UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
SCHEDULE 14A
(Amendment No. 1)
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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Filed by a Party other than the
Registrant [ ]
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Check the appropriate box:
[X]
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Preliminary Proxy Statement
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[ ]
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Confidential, for use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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[ ]
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Soliciting Material Under Rule 14a-12
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CHINA TRANSINFO TECHNOLOGY CORP.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ]
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No fee required
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[X]
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Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11(c)(1)
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(1)
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Title of each class of securities to which transaction
applies:
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Common stock, par value $0.001 per share of China
TransInfo Technology Corp. (
common stock
)
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(2)
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Aggregate number of securities to which transaction
applies:
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(A) 13,071,944 shares of common stock issued and
outstanding as of June 25, 2012 (consisting of the 25,270,069 shares of
common stock outstanding as of June 25, 2012 minus 12,198,125 shares held
by Mr. Shudong Xia, Karmen Investment Holdings Limited, SAIF Partners III,
L.P., Ms. Danxia Huang and Mr. Shufeng Xia (the
Rollover
Shares
)*), (B) 924,901 shares of common stock underlying outstanding
options as of June 25, 2012 with an exercise price below $5.80 per share,
and (C) 5,555 shares of common stock underlying outstanding warrants as of
June 25, 2012 with an exercise price below $5.80 per share.
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* The Rollover Shares are being contributed to Shudong
Investments Limited immediately prior to the consummation of the
merger.
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(3)
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Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 and the Securities and
Exchange Commission Fee Rate Advisory #3 for Fiscal Year 2012 (set forth
the amount on which the filing fee is calculated and state how it was
determined):
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The proposed maximum aggregate value of the transaction
for purposes of calculating the filing fee is $76,745,899. The maximum
aggregate value of the transaction was calculated based upon the sum of
(A) 13,071,944 shares of common stock issued and outstanding
as of June 25, 2012 (consisting of the 25,270,069 shares of common stock
outstanding as of June 25, 2012 minus the Rollover Shares) multiplied by
$5.80 per share merger consideration, (B) 924,901 shares of common stock
underlying outstanding options as of June 25, 2012 with an exercise price
below $5.80 per share multiplied by $0.98 per share (which is the
difference between the $5.80 per share merger consideration and the
weighted average exercise price of such options of $4.82 per share), and
(C) 5,555 shares of common stock underlying outstanding warrants as of
June 25, 2012 multiplied by $4.00 per share (which is the difference
between the $5.80 per share merger consideration and the weighted average
exercise price of $1.80 per share). The filing fee equals the product of
0.0001146 multiplied by the maximum aggregate value of the
transaction.
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(4)
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Proposed maximum aggregate value of transaction:
$76,745,899
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(5)
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Total fee paid: $8,796
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[ ]
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Fee paid previously with preliminary materials.
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[X]
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of its
filing.
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(1)
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Amount Previously Paid: $560.89
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(2)
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Form, Schedule or Registration Statement No.: Form S-3
(Registration No. 333 -162689)
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(3)
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Filing party: China TransInfo Technology Corp.
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(4)
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Date Filed: October 27, 2009
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PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION
, 2012
To the Stockholders of China TransInfo Technology Corp.:
You are cordially invited to attend a special meeting of
stockholders of China TransInfo Technology Corp., a Nevada corporation (the
Company
,
we
,
us
or
our
) to be held
at
a.m., Beijing time,
on
, 2012,
at
.
At the special meeting, you will be asked to consider and vote
upon a proposal to approve an Agreement and Plan of Merger, dated as of June 8,
2012 (the
merger agreement
), among the Company, TransCloud Company
Limited, a Cayman Islands exempted company with limited liability
(
Parent
) and TransCloud Acquisition, Inc., a Nevada corporation and a
wholly owned subsidiary of Parent (
Merger Sub
). Under the terms of the
merger agreement, Merger Sub will be merged with and into the Company (the
merger
), with the Company surviving the merger as a wholly owned
subsidiary of Parent. Parent and Merger Sub were formed and are beneficially
owned by Mr. Shudong Xia (
Mr. Xia
).
If the merger is completed, each share of Company common stock,
other than as provided below, will be converted into the right to receive $5.80
in cash, without interest. We refer to this amount as the
per share merger
consideration
. Each share of Company common stock held by the Company as
treasury stock or owned, directly or indirectly, by Parent, Merger Sub or any
wholly owned subsidiary of the Company immediately prior to the effective time
of the merger, including each share of Company common stock to be contributed to
Parent by the Rollover Holders (as defined below) immediately prior to the
effective time of the merger, will automatically be cancelled without payment of
the per share merger consideration.
A special committee of our board of directors, consisting
entirely of independent directors, reviewed and considered the terms and
conditions of the merger agreement and the transactions contemplated by the
merger agreement, including the merger. The special committee unanimously
determined that the merger agreement and the transactions contemplated by the
merger agreement, including the merger, are advisable, fair to and in the best
interests of the Company and its stockholders (other than Parent, Merger Sub and
their affiliates, the Rollover Holders, and the directors and officers of the
Company), whom we refer to as the
unaffiliated stockholders
, and
recommended that our board of directors approve and declare the advisability of
the merger agreement and the transactions contemplated by the merger agreement,
including the merger, and recommend that our stockholders approve the merger
agreement. Our board of directors, after careful consideration and acting on the
unanimous recommendation of the special committee, deemed it advisable, fair to
and in the best interests of the Company and the unaffiliated stockholders that
the Company enter into the merger agreement, determined that the merger
agreement and the transactions contemplated by the merger agreement, including
the merger, are advisable, fair to and in the best interests of the Company and
the unaffiliated stockholders and recommended that our stockholders approve the
merger agreement at the special meeting.
Our board of directors recommends
that you vote
FOR
the proposal to approve the merger
agreement
.
The merger cannot be completed unless the merger agreement is
approved by both (i) the holders of a majority of the shares of Company common
stock and (ii) the holders of a majority of the shares of Company common stock
(excluding the shares of Company common stock owned by the Rollover Holders).
More information about the merger is contained in the accompanying
proxy statement and a copy of the merger agreement is attached thereto as Annex
A.
In considering the recommendation of the special committee and
the board of directors, you should be aware that some of the Companys directors
and officers have interests in the merger that are different from, or in
addition to, the interests of our stockholders generally. Mr. Xia (our chairman,
president, chief executive officer and secretary), Ms. Danxia Huang (one of our
directors, our vice president of operations and our treasurer), Mr. Shufeng Xia
(the director of financial department of China TransInfo Technology Group Co.,
Ltd., our consolidated variable interest entity), Karmen Investment Holdings
Limited (one of our stockholders and beneficially owned by Mr. Xia), and SAIF
Partners III, L.P. (collectively, the
Rollover Holders
) beneficially
own in aggregate approximately 48.3% of the total outstanding shares of Company
common stock. The Rollover Holders are parties to the contribution agreements
described in the accompanying proxy statement and have agreed with Parent and
Shudong Investments Limited, a British Virgin Islands company and the sole
shareholder of Parent (
Holdco
), to contribute to Parent the shares of
Company common stock owned by them in exchange for newly issued shares of
Holdco, immediately prior to the effective time of the merger. In addition, Mr.
Brandon Ho-Ping Lin (one of our directors) is a partner at SAIF Advisors
Limited. The accompanying proxy statement includes additional information
regarding certain interests of the Companys directors and officers that may be
different from, or in addition to, the interests of our stockholders generally.
We encourage you to read the accompanying proxy statement in
its entirety because it explains the proposed merger, the documents related to
the merger and other related matters.
Regardless of the number of shares of Company common stock
you own, your vote is important. The failure to vote will have the same effect
as a vote AGAINST the proposal to approve the merger agreement.
Whether or not you plan to attend the special meeting, please
take the time to submit a proxy by following the instructions on your proxy card
as soon as possible. If your shares of Company common stock are held in an
account at a broker, dealer, commercial bank, trust company or other nominee,
you should instruct your broker, dealer, commercial bank, trust company or other
nominee how to vote in accordance with the voting instruction form furnished by
your broker, dealer, commercial bank, trust company or other nominee. The
failure to instruct your broker, dealer, commercial bank, trust company or other
nominee to vote your shares of our common stock FOR the proposal to approve
the merger agreement will have the same effect as a vote AGAINST the proposal
to approve the merger agreement.
We appreciate your continued support of the Company.
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Sincerely,
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Shudong Xia
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Chairman, President, Chief Executive Officer
and
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Secretary
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The merger has not been approved or disapproved by the
Securities and Exchange Commission or any state securities commission. Neither
the Securities and Exchange Commission nor any state securities commission has
passed upon the merits or fairness of the merger or upon the adequacy or
accuracy of the information contained in this document or the accompanying proxy
statement. Any representation to the contrary is a criminal offense.
The accompanying proxy statement is
dated
, 2012 and is first being mailed to stockholders on or
about
, 2012.
CHINA TRANSINFO TECHNOLOGY CORP.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
ON
, 2012
NOTICE IS HEREBY GIVEN that the special meeting of stockholders
of China TransInfo Technology Corp. (the
Company
,
we
,
us
or
our
) will be held
at
a.m., Beijing time,
on
, 2012,
at
, for the following purposes:
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1.
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To approve the Agreement and Plan of Merger, dated as of
June 8, 2012 (the
merger agreement
), with TransCloud Company
Limited, a Cayman Islands exempted company with limited liability
(
Parent
) and TransCloud Acquisition, Inc., a Nevada corporation
and a wholly owned subsidiary of Parent, (
Merger Sub
), providing
for the merger of Merger Sub with and into the Company (the
merger
), with the Company surviving the merger as a wholly owned
subsidiary of Parent. Parent and Merger Sub were formed and are
beneficially owned by Mr. Shudong Xia (
Mr. Xia
); and
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2.
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To approve the adjournment of the special meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the
merger agreement.
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For more information about the merger and the other
transactions contemplated by the merger agreement, please review the
accompanying proxy statement and the merger agreement attached thereto as Annex
A.
A special committee of our board of directors, consisting
entirely of independent directors, reviewed and considered the terms and
conditions of the merger agreement and the transactions contemplated by the
merger agreement, including the merger. The special committee unanimously
determined that the merger agreement and the transactions contemplated by the
merger agreement, including the merger, are advisable, fair to and in the best
interests of the Company and its stockholders (other than Parent, Merger Sub and
their affiliates, the Rollover Holders, and the directors and officers of the
Company), whom we refer to as the
unaffiliated stockholders
, and
recommended that our board of directors approve and declare the advisability of
the merger agreement and the transactions contemplated by the merger agreement,
including the merger, and recommend that our stockholders approve the merger
agreement. Our board of directors, acting on the unanimous recommendation of the
special committee, deemed it advisable, fair to and in the best interests of the
Company and the unaffiliated stockholders that the Company enter into the merger
agreement, determined that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, are advisable, fair
to and in the best interests of the Company and the unaffiliated stockholders
and recommended that our stockholders approve the merger agreement at the
special meeting.
Our board of directors recommends that you vote FOR
approval of the merger agreement, and FOR the proposal to approve the
adjournment of the special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time of the special
meeting to approve the merger agreement.
Mr. Xia (our chairman, president, chief executive officer and
secretary), Ms. Danxia Huang (one of our directors, our vice president of
operations and our treasurer), Mr. Shufeng Xia (the director of financial
department of China TransInfo Technology Group Co., Ltd., our consolidated
variable interest entity), Karmen Investment Holdings Limited (one of our
stockholders and beneficially owned by Mr. Xia), and SAIF Partners III, L.P.
(collectively, the
Rollover Holders
) beneficially own in aggregate
approximately 48.3% of the total outstanding shares of Company common stock. The
Rollover Holders are parties to the contribution agreements described in the
accompanying proxy statement and have agreed with Parent and Shudong Investments
Limited, a British Virgin Islands company and the sole shareholder of Parent
(
Holdco
), to contribute to Parent the shares of Company common stock
owned by them in exchange for newly issued shares of Holdco, immediately prior
to the effective time of the merger. In addition, Mr. Brandon Ho-Ping Lin (one
of our directors) is a partner at SAIF Advisors Limited.
Only stockholders of record at the close of business, New York
time,
on
, 2012 are entitled to notice of and to vote at the special meeting and at
any and all adjournments or postponements thereof.
The approval of the merger agreement requires the affirmative
vote by both (i) the holders of a majority of the shares of Company common stock
and (ii) the holders of a majority of the shares of Company common stock
(excluding the shares of Company common stock owned by the Rollover Holders).
The approval of the adjournment of the special meeting requires the affirmative
vote of the holders of at least a majority of the shares of Company common stock
present and entitled to vote at the special meeting as of the record date,
whether or not a quorum is present.
Regardless of the number of shares of Company common stock
you own, your vote is important. The failure to vote will have the same effect
as a vote AGAINST the proposal to approve the merger agreement.
Whether or not you plan to attend the special meeting, please
take the time to submit a proxy by following the instructions on your proxy card
as soon as possible. If your shares of Company common stock are held in an
account at a broker, dealer, commercial bank, trust company or other nominee,
you should instruct your broker, dealer, commercial bank, trust company or other
nominee how to vote in accordance with the voting instruction form furnished by
your broker, dealer, commercial bank, trust company or other nominee. The
failure to instruct your broker, dealer, commercial bank, trust company or other
nominee to vote your shares of our common stock FOR the proposal to approve
the merger agreement will have the same effect as a vote AGAINST the proposal
to approve the merger agreement.
If you plan to attend the special meeting, please note that you
may be asked to present valid photo identification, such as a drivers license
or passport. If you wish to attend the special meeting and your shares of
Company common stock are held in an account at a broker, dealer, commercial
bank, trust company or other nominee (i.e., in street name), you will need to
bring a copy of your voting instruction card or statement reflecting your share
ownership as of the record date.
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By Order of the Board of Directors,
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Shudong Xia
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Chairman, President, Chief Executive Officer
and
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Secretary
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, 2012
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Important Notice of Internet Availability
This proxy statement for the special meeting to be held
on
, 2012 is available free of charge at
www.shareholdermaterial.com/ctfo
.
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, YOU ARE ENCOURAGED TO VOTE AS SOON AS POSSIBLE. YOU MAY VOTE YOUR SHARES
OF COMPANY COMMON STOCK BY TELEPHONE, OVER THE INTERNET, OR IF YOU RECEIVED A
PAPER COPY OF THE PROXY CARD, BY SIGNING AND DATING IT AND RETURNING IT
PROMPTLY. VOTING BY PROXY WILL NOT PREVENT YOU FROM ATTENDING THE MEETING AND
VOTING IN PERSON IF YOU SO DESIRE.
SUMMARY VOTING INSTRUCTIONS
Ensure that your shares of Company common stock can be voted
at the special meeting by submitting your proxy or contacting your broker,
dealer, commercial bank, trust company or other nominee.
If your shares of Company common stock are registered in
the name of a broker, dealer, commercial bank, trust company or other
nominee
: check the voting instruction card forwarded by your broker,
dealer, commercial bank, trust company or other nominee to see which voting
options are available or contact your broker, dealer, commercial bank, trust
company or other nominee in order to obtain directions as to how to ensure that
your shares of Company common stock are voted at the special meeting.
If your shares of Company common stock are registered in
your name
: submit your proxy as soon as possible by telephone, via the
Internet or by signing, dating and returning the enclosed proxy card in the
enclosed postage-paid envelope, so that your shares of Company common stock can
be voted at the special meeting.
Instructions regarding telephone and Internet voting are
included on the proxy card.
The failure to vote will have the same effect as a vote
AGAINST the proposal to approve the merger agreement. If you sign, date and
mail your proxy card without indicating how you wish to vote, your proxy will be
voted
in favor of
the proposal to approve the merger agreement and
the proposal to adjourn the special meeting, if necessary and appropriate, to
solicit additional proxies.
The failure to instruct your broker, dealer, commercial bank,
trust company or other nominee to vote your shares of our common stock FOR the
proposal to approve the merger agreement will have the same effect as a vote
AGAINST the proposal to approve the merger agreement.
If you have any questions, require assistance with voting
your proxy card, or need additional copies of proxy material, please call Okapi
Partners LLC, toll free at (855) 305 0855, collect at (212) 297-0720 or by email
at info@okapipartners.com.
TABLE OF CONTENTS
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Page
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PROXY STATEMENT
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1
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SUMMARY TERM SHEET RELATED TO THE MERGER
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1
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL
MEETING AND THE MERGER
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12
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SPECIAL FACTORS RELATING TO THE MERGER
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17
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The Parties
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17
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Overview of the Transaction
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18
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Management and Board of
Directors of the Surviving Corporation
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19
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Background of the Merger
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19
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Purposes and Reasons of Our
Board of Directors and Special Committee for the Merger
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27
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Recommendation of Our Board of Directors and
Special Committee; Reasons for Recommending the Approval of the Merger
Agreement; Fairness of the Merger
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28
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Opinion of William Blair,
Financial Advisor to the Special Committee
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34
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Purposes and Reasons of the Buyer Group for
the Merger
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41
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Positions of the Buyer Group
Regarding the Fairness of the Merger
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41
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Certain Effects of the Merger
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45
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Effects on the Company if
Merger is not Completed
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46
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Plans for the Company
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47
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Prospective Financial
Information
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47
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Financing of the Merger
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50
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Limited Guarantee
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52
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Voting Agreement
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52
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Limitation on Remedies
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53
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Interests of the Companys Directors and
Officers in the Merger
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53
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Relationship Between Us and
Buyer Group
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55
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Dividends
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56
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Determination of the Per Share
Merger Consideration
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56
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Regulatory Matters
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56
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Fees and Expenses
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56
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Material United States Federal Income Tax
Consequences
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57
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Material PRC Tax Consequences
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59
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Delisting and Deregistration of the Company
Common Stock
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59
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Litigation Relating to the
Merger
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60
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THE SPECIAL MEETING
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62
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Date, Time and Place
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62
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Purpose of the Special Meeting
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62
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Recommendation of Our Board of
Directors and Special Committee
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62
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Record Date; Stockholders Entitled to Vote;
Quorum
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62
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Vote Required
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63
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Stock Ownership and Interests of Certain
Persons
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63
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Voting Procedures
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63
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Other Business
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64
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Adjournments and Postponements
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65
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Revocation of Proxies
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65
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Rights of Stockholders Who
Object to the Merger
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65
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Solicitation of Proxies
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65
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Assistance
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65
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PROPOSAL ONE APPROVAL OF THE MERGER
AGREEMENT
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66
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THE MERGER AGREEMENT
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66
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i
Explanatory Note Regarding the
Merger Agreement
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66
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Effects of the Merger; Directors and Officers;
Certificate of Incorporation; Bylaws
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66
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Closing and Effective Time of
the Merger
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66
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Treatment of Common Stock, Company Options and
Company Warrants
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67
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Exchange and Payment
Procedures
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67
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Representations and Warranties
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68
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Conduct of Business Prior to
Closing
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72
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Parent Forbearance
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73
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Access to Information
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73
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Alternative Takeover Proposals
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73
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Indemnification; Directors
and Officers Insurance
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76
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Financing
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76
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Obligation of Parent
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77
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Payment to Certain Creditor
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77
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Conditions to the Merger
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77
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Termination
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78
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Termination Fees and
Reimbursement of Expenses
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79
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Fees and Expenses
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80
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Remedies
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80
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Amendment; Waiver of Conditions
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80
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COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS
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81
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Changes in Control
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83
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COMMON STOCK TRANSACTION INFORMATION
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83
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APPRAISAL RIGHTS
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84
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SELECTED FINANCIAL INFORMATION
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85
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Selected Historical Financial Information
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85
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Ratio of Earnings to Fixed
Charges
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85
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Net Book Value per Share of Company Common
Stock
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85
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MARKET PRICE AND DIVIDEND INFORMATION
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86
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PROPOSAL TWOADJOURNMENT OR POSTPONEMENT OF THE SPECIAL
MEETING
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86
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OTHER MATTERS
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87
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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88
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WHERE YOU CAN FIND MORE INFORMATION
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88
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ANNEX A: MERGER AGREEMENT
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A-1
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ANNEX B: LIMITED GUARANTEE
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B-1
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ANNEX C: FINANCIAL ADVISOR OPINION
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C-1
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ANNEX D: DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING
PERSON
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D-1
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ANNEX E: FORM OF PROXY CARD
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E-1
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ii
CHINA TRANSINFO TECHNOLOGY CORP.
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
, 2012
PRELIMINARY PROXY STATEMENT
This proxy statement contains information related to a special
meeting of stockholders of China TransInfo Technology Corp. which will be held
at
a.m., Beijing time,
on
, 2012,
at
, and any adjournments or postponements thereof. We are furnishing this
proxy statement to stockholders of China TransInfo Technology Corp. as part of
the solicitation of proxies by the Companys board of directors for use at the
special meeting. This proxy statement is
dated
, 2012 and is first being mailed to stockholders on or
about
, 2012.
SUMMARY TERM SHEET RELATED TO THE MERGER
This summary term sheet highlights selected information in this
proxy statement regarding the merger and may not contain all of the information
about the merger that is important to you. We have included page references in
parentheses to direct you to more complete descriptions of the topics presented
in this summary term sheet. You should carefully read this proxy statement in
its entirety, including the annexes and the other documents to which we have
referred you, for a more complete understanding of the matters being considered
at the special meeting. You may obtain without charge copies of documents
incorporated by reference into this proxy statement by following the
instructions under
Where You Can Find More Information
beginning on
page 88. In this proxy statement, the terms
we
,
us
,
our
,
CTFO
and the
Company
refer to China TransInfo
Technology Corp. and its subsidiaries. We refer to Shudong Investments Limited
as
Holdco
, TransCloud Company Limited as
Parent
and TransCloud
Acquisition, Inc. as
Merger Sub
. We refer to Mr. Shudong Xia (
Mr.
Xia
), Ms. Danxia Huang, Mr. Shufeng Xia, Karmen Investment Holdings Limited
(
Karmen
) and SAIF Partners III, L.P. (
SAIF III
) collectively
as the
Rollover Holders
. We refer to the stockholders of the Company
(other than Parent, Merger Sub and their affiliates, the Rollover Holders, and
the directors and officers of the Company) as the
unaffiliated
stockholders
. We refer to Parent, Merger Sub and their affiliates, and the
Rollover Holders as the Excluded Holders. We refer to Holdco, Parent, Merger
Sub, SAIF Partners IV, L.P. (
SAIF IV
) and the Rollover Holders as the
buyer group
. We refer to SAIF III and SAIF IV as
SAIF
Partners
. When we refer to the
merger agreement
, we mean the
Agreement and Plan of Merger, dated as of June 8, 2012, among the Company,
Parent and Merger Sub.
The Parties (page 17)
China TransInfo Technology Corp. is a leading provider of
end-to-end intelligent transportation systems (
ITS
) and related
comprehensive technology solutions servicing the transportation industry in
China. We are involved in developing multiple applications in highway ITS, urban
ITS, commercial vehicles ITS plus location based services, and to a lesser
degree, in digital city, and land and resource filling systems based on
geographic information systems technologies which are used to service both the
public and private sector.
Both Parent and Merger Sub were formed for the sole purpose of
entering into the merger agreement and consummating the transactions
contemplated by the merger agreement. Both Parent and Merger Sub were formed and
are beneficially owned by Mr. Xia.
The Rollover Holders beneficially own in the aggregate
approximately 48.3% of the total outstanding shares of Company common stock. The
Rollover Holders have agreed with Parent and Holdco to contribute to Parent the shares of Company common stock owned by them (the
Rollover Shares
) in exchange for newly issued shares of Holdco
immediately prior to the effective time of the merger pursuant to the
contribution agreements.
1
Overview of the Transaction (page 18)
The Company, Parent and Merger Sub entered into the merger
agreement on June 8, 2012. Under the terms of the merger agreement, Merger Sub
will be merged with and into the Company, with the Company surviving the merger
as a wholly owned subsidiary of Parent (the
merger
). The Company, as
the surviving corporation, will continue to do business under the name China
TransInfo Technology Corp. following the merger. At the effective time of the
merger, the following will occur in connection with the merger:
-
each share of Company common stock issued and outstanding immediately
prior to the effective time of the merger (other than shares held by the
Company as treasury stock or owned, directly or indirectly, by Parent, Merger
Sub or any wholly owned subsidiary of the Company immediately prior to the
effective time of the merger, including the Rollover Shares) will be converted
into the right to receive $5.80 (the
per share merger consideration
)
in cash without any interest thereon;
-
each outstanding, vested and unexercised option to purchase shares of
Company common stock will be cancelled and converted into the right to
receive, as soon as reasonably practicable after the effective time of the
merger, a cash amount equal to the number of shares underlying such option
immediately prior to the effective time of the merger multiplied by the amount
by which $5.80 exceeds the exercise price per share of such option, net of any
applicable withholding taxes;
-
each outstanding and unvested option to purchase shares of Company common
stock will be cancelled and converted into the right to receive, as soon as
reasonably practicable after the effective time of the merger, a restricted
cash award in an amount equal to the number of shares underlying such option
immediately prior to the effective time of the merger multiplied the amount by
which $5.80 exceeds the exercise price per share of such option; and
-
each outstanding and unexercised warrant to purchase shares of Company
common stock will be cancelled and converted into the right to receive, as
soon as reasonably practicable after the effective time of the merger, a cash
amount equal to the total number of shares underlying such warrant immediately
prior to the effective time of the merger multiplied by the amount by which
$5.80 exceeds the exercise price per share of such warrant.
Following and as a result of the merger:
-
the unaffiliated stockholders will no longer have any interest in, and
will no longer be stockholders of the Company, and will not participate in any
of the Companys future earnings or growth;
-
shares of Company common stock will no longer be listed on the NASDAQ
Global Market, and price quotations with respect to shares of Company common
stock in the public market will no longer be available; and
-
the registration of shares of Company common stock under the Securities
Exchange Act of 1934, as amended (the
Exchange Act
) will be
terminated.
The Special Meeting (page 62)
The special meeting will be held
at
a.m., Beijing time,
on
, 2012,
at
. At the special meeting, you will be asked to, among other things, approve
the merger agreement. See
Questions and Answers About the Special Meeting
and the Merger
for additional information on the special meeting, including
how to vote your shares of Company common stock.
2
Stockholders Entitled to Vote; Vote Required to Approve the
Merger Agreement (page 62)
You may vote at the special meeting if you owned any shares of
Company common stock at the close of business, New York time,
on
, 2012, the record date for the special meeting. On that date, there
were
shares of Company common stock outstanding and entitled to vote at the
special meeting. You may cast one vote for each share of Company common stock
that you owned on that date. Approval of the merger agreement requires the
affirmative vote of (i) the holders of a majority of the shares of Company
common stock and (ii) the holders of a majority of the shares of Company common
stock (excluding the Rollover Shares). Assuming 25,270,069 shares of Company
common stock are outstanding on the record date, at least 6,535,973 shares of
Company common stock owned by the unaffiliated stockholders must be voted in
favor of the proposal to approve the merger agreement in order for the proposal
to be approved pursuant to the approval requirement set forth in (ii). See
The Special Meeting
beginning on page 62 for additional information.
Merger Consideration (page 67)
If the merger is completed, each share of Company common stock
issued and outstanding immediately prior to the effective time of the merger,
other than as provided below, will be converted into the right to receive the
per share merger consideration in cash without interest. Shares of Company
common stock held by the Company as treasury stock or owned, directly or
indirectly, by Parent, Merger Sub or any wholly owned subsidiary of the Company
immediately prior to the effective time of the merger , including the Rollover
Shares will be canceled without conversion or consideration.
Prior to the effective time of the merger, Parent will
designate a bank or trust company reasonably acceptable to the Company to act as
the paying agent for the per share merger consideration. Promptly after the
effective time of the merger (but in any event no later than five business
days), the paying agent will send each record holder of shares of Company common
stock (i) a letter of transmittal describing how it may exchange its shares of
Company common stock for the per share merger consideration and (ii)
instructions for effecting the surrender of share certificates in exchange for
its per share merger consideration. Do not return your stock certificates with
the enclosed proxy card, and do not forward your stock certificates to the
paying agent without a letter of transmittal. You will not be entitled to
receive the per share merger consideration until you surrender your stock
certificate or certificates along with a duly completed and executed letter of
transmittal to the paying agent or until the paying agent receives an agents
message in the case of shares held in book-entry form and other documents
reasonably required by the paying agent and approved by Parent and us. See
The Merger AgreementTreatment of Common Stock, Company Options and Company
Warrants
and
The Merger AgreementExchange and Payment
Procedures
beginning on page 67 for additional information.
