EX-99.A1 2 ea143023ex99a1_newater.htm PROXY STATEMENT OF THE COMPANY, DATED JUNE [22], 2021

Exhibit 99(a)(1)

NEWATER TECHNOLOGY, INC.

June 22, 2021

Shareholders of Newater Technology, Inc.

Re: Notice of Reconvened Extraordinary General Meeting of Shareholders

Dear Shareholder:

You are cordially invited to attend an extraordinary general meeting of shareholders of Newater Technology, Inc. (the “Company”) to be held on July 12, 2021 at 8:30 am (Beijing Time). The meeting is a reconvention of the adjourned extraordinary general meeting of shareholders that was originally scheduled for March 19, 2021. The meeting will be held at 1 Ruida Road, Laishan District, Yantai City, Shandong Province, People’s Republic of China. The attached notice of the reconvened extraordinary general meeting and proxy statement provide information regarding the matters to be acted on at the extraordinary general meeting, including at any adjournment or postponement thereof.

On September 29, 2020, the Company entered into an agreement and plan of merger (including the articles of merger) (the “merger agreement”) with Crouching Tiger Holding Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (the “Parent”), Green Forest Holding Limited, a 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 the Parent (the “Merger Sub”), pursuant to which the 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 the Parent. At the extraordinary general meeting, you will be asked to consider and vote upon a proposal to authorize and approve the merger agreement, and the transactions contemplated by the merger agreement, including the merger. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.

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 reconvened extraordinary general meeting or proxy statement. Any representation to the contrary is a criminal offense.

The Parent and the Merger Sub are formed solely for purposes of the merger. The Parent is currently beneficially owned by Mr. Yuebiao Li (through his wholly owned entity Pure Blue Holding Limited) and Ms. Zhuo Zhang (through her wholly owned entity Gooden Sunrise Holding Limited). Mr. Yuebiao Li (through his wholly owned entity Tigerwind Group Limited), Ms. Zhuo Zhang, and Mr. Xiangqian Sui (through his wholly owned entity Forwater Holdings Limited) (collectively, the “Rollover Shareholders”) have elected to roll-over all of their respective Shares in the Company in connection with the merger. The Rollover Shareholders will have their Rollover Shares cancelled in the merger and pursuant to the terms of the plan of merger no merger consideration will be paid to such shareholders and they will be issued newly issued shares of the Parent.

As of the date of this proxy statement, the Rollover Shareholders collectively beneficially own, in the aggregate, 5,200,000 common shares, par value $0.001 per share, of the Company (each, a “Share”, collectively, the “Shares”), representing approximately 48.1% of the Company’s outstanding Shares. If the merger is consummated, the Company will continue its operations as a privately held company. As a result of the merger, the Company’s common shares will no longer be listed on the NASDAQ Capital Market.

If the merger is completed, at the effective time of the merger, except as described below, the holders of our Shares, will have the right to receive US$3.65 per Share in cash without interest and net of any applicable withholding taxes. The following Shares of the Company will not be converted into the right to receive the consideration described in the immediately preceding sentence: (a) Shares beneficially owned by the Rollover Shareholders (the “Rollover Shares”); (b) Shares (the “Dissenting Shares”) owned by holders of Shares who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 179 of the BVI Business Companies Act, 2004, as amended (the “BVI Companies Act”) (the “Dissenting Shareholders”); and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury) ((a), (b) and (c) collectively, the “Excluded Shares”). Each Excluded Share (excluding the Dissenting Shares) issued and outstanding immediately prior to the effective time of the merger, will be cancelled and will cease to exist, and no merger consideration will be delivered with respect thereto. Each Dissenting Share will be cancelled at the effective time of the merger for the right to receive the fair value of such Shares as determined in accordance with the provisions of the BVI Companies Act.

Throughout this proxy statement, (i) Mr. Yuebiao Li (“Mr. Li”), Pure Blue Holding Limited (“Pure Blue”), and Tigerwind Group Limited (“Tigerwind”) are collectively referred to as “Mr. Li Filing Persons”; (ii) Ms. Zhuo Zhang (“Ms. Zhang”) and Gooden Sunrise Holding Limited (“Gooden Sunrise”) are collectively referred to as “Ms. Zhang Filing Persons”; (iii) Mr. Xiangqian Sui (“Mr. Sui”) and Forwater Holdings Limited (“Forwater”) are collectively referred to as “Mr. Sui Filing Persons”; and (iv) the Parent, the Merger Sub, Mr. Li Filing Persons, Ms. Zhang Filing Persons, following September 29, 2020, Mr. Sui Filing Persons, and, following December 2, 2020, Yancoal International (Holding) Co., Limited, a Hong Kong company (“Yancoal”) are collectively referred to as the “Buyer Group”.

The Buyer Group intends to fund the merger consideration through the cash proceeds from issuance by the Parent of ordinary shares of the Parent to Pure Blue, Gooden Sunrise, and Yancoal (each, a “Subscriber”, and together, the “Subscribers”), pursuant to that certain subscription agreements dated as of December 2, 2020, pursuant to which the Subscribers have agreed to provide the Parent with cash contributions in an aggregate amount of $20,472,850.5 for the purchase of an aggregate number of 5,609,000 ordinary shares of the Parent. On September 29, 2020, Mr. Li and Ms. Zhang entered into a limited guarantee with the Company (the “Original Limited Guarantee”) in favor of the Company to guarantee certain payment obligations of the Parent under the merger agreement. On December 2, 2020, Mr. Li, Ms. Zhang, and Yancoal entered into a limited guarantee with the Company (the “Limited Guarantee”) in favor of the Company to guarantee certain payment obligations of the Parent under the merger agreement. Concurrently, the Original Limited Guarantee was terminated pursuant to a release and termination of limited guarantee agreement dated as of December 2, 2020 by and among Mr. Li, Ms. Zhang and the Company (the “Guarantee Termination Agreement”).

An independent committee of the board of directors of the Company (the “independent committee”), composed solely of three independent and disinterested directors of the Company who are unaffiliated with any member of the Buyer Group, the Company or any of the management members of the Company, Ms. Zhicun Chen, Mr. Hengtong Li, and Mr. Yan Shen, has 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 September 29, 2020, the independent committee had unanimously (a) determined that the merger, on the terms and subject to the conditions set forth in the merger agreement, is fair to, and in the best interests of, the Company and its shareholders who are unaffiliated with the Buyer Group, (b) approved and declared it advisable for the Company to enter into the merger agreement, the plan of merger, the articles of merger, other transaction documents and the transactions contemplated thereby, including the merger, (c) recommended that the board of directors authorize and approve the entry into by the Company of the merger agreement, the plan of merger, the articles of merger, other transaction documents and the transactions contemplated thereby, including the merger, and (d) recommended that the board of directors of the Company direct 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, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the shareholders of the Company authorize and approve by way of a shareholders resolution the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger.

On September 29, 2020, the board of directors of the Company, upon the unanimous determination and recommendation of the independent committee, had (a) determined that the merger, on the terms and subject to the conditions set forth in the merger agreement, is fair to, and in the best interests of, the Company and its shareholders (including those shareholders who are unaffiliated with the Buyer Group), (b) approved the execution, delivery and performance by the Company of the merger agreement, the plan of merger, the articles of merger and the consummation of the transactions contemplated thereby, including the merger, and (c) resolved to direct that the authorization and approval of the merger agreement, the plan of merger, the articles of merger and the transactions contemplated thereby, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the stockholders of the Company authorize and approve the merger agreement and the consummation of the transactions contemplated thereby, including the merger.

After careful consideration and upon the unanimous recommendation of the independent committee, and on behalf of the Company, the board of directors of the Company unanimously 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, 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 shareholders resolution during the extraordinary general meeting.

In considering the recommendation of the independent committee and the board of directors, you should be aware that some of the Company’s directors and 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 the merger agreement, the Rollover Shareholders have agreed with the Parent pursuant to a voting agreement to vote their Shares in favor of the proposal to approve and authorize the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger.

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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 Securities and Exchange Commission (the “SEC”), which are available for free at the SEC’s website www.sec.gov.

Regardless of the number of the Shares you own, your vote is very important. The merger cannot be completed unless the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, are approved and authorized by an affirmative vote of shareholders representing more than fifty percent (50%) of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. As of the date of this proxy statement, the Rollover Shareholders, as a group, beneficially own 5,200,000 Shares, which represent approximately 48.1% of the total number of outstanding Shares. Accordingly, based on 10,809,000 Shares expected to be outstanding at the close of business in the British Virgin Islands on February 10, 2021, the Share record date, assuming the Rollover Shareholders will attend the extraordinary general meeting, in person or by proxy, and vote all of their Shares in favor of the proposal to approve and authorize the merger agreement, the plan of merger, the articles of merger and the transactions contemplated by the merger agreement, including the merger, and all unaffiliated shareholders will be present and voting in person or by proxy at the extraordinary general meeting, 204,501 Shares owned by the unaffiliated shareholders (representing approximately 3.6% of the total outstanding Shares owned by the unaffiliated shareholders) must be voted in favor of the proposal to be approved. 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 as promptly as possible. The deadline to lodge your proxy card is July 11, 2021 at 8:30 am (Beijing time). Voting at the extraordinary general meeting will take place by poll voting if so demanded by the chairman of the meeting, or by any shareholder present in person or by proxy entitled to vote who disputes the announcement by the chairman of the result of the vote.

If you hold Shares through a financial intermediary such as a broker, bank, or other nominee, you must rely on the procedures and timing of the financial intermediary through which you hold your Shares if you wish to vote at the extraordinary general meeting.

Shareholders who dissent from the merger will be entitled to seek appraisal and payment of the fair value of their Shares if the merger is completed, subject to the condition that they deliver to the Company, before the vote 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, 2004, 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.

SPECIAL NOTE

This proxy statement modifies the Company’s previous proxy statement dated as of February 10, 2021 (as amended, the “February Statement”) primarily as follows:

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Changing the meeting date from March 19, 2021 to July 12, 2021;

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Adding disclosure relating to the shareholder lawsuit brought by Fulcan Capital Partners LLC, a Nevada limited liability company (see pages 37 to 39); and

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Updating the information under the title “Special Factors – Effect of the Merger on the Company’s Net Book Value and Net Earnings”, “Market Price of the Company’s Share, Dividends and Other Matters – Market Price of the Shares”, “Financial Information”, and “Transactions in the Shares”.

A marked copy showing the changes that this proxy statement made to the February Statement is available upon request.

If you have any questions or need assistance in voting your Shares, you may contact Morrow Sodali LLC, the firm assisting us with this proxy solicitation, at (800)-662-5200 toll-free in North America or at +1 (203) 658-9400 collect.

On behalf of Newater Technology, Inc., we would like to thank all of our shareholders for their ongoing support as we prepare to take part in this important event in our history.

Sincerely,		Sincerely,

/s/ Zhicun Chen		/s/ Yuebiao Li
Zhicun Chen On behalf of the Independent Committee		Yuebiao Li Chairman of the Board

The accompanying proxy statement is dated June 22, 2021, and is first being mailed to shareholders on or about June 22, 2021.

NEWATER TECHNOLOGY, INC.

1 Ruida Road, Laishan District, Yantai City

Shandong Province, People’s Republic of China

NOTICE OF RECONVENED EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

TO BE HELD ON JULY 12, 2021

Dear Shareholder:

Notice is hereby given that an extraordinary general meeting of the shareholders of Newater Technology, Inc., referred to herein alternately as the “Company,” “us,” “our” or “we,” will be held on July 12, 2021 beginning at 8:30 am (Beijing time), at 1 Ruida Road, Laishan District, Yantai City, Shandong Province, 264003, People’s Republic of China. The meeting is a reconvention of the adjourned extraordinary general meeting of shareholders that was originally scheduled for March 19, 2021.

Only registered holders of common shares, par value US$0.001 per share, of the Company (each a “Share” and collectively, the “Shares”), at the close of business in the British Virgin Islands on February 10, 2021, the Share record date, or their proxy holders are entitled to directly vote at this extraordinary general meeting or any adjournment or postponements thereof. At the meeting, you will be asked to consider and vote upon the following resolutions:

THAT the Agreement and Plan of Merger (including the articles of merger) dated September 29, 2020 (the “merger agreement”) by and among Crouching Tiger Holding Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (the “Parent”), Green Forest Holding Limited, a 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 the Parent (the “Merger Sub”), and the Company, and the articles of merger required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands as provided in Section 171(2) of the BVI Companies Act for the purpose of the merger, substantially in the form attached as Appendix 1 to the merger agreement (the “plan of merger”) (copies of such merger agreement and plan of merger being in the form attached to the proxy statement accompanying this notice, which will also be produced and made available for inspection at the meeting), pursuant to which the Merger Sub will be merged with and into the Company (the “merger”), with the Company continuing as the surviving company, and the transactions contemplated by the merger agreement, including the merger, be approved and authorized by the Company; and

THAT the chairman of the extraordinary general meeting be instructed to adjourn or postpone 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 shareholders resolutions to be proposed at the extraordinary general meeting.

A list of the shareholders of the Company will be available at its principal executive office at 1 Ruida Road, Laishan District, Yantai City, Shandong Province, People’s Republic of China, during ordinary business hours for the two (2) business days immediately prior to the extraordinary general meeting.

After careful consideration and upon the unanimous recommendation of the independent committee of the board of directors of the Company (the “independent committee”) composed solely of independent and disinterested directors of the Company who are unaffiliated with any of the members of the Buyer Group, or any of the management members of the Company, the Company’s board of directors has approved the merger agreement and recommends that you vote FOR the proposal to approve and authorize 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 or postpone 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.

Certain existing shareholders of the Company (and/or entities affiliated with or related to them), consisting of Mr. Yuebiao Li (through Tigerwind Group Limited), Ms. Zhang Zhuo, and Mr. Xiangqian Sui (through Forwater Holdings Limited) (collectively, the “Rollover Shareholders”) have elected to roll-over all of their respective Shares in the Company in connection with the merger pursuant to a rollover agreement with the Parent and have entered into a voting agreement with the Parent pursuant to which each has agreed, among other things, to vote all of his, her or its Shares in favor of the proposal to approve and authorize the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger. Collectively, the Rollover Shareholders beneficially own approximately 48.1% of the total issued and outstanding Shares entitled to vote as of the date of this proxy statement. The Rollover Shareholders will beneficially own the Parent immediately following the consummation of the merger.

Regardless of the number of the Shares you own, your vote is very important. The merger cannot be completed unless the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, are approved and authorized by an affirmative vote of shareholders representing more than fifty percent (50%) of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. Given the Rollover Shareholders’ ownership as described above, and assuming all Rollover Shareholders will attend the extraordinary general meeting, in person or by proxy, and vote all of their Shares in favor of the proposal to approve and authorize the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, based on the number of 10,809,000 Shares expected to be outstanding on the Share record date, 204,501 Shares owned by the unaffiliated shareholders (shareholders of the Company, other than the Buyer Group and the directors and officers of the Company that are affiliated with the Buyer Group) representing approximately 3.6% of the total outstanding Shares owned by the unaffiliated shareholders must be voted in favor of the proposal to be approved, assuming all unaffiliated shareholders will be present and voting in person or by proxy at the extraordinary general meeting. 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 as promptly as possible. The deadline to lodge your proxy card is July 11, 2021 at 8:30 am (Beijing time). Voting at the extraordinary general meeting will take place by poll voting if so demanded by the chairman of the meeting or by any shareholder present in person or by proxy entitled to vote who disputes the announcement by the chairman of the result of the vote.

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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 record holder a proxy issued in your name.

If you fail to complete your proxy card in accordance with the instructions set forth on the proxy card or if you abstain from voting, your vote will not be counted.

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 each such proxy card.

If you submit your signed proxy card without indicating how you wish to vote, the Shares represented by your proxy card will be voted FOR the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, and FOR any adjournment of the extraordinary general meeting referred to 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.

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 holders, the Shares will be voted “FOR” the proposals as described above and in the proxy holder’s discretion as to other matters that may properly come before the extraordinary general meeting. Abstentions by holders of Shares are included in the determination of the number of Shares present and voting but are not counted as votes for or against a proposal.

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Please do not send your share certificates at this time. If the merger is completed, 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 may contact you may contact Morrow Sodali LLC, the firm assisting us with this proxy solicitation, at (800)-662-5200 toll-free in North America or at +1 (203) 658-9400 collect.

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

Notes:

In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy should be accepted to the exclusion of the votes of the joint holders and for this purpose seniority will be determined by the order in which the names stand in the register of members of the Company.

The proxy card should be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorized.

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

The chairman of the meeting may at his 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.

A vote given in accordance with the terms of a proxy card shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the proxy card or of the authority under which it was executed, provided that no notice in writing of such death, insanity or revocation shall have been received by the Company at its principal executive office before the commencement of the meeting or adjourned meeting at which the proxy is used.

	BY ORDER OF THE BOARD OF DIRECTORS,

	/s/ Yuebiao Li
	Yuebiao Li Chairman of the Board

Registered Office:

NovaSage Chambers

P.O. Box 4389

Road Town, Tortola

British Virgin Islands

Principal Executive Office Address:

1 Ruida Road, Laishan District, Yantai City

Shandong Province

People’s Republic of China

Table of Content

SUMMARY TERM SHEET	1
QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER	20
SPECIAL FACTORS	27
MARKET PRICE OF THE COMPANY’S SHARES, DIVIDENDS AND OTHER MATTERS	85
THE EXTRAORDINARY GENERAL MEETING	86
THE MERGER AGREEMENT AND PLAN OF MERGER	91
PROVISIONS FOR UNAFFILIATED SHAREHOLDERS	114
APPRAISAL RIGHTS	115
FINANCIAL INFORMATION	118
TRANSACTIONS IN THE SHARES	122
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY	123
FUTURE SHAREHOLDER PROPOSALS	124
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	125
WHERE YOU CAN FIND MORE INFORMATION	127
ANNEX A: AGREEMENT AND PLAN OF MERGER	A-1
ANNEX B: OPINION OF DUFF & PHELPS, LLC AS FINANCIAL ADVISOR	B-1
ANNEX C: BVI BUSINESS COMPANIES ACT, 2004 - SECTION 179	C-1
ANNEX D: DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON	D-1
ANNEX E: ROLLOVER AGREEMENT	E-1
ANNEX F: VOTING AGREEMENT	F-1
ANNEX G: LIMITED GUARANTEE	G-1
ANNEX H: SHARE SUBSCRIPTION AGREEMENT	H-1
ANNEX I: FORM OF PROXY CARD	I-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 127. In this proxy statement, the terms “we,” “us,” “our,” the “Company” refer to Newater Technology, Inc. and its subsidiaries. All references to “dollars” and “$” in this proxy statement are to U.S. dollars.

The Parties Involved in the Merger

The Company

We are a wastewater purification treatment company that focuses on the development, manufacture and sale of DTRO and DTNF membrane filtration products that are used in the treatment, recycling and discharge of wastewater. We also supply hardware and engineered systems necessary to implement integrated solutions. We provide engineering support and installation, technical advice and service, and other project-related solutions to filter wastewater into valuable, clean water. In addition, we act as a solution provider and purify wastewater for customers, such as landfill leachate treatment and purification service. Our DTRO expertise enables us to develop an array of core materials and technologies that can be applied in a variety of ways to solve complex filtration, separation and purification challenges related to wastewater treatment. We also offer traditional wastewater treatment solutions, such as activated carbon and resins. Our products can be used across a wide spectrum of industries that include a wastewater treatment component and applications to treat wastewater for discharge or filtration into high quality, re-useable clean water, including:

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Treatment of leachate from landfills;

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Treatment of power plant wastewater;

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Treatment of wastewater from oilfields;

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Treatment of wastewater from gas production;

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Treatment of high acid wastewater;

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Treatment of high alkali wastewater; and

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Desalination.

We currently primarily serve the energy, refuse (garbage and waste), and chemical industries. Our deep customer process knowledge, scientific expertise, and related engineering know-how enable us to provide cost-effective solutions for our customers, with products that are specifically targeted to meet their needs.

We are actively pursuing additional markets and applications for our products and services, such as industrial parks, city sewage, and seawater desalination. Virtually all of the raw materials, process fluids and waste streams resulting from industrial applications are candidates for multiple stages of filtration, separation and purification.

We seek to establish long-term, strategic relationships with our clients by delivering specific filtration products and/or systems that help reduce our clients’ operating costs and increase water filtration efficiencies. To achieve these objectives, we work closely with our clients to understand their specific water filtration needs. We enter into individualized contracts containing pricing terms tailored to the client’s operation, with pricing driven by the value we create for the client, rather than a pricing model focused solely on being able to deliver the least expensive product or system offering. We believe we can enhance our ability to withstand competitive pricing pressure and obtain new and retain existing clients by offering tailored products and customized water treatment solutions.

Our principal executive offices are located at 1 Ruida Road, Laishan District, Yantai City, Shandong Province, People’s Republic of China. Our telephone number at this address is (+86) 535-8012911 and our email is market@newater.cc. Our registered office in the British Virgin Islands is at the offices of NovaSage Chambers, P.O. Box 4389, Road Town, Tortola, British Virgin Islands, British Virgin Islands. Our agent for service of process in the United States is Vcorp Agent Services, Inc. located at 25 Robert Pitt Dr., Suite 204, Monsey, New York 10952. Our corporate website is www.dtnewa.com.

For a description of our history, development, business and organizational structure, see our annual report on Form 20-F for the year ended December 31, 2020, as amended, originally filed on May 3, 2021, which is incorporated herein by reference. Please see “Where You Can Find More Information” beginning on page 127 for a description of how to obtain a copy of our annual report.

The Parent

Crouching Tiger Holding Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (the “Parent”), which is beneficially owned by Mr. Yuebiao Li (through his wholly owned entity, Pure Blue Holding Limited) and Ms. Zhuo Zhang (through her wholly owned entity, Gooden Sunrise Holding Limited) and was formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. The Parent does not currently hold any Shares of the Company. The registered office of the Parent is located at the offices of Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way 802 West Bay Road, Grand Cayman, KY1-1205 Cayman Islands. The telephone number of the Parent is (+86) 535-8012911.

The Merger Sub

Green Forest Holding Limited, a 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 the Parent and a wholly owned subsidiary of the Parent (the “Merger Sub”), was formed by the Parent solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. The Merger Sub does not currently hold any Shares of the Company. The registered office of the Merger Sub is located at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands. The telephone number of the Merger Sub is (+86) 535-8012911.

Mr. Li Filing Persons

Mr. Yuebiao Li (“Mr. Li”), a citizen of the People’s Republic of China, has served as the chief executive officer of the Company and chairman of board of directors of the Company since June 2016. Mr. Li is the founder of the Company. The business address of Mr. Li is c/o Yantai Jinzheng Eco-Technology Co., Ltd., 1 Ruida Road, Laishan District, Yantai City, Shandong Province, People’s Republic of China. The telephone number of Mr. Li is (+86) 535-8012911.

Tigerwind Group Limited (“Tigerwind”), an investment holding company wholly owned and controlled by Mr. Li, is organized under the laws of the British Virgin Islands with its principal business address at c/o Yantai Jinzheng Eco-Technology Co., Ltd., 1 Ruida Road, Laishan District, Yantai City, Shandong Province 264000, People’s Republic of China. The telephone number of Tigerwind is (+86) 535-8012911.

