality, province or locality of the PRC), United States federal, state or local or other non-United States or non-PRC law, statute, treaty, convention or ordinance, common law, or any rule, regulation, standard, directive, requirement, policy, license or permit of any Governmental Entity.

 

(y) Leasehold Improvements” shall mean all buildings, structures, improvements and fixtures located on any Leased Real Property which are owned by Company or any Company Subsidiary, regardless of whether title to such buildings, structures, improvements or fixtures are subject to reversion to the landlord or other third party upon the expiration or termination of the lease for such Leased Real Property.

 

(z) Lien” shall mean, with respect to any asset, any mortgage, pledge, security interest, encumbrance, lien, license, covenant not to sue, option, right of first refusal, right of first offer, or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof) in respect of such asset, and, with respect to an Equity Interest, any right of first refusal, right of first offer, transfer restriction or call option in respect of such Equity Interest.

 

(aa)   MOFCOM” shall mean the Ministry of Commerce of the PRC or its competent local counterparts.

 

(bb) Nasdaq” shall mean the NASDAQ Capital Market.

 

(cc)   Order” shall mean any order, judgment, writ, stipulation, settlement, award, injunction, decree or arbitration award of any Governmental Entity that is binding on any Person or its property or assets under applicable Law.

 

(dd) Parent Termination Fee” shall mean an amount in cash equal to $3,000,000.

 

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(ee)   Permits” shall mean all permits, licenses, franchises, approvals, registrations, filings, qualifications, rights, variances, certificates, certifications, consents, approvals and Orders of all Governmental Entities.

 

(ff)   Permitted Liens” shall mean, with respect to each Owned Real Property and Leasehold Improvement (as the case may be): (i) Liens for Taxes, assessments and other levies, fees or charges imposed by any Governmental Entity which are not yet due and payable, or which are being contested in good faith and by appropriate proceedings and, in each case, for which appropriate reserves have been established in accordance with GAAP, (ii) mechanics liens and similar liens for labor, materials or supplies provided with respect to such real property incurred in the ordinary course of business for amounts which are not due and payable and which shall be paid in full and released at Closing, (iii) zoning, building codes and other land use Laws regulating the use or occupancy of such real property or the activities conducted thereon which are imposed by any Governmental Entity having jurisdiction over such real property which are not violated by the current use or occupancy of such real property or the operation of the business thereon, (iv) easements, covenants, conditions, restrictions and other similar matters of record affecting title to such real property which do not or would not materially impair the use or occupancy of such real property in the operation of the business conducted thereon and (v) non-exclusive licenses of Intellectual Property granted by the Company or any Company Subsidiary to its customers in the ordinary course of business consistent with past practice, (vi) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations, (vii) pledges or deposit to secure the performance of bids, trade contracts, leases, surety and appeal bonds, performance bonds and other obligations of a similar nature, in each case, in the ordinary course of business, (viii) Liens securing Indebtedness or liabilities that are reflected in the Company SEC Filings filed or furnished prior to the date hereof, and (ix) any other Liens that have been incurred or suffered in the ordinary course of business and that are not material in amount or do not materially detract from the value of or materially impair the existing use of the property affected by such Liens.

 

(gg) Person” shall mean an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, Governmental Entity or other entity.

 

(hh) Personal Data” shall mean any information or data that can be used, directly or indirectly, alone or in combination with other information, to identify an individual and any other information or data pertaining to any individual, including an individual’s name, address, credit or payment card information, bank account number, financial data, email address, date of birth, government-issued identifier, social security number, race, ethnic origin/nationality, and mental or physical health or medical information.

 

(ii)   PRC” shall mean the People’s Republic of China excluding, for the purposes of this Agreement only, the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan.

 

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(jj)  PRC Subsidiaries” shall mean all Company Subsidiaries organized under the Laws of the PRC.

 

(kk) Processed” or “Processing” shall mean processing, collection, acquisition, recording, organization, storage, maintenance, adaptation, alteration, retrieval, access, use, disclosure, transfer (including relating to any cross-border transfer), transmission, sharing, combination, blockage, disposition, erasure, or destruction.

 

(ll)   Representatives” shall mean, with respect to any Person, such Person’s Affiliates and such Person and its Affiliates’ respective directors, officers, employees, members, partners, accountants, consultants, advisors, attorneys, agents and other representatives.

 

(mm)   RMB” shall mean renminbi, the legal currency of the PRC.

 

(nn) SAFE” shall mean the State Administration of Foreign Exchange of the PRC or its competent local counterparts.

 

(oo) “SAFE Circular 37” shall mean the Notice of Certain Matters Regarding the Administration of Foreign Exchange Involved in Overseas Investment, Financing and Round-Trip Investment Conducted by Domestic Residents Through Special-Purpose Companies (《国家外汇管理局关于境内居民通过特殊目的公司境外投融资及返程投资外汇管理有关问题的通知》(汇发[2014]37)), dated July 4, 2014 and effective as of the same date, including any amendment, implementing rules, or official interpretation thereof or any replacement, successor or alternative legislation having the same subject matter thereof.

 

(pp) SAFE Circular 7” shall mean the Notice of Certain Matters Regarding the Foreign Exchange Administration for Domestic Individuals Participating in the Share Incentive Plan of An Overseas-Listed Company (《关于境内个人参与境外上市公司股权激励计划外汇管理有关问题的通知》(汇发[2012]7)), dated February 15, 2012 and effective as of the same date, including any amendment, implementing rules, or official interpretation thereof or any replacement, successor or alternative legislation having the same subject matter thereof.

 

(qq) Sarbanes-Oxley Act” shall mean the United States Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder.

 

(rr)  SEC” shall mean the United States Securities and Exchange Commission.

 

(ss) Securities Act” shall mean the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

(tt)   Shareholder Approval” shall mean the authorization and approval of this Agreement, the Plan of Merger and the transactions contemplated hereby and thereby (including the Merger) by a resolution approved by the affirmative vote of a majority of the votes of the Company Shares entitled to vote thereon in respect of which the shareholders holding the Company Shares were present at the Company Shareholders Meeting or an adjournment thereof in person or by proxy and being Company Shares in respect of which the votes were voted in accordance with the BVI Companies Act and the Company Memorandum and Articles.

 

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(uu) Software” shall mean (i) software of any type, including computer programs, applications, middleware, software development kits, libraries, tools, interfaces, firmware, compiled or interpreted programmable logic, objects, bytecode, machine code, games, software implementations of algorithms, models and methodologies, whether in Source Code or object code form; (ii) data, collections of data, databases and compilations, whether machine readable or otherwise; and (iii) documentation related to any of the foregoing, including descriptions, schematics, flow-charts, notes, and work product used to design, plan, organize, and develop any of the foregoing, and programmer and user documentation, manuals, and support and training materials; together with intellectual property and proprietary rights in and to any of the foregoing.

 

(vv) Source Code” shall mean one or more statements in human readable form relating to Software and other source code, including comments, definitions and annotations, which are generally formed and organized to the syntax of a computer or programmable logic programming language, together with any and all text, data and data stru