Treatment of Company Options and Company Warrants (page
67)
As of the effective time of the merger, each outstanding,
vested and unexercised option to purchase shares of Company common stock will be
cancelled and converted into the right to receive, as soon as reasonably
practicable after the effective time of the merger, a cash amount equal to the
number of shares underlying such option immediately prior to the effective time
of the merger multiplied by the amount by which $5.80 exceeds the exercise price
per share of such option, net of any applicable withholding taxes.
As of the effective time of the merger, each outstanding and
unvested option to purchase shares of Company common stock will be cancelled and
converted into the right to receive, as soon as reasonably practicable after the
effective time of the merger, a restricted cash award in an amount equal to the
number of shares underlying such option immediately prior to the effective time
of the merger multiplied the amount by which $5.80 exceeds the exercise price
per share of such option.
As of the effective time of the merger, each outstanding and
unexercised warrant to purchase shares of Company common stock will be cancelled
and converted into the right to receive, as soon as reasonably practicable after
the effective time of the merger, a cash amount equal to the total number of
shares underlying such warrant immediately prior to the effective time of the
merger multiplied by the amount by which $5.80 exceeds the exercise price per
share of such warrant.
3
See
The Merger AgreementTreatment of Common Stock, Company
Options and Company Warrants
beginning on page 67 for additional
information.
Recommendation of Our Board of Directors and Special
Committee; Reasons for Recommending the Approval of the Merger Agreement;
Fairness of the Merger (page 28)
Our board of directors, after careful consideration and acting
on the unanimous recommendation of the special committee composed entirely of
independent directors, recommends that you vote
FOR
the proposal to
approve the merger agreement and
FOR
the proposal to approve the
adjournment of the special meeting in order to take such actions as our board of
directors determines are necessary or appropriate, including to solicit
additional proxies if there are insufficient votes at the time of the special
meeting to approve the merger agreement. Our board of directors and the special
committee believe that the merger is fair to the unaffiliated stockholders. For
a discussion of the material factors considered by our board of directors and
the special committee in determining to recommend the approval of the merger
agreement and in determining that the merger is fair to the unaffiliated
stockholders, see
Special Factors Relating to the MergerPurposes and
Reasons of Our Board of Directors and Special Committee for the Merger
beginning on page 27 and
Special Factors Relating to the
MergerRecommendation of Our Board of Directors and Special Committee; Reasons
for Recommending the Approval of the Merger Agreement; Fairness of the
Merger
beginning on page 28.
Positions of the Buyer Group Regarding the Fairness of the
Merger (page 41)
Each member of the buyer group believes that the merger is fair
to the unaffiliated stockholders. Their belief is based upon the factors
discussed under the caption
Special Factors Relating to the MergerPositions
of the Buyer Group Regarding the Fairness of the Merger
beginning on page
41.
Opinion of William Blair, Financial Advisor to the Special
Committee (page 34)
In connection with the merger, the special committee received a
written opinion from William Blair & Company, L.L.C. (
William
Blair
), financial advisor to the special committee, as to the fairness,
from a financial point of view and as of the date of its opinion, to the
stockholders of the Company (other than the Excluded Holders) of the per share merger
consideration to be received by such stockholders. The full text of William
Blairs written opinion, dated June 7, 2012, is attached to this proxy statement
as Annex C. You are encouraged to read this opinion carefully in its entirety
for a description of the assumptions made, procedures followed, matters
considered and qualifications and limitations on the review undertaken.
William Blairs opinion was provided to the special committee in connection
with, and for the purposes of, its evaluation of the per share merger
consideration from a financial point of view, does not address any other aspect
or implication of the proposed merger or the merits of the underlying decision
by the Company to engage in the merger or the relative merits of any
alternatives discussed by the special committee and the board of directors of
the Company, does not constitute an opinion with respect to the Companys
underlying business decision to effect the merger, any legal, tax or accounting
issues concerning the merger, or any terms of the merger (other than the per
share merger consideration) and does not constitute a recommendation as to any
vote or action the Company or any stockholders of the Company should take in
connection with the merger or any aspect thereof.
For a more complete
description of William Blairs opinion, see
Special Factors Relating to the
MergerOpinion of William Blair, Financial Advisor to the Special Committee
beginning on page 34.
Financing of the Merger (page 50)
The buyer group estimates that the total amount of funds
required to consummate the merger and related transactions, including payment of
fees and expenses in connection with the merger, is anticipated to be
approximately $200.3 million. The buyer group expects to fund this amount
through a combination of the contribution of 12,198,125 shares of Company common
stock from the Rollover Holders to Parent (the equivalent of an investment of
approximately $70.7 million based upon the per share merger consideration of
$5.80), equity financing from Mr. Shudong Xia of up to $26,955,708, equity
financing from SAIF IV of up to $11,552,446, and debt financing of up to $96
million from China Development Bank Corporation Hong Kong Branch (
CDB
),
which we refer to as the
CDB Loan
. See
Special Factors Relating to
the MergerFinancing of the Merger
beginning on page 50 for additional
information.
4
Limited Guarantee (page 52)
On June 8, 2012, Mr. Xia and SAIF IV delivered a limited
guarantee in which they agreed to guarantee the obligations of Parent and Merger
Sub to pay certain fees and reimburse certain expenses, including the $2.8
million termination fee that may become payable to the Company by Parent under
certain circumstances set forth in the merger agreement. See
Special Factors
Relating to the MergerLimited Guarantee
beginning on page 52 and
The
Merger AgreementTermination Fees and Reimbursement
of Expenses
beginning on page 79 for additional information. A copy of
the limited guarantee is attached as Annex B to this proxy statement.
Contribution Agreements (page 52)
Pursuant to two contribution agreements dated as of June 7,
2012, at or prior to the effective time of the merger, the Rollover Holders will
contribute to Parent an aggregate amount of 12,198,125 shares of Company common
stock beneficially owned by them in exchange for shares of Holdco. See
Special Factors Relating to the Merger
Financing of the
MergerRollover Financing
beginning on page 52 for additional
information.
Voting Agreement (page 52)
Parent and the Rollover Holders have entered into a voting
agreement in which the Rollover Holders agreed to vote all of their shares in
favor of approval of the merger agreement at the special meeting. See
Special Factors Relating to the MergerVoting Agreement
beginning on
page 52 for additional information.
Interests of the Companys Directors and Officers in the
Merger (page 53)
When considering the recommendation of our board of directors
in favor of the approval of the merger agreement, you should be aware that the
members of our board of directors and certain of our officers have interests in
the merger in addition to their interests as our stockholders generally. These
interests may be different from, or in addition to, your interests as our
stockholders.
Concurrently with the execution and delivery of the merger
agreement, Parent delivered to us two contribution agreements executed by
certain members of the buyer group, including Mr. Xia (our chairman, president,
chief executive officer and secretary), Ms. Danxia Huang (one of our directors,
our vice president of operations and our treasurer), Mr. Shufeng Xia (the
director of financial department of China TransInfo Technology Group Co., Ltd.,
our consolidated variable interest entity) and SAIF III. Mr. Brandon Ho-Ping Lin
(one of our directors) is a partner at SAIF Advisors Limited, an affiliate of
SAIF III. These members of the buyer group have agreed, among other things, to
contribute the shares of Company common stock beneficially owned by them to
Parent in exchange for newly issued shares of Holdco. The effect of these
transactions will be to allow such members of the buyer group to remain indirect
owners of the surviving corporation after the merger is completed. Because of
their equity ownership of Holdco, each such member of the buyer group will enjoy
the benefits from any future earnings and growth of the Company after the merger
and will also bear the corresponding risks of any possible decreases in future
earnings, growth, or value. Such members of the buyer group may also benefit
after the merger from the elimination of expenses associated with public company
reporting and compliance requirements and increased flexibility as a private
rather than a publicly-traded company.
Additionally, members of the special committee received
compensation for their service of evaluating and negotiating the merger
agreement and the transactions contemplated by the merger agreement, including
the merger. See
Special Factors Relating to the Merger Background of the
Merger
beginning on page 19. Parent also agreed to indemnify our
directors and officers against certain claims and liabilities arising from their
actions taken prior to the effective time of the merger for the six years
following the effective time of the merger.
The members of our board of directors were aware of these
additional interests, and considered them, when they approved the merger
agreement, the merger and the other transactions contemplated by the merger
agreement. See
Special Factors Relating to the Merger Interests of the
Companys Directors and Officers in the Merger
beginning on page 53.
5
Conditions to the Merger (page 77)
The respective obligations of each of the Company, Parent and
Merger Sub to consummate the merger are subject to the satisfaction or waiver of
certain conditions. For a more detailed description of these conditions, see
The Merger AgreementConditions to the Merger
beginning on page 77.
Regulatory Matters (page 56)
The Company does not believe that any material federal,
national, provincial, local or state, whether domestic or foreign, regulatory
approvals, filings or notices are required in connection with the merger other
than the approvals, filings or notices required under the U.S. federal
securities laws and the filing of the articles of merger with the Secretary of
State of the State of Nevada with respect to the merger.
Alternative Takeover Proposals (page 73)
From June 8, 2012 until 11:59 p.m. New York City time on July 18, 2012,
which we refer to as the go-shop period, the
Company and its subsidiaries and their respective representatives are permitted
to:
-
solicit, initiate, facilitate and encourage any inquiry or the making of
takeover proposals (as defined below under
The Merger
AgreementAlternative Takeover Proposals
) from third parties, including
by providing third parties access to information pursuant to confidentiality
agreements containing terms at least as restrictive with respect to such third
parties as the confidentiality terms contained in the merger agreement
(provided that the Company simultaneously or as promptly as reasonably
practicable provides any material non-public information concerning the
Company or its subsidiaries to Parent if not previously provided to Parent);
and
-
enter into, continue or otherwise participate in discussions or
negotiations with any person with respect to any takeover proposal, or
otherwise cooperate with, assist, participate in, facilitate or take any
action in connection with such inquiries, proposals, discussions or
negotiations.
From and after 12:00 a.m. New York City time on July 19, 2012,
the Company and its subsidiaries and their respective representatives are
required to immediately cease any discussions or negotiations with any persons
that may be ongoing with respect to any takeover proposals, except as may relate
to continuing parties (as defined below under
The Merger
AgreementAlternative Takeover Proposals
). From and after 12:00 a.m. New
York City on July 19, 2012 until the earlier of the effective time of the merger
or the termination of the merger agreement, the Company and its subsidiaries and
their respective representatives will not:
-
solicit, initiate, knowingly encourage or knowingly induce the making of
takeover proposals from any third parties;
-
provide any material non-public information concerning the Company or its
subsidiaries to a third party in connection with a takeover proposal; or
-
engage in discussions or negotiations with any third party concerning a
takeover proposal.
However, the Company may continue to engage in the actions
described in the first and second bullet above until 11:59 p.m. New York City
time on August 2, 2012 with a continuing party.
During the go-shop period, at the direction of the special committee, William Blair contacted 59
parties, including 30 financial sponsors and 29 strategic parties, to solicit
interest in a possible alternative transaction. Prior to the expiration of the
go-shop period, two potential buyers indicated interests in an alternative
transaction involving the Company. However, after their discussions with the
financial and legal advisors to the special committee, neither of these two
potential buyers entered into a non-disclosure agreement with the Company in a
form and on terms that are customary in similar transactions and satisfactory to
the Company, and therefore, the negotiations and discussions with both potential
buyers were suspended. As a result, despite these efforts, the Company did not
receive any alternative takeover proposals during the go-shop period.
Prior to the time the Companys stockholders approve the merger
agreement, if the Company receives an unsolicited written takeover proposal from
a third party that the special committee determines in good faith (after
consultation with its financial and legal advisors) could result in a superior
proposal and the failure to take action would result in a breach of its
fiduciary duties under applicable law, the Company may:
6
The Company shall promptly advise Parent within 24 hours,
orally or in writing, of any takeover proposal, any initial request for
non-public information and any initial request for discussions or negotiations
related to a takeover proposal. In connection with such notice, Company must
also provide the material terms and conditions and the identity of the third
party making the takeover proposal or request. The Company must also keep Parent
informed in all material respects of the status and details of such takeover
proposal or request.
The merger agreement provides that the board of directors of
the Company can only (a) effect a change of recommendation (as defined below
under
The Merger AgreementAlternative Takeover Proposals
) or (b) enter
into a takeover proposal (as described under
The Merger
AgreementAlternative Takeover Proposals
) if at any time prior to the
receipt of the requisite stockholder approvals of the merger, (x) the special
committee determines in good faith (after consultation with the Companys
outside legal advisors) that the failure to do so would be inconsistent with its
fiduciary duties under applicable law, then the board of directors of the
Company, acting upon the recommendation of the special committee, may make a
change of recommendation; and (y) the board of directors of the Company
determines in good faith (after consultation with the Companys outside
financial and legal advisors) that a takeover proposal constitutes a superior
proposal, then the Company may enter into a definitive written agreement with
respect to such superior proposal and terminate the merger agreement.
The Company is not entitled to effect a change of
recommendation or terminate the merger agreement unless (i) the Company has
provided written notice at least five business days in advance to Parent and
Merger Sub advising Parent that the board of directors of the Company intends to
make a change of recommendation or enter into a definitive written agreement
with respect to such superior proposal, as applicable, and specifying the
reasons therefor, including in the case of a superior proposal the material
terms and conditions of such superior proposal that is the basis of the proposed
action by the board of directors of the Company (including the identity of the
third party making the superior proposal and any financing materials related
thereto, if any), (ii) during the five business day period following Parents
and Merger Subs receipt of the notice of superior proposal, the Company will,
and will cause its representatives to, negotiate with Parent and Merger Sub in
good faith (to the extent Parent and Merger Sub desire to negotiate) to make
such adjustments in the terms and conditions of the merger agreement and the
financing commitments so that such superior proposal ceases to constitute a
superior proposal, and (iii) following the end of the five business day period,
the board of directors of the Company and the special committee will have
determined in good faith, taking into account any changes to the merger
agreement and the terms of the debt financing and the equity financing proposed
in writing by Parent and Merger Sub in response to the notice of superior
proposal or otherwise, that the superior proposal giving rise to the notice of
superior proposal continues to constitute a superior proposal. Any material
amendment to the financial terms or any other material amendment of such
superior proposal will require a new notice of superior proposal and the Company
will be required to comply again with the procedures in this paragraph, provided
that references above in this paragraph to five business days will be changed to
references to three business days.
The Company is not restricted from issuing a stop, look and
listen communication pursuant to Rule 14d-9(f) promulgated under the Exchange
Act or taking or disclosing to its stockholders any position contemplated by
Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act or from making
any other disclosure to its stockholders to comply with applicable law. For a
more detailed description of the alternative takeover proposals, see
The
Merger AgreementAlternative Takeover Proposals
beginning on page
73.
7
Termination of the Merger Agreement (page 78)
The merger agreement may be terminated at any time prior to the
effective time of the merger, whether before or after requisite stockholder
approvals of the merger have been obtained:
by mutual written agreement of the Company and Parent;
by either of the Company or Parent, if:
-
any governmental entity has issued a final order, injunction or decree
permanently enjoining or otherwise prohibiting consummation of the merger;
provided, that this termination right will not be available to a party if the
failure of such party to fulfill any of its obligations under the merger
agreement is the primary cause or material contributing factor to the denial
of such approval, or issuance of such final order, injunction or decree;
-
the merger is not completed by April 7, 2013, provided that this
termination right will not be available to a party if the failure of such
party to fulfill any of its obligations under the merger agreement is the
primary cause or material contributing factor to the failure of the closing to
occur by that date; or
-
our stockholders do not approve the merger agreement at the special
meeting or any adjournment or postponement thereof.
by the Company, if:
-
either Parent or Merger Sub has breached any of its representations,
warranties, covenants or agreements under the merger agreement, such that any
condition to the obligation of the Company to closing would not be satisfied
and such breach or inaccuracy cannot be cured or if curable, is not cured by
Parent or Merger Sub within thirty business days after written notice of such
breach or if earlier, by April 7, 2013, provided that this termination right
will not be available to the Company if a material breach of the merger
agreement by the Company is the primary cause or material contributing factor
to the failure of such condition to be satisfied;
-
all of the closing conditions are otherwise satisfied or waived by Parent
but Parent and Merger Sub fail to close within two business days following the
date the closing should have occurred; or
-
the Company effects a change of recommendation or enters into a definitive
written agreement with respect to a superior proposal after (a) complying with
the applicable provisions of the merger agreement and (b) paying to Parent a
termination fee payable pursuant to the merger agreement.
by Parent, if:
-
the Company has breached any of its representations, warranties, covenants
or agreements under the merger agreement, such that any condition to the
obligation of Parent of Merger Sub to closing would not be satisfied and such
breach or inaccuracy cannot be cured or if curable, is not cured by the
Company within thirty business days after written notice of such breach or if
earlier, by the April 7, 2013, provided that this termination right will not
be available to Parent if a material breach of the merger agreement by Parent
is the primary cause or material contributing factor to the failure of such
condition to be satisfied; or
-
the board of directors of the Company effects a change of recommendation.
8
Termination Fees and Reimbursement of Expenses (page 79)
The Company is required to pay Parent a termination fee of $1.5
million, approximately 1% of the enterprise value of the Company calculated
based on the $5.80 per share merger consideration, in the event that the merger
agreement is terminated:
-
by the Company in order to effect a change of recommendation or enter into
a definitive written agreement with respect to a superior proposal;
-
by Parent or the Company due to (a)(i) a failure of either the Company or
Parent to consummate the merger by April 7, 2013 or (ii) a failure by the
Company to obtain the requisite stockholder approvals of the merger and (b) on
or after the signing of the merger agreement but prior to the date of the
stockholders meeting, a third party makes a takeover proposal which is
publicly disclosed and not withdrawn and (c) within twelve months following
such termination, the Company consummates or enters into a transaction with
respect to such takeover proposal; or
-
by Parent due to (i) a breach by Company of any of their representations,
warranties, covenants or agreements under the merger agreement, such that the
condition to the obligation of Parent or Merger Sub to closing would not be
satisfied; or (ii) the board of directors of the Company effects a change of
recommendation.
Parent is required to pay the Company a termination fee of $2.8
million, approximately 2% of the enterprise value of the Company calculated
based on the $5.80 per share merger consideration, in the event that the merger
agreement is terminated by the Company:
-
due to a breach by Parent or Merger Sub of any of their representations,
warranties, covenants or agreements under the merger agreement, such that the
condition to the obligation of the Company to closing would not be satisfied;
or
-
if all of the closing conditions are otherwise satisfied or waived by
Parent but Parent and Merger Sub fail to close within two business days
following the date the closing should have occurred.
Remedies (page 80)
The Companys right to terminate the merger agreement and
receive payment of (i) a termination fee of $2.8 million, approximately 2% of
the enterprise value of the Company calculated based on the $5.80 per share
merger consideration, in connection with the merger from Parent, (ii) any
reimbursement of costs and expenses pursuant to the merger agreement, and (iii)
any amount in respect of which it is indemnified by Parent pursuant to the
merger agreement under certain circumstance is the sole and exclusive remedy of
the Company against the Parent, Merger Sub, their respective affiliates or
financing source for any loss or damage suffered as a result of any such breach
or failure to perform under the merger agreement or other failure of the merger
to be consummated. However, such limitation of remedies shall not apply in the
event Parent has not deposited or caused to be deposited in full the amounts as
set forth in the merger agreement within one business day following the
effective time of the merger.
Subject to any equitable remedies Parent may be entitled to,
Parents right to receive payment of (i) a termination fee of $1.5 million,
approximately 1% of the enterprise value of the Company calculated based on the
$5.80 per share merger consideration, and (ii) any reimbursement of costs and
expenses pursuant to the merger agreement, is the sole and exclusive remedy of
Parent and Merger Sub against the Company for any loss or damage suffered as a
result of any such breach or failure to perform under the merger agreement or
other failure of the merger to be consummated.
Parent and Merger Sub are entitled to specific performance of
the terms under the merger agreement, including an injunction or injunctions to
prevent breaches of the merger agreement and to enforce specifically the terms
and provisions of the merger agreement. The Company is not entitled to an
injunction or injunctions to prevent breaches of the merger agreement by Parent
or Merger Sub or any remedy to enforce specifically the terms and provisions of
the merger agreement.
9
Appraisal Rights (page 84)
You are not entitled to dissenters rights or any other
statutory rights of objection in connection with the merger under Nevada law.
Section 92A.390 of the Nevada Revised Statutes, or the NRS, does not provide any
right of dissent with respect to a plan of merger under criteria described in
that section of the NRS, which the Company satisfies.
Material United States Federal Income Tax Consequences (page
57)
The receipt of cash in exchange for Company common stock
pursuant to the merger will be a taxable transaction for U.S. federal income tax
purposes and may also be taxable under applicable state, local, foreign or other
tax laws. In general, a U.S. Holder (as defined below under
Special Factors
Relating to the Merger Material United States Federal Income Tax
Consequences
) of Company common stock will recognize gain or loss in an
amount equal to the difference, if any, between the amount of cash received in
the merger and the U.S. Holders adjusted tax basis in the shares of Company
common stock. In general, a Non-U.S. Holder (as defined below under
Special
Factors Relating to the Merger Material United States Federal Income Tax
Consequences
) of shares of Company common stock will not be subject to U.S.
federal income tax in respect of cash received in the merger, unless such
Non-U.S. Holder has certain connections to the United States. You should consult
your tax advisors to determine the particular tax consequences to you (including
the application and effect of any state, local or foreign income and other tax
laws) of the merger.
Material PRC Tax Consequences (page 59)
Under the PRC Enterprise Income Tax Law (the
EIT Law
),
which took effect on January 1, 2008, enterprises established outside of the
Peoples Republic of China (
PRC
) whose de facto management bodies are
located in the PRC are considered resident enterprises. The implementation
rules for the EIT Law define the de facto management body as an establishment
that has substantial management and control over the business, personnel,
accounts and properties of an enterprise. Although there has not been a
definitive determination of the Companys status by the PRC tax authorities, 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 Company
common stock should otherwise be subject to PRC tax to holders of such common
stock that are not PRC residents. If, however, the PRC tax authorities were to
determine that the Company should be considered a resident enterprise or that
the receipt of cash for these common stock should otherwise be subject to PRC
tax, then gain recognized on the receipt of cash for Company common stock
pursuant to the merger by holders of such common stock who are not PRC residents
could be treated as PRC-source income that would be subject to PRC tax at a rate
of up to 10%. 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.
Litigation Relating to the Merger (page 60)
The Company and certain directors of the Company were named as
defendants in three putative class action complaints filed in the Eighth
Judicial District Court of Clark County, Nevada (the
Eighth Judicial
District Court
) by stockholders of the Company in connection with the
proposed merger. The complaints allege, among other things, that the members of
the board of directors breached their fiduciary duties owed to the Companys
stockholders and seek, among other things, to enjoin the defendants from
completing the proposed merger. The Company and the board of directors believe
that the claims in these complaints are without merit and intend to defend
against them vigorously.
One of the conditions to the closing of the merger is that no
order by a court or other governmental entity shall be in effect that prohibits
the consummation of the merger or that makes the consummation of the merger
illegal. As such, if the plaintiffs are successful in obtaining an injunction
prohibiting the defendants from completing the merger on the agreed-upon terms,
then such injunction may prevent the merger from becoming effective, or from
becoming effective within the expected timeframe.
10
Where You Can Find More Information (page 88)
You can find more information about the Company in the periodic
reports and other information we file with the SEC. The information is available
at the SECs public reference facilities and at the website maintained by the
SEC at www.sec.gov. For a more detailed description of the additional
information available, see
Where You Can Find More Information
beginning on page 88.
11
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE
MERGER
The following questions and answers are intended to address
commonly asked questions regarding the merger, the merger agreement, and the
special meeting. These questions and answers may not address all questions that
may be important to you as a Company stockholder. Please refer to the section
titled Summary Term Sheet Related to the Merger beginning on page
1
and the more detailed information contained elsewhere in this proxy statement,
the annexes to this proxy statement, and the documents referred to in this proxy
statement, all of which you should read carefully and in their entirety. You may
obtain the documents incorporated by reference in this proxy statement without
charge by following the instructions in the section titled Where You Can Find
More Information beginning on page
88
.
Q:
|
When and where is the special meeting of our
stockholders?
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A:
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The special meeting of stockholders will be held
at
a.m., Beijing time,
on
, 2012,
at
.
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Q:
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Why am I receiving this proxy statement?
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A:
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You are receiving this proxy statement in connection with
the solicitation of proxies by the board of directors of the Company in
favor of, among other things, the approval of the merger agreement. On
June 8, 2012, we entered into the merger agreement, with Parent and Merger
Sub providing for the merger of Merger Sub with and into the Company, with
the Company surviving the merger as a wholly owned subsidiary of Parent.
After the merger, shares of Company common stock will not be publicly
traded. Parent and Merger Sub are beneficially owned by Mr. Shudong Xia,
the chairman, president, chief executive officer and secretary of the
Company.
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Q:
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What matters will be voted on at the special
meeting?
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A:
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You will be asked to consider and vote on the following
proposals:
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approval of the merger agreement and the transactions
contemplated by the merger agreement, including the merger; and
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approval of the adjournment of the special meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the
merger agreement.
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Q:
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As a stockholder, what will I receive in the
merger?
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A:
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If the merger is completed, you will be entitled to
receive $5.80 in cash, without interest, for each share of Company common
stock that you own immediately prior to the effective time of the merger
as described in the merger agreement.
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See
Special Factors Relating to the MergerMaterial
United States Federal Income Tax Consequences
and
Material PRC
Tax Consequences
beginning on pages 57 and 59, respectively, for
a more detailed description of the U.S. federal and PRC tax consequences
of the merger. You should consult your own tax advisor for a full
understanding of how the merger will affect your U.S. federal, state,
local, PRC and/or other non-U.S. taxes.
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Q:
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When will I receive the merger consideration for my
shares of Company common stock?
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A:
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After the merger is completed, you will receive written
instructions, including a letter of transmittal, that explain how to
exchange your shares for the per share merger consideration. When you
properly complete and return the required documentation described in the
written instructions, you will promptly receive from the paying agent
payment of the merger consideration for your
shares.
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12
Q:
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How will the Companys options be treated in the
merger?
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A:
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The merger agreement provides that each outstanding,
vested and unexercised option to purchase shares of Company common stock
will be cancelled and converted into the right to receive, as soon as
reasonably practicable after the effective time of the merger, a cash
amount equal to the number of shares underlying such option immediately
prior to the effective time of the merger multiplied by the amount by
which $5.80 exceeds the exercise price per share of such option, net of
any applicable withholding taxes. In addition, each outstanding and
unvested option to purchase shares of Company common stock will be
cancelled and converted into the right to receive, as soon as reasonably
practicable after the effective time of the merger, a restricted cash
award in an amount equal to the number of shares underlying such option
immediately prior to the effective time of the merger multiplied the
amount by which $5.80 exceeds the exercise price per share of such option.
See
The Merger AgreementTreatment of Common Stock, Company Options
and Company Warrants
beginning on page 67 for additional
information.
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Q:
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How will the Companys warrants be treated in the
merger?
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A:
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The merger agreement provides that each outstanding and
unexercised warrant to purchase shares of Company common stock will be
cancelled and converted into the right to receive, as soon as reasonably
practicable after the effective time of the merger, a cash amount equal to
the total number of shares underlying such warrant immediately prior to
the effective time of the merger multiplied by the amount by which $5.80
exceeds the exercise price per share of such warrant. See
The Merger
AgreementTreatment of Common Stock, Company Options and Company
Warrants
beginning on page 67 for additional information.
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Q:
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What vote of our stockholders is required to approve
the merger agreement and other proposals?
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A:
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The vote requirements to approve the proposals are as
follows:
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For Proposal No. 1 (approval of the merger agreement),
both (i) the holders of a majority of the shares of Company common stock
and (ii) the holders of a majority of the shares of Company common stock
(excluding Rollover Shares) must vote
FOR
the proposal to approve
the merger agreement.
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For Proposal No. 2 (approval of the adjournment or
postponement of the special meeting), the affirmative vote of the holders
of a majority of the shares of Company common stock present in person or
represented by proxy at the meeting and entitled to vote, whether or not
the quorum is present, is required.
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At the close of business, New York time,
on
, 2012, the record
date,
shares of Company common stock were outstanding and entitled to vote
at the special meeting.
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Q:
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Who can attend and vote at the special
meeting?
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A:
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All stockholders of record as of the close of business,
New York time,
on
, 2012, the record date for the special meeting, are entitled to
receive notice of and to attend and vote at the special meeting, or any
postponement or adjournment thereof. If you wish to attend the special
meeting and your shares of Company common stock are held in an account at
a broker, dealer, commercial bank, trust company or other nominee (i.e.,
in street name), you will need to bring a copy of your voting
instruction card or statement reflecting your share ownership as of the
record date. Street name holders who wish to vote at the special meeting
will need to obtain a proxy from the broker, dealer, commercial bank,
trust company or other nominee that holds their shares of Company common
stock. Seating will be limited at the special meeting. Admission to the
special meeting will be on a first-come, first-served basis.