Pure Blue Holding Limited (“Pure Blue”, together with Mr. Li and Tigerwind, collectively, “Mr. Li Filing Persons”), an investment holding company wholly owned and controlled by Mr. Li, is organized under the laws of the British Virgin Islands with its registered address at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands. The telephone number of Pure Blue is (+86) 535-8012911.

Ms. Zhang Filing Persons

Ms. Zhuo Zhang (“Ms. Zhang”), a citizen of the People’s Republic of China, has served as the chief financial officer of the Company and vice chairman of board of directors of the Company since June 2016. The business address of Ms. Zhang is c/o Yantai Jinzheng Eco-Technology Co., Ltd., 1 Ruida Road, Laishan District, Yantai City, Shandong Province, People’s Republic of China. The telephone number of Ms. Zhang is (+86) 535-8012911.

Gooden Sunrise Holding Limited (“Gooden Sunrise”, together with Ms. Zhang, collectively, “Ms. Zhang Filing Persons”), an investment holding company wholly owned and controlled by Ms. Zhang, is organized under the laws of the British Virgin Islands with its registered address at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands. The telephone number of Gooden Sunrise is (+86) 535-8012911.

Mr. Sui Filing Persons

Mr. Xiangqian Sui (“Mr. Sui”) is a citizen of the People’s Republic of China and his principal occupation is an employee of Shanghai Chenyi Environmental Technology Co., Ltd. The business address of Mr. Sui is No.10, No.137 Sanma Road, Zhifu District, Yantai City, Shandong Province, People’s Republic of China. The telephone number of Mr. Sui is (+86) 135-7350-9377.

Forwater Holdings Limited (“Forwater”, together with Mr. Sui, collectively, “Mr. Sui Filing Persons”), an investment holding company wholly owned and controlled by Mr. Xiangqian Sui, is organized under the laws of the British Virgin Islands with its registered address at NovaSage Chambers, Wickham’s Cay II, Road Town, Tortola, British Virgin Islands. The telephone number of Forwater is (+86) 135-7350-9377.

Yancoal

Yancoal is a private company limited by shares organized under the laws of the Hong Kong Special Administration Region. As a wholly-owned subsidiary of Yanzhou Coal Mining Company Limited, a joint stock limited company with limited liability incorporated in the PRC and listed on the Hong Kong stock exchange (“Yanzhou Mining”), Yancoal acts as a holding platform for Yanzhou Mining’s certain overseas assets and also engages in business management for the Yanzhou Mining group of companies. The Yanzhou Mining group of companies’ primary business activities include coal production, coal chemical, railway transportation, power and heat generation, manufacturing of electrical and mechanical equipment, and equity investments. The principal business address of Yancoal is located at 14/F One Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong S.A.R. The telephone number of Yancoal is +86-537-5384231.

Throughout this proxy statement, the Parent, the Merger Sub, Mr. Li Filing Persons, Ms. Zhang Filing Persons, following September 29, 2020, Mr. Sui Filing Persons, and, following December 2, 2020, Yancoal are collectively referred to as the “Buyer Group.”

The Merger (Page 91)

You are being asked to vote to authorize and approve the agreement and plan of merger dated as of September 29, 2020 (the “merger agreement”) by and among the Company, the Parent and the Merger Sub, the plan of merger required to be filed with the Registrar of Corporate Affairs of the British Virgin Islands, substantially in the form attached as Appendix 1 to the merger agreement (the “plan of merger”) and the transactions contemplated by 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, the Merger Sub will merge with and into the Company, with the Company continuing as the surviving company. The Company, as the surviving company, will continue to do business under the name “Newater Technology, 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 92)

Under the terms of the merger agreement, at the effective time of the merger, each of our outstanding common shares, par value $0.001 per share (each, a “Share” and collectively, the “Shares”), issued and outstanding immediately prior to the effective time of the merger, other than the following excluded Shares (the “Excluded Shares”): (a) Shares beneficially owned by the Rollover Shareholders (the “Rollover Shares”); (b) Shares (the “Dissenting Shares”) owned by holders of Shares who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 179 of the BVI Business Companies Act, 2004, as amended (the “BVI Companies Act”) (the “Dissenting Shareholders”) and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury), will be cancelled in exchange for the right to receive $3.65 in cash without interest, net of any applicable withholding taxes. Each Excluded Share issued and outstanding immediately prior to the effective time of the merger, will be cancelled and will cease to exist, and no consideration will be delivered with respect thereto, provided however, each Dissenting Shareholder will be entitled to receive only the payment resulting from the procedure in Section 179 of the BVI Companies Act with respect to Shares owned by such Dissenting Shareholder. Please see “Appraisal Rights” beginning on page 115 for additional information.

Voting Agreement (Page 74)

Concurrently with the execution and delivery of the merger agreement, each of the Rollover Shareholders entered into a voting agreement with the Parent (the “Voting Agreement”), pursuant to which, among other matters, (a) during the period commencing on the date of the Voting Agreement and continuing until termination of the Voting Agreement in accordance with its terms, each Rollover Shareholder and each of his, her or its affiliates that acquires beneficial ownership of any Share will appear at the shareholders’ meeting or otherwise cause the Shares to be counted as present thereat for purposes of establishing a quorum and vote (or cause to be voted) the Shares in favor of the approval of the merger agreement, the approval of other actions contemplated by the merger agreement and any actions required in furtherance thereof, and any matters necessary for the consummation of the transactions contemplated by the merger agreement; and (b) each Rollover Shareholder irrevocably appoints the Parent and any designee thereof as its proxy and attorney-in-fact (with full power of substitution), to vote or cause to be voted (including by proxy or written consent, if applicable) the Shares at the extraordinary shareholders’ meeting in favor of the approval of the merger agreement and the approval of other actions contemplated by the merger agreement and any actions required in furtherance thereof. Each Rollover Shareholder represents that all proxies, powers of attorney, instructions or other requests given by such shareholder prior to the execution of the merger agreement in respect of the voting of such shareholder’s Shares, if any, are not irrevocable and such shareholder hereby revokes (or causes to be revoked) any and all previous proxies, powers of attorney, instructions or other requests with respect to such Rollover Shareholder’s Shares. Each Rollover Shareholder will take such further action or execute such other instruments as may be necessary to effectuate the intent of this proxy statement.

The Voting Agreement will terminate on the earliest to occur of: (a) termination of the merger agreement in accordance with its terms; (b) delivery of a written agreement of the Parent and the Company (at the direction of the independent committee) to terminate the Voting Agreement; and (c) the effective time of merger. The Voting Agreement is attached as Annex F to this proxy statement.

Record Date and Voting (Page 87)

You are entitled to attend and directly 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 February 10, 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 on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the Share record date, there will be 10,809,000 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 July 11, 2021 at 8:30 am (Beijing Time). See “Summary Term Sheet – Voting Information” below.

Shareholder Vote Required to Authorize and Approve the Merger Agreement and Plan of Merger (Page 88)

In order for the merger to be completed, the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, must be authorized and approved by an affirmative vote of shareholders representing more than fifty percent (50%) of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. The authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, are not subject to the authorization and approval of holders of a majority of the Shares unaffiliated with the Buyer Group.

Based on the number of Shares we expect to be issued and outstanding and entitled to vote on the record date, approximately 5,404,501 Shares must be voted in favor of the proposal to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, in order for the proposal to be authorized and approved, assuming all shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

As of the date of this proxy statement, the Rollover Shareholders as a group beneficially owned in the aggregate 5,200,000 Shares, which represents 48.1% of the total outstanding voting Shares. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 123 for additional information. Pursuant to the terms of the Voting Agreement, these Shares will be voted in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger at the extraordinary general meeting of the Company. Based on the number of Shares expected to be outstanding on the record date, 204,501 Shares owned by the unaffiliated shareholders (representing approximately 3.6% of the total outstanding Shares owned by the unaffiliated shareholders) must be voted in favor of the proposal in order for the merger to be approved, assuming all remaining shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

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 88)

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, 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 July 11, 2021 at 8:30 am (Beijing Time).

Appraisal Rights of Shareholders (Page 115)

Shareholders who dissent from the merger will have the right to seek appraisal and payment of the fair value of their Shares if the merger is completed, on the condition that they deliver to the Company, before the vote is taken, a written objection to the merger and subsequently comply with all procedures and requirements of Section 179 of the BVI Companies Act regarding the exercise of appraisal rights. 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 according to the merger agreement if you do not exercise appraisal rights with respect to your Shares.

We encourage you to review carefully the section of this proxy statement entitled “Appraisal Rights” as well as Annex C to this proxy statement and to consult your British Virgin Islands legal counsel if you consider exercising your appraisal rights.

Purposes and Effects of the Merger (Page 64)

The purpose of the merger is to enable the 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 $3.65 per Share without interest and net of any applicable withholding taxes, so that the 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 – Purpose of and Reasons for the Merger” beginning on page 64 for additional information.

The Shares are currently listed on the NASDAQ Capital Market (“NASDAQ”) (under the symbol “NEWA”). 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 directly owned by the Parent. Following the completion of the merger, the Shares will cease to be listed on any securities exchange or quotation system, including 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 record 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”) will be terminated and the Company will no longer be required to file periodic reports with the SEC or otherwise be subject to the U.S. federal securities laws, including the Sarbanes-Oxley Act of 2002, applicable to public companies. Following the completion of the merger, the Company’s shareholders will no longer enjoy the rights or protections that the U.S. federal securities laws provide to shareholders of public companies, 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 66 for additional information.

Plans for the Company after the Merger (Page 70)

After the effective time of the merger, the 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 an independent public company and will instead be a wholly owned subsidiary of the Parent, and through the Parent, beneficially owned by the Buyer Group.

Recommendations of the Independent Committee and the Board of Directors (Page 39)

The independent committee has unanimously (a) determined that the merger, on the terms and subject to the conditions set forth in the merger agreement, is fair to, and in the best interests of, the Company and shareholders who are unaffiliated with the Buyer Group, (b) approve and declared it advisable for the Company to enter into the merger agreement, the plan of merger, other transaction documents and the transactions contemplated thereby, including the merger, (c) recommended that the board of directors authorize and approve the entry into by the Company of the merger agreement, the plan of merger, other transaction documents and the transactions contemplated thereby, including the merger, and (d) recommended that the board of directors of the Company direct that the authorization and approval of the merger agreement, the plan of merger substantively in the form contained in Appendix 1 to the merger agreement (the “plan of merger”), and the transactions contemplated under the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors of the Company that the shareholders of the Company authorize and approve by way of a shareholders resolution the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger.

ACCORDINGLY, OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AUTHORIZE AND APPROVE 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 SHAREHOLDERS RESOLUTION DURING THE EXTRAORDINARY GENERAL MEETING.

Position of the Buyer Group as to the Fairness of the Merger (Page 47)

Each member of the Buyer Group believes that the merger is fair (both substantively and procedurally) to the Company’s 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 47.

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 aforementioned person 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 and the transactions contemplated by the merger agreement, including the merger.

Financing of the Merger (Page 72)

The Parent estimates that the total amount of funds necessary to complete the merger and the related transactions at the closing of the merger, including for the payment of the merger consideration to our unaffiliated shareholders pursuant to the merger agreement, is anticipated to be approximately $20.5 million, assuming no exercise of dissenters’ 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.

The Buyer Group expects to fund this amount through the cash proceeds from issuance by the Parent of ordinary shares of the Parent to Pure Blue, Gooden Sunrise, and Yancoal (each, a “Subscriber”, and together, the “Subscribers”), pursuant to that certain subscription agreements dated as of December 2, 2020, pursuant to which the Subscribers have agreed to provide the Parent with cash contributions in an aggregate amount of $20,472,850.5 for the purchase of an aggregate number of 5,609,000 ordinary shares of the Parent.

Limited Guarantee (Page 74)

Concurrently with the execution of the merger agreement, Mr. Li and Ms. Zhang have entered into a limited guarantee (the “Original Limited Guarantee”) with the Company to guarantee a portion of the Parent’s obligation to pay a “Tier I Parent Termination Fee” in the amount of $550,000, a “Tier II Parent Termination Fee” (together with Tier I Parent Termination Fee, collectively, the “Parent Termination Fee”) in the amount of $275,000, and certain other payment obligations of the Parent in relation to the collection of the Parent Termination Fee, if and as required pursuant to the terms of the merger agreement.

On December 2, 2020, Mr. Li, Ms. Zhang, and the Company entered into a release and termination of limited guarantee agreement (the “Guarantee Termination Agreement”), pursuant to which the Original Limited Guarantee was terminated. Concurrently with the execution of the Guarantee Termination Agreement, Mr. Li, Ms. Zhang and Yancoal entered into a limited guarantee with the Company in favor of the Company (the “Limited Guarantee”), the terms and conditions of which are materially similar to those of the Original Limited Guarantee, to guarantee the Parent’s obligation to pay the Parent Termination Fee, and certain other payment obligations of the Parent in relation to the payment of the Parent Termination Fee, if and as required pursuant to the terms of the merger agreement.

Rollover Agreement (Page 73)

Concurrently with the execution of the merger agreement, each of the Rollover Shareholders entered into a rollover agreement with the Parent (the “Rollover Agreement”). Subject to the conditions set forth in the Rollover Agreement, immediately prior to the effective time of the merger and without further action by the Rollover Shareholders, all Rollover Shares will be cancelled without receiving any merger consideration, and the Parent will issue ordinary shares of the Parent in the name of each Rollover Shareholder or a designee of the Rollover Shareholder in the amount equal to the amount of the Rollover Shares. Each Rollover Shareholder acknowledges and agrees that (a) delivery of such the Parent shares will constitute complete satisfaction of all obligations towards or sums due such Rollover Shareholder by the Parent with respect to the cancellation of applicable Rollover Shares; and (b) on receipt of such the Parent shares, such Rollover Shareholder will have no right to any merger consideration with respect to the Rollover Shares contributed to the Parent by such Rollover Shareholder.

Share Subscription Agreement (Page 73)

Concurrently with the execution of the merger agreement, each of Pure Blue and Gooden Sunrise respectively entered into a share subscription agreement with the Parent (the “Original Share Subscription Agreement”). Pursuant to the terms and conditions thereof, Pure Blue and Gooden Sunrise have agreed to provide the Parent with cash contributions in an aggregate amount of $742,856 in exchange for the Parent’s issuance of 203,522 shares of the Parent.

On December 2, 2020, Yancoal entered into a share subscription agreement with the Parent, pursuant to which Yancoal agreed to provide the Parent with cash contributions in an amount of $17,753,783 in exchange for the Parent’s issuance of 4,864,050 shares of the Parent. On the same date, each of Pure Blue and Gooden Sunrise entered into an amended and restated share subscription agreement to amend and restate the Original Share Subscription Agreement, pursuant to which Pure Blue and Gooden Sunrise committed to provide the Parent with cash contributions in a total amount of $2,719,067.5 in exchange for the purchase of 744,950 shares of the Parent. The proceeds thereof will be used by the Parent to fund the merger consideration or other amounts payable by the Parent and the Merger Sub at the closing of the merger to consummate the merger pursuant to and in accordance with the merger agreement.

Share Ownership of the Company Directors and Officers and Voting Commitments (Page 123)

As of the record date, we expect that the Buyer Group will beneficially own approximately 48.1% of our issued and outstanding Shares entitled to vote. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 123 for additional information.

Pursuant to the Voting Agreement, the Rollover Shareholders have agreed to irrevocably approve the Parent and its designees as its proxy and attorney-in-fact and vote all in favor of the merger agreement and consummation of the transactions contemplated thereby, including the merger. If completed, the merger will result in the Company becoming a privately held company and its Shares will no longer be listed on the NASDAQ.

Opinion of the Independent Committee’s Financial Advisor (Page 52)

The independent committee contacted and received proposals from Duff & Phelps, LLC (“Duff & Phelps”) and another investment banking firm to select its independent financial advisor. After having conducted an interview with Duff & Phelps, the independent committee retained Duff & Phelps on June 3, 2020. Among the reasons for Duff & Phelps’ selection were its qualifications, expertise, significant experience dealing with China-based companies, strong reputation, and its knowledge of the business and the relevant industry.

On September 29, 2020, Duff & Phelps, LLC (“Duff & Phelps”) rendered its oral opinion, subsequently confirmed in writing, to the independent committee that, as of September 29, 2020 and based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps as set forth in its opinion, the $3.65 per Share merger consideration, to be received by the holders of the Shares (other than the Excluded Shares), in the merger 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 the Shares other than in their capacity as a holder of Shares).

The opinion of Duff & Phelps was addressed to the independent committee and only addressed the fairness from a financial point of view of the consideration to be received by holders of the Shares (other than the Excluded Shares) in the merger, and does not address any other aspect or implication of the merger. The summary of the opinion of Duff & Phelps in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex B to this proxy statement and sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in preparing its opinion. We encourage holders of the Shares to read carefully the full text of the written opinion of Duff & Phelps. However, the opinion of Duff & Phelps and the summary of the opinion and the related analyses set forth in this proxy statement are not intended to be, and do not constitute advice or a recommendation to any holder of the Shares as to how to act or vote with respect to the merger or any other matter. Please see “Special Factors – Opinion of the Independent Committee’s Financial Advisor” beginning on page 52 for additional information.

Interests of the Company’s Executive Officers and Directors in the Merger (Page 75)

In considering the recommendations of the board of directors, 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:

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the beneficial ownership of equity interests in the Parent by Mr. Li and Ms. Zhang and the prospective beneficial ownership of equity interests in the Parent by Mr. Li and Ms. Zhang at and after the effective time of the merger;

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the potential enhancement or decline of share value for the Parent, of which Mr. Li and Ms. Zhang will beneficially own, as a result of the merger and future performance of the surviving company;

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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;

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the monthly compensation of Five Thousand RMB (¥5,000) of Ms. Zhicun Chen, Mr. Yan Shen and Mr. Hengtong Li, each of which is a member of the independent committee, in exchange for their services in such capacity (the payment of which is not contingent upon the completion of the merger or the independent committee’s or the board’s recommendation of the merger);

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cancellation of Rollover Shares by Mr. Li and Ms. Zhang in exchange for newly issued shares of the Parent; and

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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.

The independent committee and our board of directors 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 75 for additional information.

Conditions to the Merger (Page 107)

The obligations of each party to complete the transactions contemplated by the merger agreement, including the merger, is subject to the satisfaction of the following conditions:

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the merger agreement, the plan of merger and transactions contemplated by the merger agreement, including the merger, being authorized and approved by an affirmative vote of shareholders representing more than fifty percent (50%) of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting (or any adjournment or postponement thereof) of the Company’s shareholders; and

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no court or other governmental entity of competent jurisdiction having enacted, issued, promulgated, enforced or entered any law (whether temporary, preliminary or permanent) that is in effect which restrains, enjoins or otherwise prohibits the consummation of the merger.

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

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the representations and warranties of the Company in the merger agreement being true and correct as of the date of the merger agreement and as of the closing date (or as of a specific date, to the extent such representation or warranty is expressly made as of a specific date), except where the failure of such representations and warranties to be so true and correct has not had any material adverse effect;

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the Company having performed in all material respects all obligations required to be performed by it under the merger agreement at or prior to the closing date;

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since the date of the merger agreement, there having been no effect that has had, individually or in the aggregate, a material adverse effect and is ongoing;

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the Parent having received a certificate signed by an executive officer of the Company certifying as to the fulfillment of the above conditions; and

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all regulatory filings, permits, authorizations, consents and approvals that are required by applicable laws of the People’s Republic of China to be made or obtained in connection with the merger and the other transactions contemplated by the merger agreement prior to the closing should have been duly made or obtained, or the statutory clearance or non-objection period in respect of any such regulatory filing or notification has expired and no objection has been raised with respect to the merger and the other transactions contemplated by the merger agreement, in each case, in accordance with applicable laws of the People’s Republic of China.

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

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the representations and warranties of the Parent and the Merger Sub in the merger agreement being true and correct as of the date of the merger agreement and as of the closing date (or as of a specific date, to the extent such representation or warranty is expressly made as of a specific date), except where the failure of such representations and warranties to be so true and correct has not had, individually or in the aggregate, prevented or materially adversely affected the ability of the Parent or the Merger Sub to consummate the merger;

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each of the Parent and the Merger Sub having performed in all material respects all obligations required to be performed by it under the merger agreement at or prior to the closing date; and

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the Company having received a certificate signed by an officer or director of each of the Parent and the Merger Sub certifying as to the fulfillment of the above conditions.

Acquisition Proposals (Page 100)

From the date of the merger agreement until the effective time of the merger or, if earlier, the termination of the merger agreement, neither the Company nor any of its subsidiaries nor any of the officers and directors of it or any of its subsidiaries will: (a) solicit, initiate or encourage the submission of any proposal or offer that constitutes, or may reasonably be expected to lead to, any acquisition proposal or any inquiries that may lead to any such proposal or offer; (b) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public information with respect to the Company or any of its subsidiaries to facilitate, induce, or encourage any acquisition proposal; or (c) enter into any letter of intent, agreement or agreement in principle with respect to an acquisition proposal.

Notwithstanding the foregoing, prior to the receipt of the required shareholder authorization and approval of the merger agreement, if the Company has otherwise complied in all material respects with its obligations set forth in the preceding paragraph,

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following receipt by the Company of an unsolicited bona fide acquisition proposal, the Company and its representatives may contact such person solely in order to (a) clarify and understand the terms and conditions of any acquisition proposal made by such person so as to determine whether such acquisition proposal constitutes or would reasonably be expected to result in a superior proposal and (b) notify such person of the non-solicitation restrictions as set forth under the merger agreement;

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(a) if the independent committee has determined in good faith that such acquisition proposal either constitutes a superior proposal or would reasonably be expected to result in a superior proposal, the Company may (x) provide information in response to a request therefor by a person (other than any affiliate of the Company) who has made such an acquisition proposal that the independent committee believes in good faith to be bona fide and if the Company receives from the person so requesting such information an executed confidentiality agreement containing terms at least as restrictive as those contained in the merger agreement; and promptly discloses (and, if applicable, provides copies of) any such information to the Parent and the Merger Sub to the extent not previously provided to the Parent and the Merger Sub; and (y) engage or participate in any discussions or negotiations with any person who has made such an acquisition proposal; or (b) if the independent committee determines in good faith (after consultation with its independent financial advisor and outside legal counsel) that such acquisition proposal is a superior proposal, approve, recommend, or otherwise declare advisable or propose to approve, recommend or declare advisable (publicly or otherwise) such an acquisition proposal;

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the Company agrees that it will promptly (and, in any event, within 48 hours) notify the Parent of any acquisition proposal (including, without limitation, all material terms and conditions thereof and the identity of the person making it) after its receipt thereof, and provide the Parent with a copy of any written acquisition proposal or amendments or supplements thereto, and thereafter inform the Parent on a reasonably current basis of the status of any inquiries, discussions or negotiations with such third party, and any material changes to the terms and conditions of such acquisition proposal.

Change of Recommendation (Page 102)

The board of directors of the Company and the independent committee will not:

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subject to certain exceptions and conditions, withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify) in a manner adverse to the Parent or the Merger Sub the recommendation to the shareholders of the Company to vote in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger; or

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subject to certain exceptions and conditions, cause or permit the Company to enter into any alternative acquisition agreement, including letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement (other than a confidentiality agreement relating to any acquisition proposal).