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Q:
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How does our board of directors recommend that I
vote?
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A:
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Our board of directors, after careful consideration and
acting on the unanimous recommendation of the special committee composed
entirely of independent directors, recommends that you vote
FOR
the proposal to approve the merger agreement and
FOR
the proposal to approve the adjournment of the special meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the
merger agreement.
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13
Q:
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How will our directors and executive officers vote on
the proposal to approve the merger agreement?
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A:
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Our directors and current executive officers have
informed us that, as of the date of this proxy statement, they intend to
vote all of their shares of Company common stock in favor of the approval
of the merger agreement. As
of
, 2012, the record date for the special meeting, our directors
(including Mr. Xia and Ms. Danxia Huang) and current executive officers
beneficially owned, in the aggregate, 9,196,276 shares of Company common
stock, or collectively approximately 36.39% of the total outstanding
shares of Company common stock.
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In addition, on June 7, 2012, the Rollover Holders
entered into a voting agreement with Parent under which they have agreed
to, among other things, vote all shares of Company common stock
beneficially owned by them in favor of approval of the merger
agreement.
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Considering the intentions of our directors and current
executive officers and the voting agreement, 53.27% of the total
outstanding shares of the Company common stock as of the date of this
proxy statement will vote to approve the
merger agreement at the special meeting. Given these facts, the approval
of the merger agreement at the special meeting by the stockholders of a
majority of the shares of Company common stock is assured.
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You should read
Special Factors Relating to the
MergerRecommendation of Our Board of Directors and Special Committee;
Reasons for Recommending the Approval of the Merger Agreement; Fairness of
the Merger
beginning on page 28 for a discussion of the factors
that our special committee and board of directors considered in deciding
to recommend the approval of the merger agreement. In addition, in
considering the recommendation of the special committee and the board of
directors with respect to the merger agreement, you should be aware that
some of the Companys directors and officers may have interests that are
different from, or in addition to, the interests of our stockholders
generally. See
Special Factors Relating to the MergerInterests of the
Companys Directors and Officers in the Merger
, beginning on page
53 for additional information.
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Q:
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Am I entitled to exercise appraisal rights instead of
receiving the per share merger consideration for my shares of Company
common stock?
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A:
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You are not entitled to dissenters rights or other
statutory rights of objection in connection with the merger under Nevada
law. Section 92A.390 of the NRS, does not provide any right of dissent
with respect to a plan of merger under criteria described in that section
of the NRS, which the Company satisfies.
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Q:
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How do I cast my vote if I am a holder of
record?
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A:
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If you were a holder of record as of the close of
business, New York time,
on
, 2012, you may vote in person at the special meeting or by submitting
a proxy for the special meeting. You can submit your proxy by completing,
signing, dating and returning the enclosed proxy card in the accompanying
pre-addressed, postage paid envelope. Holders of record may also vote by
telephone or the Internet by following the instructions on the proxy
card.
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If you properly transmit your proxy, but do not
indicate how you want to vote, your proxy will be voted FOR the approval
of the merger agreement, and FOR the proposal to approve the adjournment
of the special meeting, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes at the time of the special meeting
to approve the merger agreement.
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Q:
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How do I cast my vote if my shares of Company common
stock are held in street name by my broker, dealer, commercial bank,
trust company or other nominee?
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A:
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If you hold your shares in street name, which means
your shares of Company common stock are held of record
on
, 2012 by a broker, dealer, commercial bank, trust company or other
nominee, you must provide the record holder of your shares of Company
common stock with instructions on how to vote your shares of Company
common stock in accordance with the voting directions provided by your
broker, dealer, commercial bank, trust company or other nominee.
If you
do not provide your broker, dealer,
commercial bank, trust company
or other nominee with instructions on how to vote your shares,
your
shares of Company common stock will not be voted, which will have the same
effect as voting
AGAINST the proposal to approve the merger
agreement.
Please refer to the voting instruction card used by your
broker, dealer, commercial bank, trust company or other nominee to see if
you may submit voting instructions using the Internet or telephone.
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14
Q:
|
What will happen if I abstain from voting or fail to
vote on the proposal to approve the merger
agreement or other
proposals?
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A:
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In all matters, 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 with
respect to any particular proposal, it will have the same effect as a vote
against such proposal, although your abstention or failure to act will not
count as a vote against, withheld or abstained with respect to any other
proposal, unless you also abstain or fail to act with respect to such
other proposal. If you are a beneficial owner of shares held in street
name and do not provide the organization that holds your shares with
specific voting instructions, under the rules of various national and
regional securities exchanges, the organization that holds your shares may
generally vote on routine matters but cannot vote on non-routine matters.
If the organization that holds your shares does not receive instructions
from you on how to vote your shares on a non-routine matter, the
organization that holds your shares does not have the authority to vote on
the matter with respect to those shares. This is generally referred to as
a broker non-vote.
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All proposals involve matters that we believe will be
considered non-routine. We encourage you to provide voting instructions to
the organization that holds your shares by carefully following the
instructions provided on your proxy card.
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Q:
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Can I change my vote after I have delivered
my proxy?
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A:
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Yes. If you are a record holder, you can change your vote
at any time before your proxy is voted at the special meeting by properly
delivering a later-dated proxy either by mail, the Internet or telephone
or attending the special meeting in person and voting. You also may revoke
your proxy by delivering a notice of revocation to the Companys corporate
secretary prior to the vote at the special meeting. If your shares of
Company common stock are held in street name, you must contact your
broker, dealer, commercial bank, trust company or other nominee to revoke
your proxy.
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Q:
|
What should I do if I receive more than one
set of voting materials?
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A.
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You may receive more than one set of voting materials,
including multiple copies of this proxy statement or multiple proxy or
voting instruction cards. For example, if you hold your shares of Company
common stock in more than one brokerage account, you will receive a
separate voting instruction card for each brokerage account in which you
hold shares of Company common stock. If you are a holder of record and
your shares of Company common stock are registered in more than one name,
you will receive more than one proxy card.
Please submit each proxy and
voting instruction card that you receive
.
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Q:
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If I am a holder of certificated shares of Company
common stock, should I send in my share
certificates now?
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A:
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No. Promptly after the merger is completed, each holder
of record as of the time of the merger will be sent written instructions
for exchanging their stock certificates for the per share merger
consideration. These instructions will tell you how and where to send in
your stock certificates for your cash consideration. You will receive your
cash payment after the paying agent receives your share certificates and
any other documents requested in the instructions. Please do not send
stock certificates with your proxy.
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15
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Holders of uncertificated shares of Company common stock
(i.e., holders whose shares are held in book-form entry) will
automatically receive their cash consideration as soon as practicable
after the effective time of the merger without any further action required
on the part of such holders.
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Q:
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What constitutes a quorum for the special
meeting?
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A:
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The presence at the special meeting in person or by proxy
of the holders of a majority of shares of Company common stock issued and
outstanding and entitled to vote at the special meeting as of the record
date will be necessary and sufficient to constitute a quorum for the
purposes of the special meeting.
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Q:
|
Will any proxy solicitors be used in connection with
the special meeting?
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A:
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Yes. To assist in the solicitation of proxies, the
Company has engaged Okapi Partners LLC.
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Q:
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What happens if the merger is not
completed?
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A:
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If the merger agreement is not approved by our
stockholders, or if the merger is not completed for any other reason, you
will not receive any payment for your Company common stock pursuant to the
merger agreement. Instead, we will remain a publicly traded company and
our common stock will continue to be registered under the Exchange Act and
listed and traded on the NASDAQ Global Market. Under certain circumstances
specified in the merger agreement, we may be required to pay Parent a
termination fee of $1.5 million, approximately 1% of the enterprise value
of the Company calculated based on the $5.80 per share merger
consideration or, Parent may be required to pay us a termination fee of
$2.8 million, approximately 2% of the enterprise value of the Company
calculated based on the $5.80 per share merger consideration. See
The
Merger AgreementTermination Fees and Reimbursement of Expenses
beginning on page 79 for additional information.
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Q:
|
When is the merger expected to be
completed?
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A:
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We are working to complete the merger as quickly as
possible. We currently expect the transaction to close in the fourth
quarter of 2012; however, we cannot predict the exact timing of the
merger. In order to complete the merger, we must obtain the requisite
stockholder approvals of the merger and the other closing conditions under
the merger agreement must be satisfied or waived.
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Q:
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What is householding and how does it affect
me?
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A:
|
The Securities and Exchange Commission (
SEC
)
permits companies to send a single set of certain disclosure documents to
any household at which two or more stockholders reside, unless contrary
instructions have been received, but only if the company provides advance
notice and follows certain procedures. In such cases, each stockholder
continues to receive a separate notice of the meeting and proxy card. This
householding process reduces the volume of duplicate information and
reduces printing and mailing expenses. We have not instituted householding
for stockholders of record; however, certain brokerage firms may have
instituted householding for beneficial owners of Company common stock held
through brokerage firms. If your family has multiple accounts holding
Company common stock, you may have already received householding
notification from your broker. Please contact your broker directly if you
have any questions or require additional copies of this proxy statement.
The broker will arrange for delivery of a separate copy of this proxy
statement promptly upon your written or oral request. You may decide at
any time to revoke your decision to household, and thereby receive
multiple copies.
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Q:
|
Who can help answer my questions?
|
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A:
|
If you have any questions about the merger or how to
submit your proxy, or if you need additional copies of this proxy
statement or the enclosed proxy card, you should contact Okapi Partners
LLC, toll free at (855) 305 0855, collect at (212) 297-0720 or by email at
info@okapipartners.com.
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16
SPECIAL FACTORS RELATING TO THE MERGER
The following is a description of the material aspects of
the merger. While we believe that the following description covers the material
terms of the merger, the description may not contain all of the information that
is important to you. We encourage you to read carefully this entire document,
including the merger agreement attached to this proxy statement as Annex A, for
a more complete understanding of the merger. The following description is
subject to, and is qualified in its entirety by reference to, the merger
agreement.
The Parties
The Company
China TransInfo Technology Corp. is a leading transportation
information products and comprehensive solutions provider, and aims to be the
largest real time transportation information service provider and major fleet
management service provider in China. Through its affiliate and its Chinese
operating subsidiaries, the Company is primarily focused on providing urban and
highway transportation management solutions and information services. The
Companys principal executive offices are located at 9th Floor, Vision Building,
No. 39 Xueyuanlu, Haidian District, Beijing, PRC, 100191. The Companys
telephone number is (86) 10-5169-1999.
Parent
TransCloud Company Limited was formed under the laws of the
Cayman Islands by Mr. Xia solely for the purpose of owning the Company after the
merger and arranging the financing for the merger. Parent is a wholly-owned
subsidiary of Holdco. Parent has not engaged in any business except for
activities incidental to its formation and in connection with the transactions
contemplated by the merger agreement, including the merger and related financing
transactions. The registered office of Parent is The Grand Pavilion Commercial
Centre, Oleander Way, 802 West Bay Road, P.O. Box 32052, Grand Cayman KY1-1208,
Cayman Islands, and its telephone number is (86) 10-5169-1999.
Merger Sub
TransCloud Acquisition, Inc. was formed under the laws of the
State of Nevada by Parent solely for the purpose of effecting the merger. Merger
Sub is a wholly-owned subsidiary of Parent. Upon completion of the merger,
Merger Sub will no longer exist. Merger Sub has not engaged in any business
except for activities incidental to its formation and in connection with the
transactions contemplated by the merger agreement, including the merger. The
registered office of Merger Sub is c/o Paracorp Incorporated 318 N Carson St.
#208 Carson City, Nevada 89701, and its telephone number is (86)
10-5169-1999.
Holdco
Shudong Investments Limited was formed under the laws of the
British Virgin Islands by Mr. Xia solely for the purpose of owning Parent and
arranging the financing of the merger. Mr. Xia is currently the sole beneficial
owner of Holdco. Prior to the closing of the merger, each of Mr. Xia, Mr.
Shufeng Xia, Ms. Danxia Huang, Karmen and SAIF III will receive equity interests
in Holdco in exchange for contributing their shares of Company common stock to
Parent pursuant to two contribution agreements, as part of the Rollover
Financing. Holdco has not engaged in any business except for activities
incidental to its formation and in connection with the transactions contemplated
by the merger agreement, including the merger and related financing
transactions. The registered office of Holdco is 3rd Floor, Omar Hodge Building,
Wickhams Cay 1, Road Town, Tortola, British Virgin Islands, and its telephone
number is (86) 10-5169-1999.
Mr. Shudong Xia
Mr. Xia is and has been the chairman, president, chief
executive officer and secretary of the Company for the past five years. Mr.
Shudong Xias business address is c/o China TransInfo Technology Corp., Vision
Bldg., 39 Xueyuan Rd., 9th Floor, Haidian District, Beijing 100191, PRC. His
telephone number is (86) 10-5169-1999. He is a citizen of the PRC. During the
past five years, Mr. Xia has not been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), nor has
he been a party to any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
17
Karmen
Karmen Investment Holdings Limited was formed under the laws of
the British Virgin Islands by Mr. Xia for the purpose of making investments in
China-related companies. Karmen is a wholly owned subsidiary of East Action
Investment Holdings Ltd., which in turn is wholly owned by Mr. Xia. The
registered office of Karmen is P.O.Box 3444 Road Town, Tortola, British Virgin
Islands, and its telephone number is (86) 10-5169-1999.
Ms. Danxia Huang
Ms. Danxia Huang is and has been a vice president and a
director of the Company for the past five years. The business address of Ms.
Danxia Huang is c/o China TransInfo Technology Corp., Vision Bldg., 39 Xueyuan
Rd., 9th Floor, Haidian District, Beijing 100191, PRC. Her telephone number is
(86) 10-5169-1999. She is a citizen of the PRC. During the past five years, Ms.
Danxia Huang has not been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors), nor has she been a party to any judicial or
administrative proceeding (except for matters that were dismissed without
sanction or settlement) that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws.
Mr. Shufeng Xia
Mr. Shufeng Xia is and has been the director of financial
department of China TransInfo Technology Group Co., Ltd. for the past five
years. Mr. Shufeng Xias business address is c/o China TransInfo Technology
Corp., Vision Bldg., 39 Xueyuan Rd., 9th Floor, Haidian District, Beijing
100191, PRC. His telephone number is (86) 10-5169-1999. He is a citizen of the
PRC. During the past five years, Mr. Shufeng Xia has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors), nor
has he been a party to any judicial or administrative proceeding (except for
matters that were dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
SAIF III
SAIF Partners III L.P. was formed under the laws of the Cayman
Islands. The principal business of SAIF III is to make investments in companies
in China and India. The registered office of SAIF III is c/o M&C Corporate
Services Limited, P. O. Box 309 GT, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands and its telephone number is +852 2918 2203.
SAIF IV
SAIF Partners IV L.P. was formed under the laws of the Cayman
Islands. The principal business of SAIF IV is to make investments in companies
in China and India. The registered office of SAIF IV is c/o M&C Corporate
Services Limited, P. O. Box 309 GT, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands and its telephone number is +852 2918
2203.
Overview of the Transaction
The Company, Parent and Merger Sub entered into the merger
agreement on June 8, 2012. Under the terms of the merger agreement, Merger Sub
will be merged with and into the Company, with the Company surviving the merger
as a wholly owned subsidiary of Parent. The Company, as the surviving
corporation, will continue to do business under the name China TransInfo
Technology Corp. following the merger. At the effective time of the merger, the
following will occur in connection with the merger:
18
-
each share of Company common stock issued and outstanding immediately
prior to the effective time of the merger (other than shares held by the
Company as treasury stock or owned, directly or indirectly, by Parent, Merger
Sub or any wholly owned subsidiary of the Company immediately prior to the
effective time of the merger, including the Rollover Shares) will be converted
into the right to receive per share merger consideration of $5.80 without
interest;
-
each outstanding, vested and unexercised option to purchase shares of
Company common stock will be cancelled and converted into the right to
receive, as soon as reasonably practicable after the effective time of the
merger, a cash amount equal to the number of shares underlying such option
immediately prior to the effective time of the merger multiplied by the amount
by which $5.80 exceeds the exercise price per share of such option, net of any
applicable withholding taxes;
-
each outstanding and unvested option to purchase shares of Company common
stock will be cancelled and converted into the right to receive, as soon as
reasonably practicable after the effective time of the merger, a restricted
cash award in an amount equal to the number of shares underlying such option
immediately prior to the effective time of the merger multiplied the amount by
which $5.80 exceeds the exercise price per share of such option; and
-
each outstanding and unexercised warrant to purchase shares of Company
common stock will be cancelled and converted into the right to receive, as
soon as reasonably practicable after the effective time of the merger, a cash
amount equal to the total number of shares underlying such warrant immediately
prior to the effective time of the merger multiplied by the amount by which
$5.80 exceeds the exercise price per share of such warrant.
Following and as a result of the merger:
-
the unaffiliated stockholders will no longer have any interest in, and
will no longer be stockholders of, the Company, and will not participate in
any of the Companys future earnings or growth;
-
shares of Company common stock will no longer be listed on the NASDAQ
Global Market, and price quotations with respect to shares of Company common
stock in the public market will no longer be available; and
-
the registration of shares of Company common stock under the Exchange Act
will be terminated.
Management and Board of Directors of the Surviving
Corporation
The board of directors of the surviving corporation will, from
and after the effective time of the merger, consist of the directors of Merger
Sub as of immediately prior to the effective time of the merger (identified
below under
Annex DDirectors and Executive Officers of Each Filing
Person
), until their respective successors are duly elected or appointed
and qualified or their earlier death, resignation or removal. The officers of
the surviving corporation will, from and after the effective time of the merger,
be the officers of the Company as of immediately prior to the effective time of
the merger (identified below under
Annex DDirectors and Executive Officers
of Each Filing Person
), until their respective successors are duly elected
or appointed and qualified, or until their earlier death, resignation or
removal.
Background of the Merger
Our board of directors and senior management periodically
review the Companys long-term strategic plans with the goal of enhancing
stockholder 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.
Around the end of September and early October 2011, Mr. Xia
started to contemplate the feasibility of a going-private transaction involving
the Company after he learned of the completion of the going private transactions
including those involving Chemspec International Limited, Funtalk China Holdings
Limited and China Security & Surveillance Technology Inc.
19
In early October 2011, Mr. Xia met with CDB in Hong Kong to
discuss the possibility of CDB providing financing to Mr. Xia for the
transaction. No details regarding the terms or timing of the possible
transaction were discussed.
On October 14, 2011, Mr. Xia consulted with Skadden, Arps,
Slate, Meagher & Flom LLP (
Skadden
) regarding the transaction and
engaged Skadden as his legal counsel for the transaction based on, among other
factors, Skaddens extensive experience with mergers and acquisitions
transactions, particularly going-private transactions, its significant history
of representing Asia-based companies and its ability to communicate easily in
both English and Chinese.
On November 7, 2011, Mr. Xia met with CDB in Beijing to further
consider the possibility of CDB providing financing for the transaction.
On November 14, 2011, Mr. Xia met with SAIF III, as a potential
investor in the transaction, Mr. Xia approached SAIF III because of its history
as an institutional stockholder of the Company since July 17, 2008 as well as
its reputation and extensive experience in investments in China-based companies.
The discussion covered the transaction as well as Mr. Xias discussion with CDB
concerning the transaction. No details regarding the terms or timing of the
transaction were discussed. SAIF III expressed its preliminary interest in
participating in the transaction.
On November 21, 2011, Mr. Xia met with Houlihan Lokey (China)
Limited (
Houlihan
) regarding the possibility of Houlihan representing
Mr. Xia and the buyer group in the transaction. Houlihan was engaged as the
financial advisor to Mr. Xia and the buyer group on November 21, 2011.
On December 21, 2011, Mr. Xia met with CDB again in HK to
discuss the possibility of CDB providing financing for the transaction.
On December 22, 2011, Mr. Xia met with SAIF III again and
discussed further the feasibility of and SAIF IIIs participation in the
transaction. Mr. Xia updated SAIF III on the status of his efforts in securing
debt financing from CDB. SAIF III continued to show interest in participating in
the transaction.
On February 15, 2012, Mr. Xia met again with CDB in Hong Kong
to discuss the possibility of CDB providing financing for the transaction. CDB
indicated during the meeting that its credit committee would discuss financing
to the transaction during the following week.
On February 16, 2012, Mr. Xia had another meeting with SAIF III
in Hong Kong to discuss the feasibility of and SAIF IIIs participation in the
transaction. Mr. Xia updated SAIF III on the status of his efforts in securing
debt financing from CDB and SAIF III indicated its strong interests in
participating in the transaction, provided that debt financing from CDB was
secured.
On February 19, 2012, after taking into consideration the
status of the discussions with CDB and SAIF III regarding the financing of the
transaction, at a meeting of the board of directors of the Company, Mr. Xia
submitted a preliminary, non-binding letter (the
Proposal Letter
) to
the board of directors proposing to undertake the transaction by acquiring all
of the shares of Company common stock not currently directly or indirectly owned
by him for cash consideration of $5.65 per share of Company common stock. In the
Proposal Letter, Mr. Xia outlined his intention to finance the transaction with
a combination of debt financing and equity financing. He indicated that he had
held preliminary discussions with a Chinese bank which is experienced in
financing going-private transactions, and he also had held preliminary
discussions with certain stockholders of the Company and other potential sources
of equity financing, and could make agreements with them relating to possible
investments in the transaction. In the Proposal Letter, he also clearly
indicated that he did not intend to sell his stake in the Company to a third
party. After presenting his letter, Mr. Xia left the meeting because of his
personal interest in the matters to be discussed and, at the invitation of the
board of directors, representatives of Pillsbury Winthrop Shaw Pittman LLP
(
Pillsbury
), counsel to the Company, advised the directors concerning
their fiduciary duties to the Companys stockholders.
20
On February 21, 2012, the Company issued a press release
regarding its receipt of the Proposal Letter and the transaction proposed
therein.
On February 23, 2012, all of the disinterested directors
held
a telephonic meeting to formally
establish the mandate of and delegations of authority to a special committee to
consider and attend to all matters in connection with the Proposal Letter and
the transactions contemplated thereby. After this meeting, the board of
directors of the Company decided by written resolution that it was in the best
interest of the Company to form a special committee, consisting of four members:
Mr. Xingming Zhang (to serve as chairman of the special committee), Mr. Zhongsu
Chen, Mr. Dan Liu and Mr. Walter Teh Ming Kwauk. These members of the special
committee were selected based on meeting the independent director definition under
the NASDAQ listing rules as well as being free from relationships with Mr. Xia
or other interests or relationships which could affect their ability to act
impartially in discharging their duties on behalf of the Companys stockholders
in connection with the transactions contemplated by the Proposal Letter. The
board of directors authorized the special committee to, among other things, (i)
consider, review and evaluate the terms and conditions of any proposed
transaction; (ii) negotiate the terms and conditions of any proposed
transaction; (iii) express its view as to the fairness to the Company and the
unaffiliated stockholders of any proposed transaction; (v) reject the proposed
transaction or any alternative proposals; (v) recommend to the board of
directors what action, if any, should be taken by the Company with respect to
the proposed transaction; and (vi) retain legal counsel, financial advisors and
such other accountants, appraisers, consultants or advisors to assist it in
connection with the performance of its duty if the special committee deemed it
appropriate in its sole discretion.
On February 23, 2012, the Company issued a press release
regarding the establishment of the special committee to consider the Proposal
Letter and to evaluate any additional proposal that Mr. Xia may make.
Between February 24 and March 5, 2012, the special committee
interviewed several global investment banks which had submitted their
qualifications and proposals to act as the special committees financial advisor
and interviewed international law firms which had submitted their qualifications
and proposals to act as the special committees legal counsel.
Between February 24 and March 6, 2012, several lawsuits were
filed in the Eighth Judicial District Court in Clark County, Nevada against the
Company and all of its directors alleging similar breaches of fiduciary duties
in connection with the proposed transaction.
On March 6, 2012, the special committee held a telephonic
meeting to discuss the engagement of a financial advisor and legal counsel.
Having considered, among other things, the credentials of the candidates, the
relevant experience of team members, the negotiation power and skills of the
team members in the proposed transaction, the strategic process management
capability and execution skills, independence of each candidate in the proposed
transaction and the knowledge of the Company, the special committee decided to
engage William Blair as its financial advisor. After deliberations on the
experience in similar transactions, qualifications and reputation of each of
these law firms, the special committee decided to engage Shearman & Sterling
LLP (
Shearman
) as its legal counsel. Subsequently, the special
committee negotiated and formally executed an engagement letter with Shearman on
March 9, 2012, and an engagement letter and indemnity letter with William Blair
on March 13, 2012.
On March 14, 2012, the special committee held a telephonic
meeting with representatives of William Blair and Shearman to discuss the
process of a potential transaction with respect to Mr. Xias proposal including,
among other things, (a) preliminary timeline of the proposed transaction, (b)
financial analysis of the price offered in Mr. Xias proposal and related due
diligence to be conducted by William Blair, (c) confidentiality requirements and
publicity restrictions and (d) the retention of Nevada legal counsel to the
special committee. William Blair further elaborated on the timetable in
connection with a market check, assuming one were considered necessary. At the
meeting, the special committee decided that William Blairs preliminary
financial analysis would help it better understand the value of the Company and
the terms of Mr. Xias Proposal Letter, therefore, the special committee decided
not to commence negotiation with Mr. Xia and his representatives with respect to
the terms of his proposal until William Blairs preliminary financial analysis
was available.
On March 15, 2012, Mr. Xia received from White & Case LLP
(
White & Case
), legal counsel to CDB, a preliminary draft of the
facility agreement for the proposed financing by CDB in connection with the
proposed transaction, which we refer to as the
facility agreement
.
21
On March 16, 2012, an interested financial investor
(
investor A
) contacted Shearman and William Blair and indicated its
interest in the proposed transaction. It was not clear whether investor A would
form its own independent proposal or join Mr. Xia in his proposal.
On March 19, 2012, the board of directors held a telephonic
special meeting to discuss the compensation of the members of the special
committee. All directors except Mr. Xia attended the meeting. After discussion,
the board determined monthly compensation for the members of the special
committee of $7,500 for the chair and $5,000 for the other members of such
committee for the duration of each persons service on such committee.
On March 19, 2012, the special committee held a telephonic
meeting with representatives of William Blair and Shearman to discuss the
progress of the preliminary financial analysis and related due diligence
conducted by William Blair, the selection and engagement of Nevada legal
counsel to the special committee, the financing arrangement of the buyer group
and the response to the interest in the proposed transaction expressed by
investor A. After discussion, the special committee instructed Shearman to
clarify with the buyer group the buyer groups contemplated financing
arrangement in connection with the proposed transaction and instructed William
Blair to confirm with investor A its interest in the proposed transaction.
On March 19, 2012, Mr. Xia met with CDB
and discussed key commercial terms of the facility, including, but not limited
to, the interest rate, repayment schedule and security package.
On March 19, 2012, Mr. Xia received a conditional debt
commitment letter from CDB to provide a loan in connection with the proposed
transaction, subject to, among other conditions, execution of mutually
acceptable definitive documents for the loan. CDBs commitment under the
conditional commitment letter will terminate on February 16, 2013 unless CDB by
written confirmation further extends the termination date. On March 20, 2012,
Skadden delivered a copy of the conditional debt commitment letter to Shearman.
On March 21, 2012, White & Case circulated to Mr. Xia a
revised draft of the facility agreement based on the discussion between Mr. Xia
and CDB on March 19, 2012.
From March 22, 2012 to April 5, 2012, Skadden prepared a
preliminary draft of the merger agreement with respect to the proposed
transaction, which we refer to as the
merger agreement
, as well as
preliminary drafts of the voting agreement, the contribution agreement and
equity commitment letter, and assisted Mr. Xia in negotiating these agreements
with SAIF III.
On March 30, 2012, members of the management of the Company met
with representatives of William Blair and discussed the due diligence being
conducted by William Blair. Topics covered in the discussion included the
Company's financial
management structure, internal financial controls, financial reporting systems and
financial performance in the past as well as managements estimates for the future.
On March 26, 2012 and April 1, 2012, the special committee held
telephonic meetings with representatives of William Blair and Shearman to
discuss the progress of the preliminary financial analysis and related due
diligence being conducted by William Blair, the selection and engagement of Nevada legal counsel to the special committee, and that the interest of investor A in
the proposed transaction. In the meeting held on April 1, 2012, representatives of William Blair discussed the process
and content of due diligence in the meeting that occurred on March 30, 2012. The
special committee decided not to respond to investor A until after (i)
confirmation by investor A of its interest in the proposed transaction, and (ii)
a discussion with representatives of William Blair regarding William Blairs
preliminary valuation analysis.