However, prior to, but not after, obtaining the required shareholder authorization and approval of the merger agreement, the board of directors of the Company, based on the recommendation of the independent committee, may (x) withhold, withdraw, qualify or modify the company recommendation in a manner adverse to the Parent or the Merger Sub, and/or authorize the Company to terminate the merger agreement, or (y) approve, recommend or otherwise declare advisable any superior proposal not solicited, entered into or agreed to in breach of obligations under the merger agreement, and/or authorize the Company to terminate the merger agreement or enter into an alternative acquisition agreement with respect to such superior proposal, in each case, if the board of directors of the Company (acting through the independent committee) determines in good faith, after consultation with outside legal counsel to the independent committee, that failing to do so is inconsistent with its fiduciary obligations under applicable laws; provided, however, that prior to making any such adverse recommendation:

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the Company and the independent committee will give the Parent and the Merger Sub at least five (5) business days written notice advising that the Company (acting through the independent committee) currently intends to take such action and the basis therefor;

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during the five (5) business day period following the Parent’s and the Merger Sub’s receipt of such notice of superior proposal, the Company will, and will cause its representatives to, negotiate with the Parent and the Merger Sub in good faith (to the extent the Parent and the Merger Sub desire to negotiate) to make such adjustments in the terms and conditions of the merger agreement so that such superior proposal ceases to constitute a superior proposal; and

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following the end of the five (5) business day period, the Company will have determined in good faith, taking into account any changes to the merger agreement proposed in writing by the Parent and the Merger Sub, that the acquisition proposal continues to constitute a superior proposal. Any material amendment to any acquisition proposal will be deemed to be a new acquisition proposal and will require a new notice of superior proposal to the Parent and the Merger Sub and the Company will be required to comply with the requirements under the merger agreement fully with respect to such amended acquisition proposal.

Termination of the Merger Agreement (Page 109)

The merger agreement may be terminated at any time prior to the effective time, whether before or after shareholder approval has been obtained:

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by mutual written consent of the Company and the Parent;

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by either the Parent or the Company, if:

the merger is not consummated on or before the date falling twelve (12) months from the date of the merger agreement (the “Termination Date”); provided that on or before the Termination Date, the condition that all regulatory filings, permits, authorizations, consents and approvals that are required by applicable laws of the People’s Republic of China to be made or obtained in connection with the merger and the other transactions contemplated by the merger agreement prior to the closing have been duly made or obtained, or the statutory clearance or non-objection period in respect of any such regulatory filing or notification has expired and no objection has been raised with respect to the merger and the other transactions contemplated by the merger agreement, in each case, in accordance with applicable laws of the People’s Republic of China (such condition, “PRC Regulatory Condition”), has been satisfied or waived; provided, however, that the right to terminate the merger agreement is not available to a party if the failure of the merger to have been consummated on or before the Termination Date was primarily due to the breach or failure of such party to perform in any material respect any of its obligations under the merger agreement;

(x) the merger has not been consummated on or before the Termination Date solely due to the PRC Regulatory Condition failing to be satisfied or waived, and (y) the PRC Regulatory Condition has not been satisfied on or before the date falling three (3) months from the Termination Date;

any injunction permanently restraining, enjoining or otherwise prohibiting the consummation of the merger becomes final and non-appealable; provided, however, that this termination right will not be available to a party if the issuance of such injunction was primarily due to the breach or failure of such party to perform in any material respect any of its obligations under the merger agreement; or

the shareholders’ meeting has been held and completed and the requisite shareholders’ approval has not been obtained at the extraordinary general meeting duly convened therefor or at any adjournment or postponement thereof;

●

by the Company, if:

the Parent or the Merger Sub has breached any of its representations, warranties, covenants or agreements under the merger agreement, or any representation or warranty made by the Parent or the Merger Sub under the merger agreement is not true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the Termination Date, or if curable, is not cured within thirty (30) business days following receipt by the Parent or the Merger Sub of written notice from the Company; provided that this termination right is not available to the Company if it is then in material breach of any representations, warranties, covenants or other agreements under the merger agreement that would result in the corresponding conditions to closing would not be satisfied;

prior to the receipt of the shareholders’ approval, the board of directors of the Company, based on recommendation of the independent committee, has effected a Company adverse recommendation; or

(a) all of the closing conditions that are the obligation of the Parent and the Merger Sub are otherwise satisfied (other than those conditions that by their nature are to be satisfied at the closing); (b) the Parent and the Merger Sub fail to complete the closing within ten (10) business days following the date the closing should have occurred according to the merger agreement; and (c) the Company stands ready, willing and able to consummate the transactions contemplated hereby during such period; or

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by the Parent, if:

the Company has breached any of its representations, warranties, covenants or agreements under the merger agreement, or any representation or warranty made by the Company under the merger agreement is not true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the Termination Date, or if curable, is not cured within thirty (30) business days following receipt by the Company of written notice from the Parent; provided that this termination right is not available to the Parent if it is then in material breach of any representations, warranties, covenants or other agreements under the merger agreement that would result in the corresponding conditions to closing would not be satisfied; or

prior to the receipt of the requisite shareholders’ approval, (a) the board of directors of the Company has effected a company adverse recommendation, or has resolved to take any such action; or (b) the Company or the board of directors of the Company has publicly announced its intention to do any of the foregoing.

Termination Fee (Page 111)

The Company is required to pay the Parent a termination fee of $275,000, if:

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(a) a bona fide acquisition proposal has been made, proposed or communicated (and not withdrawn) by a third party after the date of the merger agreement and prior to the extraordinary shareholders’ meeting (or prior to the termination of the agreement if there has been such extraordinary shareholders’ meeting); (b) following the occurrence of an event described in the preceding sentence (a), the merger agreement is terminated by the Company or the Parent pursuant to the merger agreement, because (i) the merger has not been consummated on or before the Termination Date, or (ii) the requisite shareholders’ approval has not been obtained at the shareholders’ meeting; and (c) within twelve (12) months of the termination of the merger agreement, any acquisition proposal by such third party is entered into or consummated by the Company;

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the merger agreement is terminated by the Company, if prior to the receipt of the requisite shareholders’ approval, the board of directors of the Company (upon recommendation of the independent committee) has effected a Company adverse recommendation in order to enter into an alternative acquisition agreement relating to a superior proposal; or

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the merger agreement is terminated by the Parent due to a breach by the Company of their representations, warranties, covenants or agreements in the merger agreement, or a failure of any of their representations or warranties in the merger agreement being true and correct, such that the corresponding condition to closing cannot be satisfied.

The Parent is required to pay the Company a termination fee of $550,000, if:

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the merger agreement is terminated by the Company due to a breach by the Parent or the Merger Sub of their representations, warranties, covenants or agreements in the merger agreement, or a failure of any of their representations or warranties in the merger agreement being true and correct, such that the corresponding condition to closing cannot be satisfied; or

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the merger agreement is terminated by the Company in the event that (a) all of the closing conditions that are the obligation of the Parent and the Merger Sub are otherwise satisfied (other than those conditions that by their nature are to be satisfied at the closing); (b) the Parent and the Merger Sub fail to complete the closing within ten (10) business days following the date the closing should have occurred according to the merger agreement; and (c) the Company stands ready, willing and able to consummate the transactions contemplated hereby during such period.

The Parent is required to pay the Company a termination fee of $275,000, if:

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the merger agreement is terminated by the Company or the Parent in the event that (a) the merger has not been consummated on or before the Termination Date solely due to the PRC Regulatory Condition failing to be satisfied or waived; and (b) the PRC Regulatory Condition has not been satisfied on or before the date falling three (3) months from the Termination Date.

Fees and Expenses (Page 79)

Whether or not the merger is consummated, all costs and expenses incurred in connection with the merger agreement and the merger and the other transactions contemplated by the merger agreement will be paid by the party incurring such expense. Please see “Special Factors – Fees and Expenses” beginning on page 79 for additional information.

Material U.S. Federal Income Tax Consequences (Page 80)

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 80 for additional information. The tax consequences of the merger to you will depend upon your personal circumstances. Because we may be or have been a passive foreign investment company, or PFIC, for U.S. federal income tax purposes during a U.S. Holder’s holding period for Shares, any gain recognized by a U.S. Holder on the receipt of cash in exchange for such U.S. Holder’s Shares may be taxed under special U.S. federal income tax rules, as described under “Material U.S. Federal Income Tax Consequences.” You should consult your tax advisors for a full understanding of the U.S. federal, state, local, foreign and other tax consequences of the merger to you.

Material PRC Income Tax Consequences (Page 84)

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 cash for our Shares should otherwise be subject to PRC tax to holders of such Shares that are not PRC residents. However, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a resident enterprise. If the PRC tax authorities were to determine that the Company should be considered a resident enterprise, then gain recognized on the receipt of cash for our Shares pursuant to the merger by our shareholders who are not PRC 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), and, 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.

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.

Material British Virgin Islands Tax Consequences (Page 84)

The British Virgin Islands currently have 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. Please see “Special Factors – Material British Virgin Islands Tax Consequences” beginning on page 84 for additional information.

Regulatory Matters (Page 80)

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 the approvals, filings or notices required under the federal securities laws and the filing of the plan of merger (and supporting documentation as specified in the BVI Companies Act) with the Registrar of Corporate Affairs of the British Virgin Islands (the “Registrar”) and if he is satisfied that the requirements under the British Virgin Islands laws in respect of the merger have been complied with, the Registrar will issue a certificate of merger in the approved form.

Accounting Treatment of the Merger (Page 80)

Upon completion of the merger, the Company would cease to be a publicly traded company, and the Company expects to account for the merger at historical cost.

Market Price of the Shares (Page 85)

The closing price of the Shares on NASDAQ on May 11, 2020, the last trading date immediately prior to the Company’s announcement on May 12, 2020 that it had received “a going private” proposal, was $2.12 per Share. The merger consideration of $3.65 per Share, to be paid in the merger represents a premium of approximately 72.1% to that closing price.

QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER

The following questions and answers address briefly 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.

What is the merger?

The merger is a going private transaction pursuant to which the 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, the 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 NASDAQ, the Company will cease to be a publicly traded company.

What will I receive in the merger?

If you own Shares and the merger is completed, you will be entitled to receive $3.65 in cash, without interest and net of any applicable withholding taxes, for each Share you own as of the effective time of the merger (unless you validly exercise and have not effectively withdrawn or lost your appraisal rights under Section 179 of the BVI 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 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 80 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, foreign and other taxes.

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

If you are a registered holder of Shares, promptly after the effective time of the merger (in any event within three business days after the effective time of the merger), a paying agent appointed by the Parent will mail you (a) a form of 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 $3.65 in cash, without interest and net of any applicable withholding taxes, in exchange for the cancellation of your Shares.

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.

When and where will the extraordinary general meeting be held?

The extraordinary general meeting will take place on July 12, 2021, at 8:30 am (Beijing Time), at 1 Ruida Road, Laishan District, Yantai City, Shandong Province, People’s Republic of China.

What matters will be voted on at the extraordinary general meeting?

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

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

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to approve any motion to adjourn or postpone 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 shareholders resolution during the extraordinary general meeting.

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

In order for the merger to be completed, the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger must, be authorized and approved by an affirmative vote of shareholders representing more than fifty percent (50%) of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. At the close of business in the British Virgin Islands on February 10, 2021, the record date for the extraordinary general meeting, we expect that there will be 10,809,000 Shares issued and outstanding and entitled to vote at the extraordinary general meeting. Pursuant to the Voting 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 and the transactions contemplated by the merger agreement, including the merger. As of the date of this proxy statement, the Rollover Shareholders beneficially owned 5,200,000 Shares, approximately 48.1% of the total issued and outstanding Shares entitled to vote. Based on the number of Shares expected to be outstanding on the record date, 204,501 Shares, approximately 3.6% of the total outstanding Shares entitled to vote owned by the unaffiliated shareholders must be voted in favor of the proposal in order for the merger to be approved, assuming all remaining shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

How does the Company board of directors recommend that I vote on the proposals?

After careful consideration and upon the unanimous recommendation of the independent committee, our board of directors by a unanimous vote (with Mr. Li and Ms. Zhang abstaining) recommends that you vote:

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

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FOR the proposal to approve any motion 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 shareholders resolution during the extraordinary general meeting.

Who is entitled to vote at the extraordinary general meeting?

The share record date is February 10, 2021 (British Virgin Islands time). 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 directly vote at the extraordinary general meeting or any adjournment thereof.

What constitutes a quorum for the extraordinary general meeting?

At the commencement of the meeting, the presence, in person or by proxy, of shareholders holding not less than one-third (1/3) of the votes of the issued and outstanding Shares that are entitled to vote on the record date will constitute a quorum for the extraordinary general meeting.

What effects will the merger have on the Company?

As a result of the merger, the Company will cease to be a publicly traded company and will be indirectly wholly owned by the Buyer Group. 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.

When do you expect the merger to be completed?

We are working toward completing the merger as quickly as possible and currently expect the merger to close in the third quarter of 2021. In order to complete the merger, we must obtain shareholder approval 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.

What happens if the merger is not completed?

If our shareholders do not authorize and approve the merger agreement, the plan 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 NASDAQ, provided that the Company continues to meet 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 the Parent a termination fee, or the 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 111.

What do I need to do now?

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.

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

If Shares are registered in your name as of the record date, 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 72 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 and 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 shareholders 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.

If my Shares are held in a brokerage account, will my broker vote my Shares on my behalf?

Your broker, bank or other nominee will only vote your Shares on your behalf 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 on your behalf, those Shares may not be voted.

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?

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.

May I change my vote?

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

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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 1 Ruida Road, Laishan District, Yantai City, Shandong Province, People’s Republic of China 264003;

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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

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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.

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

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.

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

No. After the merger is completed, you will be sent a form of 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 (i.e., holders whose Shares are held in book entry) 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.

As a Shareholder, am I entitled to appraisal rights?

Yes. Shareholders who dissent from the merger will have the right to seek appraisal and payment of the fair value of their Shares if the merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the merger and they subsequently comply with all procedures and requirements of Section 179 of the BVI Companies Act, as amended, for the exercise of appraisal rights. 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.

We encourage you to read the information set forth in this proxy statement carefully and to consult your own British Virgin Islands legal counsel if you desire to exercise your appraisal rights. Please see “Appraisal Rights” beginning on page 115 as well as “Annex C – BVI Business Companies Act, 2004 – Section 179” to this proxy statement for additional information.

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

Yes. To assist in the solicitation of proxies, the Company has engaged Morrow Sodali LLC as its proxy solicitor.

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

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

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the beneficial ownership of equity interests in the Parent by Mr. Yuebiao Li, the chairman of the board of the directors of the Company and chief executive officer of the Company, and Ms. Zhuo Zhang, vice chairman of the board of the directors of the Company and chief financial officer of the Company;

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the potential enhancement or decline of share value for the Parent, of which Mr. Li and Ms. Zhang will beneficially own, as a result of the merger and future performance of the surviving company;

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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;

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the monthly compensation of Five Thousand RMB (¥5,000) of Ms. Zhicun Chen, Mr. Hengtong Li, and Mr. Yan Shen, each of which is a member of the independent committee, in exchange for their services in such capacity (the payment of which is not contingent upon the completion of the merger or the independent committee’s or the board’s recommendation of the merger);

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Cancellation of Rollover Shares by each of Mr. Li and Ms. Zhang in exchange for newly issued shares of the Parent; and

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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.

Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 75 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.

How will our directors and executive officers vote on the proposal to approve the merger agreement?

Pursuant to the Voting Agreement, all of the Rollover Shareholders (including certain officers and directors of the Company, such as Mr. Yuebiao Li, the chairman of the board of the directors of the Company and chief executive officer of the Company, and Ms. Zhuo Zhang, vice chairman of the board of the directors of the Company and chief financial officer of the Company) have agreed to vote, or cause to be voted, all of the Shares they beneficially own, representing an aggregate of approximately 48.1% of the total issued and outstanding Shares entitled to vote as of February 10, 2021, plus any Shares that they may acquire after February 10, 2021 in favor of the proposal to approve the merger agreement and the transactions contemplated thereby, including the merger.

Who can help answer my questions?

SPECIAL FACTORS

Background of the Merger

Our board of directors and senior management periodically review the Company’s long-term strategic plans with the goal of enhancing shareholder value. As part of this ongoing process, our board of directors and senior management, from time to time, have considered strategic alternatives that may be available to the Company.

In late 2019, Mr. Yuebiao Li (“Mr. Li”) began to consider and evaluate a going private transaction as one of the potential alternatives relating to his stake in the Company. Mr. Li considered a going private transaction for multiple reasons. The Company faces costs and administrative burdens associated with its operation as a U.S. publicly traded company, including the costs associated with regulatory filings and compliance requirements. By taking the Company private, such costs can be reduced and the Company will be able to turn its focus away from meeting the short-term expectations of its shareholders to undertaking long-term strategic planning and investments. Mr. Li began to consider a going private transaction after studying the feasibility of going private transactions and learning about the successful completion of going private transactions involving a number of U.S.-listed China-based issuers. Around the same time, Mr. Li discussed his preliminary thoughts on a potential going private transaction with attorneys at DLA Piper (“DLA”), which later served as his U.S. legal counsel in connection with a potential transaction.

On May 12, 2020, the board of directors of the Company received a preliminary, non-binding proposal letter from Mr. Li and Ms. Zhuo Zhang (“Ms. Zhang”, together with Mr. Li, the “Founders”), to acquire all of the outstanding shares of the Company not currently owned by each of them and their respective affiliates and other management members of the Company who may choose to roll over their shares in a potential going private transaction, at a price of US$3.1 per Share in cash. At that time, no other member of management of the Company had agreed to roll over their shares.

On May 12, 2020, the board of directors held a telephonic meeting to discuss the proposal of Mr. Li and Ms. Zhang and determined that it was in the best interests of the Company and its shareholders to form an independent committee, consisting of the board’s three independent and disinterested directors, Ms. Zhicun Chen (to serve as chairman of the independent committee), Mr. Hengtong Li and Mr. Yan Shen, to evaluate the proposal submitted by Mr. Li and Ms. Zhang and other strategic alternatives for the Company. At the meeting, all members of the board of directors (except for Mr. Yuebiao Li and Ms. Zhuo Zhang who recused themselves from the meeting) approved the establishment of the independent committee by means of the unanimous vote. The board of directors delegated full power and authority to the independent committee in connection with its evaluation of the proposal from Mr. Li and Ms. Zhang, including, among other things, the power and authority to: (a) explore, review and determine the best course or courses of action for the Company in order to maximize the Company’s value in the best interests of the Company and its shareholders; (b) review and evaluate the terms and conditions and determine the advisability of the terms of the proposal from the Founders or any alternative transaction, determine whether the proposal from the Founders or other alternatives to the Potential Transaction (including the possibility of remaining as an independent company) can be recommended to the board of directors, including negotiating the price, structure, form, terms and conditions of the proposal from the Founders or any alternative transaction; (c) advise the board of directors whether the proposal from the Founders or any alternative transaction was advisable and fair to, and in the best interests of, the Company and its unaffiliated shareholders; (d) reject or approve the proposal from the Founders or any alternative transaction, or recommend such rejection or approval to the board of directors; and (e) engage legal, financial and other advisors and obtain any professional opinions from such advisors. The board of directors agreed that it would not recommend the proposed transaction or any alternative transaction for approval by the Company’s shareholders or otherwise approve the proposed transaction or any alternative transaction without a prior favorable recommendation by the independent committee.

The Founders, after submitting the proposal to the Company’s board of directors, restricted their involvement as directors of the Company in the board of directors’ consideration of the proposal or any alternative transaction and recused themselves from the meeting of the board in which the board considered the proposal or any alternative transaction.

On May 12, 2020, the Company issued a press release disclosing its receipt of the proposal letter, the proposed transaction and the formation of the independent committee. Following a video meeting with MagStone Law, LLP on May 18, 2020 and discussion with MagStone the qualifications of MagStone’s attorneys and their experiences on similar transactions, the independent committee retained MagStone Law, LLP (“MagStone”) as its independent legal counsel on June 1, 2020. Other than a discrete corporate assignment for which MagStone was engaged in 2019 unrelated to the merger, MagStone had not performed any work for the Founders, affiliates of members of the Founders or the Company prior to its engagement by the independent committee. The independent committee determined that the prior engagement of MagStone by the Company would not raise any conflicts of interest concern or limit MagStone’s ability to represent the independent committee.

On May 14, 2020, Mr. Li, Tigerwind Group Limited, an investment holding company wholly owned and controlled by Mr. Li (“Tigerwind”), and Ms. Zhang filed with the Securities and Exchange Commission (the “SEC”) a Schedule 13D, in connection with the submission of the non-binding proposal for the acquisition of Shares not currently owned by Mr. Li, Ms. Zhang, and their respective affiliates.

Between May 12, 2020 and May 28, 2020, the independent committee contacted and received proposals from Duff & Phelps, LLC (“Duff & Phelps”) and another investment banking firm that had expressed interest in being considered for the roles of the independent financial advisor to the independent committee. After having conducted an interview with Duff & Phelps and deliberation on the experience, qualifications and reputation of financial advisor candidate, on May 28, 2020, the independent committee approved the engagement of Duff & Phelps as its independent financial advisor. Among the reasons for Duff & Phelps’ selection were its extensive experience in M&A transactions, including representing special committees in going private transactions, its strong reputation, its significant experience dealing with China-based companies, its lack of existing material relationships with the Company or the Founders and its ability to interact in both English and Chinese. The independent committee subsequently entered into an engagement letter with Duff & Phelps on June 3, 2020.

On June 1, 2020, the independent committee held a telephonic meeting with MagStone. At the meeting, MagStone discussed with the independent committee, among other things, the general process and timeline of a going private transaction, the independent committee’s role and responsibilities in such a transaction, best practices for an independent committee in the context of a going private transaction, and outside advisors’ respective roles in assisting the independent committee in its work. MagStone also reviewed with the independent committee a written presentation on the independent committee’s fiduciary duty to the shareholders of the Company unaffiliated with the Founders in connection with the proposed transaction. MagStone then interviewed each member of the independent committee as to whether he or she was aware of any conflict that would prevent him or her from objectively evaluating the proposed going private transaction initiated by the Founders. Each member of the independent committee stated that he or she was not aware of any such conflict and confirmed that he or she was comfortable serving as a member of the independent committee.

On June 1, 2020, MagStone provided DLA with a draft form of confidentiality agreement to be entered into by and between each Founder and the Company. DLA sent to MagStone its comments on the draft confidentiality agreement on June 3, 2020.

On June 3, 2020, the Company issued a press release announcing the retention of MagStone and Duff & Phelps, respectively, as independent legal and financial advisors to the independent committee to assist in the proposed transaction.

On June 5, 2020, the independent committee held a telephonic meeting with MagStone and Duff & Phelps. During the meeting, representatives of Duff & Phelps discussed with the independent committee the principal areas of work that they plan to undertake and explained to the independent committee the need for Duff & Phelps to conduct financial due diligence on the Company in order to evaluate the fairness of the proposed transaction from a financial point of view. After the discussion, the independent committee instructed Duff & Phelps to proceed with the financial due diligence on the Company.

On June 16, 2020, Zhicun Chen, the chairman of the independent committee, on behalf of the Company, entered into a confidentiality agreement with each Founder.

On July 23, 2020, Duff & Phelps provided the independent committee with the financial projections of the Company that Duff & Phelps received from the Company’s management members. Later on the same date, the independent committee held a telephonic meeting with MagStone and Duff & Phelps. During the meeting, Duff & Phelps walked the independent committee through the financial projections of the Company. Members of the independent committee asked questions regarding the financial projections to which representatives of Duff & Phelps answered. Members of the independent committee also discussed the financial projections extensively among themselves. After these discussions, the independent committee approved the financial projections provided and instructed Duff & Phelps to perform the valuation analysis of the Company based on the financial projects provided and other information that Duff & Phelps deems appropriate and relevant.

On August 5, 2020, DLA circulated an initial draft of a merger agreement and an initial draft of a share subscription agreement to MagStone.

On August 9, 2020, MagStone provided the independent committee with its suggested revisions and a preliminary list of key issues with respect to the initial drafts of the merger agreement and the subscription agreement, which include, among others, (a) the lack of guarantee provided by the Founders for the Parent’s performance of certain of its obligations under the merger agreement, (b) the limitations on the Company’s ability to terminate the merger agreement, (c) the funding of the merger consideration; (d) the lack of termination fee on the part of the Parent, (e) the proposed use of available cash of the Company (“Available Company Cash”) by Parent and Merger Sub as a source of funds to pay the aggregate merger consideration and the fees and expenses payable by them in connection with the merger; (f) the funding obligation in the event of a shortfall in the Available Company Cash, and (g) the lack of express contractual provisions enabling the Company to enforce the subscription agreement.

On August 10, 2020, DLA circulated an initial draft of a rollover agreement and an initial draft of a voting agreement to MagStone.

On August 13, 2020, the independent committee held a telephonic meeting with MagStone and Duff & Phelps. During the meeting, the independent committee discussed with its advisors whether to conduct a pre-signing “market check”. At the request of the independent committee, Duff & Phelps orally briefed to the independent committee the use of a pre-signing “market check” and/or a “go shop” in similar prior “going private” transactions. The independent committee asked various questions regarding potential benefits, advantages, limitations, disadvantages of the use of a pre-signing “market check” and/or “go-shop” in a “going private” transaction, which Duff & Phelps and MagStone answered. Members of the independent committee also discussed these topics extensively among themselves. After extensive discussion of various related considerations, which include, among other things, the fact that no potential buyer has approached the Company since the Company’s announcement of the proposal by the Founders on May 12, 2020 and the size of the equity stake directly or indirectly held by the Founders in the Company, the independent committee unanimously concluded that conducting a pre-signing “market check” would likely be futile.

MagStone then discussed with the independent committee the key issues raised in the initial draft merger agreement, share subscription agreement, rollover agreement and voting agreement received from DLA, and offered recommendations on the positions to be taken by the independent committee. Among other things, the independent committee and MagStone discussed (a) the need for additional representations and warranties by the Parent, (b) the necessity for certain members of the Buyer Group to guarantee certain of the Parent’s obligations under the merger agreement, (c) the exceptions to the restrictions on the Company’s solicitation of alternative proposals, (d) the approach to be taken with respect to any third-party acquisition proposals during the period between signing and the required shareholders’ approval, (e) the ability of the Company to terminate the merger agreement in the absence of a superior proposal from a third party, (f) the payment by the Parent of a termination fee under appropriate circumstances, (g) the party responsible for providing additional fund in the event of a shortfall in Available Company Cash, and (h) the need to add obtaining certain PRC regulatory approvals as a closing condition to the proposed transaction. After its discussion with MagStone, the independent committee instructed MagStone to revise the merger agreement and other transaction documents and negotiate with DLA based on the following positions: (i) the Parent and the Merger Sub should provide additional representations, warranties and covenants under the merger agreement; (ii) the Company should have a “go shop” right, pursuant to which the Company may actively solicit alternative acquisition proposals from other potential buyers during a specified period after the signing of the merger agreement; (iii) the Company should have the right to terminate the merger agreement in the event of “intervening events” in the absence of any superior proposal; (iv) the Company should be entitled to receive from the Parent the termination fee if the merger agreement is terminated because the Parent materially breaches its representations, warranties or covenants, or because the closing fails to occur when all closing conditions are satisfied or waived; (v) the Parent is obligated to seek alternative backup financing when Available Company Cash is not sufficient; (vi) certain members of the Buyer Group should guarantee certain of the Parent’s obligations under the Merger Agreement; and (vii) the Company should be made a third-party beneficiary entitled to enforce the performance of the obligations of the parties to each of the subscription agreements, rollover agreement and voting agreement.

On August 17, 2020, at the instruction of the independent committee, MagStone sent DLA an initial draft of a limited guarantee and the revised drafts of the merger agreement, share subscription agreement, rollover agreement and voting agreement reflecting the independent committee’s positions formulated at the meeting on August 13, 2020.

On August 19, 2020, the independent committee held a telephonic meeting with MagStone and Duff & Phelps. During the meeting, the independent committee conducted an interview with Ogier, the BVI legal counsel. Representatives from Ogier presented the firm’s practice, qualifications and deal experiences. After the interview, the representatives from Ogier excused from the meeting. The independent committee upon deliberation unanimously agreed to engage Ogier as its BVI legal counsel. At the request of the independent committee, Duff & Phelps orally updated the independent committee on the status of its financial due diligence on the Company, and answered related questions from the independent committee. The independent committee then had an extensive discussion with its advisors with respect to requesting the Buyer Group to increase its proposed purchase price. Based on these discussions, the independent committee authorized Duff & Phelps to reach out to the Buyer Group to request a purchase price increase from the Buyer Group.

On August 20, 2020, Duff & Phelps, at the direction of the independent committee, sent to the Buyer Group the independent committee’s request that the Buyer Group increase the proposed purchase price.

On August 21, 2020, DLA circulated a revised merger agreement to MagStone.

On August 24, 2020, the independent committee held a telephonic meeting with MagStone, Duff & Phelps and Ogier. During the meeting, Ogier (a) gave a presentation to the independent committee on the fiduciary duty of the members of the independent committee to the Company’s shareholders unaffiliated with the Buyer Group in connection with the proposed going-private transaction under the laws of the British Virgin Islands, and (b) reviewed with the independent committee ways that the independent committee can better ensure that it fulfills its obligations under the laws of the British Virgin Islands, including without limitation, the importance of the members of the independent committee to be familiar with the responsibilities and other provisions set forth in the charter of the independent committee, to review the terms and conditions of proposed transactions carefully, to act honestly in good faith with duty of care and not violate the applicable laws or articles of association, to not be in the personal conflict, to act independently and not just to follow the opinion of the buyer party, and to act for the best interest of the Company and the shareholders of the Company.

MagStone then discussed with the independent committee certain key issues presented in the revised draft merger agreement from DLA. In particular, MagStone drew the independent committee’s attention to the following positions taken by the Buyer Group: (a) the board of directors may not make a change in its recommendation upon occurrence of an “intervening event” in the absence of a superior proposal from a third party; (b) the Company may not have a post-signing “go shop” right; (c) the Company, not the Parent, should be obligated to cover the funding gap in the event of a shortfall in the Available Company Cash; (d) the Company should bear the risk of failure to obtain any PRC regulatory approvals necessary for the consummation of the merger (including those related to foreign exchange control); (e) that each of the Company and the Parent may terminate the merger agreement if the merger is not consummated on or before the date (the “Outside Date”) that is twelve months from the date of the merger agreement; and (f) the amount of termination fee payable by the Parent should be decreased. After discussing with MagStone and Duff & Phelps, the independent committee concluded that, in light of the ability of the board of directors of the Company to terminate the merger agreement in the event of a more favorable proposal and the lack of any alternative proposal from a third party in competition with the proposed merger, it is acceptable for the Company not to condition its entering into the merger agreement upon having a post-signing “go shop” right. The independent committee instructed MagStone to continue to negotiate with the Buyer Group and DLA on the other key issues raised in the revised merger agreement from DLA. On the same date, at the instruction of the independent committee, MagStone circulated a revised merger agreement to DLA.

On August 26, 2020, MagStone circulated Ogier’s comments on the transaction documents to DLA and held a telephonic meeting with DLA to discuss the merger agreement.

On August 27, 2020, the independent committee held a telephonic meeting with MagStone and Duff & Phelps. During the meeting, Duff & Phelps updated the independent committee on the progress of its financial analysis on the Company, and answered related questions from the independent committee. MagStone provided the independent committee with a status update on the merger agreement negotiation with the Buyer Group. In particular, MagStone noted the following positions taken by the Buyer Group: (a) agreeing to make the Parent responsible for providing alternative backup financing in the event of a shortfall in the Available Company Cash to be used to fund a part of the merger consideration, (b) agreeing to make the Outside Date ten months from the date of the merger agreement, (c) agreeing to increase by a percentage the termination fee payable by the Parent and suggesting that the amount of termination fee payable by each party be reduced on a proportional basis, (d) rejecting payment by the Parent of a termination fee in the event of failure to timely obtain PRC regulatory approvals necessary for the consummation of the merger, and (e) rejecting giving the Company the right to terminate the merger agreement upon occurrence of an intervening event in the absence of a superior proposal from a third party. After discussion with MagStone and Duff & Phelps, the independent committee instructed MagStone to continue to negotiate with DLA, and among others, convey to DLA that the Buyer Group should bear the risk of PRC regulatory approvals and the Parent should be obligated to pay a termination fee to the Company in the event that the merger is not consummated due to a failure to obtain any applicable PRC regulatory approvals.

On August 28, 2020, MagStone held a telephonic meeting with DLA to covey the position of the independent committee and discuss the outstanding issues in the transaction documents.

On September 6, 2020, MagStone circulated the revised merger agreement to DLA.

From September 8, 2020 to September 29, 2020, MagStone and DLA, through an exchange of drafts and telephonic meetings, continued to negotiate the terms of the merger agreement and other transaction documents, including the share subscription agreement, the limited guarantee, the rollover agreement, and the voting agreement. During this period, Mr. Sui indicated his intention to participate in the going private transaction as a Rollover Shareholder. DLA circulated the revised merger agreement to MagStone on September 24, 2020, and MagStone, at the direction of the independent committee, circulated further comments on the revised merger agreement to DLA on September 25, 2020.

On September 26, 2020, the independent committee held a telephonic meeting with MagStone and Duff & Phelps. During the meeting, Duff & Phelps provided an update to the independent committee on the progress of its financial analysis on the Company. MagStone provided an update to the independent committee regarding the status of the negotiation of the merger agreement and the other transaction documents. Among other things, MagStone noted to the independent committee that (a) the Buyer Group’s increase of the proposed purchase price from $3.1 per Share to $3.15 per Share, (b) the Buyer Group’s agreement that the Parent bear the risk of a shortfall in the Available Company Cash to be used to finance a portion of the merger consideration, (c) the right of the Parent to make alternative financing arrangement to replace all or a portion of the Available Company Cash, (d) the Parent’s agreement to a pay a termination fee payable in the event of a failure to obtain requisite PRC regulatory approvals necessary for the consummation of the merger which amount is half of the termination fee payable by Parent under other circumstances under which it is required to pay a termination fee, (e) the change of the Outside Date to twelve months after the date of the merger agreement, (f) a proposed right to extend the Outside Date for an additional three month if the failure to consummate the merger results solely from the failure to obtain necessary PRC regulatory approvals, and (g) the rejection to give the Company the right to terminate the merger agreement upon occurrence of an intervening event in the absence of a superior proposal from a third party.

The independent committee then discussed extensively with MagStone and Duff & Phelps on these issues. During the discussions, Duff & Phelps suggested the independent committee to ask the Buyer Group to raise the proposed purchase price based on its analysis. After these discussions, the independent committee determined that (i) based on Duff & Phelps’ suggestion, there is room for the Buyer Group to increase the proposed purchase price; (ii) the Parent should have the ability to seek alternative financing to replace a portion or all of Available Company Cash required for funding the transaction; and (iii) the reduction of the termination fee payable by the Parent is justifiable given regulatory risk relating to governmental approval is beyond either party’s control. The independent committee also concluded that it is acceptable for the Company not to have the right to terminate the merger agreement upon the occurrence of an intervening event in the absence of a superior proposal from a third party in exchange for a higher merger consideration after taking into account that the possibility of the occurrence of an intervening event is relatively remote. The independent committee directed MagStone to continue to negotiate with DLA and request an increase in the proposed purchase price. On the same date, MagStone circulated the revised transaction documents to DLA and, on behalf of the independent committee, requested an increase in the proposed purchase price.

On September 28, 2020, DLA circulated the revised merger agreement. MagStone presented the key developments in the revised merger agreement to the independent committee, noting that the proposed purchase price was increased from $3.15 to $3.56 per Share. On the same date, Ogier provided its further comments on the transaction documents.

On September 28, 2020, the independent committee held a telephonic meeting with MagStone and Duff & Phelps. During the meeting, the independent committee discussed with MagStone and Duff & Phelps opening issues such as the merger consideration and the financing arrangements. At the meeting, Duff & Phelps suggested the independent committee to ask the Buyer Group to further raise the proposed purchase price based on its analysis. Based on these discussions, the independent committee directed MagStone to inform DLA of the independent committee’s determination to request for a further increase of the proposed purchase price from the Buyer Group.

On September 29, 2020, DLA circulated the further revised transaction documents to MagStone, in which the Buyer Group increased the proposed purchase price from $3.56 per Share to $3.65 per Share. The Buyer Group stated that this represents their best and final offer.

On September 29, 2020, all independent committee members and the representatives of MagStone, Duff & Phelps, and Ogier held a telephonic meeting. During the meeting, representatives from Duff & Phelps presented to the independent committee its financial analysis with respect to the Company and the transaction proposed by the Buyer Group to acquire the Shares (other than the Excluded Shares) at a purchase price of $3.65 per Share. Duff & Phelps then rendered its oral opinion, which was subsequently confirmed in writing by delivery of its written opinion dated the same date, to the independent committee that, as of September 29, 2020, the $3.65 per Share merger consideration to be received by the holders of Shares (other than the Excluded Shares) in the proposed transaction 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), based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in preparing its opinion. The full text of the written opinion of Duff & Phelps is attached as Annex B to this proxy statement. For additional information regarding the financial analyses performed by and the opinion rendered by Duff & Phelps, please refer to “Special Factors - Opinion of the independent committee’s Financial Advisor” beginning on page 52. Representatives from MagStone then gave the independent committee an overview of the material terms reflected in the final draft merger agreement and other transaction documents.

Thereafter, the independent committee members discussed Duff & Phelps’ financial analyses and fairness opinion, following which the independent committee unanimously (a) determined that the merger, on the terms and subject to the conditions set forth in the merger agreement, is fair to, and in the best interests of, the Company and its shareholders who are unaffiliated with the Buyer Group, (b) approved and declared it advisable for the Company to enter into the merger agreement, the plan of merger, other transaction documents and the transactions contemplated thereby, including the merger, (c) recommended that the board of directors authorize and approve the entry into by the Company of the merger agreement, the plan of merger, other transaction documents and the transactions contemplated thereby, including the merger, and (d) recommended that the board of directors of the Company direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the shareholders of the Company authorize and approve by way of a shareholders resolution the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger. See “Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and the Board” beginning on page 39 for a description of the resolutions of the independent committee at this meeting.

On the same date following the meeting of the independent committee, the board of directors of the Company convened a meeting. During the meeting, upon the unanimous determination and recommendation of the independent committee and acting through the independent committee, the board of directors had (a) determined that the merger, on the terms and subject to the conditions set forth in the merger agreement, is fair to, and in the best interests of, the Company and its shareholders (including those shareholders who are unaffiliated with the Buyer Group), (b) approved the execution, delivery and performance by the Company of the merger agreement, the plan of merger and the consummation of the transactions contemplated thereby, including the merger, and (c) resolved to direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated thereby, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the stockholders of the Company authorize and approve the merger agreement and the consummation of the transactions contemplated thereby, including the merger. Mr. Yuebiao Li, the chairman of the board and Ms. Zhuo Zhang, the vice chairman of the board, did not participate in the vote due to their interests in the proposed transaction (which interests are described under the heading titled “Special Factors – Interests of Certain Persons in the Merger”).

Later on September 29, 2020, (i) the Company, the Parent, and the Merger Sub executed the merger agreement, (ii) the Company, Mr. Li, and Ms. Zhang executed the limited guarantee, (iii) the Parent and each Rollover Shareholder executed the voting agreement, (iv) the Parent and each Rollover Shareholder executed the rollover agreement, and (v) the Parent and each of Pure Blue and Gooden Sunrise executed the share subscription agreement. The Company then issued press release announcing the execution of the merger agreement and the ancillary documents and furnished the press release and the executed merger agreement to the SEC as exhibits to its current report on Form 6-K.

On October 2, 2020, Mr. Li, Tigerwind, Ms. Zhang, Mr. Sui, and Forwater filed with the SEC an Amendment No. 1 to the Schedule 13D filed with SEC on May 14, 2020.

Beginning in June 2020, the Founders began to engage in conversations with Yanzhou Coal Mining Company Limited, a joint stock limited company with limited liability incorporated in the PRC and listed on the Hong Kong stock exchange (“Yanzhou Mining”) to discuss potential commercial collaboration between the Company and Yanzhou Mining. At that time, the parties did not anticipate Yanzhou Mining or any of its affiliates would become equity sponsor of the going private transaction of the Company. Later on, in August 2020, through Yanzhou Mining’s introduction, Yancoal International (Holding) Co., Limited, a Hong Kong company and a wholly-owned subsidiary of Yanzhou Mining (“Yancoal”) entered into the conversation with the Founders, and indicated to the Founders that while it was possible that it may wish to participate in the going private transaction, it had not made any decision with respect to it. Then, in second half of October 2020, Yancoal started to seriously consider entering into the going private transaction. In or around November 2020, the Buyer Group began to correspond with Yanzhou Mining with respect to Yancoal’s potential involvement in the take private transaction through providing cash contributions to the Parent in exchange for the Parent’s issuance of shares of the Parent. Yancoal’s participation in the take private transaction would serve to reduce or remove the Buyer Group’s need to utilize Company cash to purchase any issued and outstanding shares held by public shareholders. Yancoal would also benefit by becoming an industry investor and shareholder in an operative PRC business with which Yanzhou Mining and its affiliate entities could potentially vertically integrate with. As a result of the Buyer Group’s negotiations with Yancoal, the parties agreed that (i) Yancoal would provide the Parent with certain amount of cash contributions in exchange for Parent’s issuance of shares of Parent; and (ii) Yancoal would become a party to the limited guarantee by executing a replacement limited guarantee whereby Yancoal, Mr. Li, and Ms. Zhang, would severally but not jointly guarantee certain payment obligations of the Parent under the merger agreement.

In consideration of the above, on November 26, 2020, DLA circulated certain amended share subscription agreements, limited guarantee and other agreement to MagStone, notifying that the Buyer Group has sought alternative financing from Yancoal to replace the use of a portion of the Available Company Cash (the “Company Cash Alternative Financing”). Among other things, (i) Yancoal would enter into a share subscription agreement with the Parent, pursuant to which Yancoal would subscribe 4,864,050 ordinary shares of the Parent in an aggregate amount US$17,753,783, (ii) Yancoal would enter into a limited guarantee with Mr. Yuebiao Li, Ms. Zhuo Zhang and the Company in favor of the Company to guarantee certain payment obligations of the Parent under the merger agreement and the original limited guarantee entered by and among Mr. Yuebiao Li, Ms. Zhuo Zhang, and the Company dated as of September 29, 2020 (the “Original Limited Guarantee”) would be terminated through a termination agreement, and (iii) each of Pure Blue and Gooden Sunrise would enter into an amended and restated share subscription agreement amending the share subscription agreement dated as of September 29, 2020, pursuant to which Pure Blue and Gooden Sunrise would subscribe 744,950 shares of the Parent in an aggregate amount of $2,719,067.5.

From November 30, 2020 to December 2, 2020, MagStone, through an exchange of drafts and telephonic meetings, provided the comments to, and discussed with DLA on the share subscription agreements, the limited guarantee, the termination agreement and other documents in connection with the Company Cash Alternative Financing.

On December 1, 2020, the independent committee held a telephonic meeting with MagStone and Duff & Phelps. During the meeting, MagStone provided an update to the independent committee on the proposed Company Cash Alternative Financing.

The independent committee then discussed such Company Cash Alternative Financing with Duff & Phelps and MagStone. Following discussion, the members of the independent committee unanimously approved (i) the proposed Company Cash Alternative Financing, (ii) the Company to enter into a release and termination of limited guarantee and a limited guarantee, and (iii) Parent to enter into an amended and restated share subscription agreement with each of Pure Blue and Gooden Sunrise.

On December 2, 2020, (i) the Company, Yancoal, Mr. Li, and Ms. Zhang executed a limited guarantee, (ii) the Company, Mr. Li and Ms. Zhang executed the release and termination of limited guarantee agreement terminating the Original Limited Guarantee, (iii) the Parent and Yancoal executed a share subscription agreement, (iv) the Parent and Pure Blue executed an amended and restated share subscription agreement, and (v) the Parent and Gooden Sunrise executed an amended and restated share subscription agreement.

On December 7, 2020, Mr. Li, Tigerwind, Ms. Zhang, Mr. Sui, and Forwater filed with the SEC an Amendment No. 2 to the Schedule 13D filed with SEC on May 14, 2020.

On February 22, 2021, the independent committee received an unsolicited, preliminary, and non-binding acquisition proposal letter from Fulcan Capital Partners LLC, a Nevada limited liability company (“Fulcan”), to acquire all outstanding ordinary shares of the Company at a purchase price of US$4.90 per share (the “Fulcan Proposal”), which proposal letter is intended as a competing offer to the proposed going-private transaction contemplated in the merger agreement. Fulcan noted that it intends to finance the transaction with “debt and/or equity capital,” and that it expects the proposed transaction to be completed by the end of the second quarter of 2021.

On February 23, 2021, the independent committee held a telephonic meeting with MagStone. At the meeting, the independent committee discussed with MagStone the Fulcan Proposal and the independent committee’s obligations with respect to the Fulcan Proposal. The independent committee concluded that it needs additional information to conduct a meaningful review and evaluation of the Fulcan Proposal and instructed MagStone to contact Fulcan’s counsel and obtain additional information on the Fulcan Proposal. Later that day, MagStone, on behalf of the independent committee, made inquiries to YK Law LLP, Fulcan’s counsel (“Fulcan’s Counsel”), via email on certain matters relating to the Fulcan Proposal, including, without limitation, the shareholding history of Fulcan and its affiliates in the Company and proof of the source of funding for the proposed purchase price.

On February 24, 2021, Fulcan’s Counsel provided MagStone with an email response. In particular, Fulcan’s Counsel noted that Fulcan had received a one-page letter of intent (the “LOI”) from a purported lender, Zhongcai Guofa Urban Construction Investment Fund (Beijing) Co. Ltd (the “Purported Lender”), a “state-owned investment fund with an interest in environmental technologies” (emphasis added), according to Fulcan. The LOI indicates that the Purported Lender expects to provide Fulcan with approximately US$50 million in the form of a secured loan to finance the proposed transaction. Fulcan’s Counsel noted that, to the extent necessary, members of Fulcan are prepared to use their own funds to contribute at least US$10 million to finance the transaction. Fulcan’s Counsel noted that Fulcan, together with a member of Fulcan, holds a total of 143,500 shares of the Company. These shares constituted approximately 1.3% of all outstanding shares of the Company.