On April 1, 2012, Skadden circulated to White & Case the
buyer groups comments to the facility agreement.
On April 16, 2012, the special committee held a meeting with
representatives of William Blair and Shearman. At the meeting, the special
committee decided not to respond to the draft merger agreement provided by Skadden
until William Blairs preliminary financial analysis was available.
22
On April 20, 2012, the special
committee held a telephonic meeting with representatives of William Blair and
Shearman. At the meeting, the representatives of William Blair discussed with
the special committee its preliminary valuation analyses and the methodologies
it applied, including selected public company analysis, selected transactions
analysis, discounted cash flow analysis, leveraged buyout analysis and premiums
paid analysis. The special committee and its advisors further discussed
potential strategic alternatives which were (i) maintaining the status quo of
the Company by remaining a public company and (ii) soliciting interest from
third parties in a possible alternative transaction by conducting a market check
or including a go-shop provision in the merger agreement, as well as the
implications of each strategy and suggested next steps. Regarding the first
potential strategic alternative, after discussions with its advisors, the
special committee concluded that in light of (i) the challenges to the Companys
efforts to increase stockholder value as an independent publicly traded company,
including competition the Company faces from companies with substantially
greater resources than the Company currently has, and (ii) the negative impact
of the existence of the SEC investigation and the heightened scrutiny by the SEC
of certain PRC-based companies that had initially been listed in the U.S.
through reverse mergers on the trading price of the Company common stock, the
Company should pursue the proposed transaction or an alternative transaction
with a third party over the strategic alternative of remaining a public company.
Regarding the second potential strategic alternative, the special committee
instructed William Blair and Shearman to continue the preparatory work for a
market check in case the parties were not able to reach agreement on major
terms, particularly the proposed purchase price increase. The special committee
also instructed William Blair and Shearman to propose a go-shop provision in the
next draft of the merger agreement. In addition, the special committee
instructed William Blair to contact investor A to clarify its interest in the
proposed transaction and whether investor A intended to form its own independent
proposal or join the buyer group as an equity financing source. At the meeting,
Shearman also advised the special committee about factors to be considered in
its decision making process in light of the fiduciary duties of the special
committee members. In order to maximize value for the Companys unaffiliated
stockholders and also facilitate the consummation of a transaction fair to the
Company and the unaffiliated stockholders, the special committee instructed
William Blair and Shearman to initiate financial and legal negotiations with the
buyer group in connection with the proposed transaction. In particular, the
special committee instructed William Blair to propose in principle to Mr. Xia or
his representative an increase in the purchase price and report to the special
committee the response of Mr. Xia or his representative.
On April 20, 2012, Skadden provided Shearman a draft of Mr.
Xias equity commitment letter, voting agreement and contribution agreements for
the review and comments of the special committee and its advisors, which
Shearman then provided to the special committee.
On April 23, 2012, representatives of William Blair contacted investor A, which indicated it was only interested in joining Mr. Xia,
as opposed to making its own independent proposal with respect to a proposed
transaction.
On April 24, 2012, representatives of William Blair, on behalf
of the special committee, asked representatives of Houlihan and Skadden to
request Mr. Xia to consider an increase of the offer price. Skadden indicated that the buyer group would agree in principle to
consider a price increase together with the special committees positions and
comments on the draft merger agreement provided by Skadden. The parties did not
discuss any specific amount of the proposed price increase.
Around April 25, 2012, Mr. Xia discussed with Ms. Danxia Huang
and Mr. Shufeng Xia potentially committing to rolling over their shares of
Company common stock and joining the buyer group. Mr. Xia approached Ms. Danxia
Huang and Mr. Shufeng Xia because of their extensive experience and critical
management roles in the development of the Company and China TransInfo
Technology Group Co., Ltd., our consolidated variable interest entity,
respectively, and welcomed their continued extensive involvement in the
financial and operational management of the Company. Ms. Danxia Huang and Mr.
Shufeng Xia agreed to Mr. Xias offer and became members of the buyer group.
The special committee considered, but
decided not to restrict Mr. Xia from forming a
group with Ms. Danxia Huang and Mr. Shufeng Xia because (i) Ms. Danxia Huang and
Mr. Shufeng Xia were aware of the proposal of Mr. Xia but never indicated to the
board of directors or the special committee that she or he had any intention to
form an independent proposal in competition with Mr. Xias; and (ii)
considering their working and personal relationship with Mr. Xia and the central
operating and strategic role Mr. Xia currently plays at the Company and his
importance to the operation of the Company, it is not possible as a practical
matter for Ms. Danxia Huang and Mr. Shufeng Xia to join other potential
buyers of the Company, if any. The special committee did not restrict Mr. Xia
from
forming a group with SAIF III and its affiliates because Mr. Xia and SAIF III had
already commenced their discussions to form a group prior to his submission of
the Proposal Letter.
On April 26, 2012, the special committee held a telephonic
meeting with representatives of William Blair and Shearman. Representatives of
William Blair reported to the special committee that Mr. Xia would consider a
price increase as well as the special committees other positions and comments
on the draft merger agreement. Representatives of William Blair also reported
that investor A was only interested in joining the buyer group in its proposal,
as opposed to forming an independent proposal. Considering the intent of
investor A, the special committee decided to cease discussions with investor A.
At the meeting, the special committee also discussed with representatives of
Shearman and William Blair the key terms proposed by the buyer group in the
draft merger agreement and the proposed position of the special committee as
to those terms, including (a) the offered price of $5.65, (b) whether Holdco
should be a party to the merger agreement, (c) treatment of the Companys stock
options and warrants, (d) confidentiality provision, (e) withholding tax
provision, (f) majority of the minority vote and dissenters rights, (g) the
special committees rights and limitations in dealing with third party competing
proposals including a go-shop provision, (h) specific performance remedies, (i)
the amount of the termination fee and the Parent termination fee and the
triggering events for the termination fee and the Parent termination fee, (j)
the buyer groups proposed financing arrangement, (k) expenses, and (l) governing
law. In particular, the special committee decided to pursue a higher offer price
from the buyer group to maximize value to the unaffiliated stockholders of the
Company, and after a review of precedent increases in going-private
transactions, the special committee decided on a 2% offer price increase. After
lengthy discussions with representatives of Shearman and William Blair, the
special committee decided to propose, among other things, (i) merger
consideration of $5.80 per share of Company common stock, (ii) a majority of
the minority voting provision, (iii) a go-shop provision, and (iv) a reverse
termination fee of $2.8 million.
23
On April 29, 2012, Shearman provided to Skadden a revised draft
of the merger agreement reflecting the special committees positions including,
among other things, (i) to delete the tax withholding rights provision, (ii) to
expand the definition of material adverse effect in the Companys
representations and warranties to include additional carve-outs, (iii) to add a
majority of the minority provision and a dissenters rights provision, (iv)
to add a go-shop provision, (v) to expand the events giving rise to Company
termination rights to include a change of recommendation by the special
committee or entry by the Company into
a definitive written agreement with respect to a superior proposal, (vi) to
increase the amount of the Parent termination fee from US$1.5 million as proposed by
the buyer group to US$4 million, and (vii) to make specific performance
available to both the buyer group and the Company.
On May 3, 2012, White & Case provided Skadden with a
further revised draft of the facility agreement, which was shared by Skadden
with Shearman together with a revised draft of the merger agreement and a
revised draft of the limited guarantee. Shearman then provided these draft
agreements to the special committee. The revised draft of the facility agreement
reflected, among other things, (i) a shortened availability period for the loan,
(ii) a modified repayment schedule, (iii) modified restrictive covenants of the
borrower, (iv) proposed financial covenant thresholds, and (v) proposed issuance
of warrants to an affiliate of CDB. In the revised draft of the merger
agreement, the buyer group accepted the special committees positions on, among
other things, (a) the definition of Company Material Adverse Effect, (b)
certain representations and warranties given by the Company on authorization and
the fairness of the merger consideration to the Company's unaffiliated
stockholders, OFAC, Investment Company and solvency of the surviving corporation,
(c) certain representations and warranties given by Parent and Merger Sub
concerning full disclosure of buyer group arrangements, full disclosure of buyer
group contracts, no reliance on Company estimates and delivery of guaranty, (d)
certain restrictive covenants made by the Company with respect to its ability to
change executive and director compensation and to grant or amend employment
agreements or incentive plans, (e) certain termination rights by the Company and
by Parent, (f) payment to Beijing Shiji Yingli Technologies, Co., Ltd. under an
existing agreement, and (g) the D&O insurance policy. The revised draft of
the merger agreement also reflected outstanding different positions of the buyer
group and the special committee including, among other things, (i) contractual
dissenters rights, (ii) the majority of the minority voting requirement,
(iii) whether to exclude from the Companys representations and warranties Mr. Xias constructive knowledge, (iv) the scope and extent of the go-shop right,
(v) certain representations and warranties made by the Company with respect to
the Companys SEC reports, transactions with affiliates and employees and
financial indebtedness, (vi) the amount of the termination fee payable by the
Company and by Parent under certain circumstances, (vii) the scope and threshold
of certain restrictive covenants made by the Company on its ability to acquire
or dispose of assets and business, (viii) whether to allow the buyer group to
add new equity providers or operating partners to the transaction after signing
of the merger agreement, (ix) material adverse effect as a condition to Parent
and Merger Subs obligation to consummate the merger, and (x) specific
performance as a unilateral remedy for the buyer group.
On May 3, 2012 and May 7, 2012, the special committee held telephonic meetings with representatives of William Blair and Shearman to
discuss the revised draft merger agreement proposed by the buyer group and
agreed on the negotiating positions regarding key terms of the merger agreement,
including, among other things, (i) to increase the merger consideration, (ii) to
extend the go-shop period from 30 days as proposed by the buyer group to 40-45
days, (iii) not to allow the buyer group to add new equity providers or
operating partners to the transaction after signing the merger agreement in
order to expand the pool of potential buyers of the Company in the proposed
go-shop period, (iv) to increase the amount of the Parent termination fee from
US$1.5 million as proposed by the buyer group to US$2.8 million, and (v) to make specific
performance available to both the buyer group and the Company.
24
On May 4, 2012, the buyer group contacted CDB to discuss the
key outstanding issues with respect to the facility agreement. The parties were
able to reach agreement on (i) the availability period, (ii) the definition of
change of control, (iii) the financial covenants, (iv) the repayment schedule,
and (v) certain restrictive covenants of the borrower. The remaining key
outstanding issues under the facility agreement included certain restrictive
covenants of Parent with respect to the ability of its operating subsidiaries to create
security over their assets and the delivery of the executed warrant documents
between CDB Capital and Holdco as a condition to funding.
On May 7, 2012, White & Case provided Skadden with
preliminary drafts of the security documents in connection with and ancillary to
the facility agreement. Skadden continued to negotiate outstanding issues on the
facility agreement with White & Case.
On May 8, 2012, the special committee and its advisors had a
face-to-face negotiation session with Mr. Xia and Skadden with respect
to key issues with the revised draft of the merger agreement provided by Skadden
on May 3, 2012 including (i) the consideration, (ii) dissenters rights, (iii)
duration of the go-shop period, (iv) Mr. Xias knowledge as qualifier to the
Companys representations and warranties, (v) the majority of the minority voting
provision, (vi) the buyer groups financing, (vii) the Companys tail
termination fee, (viii) Parents termination fee, and (ix) the specific performance
provision. As to the purchase price, the special committee proposed an increase
in the purchase price to $5.80 per share. Mr. Xia and Skadden indicated that
$5.80 would be the highest price the buyer group could accept and such increase
would be acceptable only if there were no market check. Mr. Xia and Skadden argued on behalf of the
buyer group against a market check primarily because
they
believed that (i) a market check would unduly delay the transaction process and
generate little serious interest from potential financial and strategic buyers
given the buyer groups significant ownership of equity interests in the
Company, and (ii) the buyer groups unwillingness to transfer their interests to
any third party and their intention to vote against the approval of any
transaction proposal alternative to the proposed transaction. In the internal
discussions among the special committee and its financial and legal advisors,
the special committee noted that in the Proposal Letter, Mr. Xia specifically
stated that he had no intention of selling his stake in the Company to a third
party. Shearman indicated to the special committee that given (i) Mr. Xias
beneficial ownership of approximately 27.85% and the buyer groups aggregate
beneficial ownership of approximately 48.3% of the total shares of Company
common stock, (ii) the buyer groups unwillingness to transfer their interests
to any third party and their intention to vote against the approval of any
transaction proposal alternative to the proposed transaction, and (iii) the
central operating and strategic role Mr. Xia currently plays at the Company and
his importance to the operation of the Company, as a practical matter, the
possibility of a third party proposing an alternative transaction in a market
check to acquire 100% shares of Company common stock had been eliminated and the
possibility of a third party proposing an alternative transaction in a market
check to acquire a controlling stake of the Company had been substantially
reduced. To the extent the buyer group accepted the proposed go-shop period, the
Company reserved the opportunity for future potential alternative transactions.
After internal discussions, the special committee decided to accept the buyer
groups request not to conduct a market check on the condition that the buyer
group accept the purchase price increase to $5.80, a majority of the minority
voting provision, a go-shop period and a higher Parent termination fee. As a
result of the discussion between the parties, the buyer group agreed to (i)
increase the purchase price to $5.80 per share, (ii) accept a majority of the
minority voting provision, (iii) the scope and extent of the go-shop right, and
(iv) the amount of the termination fee payable by the Company and by Parent
under certain specified circumstances. The special committee agreed, among other
things, (i) not to conduct any market check before signing the merger agreement,
(ii) not to include any contractual dissenters rights provision in the merger
agreement, (iii) not to exclude from the Companys representations and
warranties Mr. Xias constructive knowledge as a qualifier, (iv) to a unilateral
specific performance remedy for the buyer group, and (v) to the Companys
material adverse effect as a condition to Parent and Merger Subs obligation to
consummate the merger. In addition, representatives of Skadden and Shearman also
discussed and reached agreements on certain other legal terms of the merger
agreement, including (i) certain representations and warranties made by the
Company with respect to the Companys SEC reports, transactions with affiliates
and employees and financial indebtedness, (ii) the scope and threshold of
certain restrictive covenants made by the Company on its ability to acquire or
dispose of assets and business, and (iii) the scope of the buyer groups
undertaking to secure financing.
25
On May 10, 2012, representatives from Skadden, Shearman and
White & Case held a meeting via conference call to discuss the sequence of
funding for the CDB loan and the merger consideration and the filing and
effectiveness of the Nevada articles of merger in connection with the proposed
transaction so as to assure the special committee of the funding process and
funding certainty.
On May 10, 2012 and May 14, 2012, the special committee held
two telephonic meetings with representatives of William Blair and Shearman to
discuss pending issues relating to the merger agreement, including the sequence
of funding for the CDB loan, the merger consideration and the filing and
effectiveness of the Nevada articles of merger in connection with the proposed
transaction. The special committee instructed Shearman to further negotiate and
discuss with Skadden and White & Case to ensure that the closing mechanism
would not expose the Company and unaffiliated stockholders to any unreasonable
or unacceptable risk.
From May 15, 2012 to May 17, 2012, Shearman and Skadden
continued discussions on the sequence of funding for the CDB loan, the merger
consideration and the filing and effectiveness of the Nevada articles of merger,
and reached agreement that (i) the Nevada articles of merger would be filed
before the funding of the merger consideration, (ii) the buyer group and CDB
would each confirm the satisfaction or waiver of all conditions precedent under
the merger agreement and the facility agreement, and (iii) the buyer group would
covenant in the merger agreement to cooperate with the Company to unwind the
transaction if the funding of the merger agreement did not occur within one full
business day after the effective time of the merger.
From May 10, 2012 to May 17, 2012, Skadden and White & Case
engaged in extensive negotiations on the facility agreement and the ancillary
security documents. The parties reached agreement on the remaining key
outstanding terms of the facility agreement, including (i) the restrictive
covenants of Parent on the ability of its operating subsidiaries to create
security over their assets, (ii) the delivery of the executed warrant documents
between CDB Capital and Holdco as a condition to funding, and (iii) further
revisions to the financial covenants in connection with the loan. The facility
agreement and the ancillary security documents were finalized and submitted to
CDB for its internal approval process on May 17, 2012.
On June 1, 2012, Skadden received confirmation from White &
Case that CDB had completed its internal approval process for the facility
agreement and that the facility agreement had been approved.
From June 4, 2012 to June 7, 2012, Mr.
Xia and SAIF Partners held various discussions over the terms and conditions of
the contribution agreements, the voting agreement, the equity commitment letter
and the limited guarantee. These discussions focused primarily on (i) the
necessity of the proxy arrangement with respect to the voting agreement and (ii)
allocation of the guarantors respective liabilities under the limited
guarantee. SAIF Partners confirmed that SAIF IV would execute the equity
commitment letter and the limited guarantee. The special committee and Shearman
reviewed the drafts of the contribution agreements, the voting agreement, the
equity commitment letter and the limited guarantee and found the drafts to be
satisfactory. All parties finalized the forms of the contribution agreements,
voting agreement, equity commitment letters and the limited guarantee on June 7,
2012.
On June 7, 2012, the special committee held a meeting, at which
representatives of Shearman and William Blair were also present, to consider
approving a revised merger agreement reflecting the terms discussed between
representatives of Shearman and Skadden, including, among other things, (i) the
merger consideration, (ii) the closing conditions for the parties to the merger
agreement and the closing mechanism contemplated thereby, and (iii)
circumstances under which the parties have the right to terminate the merger
agreement and the associated termination fees. Representatives of William Blair
provided a summary of the various financial analyses they had performed and
discussed various other data used to evaluate the Company. Representatives of
William Blair then verbally rendered William Blairs opinion to the special
committee, which was confirmed in writing by delivery of its written opinion
dated the same date, based upon and subject to the assumptions made, procedures
followed, matters considered, and qualifications and limitations on the review
undertaken, as to the fairness, from a financial point of view and as of that
date, to the stockholders of the Company (other than the Excluded Holders) of the per share merger consideration to
be received by such stockholders in connection with the proposed
transaction. Shearman then provided a summary of the merger agreement and the
limited guarantee to the special committee. After due consideration of the
presentations made by and the discussions with representatives of William Blair
and Shearman, and having deemed the terms of the merger to be advisable, fair to
and in the best interests of the Company and the unaffiliated stockholders, the members of the special committee unanimously
approved the terms of the merger agreement and the limited guarantee and the
transactions contemplated therein. Following the meeting of the special
committee, based upon the unanimous approval of the special committee, our board
of directors adopted resolutions approving the terms of the merger agreement and
the limited guarantee and the transactions contemplated thereby, and resolutions
recommending that the Companys stockholders vote to approve the terms of the
merger agreement. Both Mr. Xia and Ms. Danxia Huang recused themselves from the
deliberations of the board of directors with respect to the
merger agreement and the proposed merger. See
Special Factors Relating to
the MergerPurposes and Reasons of Our Board of Directors and Special Committee
for the Merger
and
Special Factors Relating to the
MergerRecommendation of Our Board of Directors and Special Committee; Reasons
for Recommending the Approval of the Merger Agreement; Fairness of the
Merger
below for a description of the resolutions of our board of directors
at this meeting.
26
On June 7, 2012, each of Mr. Xia and SAIF IV executed an equity
commitment letter in favor of Holdco. On the same day, the Rollover Holders,
Parent and Holdco executed two contribution agreements and the Rollover Holders
and Parent executed a voting agreement.
On June 8, 2012, Mr. Xia, on behalf of Parent and Merger Sub,
and Mr. Xingming Zhang, on behalf of the Company, executed the merger agreement.
On the same day, Mr. Xia and SAIF IV executed the limited guarantee in favor of
the Company, and Parent and CDB executed the facility agreement and the related
ancillary financing documents.
On June 8, 2012, prior to the commencement of trading on the
NASDAQ Global Market, the Company issued a press release announcing the
transaction and its entry into a definitive merger agreement.
During the go-shop period, at the
direction of the special committee, William Blair contacted 59 parties,
including 30 financial sponsors and 29 strategic parties, to solicit interest in
a possible alternative transaction. Prior to the expiration of the go-shop
period, two potential buyers indicated interests in an alternative transaction
involving the Company. However, after their discussions with the financial and
legal advisors to the special committee, neither of these two potential buyers
entered into a non-disclosure agreement with the Company in a form and on terms
that are customary in similar transactions and satisfactory to the Company, and
therefore, the negotiations and discussions with both potential buyers were
suspended. As a result, despite these efforts, the Company did not receive any
alternative takeover proposals during the go-shop period.
Purposes and Reasons of Our Board of Directors and Special
Committee for the Merger
The special committee and our board of directors believe that,
as a privately-held entity, the Companys management may have greater
flexibility to focus on improving the Companys financial performance without
the constraints caused by the public equity markets valuation of the Company
and emphasis on short-term period-to-period performance. As a publicly-traded
entity, the Company faces pressure from public stockholders and investment
analysts to make decisions that might produce better short-term results, but
over the long term lead to a reduction in the per share price of the Companys
publicly traded common stock.
The special committee and our board of directors also believe
that it is appropriate for the Company to undertake the merger and terminate the
registration of the Company common stock at this time due to the high costs of
remaining a public company, including the cost of complying with the
Sarbanes-Oxley Act of 2002 and other U.S. federal securities laws. We estimate
such costs to be, on an annualized basis, approximately $330,000 for service
fees and expenses of public accountants (excluding fees and expenses relating to
the merger), approximately $150,000 for fees and expenses of U.S. securities
counsel (excluding fees and expenses relating to the merger) and $80,000 for
fees and expenses of the Companys investor relations firm (excluding fees and
expenses relating to the merger). These costs are ongoing, comprise a
significant element of our corporate overhead expense, and are difficult to
reduce. In addition to the direct out-of-pocket costs associated with SEC
reporting and compliance, the Companys management and accounting staff, which
comprises a handful of individuals, need to devote significant time to these
matters.
27
Furthermore, as an SEC-reporting company, the Company is
required to disclose a considerable amount of business information to the
public, some of which would be considered proprietary and would not be disclosed
by a non-reporting company. As a result, our actual or potential competitors,
customers, lenders and vendors all have ready access to this information which
potentially may help them compete against us or make it more difficult for us to
negotiate favorable terms with them, as the case may be.
The special committee and our board of directors also believe
that it is appropriate for the Company to undertake the merger and terminate the
registration at this time because the per share merger consideration of $5.80
represents a significant premium over recent market prices of the shares of
Company common stock.
Based on the foregoing considerations, each of the special
committee and our board of directors has concluded that it is more beneficial to
the Company to undertake the proposed merger and become a private company than
to remain a public company.
Recommendation of Our Board of Directors and Special
Committee; Reasons for Recommending the Approval of the Merger Agreement;
Fairness of the Merger
At a meeting on June 7, 2012, the special committee unanimously
recommended that our board of directors adopt resolutions that:
-
determine that the merger agreement, the limited guarantee and the
transactions contemplated by the merger agreement and the limited guarantee,
including the merger, advisable and fair to and in the best interests of the
Company and the unaffiliated stockholders;
-
approve in all respects, the form, terms, provisions and conditions of the
merger agreement and the limited guarantee, and the transactions contemplated
by the merger agreement and the limited guarantee, including the merger; and
-
submit the merger agreement to the stockholders of the Company for
approval at the meeting of the stockholders of the Company, and recommend that
the stockholders of the Company vote for the approval of the merger agreement
and the consummation of the transactions contemplated by the merger agreement,
including the merger.
On June 7, 2012, our board of directors unanimously adopted the
resolutions recommended by the special committee. In reaching these
determinations, our board of directors considered and adopted:
-
the special committees analyses, conclusions and unanimous determination
that the merger agreement, the merger and the other transactions contemplated
by the merger agreement were substantively and procedurally fair and advisable
to and in the best interest of the Company and its unaffiliated stockholders;
and
-
the special committees unanimous recommendation that the board of
directors adopt the merger agreement, submit the merger agreement to the
Companys stockholders for approval at a meeting of the Companys stockholders
and recommend that the stockholders vote for the approval of the merger
agreement and the consummation of the merger and other transactions
contemplated by the merger agreement.
In the course of reaching their respective determinations, the
special committee and our board of directors considered the following
substantive factors and potential benefits of the merger, each of which the
special committee and our board of directors believed supported their respective
decisions, but which are not listed in any relative order of importance:
28
-
the all-cash merger consideration, which will allow the unaffiliated stockholders to immediately realize a determinate value for their shares of Company common stock and provide liquidity for their investment without incurring brokerage and other
costs typically associated with market sales;
-
the limited trading volume of our common stock on the NASDAQ Global Market;
-
the current and historical market prices of the Company common stock, including the fact that the per share merger consideration to be paid to the unaffiliated stockholders represents a 12.6% premium to the closing price of shares of Company common
stock on February 17, 2012, the last trading day prior to the Company’s announcement on February 21, 2012 of the Company’s receipt of Mr. Xia’s going-private proposal and the fact that the per share merger consideration to be paid
to the unaffiliated stockholders in the merger also represents a 52.6% premium over the 90-trading day volume weighted average price as of February 17, 2012, the last trading day prior to the Company’s announcement on February 21, 2012 of the
Company’s receipt of Mr. Xia’s going- private proposal;
-
the stand alone value of the
Company on a going-forward basis, including the fact that the per share merger
consideration to be paid to the unaffiliated stockholders represents a premium
that compares favorably with such value;
-
the possibility that it could
take a considerable period of time before the trading price of the Company
common stock would reach and sustain a price level that is equal to the value of
the per share merger consideration of $5.80 (as being adjusted for the time
value of money during such period of time), and the possibility that such value
might never be obtained, particularly in light of:
-
our board of directors’ recognition of the challenges to our efforts to increase stockholder value as an independent publicly traded company, including competition we face from companies with substantially greater resources than we currently
have; and
-
the negative impact of the existence of the SEC investigation and the heightened scrutiny by the SEC of certain PRC-based companies that had initially been listed in the U.S. through reverse mergers on the trading price of the Company common
stock;
-
the extensive negotiations with respect to the merger
consideration and other terms of the merger agreement that, among other things,
led to (i) an increase in the purchase price from $5.65 to $5.80, and (ii) a
majority of the minority stockholders approval requirement giving the
unaffiliated stockholders a meaningful opportunity to consider and vote upon
approval of the merger agreement;
29
-
the fact that Parent had obtained the signed facility agreement, the limited number and nature of the conditions to the debt financing, the reputation of the financing source and the obligation of Parent to use its reasonable best efforts to obtain
the debt financing, each of which, in the reasonable judgment of the special committee, increases the likelihood of such financing being completed;
-
the fact that Parent had obtained equity commitment letters from Mr. Xia and SAIF IV, the limited number and nature of the conditions to the equity financing, the reputation of the financing sources and the obligation of Parent to use its reasonable
best efforts to obtain the equity financing, each of which, in the reasonable judgment of the special committee, increases the likelihood of such financing being completed;
-
the absence of a financing condition in the merger agreement;
-
the likelihood and anticipated timing of completing the proposed merger in light of the scope of the conditions to completion, including the absence of significant required regulatory approvals; and
-
the fact the merger agreement provides that, in the event of a failure of the merger to be consummated under certain circumstances, Parent will pay the Company a termination fee of $2.8 million;
-
Mr. Xia has agreed to guarantee 70%, and SAIF IV has agreed to guarantee 30%, of the obligations of Parent under the merger agreement to pay, under certain circumstances, a termination fee to the Company and reimburse certain expenses of the
Company;
-
the belief of the special committee that the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable;
-
our ability, subject to compliance with the terms and conditions of the merger agreement, to terminate the merger agreement prior to the receipt of stockholders’ approval if our board of directors determines (upon recommendation of the special
committee) in its good faith judgment that failure to do so would be inconsistent with its fiduciary duties;
-
our ability, subject to compliance with the terms and conditions of the merger agreement, to 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 Merger Agreement—Alternative Takeover
Proposals
” below);
-
both the special committee and our board of directors recognize that, under the terms of the merger agreement, the Company has a period of 40 days to actively solicit competing proposals for the Company and furthermore, that the Company has the
ability after such go-shop period to consider any acquisition proposal reasonably likely to lead to a superior proposal until the date our stockholders vote upon and approve the merger agreement;
-
our ability to obtain a termination fee in the amount of $2.8 million, approximately 2% of the enterprise value of the Company calculated based on the $5.80 per share merger consideration, in the event the merger agreement is terminated by
the Company under certain circumstances. See “
The Merger Agreement – Termination Fees and Reimbursement of Expenses
” for additional information;
30
-
our requirement to pay Parent a termination fee in connection with the
termination of the merger agreement under certain circumstances is limited to
$1.5 million, approximately 1% of the enterprise value of the Company
calculated based on the $5.80 per share merger consideration. See
The
Merger Agreement Termination Fees and Reimbursement of Expenses
for
additional information;
-
our ability, under certain circumstances, to change, withhold, withdraw,
qualify or modify our recommendation that our stockholders vote to approve the
merger agreement; and
-
the financial analyses reviewed and discussed with the special committee
by representatives of William Blair, as well as the oral opinion of William
Blair rendered to the special committee on June 7, 2012 (which was confirmed
in writing by delivery of William Blairs written opinion dated the same date)
as to the fairness, from a financial point of view, to the stockholders of the
Company (other
than the Excluded Holders) of the $5.80 per share merger consideration to be
received by such stockholders in the merger, as of June 7, 2012, based upon
and subject to the assumptions made, procedures followed, matters considered,
and qualifications and limitations on the review undertaken by William Blair
in preparing its opinion. See
Special Factors Relating to the
MergerOpinion of William Blair, Financial Advisor to the Special
Committee
for additional information.
The special committee and our board of
directors did not consider net book value as a factor because they do not
believe that net book value reflects or has any meaningful impact on the market
price of the Company common stock or the fair market value of the Companys
assets or business. The special committee and our board of directors did not
consider the liquidation value of the Companys assets to be a relevant factor
because they consider the Company to be a viable business and the trading
history of the Companys common stock to generally be an indication of its value
as such. The special committee and the board of directors did not consider
liquidation value in determining the fairness of the merger consideration to the
Companys unaffiliated stockholders because they believe the value of the
Companys assets that might be realized in a liquidation would be significantly
less than the value represented by the aggregate merger consideration.
The special committee and our board of directors noted that the
opinion of William Blair addressed fairness, from a financial point of view, with respect to the Companys
stockholders other than the Excluded Holders rather than to the Companys
unaffiliated stockholders. The special committee and our board of directors also
noted that the Companys stockholders other than the Excluded Holders include
all unaffiliated stockholders and, to the extent that the Companys stockholders
other than the Excluded Holders may also include one or more affiliated
stockholders that are not Excluded Holders, the consideration to be received by
such affiliated stockholders is identical in all respects as the consideration
to be received by the unaffiliated stockholders. The special committee and our
board of directors believed that there was no meaningful distinction to be drawn
between the concepts of fairness to the unaffiliated stockholders of the
Company and fairness to the Companys stockholders other than the Excluded
Holders. As a result, the special committee and our board of directors believed
that, even though the opinion of William Blair addressed fairness, from
financial point of view, with respect
to the Companys stockholders other than the Excluded Holders rather than to the
unaffiliated stockholders directly, it was still reasonable and appropriate to
consider the opinion of William Blair as a material factor in its
determination as to the fairness of the transaction to the unaffiliated
stockholders of the Company.
In addition, the special committee and our board of directors
believed that sufficient procedural safeguards were and are present to ensure
that the proposed merger, based upon the terms of the merger agreement, was
procedurally fair to the unaffiliated stockholders and to permit the special
committee and our board of directors to represent effectively the interests of
such unaffiliated stockholders. These procedural safeguards, which are not
listed in any order of importance, are discussed below:
-
in considering the transaction with the buyer group, the special committee
acted solely to represent the interests of the unaffiliated stockholders, and
the special committee had independent control of the extensive negotiations
with the buyer groups advisors on behalf of such stockholders;
-
all of the directors serving on the special committee during the entire
process are independent directors and free from any affiliation with any of
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;
-
other than their receipt of board and special committee compensation
(which are not contingent upon the consummation of the merger or the special
committees or boards recommendation of the merger) and their indemnification
and liability insurance rights under the merger agreement, members of the
special committee do not have interests in the merger different from, or in
addition to, those of the unaffiliated stockholders;
31
-
the consideration and negotiation of the merger agreement was conducted entirely under the oversight of and controlled by the special committee, with the advice and assistance of William Blair and Shearman as its financial and legal advisors,
respectively, reporting solely to the special committee;
-
the special committee was empowered to consider, attend to and take any all actions in connection with the written proposal from Mr. Xia and the transactions contemplated by the written proposal from the date the committee was established, and no
evaluation, negotiation, or response regarding the transaction or any documentation in connection with the written proposal from that date forward was considered by our board of directors for approval unless the special committee had recommended
such action to our board of directors;
-
the terms and conditions of the merger agreement were the product of extensive negotiations between the special committee and its advisors, on the one hand, and the buyer group and its advisors, on the other hand;
-
the special committee had the authority to reject the terms of any strategic transaction, including the merger;
-
the special committee met regularly to consider and review the proposed merger with advice from its advisors;
-
both the special committee and our board of directors recognize that either of them had any obligation to recommend the approval of any merger proposal from the buyer group or any other transaction;
-
both the special committee and our board of directors recognize that, under the terms of the merger agreement, the Company has a period of 40 days to actively solicit competing proposals for the Company and furthermore, that the Company has the
ability after such go-shop period to consider any acquisition proposal reasonably likely to lead to a superior proposal until the date our stockholders vote upon and approve the merger agreement; and
-
the Company may terminate the merger agreement in order to enter into an agreement relating to a superior proposal.
The special committee and the 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:
-
the unaffiliated stockholders will have no ongoing equity participation in the Company following the merger, and they will cease to participate in our future earnings or growth, if any, or to benefit from increases, if any, in the value of the
shares of Company common stock, and will not participate in any potential future sale of the Company to a third party or any potential recapitalization of the Company which could include a dividend to stockholders;
-
due to the expressed
unwillingness of Mr. Xia and other members of the buyer group to sell their
stakes in the Company to a third party and the central operating and strategic
role Mr. Xia currently plays at the Company, the special committee recognized
that it was possible that potential acquiror may be discouraged from making a
bid for the Company;
-
due to the lack of a market check, the special committee recognized that the opportunities are limited for a potential acquiror to make a bid prior to the execution of the merger agreement;
-
the restrictions on the conduct of the Company’s business prior to the completion of the merger may delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to
the operations of the Company pending completion of the merger;
32
-
the fact since the Company
became publicly listed on the NASDAQ Global Market, the highest historical
closing bid price of our common stock exceeds the merger consideration offered
to the Companys unaffiliated stockholders, though the special committee is of
the view that since the US capital market environment experienced a drastic
change since 2011, especially for certain PRC-based companies that had
initially been listed in the U.S. through reverse mergers, the share price of
the Company common stock in the last twelve months should be deemed most
relevant in considering the per share consideration of $5.80;
-
the risks and costs to the Company if the merger does not close, including
the diversion of management and employee attention, potential employee
attrition and the potential disruptive effect on business and customer
relationships;
-
the Company will be required to, under certain circumstances, pay Parent a
termination fee of $1.5 million, approximately 1% of the enterprise value of
the Company calculated based on the $5.80 per share merger consideration, in
connection with the termination of the merger agreement;
-
the Companys remedy in the event of breach of the merger agreement by
Parent or Merger Sub is limited to receipt of a termination fee of $2.8
million, approximately 2% of the enterprise value of the Company calculated
based on the $5.80 per share merger consideration, and under certain
circumstances the Company may not be entitled to a termination fee at all;
-
the buyer group may have interests in the transaction that are different
from, or in addition to, those of the unaffiliated stockholder, see
Special Factors Relating to the MergerInterests of the
Companys
Directors and Officers in the Merger
for additional information;
-
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;
-
the taxability of an all cash transaction to our unaffiliated stockholders
who are U.S. Holders (as defined below under
Material United States
Federal Income Tax Consequences
) for U.S. federal income tax purposes;
-
the possibility of the imposition of PRC or other foreign taxes in
connection with the merger; and
-
the possibility that Parent and Merger Sub may be unable or unwilling to
complete the merger, including if Parent and Merger Sub are unable to obtain
sufficient financing to complete the merger despite their compliance with
their financing obligations set forth in the merger agreement or if Parent and
Merger Sub choose not to complete despite the availability of financing.
The foregoing discussion of information and factors considered
by the special committee and our board of directors is not intended to be
exhaustive, but includes a number of the factors considered by the special
committee and our board of directors. In view of the wide variety of factors
considered by the special committee and our board of directors, neither the
special committee nor our board of directors found it practicable to, and
neither did quantify or otherwise assign relative weights to the foregoing
factors in reaching its conclusion. In addition, individual members of the
special 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 special committee recommended that our board of directors
approve, and our board of directors approved, the merger agreement based upon
the totality of the information presented to and considered by it.
The special committee expressly adopted the analyses and the
opinion of William Blair, among other factors considered, in reaching its
determination as to the fairness of the transactions contemplated by the merger
agreement.
33
In reaching its determination that the merger agreement and the
transactions contemplated thereby, including the merger, are advisable, fair to
and in the best interests to the Company and the unaffiliated stockholders and
its decision to approve the merger agreement and recommend the approval of the
merger agreement by our stockholders, our board of directors considered the
analysis and recommendation of the special committee and the factors examined by
the special committee as described above under the captions
Special Factors
Relating to the MergerPurposes and Reasons of Our Board of Directors and
Special Committee for the Merger
and
Special Factors Relating to the
MergerRecommendation of Our Board of Directors and Special Committee; Reasons
for Recommending the Approval of the Merger Agreement; Fairness of the
Merger
, and adopted such recommendations and analysis. For the foregoing
reasons, our board of directors believes that the merger agreement and the
transactions contemplated thereby are fair to the unaffiliated stockholders.
Our board of directors recommends that you vote FOR
approval of the merger agreement, and FOR the proposal to approve the
adjournment of the special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time of the special
meeting to approve the merger agreement.
Opinion of William Blair, Financial Advisor to the Special
Committee
William Blair was retained to act as financial advisor to the
special committee in connection with the proposed merger. As part of its
engagement, William Blair was asked by the special committee to render an
opinion to the special committee as to whether the per share merger
consideration to be received by the stockholders of the Company (other than the
Excluded Holders) was fair to such stockholders, from a financial point of view. On June 7, 2012,
William Blair rendered its oral opinion to the special committee and
subsequently confirmed in writing, as to the fairness, from a financial point of
view, as of that date and based upon and subject to the assumptions made,
procedures followed, matters considered, and qualifications and limitations on
the review undertaken stated in its opinion, of the per share merger
consideration to be received by the stockholders of the Company (other than the Excluded
Holders), including the unaffiliated stockholders.
William Blair provided its opinion for the information and
assistance of the special committee in connection with its consideration of the
proposed merger. William Blairs opinion was one of many factors taken into
account by the special committee in making its determination to recommend that
our board of directors approve the proposed merger. The terms of the merger
agreement and the amount and form of the consideration to be paid pursuant to
the merger agreement, however, were determined through negotiations between the
special committee and the buyer group and were recommended by the special
committee for approval by the board of directors. William Blair did not
recommend any specific consideration to us, the special committee or the board
of directors or that any specific consideration constituted the only appropriate
consideration for the proposed merger.
The full text of William Blairs
written opinion, dated June 7, 2012, is attached as Annex C to this proxy
statement and incorporated herein by reference. You are urged to read the entire
opinion carefully and in its entirety to learn about the assumptions made,
procedures followed, matters considered and limits on the scope of the review
undertaken by William Blair in rendering its opinion. The analysis performed by
William Blair should be viewed in its entirety; none of the methods of analysis
should be viewed in isolation. William Blairs opinion was directed to the
special committee for its benefit and use in evaluating the fairness of the per
share merger consideration to be received pursuant to the merger agreement and
relates only to the fairness, as of the date of the opinion and from a financial
point of view, of the per share merger consideration to be received by the
stockholders of the Company (other than the Excluded Holders), including the
unaffiliated stockholders in the proposed merger pursuant to the merger
agreement, does not address any other aspects of the proposed merger or any
related transaction, and does not constitute a recommendation to any stockholder
of the Company as to how that stockholder should vote with respect to the merger
agreement or the proposed merger. William Blair did not address the merits of
the underlying decision by the Company to engage in the proposed merger.
In connection with its opinion, William Blair examined or
discussed, among other things:
-
a draft of the merger agreement sent to William Blair on June 6, 2012;
-
certain audited historical financial statements of the Company for the
years ended December 31, 2009 through December 31, 2011;
34
-
the unaudited financial statements of the Company for the three month
periods ended March 31, 2011 and March 31, 2012;
-
certain internal business, operating and financial information and
forecasts of the Company for the fiscal years ending December 31, 2012 through
2016 prepared by the senior management of the Company (the
forecasts
);
-
information regarding publicly available financial terms of certain other
business combinations that William Blair deemed relevant;
-
the financial position and operating results of the Company compared with
those of certain other publicly traded companies that William Blair deemed
relevant;
-
current and historical market prices and trading volumes of the Company
common stock; and
-
certain other publicly available information about the Company and the
industry in which it operates.
William Blair also held discussions with certain members of our
senior management to discuss the foregoing, considered other matters which it
deemed relevant to its inquiry, and took into account those accepted financial
and investment banking procedures and considerations that it deemed relevant.
In rendering its opinion, William Blair assumed and relied,
without independent verification, upon the accuracy and completeness of all the
information examined by or otherwise reviewed or discussed with William Blair
for purposes of the opinion including, without limitation, the forecasts
provided by the senior management of the Company. William Blair did not make or
obtain an independent valuation or appraisal of the assets, liabilities or
solvency of the Company. William Blair was advised by the senior management of
the Company that the forecasts were reasonably prepared on bases reflecting the
best estimates then available to, and judgments of, the senior management of the
Company. In that regard, William Blair assumed, with the consent of the senior
management of the Company, that (a) the forecasts would be achieved in the
amounts and at the times contemplated thereby and (b) all of the material assets
and liabilities (contingent or otherwise) of the Company were as set forth in
the Companys financial statements or other information made available to
William Blair. William Blair expressed no opinion with respect to the forecasts
or the estimates and judgments on which they were based. William Blair assumed,
at the direction of the senior management of the Company, that the final
executed merger agreement would not differ in any material respect from the
draft of the merger agreement William Blair reviewed. William Blair did not
consider and expressed no opinion as to the amount or nature of the compensation
of any of the Companys officers, directors or employees (or any class of such
persons) relative to the per share merger consideration to be received by the
unaffiliated stockholders. William Blair was not asked to consider, and its
opinion did not address, the relative merits of the proposed merger as compared
to any alternative business strategies that might have existed for the Company
or the effect of any other transaction in which the Company might have engaged.
William Blairs opinion was based upon economic, market, financial and other
conditions existing on, and other information disclosed to William Blair, as of
the date of its opinion. Although subsequent developments may affect its
opinion, William Blair does not have any obligation to update, revise or
reaffirm its opinion. William Blair is a financial advisor only and relied upon,
without independent verification, the assessment of the Company and its counsel
and accountants for legal, accounting, tax and regulatory matters and William
Blair expressed no opinion as to any of such advice. William Blair assumed that
the proposed merger would be consummated on the terms described in the merger
agreement, without any amendment, modification or waiver of any material terms
or conditions. As of the date of its opinion, William Blair did not seek
alternative participants for the proposed merger.
William Blairs investment banking services and its opinion
were provided for the use and benefit of the special committee in connection
with its consideration of the proposed merger. William Blairs opinion was
limited to the fairness, from a financial point of view, to the stockholders
of the Company (other than the Excluded Holders), including the unaffiliated
stockholders, of the per share merger consideration to be
received by such stockholders in the proposed merger pursuant to the merger
agreement, and William Blair did not address the merits of the underlying
decision of the special committee to recommend that our board of directors
engage in the proposed merger or of the board of directors to engage in the
proposed merger and its opinion did not constitute a recommendation to the
special committee, the board of directors or any stockholder of the Company as
to how such person should act or vote with respect to the proposed merger.
35
The following is a summary of the material financial analyses
performed and material factors considered by William Blair to arrive at its
opinion. William Blair performed certain procedures, including each of the
financial analyses described below, and reviewed with the special committee the
assumptions upon which such analyses were based, as well as other factors.
Although the summary does not purport to describe all of the analyses performed
or factors considered by William Blair in this regard, it does set forth those
considered by William Blair to be material in arriving at its opinion. The
financial analyses summarized below include information presented in tabular
format. In order to understand fully the financial analyses performed by William
Blair, 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
performed by William Blair. Considering the data set forth in the tables 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 the financial analyses performed by
William Blair. The order of the summaries of the analyses described below does
not represent the relative importance or weight given to those analyses by
William Blair.
The analyses performed by William Blair are based on the
financial results of the Company as reported in its SEC filings for the fiscal
year ended December 31, 2011, the three month periods ended March 31, 2011 and
2012 and the financial projections of the Company for the fiscal years 2012
through 2016.
Selected Public Company Analysis
William Blair reviewed and compared certain financial
information relating to us to corresponding financial information, ratios and
public market multiples for certain publicly traded companies that William Blair
deemed relevant. Among the factors William Blair considered to select these
companies for the group named U.S. Listed Other Companies were exchange on which
the company was trading, whether the company was profitable, whether the company
had publicly available Wall Street analysts estimates, product and service
offering and business model. Among the factors William Blair considered to
select these companies for the group named U.S. Listed Reverse Takeover Chinese
Companies were nationality of its domicile, exchange on which the company was
trading, method with which it achieved its listing, size of market
capitalization under $300 million, size of revenue under $300
million, profitability and publicly available Wall Street analysts estimates.
No companies that met this criteria were excluded. Among the information William
Blair considered was revenue, earnings before interest, taxes, depreciation and
amortization (
EBITDA
), and earnings per share (
EPS
). William
Blair considered the enterprise value as a multiple of revenue and EBITDA for
each company for the latest twelve months (
LTM
) for which results were
publicly available and as a multiple of calendar year revenue and EBITDA
estimates for 2012 and 2013 and the stock price of common equity as a multiple
of EPS for each company for the LTM for which results were publicly available
and as a multiple for the calendar year EPS estimates for 2012 and 2013. The
operating results and the corresponding derived multiples for us and each of the
selected public companies were based on each companys most recent publicly
available financial information, closing share prices as of June 5, 2012 and
consensus Wall Street analysts estimates for calendar years 2012 and 2013, as
well as, for the Company only, the Companys senior managements estimate of
revenue, EBITDA and EPS for 2012 and 2013.
William Blair then used the implied enterprise value to derive
implied valuation multiples for the Company based on revenue, EBITDA and
price/earnings (
P/E
) results, for LTM as of March 31, 2012 and
estimates for fiscal years 2012 and 2013.
William Blair then compared the multiples implied for us based
on the terms of the proposed merger to the range of trading multiples for the
selected public companies. The table below sets forth a summary of relevant
information reviewed by William Blair for conducting its selected public company
analysis. Information for each of the selected public companies was based on
each companys most recent publicly available financial information and closing
share prices as of June 5, 2012.
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
|
Market
|
|
|
Minority
|
|
|
Enterprise
|
|
|
LTM
|
|
|
2012E
|
|
|
2013E
|
|
|
LTM
|
|
|
2012
|
|
|
2013
|
|
|
LTM
|
|
|
2012
|
|
|
2013
|
|
|
|
Price
|
|
|
Value
|
|
|
Interest
|
|
|
Value
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Revenue
|
|
|
EBITDA
|
|
|
EBITDA
|
|
|
EBITDA
|
|
|
EPS
|
|
|
EPS
|
|
|
EPS
|
|
U.S. Listed Other Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AutoNavi Holdings Limited
|
$
|
10.82
|
|
$
|
529.7
|
|
|
($196.1
|
)
|
$
|
333.6
|
|
$
|
137.2
|
|
$
|
157.4
|
|
$
|
186.7
|
|
$
|
44.7
|
|
$
|
54.2
|
|
$
|
66.1
|
|
$
|
0.72
|
|
$
|
0.99
|
|
$
|
1.08
|
|
China Information Technology,
Inc.
|
$
|
0.96
|
|
$
|
25.9
|
|
$
|
49.4
|
|
$
|
75.4
|
|
$
|
103.9
|
|
|
NA
|
|
|
NA
|
|
$
|
10.5
|
|
|
NA
|
|
|
NA
|
|
|
($0.12
|
)
|
|
NA
|
|
|
NA
|
|
Federal Signal Corp.
|
$
|
4.53
|
|
$
|
281.7
|
|
$
|
222.2
|
|
$
|
503.9
|
|
$
|
846.6
|
|
$
|
966.5
|
|
$
|
1,021.1
|
|
$
|
56.7
|
|
$
|
75.0
|
|
$
|
91.1
|
|
$
|
0.09
|
|
$
|
0.36
|
|
$
|
0.47
|
|
Hollysys Automation
Technologies, Ltd
|
$
|
8.23
|
|
$
|
460.9
|
|
|
($89.8
|
)
|
$
|
371.0
|
|
$
|
305.4
|
|
$
|
337.4
|
|
$
|
396.3
|
|
$
|
63.2
|
|
$
|
72.4
|
|
$
|
90.9
|
|
$
|
0.92
|
|
$
|
0.98
|
|
$
|
1.14
|
|
Image Sensing Systems, Inc.
|
$
|
5.17
|
|
$
|
25.4
|
|
|
($8.5
|
)
|
$
|
16.9
|
|
$
|
29.6
|
|
$
|
26.3
|
|
$
|
29.1
|
|
$
|
1.2
|
|
$
|
3.6
|
|
$
|
5.6
|
|
|
($0.44
|
)
|
$
|
0.40
|
|
$
|
0.50
|
|
U.S. Listed Reverse Takeover Chinese
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Recycling Energy Corporation
|
$
|
1.13
|
|
$
|
52.5
|
|
$
|
53.0
|
|
$
|
105.5
|
|
$
|
19.9
|
|
$
|
66.7
|
|
|
NA
|
|
$
|
23.4
|
|
$
|
37.9
|
|
|
NA
|
|
$
|
0.41
|
|
$
|
0.49
|
|
|
NA
|
|
China Shengda Packaging Group
Inc.
|
$
|
0.72
|
|
$
|
27.9
|
|
|
($3.4
|
)
|
$
|
24.6
|
|
$
|
125.5
|
|
|
NA
|
|
|
NA
|
|
$
|
13.1
|
|
|
NA
|
|
|
NA
|
|
$
|
0.20
|
|
|
NA
|
|
|
NA
|
|
China Valves Technology, Inc.
|
$
|
1.34
|
|
$
|
48.4
|
|
|
($2.9
|
)
|
$
|
45.5
|
|
$
|
213.6
|
|
$
|
257.5
|
|
|
NA
|
|
$
|
48.2
|
|
$
|
69.6
|
|
|
NA
|
|
$
|
0.88
|
|
$
|
1.20
|
|
|
NA
|
|
Deer Consumer Products, Inc.
|
$
|
2.81
|
|
$
|
94.4
|
|
|
($15.3
|
)
|
$
|
79.1
|
|
$
|
241.9
|
|
$
|
250.0
|
|
|
NA
|
|
$
|
55.6
|
|
$
|
57.0
|
|
|
NA
|
|
$
|
1.25
|
|
$
|
1.30
|
|
|
NA
|
|
Feihe International, Inc.
|
$
|
4.65
|
|
$
|
91.7
|
|
$
|
105.1
|
|
$
|
196.7
|
|
$
|
288.2
|
|
$
|
253.1
|
|
$
|
309.5
|
|
$
|
21.3
|
|
|
NA
|
|
|
NA
|
|
$
|
0.40
|
|
$
|
1.25
|
|
$
|
1.15
|
|
SORL Auto Parts, Inc.
|
$
|
2.76
|
|
$
|
53.3
|
|
$
|
13.2
|
|
$
|
66.5
|
|
$
|
209.4
|
|
$
|
212.4
|
|
$
|
229.6
|
|
$
|
27.6
|
|
$
|
25.4
|
|
$
|
21.6
|
|
$
|
0.73
|
|
|
NA
|
|
$
|
1.07
|
|
36
Although William Blair compared the trading multiples of the
selected public companies to those implied for the Company, none of the selected
public companies is identical or directly comparable to the Company.
Accordingly, any analysis of the selected publicly traded companies necessarily
involved complex considerations and judgments concerning the differences in
financial and operating characteristics and other factors that would necessarily
affect the analysis of trading multiples of the selected publicly traded
companies. Information regarding the multiples derived from William Blairs
selected public company analysis is set forth in the following table.
|
|
Proposed
|
|
|
Selected
Companies
|
|
|
|
Transaction
|
|
|
Valuation Multiples
|
|
|
|
Multiples
|
|
|
Min
|
|
|
Median
|
|
|
Mean
|
|
|
Max
|
|
Enterprise Value / LTM
Revenue
|
|
0.96x
|
|
|
0.20x
|
|
|
0.60x
|
|
|
1.14x
|
|
|
5.31x
|
|
Enterprise Value / 2012E Revenue
|
|
0.85x
|
|
|
0.18x
|
|
|
0.64x
|
|
|
0.84x
|
|
|
2.12x
|
|
Enterprise Value / 2013E
Revenue
|
|
0.82x
|
|
|
0.29x
|
|
|
0.61x
|
|
|
0.79x
|
|
|
1.79x
|
|
Enterprise Value / LTM EBITDA
|
|
9.5x
|
|
|
0.9x
|
|
|
5.9x
|
|
|
5.8x
|
|
|
14.0x
|
|
Enterprise Value / 2012E
EBITDA
|
|
8.2x
|
|
|
0.7x
|
|
|
3.7x
|
|
|
3.8x
|
|
|
6.7x
|
|
Enterprise Value / 2013E EBITDA
|
|
7.6x
|
|
|
3.0x
|
|
|
4.1x
|
|
|
4.2x
|
|
|
5.5x
|
|
LTM P/E
|
|
11.1x
|
|
|
1.5x
|
|
|
3.7x
|
|
|
6.2x
|
|
|
15.1x
|
|
2012E P/E
|
|
11.3x
|
|
|
1.1x
|
|
|
6.0x
|
|
|
6.8x
|
|
|
12.9x
|
|
2013E P/E
|
|
10.8x
|
|
|
2.6x
|
|
|
8.5x
|
|
|
7.7x
|
|
|
10.3x
|
|
The special committee noted that the implied multiples for the
proposed merger were within or above the range of multiples for the selected
public companies.
Selected Transactions Analysis
William Blair performed an analysis of selected precedent
transactions consisting of transactions announced since January 1, 2005 and
focused primarily on target companies that it deemed relevant. Among the factors
William Blair considered to select these transactions were announcement date
from January 1, 2005, status as completed, the target companys industry, the
enterprise value of the target company under $1 billion, and the target
companys product and service offering.
No transactions that met this criteria were excluded. William
Blair did not take into account any announced transactions that were
subsequently abandoned or otherwise not consummated. William Blairs analysis
was based solely on publicly available information regarding such transactions.
The selected transactions were not intended to be representative of the entire
range of possible transactions in the respective industries. The table below
sets forth a summary of relevant information reviewed by William Blair for its
selected transactions analysis.