On February 27, 2021, the independent committee held a telephonic meeting with MagStone and Ogier. During the meeting, Ogier reviewed with members of the independent committee in length the fiduciary duties of the independent committee with respect to the Fulcan Proposal. Ogier reminded the members of the independent committee that each member must at all times (a) act honestly, independently and in good faith with a view towards the best interests of the Company and all of its shareholders (i.e., not just the interests of the shareholders that are members of the buyer group, but also the interests of the minority shareholders), and (b) must not fetter his or her exercise of the director’s discretion by agreeing to vote on a matter in any predetermined way or in accordance with the directions of any third party. Among other things, Ogier noted to the members of the independent committee that each of them must (i) exercise his or her powers as an independent director for the purposes for which they are given and act in accordance with the responsibilities and other obligations set forth in the charter of the independent committee, the applicable provisions under the memorandum and articles of association of the Company, and all applicable laws and regulations, (ii) exercise the care, diligence and skill that a responsible director would exercise under the circumstances, taking into account all relevant factors, (iii) carefully review all terms and conditions of the proposed transactions, (iv) act impartially and in good faith, and not be unduly influenced by any party (including that from the buyer group), (v) ensure and maintain its independence and impartiality at all times, and (vi) keep a good record of its decision-making process.

The independent committee discussed with its legal counsels the Purported Lender’s company official registration records, which indicate that (i) its registered scope of business specifically prohibits the Purported Lender from making loans, and (ii) the Purported Lender’s registered shareholders are two natural persons contrary to the statement made by Fulcan’s Counsel that the Purported Lender is owned by the state. The independent committee discussed potential concerns over the legality and feasibility of the LOI and the Fulcan Proposal and concluded that the independent committee should obtain further analysis from PRC counsel. In addition, the independent committee reviewed, among other things, (a) the purchase price of $4.90 per share proposed by Fulcan, (b) the likelihood of Fulcan’s obtaining majority shareholders’ approval of its proposed transaction, (c) the likelihood of Fulcan’s obtaining regulatory approval for its plan for financing the proposed transaction, (d) potential costs and other risks to the Company that may be associated with the Fulcan Proposal, including the payment of a termination fee to the Parent, and (e) potential impact on the Company’s business prospects if the Fulcan Proposal is accepted. The independent committee instructed MagStone to request additional information from Fulcan’s Counsel, pending further PRC legal analysis.

On March 2, 2021, Beijing S&P (Yantai) Law Firm (“PRC Counsel”) provided the independent committee with a written analysis, stating that the financing arrangement presented by Fulcan may violate PRC laws and presents material regulatory risks.

On the same day, Fulcan sent another email to the independent committee, demanding that the independent committee take certain actions with respect to the Fulcan Proposal. On March 2, 2021, MagStone emailed Fulcan’s Counsel requesting clarification on, among other things, the legality of the financing arrangement set forth in the LOI. In a March 4, 2021 email response, Fulcan’s Counsel (i) stated that “[a]fter consulting with our Chinese counsel, we believe that the purported lending by [Purported Lender] does not violate Chinese law if it is properly structured,” and (ii) provided, by way of an example, an arrangement involving a loan from a subsidiary of the Purported Lender to a to-be-formed Fulcan secondary PRC subsidiary (the “Fulcan Sub”) and, in turn, the application by the Fulcan Sub for regulatory approval for using the proceeds of the loan to finance the proposed transaction. As to the apparent discrepancy between the official records and Fulcan’s Counsel’s statement with respect to the Purported Lender’s ownership, Fulcan’s Counsel states that “[w]e have sought further information from [Purported Lender], due to the esoteric nature of the investment fund regulatory regime. We are informed that whilst the Purported Lender has state enterprises background, it chose to register as a private investment company owned by individuals for specific reasons” (emphasis added). Fulcan’s Counsel did not elaborate what it meant by “state enterprises background,” whether the Purported Lender having “state enterprises background” is synonymous to its being “state-owned” as previously claimed, or what the “specific reasons” entail. Nor did it identify which state-owned entities are owners of the Purported Lender despite having been requested to provide evidence supporting its previous claim that the Purported Lender is state-owned.

On March 5, 2021, PRC Counsel provided an additional written report analyzing the Fulcan Proposal. PRC Counsel noted that, among other things, (i) the Fulcan Sub would be prohibited under PRC laws from using the proceeds of the loan from a subsidiary of the Purported Lender to finance the proposed transaction, and (ii) the Fulcan Sub must have been in legal existence for more than one year before it can finance the proposed transaction. PRC Counsel concluded that the financing plan as proposed lacks feasibility and would have little chance of receiving regulatory approval.

On the same day, the independent committee held a meeting with MagStone, Ogier and PRC Counsel to review the additional information provided by Fulcan’s Counsel and PRC Counsel’s written report. The independent committee concluded that the Fulcan Proposal presents material legal risks and lacks feasibility. Among other things, the opaque arrangement with respect to the Purported Lender’s ownership presents an additional layer of risk, casting doubt on the credibility, feasibility and legality of the Fulcan’s Proposal. Based on its careful consideration of various aspects of the Fulcan Proposal, the independent committee unanimously determined that it is in the best interests of the Company and its shareholders to reject the Fulcan Proposal as currently proposed, and to continue to recommend the Company’s unaffiliated shareholders to authorize and approve the merger agreement, the plan of merger and the transactions contemplated thereby, including the merger. In a subsequent meeting of the Company’s board of directors, the recommendation of the independent committee was adopted as the recommendation of the entire board of directors.

On March 8, 2021, the Company filed with the SEC an Amendment No. 3 to the Schedule 13E-3 filed with SEC.

On March 18, 2021 local time, the independent committee received, through Harney Westwood & Riegels LP, BVI counsel to Fulcan, an ex parte injunction order (the “Court Order”) entered as of March 16, 2021 by the Eastern Caribbean Supreme Court in the High Court of Justice, Virgin Islands (the “Court”). The Court Order was sought by Fulcan following the independent committee’s rejection of Fulcan’s proposal to purchase all outstanding ordinary shares of the Company not owned by Fulcan and an affiliate thereof due to the infirmities of such proposal. The Court Order enjoins the Company, the members of the board of directors, and Tigerwind, from taking any steps to proceed with the proposed merger transaction contemplated under the merger agreement. The Court Order also provides that the meeting be postponed until at least twenty days after the final determination of Fulcan’s claim or until further order of the court, whichever is later.

On March 18, 2021, the independent committee held a telephonic meeting with MagStone and Ogier. During the meeting, representatives from MagStone and Ogier explained to and informed the independent committee of the current status and the effects of Fulcan’s claims and the Court Order. The independent committee instructs Ogier to vigorously defend against Fulcan’s claim. The independent committee directed the Company to postpone the extraordinary general meeting of the shareholders of the Company originally scheduled on March 19, 2021, 2021, at 8:30 am (Beijing Time) until further notice and make prompt public disclosure in connection therewith. The Company publicly announced its receipt of the Court Order and postponement of the extraordinary general meeting on March 18, 2021.

On March 21, 2021, the Company filed with the SEC an Amendment No. 4 to the Schedule 13E-3 filed with SEC.

On June 17, 2021, the Eastern Caribbean Supreme Court in the British Virgin Islands (the “BVI Court”) held a hearing on the Court Order. In response to the ex parte order, the Company applied to discharge the Court Order on the basis that Fulcan had breached its duty of full and frank disclosure when applying for the injunction. The BVI Court granted the Company’s application and discharged the Court Order. In discharging the injunction with immediate effect, the BVI Court accepted the Company’s submissions that the Court had been misled by Fulcan at the ex parte hearing on March 16, 2021. The BVI Court did not dismiss Fulcan’s underlying lawsuit but observed that if Fulcan decides not to withdraw its lawsuit, it will need to be amended in light of the discharge of the injunction and the judge’s comments. The Company’s application to strike out Fulcan’s lawsuit remains on the BVI Court’s file to be restored by the Company if so advised.

On June 21, 2021, the independent committee held a telephonic meeting with MagStone and Ogier. During the meeting, Ogier informed the independent committee of the results and the legal effects of the hearing in the BVI Court on June 17, 2021. Ogier noted to the independent committee, among other things, that although Fulcan remains free to pursue its claim before the BVI Court, it will need to be amended in light of the discharge of the injunction and the judge’s comments; and as currently pleaded, Fulcan’s claim has a low prospect of success. The Company’s application to strike out Fulcan’s lawsuit remains on the BVI Court’s file to be restored by the Company if so advised. After discussion with MagStone and Ogier, the members of the independent committee unanimously determined that it continues to recommend the Company’s unaffiliated shareholders to authorize and approve the merger agreement, the plan of merger and the transactions contemplated thereby, including the merger. In a subsequent meeting of the Company’s board of directors, the recommendation of the independent committee was adopted as the recommendation of the entire board.

Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors

Our board of directors, acting upon the unanimous recommendation of the independent committee, which independent committee acted with the advice and assistance of its independent financial and legal advisors, evaluated the merger, including the terms and conditions of the merger agreement.

At a meeting on September 29, 2020, after careful deliberation and consultation with its financial advisor and legal counsel, the independent committee unanimously (a) determined that the merger, on the terms and subject to the conditions set forth in the merger agreement, is fair to, and in the best interests of, the Company and its shareholders who are unaffiliated with the Buyer Group, (b) approved and declared it advisable for the Company to enter into the merger agreement, the plan of merger, other transaction documents and the transactions contemplated thereby, including the merger, (c) recommended that the board of directors authorize and approve the entry into by the Company of the merger agreement, the plan of merger, other transaction documents and the transactions contemplated thereby, including the merger, and (d) recommended that the board of directors of the Company direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the shareholders of the Company authorize and approve by way of a shareholders resolution the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger.

On the same date following the independent committee meeting, the board of directors of the Company convened a meeting. Upon the unanimous determination and recommendation of the independent committee and acting through the independent committee, the board of directors of the Company had (a) determined that the merger, on the terms and subject to the conditions set forth in the merger agreement, is fair to, and in the best interests of, the Company and its shareholders (including those shareholders who are unaffiliated with the Buyer Group), (b) approved the execution, delivery and performance by the Company of the merger agreement, the plan of merger and the consummation of the transactions contemplated thereby, including the merger, and (c) resolved to direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated thereby, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the stockholders of the Company authorize and approve the merger agreement and the consummation of the transactions contemplated thereby, including the merger. Mr. Yuebiao Li, the chairman of the board and Ms. Zhuo Zhang, the vice chairman of the board, abstained from voting on the adoption of the resolutions due to their interests in the proposed transaction (which interests are described under the heading titled “Special Factors – Interests of Certain Persons in the Merger”).

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

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the current and historical market prices of the Shares, including the fact that the per Share merger consideration of $3.65 offered to the unaffiliated shareholders represents (a) a 72.1% premium to the closing price of our Shares on May 11, 2020, the last trading day immediately prior to the Company’s announcement on May 12, 2020 that it had received “a going private” proposal and (b) 64.2% and 56.6% premium over the volume-weighted average closing price of the Shares during the 30 and 60 trading days, respectively, prior to the Company’s announcement on May 12, 2020 that it had received a “going private” proposal;

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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 $3.65, 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, (ii) the board of directors’ recognition of the challenges involved in increasing stockholder 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 2020; and (iv) the recent statement given by the chairman of the SEC and the 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;

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the possible alternatives to the Merger (including the possibility of continuing to operate the Company as an independent publicly traded company and the possibility of a sale of the company to another buyer), the perceived potential benefits and risks of the possible alternatives and the timing and the likelihood of accomplishing the goals of such alternatives, and the assessment by the independent committee that none of these alternatives was reasonably likely to present superior opportunities for the Company or to create greater value for its shareholders than the Merger, taking into account (i) the likelihood of being consummated, given the size of and required funding for any potential alternative transaction, the percentage ownership held by the Buyer Group and their expressed unwillingness to sell their shares in any other transaction involving the Company, and general timing consideration, (ii) the business, competitive, industry and market risks, and (iii) the absence of any proposals made by any unsolicited potential buyers since the announcement of the proposed transaction on May 12, 2020;

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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;

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the negotiations with respect to the merger consideration and the independent committee’s determination that, following negotiations with the Buyer Group, $3.65 per Share was the highest price that the Buyer Group would agree to pay, with the independent committee basing its belief on a number of factors, including the process of negotiations and the experience of the independent committee’s advisors;

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the lack of interested bidders, considering the fact that there was 0 proposal submitted to the independent committee and that there were no party other than the members of the Buyer Group had contacted the Company or the independent committee expressing an interest in exploring an alternative transaction with the Company following the Company’s announcement on May 12, 2020 that it has received a “going private” proposal;

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the financial analysis reviewed and discussed with the independent committee by representatives of Duff & Phelps, as well as the oral opinion of Duff & Phelps to the independent committee on September 29, 2020 (which was subsequently confirmed by delivery of a written opinion of Duff & Phelps dated the same date) with respect to the fairness, from a financial point of view, of the $3.65 per Share merger consideration to be received by the holders of Company’s Shares (other than holders of Excluded Shares) (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), pursuant to the merger agreement, as of September 29, 2020, based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in preparing its opinion;

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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, the current coronavirus outbreak and reduced market confidence;

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the global economic downturn induced by the Covid-19 pandemic;

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increased costs of regulatory compliance for public companies;

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the possibility that PRC-based U.S.-listed public companies would be subject to additional costs and burden of regulatory compliance by reason of any newly enacted law or regulation similar in substance to the proposed Holding Foreign Companies Accountable Act;

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

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the recognition that, as a privately-held entity, the management of the Company 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;

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

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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;

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

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

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;

the fact the merger agreement provides that, in the event of a failure of the merger to be completed under certain circumstances, the Parent will pay the Company a $550,000 or $275,000 termination fee and the guarantee of such payment obligation by certain members of the Buyer Group pursuant to a limited guarantee; and

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

In addition, the independent committee and our board of directors believed that sufficient procedural safeguards were and are present to ensure that the merger is procedurally fair to our unaffiliated security holders and to permit the independent committee and our board of directors 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:

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in considering the merger with the Buyer Group, the independent committee, which consists of three independent and disinterested directors, acted solely to represent the interests of the unaffiliated security holders, and the independent 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 independent committee during the entire process were and are independent and disinterested 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) independent committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the independent committee’s or the board of directors’ recommendation of the merger), and (iii) the director’s indemnification and liability insurance rights under the merger agreement;

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following its formation, the independent committee had independent control over the sale process with the advice and assistance of Duff & Phelps as its financial advisor, MagStone Law, LLP as its US legal advisor and Ogier as its BVI legal counsel, each reporting solely to the independent committee;

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the independent 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 independent 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 of directors for authorization and approval unless the independent committee had recommended such action to the board of directors;

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

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the recognition by the independent committee and the board of directors that it had no obligation to recommend the authorization and approval of the proposal from the Buyer Group or any other transaction;

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the independent committee had the freedom to recommend for or against the merger or any alternative transaction and the authority to “just say no” to any such extraordinary transaction if the independent committee would consider that course of action to be in the best interests of the Company and the unaffiliated stockholders;

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the recognition by the independent committee and the board of directors 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) until the date the Company’s stockholders vote upon and authorize and approve the merger agreement;

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the ability of the Company to terminate the merger agreement in connection with a “superior proposal” subject to compliance with the terms and conditions of the merger agreement;

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the independent committee held regular meetings to consider and review the terms of the merger agreement and the merger;

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the terms and conditions of the merger agreement were the product of vigorous negotiations between the independent committee and its financial advisor and legal advisor, on the one hand, and the Buyer Group and its counsel, on the other hand; and

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the availability of appraisal rights to the unaffiliated 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.

The independent committee and board of directors 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:

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the fact that authorization and approval of the merger agreement are not subject to the authorization and approval of holders of a majority of the Company’s outstanding Shares unaffiliated with the Buyer Group;

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the fact that the Company’s stockholders, other than the Rollover Stockholders, 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 stockholders;

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the restrictions on the conduct of the Company’s business prior to the completion of the merger;

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

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the Company will be required to, under certain circumstances, pay the Parent a termination fee of US$275,000 in connection with the termination of the merger agreement;

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the fact that the Parent and the 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 the Parent or the Merger Sub under certain circumstances may be limited to receipt of a termination fee of US$550,000 or US$275,000, and that under certain circumstances the Company may not be entitled to a termination fee;

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

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the terms of the Buyer Group’s participation in the merger and the fact that the Buyer Group may have interests in the transaction that are different from, or in addition to, those of our unaffiliated shareholders, as well as the other interests of the Company’s directors and officers in the merger;

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that while the independent 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 stockholders approve it;

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

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the taxability of an all-cash transaction to our unaffiliated security holders that are U.S. holders as defined below in “Special Factors - Material U.S. Federal Income Tax Consequences” beginning on page 80.

The forgoing discussion of information and factors considered by the independent committee and our board of directors is not intended to be exhaustive, but includes the material factors considered by the independent committee and our board of directors. In view of the wide variety of factors considered by the independent committee and our board of directors, neither the independent committee nor our board of directors found it practicable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the independent committee and our board of directors may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The independent committee recommended that our board of directors authorize and approve, and our board of directors authorized and approved, the merger agreement based upon the totality of the information presented to and considered by it.

In the course of reaching its conclusion regarding the fairness of the merger to the unaffiliated security holders and its decision to recommend the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, the independent committee considered financial analyses presented by Duff & Phelps as an indication of the going concern value of the Company. These analyses included, among others, discounted cash flow analysis, selected public company analysis, and selected transactions analysis. All of the material analyses as presented to the independent committee on September 29, 2020 are summarized below under the caption “Special Factors - Opinion of the Independent Committee’s Financial Advisor” beginning on page 52. The independent committee expressly adopted these analyses and the opinion of Duff & Phelps, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the merger agreement, including the merger. No specific going concern value was calculated or considered by our board of the directors or the independent committee on behalf of the Company.

Neither the independent committee nor our board of directors 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 independent committee and the board of directors 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. In addition, the independent 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, 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 and lay-off costs in a liquidation are difficult to quantify, and could be significant relative to a sale of the Company as a going concern and (iv) neither the independent committee nor the board were aware of any precedents of U.S.-listed PRC companies liquidating their entire business and returning the proceeds to stockholders. Each of the independent committee and the board of directors believes the analyses and additional factors it reviewed provided an indication of our going concern value. Each of the independent committee and board of directors also considered the historical market prices of our Shares as described under the caption “Market Price of the Company’s Shares, Dividends and Other Matters - Market Price of the Shares” beginning on page 85. Each of the independent committee and the board of directors considered the purchase prices paid in previous purchases as described under the caption “Transactions in the Shares.”

Neither the independent committee nor our board of directors 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 independent committee and board of directors 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 December 31, 2019 was $2.8659, which is based on the 10,809,000 issued and outstanding Shares as of December 31, 2019. Net book value does not take into account the future prospects of the Company, market conditions, trends in the water treatment industry or the business risks inherent in competing with larger 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 and the transactions contemplated thereby, including the merger, are fair to and in the best interests of the Company and our unaffiliated security holders and its decision to authorize and approve the merger agreement and recommend the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated thereby, including the merger, by our shareholders, our board of directors, on behalf of the Company, considered the analysis and recommendation of the independent committee and the factors examined by the independent committee as described above under this section and adopted such recommendations and analysis.

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

Except as discussed in “Special Factors - Background of the Merger,” “Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and our Board of Directors,” and “Special Factors - Opinion of the Independent Committee’s Financial Advisor,” no director who is not an employee of the Company has retained an unaffiliated representative to act solely on behalf of unaffiliated security holders for purposes of negotiating the terms of the transaction and/or preparing a report concerning the fairness of the transaction.

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

Under SEC rules governing “going private” transactions, each member of the Buyer Group may be deemed to be an affiliate of the Company, and therefore, required to express his, her or its belief as to the fairness of the merger to the Company’s unaffiliated shareholders. Each member of Buyer Group is making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Buyer Group as to the fairness of the merger are not intended and should be construed as a recommendation to any shareholder of the Company as to how that shareholder should vote on the proposal to adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger. The Buyer Group has interests in the merger that are different from, and/or in addition to, those of the other shareholders of the Company by virtue of their continuing interests in the surviving company after the completion of the merger. Please see “Special Factors - Interests of Certain Persons in the Merger” beginning on page 75 for additional information. The Buyer Group believes the proposed merger is fair for the Company’s unaffiliated shareholders on the basis of the factors described in “Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” beginning on page 39 and the additional factors described below.

The Buyer Group believes the interests of the Company’s unaffiliated shareholders were represented by the independent committee, which negotiated the terms and conditions of the merger agreement with the assistance of its independent legal and financial advisors. The Buyer Group attempted to negotiate a transaction that would be most favorable to them, and not to the Company’s unaffiliated shareholders and, accordingly, did not negotiate the merger agreement with a goal of obtaining terms that were substantively and procedurally fair to such holders. The Buyer Group did not participate in the deliberations of the independent committee regarding, and did not receive any advice from the independent committee’s independent legal or financial advisors as to, the fairness of the merger to the Company’s unaffiliated shareholders. Furthermore, the Buyer Group did not perform, or engage a financial advisor to perform, any independent valuation or other analysis to assist them in assessing the 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 members of the Company’s senior management regarding the Company and its business and the factors considered by, and the analysis and resulting conclusions of, the independent committee and the Company’s board of directors discussed in “Special Factors - Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” beginning on page 39, the Buyer Group believes the merger is substantively and procedurally fair to the Company’s unaffiliated security holders. In particular, the Buyer Group believes that the proposed merger is both procedurally and substantively fair to the unaffiliated security holders of the Company based on their consideration of the following factors, which are not listed in any relative order of importance, among others:

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the fact that the independent committee and, acting upon the unanimous recommendation of the independent committee, the Company’s board of directors (including a majority of the directors who were not employees of the Company) unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of the Company’s unaffiliated security holders;

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the fact that the independent committee, consisting entirely (and constituting a majority) of directors who are not officers or employees of the Company and who are not affiliated with any member of Buyer Group, was established and given authority to, among other things, review, evaluate and negotiate the terms of the merger and to recommend to the Company’s board of directors what action should be taken by the Company, including not to engage in the merger;

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the fact that the members of the independent committee do not have any interests in the merger different from, or in addition to, those of the Company’s unaffiliated security holders, other than (i) the directors’ receipt of board compensation in the ordinary course; (ii) independent committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the independent committee’s or board’s recommendation of the merger); and (iii) the directors’ indemnification and liability insurance rights under the merger agreement;

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the fact that the independent committee retained and was advised by its independent legal and financial advisors who are experienced in advising committees such as the independent committee in similar transactions;

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the fact that the independent committee and the Company’s board of directors had no obligation to recommend the authorization and approval of the merger agreement and the transactions contemplated thereby, including the merger, or any other transaction;

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the current and historical market prices of our Shares, including the fact that the merger consideration offered to our unaffiliated shareholders represents (a) a 72.1% premium to the closing price of our Shares on May 11, 2020, the last trading day immediately prior to the Company’s announcement on May 12, 2020 that it had received “a going private” proposal and (b) 64.2% and 56.6% premium over the volume-weighted average closing price of the Shares during the 30 and 60 days, respectively, prior to the Company’s announcement on May 12, 2020 that it had received a “going private” proposal;

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the fact that the merger consideration is all cash, which provides a specific amount of cash consideration for Shares 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;

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the fact that the merger consideration, other terms and conditions of the merger agreement and the transactions contemplated thereby were the result of extensive negotiations over an extended period of time between the independent committee, its advisors and the Buyer Group;

●

the fact that the Parent and the Merger Sub obtained financing commitment for the transaction against which the Company possesses third-party rights to enforce, the limited number and nature of the conditions to the financings, and the obligation of the Parent to use its reasonable best efforts to obtain the financing;

●

the fact that the independent committee received from its independent financial advisor, Duff & Phelps, an opinion, dated September 29, 2020, as to the fairness, from a financial point of view, of the $3.65 per Share merger consideration to be received by holders of the Shares (other than the Excluded Shares) in the merger, as of September 29, 2020, based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in preparing its opinion;

●

the fact that the Company and the independent committee is able to, subject to compliance with the terms and conditions of the merger agreement, terminate the merger agreement prior to the completion of the merger in order to accept an alternative transaction proposed by a third party that is a “superior proposal” (as defined in the merger agreement and further explained under the caption “The Merger Agreement and Plan of Merger - Acquisition Proposals” beginning on page 100);

●

the fact that the Company, under certain circumstances, is able to specifically enforce the terms 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 courts of the British Virgin Islands;

●

the fact that approval of the merger agreement, the plan of merger and the merger are not structured to require the approval of a majority of unaffiliated shareholders; however, the merger agreement, the plan of merger and the merger are subject to approval by the affirmative vote of at least a majority of the shareholders present and voting in person or by proxy in accordance with the BVI Business Companies Act and the Company’s memorandum and articles of association;

●

that the board of directors was fully informed about the extent to which the interests of the Rollover Shareholders in the merger differed from those of the Company’s other shareholders; and

●

the fact that none of the members of the Buyer Group, or any of their advisors participated in or sought to influence the deliberative process of the independent committee.