Announced
|
|
Target
|
|
|
Bidder
|
|
|
Enterprise
|
|
|
LTM
|
|
|
LTM
|
|
|
EV/LTM
|
|
|
EV/LTM
|
|
|
P/E
|
|
Date
|
|
Company
|
|
|
|
|
|
Value
|
|
|
Revenue
|
|
|
EBITDA
|
|
|
Revenue
|
|
|
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
(in million)
|
|
|
(in million)
|
|
|
|
|
|
|
|
|
|
|
3/14/2012
|
|
China Information
Technology, Inc.
|
|
|
Jiang Huai Lin
|
|
$
|
81.3
|
|
$
|
114.5 $
|
|
|
22.1
|
|
|
0.71x
|
|
|
3.7x
|
|
|
4.1x
|
|
1/28/2011
|
|
China Security & Surveillance Technology
|
|
|
Al Faisal Holding Co.
|
|
$
|
783.7
|
|
$
|
684.7 $
|
|
|
117.1
|
|
|
1.14x
|
|
|
6.7x
|
|
|
6.9x
|
|
1/18/2011
|
|
China ITS (Holdings)
Co., Ltd.
|
|
|
C&C Pacific
Capital Limited
|
|
$
|
949.7
|
|
$
|
282.1 $
|
|
|
59.3
|
|
|
3.37x
|
|
|
16.0x
|
|
|
21.7x
|
|
5/27/2010
|
|
Petards Group PLC
|
|
|
Water Hall Group plc
|
|
$
|
7.8
|
|
$
|
25.8 $
|
|
|
2.7
|
|
|
0.30x
|
|
|
2.9x
|
|
|
3.7x
|
|
5/12/2010
|
|
Cybertech Systems and
Software Ltd.
|
|
|
Viswanath Tadimety
|
|
$
|
5.6
|
|
$
|
11.4 $
|
|
|
1.1
|
|
|
0.50x
|
|
|
4.9x
|
|
|
14.5x
|
|
4/3/2007
|
|
Industronics Bhd
|
|
|
Chan Sing Pong
|
|
$
|
10.0
|
|
$
|
21.2 $
|
|
|
4.1
|
|
|
0.47x
|
|
|
2.5x
|
|
|
16.1x
|
|
12/8/2006
|
|
Stratech Systems Ltd.
|
|
|
Transpac Capital Pte
Ltd.
|
|
$
|
8.1
|
|
$
|
6.5 $
|
|
|
(1.3
|
)
|
|
1.23x
|
|
|
NM
|
|
|
NM
|
|
37
William Blair reviewed the consideration paid in the selected
transactions in terms of the enterprise value of the target as a multiple of its
revenue, EBITDA and P/E for the LTM prior to the announcement of the respective
transaction. William Blair compared the resulting range of transaction multiples
of revenue, EBITDA and P/E for the selected transactions to the implied
transaction multiples of LTM revenue, EBITDA and P/E for us based on the terms
of the proposed merger. Information regarding the manner in which William Blair
derived the implied transaction multiple for the Company and the underlying
financial information used in that analysis is set forth above. Information
regarding the multiples from William Blairs analysis of the selected
transactions is set forth in the following table:
|
|
Proposed
|
|
|
M&A
Transactions
|
|
|
|
Transaction
|
|
|
Valuation Multiples
|
|
Multiple
|
|
Multiples
|
|
|
Min
|
|
|
Median
|
|
|
Mean
|
|
|
Max
|
|
Enterprise Value / LTM
Revenue
|
|
0.96x
|
|
|
0.30x
|
|
|
0.71x
|
|
|
1.10x
|
|
|
3.37x
|
|
Enterprise Value / LTM EBITDA
|
|
9.5x
|
|
|
2.5x
|
|
|
4.3x
|
|
|
6.1x
|
|
|
16.0x
|
|
P/E
|
|
11.1x
|
|
|
3.7x
|
|
|
10.7x
|
|
|
11.2x
|
|
|
21.7x
|
|
Although William Blair analyzed the multiples implied by the
selected transactions and compared them to the implied transaction multiples of
us, none of these transactions or associated companies is identical or directly
comparable to the proposed merger or us. Accordingly, this involved complex
considerations and judgments concerning the differences in financial and
operating characteristics, parties involved and terms of their transactions and
other factors therein.
The special committee noted that the implied multiples for the
proposed merger were within the range of multiples for the selected
transactions.
Discounted Cash Flow Analysis
William Blair utilized the forecasts to perform a discounted
cash flow analysis to estimate the present value as of March 31, 2012 of the
Companys forecasted free cash flows through the fiscal year ending December 31,
2016. For those forecasts, see
Prospective Financial Information
beginning on page 47. William Blair calculated the assumed terminal value of
the enterprise at December 31, 2016 by multiplying projected EBITDA in the
fiscal year ending December 31, 2016 by multiples ranging from 5.0x to 7.0x. As
for the process of selecting the range of 5.0x to 7.0x, William Blair
(i) calculated the average EBITDA multiple by using the multiple derived from its
selected precedent transactions, which is 6.1x, and (ii) eliminated outliers
and the effects of different market conditions, William Blair selected a range
of implied EBITDA multiples of 5.0x to 7.0x based on its professional judgment.
To discount the projected free cash flows and assumed terminal
value to present value, William Blair used discount rates ranging from 19% to
25%. The discount rates were selected by William Blair based on the weighted
average cost of capital for the public companies used in the Selected Public
Company Analysis described above. To determine the range of fully diluted
implied equity value per share for us, William Blair subtracted net debt as of
March 31, 2012. William Blair then divided this result by the total Shares
outstanding and in-the-money options as of June 6, 2012, which were
approximately 25.6 million Shares. The fully diluted equity value implied by the discounted cash flow analysis ranged from $1.57 per Share to
$3.01 per Share, based on a range of terminal values derived by multiples of
EBITDA, as compared to the per share merger consideration in the proposed
merger.
38
|
|
Exit Multiple
|
|
Discount Rate
|
|
5.0x
|
|
|
6.0x
|
|
|
7.0x
|
|
19.0%
|
$
|
2.04
|
|
$
|
2.52
|
|
$
|
3.01
|
|
20.5%
|
$
|
1.91
|
|
$
|
2.36
|
|
$
|
2.82
|
|
22.0%
|
$
|
1.79
|
|
$
|
2.21
|
|
$
|
2.64
|
|
23.5%
|
$
|
1.67
|
|
$
|
2.08
|
|
$
|
2.48
|
|
25.0%
|
$
|
1.57
|
|
$
|
1.95
|
|
$
|
2.33
|
|
The special committee believed the
value derived by this analysis reflected the Companys stand alone value on a
going-forward basis and noted that the per share merger consideration in the
proposed merger exceeded the per share price range of the fully diluted equity
value derived by this analysis.
Leveraged Buyout Analysis
Based on the forecasts provided by the senior management of the
Company for fiscal years 2012 through 2016, William Blair performed a leveraged
acquisition analysis to determine, based on the Companys ability to service a
given level of debt using its projected future earnings stream and corresponding
cash flows, an estimate of a theoretical purchase price that could be paid by a
hypothetical financial sponsor in an acquisition of the Company, assuming such
transaction was financed on customary market terms and assuming that such
financial buyer will seek to realize a return on its investment in 2016. For
those forecasts, see
Prospective Financial Information
beginning on
page 47. Estimated exit values were calculated by applying a range of exit
value multiples from 5.0x to 7.0x of 2016 estimated EBITDA, which exit value
multiples were determined based on an approximate range around the average
enterprise value to LTM EBITDA multiple derived for the transactions used in the
Selected Transactions Analysis described above. William Blair then derived a
range of theoretical purchase prices based on assumed required internal rates of
return for a buyer between 20% and 30%, which range of percentages was, in
William Blairs professional judgment, generally reflective of the range of
required internal rates of return commonly assumed when performing a leveraged
acquisition analysis of this type. This analysis indicated an implied per share
equity reference range of $2.42 to $3.60 as compared to the per share merger
consideration of $5.80.
The special committee noted that the per share merger
consideration was above the per share equity reference range implied by the
leveraged acquisition analysis.
Premiums Paid Analysis
William Blair reviewed data from 541 acquisitions of publicly
traded companies, in which 100% of the targets equity was acquired for cash,
announced between January 1, 2006 and June 6, 2012 and with transaction values
between $100 million and $500 million. William Blair selected
transaction values between $100 million and $500 million as relevant because William Blair
multiplied the proposed per share offer price of $5.80 by the approximately 25
million shares outstanding to arrive at a value of approximately $150 million
for the proposed merger. William Blair did not exclude any transactions
from this range. Specifically, William Blair analyzed the acquisition price per
share as a premium to the closing share price one day, one month, 90 days, 180
days and 270 days prior to the announcement of the transaction, for all 541
transactions. William Blair compared the range of resulting per Share stock
price premiums for the reviewed transactions to the premiums implied by the
proposed merger based on our Share prices one day, one month, 90 days, 180 days
and 270 days prior to February 21, 2012. Information regarding the premiums from
William Blairs analysis of selected transactions is set forth in the following
table:
|
|
|
|
|
|
Implied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
|
|
|
|
|
|
Company
|
|
|
|
|
Period
|
|
|
Company
|
|
|
Premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
Share
|
|
|
at $5.80 /
|
|
|
Premiums Paid Percentage Data by
Percentile
|
|
Announcement
|
|
|
Price
|
|
|
Share
|
|
|
10
th
|
|
|
20
th
|
|
|
30
th
|
|
|
40
th
|
|
|
50
th
|
|
|
60
th
|
|
|
70
th
|
|
|
80
th
|
|
|
90
th
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Day Prior
|
|
$
|
5.15
|
|
|
12.6%
|
|
|
4.3%
|
|
|
10.4%
|
|
|
15.4%
|
|
|
21.2%
|
|
|
27.6%
|
|
|
32.5%
|
|
|
39.0%
|
|
|
54.2%
|
|
|
74.7%
|
|
One Month Prior
|
|
$
|
4.71
|
|
|
23.1%
|
|
|
6.9%
|
|
|
16.5%
|
|
|
22.5%
|
|
|
28.9%
|
|
|
34.5%
|
|
|
40.4%
|
|
|
47.6%
|
|
|
59.7%
|
|
|
81.9%
|
|
90 Days Prior
|
|
$
|
3.41
|
|
|
70.1%
|
|
|
7.4%
|
|
|
20.0%
|
|
|
25.1%
|
|
|
33.8%
|
|
|
45.1%
|
|
|
52.9%
|
|
|
60.9%
|
|
|
78.7%
|
|
|
112.9%
|
|
180 Days Prior
|
|
$
|
3.00
|
|
|
93.3%
|
|
|
4.8%
|
|
|
19.7%
|
|
|
23.6%
|
|
|
34.8%
|
|
|
49.7%
|
|
|
62.7%
|
|
|
74.8%
|
|
|
92.2%
|
|
|
138.0%
|
|
270 Days Prior
|
|
$
|
4.50
|
|
|
28.9%
|
|
|
3.9%
|
|
|
16.0%
|
|
|
26.1%
|
|
|
32.9%
|
|
|
42.6%
|
|
|
52.4%
|
|
|
67.0%
|
|
|
99.6%
|
|
|
148.9%
|
|
39
The special committee noted that the premiums implied by the
transaction exceeded the 20th percentile one day prior to the announcement,
exceeded the 30th percentile one month prior to the announcement, exceeded the
70th percentile 90 days prior to the announcement, exceeded the 80th percentile
180 days prior to the announcement, and exceeded the 30th percentile 270 days
prior to the announcement.
General
This summary is not a complete description of the analysis
performed by William Blair but contains the material elements of the analysis.
The preparation of an opinion regarding fairness is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances, and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. The preparation of an opinion regarding
fairness does not involve a mathematical evaluation or weighing of the results
of the individual analyses performed, but requires William Blair to exercise its
professional judgment, based on its experience and expertise, in considering a
wide variety of analyses taken as a whole. Each of the analyses conducted by
William Blair was carried out in order to provide a different perspective on the
financial terms of the proposed merger and add to the total mix of information
available. The analyses were prepared solely for the purpose of William Blair
providing its opinion and do not purport to be appraisals or necessarily reflect
the prices at which securities actually may be sold. William Blair did not form
a conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion about the fairness of the per share
merger consideration to be received by the stockholders of the Company (other
than the Excluded Holders). Rather, in
rendering its oral opinion (subsequently confirmed in writing) on June 7, 2012
to the special committee as of that date and based upon and subject to the
assumptions, qualifications and limitations stated in its written opinion, as to
the fairness, from a financial point of view, to the stockholders of the Company (other than
the Excluded Holders) of the per share merger consideration to be received by such
stockholders, William Blair considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of all
analyses taken as a whole. William Blair did not place particular reliance or
weight on any particular analysis, but instead concluded that its analyses,
taken as a whole, supported its determination. Accordingly, notwithstanding the
separate factors summarized above, William Blair believes that its analyses must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, may
create an incomplete view of the evaluation process underlying its opinion. No
company or transaction used in the above analyses as a comparison is identical
or directly comparable to the Company or the proposed merger. In performing its
analyses, William Blair made numerous assumptions with respect to industry
performance, business and economic conditions and other matters. The analyses
performed by William Blair are not necessarily indicative of future actual
values and future results, which may be significantly more or less favorable
than suggested by such analyses.
William Blair is an internationally recognized firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with merger transactions and
other types of strategic combinations and acquisitions. Furthermore, in the
ordinary course of business, William Blair and its affiliates may beneficially
own or actively trade the Companys securities for its own account and for the
accounts of customers, and, accordingly, may at any time hold a long or short
position in such securities.
The special committee hired William Blair based on its
qualifications and expertise in providing financial advice to companies and its
reputation as an internationally recognized investment banking firm. Pursuant to
a letter agreement dated March 13, 2012, a fee of $50,000 was paid to William
Blair upon execution of that letter agreement, a fee of $650,000 became payable
to William Blair upon delivery of its opinion, and a fee of $100,000 is payable
to William Blair upon stockholders approval of the merger. In addition, we have
agreed to reimburse William Blair for certain of its out-of-pocket expenses
(including fees and expenses of its counsel) reasonably incurred by it in
connection with its services and will indemnify William Blair against potential
liabilities arising out of its engagement, including certain liabilities under
the U.S. federal securities laws.
40
Purposes and Reasons of the Buyer Group for the Merger
Under SEC rules governing going-private transactions, each
member of the buyer group are deemed to be an affiliate of the Company and
required to express its reasons for the merger to the unaffiliated stockholders.
Each member of the buyer group is making the statements included in this section
solely for the purpose of complying with the requirements of Rule 13e-3 and
related rules under the Exchange Act. For the buyer group, the purpose of the
merger is to enable Parent to acquire control of the Company, in a transaction
in which the unaffiliated stockholders will receive $5.80 per share of Company
common stock. After shares of Company common stock cease to be publicly traded,
Parent will bear 100% of the rewards and risks of ownership of the Company. In
addition, the merger will allow the buyer group to maintain their investment in
the Company through their respective equity investments in Parent as described
in this proxy statement under the section captioned
Special Factors Relating
to the MergerFinancing of the MergerRollover Financing
, and at the same
time enable Mr. Xia to maintain a leadership role with the surviving
corporation.
The buyer group believes that, after the Company becomes a
privately-held entity, the Companys management will have greater flexibility to
focus on improving the Companys long-term profitability without the constraints
caused by the public equity markets valuation of the Company and emphasis on
short-term period-to-period performance. As a privately-held entity, the Company
will have greater flexibility to make decisions that might negatively affect
short-term results but that could increase the Companys value over the long
term. In contrast, as a publicly-traded entity, the Company faces pressure from
public stockholders and investment analysts to make decisions that might produce
improved short-term results, but which are not necessarily beneficial in the
long term.
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 the
concerns of the unaffiliated stockholders and to engage in dialogue with the
unaffiliated stockholders can also at times distract managements time and
attention from the effective operation and improvement of the business. See
Special Factors Relating to the MergerPurposes and Reasons of Our Board of
Directors and Special Committee for the Merger
and
Special Factors
Relating to the MergerRecommendation of Our Board of Directors and Special
Committee; Reasons for Recommending the Approval of the Merger Agreement;
Fairness of the Merger
.
The buyer group decided to undertake the going-private
transaction at this time because it wants to take advantage of the benefits of
the Company being a privately-held company as described above and because Holdco
and Parent were able to obtain debt and equity financing commitment from CDB,
Mr. Xia and SAIF IV, in each case on terms satisfactory to the buyer group.
Positions of the Buyer Group Regarding the Fairness of the
Merger
Under SEC rules governing going-private transactions, each
member of the buyer group are deemed to be an affiliate of the Company and
required to express its beliefs as to the fairness of the proposed merger to the
unaffiliated stockholders. The buyer group is making the statements included in
this section solely for the purposes of complying with the requirements of Rule
13e-3 and related rules under the Exchange Act. The views of the buyer group as
to the fairness of the proposed merger are not intended and should not be
construed as a recommendation to any stockholder of the Company as to how to
vote on the proposal to approve the merger agreement. The buyer group has
interests in the merger that are different from those of the other stockholders
of the Company by virtue of their continuing interests in the surviving company
after the consummation of the merger. These interests are described under
Special Factors Relating to the MergerInterests of the Company's Directors
and Officers in the Merger
of this proxy statement.
The buyer group believes the interests of the unaffiliated
stockholders were represented by the special committee, which negotiated the
terms and conditions of the merger agreement with the assistance of its independent legal and financial advisors. The buyer group
attempted to negotiate a transaction that would be most favorable to them, and
not to the unaffiliated stockholders and, accordingly, did not negotiate the
merger agreement with a goal of obtaining terms that were substantively and
procedurally fair to such unaffiliated stockholders. The buyer group did not
participate in the deliberations of the special committee regarding, and did not
receive any advice from the special committees independent legal or financial
advisors as to, the fairness of the proposed merger to the unaffiliated
stockholders. The buyer group did not perform, or engage a financial advisor to
perform, any independent valuation or other analysis for the buyer group to
assist them in assessing the substantive and procedural fairness of the proposed
merger to the unaffiliated stockholders.
41
Based on their knowledge and analysis of available information
regarding the Company, as well as discussions with the Companys senior
management regarding the Company and its business and the factors considered by,
and findings of, the special committee and the Companys board of directors
discussed in
Special Factors Relating to the MergerPurposes and Reasons of
Our Board of Directors and Special Committee for the Merger
and
Special
Factors Relating to the MergerRecommendation of Our Board of Directors and
Special Committee; Reasons for Recommending the Approval of the Merger
Agreement; Fairness of the Merger
of this proxy statement (which
considerations and findings are adopted by the buyer group solely for the
purposes of making the statements in this section), the buyer group believes the
proposed merger is substantively fair to the unaffiliated stockholders based
upon the following factors:
-
the current and historical market prices of the Company common stock,
including the fact that the per share merger consideration to be paid to the
unaffiliated stockholders represents a 12.6% premium to the closing price of
shares of Company common stock on February 17, 2012, the last trading day
prior to the Companys announcement on February 21, 2012 of the Companys
receipt of Mr. Xias going- private proposal and the fact that the per share
merger consideration to be paid to the unaffiliated stockholders in the merger
also represents a 52.6% premium over the 90-trading day volume weighted
average price as of February 17, 2012, the last trading day prior to the
Companys announcement on February 21, 2012 of the Companys receipt of Mr.
Xias going-private proposal;
-
the Company common stock traded as high as $5.20 per share and as low as
$2.07 per share during the 52-week period prior to the announcement of the
execution of the merger agreement;
-
the merger consideration of $5.80 per share is payable entirely in cash,
thus allowing the unaffiliated stockholders to realize liquidity and a
determined value for their investment;
-
the members of the special committee are not officers or employees of the
Company and do not have any interests in the proposed merger different from,
or in addition to, those of the unaffiliated stockholders, other than the
members receipt of board and special committee compensation (which are not
contingent upon the consummation of the proposed merger or the special
committees or the boards recommendation of the proposed merger) and their
indemnification and liability insurance rights under the merger agreement;
42
-
the special committee and, based in part upon the unanimous recommendation
of the special committee, the Companys board of directors unanimously
determined that the merger agreement and the transactions contemplated by the
merger agreement, including the proposed merger, are advisable, fair to and in
the best interests of the Company and the unaffiliated stockholders;
-
the proposed merger is not conditioned on any financing being obtained by
Parent or Merger Sub, thus increasing the likelihood that the proposed merger
will be consummated and the merger consideration will be paid to the
unaffiliated stockholders;
-
Parent has entered into a facility agreement with CDB, pursuant to which
CDB has agreed to provide debt financing, on the terms and conditions set
forth in the facility agreement, in an aggregate amount up to $96 million, to
fund the merger and pay certain fees and expenses contemplated by the facility
agreement and the merger agreement;
-
SAIF IV has entered into an equity commitment letter pursuant to which it
will purchase or cause certain funds and/or entities that it manages or
advises to purchase preference shares of Holdco, on terms and conditions set
forth in the equity commitment letter, for an aggregate amount of $11,552,446,
which will be used to fund the merger and pay certain fees and expenses
contemplated by the merger agreement;
-
Mr. Xia has entered into an equity commitment letter pursuant to which he
will purchase or cause one of his affiliates to purchase ordinary shares of
Holdco, on terms and conditions set forth in the equity commitment letter, for
an aggregate amount of $26,955,708, which will be used to fund the merger and
pay certain fees and expenses contemplated by the merger agreement;
-
Mr. Xia has agreed to guarantee 70%, and SAIF IV has agreed to guarantee
30%, of the obligations of Parent under the merger agreement to pay, under
certain circumstances, a termination fee to the Company and reimburse certain
expenses of the Company; and
-
the proposed merger will provide liquidity for the unaffiliated
stockholders without incurring brokerage and other costs typically associated
with market sales.
The buyer group did not consider the Companys net book value,
which is defined as total assets minus total liabilities, as a factor. The buyer
group believes that net book value, which is an accounting concept based on
historical costs, is not a material indicator of the value of the Company as a
going concern because it does not take into account the future prospects of the
Company, market conditions, trends in the industry in which the Company conducts
its business or the business risks inherent in competing with other companies in
the same industry.
The buyer group did not consider the Companys liquidation
value to be a relevant valuation method because they consider the Company to be
a viable, going concern and because the Company will continue to operate its
business following the merger.
The buyer group did not establish, and did not consider, a
going concern value for the Company common stock as a public company to
determine the fairness of the proposed merger consideration to the unaffiliated
stockholders. However, to the extent the pre-merger going concern value was
reflected in the pre-announcement price of the Company common stock, the merger
consideration of $5.80 per share represented a premium to the per share going
concern value of the Company.
The buyer group is not aware of, and thus did not consider in
its fairness determination, any offers or proposals made by any unaffiliated
third parties with respect to a merger or consolidation of the Company with or
into another company, a sale of all or a substantial part of the Companys
assets, or the purchase of the Company voting securities that would enable the
holder to exercise control over the Company.
The buyer group did not receive any independent reports,
opinions or appraisals from any outside party related to the proposed merger,
and thus did not consider any such reports, opinions or appraisals in
determining the substantive and procedural fairness of the merger to the
unaffiliated stockholders.
43
The buyer group believes the proposed merger is procedurally
fair to the unaffiliated stockholders based upon the following factors:
-
the special committee, consisting entirely of directors who are not
officers or employees of the Company and who are not affiliated with the buyer
group, was established and given absolute authority to, among other things,
review, evaluate and negotiate the terms of the proposed merger and to decide
not to engage in the merger;
-
the members of the special committee do not have any interests in the
proposed merger different from, or in addition to, those of the unaffiliated
stockholders, other than the members receipt of board and special committee
compensation (which are not contingent upon the consummation of the proposed
merger or special committees or boards recommendation of the proposed
merger) and their indemnification and liability insurance rights under the
merger agreement;
-
while each of Mr. Xia, Ms. Danxia Huang and Mr. Brandon Ho-Ping Lin is a
director, officer or employee of the Company, because of their participation
in the transaction as described under the section captioned
Special
Factors Relating to the MergerInterests of the Companys Directors and
Officers in the Merger
, neither of them served on the special
committee, nor did any of the buyer group participate or have any influence
over the deliberative process of, or the conclusions reached by, the special
committee or the negotiating positions of the special committee;
-
the special committee retained and was advised by its independent legal
and financial advisors who are experienced in advising committees such as the
special committee in similar transactions;
-
the special committee and the Companys board of directors had no
obligation to recommend the approval of the merger agreement and the
transactions contemplated thereby, including the merger, or any other
transaction;
-
the merger was unanimously approved by the special committee;
-
the merger consideration and other terms and conditions of the merger
agreement were the result of extensive negotiations over an extended period of
time between Mr. Xia, Parent, Merger Sub and their legal and financial
advisors, on the one hand, and the special committee and its legal and
financial advisors, on the other hand;
-
in addition to the statutory stockholder approval requirement under Nevada
law, approval of the merger agreement is subject to the approval of a majority
of holders of shares of Company common stock (excluding the Rollover Holders),
giving such unaffiliated stockholders a meaningful opportunity to consider and
vote upon the approval of the merger agreement;
-
the special committee negotiated a 40-day go-shop period;
-
the special committee received from its financial advisor an opinion,
dated June 7, 2012, as to the fairness, from a financial point of view, to the
unaffiliated stockholders of the per share merger consideration of $5.80 to be
received by those stockholders in the proposed merger, as of June 7, 2012,
based upon and subject to the assumptions made, procedures followed, matters
considered, and qualifications and limitations on the review undertaken by
William Blair in preparing its opinion;
-
under the terms of the merger agreement, in certain circumstances prior to
obtaining the requisite stockholder approvals of the merger, the Company is
permitted to provide information to and participate in discussions or
negotiations with persons making takeover proposals and the board of directors
of the Company is permitted to withdraw or modify its recommendation of the
merger agreement; and
44
The foregoing discussion of the information and factors
considered and given weight by the buyer group in connection with their
evaluation of the substantive and procedural fairness to the unaffiliated
stockholders of the merger agreement and the transactions contemplated by the
merger agreement, including the proposed merger, is not intended to be
exhaustive, but is believed by the buyer group to include all material factors
considered by them. The buyer group did not find it practicable to and did not
quantify or otherwise attach relative weights to the foregoing factors in
reaching their position as to the substantive and procedural fairness of the
merger agreement and the proposed merger to the unaffiliated stockholders.
Rather, the buyer group made the fairness determinations after considering all
of the foregoing as a whole. In addition, the buyer group considered and
recognized the negative factors considered by the special committee and the
board of directors described under
Special Factors Relating to the Merger
Recommendation of Our Board of Directors and Special Committee; Reasons for
Recommending the Approval of the Merger Agreement; Fairness of the Merger
,
the consideration of which is adopted by the buyer group.
The buyer group believes these factors provide a reasonable
basis for its belief that the proposed merger is both substantively and
procedurally fair to the unaffiliated stockholders. This belief, however, is not
intended to be and should not be construed as a recommendation by the buyer
group to any stockholder of the Company as to how such stockholder should vote
with respect to the approval of the merger agreement.
Certain Effects of the Merger
If the merger is completed, all of our equity interests will be
owned by Parent. Except for the Rollover Holders, none of our current
stockholders will have any ownership interest in, or be a stockholder of, the
Company after the completion of the merger. As a result, our unaffiliated
stockholders will no longer benefit from any increase in our value, nor will
they bear the risk of any decrease in our value. Following the merger, Parent
will benefit from any increase in our value and also will bear the risk of any
decrease in our value.
Each share of Company common stock issued and outstanding
immediately prior to the effective time of the merger (other than shares held by
the Company as treasury stock or owned, directly or indirectly, by Parent,
Merger Sub or any wholly owned subsidiary of the Company immediately prior to
the effective time of the merger, including the Rollover Shares) will be
converted into the right to receive per share merger consideration, without
interest.
Each outstanding, vested and unexercised option to purchase
shares of Company common stock will be cancelled and converted into the right to
receive, as soon as reasonably practicable after the effective time of the
merger, a cash amount equal to the number of shares underlying such option
immediately prior to the effective time of the merger multiplied by the amount
by which $5.80 exceeds the exercise price per share of such option, net of any
applicable withholding taxes.
Each outstanding and unvested option to purchase shares of
Company common stock will be cancelled and converted into the right to receive,
as soon as reasonably practicable after the effective time of the merger, a
restricted cash award in an amount equal to the number of shares underlying such
option immediately prior to the effective time of the merger multiplied the
amount by which $5.80 exceeds the exercise price per share of such option.
Each outstanding and unexercised warrant to purchase shares of
Company common stock will be cancelled and converted into the right to receive,
as soon as reasonably practicable after the effective time of the merger, a cash
amount equal to the total number of shares underlying such warrant immediately
prior to the effective time of the merger multiplied by the amount by which
$5.80 exceeds the exercise price per share of such warrant.
Following the merger, shares of Company common stock will no
longer be traded on the NASDAQ Global Market or any other public market. Our
common stock is registered as a class of equity security under the Exchange Act.
Registration of our common stock under the Exchange Act may be terminated upon
the Companys application to the SEC if our common stock is not listed on a
national securities exchange. Termination of registration of our common stock
under the Exchange Act will substantially reduce the information required to be
furnished by the Company to our stockholders and the SEC, and would make certain
provisions of the Exchange Act, such as the short-swing trading provisions of
Section 16(b) of the Exchange Act and the requirement of furnishing a proxy statement in connection with stockholders meetings pursuant to
Section 14(a) of the Exchange Act, no longer applicable to the Company.
45
The buyer group expects that following completion of the
merger, our operations will be conducted substantially the same as they are
currently being conducted. However, following completion of the merger, the
Company will have significantly more debt than it currently has. The buyer group
has informed us that it has no current plans or proposals or negotiations which
relate to or would result in an extraordinary corporate transaction involving
our corporate structure, business or management, such as a merger,
reorganization, liquidation, relocation of any operations, or sale or transfer
of a material amount of assets except as described in this proxy statement. The
buyer group may initiate from time to time reviews of the Company and our
assets, corporate structure, capitalization, operations, properties, management
and personnel to determine what changes, if any, would be desirable following
the merger. The buyer group expressly reserves the right to make any changes
that it deems necessary or appropriate in the light of its review or in the
light of future developments.
Following consummation of the merger, Parent will directly or
indirectly own 100% of our outstanding common stock and will have a
corresponding interest in our net book value and net earnings. The table below
sets forth the direct and indirect beneficial interest in our net book value and
net earnings for each of the Rollover Holders and SAIF IV before and after the
merger in proportion to each such partys direct and indirect beneficial
ownership in the Company before and after the merger, based on our net income
for the fiscal year ended December 31, 2011 of approximately $14.0 million and
our net book value as of December 31, 2011 of approximately $149.9 million.
All dollar figures in the chart immediately below are in the
thousands and rounded to the nearest dollar amount.
|
|
Ownership of the
Company
|
|
|
Ownership of the
Company
|
|
|
|
Prior to the Merger
|
|
|
After the Merger
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the
|
|
|
Net book
|
|
|
|
|
|
Net earnings
|
|
|
|
Net book
|
|
|
|
|
|
fiscal year
|
|
|
value as
|
|
|
|
|
|
for the fiscal
|
|
|
|
value as of
|
|
|
|
|
|
ended
|
|
|
of
|
|
|
|
|
|
year ended
|
|
|
|
December
|
|
|
%
|
|
|
December
|
|
|
December
|
|
|
%
|
|
|
December 31,
|
|
|
|
31, 2011
|
|
|
Ownership
|
|
|
31, 2011
|
|
|
31, 2011
|
|
|
Ownership
|
|
|
2011
|
|
Shudong Xia
(1)
|
$
|
41,744
|
|
|
27.85%
|
|
$
|
3,889
|
|
$
|
96,895
|
|
|
64.64%
|
|
$
|
9,028
|
|
Karmen
|
$
|
35,623
|
|
|
23.76%
|
|
$
|
3,319
|
|
$
|
47,788
|
|
|
31.88%
|
|
$
|
4,453
|
|
SAIF III
|
$
|
24,625
|
|
|
16.43%
|
|
$
|
2,294
|
|
$
|
33,033
|
|
|
22.04%
|
|
$
|
3,078
|
|
Danxia Huang
|
$
|
3,025
|
|
|
2.02%
|
|
$
|
282
|
|
$
|
4,058
|
|
|
2.71%
|
|
$
|
378
|
|
Shufeng Xia
|
$
|
2,966
|
|
|
1.98%
|
|
$
|
276
|
|
$
|
3,979
|
|
|
2.65%
|
|
$
|
371
|
|
SAIF IV
|
$
|
0
|
|
|
0.00%
|
|
$
|
0
|
|
$
|
11,937
|
|
|
7.96%
|
|
$
|
1,112
|
|
(1)
The beneficial ownership of Mr. Xia disclosed
above reflects the shares of the Company directly owned by Karmen, which is
wholly owned by East Action Investment Holdings Ltd. of which Mr. Xia is the
sole shareholder.
Effects on the Company if Merger is not Completed
If our stockholders do not approve the merger agreement or if
the merger is not completed for any other reason, our stockholders will not
receive any payment for their shares of Company common stock provided by the
merger agreement. Instead, unless the Company is sold to a third party, we will
remain an independent publicly traded company, the management expects to operate
the business in a manner similar to that in which it is being operated today,
and our stockholders will continue to be subject to similar risks and
opportunities as they currently are with respect to their ownership of our
common stock. If the merger is not completed, there is no assurance as to the
effect of these risks and opportunities on the future value of your shares of
Company common stock, including the risk that the market price of our common
stock may decline to the extent that the current market price of our stock
reflects a market assumption that the merger will be completed. From time to
time, the board of directors of the Company will evaluate and review the
business operations, properties and capitalization of the Company and, among
other things, make such changes as are deemed appropriate and continue to seek
to maximize stockholder value. If our stockholders do not approve the merger agreement
or the merger is not completed for any other reason, there is no assurance that
any other transaction acceptable to the Company will be offered or that the
business, prospects or results of operations of the Company will not be
adversely impacted. Pursuant to the merger agreement, under certain
circumstances the Company is permitted to terminate the merger agreement and
recommend an alternative transaction. Also under other circumstances, if the
merger is not completed, the Company may be obligated to pay to Parent a
termination fee and reimburse certain of Parents expenses. See
The Merger
AgreementTermination Fees and Reimbursement of Expenses
for additional
information.
46
Plans for the Company
After the effective time of the merger, Parent anticipates that
the Company will continue its current operations, except that it will (i) cease
to be an independent publicly traded company and will instead be a wholly owned
subsidiary of Parent and (ii) have substantially more debt than it currently
has. There are no current plans to repay the debt taken out to finance the
merger. After the effective time of the merger, the directors of Merger Sub
immediately prior to the effective time of the merger will become the directors
of the Company, and the officers of the Company immediately prior to the
effective time of the merger will remain the officers of the Company, in each
case until the earlier of their resignation or removal or until their respective
successors are duly elected or appointed and qualified, as the case may be.
Prospective Financial Information
The Companys management does not, as a matter of course, make
available to the public future financial projections. However, in connection
with the financial analysis of the proposed merger, our management provided the
following financial projections for fiscal years 2012 through 2016 to William
Blair and provided the buyer group a copy of these projections in connection
with their due diligence of the Company. No member of the buyer group assisted
in preparing these projections. The projections were last updated by management
on March 26, 2012.
The information below is included solely to give stockholders
access to the information that was made available to William Blair and the buyer
group and is not included in this proxy statement in order to influence any
stockholder to make any investment decision with respect to the merger.
2012-2016 Projection
|
|
Projected
Consolidated Financial data
|
|
|
|
(provided on
March 26, 2012)
|
|
|
|
2012E
|
|
|
2013E
|
|
|
2014E
|
|
|
2015E
|
|
|
2016E
|
|
|
|
(amounts in
millions)
|
|
Revenue
|
$
|
179.4
|
|
$
|
186.3
|
|
$
|
196.5
|
|
$
|
198.6
|
|
$
|
208.6
|
|
Cost of revenue
|
$
|
134.3
|
|
$
|
139.0
|
|
$
|
145.6
|
|
$
|
145.1
|
|
$
|
150.8
|
|
Gross profit
|
$
|
45.1
|
|
$
|
47.3
|
|
$
|
50.9
|
|
$
|
53.5
|
|
$
|
57.8
|
|
Operating expense
|
$
|
29.7
|
|
$
|
31.0
|
|
$
|
32.3
|
|
$
|
32.7
|
|
$
|
34.6
|
|
Income from operations
|
$
|
15.5
|
|
$
|
16.3
|
|
$
|
18.6
|
|
$
|
20.8
|
|
$
|
23.2
|
|
Other income ( expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on equity investments
|
$
|
2.6
|
|
$
|
2.6
|
|
$
|
2.6
|
|
$
|
2.6
|
|
$
|
2.6
|
|
Subsidy Income
|
$
|
2.7
|
|
$
|
2.9
|
|
$
|
2.9
|
|
$
|
2.9
|
|
$
|
2.9
|
|
Other Expenses (Income)
|
$
|
0.5
|
|
$
|
0.5
|
|
$
|
0.5
|
|
$
|
0.6
|
|
$
|
0.6
|
|
Income before MI
|
$
|
20.2
|
|
$
|
21.3
|
|
$
|
23.5
|
|
$
|
25.7
|
|
$
|
28.1
|
|
Income Taxes
|
$
|
2.6
|
|
$
|
2.6
|
|
$
|
2.7
|
|
$
|
2.9
|
|
$
|
3.2
|
|
Net Income including MI
|
$
|
17.6
|
|
$
|
18.7
|
|
$
|
20.8
|
|
$
|
22.8
|
|
$
|
24.9
|
|
Minority Interest
|
$
|
4.5
|
|
$
|
4.9
|
|
$
|
6.0
|
|
$
|
7.1
|
|
$
|
8.1
|
|
Net Income
|
$
|
13.1
|
|
$
|
13.7
|
|
$
|
14.9
|
|
$
|
15.7
|
|
$
|
16.8
|
|
EBITDA
|
$
|
18.7
|
|
$
|
20.0
|
|
$
|
22.6
|
|
$
|
25.2
|
|
$
|
28.1
|
|
Unlevered Free Cash
Flow
(1)
|
$
|
2.5
|
|
$
|
(5.1
|
)
|
$
|
(3.8
|
)
|
$
|
(1.7
|
)
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Working Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
$
|
39.9
|
|
$
|
42.7
|
|
$
|
45.4
|
|
$
|
47.9
|
|
$
|
50.4
|
|
Inventory
|
$
|
10.8
|
|
$
|
15.3
|
|
$
|
19.7
|
|
$
|
23.8
|
|
$
|
27.7
|
|
Cost and estimated earnings in excess of billings on
uncompleted contracts
|
$
|
47.3
|
|
$
|
50.1
|
|
$
|
53.9
|
|
$
|
56.6
|
|
$
|
59.4
|
|
Other receivables
|
$
|
18.0
|
|
$
|
20.3
|
|
$
|
22.5
|
|
$
|
24.6
|
|
$
|
26.5
|
|
Total Current Assets
|
$
|
116.0
|
|
$
|
128.5
|
|
$
|
141.5
|
|
$
|
152.9
|
|
$
|
164.0
|
|
Accounts payable
|
$
|
25.4
|
|
$
|
21.9
|
|
$
|
18.4
|
|
$
|
14.9
|
|
$
|
11.4
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
$
|
14.1
|
|
$
|
14.9
|
|
$
|
16.0
|
|
$
|
16.8
|
|
$
|
17.7
|
|
Total Current Liabilities
|
$
|
39.4
|
|
$
|
36.8
|
|
$
|
34.4
|
|
$
|
31.8
|
|
$
|
29.1
|
|
Net Working Capital As Projected
|
$
|
76.6
|
|
$
|
91.7
|
|
$
|
107.0
|
|
$
|
121.2
|
|
$
|
134.9
|
|
47
(1) Unlevered Free Cash Flow refers to EBITDA less taxes and
capital expenditures and plus or minus changes in working capital.
The main assumptions underlying the financial projections
include:
-
the Chinese economy will slow down in the next few years;
-
the economy slowdown is likely to add pressure on the liquidity of many
project owners. As a result, payment terms of projects will become longer,
which will increase the Companys accounts receivables;
-
the Company will undertake more projects which will require it to bear all
the construction cost until project completion. It will increase the line
Cost and estimated earnings in excess of billings on uncompleted contracts,
that is, to increase the working capital requirement going forward;
-
the Company will engage in more project related hardware sales, which will
require carrying more inventory than before. Since hardware purchase usually
requires a payment upon delivery, the Companys accounts payables turnover
will be much faster than before.
The increases in the projections for the Companys working
capital (current assets less current liabilities) for the period ranging from
2012 through the end of fiscal year 2016 reflect the nature of the business, the
type of customers the Company has and the Companys projected growth of its
business during such period. A significant portion of the Companys business
consists of large government contracts and consequently the Company typically
receives payment at some point following the completion of a project. Many of
these projects require more than a year to complete, while at the same time the
Company continues to incur expenses to manufacture, purchase and install the
systems and products required in connection with such a project. As the Company
expects to grow its business rapidly and to undertake more of such projects,
both the amount of accounts receivable and the cash it needs for such projects
are expected to increase significantly, and therefore lead to a corresponding
increase in the Companys expected working capital needs.
The above prospective financial information was not prepared
with a view toward public disclosure, or with a view toward compliance with
published guidelines of the SEC, the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial projections, or GAAP. Neither the Companys independent registered
public accounting firm, nor any other independent accountants, have compiled,
examined or performed any procedures with respect to the prospective financial
information included below, or expressed any opinion or any other form of
assurance on such information or its achievability.
The prospective financial information reflects numerous
estimates and assumptions made by the Company with respect to industry
performance, general business, economic, regulatory, market and financial
conditions and other future events, as well as matters specific to the Companys
business, all of which are difficult to predict and many of which are beyond the
Companys control.
48
The prospective financial information reflects subjective
judgment in many respects and thus is susceptible to multiple interpretations
and periodic revisions based on actual experience and business developments. As
such, the prospective financial information constitutes forward-looking
information and is subject to risks and uncertainties that could cause actual
results to differ materially from the results forecasted in such prospective
information, including, but not limited to, the Companys performance, industry
performance, general business and economic conditions, customer requirements,
competition, adverse changes in applicable laws, regulations or rules, and the
various risks set forth in the Companys reports filed with the SEC. There can
be no assurance that the prospective results will be realized or that actual
results will not be significantly higher or lower than projection. The
prospective financial information covers multiple years and such information by
its nature becomes less reliable with each successive year. In addition, the
prospective information will be affected by the Companys ability to achieve
strategic goals, objectives and targets over the applicable periods. The
assumptions upon which the prospective information was based necessarily involve
judgments with respect to, among other things, future economic, competitive and
regulatory conditions and financial market conditions, all of which are
difficult or impossible to predict accurately and many of which are beyond the
Companys control. The prospective information also reflects assumptions as to
certain business decisions that are subject to change. Such prospective
information cannot, therefore, be considered a guaranty of future operating
results, and this information should not be relied on as such. The inclusion of
this information should not be regarded as an indication that the Company, the
buyer group, the special committee, any of their respective financial advisors
or anyone who received this information then considered, or now considers, it a
reliable prediction of future events, and this information should not be relied
upon as such. None of the Company, the buyer group, the special committee or any
of their financial advisors or any of their affiliates intends to, and each of
them disclaims any obligation to, update, revise or correct such prospective
information if they are or become inaccurate (even in the short term).
The prospective financial information does not take into
account any circumstances or events occurring after the date it was prepared,
including the transactions contemplated by the merger agreement. Further, the
prospective financial information does not take into account the effect of any
failure of the merger to occur and should not be viewed as accurate or
continuing in that context.
The inclusion of the prospective financial information herein
should not be deemed an admission or representation by the Company, the buyer
group or the special committee that they are viewed by the Company or the buyer
group or the special committee as material information of the Company, and in
fact the Company, the buyer group, and the special committee view the
prospective financial information as non-material because of the inherent risks
and uncertainties associated with such long range projections. The prospective
information should be evaluated, if at all, in conjunction with the historical
financial statements and other information regarding the Company contained in
the Companys public filings with the SEC. In light of the foregoing factors and
the uncertainties inherent in the Companys prospective information,
stockholders are cautioned not to place undue, if any, reliance on the
prospective information included in this proxy statement.
Certain of the prospective financial information set forth
herein, including EBITDA, may be considered non-GAAP financial measures. The
Company provided this information to William Blair and the buyer group because
the Company believed it could be useful in evaluating, on a prospective basis,
the Companys potential operating performance and cash flow. Non-GAAP financial
measures should not be considered in isolation from, or as a substitute for,
financial information presented in compliance with GAAP, and non-GAAP financial
measures as used by the Company may not be comparable to similarly titled
amounts used by other companies. The Company did not prepare prospective
financial information related to stock-based compensation.
Pursuant to the requirements of Regulation G, the Company sets
forth below a reconciliation of projected EBITDA to the most directly comparable
financial measure prepared in accordance with GAAP.
|
|
2012 FY
|
|
|
2013 FY
|
|
|
2014 FY
|
|
|
2015 FY
|
|
|
2016 FY
|
|
|
|
(amounts in
millions)
|
|
Income from Operations
|
$
|
15.5
|
|
$
|
16.3
|
|
$
|
18.6
|
|
$
|
20.8
|
|
$
|
23.2
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
$
|
3.2
|
|
$
|
3.7
|
|
$
|
4.0
|
|
$
|
4.4
|
|
$
|
4.9
|
|
EBITDA
|
$
|
18.7
|
|
$
|
20.0
|
|
$
|
22.6
|
|
$
|
25.2
|
|
$
|
28.1
|
|
49
Pursuant to the requirements of Regulation G, the Company sets
forth below a reconciliation of projected Unlevered Free Cash Flow to the most
directly comparable financial measure prepared in accordance with GAAP.
|
|
2012 FY
|
|
|
2013 FY
|
|
|
2014 FY
|
|
|
2015 FY
|
|
|
2016 FY
|
|
|
|
(amounts in
millions)
|
|
Income from Operations
|
$
|
15.5
|
|
$
|
16.3
|
|
$
|
18.6
|
|
$
|
20.8
|
|
$
|
23.2
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
$
|
3.2
|
|
$
|
3.7
|
|
$
|
4.0
|
|
$
|
4.4
|
|
$
|
4.9
|
|
Subtract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
|
$
|
3.9
|
|
$
|
4.0
|
|
$
|
4.7
|
|
$
|
5.2
|
|
$
|
5.8
|
|
Subtract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures
|
$
|
5.4
|
|
$
|
5.9
|
|
$
|
6.4
|
|
$
|
7.6
|
|
$
|
8.9
|
|
Changes in Working Capital
|
$
|
6.9
|
|
$
|
15.2
|
|
$
|
15.3
|
|
$
|
14.1
|
|
$
|
13.7
|
|
Unlevered Free Cash Flow
|
$
|
2.5
|
|
$
|
(5.1
|
)
|
$
|
(3.8
|
)
|
$
|
(1.7
|
)
|
$
|
(0.3
|
)
|
Financing of the Merger
The buyer group estimates that the total amount of funds
necessary to consummate the merger and related transactions, including the
payment of customary fees and expenses in connection with the merger, will be
approximately $200.3 million. Parent and Merger Sub expect this amount to be
provided through a combination of debt financing, equity financing and the
contribution of Rollover Shares to Parent immediately prior to the merger.
Neither Parent nor Merger Sub has entered into any alternative financing
arrangements or alternative financing plans.
Debt Financing
On June 8, 2012, Parent entered into the facility agreement
with CDB pursuant and subject to which CDB has agreed to provide
the CDB Loan in an aggregate amount of up to $96 million, to fund the
merger and pay certain fees and expenses contemplated by the facility agreement
and the merger agreement.
Conditions to Financing.
The funding of the CDB Loan is
subject to the satisfaction or waiver of the following conditions:
-
receipt by CDB of the documentary conditions precedent required under
Schedule 1 of the facility agreement;
-
no major default (as defined in the facility agreement) that is continuing
or would result from the proposed borrowing;
-
all of the major representations (as defined in the facility agreement)
being true;
-
receipt by CDB of a certified copy of the register of members of Parent
evidencing that Holdco is the beneficial owner of the entire equity interest
of Parent and that the shares of Parent issued to Holdco have been validly
issued and fully paid up;
-
receipt by CDB of (a) the relevant bank receipt evidencing the irrevocable
wire transfers of an aggregate amount of no less than the difference between
the Acquisition Consideration (as defined in the facility agreement) and the
Total Commitment (as defined in the facility agreement) by Mr. Xia and SAIF IV
to a bank account under the name of Parent or the paying agent, (b) a copy of
a resolution of the board of directors of Holdco resolving to contribute the
aggregate amount received under (a) above to Parent, and (c) a copy of
Parents instructions to Holdco, signed by an authorized signatory of Parent,
directing Holdco to transfer such amount contributed under (b) by Mr. Xia and
SAIF IV above to the paying agent; and
-
receipt by CDB of a letter from Parent confirming that (a) all of the
conditions precedent to the merger have been satisfied or waived in accordance
with the terms of the merger agreement and the articles of merger has been filed with the Secretary of State of the State
of Nevada (and attaching the stamped articles of merger), (b) the merger
agreement remains in full force and effect and has not been rescinded or
repudiated by any party to it, and (c) the effective time of the merger has
occurred.
50
Interest Rate
. The interest rate of the CDB Loan is
LIBOR plus 5.2% per annum at all times from and including date of utilization to
and including the date of a listing (as defined in the facility agreement) and
LIBOR plus 4.8% per annum at all times thereafter.
Prepayments and Amortization
. Parent may, if it gives
CDB not less than five business days prior notice, prepay the whole or any part
of the CDB Loan (but, if in part, the amount paid must be an amount that reduces
the amount of the CDB Loan by at least $10 million). Parent is required to make
a mandatory prepayment upon the occurrence of any of the following:
-
a listing (as defined in the facility agreement);
-
a change of control (as defined in the facility agreement);
-
a currency event (as defined in the facility agreement); or
-
the sale of all or substantially all of the assets of Parent and its
subsidiaries, as a group, or of the Company and its subsidiaries, as a group
(other than the merger).
Parent is required to repay 5%, 5%, 20% and 30% of the total
outstanding principal amount of the CDB Loan on the second, third, fourth and
fifth anniversaries of the initial drawdown, respectively, and the balance of
the outstanding principal amount on the sixth anniversary of the initial
drawdown. Currently, Parent does not have any plans or arrangements to refinance
the CDB Loan.
Security.
The obligations of Parent under the facility
agreement will be secured by:
-
a personal guarantee and a deed of undertaking from Mr. Xia and Ms. Yang
Lan, Mr. Xias wife;
-
a pledge of 100% of the equity interest of the Parent held by Holdco in
favor of CDB; and
-
a pledge of 100% of the equity interest of Beijing TransCloud Information
Technology Limited by China TransInfo Technology Limited in favor of CDB.
Other Terms.
The facility agreement contains customary
representations and warranties and customary affirmative and negative covenants,
including, among others, restrictions on indebtedness, disposal of assets,
declaration of dividends and mergers and consolidations. The facility agreement
also includes customary events of default.
Equity Financing
Chairman Equity Commitment
. On June 7, 2012, Mr. Xia
entered into an equity commitment letter with Holdco pursuant to which Mr. Xia
committed to subscribe, or caused to be subscribed, directly to indirectly
through one or more intermediary entities, for equity securities of Holdco at or
immediately prior to the effective time of the merger in immediately available
funds equal to $26,955,708. The equity commitment of Mr. Xia is conditioned upon
the satisfaction or waiver by Parent of each of the conditions to Parents and
Merger Subs obligations to effect the merger (other than those conditions that
by their nature are to be satisfied at the closing of the merger). Unless
otherwise agreed in writing by Mr. Xia, the equity commitment of $26,955,708 is
subject to reduction to a level sufficient to, in combination with the other
financing arrangements contemplated by the merger agreement, fully fund the
merger and other transactions contemplated by the merger agreement, including
the payment of customary fees and expenses in connection with the merger, in a
circumstance where Parent does not require the full amount of the $26,955,708 to
consummate the merger. The equity commitments will terminate automatically and
immediately upon the earliest to occur of (i) the effective time of the merger;
provided that Mr. Xia shall at or prior to the effective time of the merger have
fully funded and paid to Holdco his commitment and fully performed his obligations under the equity commitment letter, and (ii) the
valid termination of the merger agreement in accordance with its terms.
51
SAIF IV Equity Commitment
. On June 7, 2012, SAIF IV
entered into an equity commitment letter with Holdco pursuant to which SAIF IV
committed to subscribe, or caused to be subscribed, directly to indirectly
through one or more intermediary entities, for equity securities of Holdco at or
immediately prior to the effective time of the merger in immediately available
funds equal to $11,552,446. The equity commitment of SAIF IV is conditioned upon
the satisfaction or waiver by Parent of each of the conditions to Parents and
Merger Subs obligations to effect the merger (other than those conditions that
by their nature are to be satisfied at the closing of the merger). Unless
otherwise agreed in writing by Mr. Xia, the equity commitment of $11,552,446 is
subject to reduction to a level sufficient to, in combination with the other
financing arrangements contemplated by the merger agreement, fully fund the
merger and other transactions contemplated by the merger agreement, including
the payment of customary fees and expenses in connection with the merger, in a
circumstance where Parent does not require the full amount of the $11,552,446 to
consummate the merger. The equity commitments will terminate automatically and
immediately upon the earliest to occur of (i) the effective time of the merger;
provided that SAIF IV shall at or prior to the effective time of the merger have
fully funded and paid to Holdco his commitment and fully performed his
obligations under the equity commitment letter, and (ii) the valid termination
of the merger agreement in accordance with its terms.
Rollover Financing
On June 7, 2012, Mr. Xia, Karmen, Ms. Danxia Huang and Mr.
Shufeng Xia entered into a contribution agreement with Parent and Holdco
pursuant to which the Mr. Xia, Karmen, Ms. Danxia Huang and Mr. Shufeng Xia
collectively committed to contribute, immediately prior to the consummation of
the merger, an aggregate amount of 8,046,973 shares of Company common stock to
Parent (the equivalent of a $46,672,443.40 investment based upon the per share
merger consideration of $5.80) in exchange for certain newly issued shares of
Holdco.
On June 7, 2012, SAIF III entered into a contribution agreement
with Parent and Holdco pursuant to which SAIF III committed to contribute,
immediately prior to the consummation of the merger, an aggregate amount of
4,151,152 shares of Company common stock to Parent (the equivalent of a
$24,076,681.60 investment based upon the per share merger consideration of
$5.80) in exchange for certain newly issued shares of Holdco. The Rollover
Holders commitments pursuant to the contribution agreements are conditioned
upon the satisfaction or waiver of the conditions to the obligations of Parent
and Merger Sub to complete the merger contained in the merger agreement, the
funding of the debt financing described above and the substantially simultaneous
consummation of the merger in accordance with the terms of the merger
agreement.
Limited Guarantee
On June 8, 2012, Mr. Xia and SAIF IV entered into a limited
guarantee with the Company pursuant to which each of Mr. Xia and SAIF IV has
agreed to guarantee 70% and 30%, respectively, of the obligations of Parent
under the merger agreement to pay, under certain circumstances, a termination
fee to the Company and reimburse certain expenses (including disbursements and
reasonable fees of counsel) incurred by the Company in connection with the
collection of such termination fee, if overdue. Each of Mr. Xia and SAIF IV has
also agreed to guarantee 70% and 30%, respectively, of the obligations of Parent
and Merger Sub under the merger agreement to reimburse reasonable and documented
out-of-pocket costs incurred by the Company in connection with the cooperation
provided by the Company to the buyer group in connection with the buyer groups
debt financing.
Voting Agreement
On June 7, 2012, the Rollover Holders entered into the voting
agreement with Parent under which they have agreed to, among other things, vote
all shares of Company common stock beneficially owned by them in favor of
approval of the merger agreement and against any other acquisition proposal. The
voting agreement will terminate upon the earliest of (i) the termination of the
merger agreement, (ii) the written agreement of Parent and, at the direction of
the special committee, the Company to terminate the voting agreement, and (iii)
the effective time of the merger.
52
Limitation on Remedies
The Companys right to terminate the merger agreement and
receive payment of (i) a termination fee of $2.8 million, approximately 2% of
the enterprise value of the Company calculated based on the $5.80 per share
merger consideration, in connection with the merger from Parent, (ii) any
reimbursement of costs and expenses pursuant to the merger agreement, and (iii)
any amount in respect of which it is indemnified by Parent pursuant to the
merger agreement under certain circumstances is the sole and exclusive remedy of
the Company against the Parent, Merger Sub, their respective affiliates or
financing sources for any loss or damage suffered as a result of any such breach
or failure to perform under the merger agreement or other failure of the merger
to be consummated. However, such limitation of remedies shall not apply in the
event Parent has not deposited or caused to be deposited in full the amounts as
set forth in the merger agreement within one business day following the
effective time of the merger.
Subject to any equitable remedies Parent may be entitled to,
Parents right to receive payment of (i) a termination fee of $1.5 million,
approximately 1% of the enterprise value of the Company calculated based on the
$5.80 per share merger consideration, and (ii) any reimbursement of costs and
expenses pursuant to the merger agreement is the sole and exclusive remedy of
Parent and Merger Sub against the Company for any loss or damage suffered as a
result of any such breach or failure to perform under the merger agreement or
other failure of the merger to be consummated.
Parent and Merger Sub are entitled to specific performance of
the terms under the merger agreement, including an injunction or injunctions to
prevent breaches of the merger agreement and to enforce specifically the terms
and provisions of the merger agreement. The Company is not entitled to an
injunction or injunctions to prevent breaches of the merger agreement by Parent
or Merger Sub or any remedy to enforce specifically the terms and provisions of
the merger agreement.
Interests of the Companys Directors and Officers in the
Merger
Interests of Continuing Stockholders
As a result of the merger, Mr. Xia (our chairman, president,
chief executive officer and secretary), Ms. Danxia Huang (one of our directors,
our vice president of operations and our treasurer), Mr. Shufeng Xia (the
director of financial department of China TransInfo Technology Group Co., Ltd.,
our consolidated variable interest entity) will indirectly hold 64.64%, 2.71%
and 2.65%, respectively, of the fully diluted equity interest of Parent, which
will own 100% of the Company immediately following the completion of the merger.
Affiliates of SAIF Partners will indirectly hold 30.0% of the fully diluted
equity interest of Parent immediately following the completion of the merger.
Mr. Brandon Ho-Ping Lin (one of our directors) is a partner at SAIF Advisors
Limited, an affiliate of SAIF Partners. Because of the indirect equity ownership
of these continuing stockholders in Parent, each of them will enjoy the benefits
from any future earnings and growth of the Company after the merger which, if
the Company is successfully managed, could exceed the value of their original
investments in the Company, including the amount paid by Parent as merger
consideration to the unaffiliated stockholders. These continuing stockholders
will also bear the corresponding risks of any possible decreases in the future
earnings, growth or value of the Company and they will have no certainty of any
future opportunity to sell their shares in Parent at an attractive price, or
that any dividends paid by Parent will be sufficient to recover their
investment.