The Buyer Group did not consider pre-merger going concern value for the Company as a public company to determine the fairness of the merger consideration to the unaffiliated shareholders of the Company 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 did not consider the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the shareholders of the Company. The Buyer Group believes that net book value is not a material indicator of the value of the Company as a going concern. Net book value does not take into account the future prospects of the Company, market conditions, trends in the water treatment industry or the business risks inherent in competing with larger companies in that industry.

The Buyer Group did not consider the liquidation value of Company’s assets because the Buyer Group considers the Company to be a viable going concern business where value is derived from cash flows generated from its continuing operations. The Buyer Group believes the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going concern value.

The foregoing discussion of the information and factors considered and given weight by the Buyer Group in connection with its evaluation of the substantive and procedural fairness of the merger to the Company’s unaffiliated security holders is not intended to be exhaustive, but is believed to include all material factors considered. The Buyer Group found it impracticable to assign, and did not assign, relative weights to the foregoing factors considered in reaching its conclusions as to the substantive and procedural fairness of the merger to the Company’s unaffiliated security holders. Rather, the Buyer Group made the fairness determinations after considering all of the foregoing as a whole.

The Buyer Group believes these factors provide a reasonable basis for its belief that the merger is both substantively and procedurally fair to the Company’s unaffiliated security holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Buyer Group to any shareholder of the Company to approve the merger agreement. The Buyer Group does not make any recommendation as to how such shareholders should vote relating to the proposal to approve the merger agreement and the merger at the extraordinary general meeting.

None of the members of the Buyer Group performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the proposed merger to the Company’s unaffiliated security holders.

Certain Financial Projections

The Company does not generally make public detailed financial forecasts or internal projections as to future performance, revenues, earnings or financial condition. However, the Company’s management prepared certain financial projections for the fiscal year ending 2020 through the fiscal year ending 2025 for the independent committee and Duff & Phelps in connection with the financial analysis of the merger. These financial projections, which were based on Company management’s estimates of the Company’s future financial performance as of the date provided, were prepared by the Company’s management for internal use and for use by Duff & Phelps in its financial analyses, and were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC regarding forward-looking information or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or U.S. generally accepted accounting principles.

The financial projections are not a guarantee of performance. They involve significant risks, uncertainties and assumptions. In compiling the projections, our management took into account historical performance, combined with estimates regarding net revenue, gross profit, operating expenses, income from operations and net income. Although the projections are presented with numerical specificity, they were based on numerous assumptions and estimates as to future events made by our management that our management believed were reasonable at the time the projections were prepared. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results. In addition, factors such as industry performance, the market for our existing and new products, the competitive environment, expectations regarding future acquisitions or any other transactions and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of our management, may cause actual future results to differ materially from the results forecasted in these financial projections.

In addition, the projections do not take into account any circumstances or events occurring after the date that they were prepared. For instance, the projections do not give effect to completion of the merger or any changes to our operations or strategy that may be implemented after the time the projections were prepared. As a result, there can be no assurance that the projections will be realized, and actual results may be significantly different from those contained in the projections.

Neither our independent registered public accounting firm, MaloneBailey, LLP, nor any other independent accountants have examined, compiled, or performed any procedures with respect to the financial projections or any amounts derived therefrom or built thereupon, nor have they given any opinion or any other form of assurance on such information or its achievability. The financial projections included in this proxy statement are included solely to give shareholders access to certain information that was made available to the independent committee and Duff & Phelps, and are not included in this proxy statement in order to induce any holder of Shares to vote in favor of approval of the merger agreement or to elect not to seek appraisal for his or her Shares.

The following table summarizes the financial projections prepared by our management and considered by the independent committee and Duff & Phelps in connection with their analysis of the proposed transaction:

	Company Financial Projections
	Fiscal Year Ending December 31,
	2020E			2021E			2022E			2023E			2024E			2025E
	(in RMB million except percentage)

Revenues		286			311			334			355			374			390

Gross Profit (1)		119			133			143			152			159			166
% Margin		41.6	%		42.9	%		42.8	%		42.6	%		42.6	%		42.5	%

Operating Expenses (1)		76			82			88			93			96			100

Income from Operations		30			35			38			41			45			47
% Margin		10.6	%		11.3	%		11.2	%		11.5	%		12.1	%		12.2	%

Depreciation and Amortization		12			16			17			18			18			18

EBITDA (2)		43			51			55			59			63			66
% Margin		15.0	%		16.4	%		16.4	%		16.5	%		16.9	%		16.9	%

Net Income		24			24			23			25			31			34
% Margin		8.3	%		7.4	%		6.8	%		7.2	%		8.3	%		8.6	%

(1)

Management projected gross profit and operating expenses exclude depreciation and amortization.

(2)

“EBITDA” refers to earnings before interest, taxes, depreciation and amortization.

Opinion of the Independent Committee’s Financial Advisor

Between May 12, 2020 and May 28, 2020, the independent committee contacted and received proposals from Duff & Phelps and another investment banking firm that had expressed interest in being considered for the roles of the independent financial advisor to the independent committee. After having conducted an interview with Duff & Phelps, the independent committee retained Duff & Phelps as its independent financial advisor to deliver a fairness opinion in connection with the merger pursuant to an engagement letter dated June 3, 2020. The independent committee selected Duff & Phelps to act as its financial advisor in connection with the going private transaction because Duff & Phelps is an internationally recognized financial services firm that, among other things, is regularly engaged in the investment banking business, including the valuation of businesses and securities in connection with mergers and acquisitions, underwritings and private placements of securities, and other investment banking services, and because of Duff & Phelps’ extensive experience in representing special committees in going private transactions, its significant experience dealing with China-based companies, its lack of existing material relationships with the Company or the Founders and its ability to interact in both English and Chinese.

At the meeting of the independent committee on September 29, 2020, Duff & Phelps rendered its oral opinion, which was subsequently confirmed in writing by delivery of its written opinion dated the same date, to the independent committee that, as of such date and based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in preparing its opinion, the per Share merger consideration to be received by the holders of Shares (other than the Excluded Shares) in the merger 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). No limitations were imposed by the independent committee upon Duff & Phelps with respect to the investigations made or procedures followed by it in rendering its opinions.

The full text of the written opinion of Duff & Phelps dated September 29, 2020, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in preparing its opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. The summary of the opinion of Duff & Phelps set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The shareholders of the Company are urged to read the opinion in its entirety. Duff & Phelps’ written opinion is addressed to the independent committee (in its capacity as such), is directed only to the per Share merger consideration to be paid in the merger and does not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote with respect to the merger or any other matter.

Duff & Phelps’ written opinion and its presentation to the independent committee will be available for any interested shareholder of the Company (or any representative of a shareholder who has been so designated in writing) to inspect and copy at the Company’s principal executive offices during regular business hours. Copies of such materials will be transmitted by the Company to any interested shareholder of the Company (or any representative of a shareholder who has been so designated in writing) upon written request and at the expense of the requesting shareholder. Shareholders of the Company may consider these materials in connection with their evaluation of the merger. However, neither Duff & Phelps’ opinion nor its presentation to the independent committee was intended to nor does it constitute a recommendation to any shareholder as to how the shareholder should vote or act with respect to the merger or any matter relating thereto.

In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation in general, and with respect to similar transactions in particular. Duff & Phelps’ procedures, investigations and financial analyses with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

●

reviewed the Company’s audited financial statements for the years ended December 31, 2015 and December 31, 2016 included in the Company’s Form F-1 filed with the Securities and Exchange Commission (“SEC”), the Company’s annual reports and audited financial statements on Form 20-F filed with the SEC for the years ended December 31, 2017 through December 31, 2019 and the Company’s unaudited interim financial statements for the six months ended June 30, 2018 and June 30, 2019 included in the Company’s Form 6-K filed with the SEC;

●

reviewed the Company’s unaudited interim financial statements for the five months ended May 31, 2019 and May 31, 2020, provided by the management of the Company and its principal operating company, Yantai Jinzheng Eco-Technology Co., Ltd. (the “Management of the Company”);

●

reviewed unaudited segment financial information for the Company for the years ended December 31, 2015 through December 31, 2019, for the six months ended June 30, 2018 and June 30, 2019, and for the five months ended May 31, 2019 and May 31, 2020, provided by the Management of the Company;

●

reviewed a detailed financial projection model for the Company for the years ended December 31, 2020 through December 31, 2025, prepared and provided to Duff & Phelps by the Management of the Company, upon which Duff & Phelps has relied, with the Company’s and the independent committee’s consent, in performing its analysis (collectively, the “Management Projections”);

●

reviewed other internal documents relating to the history, past and current operations, financial conditions and probable future outlook of the Company, provided to Duff & Phelps by the Management of the Company;

●

reviewed letters dated September 28, 2020 from the Management of the Company which made certain representations as to the historical financial statements of the Company and the Management Projections and the underlying assumptions of such projections (the “Management Representation Letters”);

●

reviewed documents related to the merger, including a draft of the merger agreement dated September 29, 2020;

●

discussed the information referred to above and the background and other elements of the merger with the Management of the Company;

●

discussed with the Management of the Company its plans and intentions with respect to the management and operation of the Company’s business;

●

reviewed the historical trading price and trading volume of the Shares, and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

●

performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques, including a discounted cash flow analysis, an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant; and

●

conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

In performing its analyses and rendering its opinion with respect to the merger, Duff & Phelps, with the Company’s and the independent committee’s consent:

●

relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including the Management of the Company, and did not independently verify such information;

●

relied upon the fact that the independent committee, the board of directors and the Company have been advised by counsel as to all legal matters with respect to the merger, including whether all procedures required by law to be taken in connection with the merger have been duly, validly and timely taken;

●

assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps, including, without limitation, the Management Projections, were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and Duff & Phelps expresses no opinion with respect to such estimates, evaluations, forecasts or projections or the underlying assumptions;

●

assumed that information supplied and representations made by the Management of the Company are accurate in all material respects and do not omit to state a material fact in respect of the Company and the merger;

●

assumed that the representations and warranties made in the merger agreement and the Management Representation Letters are accurate in all material respects;

●

assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed;

●

assumed that there has been no material change in the assets, liabilities (contingent or otherwise), financial condition, results of operations, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there is no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading;

●

assumed that all of the conditions required to implement the merger will be satisfied and that the merger will be completed in accordance with the merger agreement, without any amendments thereto or any waivers of any terms or conditions thereof; and

●

assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the Company or the contemplated benefits expected to be derived in the merger.

To the extent that any of the foregoing assumptions or any of the facts on which Duff & Phelps’ opinion is based prove to be untrue in any material respect, Duff & Phelps’ opinion cannot and should not be relied upon. In its analysis and in connection with the preparation of its opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the merger.

Duff & Phelps prepared its opinion effective as of the date thereof. Its opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date thereof, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date thereof. The credit, financial and stock markets have been experiencing unusual volatility and Duff & Phelps expresses no opinion or view as to any potential effects of such volatility on the Company or the merger.

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps has not been requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the merger, the assets, businesses or operations of the Company, or any alternatives to the merger, (ii) negotiate the terms of the merger, and therefore, Duff & Phelps has assumed that such terms are the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the merger agreement and the merger, or (iii) advise the independent committee or any other party with respect to alternatives to the merger. Duff & Phelps did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject.

Duff & Phelps is not expressing any opinion as to the market price or value of the Shares (or anything else) after the announcement or the consummation of the merger (or any other time). Duff & Phelps’ opinion should not be construed as a valuation opinion, a credit rating, a solvency opinion, an analysis of the Company’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter.

In rendering its opinion, Duff & Phelps is not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the merger consideration, or with respect to the fairness of any such compensation.

Duff & Phelps’ opinion was prepared by Duff & Phelps for the use and benefit of the independent committee in connection with its consideration of the merger. Subject to the assumptions and qualifications set forth thereof, the unaffiliated security holders may rely upon the information disclosed in the Duff & Phelps’ opinion. Duff & Phelps has consented to the inclusion of its opinion in its entirety as an annex to this proxy statement. Duff & Phelps’ opinion (i) does not address the merits of the underlying business decision to enter into the merger versus any alternative strategy or transaction; (ii) does not address any transaction related to the merger; (iii) is not a recommendation as to how the independent committee, the board of directors or any other person, including security holders of the Company, should vote or act with respect to any matters relating to the merger, or whether to proceed with the merger or any related transaction, and (iv) does not indicate that the merger consideration is the best possibly attainable under any circumstances; instead, it merely states whether the merger consideration is within or above a range suggested by certain financial analyses. The decision as to whether to proceed with the merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which Duff & Phelps’ opinion is based. Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.

Duff& Phelps’ opinion is solely that of Duff & Phelps, and Duff & Phelps’ liability in connection with its opinion shall be limited in accordance with the terms set forth in the engagement letter among Duff & Phelps, the Company and the independent committee dated May 26, 2020. Duff & Phelps’ opinion is confidential, and its use and disclosure is strictly limited in accordance with the terms set forth in such engagement letter.

Set forth below is a summary of the material analyses performed by Duff & Phelps in connection with the delivery of its opinion to the independent committee. This summary is qualified in its entirety by reference to the full text of the opinion, attached hereto as Annex B. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentation to the independent committee, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis. In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it in rendering the fairness opinion without considering all analyses and factors could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken as a whole, and also on the application of Duff & Phelps’ own experience and judgment.

The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’ financial analyses.

Discounted Cash Flow Analysis

Duff & Phelps performed a discounted cash flow analysis of the estimated future unlevered free cash flows of the Company for the fiscal years ending December 31, 2020 through December 31, 2025, with “free cash flow” defined as cash that is available either to reinvest or to distribute to security holders. The discounted cash flow analysis was used to determine the net present value of estimated future free cash flows utilizing a weighted average cost of capital as the applicable discount rate. For the purposes of its discounted cash flow analysis, Duff & Phelps utilized and relied upon the Management Projections, which are described in this proxy statement in the section entitled “Special Factors - Certain Financial Projections” beginning on page 51. The costs associated with the Company being a publicly listed company, as provided by the Management of the Company, were excluded from the financial projections because such costs would likely be eliminated as a result of the merger.

Duff & Phelps estimated the net present value of all cash flows of the Company after fiscal year 2025 (the “Terminal Value”) using a perpetuity growth formula assuming a 4% terminal growth rate, which took into consideration an estimate of the expected long-term growth rate of the Chinese economy and the Company’s business. Duff & Phelps used discount rates ranging from 14% to 16%, reflecting Duff & Phelps’ estimate of the Company’s weighted average cost of capital, to discount the projected free cash flows and Terminal Value. Duff & Phelps estimated the Company’s weighted average cost of capital by estimating the weighted average of the Company’s cost of equity (derived using the capital asset pricing model) and the Company’s after-tax cost of debt. Duff & Phelps believes that this range of discount rates is consistent with the rate of return that security holders could expect to realize on alternative investment opportunities with similar risk profiles.

Based on these assumptions, Duff & Phelps’ discounted cash flow analysis resulted in an estimated enterprise value for the Company of RMB255.00 million to RMB305.00 million and a range of implied values of the Company’s Shares of US$2.70 to US$3.38 per Share.

Selected Public Companies and Merger and Acquisition Transactions Analyses

Duff& Phelps analyzed selected public companies and selected merger and acquisition transactions for purposes of estimating valuation multiples with which to calculate a range of implied enterprise values of the Company. This collective analysis was based on publicly available information and is described in more detail in the sections that follow.

The companies utilized for comparative purposes in the following analysis were not directly comparable to the Company, and the transactions utilized for comparative purposes in the following analysis were not directly comparable to the merger. Duff & Phelps does not have access to nonpublic information of any of the companies used for comparative purposes. Accordingly, a complete valuation analysis of the Company and the merger cannot rely solely upon a quantitative review of the selected public companies and selected transactions, but involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies and targets, as well as other factors that could affect their value relative to that of the Company. Therefore, the selected public companies and selected merger and acquisition transactions analysis is subject to certain limitations.

Selected Public Companies Analysis. Duff & Phelps compared certain financial information of the Company to corresponding data and ratios from publicly traded companies in the water treatment industry that Duff & Phelps deemed relevant to its analysis. For purposes of its analysis, Duff & Phelps used certain publicly available historical financial data and consensus equity analyst estimates for the selected publicly traded companies. The seventeen companies included in the selected public company analysis in the water treatment industry were:

Global Water Treatment Companies

● Xylem Inc.

● Pentair plc

● Evoqua Water Technologies Corp.

● Kurita Water Industries Ltd.

● KSB SE & Co. KGaA

● METAWATER Co., Ltd.

● Organo Corporation

● Tsukishima Kikai Co., Ltd.

● Tsurumi Manufacturing Co., Ltd.

● Nomura Micro Science Co., Ltd.

● Ion Exchange (India) Limited

China Water Treatment Companies

● Beijing Enterprises Water Group Limited

● Yunnan Water Investment Co., Limited

● China Everbright Water Limited

● Kunming Dianchi Water Treatment Co., Ltd.

● Luzhou Xinglu Water (Group) Co., Ltd.

● China Water Industry Group Limited

Duff & Phelps selected these companies for its analysis based on their relative similarity, primarily in terms of business model, to that of the Company.

The tables below summarize certain observed trading multiples and historical and projected financial performance, on an aggregate basis, of the selected public companies. The estimates for 2020, 2021 and 2022 in the tables below with respect to the selected public companies were derived based on information for the 12-month periods ending closest to the Company’s fiscal year ends for which information was available. Data related to the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) and earnings before interest and taxes (“EBIT”) were adjusted for purposes of this analysis to eliminate public company costs and non-recurring income (expenses).

COMPANY INFORMATION	REVENUE GROWTH															EBITDA GROWTH															EBITDA MARGIN
Company Name	3-YR CAGR			YTD			2020			2021			2022			3-YR CAGR			YTD			2020			2021			2022			3-YR CAGR			YTD			2020			2021			2022
Global Water Treatment Companies
Xylem Inc.		4.4	%		-11.6	%		-9.7	%		6.8	%		5.5	%		5.3	%		-34.4	%		-28.1	%		23.7	%		12.0	%		18.7	%		16.9	%		15.1	%		17.5	%		18.6	%
Pentair plc		2.1			-4.4			-4.8			5.6			5.5			5.0			-5.7			-7.6			14.2			8.2			17.9			17.7			17.3			18.7			19.2
Evoqua Water Technologies Corp.		8.3			1.3			-5.8			7.3			4.9			10.8			10.0			-9.6			13.5			9.9			15.5			15.7			14.5			15.3			16.0
Kurita Water Industries Ltd.		7.3			-5.2			-0.8			6.7			3.2			7.2			-21.9			-12.9			9.4			6.5			16.4			15.5			16.9			17.3			17.9
KSB SE & Co. KGaA		3.4			-8.1			-11.6			9.2			6.0			11.6			-27.9			-23.8			50.0			18.9			6.7			6.7			6.3			8.7			9.7
METAWATER Co., Ltd.		4.8			-4.5			4.2			3.3			2.9			7.8			NM			9.9			9.6			6.9			7.5			6.8			8.0			8.5			8.9
Organo Corporation		6.0			-2.8			3.0			2.7			0.7			30.2			-62.6			-7.6			-21.8			16.5			8.5			10.5			10.9			8.3			9.6
Tsukishima Kikai Co., Ltd.		12.8			-15.9			-5.6			4.1			-1.2			25.0			NM			-12.7			12.6			9.9			9.7			8.9			9.0			9.7			10.8
Tsurumi Manufacturing Co., Ltd.		5.3			1.5			NA			NA			NA			6.5			-10.4			NA			NA			NA			12.9			12.7			NA			NA			NA
Nomura Micro Science Co., Ltd.		8.6			11.4			8.9			9.9			8.0			26.8			NM			4.9			17.5			NA			7.3			10.6			7.0			7.5			NA
Ion Exchange (India) Limited		13.6			-19.3			NA			NA			NA			21.1			-6.7			NA			NA			NA			8.6			9.5			NA			NA			NA
Group Median		6.0	%		-4.5	%		-4.8	%		6.7	%		4.9	%		10.8	%		-16.2	%		-9.6	%		13.5	%		9.9	%		9.7	%		10.6	%		10.9	%		9.7	%		13.4	%
China Water Treatment Company
Beijing Enterprises Water Group Limited		17.6	%		-2.9	%		0.8	%		6.7	%		9.8	%		18.9	%		-8.1	%		10.4	%		8.0	%		8.7	%		30.0	%		30.3	%		34.1	%		34.5	%		34.2	%
Yunnan Water Investment Co., Limited		31.6			-1.8			NA			NA			NA			32.0			-20.9			NA			NA			NA			29.4			28.9			NA			NA			NA
China Everbright Water Limited		30.6			-14.7			9.8			9.8			1.3			25.1			-1.8			11.8			12.3			6.6			30.9			31.5			30.2			30.9			32.5
Kunming Dianchi Water Treatment Co., Ltd.		26.1			11.6			5.6			5.1			5.7			11.6			14.1			27.0			6.2			7.8			46.0			42.7			50.3			50.8			51.8
Luzhou Xinglu Water (Group) Co., Ltd.		34.0			13.7			NA			NA			NA			17.4			28.7			NA			NA			NA			21.5			20.4			NA			NA			NA
China Water Industry Group Limited		29.3			4.6			NA			NA			NA			38.7			0.9			NA			NA			NA			33.0			33.8			NA			NA			NA
Group Median		29.9	%		1.4	%		5.6	%		6.7	%		5.7	%		22.0	%		-0.4	%		11.8	%		8.0	%		7.8	%		30.5	%		30.9	%		34.1	%		34.5	%		34.2	%
Aggregate Mean		14.5	%		-2.8	%		-0.5	%		6.4	%		4.4	%		17.7	%		-10.5	%		-3.2	%		12.9	%		10.2	%		18.9	%		18.8	%		18.3	%		19.0	%		20.8	%
Aggregate Median		8.6	%		-2.9	%		0.0	%		6.7	%		5.2	%		17.4	%		-7.4	%		-7.6	%		12.5	%		8.7	%		16.4	%		15.7	%		14.8	%		16.3	%		17.9	%

Newater Technology, Inc.		47.1	%		5.1	%		10.1	%		8.8	%		7.6	%		40.8	%		NM			-14.6	%		10.7	%		4.8	%		20.9	%		22.0	%		18.5	%		18.8	%		18.3	%

Note: The Company’s financial performance metrics presented are adjusted to exclude public company costs and non-recurring income and expenses.

YTD = Year to Date

LTM = Latest Twelve Months

CAGR = Compounded Annual Growth Rate

EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization

EBIT = Earnings Before Interest and Taxes

The companies utilized for comparative purposes in Duff & Phelps’ analysis were not identical to the Company. As a result, a complete valuation analysis cannot be limited to a quantitative review of the selected public companies, but also requires complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of the Company.

Selected M&A Transactions Analysis. Duff & Phelps compared the Company to the target companies involved in the selected merger and acquisition transactions listed in the tables below. The selection of these transactions was based on, among other things, the target company’s industry, the relative size of the transaction compared to the merger and the availability of public information related to the transaction. The selected water treatment industry transactions indicated enterprise value to Latest Twelve Months (“LTM”) EBITDA multiples ranging from 3.0x to 11.4x with a median of 8.5x, enterprise value to LTM EBIT multiples ranging from 3.1x to 17.5x with a median of 11.2x, and enterprise value to LTM revenue multiples ranging from 0.54x to 2.52x with a median of 1.12x.

The Company is not directly comparable to the target companies in the selected M&A transactions analysis given certain characteristics of the transactions and the target companies, including business, industry comparability, and lack of recent relevant transactions. Therefore, although reviewed, Duff & Phelps did not select valuation multiples for the Company based on the selected M&A transactions analysis.

China Water Treatment Companies ($ in millions)

Announced	Target Name	Acquirer Name	Enterprise Value		LTM Revenue		LTM EBITDA		LTM EBIT		EBITDA Margin			EV / Revenue			EV / EBITDA			EV / EBIT
4/23/2020	Beijing Innogreen Technology Co., Ltd	Beijing Gerrytone Environmental Technology Co., Ltd	$	16	$	27		NA		NA		NA			0.60	x		NA			NA
11/6/2019	Shandong Shifang Environmental Protection& Bio-Energy Co., Ltd.	Sichuan Jinyu Automobile City (Group) Co., Ltd. (nka:BECE Legend Group Co., Ltd.)	$	77	$	30	$	14	$	9		45.9	%		2.52	x		5.5	x		8.5	x
12/10/2017	Jiangsu Jinshan Environmental Protection Technology Co., Ltd	Jiangsu Jinshan Environmental Protection Engineering Group Co., Ltd.	$	289	$	124	$	44	$	42		35.8	%		2.34	x		6.5	x		6.9	x
9/29/2016	Gansu Golden Bridge Group Co.,Ltd.	Tianjin MOTIMO Membrane Technology Co.,Ltd	$	55	$	23	$	5	$	5		21.8	%		2.37	x		10.9	x		11.2	x
11/1/2015	Beijing TDR Enviro-Tech Co., Ltd.	Shanghai Luran Investment Management Co., Ltd.; Shanghai Jianxin Investment Co., Ltd.; Shanghai Fuji Investment Co., Ltd	$	103	$	47		NA		NA		NA			2.17	x		NA			NA

	Mean	2.00x	7.6x	8.8x
	Median	2.34x	6.5x	8.5x

Global Water Treatment Companies ($ in millions)

Announced	Target Name	Acquirer Name	Enterprise Value		LTM Revenue		LTM EBITDA		LTM EBIT		EBITDA Margin			EV / Revenue			EV / EBITDA			EV / EBIT
8/1/2019	First Sales, LLC	Franklin Electric Co., Inc.	$	16	$	14		NA		NA		NA			1.11	x		NA			NA
2/8/2019	U.S. Water Services, Inc.	Kurita Water Industries Ltd.	$	270	$	172		NA		NA		NA			1.57	x		NA			NA
3/8/2017	GE Osmonics, Inc. (nka:SUEZ Water Technologies & Solutions)	Caisse de dépôt et placement du Québec; Suez SA	$	3,375	$	2,102	$	337		NA		16.1	%		1.61	x		10.0	x		NA
7/13/2016	Ovivo Inc.	SKion Water International GmbH	$	138	$	258	$	12	$	8		4.7	%		0.54	x		11.4	x		17.5	x
6/17/2016	Hydro International plc (nka:Hydro International Limited)	Hanover Investors Management LLP; Hanover Active Equity Fund LP	$	37	$	54	$	4	$	3		7.3	%		0.68	x		9.3	x		11.7	x
3/4/2016	Fomento de Construcciones y Contratas, S.A.	Control Empresarial de Capitales, S.A. de C.V.	$	7,914	$	7,041	$	1,026	$	543		14.6	%		1.12	x		7.7	x		14.6	x
2/16/2016	Aerex Industries Inc.	Consolidated Water U.S. Holdings, Inc.	$	13	$	19	$	4	$	4		21.9	%		0.66	x		3.0	x		3.1	x
2/6/2016	Bilfinger Water Technologies GmbH	mertus 243.GmbH	$	228	$	334		NA		NA		NA			0.68	x		NA			NA

Mean	1.00x	8.3x	11.7x
Median	0.90x	9.3x	13.1x

Aggregate Mean	1.38x	8.0x	10.5x
Aggregate Median	1.12x	8.5x	11.2x

Summary of Selected Public Companies / M&A Transactions Analyses

In order to estimate a range of enterprise values for the Company, Duff & Phelps applied valuation multiples to the Company’s LTM EBITDA ending May 31, 2020 and projected EBITDA for the fiscal year ending December 31, 2020. The LTM EBITDA and projected EBITDA were adjusted for the purpose of this analysis to exclude public company costs and non-recurring income (expenses) and include government grants. Duff & Phelps’ selected valuation multiples were as follows: LTM EBITDA multiple ranged from 4.50x to 5.50x, and projected fiscal 2020 EBITDA multiple ranged from 5.00x to 6.00x. Valuation multiples were selected taking into consideration historical and projected financial performance metrics of the Company relative to such metrics of the selected public companies. Rather than applying the average or median multiple from the public company set, Duff & Phelps selected multiples that, in its judgment, reflected the Company’s size, growth outlook, capital requirements, profit margins, revenue mix, and other characteristics relative to the comparable group. Duff & Phelps noted that while it reviewed the selected M&A transactions, it did not select valuation multiples for the Company based on the Selected M&A Transactions Analysis for the reasons described in the section titled “Selected M&A Transactions Analysis” above.

Summary of Discounted Cash Flow Analysis and Selected Public Companies / M&A Transactions Analyses

The range of estimated enterprise values for the Company that Duff & Phelps derived from its discounted cash flow analysis was RMB255.00 million to RMB305.00 million, and the range of estimated enterprise values that Duff & Phelps derived from its selected public companies / M&A transactions analyses was RMB262.00 million to RMB317.00 million. Duff & Phelps concluded that the Company’s enterprise value was within a range of RMB259.00 million to RMB311.00 million based on the analyses described above.

Based on the concluded enterprise value, Duff & Phelps estimated the range of common equity value of the Company to be RMB203.49 million to RMB255.49 million by:

● adding cash and restricted cash of RMB76.09 million;

● subtracting working capital deficit of RMB86.00 million;

● adding due from related parties of RMB0.02 million;

● adding deposit on loan agreement of RMB5.10 million;

● adding long term investments of RMB40.88 million;

● subtracting loans due within one year of RMB79.95 million;

● subtracting long term loans of RMB0.93 million;

● subtracting other payables of RMB10.72 million.

Based on the foregoing analysis, Duff & Phelps estimated the value of each Share to range from US$2.76 to US$3.46 per Share. Duff & Phelps noted that the merger consideration to be received by the holders of Shares (other than the Excluded Shares) in the merger was above the range of the per Share value indicated in its analyses.

Duff & Phelps’ opinion was only one of the many factors considered by the independent committee in its evaluation of the merger and should not be viewed as determinative of the views of the independent committee.

Fees and Expenses

As compensation for Duff & Phelps’ services in connection with the rendering of its opinion to the independent committee, the Company agreed to pay Duff & Phelps $250,000 due and payable as follows: $100,000 payable upon execution of the engagement letter with Duff & Phelps; $100,000 payable upon Duff & Phelps’ delivery to the independent committee of its opinion in writing; and $50,000 payable upon closing of the proposed transaction. No portion of Duff & Phelps’ fee is refundable or contingent upon the consummation of a transaction or the conclusion reached in the opinion. The Company has also agreed to indemnify Duff & Phelps for certain liabilities arising out of its engagement. In addition, the Company has agreed to reimburse Duff & Phelps for its reasonable out-of-pocket expenses incurred in connection with the rendering of its opinion not to exceed $30,000.

The terms of the fee arrangements with Duff & Phelps, which the Company believes are customary in transactions of this nature, were negotiated at arm’s length, and the independent committee and the Company’s board of directors are aware of these fee arrangements.

Other than the Duff & Phelps engagement to render its opinion to the independent committee, during the two years preceding the date of the opinion, Duff & Phelps and its affiliates have not had any material relationship with any party to the merger agreement for which compensation has been received or is intended to be received, nor is any such material relationship or related compensation mutually understood to be contemplated.

Purpose of and Reasons for the Merger

The Buyer Group

Under the rules governing “going private” transactions, each member of Buyer Group may be deemed to be engaged in a “going private” transaction and, therefore, required to express their reasons for the merger to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act. Each member of 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 Exchange Act.

For the Buyer Group, the primary purpose of the merger is to benefit from any future earnings and growth of the Company after the merger of the Merger Sub with and into the Company, making the Company privately held and wholly owned by the Parent. The Buyer Group believes that structuring the transaction in such manner is preferable to other transaction structures because it will enable the Parent to acquire 100% control of the Company, it represents an opportunity for the Company’s unaffiliated security holders to receive $3.65 per Share in cash, without interest and net of any applicable withholding taxes, for their Shares, and it also allows the Buyer Group to maintain a significant portion of their investment in the Company through their respective commitments to subscribe for equity interests of the Parent.

The Buyer Group also believes that the merger will provide the Company with flexibility to pursue certain strategic alternatives that it would not be practicable to pursue as a public company, including the ability to pursue business initiatives without focusing on the short-term market reaction of the Company’s public shareholders with respect to such initiatives or the collective risk tolerance of such public shareholders as it relates to such initiatives. Further, as a privately held entity, the Company will be relieved of many of the other expenses, burdens and constraints imposed on companies that are subject to the public reporting requirements under the federal securities laws of the United States, including the Exchange Act and Sarbanes-Oxley Act of 2002. The need for the management of the Company to be responsive to unaffiliated security holders’ concerns and to engage in an ongoing dialogue with unaffiliated security holders can at times distract management’s time and attention from the effective operation and improvement of the business. 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’s 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.

The Company

The Company’s purpose for engaging in the merger is to enable its shareholders to receive $3.65 per Share in cash, without interest and net of any applicable withholding taxes. The Company has determined to undertake the merger at this time based on the analyses, determinations and conclusions of the independent committee and the board of the directors described in detail under the caption “Special Factors – Reasons for the Merger and Recommendation of the Independent Committee and the Board.”

Effect of the Merger on the Company

Private Ownership

The Company’s Shares of are currently listed on NASDAQ under the symbol “NEWA.” 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 directly owned by the Parent. Following the completion of the merger, the Shares will cease to be listed on 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 record 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, applicable to public companies, and our 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.

Subject to the terms and conditions of the merger agreement, at the effective time of the merger, each outstanding Shares will be cancelled in exchange for the right to receive $3.65 per Share in cash, without interest and net of any applicable withholding taxes, except for the following excluded Shares (the “Excluded Shares”): (a) Shares beneficially owned by the Rollover Shareholders (the “Rollover Shares”); (b) Shares (the “Dissenting Shares”) owned by holders of Shares who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 179 of the BVI Business Companies Act, 2004, as amended (the “BVI Companies Act”) (the “Dissenting Shareholders”) and (c) Shares (if any) owned by the Company or any direct or indirect wholly-owned subsidiaries of the Company (or held in the Company’s treasury). Each Excluded Share (excluding the Dissenting Shares) issued and outstanding immediately prior to the effective time, will be cancelled and will cease to exist, and no consideration will be delivered with respect thereto. Each Dissenting Shareholder will be entitled to receive only the payment resulting from the procedure in Section 179 of the BVI Companies Act with respect to Shares owned by such Dissenting Shareholder. As a result, current shareholders of the Company, other than the Rollover Shareholders, will no longer have any equity interest in, or be shareholders of, the Company upon completion of the merger. As a result, our shareholders, other than the Rollover Shareholders, will not have the opportunity to participate in the earnings and growth of the Company and they will not have the right to vote on corporate matters. Similarly, our current shareholders, other than the Rollover Shareholders, will not be exposed to the risk of loss in relation to their investment in the Company.

Directors and Management of the Surviving Company

As of the effective time of the merger, without any further action on the part of the parties, the memorandum and articles of association of the Merger Sub then in effect will be the memorandum and articles of association of the surviving company, except that, at the effective time of the merger, references therein to the name and the authorized capital of the Merger Sub will be amended to describe correctly the name and authorized capital of the surviving company, as provided in the plan of merger, until thereafter changed or amended as provided therein or by applicable law.

In addition, unless otherwise determined by the Parent prior to the effective time, the directors of the Merger Sub at the effective time (identified below in Annex D - “Directors and Executive Officers of Each Filing Person”) will become the directors of the surviving company and the officers (other than those officers who also were directors) of the Company immediately prior to the effective time will become the officers of the surviving company, until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the memorandum and articles of association.

Primary Benefits and Detriments of the Merger

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

●

the receipt by such security holders of $3.65 per Share in cash, representing a premium of 64.2% over the Company’s 30 trading day volume-weighted average closing price as quoted by NASDAQ on May 11, 2020, the last trading day prior to the Company’s announcement on May 12, 2020 that it had received a “going private” proposal; and

●

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

The primary detriments of the merger to the Company’s 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, 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 as a result of the merger for U.S. federal income tax purposes if the amount of cash received exceeds such U.S. Holder’s aggregate adjusted tax basis in such Shares. Because we may be or have been a PFIC for U.S. federal income tax purposes during a U.S. Holder’s holding period for Shares, any gain recognized by a U.S. Holder on the receipt of cash in exchange for such U.S. Holder’s Shares may be taxed under special U.S. federal income tax rules, as described under “Material U.S. Federal Income Tax Consequences.”

The primary benefits of the merger to the Company’s directors and executive officers (other than the Buyer Group) 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;

●

the monthly compensation of five thousand RMB (¥5,000) of Ms. Zhicun Chen, Mr. Yan Shen and Mr. Hengtong Li, each of which is a member of the independent committee, in exchange for their services in such capacity (the payment of which is not contingent upon the completion of the merger or the independent 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.

The primary detriments of the merger to the Company’s directors and executive officers (other than the Buyer Group) include, without limitation, that they will resign from the company and will no longer receive income from the Company.

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 the 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 deploy new services 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. The Company has estimated that no longer being subject to such filings and compliance requirements will result in a saving of direct costs of approximately US$490,000 per year on a recurring basis. The Buyer Group will be able to enjoy the benefit of such cost savings, while the unaffiliated security holders do not and will not share the benefit of any such cost savings.

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

●

all of the risk of any possible decrease in our 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;

●

an equity investment in the surviving company by the Parent 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

The Parent does not currently own any interest in the Company. Immediately after the closing of the merger, The Parent will own 100% of the outstanding Shares. The Company’s net earnings attributable to the Company’s shareholders for the year ended December 31, 2020 was approximately $5,562,761 and net book value attributable to the Company’s shareholders as of December 31, 2020 was approximately $38,851,492.

The table below sets out the direct or indirect interest in the Company’s net book value and net earnings for the Parent, Mr. Li, Ms. Zhang, Mr. Sui and Yancoal before and immediately after the merger, based on the historical net book value as of December 31, 2020 and the net earnings of the Company for the fiscal year 2020.

	Ownership Prior to the Merger⁽¹⁾										Ownership After the Merger
	Net Earnings					Net Book Value					Net Earnings					Net Book Value
Name	$		%			$		%			$		%			$		%
The Parent		-		-			-		-			5,562,761		100	%		38,851,492		100	%
Yuebiao Li⁽²⁾		1,492,460.63		26.83	%		10,423,658.69		26.83	%		1,712,197.15		30.78	%		11,958,344.74		30.78	%
Zhuo Zhang⁽³⁾		977,819.03		17.58	%		6,829,293.63		17.58	%		1,141,464.76		20.52	%		7,972,229.83		20.52	%
Xiangqian Sui⁽⁴⁾		205,856.64		3.7	%		1,437,746.03		3.7	%		205,856.64		3.7	%		1,437,746.03		3.7	%
Yancoal		-		-			-		-			2,503,242.45		45	%		17,483,171.4		45	%

(1)

Ownership percentages are based on 10,809,000 common shares issued and outstanding as of the date of this proxy statement.

(2)

All of Mr. Li’s shares in the Company are owned through his wholly owned and controlled entity, Tigerwind Group Limited, prior to the merger. The indirect ownership percentage of Mr. Li after the merger reflects the addition of the Parent’s shares held by Pure Blue Holding Limited, an entity wholly owned and controlled Mr. Li.

(3)

Ownership percentage after the merger reflects the inclusion of the Parent’s shares owned by Gooden Sunrise Holding Limited, an entity wholly owned and controlled by Ms. Zhang.

(4)

All of Ms. Sui’s shares are owned through Forwater Holdings Limited, an entity wholly owned and controlled by Mr. Sui.

Plans for the Company after the Merger

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 an extraordinary corporate transaction involving the Company’s corporate structure, business, or management, such as a merger, reorganization, liquidation, relocation of any material operations, or sale or transfer of a material amount of assets. 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 internationally recognized stock exchange.

Subsequent to the completion of the merger and the termination of registration of the Company’s Shares under the Exchange Act, the Company will no longer be subject to the Exchange Act and NASDAQ compliance and reporting requirements and the related direct and indirect costs and expenses, and may experience positive effects on profitability as a result of the elimination of such costs and expenses.

Alternatives to the Merger

The board of directors of the Company did not independently determine to initiate a process for the sale of the Company. The independent committee was formed on May 12, 2020, in response to the receipt of the going private proposal letter from Mr. Li and Ms. Zhang on May 12, 2020. The independent committee discussed with its advisors other potential alternatives available to the Company, including the possibility of remaining as an independent company, and reviewed and discussed the proposed process to conduct a pre-signing market check through a third-party solicitation process.

In light of (i) the express intention of the members of the Buyer Group not to sell the Shares they own to any third party, the beneficial ownership of the Buyer Group of approximately 48.1% of the entire issued and outstanding Shares (as of the date of this proxy statement), and (ii) the fact that, since the announcement of the proposed transaction and prior to the entry into the merger agreement, no party other than the members of the Buyer Group has contacted the Company or the independent committee expressing an interest in exploring an alternative transaction with the Company, the independent committee determined that (1) there were no other interested buyers and (2) no viable alternative to the proposed sale of the Company to the Buyer Group.

The independent committee also took into account that the Company can terminate the merger agreement in order to enter into an alternative acquisition agreement with respect to a superior proposal, prior to obtaining required shareholder approval of the merger agreement, subject to the payment to the Parent of a termination fee of $275,000. In this regard, the independent 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 independent committee also considered, as an alternative available to the Company to enhance shareholder value, that the Company remain as a public company. However, the independent 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 unaffiliated with the Buyer Group, the offer premium implied by the merger consideration, 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.

Considering the possible alternatives to the merger (including the possibility of continuing to operate the Company as an independent entity and the perceived risks of that alternative), the range of potential benefits to its shareholders of the possible alternatives and the timing and the likelihood of accomplishing the goals of such alternatives, the independent committee determined that none of these alternatives were reasonably likely to present superior opportunities for the Company or to create greater value for its shareholders than the proposed sale of the Company to the Buyer Group, taking into account risks of execution as well as business, financing, regulatory approval, competitive, industry and market risks.

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, 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 NASDAQ, provided that the Company continues to meet 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.

Under specified circumstances in which the merger agreement is terminated, the Company may be required to pay the Parent a termination fee of $275,000, or the Parent may be required to pay the Company a termination fee of $550,000 or $275,000, in each case, as described under the caption “The Merger Agreement and Plan of Merger - Termination Fee” beginning on page 111.

If the merger is not completed, from time to time, the Company’s board of directors 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 Parent estimates that the total amount of funds necessary to complete the merger and the related transactions at the closing of the merger, including for the payment of the merger consideration to our unaffiliated security holders pursuant to the merger agreement, is anticipated to be approximately $20.5 million. In calculating this amount, the Parent did not consider the value of the Rollover Shares, which will be contributed to the Parent in exchange for shares of its ordinary shares and 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.

Concurrently with the execution of the merger agreement, each of Pure Blue and Gooden Sunrise respectively entered into a share subscription agreement with the Parent, pursuant to which Pure Blue and Gooden Sunrise agreed to provide the Parent with cash contributions in an aggregate amount of $742,856, subject to the terms and conditions therein. The proceeds thereof together with the available offshore cash in the Company and its subsidiaries would be used to fund the merger consideration, provided that, the Parent may (x) seek alternative funding to replace the use of such Company cash prior to the closing, and (y) is obligated to use reasonable best efforts to obtain alternative financing from alternative sources for any shortfall in the event that the Company does not have sufficient cash for use as merger consideration.

As of the date of this proxy statement, the Parent has sought Company Cash Alternative Financing from Yancoal to replace the use of the portion of Available Company Cash, which was approved by the independent committee on December 1, 2020. Under the arrangement of the Company Cash Alternative Financing, on December 2, 2020, (i) Yancoal entered into a share subscription agreement with the Parent pursuant to which Yancoal committed to provide cash contributions to the Parent in an amount of $17,753,783, and (ii) each of Pure Blue and Gooden Sunrise entered into an amended and restated share subscription agreements pursuant to which Pure Blue and Gooden Sunrise committed to provide cash contributions to the Parent in a total amount of $2,719,067.5 .

As a result of such Company Cash Alternative Financing, the merger and the related transactions are expected to be funded through the cash proceeds from issuance by the Parent of ordinary shares of the Parent to Pure Blue, Gooden Sunrise, and Yancoal in an aggregate amount of $20,472,850.5.

Share Subscription Agreement

Concurrently with the execution of the merger agreement, each of Pure Blue and Gooden Sunrise respectively entered into a share subscription agreement with the Parent (the “Original Share Subscription Agreement”), pursuant to which Pure Blue and Gooden Sunrise agreed to provide the Parent with cash contributions in an aggregate amount of $742,856, subject to the terms and conditions therein.

On December 2, 2020, (i) Yancoal entered into a share subscription agreement with the Parent, pursuant to which Yancoal agreed to provide the Parent with cash contributions in an amount of $17,753,783 (the “Share Subscription Agreement”); and (ii) each of Pure Blue and Gooden Sunrise (together with Yancoal, collectively, the “Subscribers”, each, a “Subscriber”) entered into an amended share subscription agreements amending the Original Share Subscription Agreement, pursuant to which Pure Blue and Gooden Sunrise agreed to provide the Parent with cash contributions in an aggregate amount of $2,719,067.5 (the “Amended Subscription Agreement”), in each case, subject to the terms and conditions therein and attached hereto as Annex H. The proceeds thereof will be used by the Parent to fund the merger consideration or other amounts payable by the Parent and the Merger Sub at the closing of the merger to consummate the merger pursuant to and in accordance with the merger agreement.

The Company is an express third-party beneficiary of each of the Share Subscription Agreement and the Amended Subscription Agreements to cause each Subscriber to perform its obligations (including the funding obligations) under such Share Subscription Agreement.

Each of the Share Subscription Agreement and the Amended Subscription Agreements will terminate upon the valid termination of the merger agreement in accordance with its terms.

Rollover Agreement

Concurrently with the execution of the merger agreement, the Parent entered into the Rollover Agreement with Rollover Shareholders, attached hereto as Annex E. Subject to the conditions set forth in the Rollover Agreement, immediately prior to the effective time of the merger and without further action by the Rollover Shareholders, all Rollover Shares will be cancelled without receiving any merger consideration, and as consideration for such cancellation of Rollover Shares, the Parent will issue the Parent shares in the name of each Rollover Shareholder or a designee of the Rollover Shareholder in the number equal to the number of the Rollover Shares. Each Rollover Shareholder acknowledges and agrees that (a) delivery of such the Parent shares will constitute complete satisfaction of all obligations towards or sums due such Rollover Shareholder by the Parent with respect to the applicable Rollover Shares; and (b) on receipt of such the Parent shares, such Rollover Shareholder will have no right to any merger consideration with respect to the Rollover Shares so cancelled.

The Company is an express third-party beneficiary of the Rollover Agreement and is entitled to seek specific performance of the Rollover Agreement.

The Rollover Agreement will terminate upon the valid termination of the merger agreement in accordance with its terms.

Voting Agreement

Concurrently with the execution of the merger agreement, the Parent entered into the Voting Agreement with Rollover Shareholders, attached hereto as Annex F. Pursuant to the Voting Agreement, the Rollover Shareholders agreed with the Parent that (i) when a meeting of the shareholders of the Company is held, to appear at such meeting or otherwise cause its Shares to be counted as present for purposes of calculating a quorum, and (ii) to vote or otherwise cause to be voted at such meeting all the Rollover Shares (A) in favor of the approval of the merger agreement, the plan of merger and the transactions contemplated thereunder, including the merger, (B) against the approval of any alternative transaction or the approval of any other action contemplated by an acquisition proposal, (C) against any other action, agreement or transaction that that is intended, that could reasonably be expected, or the effect of which could reasonably be expected, to materially impede, interfere with, delay, postpone, discourage or adversely affect the merger agreement or the transactions contemplated by, (D) against any action, proposal, transaction or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company contained in the merger agreement, or of such Rollover Shareholder contained in the Voting Agreement, and (E) in favor of any other matter necessary to the consummation of the transactions contemplated under the merger agreement, including the merger.

The Company is an express third-party beneficiary of the Voting Agreement and is entitled to seek specific performance of the Voting Agreement.

The Voting Agreement will terminate on the earlier of (a) the termination of the merger agreement in accordance with its terms, (b) delivery of a written agreement of the Parent and the Company (at the direction of the independent committee), and (c) the effective time of the merger.

Limited Guarantee

Concurrently with the execution of the merger agreement, Mr. Li and Ms. Zhang have entered into a limited guarantee in favor of the Company (the “Original Limited Guarantee”), pursuant to which, each of Mr. Li and Ms. Zhang absolutely, unconditionally and irrevocably guarantees to the Company, severally but not jointly, as a primary obligor and not merely as a surety, the due and punctual payment, performance and discharge as and when due of the payment obligations of the Parent with respect to the payment of (i) the total termination fee for which the Parent is obligated to pay under the merger agreement; and (ii) the total reimbursable expenses for which the Parent is obligated to pay under the merger agreement; provided that in no event will the aggregate liability of each of Mr. Li and Ms. Zhang under the limited guarantee (exclusive of reimbursement of expenses) exceed such person’s pro rata percentages of the guaranteed obligations.

In connection with the Company Cash Alternative Financing, Mr. Li, Ms. Zhang, and the Company entered into a release and termination of limited guarantee agreement dated as of December 2, 2020 (the “Guarantee Termination Agreement”), pursuant to which the Original Limited Guarantee is terminated. Concurrently with the execution of the Guarantee Termination Agreement, Mr. Li, Ms. Zhang and Yancoal have entered into a Limited Guarantee with the Company (which is attached hereto as Annex G), the terms and conditions of which are materially similar to those of the Original Limited Guarantee and pursuant to which, each of Mr. Li, Ms. Zhang and Yancoal absolutely, unconditionally and irrevocably guarantees to the Company, severally but not jointly, as a primary obligor and not merely as a surety, the due and punctual payment, performance and discharge as and when due of the payment obligations of the Parent with respect to the payment of (i) the total termination fee for which the Parent is obligated to pay under the merger agreement; and (ii) the total reimbursable expenses for which the Parent is obligated to pay under the merger agreement; provided that in no event will the aggregate liability of each of Mr. Li, Ms. Zhang, and Yancoal under the limited guarantee (exclusive of reimbursement of expenses) exceed such person’s pro rata percentages of the guaranteed obligations.

Remedies and Limitations on Liability

The parties to the merger agreement will be entitled to an injunction or injunctions, or any other appropriate form of specific performance or equitable relief, to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement in any court of competent jurisdiction, pursuant to the merger agreement, this being in addition to any other remedy to which they are entitled under the terms of the merger agreement at law or in equity. Each party to the merger agreement accordingly agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such party under the merger agreement. While the Company, the Parent and the Merger Sub may pursue both a grant of specific performance and monetary damages, none of them will be permitted or entitled to receive both a grant of specific performance that results in the completion of the merger and monetary damages.

Interests of Certain Persons in the Merger

In considering the recommendation of the independent committee and our board of directors with respect to the merger, you should be aware that the Buyer Group, have interests in the transaction that are different from, and/or in addition to, the interests of our shareholders generally. The Company’s board of directors and independent 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 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 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. Concurrent with the execution of the merger agreement, the Rollover Shareholders entered into a rollover agreement and a voting agreement with the Parent, pursuant to which, subject to the terms and conditions set forth therein, the Rollover Shareholders have agreed to the subscription of newly issued shares in the Parent in exchange for the cancellation of Rollover Shares of such Rollover Shareholders and vote in favor of the approval of the merger agreement, the plan of merger and the transactions contemplated thereunder, including the merger. Immediately following the completion of the merger, Mr. Li Filing Persons, Ms. Zhang Filing Persons, Mr. Sui Filing Persons, and Yancoal will beneficially own approximately 30.78%, 20.52%, 3.7% and 45% of the equity interest in Parent, respectively.

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 its original investment 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 investment by the Buyer Group 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 the reporting and compliance obligations of a publicly traded company, 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.

Shares and Options Held by Officers and Directors

As of the date of this proxy statement, our directors and executive officers (as set forth in “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 123), as a group beneficially own an aggregate of 4,800,000 Shares.

The following table summarizes, the number of issued and outstanding Shares beneficially held by our directors and executive officers as of the date of this proxy statement.

Beneficial Ownership ⁽¹⁾
Name of Beneficial Owner	Common Shares		Percentage
Yuebiao Li ^{(2) (3) (5)}		2,900,000		26.8	%
Zhuo Zhang ^{(4) (5)}		1,900,000		17.6	%
Hengtong Li ⁽⁵⁾		0		*
Zhicun Chen ⁽⁵⁾		0		*
Yan Shen ⁽⁵⁾		0		*
All directors and executive officers as a group		4,800,000		44.4	%

*	Less than 1%.
(1)	Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common shares or the power to receive the economic benefit of the common shares.
(2)	Chairman and Chief Executive Officer
(3)	Represents 2,900,000 shares held directly by Tigerwind Group Limited, a British Virgin Islands limited liability company controlled by Yuebiao Li. Mr. Li holds voting and investment power over the shares held.
(4)	Chief Financial Officer
(5)	Director

Indemnification and Insurance

Pursuant to the merger agreement, the Parent and the Merger Sub have agreed that:

●

The indemnification, advancement and exculpation provisions of certain indemnification agreements by and among the Company and its directors and certain executive officers, as in effect at the effective time of the merger will survive the merger and will not be amended, repealed or otherwise modified for a period of six (6) years from the effective time of the merger in any manner that would adversely affect the rights thereunder of individuals who are current or former directors, officers or employees of the Company or any person who becomes a director or officer of the Company or any of its subsidiaries prior to the effective time of the merger (the “Indemnified Parties”).

●

The memorandum and articles of association of the surviving company will contain provisions with respect to exculpation and indemnification that are at least as favorable to the directors, officers or employees of the Company as those contained in the memorandum and articles of association of the Company as in effect on the date of the merger agreement, except to the extent prohibited by the applicable law, which provisions will not be amended, repealed or otherwise modified for a period of six (6) years from the effective time of the merger in any manner that would adversely affect the rights thereunder of the Indemnified Parties, unless such modification is required by law.

●

From and after the effective time of the merger until the sixth (6th) anniversary of the effective time of the merger, the surviving company will comply with all of the Company’s obligations, and will cause its subsidiaries to comply with their respective obligations to indemnify and hold harmless (including any obligations to advance funds for expenses) (i) the Indemnified Parties thereof against any and all costs or expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (“Damages”), arising out of, relating to or in connection with (A) the fact that an Indemnified Party is or was a director or officer of the Company or any of its subsidiaries, (B) any acts or omissions occurring or alleged to occur prior to or at the effective time of the merger to the extent provided under the Company’s or such subsidiaries’ respective organizational and governing documents or agreements in effect on the date of the merger agreement and to the fullest extent permitted by the BVI Companies Act or any other applicable law, including (x) the approval of the merger agreement, the merger or the other transactions contemplated by the merger agreement or arising out of or pertaining to the transactions contemplated by the merger agreement, and (y) actions to enforce this provision or any other indemnification or advancement right of any Indemnified Party; provided, however, that such indemnification will be subject to any limitation imposed from time to time under applicable law; and (ii) such Indemnified Parties against any and all Damages arising out of acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at the request or for the benefit of the Company or any of its subsidiaries.

●

If the Parent, the surviving company or any of their respective successors or assigns (i) consolidates with or merges into any other person and will not be the continuing or surviving company or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then the obligations of the Parent or the surviving company, as the case may be, that are described in the foregoing paragraph will survive, and to the extent necessary, proper provision will be made so that the successors and assigns of the Parent or the surviving company, as the case may be, will assume such obligations.

The Independent Committee

On May 12, 2020, our board of director established an independent committee of directors to consider the proposal from Mr. Li and Ms. Zhang and to take any actions it deems appropriate to assess the fairness and viability of such proposal. The independent committee is composed of independent and disinterested directors: Ms. Zhicun Chen (who serves as the chairman), Mr. Yan Shen and Mr. Hengtong Li. 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) independent committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the independent committee’s or board’s recommendation of the merger), and (iii) the director’s indemnification and liability insurance rights under the merger agreement. Our board of directors did not place any limitations on the authority of the independent committee regarding its investigation and evaluation of the merger.

The Company has compensated the members of the independent committee in exchange for their service in such capacity. The monthly compensation is five thousand RMB (¥5,000) for each of Ms. Zhicun Chen, Mr. Yan Shen and Mr. Hengtong Li, the payment of which is not contingent upon the completion of the merger or the independent committee’s or the board’s recommendation of the merger.

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

We have adopted an audit committee charter, which requires the audit committee to review and approve all related party transactions 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” beginning on page 127 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
Legal fees and expenses	$	1,490,000
Financial advisory fees and expenses	$	280,000
Independent committee fees	$	20,000
Printing, proxy solicitation and mailing costs	$	3,000
Filing fees	$	2,233.59
Total	$	1,795,233.59

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 Voting 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 and the transactions contemplated by the merger agreement, including the merger, at the extraordinary general meeting of the Company. As of the record date, we expect that the Rollover Shareholders as a group will beneficially own, in the aggregate, 5,200,000 outstanding Shares, which represents 48.1% of the total issued and outstanding Shares entitled to vote.

Accounting Treatment of the Merger

Upon completion of the merger, the Company would cease to be a publicly traded company, and the Company expects to account for the merger at historical cost.

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 the approvals, filings or notices required under the federal securities laws and the registration of the plan of merger (and supporting documentation as specified in the BVI Companies Act) with the Registrar of Corporate Affairs of the British Virgin Islands (the “Registrar”) and, if the Registrar is satisfied that the requirements under the British Virgin Islands law in respect of the merger have been complied with, the Registrar will issue a certificate of merger in the approved form.

Appraisal Rights

Please see “Appraisal Rights” beginning on page 115.

Material U.S. Federal Income Tax Consequences

The following is a discussion of certain material U.S. federal income tax consequences of the merger to U.S. Holders (as defined below) of the Shares who exchange Shares solely for cash pursuant to the merger agreement or receive cash as a result of exercising their Appraisal Rights. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the “Code”, final and temporary U.S. Treasury Regulations promulgated thereunder, 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, or the “IRS”, and the IRS may challenge any of the conclusions set forth below and a U.S. court may sustain such a challenge.

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 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 holders that are (i) banks, financial institutions, or insurance companies; (ii) regulated investment companies, mutual funds, or real estate investment trusts; (iii) brokers or dealers in securities or currencies or traders in securities that elect to apply a mark–to–market accounting method; (iv) tax-exempt organizations; (v) holders that own Shares as part of a straddle, hedge, constructive sale, conversion transaction, or other integrated investment; (vi) holders that acquired Shares in connection with the exercise of employee share options or otherwise as compensation for services; (vii) U.S. Holders (as defined below) that have a “functional currency” other than the U.S. dollar; (viii) retirement plans, individual retirement accounts, or other tax-deferred accounts; (ix) U.S. expatriates; (x) persons subject to alternative minimum tax; (xi) U.S. Holders that actually or constructively own 10% more of our voting stock; (xii) holders that are related under certain attribution rules to the Parent; or (xiii) holders that are not U.S. Holders. This discussion assumes that Shares are held as capital assets, within the meaning of Section 1221 of the Code, at all relevant times.

As used herein, a “U.S. Holder” is any beneficial owner of Shares that is (i) a citizen or individual resident of the United States for U.S. federal income tax purposes; (ii) a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia (or other entity treated as a domestic corporation for U.S. federal income tax purposes); (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.

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. Any partner of a partnership holding Shares is urged to consult its own tax advisor.

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.

PFIC Considerations

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.

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.

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 of the merger. 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 under “Special Factors – Material PRC Income Tax Consequences” beginning on page 84, we do not believe that we should be considered 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 will generally be subject to information reporting with respect to the amount of cash received in the merger, unless such U.S. Holder is a corporation or other exempt recipient. A U.S. Holder may also 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.

Medicare Tax

A U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) such holder’s “net investment income” (or undistributed “net investment income” in the case of an estate or trust) for the relevant taxable year and (2) the excess of such holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances). A U.S. Holder’s net investment income will generally include gains from the sale or other disposition of capital assets. U.S. Holders that are individuals, estates or trusts should consult their tax advisors regarding the effect, if any, of this tax on the disposition of their Shares pursuant to the merger.

Material PRC Income Tax Consequences

The Company does not believe that it should be considered a resident enterprise under the EIT Law or that the gain recognized on the receipt of cash for our Shares should otherwise be subject to PRC tax to holders of such Shares that are not PRC residents. However, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a resident enterprise. If the PRC tax authorities were to determine that the Company should be considered a resident enterprise, then gain recognized on the receipt of cash for our Shares pursuant to the merger by our shareholders who are not PRC 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), and, 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.

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.

Material British Virgin Islands Tax Consequences

The British Virgin Islands currently have 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 register the plan of merger.

MARKET PRICE OF THE COMPANY’S SHARES, DIVIDENDS AND OTHER MATTERS

Market Price of the Shares

The following table provides the high and low sales prices for our Shares on the NASDAQ under the symbol “NEWA,” for the period indicated:

	Sale Price per Share (in $)
	High		Low
Quarterly:
2018
First quarter	$	21.50	$	8.66
Second quarter	$	28.20	$	11.17
Third quarter	$	29.69	$	8.61
Fourth quarter	$	10.38	$	5.26
2019
First quarter	$	8.10	$	5.01
Second quarter	$	9.10	$	5.16
Third quarter	$	6.95	$	5.26
Fourth quarter	$	6.45	$	3.00
2020
First quarter	$	5.10	$	1.32
Second quarter	$	4.66	$	2.00
Third quarter	$	4.17	$	3.00
Fourth quarter	$	3.94	$	3.26
2021
First quarter	$	5.53	$	3.00

The merger consideration of $3.65 per Share, to be paid in the merger represents (a) a premium of approximately 72.1% to the Company’s closing price of $2.12 per Share on May 11, 2020, the last trading date immediately prior to the Company’s announcement that it had received “a going private” proposal on May 12, 2020, and (b) 64.2% and 56.6% premium over the volume-weighted average closing price of the Shares during the 30 and 60 trading days, respectively, prior to the Company’s announcement on May 12, 2020 that it had received a “going private” proposal. You are urged to obtain a current market price quotation for your Shares in connection with voting your Shares.

Dividend Policy

Since our inception, we have not declared or paid any dividends on our ordinary shares. We do not anticipate paying any cash dividends in the foreseeable future and the merger agreement prohibits us from paying dividends without the prior written consent of the Parent.

Cash dividends on our Shares, if any, will be paid in U.S. dollars.

THE EXTRAORDINARY GENERAL MEETING

We are furnishing this proxy statement to you, as a holder of our Shares, as part of the solicitation of proxies by the Company’s board of directors 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 July 12, 2021, at 8: 30 am (Beijing Time) at the Company principal executive office located at 1 Ruida Road, Laishan District, Yantai City, Shandong Province, 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 September 29, 2020 (the “merger agreement”) among the Parent, the Merger Sub and the Company (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 among the Merger Sub and the Company required to be registered with the Registrar of Corporate Affairs of the British Virgin Islands for the purposes of the merger (such plan of merger being in the form attached to the merger agreement and which will be produced and made available for inspection at the extraordinary general meeting) and any and all transactions contemplated by the merger agreement, including the merger, be and are hereby authorized and approved; 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 shareholders resolution to be proposed at the extraordinary general meeting.

If the merger is completed, at the effective time of the merger, each outstanding Share, other than the Excluded Shares, will be cancelled in exchange for the right to receive $3.65 in cash without interest, net of any applicable withholding taxes, in accordance with the terms and conditions set forth in the merger agreement. At the effective time of the merger, all of the Shares will be cancelled and cease to exist. Each Dissenting Share will thereafter represent only the right to receive the fair value of such Share as determined under the BVI Companies Act. Each Excluded Share other than Dissenting Share will be cancelled for no consideration. At the effective time of the merger, each ordinary share, par value US$1.00 per share, of the Merger Sub issued and outstanding immediately prior to the effective time will be converted into one fully paid and non-assessable ordinary share, par value US$0.001 per share, of the surviving company.

Our Board’s Recommendation

Our board of directors, acting upon the unanimous recommendation of the independent committee of our board of directors:

●

determined that it is fair to and in the best interests of the Company and its shareholders (other than holders of Excluded Shares), and declared that it is advisable, to enter into the merger agreement;

●

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

●

resolved to direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company.

Quorum

A quorum of our shareholders is necessary to have a valid shareholders’ meeting. The required quorum for the transaction of business at the extraordinary general meeting is the presence, in person or by proxy, of shareholders holding not less than one-third (1/3) of the votes of Shares that are entitled to vote on the record date. We expect, as of the record date, there will be 10,809,000 Shares entitled to be voted at the extraordinary general meeting. In the event that a quorum is not present at the extraordinary general meeting, we currently expect that we will adjourn the extraordinary general meeting to solicit additional proxies in favor of the adoption of the merger agreement.

Record Date; Shares Entitled to Vote

You are entitled to attend and directly 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 February 10, 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 on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the share record date, there will be 10,809,000 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 on July 11, 2021 at 8:30 am (Beijing Time). Please see “The Extraordinary General Meeting - Procedures for Voting” 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 Company’s Shares would continue to be listed on NASDAQ.

Vote Required

Under the BVI Companies Act and the merger agreement, we cannot complete the merger unless the merger agreement, the transactions contemplated by the merger agreement, including the merger, are adopted by an affirmative vote of shareholders representing more than fifty percent (50%) of the outstanding Shares of the Company, present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company’s shareholders. As of the date of this proxy statement, the Rollover Shareholders as a group beneficially owned, in the aggregate, 5,200,000 Shares, which represents 48.1% of the total issued and outstanding Shares entitled to vote. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 123 for additional information. Pursuant to the terms of the Voting Agreement, these Shares will be voted in favor of the authorization and approval of the merger agreement, the plan of merger the transactions contemplated by the merger agreement, including the merger, at the extraordinary general meeting of the Company. Based on the number of Shares expected to be outstanding on the record date, 204,501 Shares owned by the unaffiliated shareholders (representing approximately 3.6% of the total outstanding Shares owned by the unaffiliated shareholders) must be voted in favor of the proposal in order for the merger to be approved, assuming all remaining shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

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 February 10, 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 wanting to vote by proxy should simply 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 8:30 am (Beijing Time) on July 11, 2021.

Persons who have acquired Shares and whose names are entered in the Company’s register of members before the close of business on February 10, 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 February 10, 2021 (British Virgin Islands time) 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.

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 participate in the extraordinary general meeting may appoint as a representative another shareholder, a third party or the Company as proxy holder by completing and returning the form of proxy 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 Company as proxy holder will vote in favor of the merger according to the recommendation of the board of directors of the Company. If new proposals (other than those on the agenda) are put forth before the extraordinary general meeting, the Company as proxy holder will vote in accordance with the position of the board of directors of the Company.

Voting of Proxies and Failure to Vote; Discretionary Proxy of the Company under the Deposit Agreement

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, Shares represented by that proxy card will be voted FOR the proposal to authorize and approve 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 shareholders resolution during 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.

Revocability of Proxies

Registered holders of our 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 Newater Technology, Inc., 1 Ruida Road, Laishan District, Yantai City, Shandong Province, People’s Republic of China 264003;

●

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