The merger may provide additional means to enhance stockholder
value for the continuing stockholders, including improved profitability due to
the elimination of the expenses associated with public company reporting and
compliance, increased flexibility and responsiveness in management of the
business to achieve growth and respond to competition without the restrictions
of short-term earnings comparisons, and additional means for making liquidity
available to them, such as through dividends or other distributions.
Special Committee Compensation
In consideration of the expected time and effort that would be
required of the members of the special committee in evaluating the proposed
merger, including negotiating the terms and conditions of the merger agreement,
the board of directors of the Company determined that the chairman of the
special committee shall receive a retainer of $7,500 per month and that each
other member of the special committee shall receive a retainer of $5,000 per month for the duration of their service on the
special committee. Such fees are payable whether or not the merger is completed
and were approved by the board of directors of the Company. No other meeting
fees or other compensation (other than reimbursement for out-of-pocket expenses
in connection with attending special committee meetings) will be paid to the
members of the special committee in connection with their service on the special
committee.
53
Indemnification and Insurance
Parent and the surviving corporation will assume the
indemnification obligations, now existing in favor of the current or former
directors, officers or employees of the Company or any of its subsidiaries or
fiduciaries of the Company or any of its subsidiaries under benefit plans of the
Company and its subsidiaries (collectively, the
Indemnified Parties
)
with respect to acts or omissions occurring at or prior to the effective time,
as provided in the organizational documents of the Company or its subsidiaries.
The articles of incorporation and bylaws of the surviving corporation will
contain provisions no less favorable to the Indemnified Parties with respect to
rights to indemnification, advancement of expenses and limitations on
liabilities as set forth in the Companys organizational documents in effect as
of the date of the merger agreement. The relevant provisions may not be amended,
repealed or otherwise modified in a manner that would adversely affect the
rights of the Indemnified Parties, unless such modification is required by
applicable law.
Following the effective time of the merger, Parent and the
surviving corporation will, jointly and severally, indemnify and hold harmless
each Indemnified Party, and anyone who becomes an Indemnified Party between the
date of the merger agreement and the effective time of the merger, against any
costs or expenses (including reasonable attorneys fees and expenses),
judgments, losses, claims, damages or liabilities and amounts paid in settlement
incurred in connection with any actual or threatened proceeding, including any
matter arising in connection with the transactions contemplated by the merger
agreement, to the fullest extent permitted by applicable law (and Parent and the
surviving corporation will also advance expenses as incurred to the fullest
extent permitted under applicable law). Notwithstanding anything to the contrary
contained in the merger agreement, Parent shall not (and Parent will cause the
surviving corporation not to) settle or compromise or consent to the entry of
any judgment or otherwise terminate any proceeding, unless such settlement,
compromise, consent or termination includes an unconditional release of all of
the Indemnified Parties from all liability and does not include an admission of
fault or wrongdoing by any Indemnified Party.
For at least six years after the effective time of the merger,
(i) Parent and the surviving corporation will maintain the existing directors
and officers liability insurance and fiduciary insurance (or substitute
policies including comparable coverage) maintained by the Company as of the date
of the merger agreement, covering claims arising from facts or events that
occurred on or before the effective time of the merger, including the
transactions contemplated by the merger agreement (provided that Parent or the
surviving corporation, as applicable, will not be required to pay an annual
premium for such insurance in excess of 300% of the total annual premiums
currently paid by the Company on a yearly basis; and (ii) Parent and the
surviving corporation will not take any action that would prejudice the rights
of, or impede recovery by, the beneficiaries of any such insurance, whether in
respect of claims arising before or after the effective time of the merger. In
lieu of such insurance, prior to the effective time of the merger, the Company
may purchase a six year tail prepaid policy with substantially similar
coverage (provided that the premium for such tail policy shall not exceed an
amount equal to 300% of the total annual premiums currently paid by the Company
on a yearly basis).
Company Options
As of the effective time of the merger, each outstanding,
vested and unexercised option to purchase shares of Company common stock will be
cancelled and converted into the right to receive, as soon as reasonably
practicable after the effective time of the merger, a cash amount equal to the
number of shares underlying such option immediately prior to the effective time
of the merger multiplied by the amount by which $5.80 exceeds the exercise price
per share of such option, net of any applicable withholding taxes.
As of the effective time of the merger, each outstanding and
unvested option to purchase shares of Company common stock will be cancelled and
converted into the right to receive, as soon as reasonably practicable after the
effective time of the merger, a restricted cash award in an amount equal to the
number of shares underlying such option immediately prior to the effective time of the
merger multiplied the amount by which $5.80 exceeds the exercise price per share
of such option.
54
Company Warrants
As of the effective time of the merger, each outstanding and
unexercised warrant to purchase shares of Company common stock will be cancelled
and converted into the right to receive, as soon as reasonably practicable after
the effective time of the merger, a cash amount equal to the total number of
shares underlying such warrant immediately prior to the effective time of the
merger multiplied by the amount by which $5.80 exceeds the exercise price per
share of such warrant.
The following table sets forth the cash amounts to be received
by each director and executive officer of the Company as a result of the merger
calculated based on his or her securities ownership as of the date of this proxy
statement.
Name
|
Position
|
Stock
|
Options
(Vested)
|
Options
(Unvested)
|
Cash
Received
from
Common
Stock
|
Cash
Received
from
Vested
Options
|
Cash
Received
from
Unvested
Options
|
Shudong Xia
|
CEO, President and
Chairman
|
7,037,077
|
-
|
-
|
-
|
-
|
-
|
Danxia Huang
|
Vice President, Director
|
509,896
|
-
|
-
|
-
|
-
|
-
|
Zhibin Lai
|
Vice President
|
634,378
|
-
|
-
|
$3,679,392.4
|
-
|
-
|
Zhiping Zhang
|
Vice President of Research and
Development
|
628,088
|
-
|
-
|
$3,642,910.4
|
-
|
-
|
Shan Qu
|
Vice President
|
-
|
75,000
|
225,000
|
-
|
$73,500
|
$220,500
|
Rong Zhang
|
Chief Financial Officer
|
-
|
189,337
|
315,564
|
-
|
$179,870.15
|
$299,785.80
|
Walter Teh Ming Kwauk
|
Director
|
-
|
5,000
|
22,500
|
-
|
$10,900
|
$49,050
|
Zhongsu Chen
|
Director
|
-
|
30,000
|
-
|
-
|
$21,300
|
-
|
Dan Liu
|
Director
|
-
|
-
|
-
|
-
|
-
|
-
|
Brandon Ho- Ping Lin
|
Director
|
-
|
30,000
|
-
|
-
|
$21,300
|
-
|
Xingming Zhang
|
Director
|
-
|
20,000
|
10,000
|
-
|
-
|
-
|
Relationship Between Us and Buyer Group
Relationship with Rollover Holders
Mr. Xia is the sole director, officer and 100% owner of Parent
and Merger Sub. As such, Mr. Xia and his affiliates will have direct and
indirect interests in the Company after the merger. Mr. Xia has also been the
chairman, president, chief executive officer and secretary of the Company since
May 14, 2007. Ms. Danxia Huang currently is the vice president of operations of
the Company and has been the Companys director since May 27, 2007. Both Mr. Xia and Ms. Danxia Huang received compensation
for their services as employees of the Company. Both Mr. Xia and Ms. Danxia
Huang recused themselves from the deliberations and the board of directors
determination with respect to the merger agreement and the proposed merger.
55
Karmen is a wholly owned subsidiary of East Action Investment
Holdings Ltd., of which Mr. Xia is the sole shareholder. Karmen currently holds
23.76% shares of Company common stock.
Mr. Shufeng Xia is and has been the director of financial
department of China TransInfo Technology Group Co., Ltd. since May 2007 and is
Mr. Xias brother.
SAIF III was formed under the laws of the Cayman Islands and
holds 16.43% shares of Company common stock. The principal business of SAIF III
is to make investments in companies in China and India. The registered office of
SAIF III is c/o M&C Corporate Services Limited, P. O. Box 309 GT, Ugland
House, South Church Street, George Town, Grand Cayman, Cayman Islands and its
telephone number is +852 2918 2203.
All Rollover Holders are parties to the contribution agreements
and have agreed with Parent to contribute to Parent shares of Company common
stock owned by them in exchange for newly issued shares of Holdco. As such,
Rollover Holders may have indirect interests in the Company after the merger.
Except as set forth above and elsewhere in this proxy
statement, none of the buyer group, nor any of their respective directors,
executive officers or other affiliates engaged in any transactions with us or
any of our directors, officers or other affiliates that would require disclosure
under the rules and regulations of the SEC applicable to this proxy
statement.
Dividends
Pursuant to the merger agreement, we are prohibited from
making, declaring, paying or setting aside for payment any dividend on or in
respect of, or declare or make any distribution with respect to the capital
stock of the Company or any of its subsidiaries (except for dividends paid by
any subsidiaries) from the date of the merger agreement until the earlier of the
effective time of the merger or the termination of the merger agreement.
Determination of the Per Share Merger Consideration
The per share merger consideration was determined as a result
of extensive negotiations over an extended period of time between Parent, Merger
Sub and their advisors, on the one hand, and the special committee, comprising
solely of the independent directors, and its legal and financial advisors, on
the other hand.
Regulatory Matters
In connection with the merger, we
are required to make certain filings with, and comply with certain laws of,
various federal and state governmental agencies, including:
-
filing the articles of merger with the Secretary of State of the State of
Nevada in accordance with the NRS after the approval of the merger agreement
by our stockholders; and
-
complying with U.S. federal securities laws.
Fees and Expenses
Fees and expenses incurred or to be incurred by the Company and
the buyer group in connection with proposed merger are estimated at the date of
this proxy statement to be as follows:
Description
|
Amount
|
Financing fees and expenses and
related professional fees
|
$5,200,000
|
Financial advisory fees and expenses
|
$1,800,000
|
Legal and accounting fees and expenses
|
$3,720,000
|
Special committee
fees
|
$180,000
|
Miscellaneous (including printing, proxy
solicitation, filing fees, mailing costs, etc.)
|
$850,000
|
Directors &
officers liability and Company reimbursement insurance
|
$1,450,000
|
Total
|
$13,200,000
|
56
These expenses will not reduce the per share merger
consideration to be received by the Companys unaffiliated stockholders. The
party incurring any costs and expenses in connection with the proposed merger
and the merger agreement will pay such costs and expenses.
Material United States Federal Income Tax Consequences
The following is a discussion of the material U.S. federal
income tax consequences to holders of shares of Company common stock upon the
exchange of shares of Company common stock for cash pursuant to the merger. This
discussion does not purport to be a comprehensive description of all of the tax
consequences that may be relevant to a decision by an unaffiliated stockholder to dispose of shares of Company
common stock in the merger, including tax considerations that arise from rules
of general application to all taxpayers or to certain classes of investors. This
summary is based on the Internal Revenue Code of 1986, as amended (the
Code
), Treasury regulations, administrative rulings and court
decisions, all as in effect as of the date hereof and all of which are subject
to differing interpretations and/or change at any time (possibly with
retroactive effect). In addition, this discussion is not a complete description
of all the tax consequences of the merger and, in particular, does not address
U.S. federal income tax considerations for holders of shares of Company common
stock received in connection with the exercise of employee stock options or
otherwise as compensation, or holders subject to special treatment under U.S.
federal income tax law (such as insurance companies, banks and other financial
institutions, tax-exempt entities, broker-dealers, mutual funds, traders in
securities who elect the mark-to-market method of accounting, tax-deferred or
other retirement accounts, holders subject to the alternative minimum tax, U.S.
persons that have a functional currency other than the U.S. dollar, certain
former citizens or residents of the United States or holders that hold shares of
Company common stock as part of a hedge, straddle, integration, constructive
sale or conversion transaction). This discussion only addresses the federal
income tax consequences of the merger and does not address any tax consequences
of transactions effected prior to, concurrently with, or after the merger
(whether or not any such transactions are undertaken in connection with the
merger), including without limitation the acquisition by Parent of the Rollover
Shares from the Rollover Holders. In addition, except as specifically described
below under Consequences to the Filing Persons, this discussion does not discuss
any consequences to stockholders of the Company that will directly or indirectly
hold an ownership interest in Holdco, Parent or the Company after the merger, or to holders
of options or warrants to purchase shares of Company common stock, any aspect of
state, local or foreign tax law that may be applicable to any holder of shares
of Company common stock, or any U.S. federal tax considerations other than U.S.
federal income tax considerations. This discussion assumes that holders own
shares of Company common stock as capital assets.
We urge holders of shares of Company common stock to consult
their own tax advisors with respect to the specific tax consequences to them in
connection with the offer and the merger in light of their own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws.
For purposes of this discussion, a U.S. Holder is a
beneficial owner of shares of Company common stock that is: a citizen or
resident of the United States for U.S. federal income tax purposes, a
corporation, or other entity treated as a corporation for U.S. federal income
tax purposes, created or organized in or under the laws of the United States,
any state thereof or the District of Columbia, any estate the income of which is
subject to U.S. federal income tax regardless of the source of its income and
any trust if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more U.S. persons
have the authority to control all substantial decisions of the trust or (ii) it
has a valid election in place to be treated as a domestic trust for U.S. federal
income tax purposes.
If a partnership (including any entity treated as a partnership
for U.S. federal income tax purposes) holds shares of Company common stock, the
tax treatment of a holder that is a partner in the partnership generally will
depend upon the status of the partner and the activities of the partnership.
Such holders should consult their own tax advisors regarding the tax consequences of exchanging the
shares of Company common stock pursuant to the merger.
57
Payments with Respect to Shares of Company Common Stock
The receipt of cash in exchange for shares of Company common
stock pursuant to the merger will be a taxable transaction for U.S. federal
income tax purposes. In general, a U.S. Holder who exchanges shares of Company
common stock for cash in the merger will recognize gain or loss in an amount
equal to the difference, if any, between the amount of cash received in exchange
for such shares and the U.S. Holders adjusted tax basis in such shares. If a
U.S. Holder acquired different blocks of shares of Company common stock at
different times or different prices, such U.S. Holder must determine its tax
basis and holding period separately with respect to each block of shares of
Company common stock. Such gain or loss will be capital gain or loss, and will
be long term capital gain or loss if such U.S. Holders holding period for the
shares of Company common stock is more than one year at the time of completion
of the merger. Long term capital gains recognized by a non-corporate U.S. Holder
(including an individual) are generally eligible for a reduced rate of U.S.
federal income tax. There are limitations on the deductibility of capital
losses. U.S. Holders of Company common stock should consult their tax advisors
regarding the determination and allocation of their tax basis in their stock
surrendered in the merger.
Information Reporting and Backup Withholding
Payments made with respect to shares of Company common stock
exchanged for cash in the merger may be subject to information reporting, and
such payments will be subject to U.S. federal backup withholding unless the U.S.
Holder (i) furnishes an accurate tax identification number or otherwise complies
with applicable U.S. information reporting or certification requirements
(typically, by completing and signing an Internal Revenue Service (
IRS
)
Form W-9) or (ii) is an exempt recipient and, when required, demonstrates such
fact. 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. Holders
U.S. federal income tax liability, if any, provided that such U.S. Holder
furnishes the required information to the IRS in a timely manner.
The following is a discussion of certain U.S. federal income
tax consequences that will apply to a Non-U.S. Holder of shares of Company
common stock. The term Non-U.S. Holder means a beneficial owner of shares of
Company common stock that, for U.S. federal income tax purposes, is not a U.S.
Holder and is not a partnership or other entity classified as a partnership.
Payments with Respect to Shares of Company Common Stock
Payments made to a Non-U.S. Holder with respect to shares of
Company common stock exchanged for cash pursuant to the merger generally will be
exempt from U.S. federal income tax, unless:
-
the gain on shares of Company common stock, if any, is effectively
connected with the conduct by the Non-U.S. Holder of a trade or business in
the United States (and, if required by an applicable U.S. income tax treaty,
is attributable to the Non-U.S. Holders permanent establishment in the United
States);
-
the Non-U.S. Holder is an individual who was present in the United States
for 183 days or more in the taxable year in which the merger occurs and
certain other conditions are met; or
-
the Non-U.S. Holder owned (actually or constructively) more than five
percent of the Companys common stock at any time during the five years
preceding the merger, and the Company is or has been a United States real
property holding corporation for U.S. federal income tax purposes during such
time.
A Non-U.S. Holder whose gain is described in the first bullet
point above will generally be subject to tax on its net gain in the same manner
as if it were a U.S. Holder. In addition, such a Non-U.S. Holder that is a
corporation may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits (including such gain) or such lower rate as may be specified by
an applicable income tax treaty. An individual Non-U.S. Holder described in the
second bullet point above will be required to pay a flat 30% tax on the gain
derived from the sale, which gain may be offset by U.S. source capital losses
(even though such Non-U.S. Holder is not considered a resident of the United
States). The Company does not believe that it currently is a United States real
property holding corporation or that it has been a United States real property
holding corporation during the past five years.
58
Information Reporting and Backup Withholding
In general, a Non-U.S. Holder will not be subject to backup
withholding and information reporting with respect to a payment made with
respect to shares of Company common stock exchanged for cash in the merger if
the Non-U.S. Holder has provided an IRS Form W-8BEN (or an IRS Form W-8ECI if
the Non-U.S. Holders gain is effectively connected with the conduct of a U.S.
trade or business). If shares are held through a foreign partnership or other
flow-through entity, certain documentation requirements also apply to the
partnership or other flow-through entity. Backup withholding is not an
additional tax and any amounts withheld under the backup withholding rules may
be refunded or credited against a Non-U.S. Holders U.S. federal income tax
liability, if any, provided that such Non-U.S. Holder furnishes the required
information to the IRS in a timely manner.
|
(c)
|
Consequences to the Filing Persons
|
Under U.S. federal income tax
principles, the merger transaction should be treated in accordance with its net
result for U.S. federal income tax purposes. The net result of the merger is
that Parent will acquire the Companys shares held by the unaffiliated
stockholders for the merger consideration. The merger will be treated as a sale
by such unaffiliated stockholders of their Company common stock to Parent,
taxable to such holders as described above under U.S. Holders and Non-U.S.
Holders. None of the Rollover Holders will be entitled to receive any merger
consideration and will not, therefore, realize gain or loss there from for U.S.
federal income tax purposes. The payment by Parent of the merger consideration
will increase the tax basis of its post-merger shares of the Company by the
amount of such payment. Holdcos ownership of shares of Parent will be
unaffected by the merger and Holdco will not realize any gain or loss. The
Company may experience an ownership change by the merger for federal income tax
purposes and accordingly its ability to use any net operating losses post-merger
to offset future taxable income may be limited or eliminated, but the Company
will not otherwise realize gain or loss as a result of the merger. The Merger
Sub will be treated as a transitory entity and will not realize gain or loss on
the merger. SAIF IVs ownership of shares in Holdco will be unaffected by the
merger and it will not realize gain or loss on the merger.
Following the acquisition of a U.S.
corporation or its assets by a foreign corporation, section 7874 can limit the
ability of the acquired U.S. corporation and its U.S. affiliates to utilize U.S.
tax attributes (including net operating losses and certain tax credits) to
offset U.S. taxable income resulting from certain transactions, or can result in
the acquiring foreign corporation being treated as a U.S. corporation for
federal income tax purposes. Specifically, under the inversion test, if (1)
substantially all the assets of a U.S. corporation are directly or indirectly
acquired by a foreign corporation, (2) the shareholders of the acquired U.S.
corporation hold at least 60% (but less than 80%), by either vote or value, of
the shares of the foreign acquiring corporation by reason of holding shares in
the U.S. corporation, and (3) the foreign corporations expanded affiliated
group (consisting of its 50% owned affiliates including the acquired U.S.
corporation) does not conduct substantial business activities in the
jurisdiction in which the foreign corporation is created or organized compared
to the activities of the expanded affiliated group as a whole, the taxable
income of the U.S. corporation (and any person related to the U.S. corporation)
for any given year, beginning on the first date any of the U.S. corporation's
properties were acquired and ending ten years after the last date any of the
U.S. corporations properties were acquired, will be no less than that persons
inversion gain for that taxable year. A persons inversion gain includes gain
from the transfer of shares or any other property (other than property held for
sale to customers) and income from the license of any property that is either
transferred or licensed as part of the acquisition, or, if after the
acquisition, is transferred or licensed to a foreign related person.
Furthermore, if the post-acquisition ownership of stock in the acquiring foreign
corporation by the shareholders of the acquired U.S. corporation as described in
item (2) of the inversion test above is 80% or greater, then the inversion gain
rules described above do not apply and instead the acquiring foreign corporation
is treated as a U.S. corporation for federal income tax purposes.
The merger will result in an indirect
acquisition of substantially all of the Companys assets, satisfying item (1) of
the inversion test, and neither Holdco nor Parent will conduct substantial
business activities in the jurisdictions where they are organized compared to
the activities of Holdcos expanded affiliated group as a whole, satisfying item
(3) of the inversion test. Also, the Rollover Holders will hold over 80% of
Holdcos common stock after the merger, although the percentage of such stock
held by reason of their pre-merger ownership of Company stock is not completely
clear since the acquisition of Company stock from the unaffiliated stockholders
will be funded by a combination of both new equity financing and CDB debt
financing. The inversion ownership rules are complex and difficult to apply, and
accordingly the post-merger ownership of Holdco by the Rollover Holders may
be treated as satisfying item (2) of the inversion test. If the acquisition of
the Company by Parent is treated as an inversion transaction, and the percentage
of Holdco stock held by the Rollover Holders by reason of having held stock in
the Company is treated as at least 60% but less than 80%, the Company may be
required to recognize inversion gain as described above for federal income tax
purposes, or if such percentage is treated as 80% or greater, Holdco and Parent
may be treated as U.S. corporations for federal income tax purposes.
Filing persons should consult their own
tax advisors regarding the U.S. federal income tax consequences of the
acquisition of the Companys shares pursuant to the merger.
Material PRC Tax Consequences
Under the EIT Law, enterprises established outside of China
whose de facto management bodies are located in the PRC are considered
resident enterprises. The implementation rules for the EIT Law define the de
facto management body as an establishment that has substantial management and
control over the business, personnel, accounts and properties of an enterprise.
On April 22, 2009, the State Administration of Taxation issued the Notice
Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled
Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria
of de facto Management Bodies (the
Notice
). Pursuant to the Notice, an
enterprise incorporated in an offshore jurisdiction and controlled by a Chinese
enterprise or group will be classified as a non-domestically incorporated
resident enterprise if (i) its senior management in charge of daily operations
reside or perform their duties mainly in China; (ii) its financial or personnel
decisions are made or approved by bodies or persons in China; (iii) its
substantial assets and properties, accounting books, corporate chops, board and
shareholder minutes are kept in China; and (iv) at least half of its directors
with voting rights or senior management often resident in China.
However, as the Notice only applies to enterprises established
outside of China that are controlled by PRC enterprises or groups of PRC
enterprises, it remains unclear how the PRC tax authorities
will determine the location of de facto management bodies for
overseas incorporated enterprises that are managed and controlled by individual
PRC residents like us. Therefore, although substantially all of our management
is currently located in the PRC, it remains unclear whether the PRC tax
authorities would require or permit our overseas registered entities to be
treated as PRC resident enterprises. We do not currently consider our company to
be a PRC resident enterprise under the EIT Law or that the gain recognized on
the receipt of cash for Company common stock should otherwise be subject to PRC
tax to holders of such common stock that are not PRC residents. If, however, the
PRC tax authorities were to determine that the Company should be considered a
resident enterprise or that the receipt of cash for these common stocks should
otherwise be subject to PRC tax, then gain recognized on the receipt of cash for
Company common stock pursuant to the merger by holders of such common stock who
are not PRC residents could be treated as PRC-source income that would be
subject to PRC tax at a rate of up to 10%. 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.
Delisting and Deregistration of the Company Common Stock
If the merger is completed, the shares of Company common stock
will be delisted from the NASDAQ Global Market and will be deregistered under
the Exchange Act, and shares of Company common stock will no longer be publicly
traded.
59
Litigation Relating to the Merger
We are aware of three putative class action complaints related
to the merger filed in the Eighth Judicial District Court against, among others,
the Company and certain directors of the Company:
-
Oswald Velz v. China TransInfo Technology Corp. et al.
, Case No.:
A-657022 (
Velz
Complaint
): On February 24, 2012, Oswald Velz
brought a stockholder class action with the Eighth Judicial District Court
against the Company and others in connection with the proposed going private
transaction by Mr. Xia (the
proposed transaction
), alleging that the
consideration of the proposed transaction was grossly inadequate and Mr. Xia
had breached his fiduciary duties to the Companys stockholders. In Velz
Complaint, the plaintiff seeks (i) injunctive relief enjoining the proposed
transaction, (ii) rescission or rescissory damages if the proposed transaction
is consummated, (iii) in the event any merger agreement is agreed by the board
of directors, requiring the approval of the majority of shareholders
unaffiliated with the defendants to proceed with the proposed transaction,
(iv) damages in an unspecified amount, and (v) attorneys fees and costs.
-
Tim Valles v. Shudong Xia et al.
, Case No. A-12-657443-C
(
Valles Complaint
): On March 1, 2012, Tim Valles brought a
stockholder class action with the Eighth Judicial District Court against the
Company and others in connection with the proposed transaction, alleging that
the members of the board of directors of the Company had breached their
fiduciary duties to the Companys stockholders. In Valles Complaint, the
plaintiff seeks (i) injunctive relief enjoining the proposed transaction, (ii)
rescission or rescissory damages if the proposed transaction is consummated,
(iii) damages in an unspecified amount, and (iv) attorneys fees and costs.
-
Carl M. Domitrovich v. Shudong Xia et al.
, Case No. A-12-657440-C
(
Domitrovich
Complaint
): On March 6, 2012, Carl M. Domitrovich
brought a stockholder class action with the Eighth Judicial District Court
against the Company and others in connection with the proposed transaction,
alleging that the consideration of the proposed transaction was grossly
inadequate and the members of the board of directors of the Company had
breached their fiduciary duties to the Companys stockholders. In Domitrovich
Complaint, the plaintiff seeks (i) injunctive relief enjoining the proposed
transaction, (ii) rescission or rescissory damages if the proposed transaction
is consummated, (iii) damages in an unspecified amount, and (v) attorneys
fees and costs.
On July 13, 2012, the foregoing three class action complaints,
namely, Velz Complaint, Valles Complaints and Domitrovich Complaint, were
consolidated into one amended class action complaint, In Re China TransInfo
Technology Corp. Shareholders Litigation, Consolidated Case No. A-12-657022-B,
filed in the Eighth Judicial District Court and against the members of the board
of directors of the Company, Parent and Merger Sub. The plaintiff seek, among
other thing, (i) preliminarily and permanently enjoining the defendants and all
those acting in concert with them, from proceeding with the merger unless and
until such time the individual defendants have acted in accordance with their
fiduciary duties toward the Companys public shareholders; (ii) in the event the
merger is consummated prior to the courts final judgment, rescinding it and
setting it aside or awarding rescissory damages; (iii) ordering the defendants
to carry out their fiduciary duties to the plaintiffs and other class members,
including those alleged duties of care, loyalty, candor and fair dealing; (iv)
directing Mr. Xia and the other individual defendants to account to the
plaintiffs and the class for all damages allegedly suffered by them as a result
of Mr. Xias and the other individual defendants alleged wrongful conduct if
the merger is consummated; (v) awarding the plaintiffs the costs and
disbursements of this action, including reasonable attorneys and experts fees
and expenses and (vi) granting such other and further equitable relief as the
court may deem just and proper.
60
The Company and our board of directors believe that the claims
in these complaints are without merit and intend to defend against them
vigorously.
One of the conditions to the closing of the merger is that no
order by a court or other governmental entity shall be in effect that prohibits
the consummation of the merger or that makes the consummation of the merger
illegal. As such, if the plaintiffs are successful in obtaining an injunction
prohibiting the defendants from
completing the merger on the agreed-upon terms, then such injunction may prevent the merger from becoming effective, or from becoming effective within the expected timeframe.
61
THE SPECIAL MEETING
We are furnishing this proxy statement to the Companys
stockholders as part of the solicitation of proxies by the board of directors of
the Company for use at the special meeting.
Date, Time and Place
We will hold the special meeting at
a.m., Beijing time, on
,
2012, at
. Seating will be limited to stockholders. Admission to the special
meeting will be on a first-come, first-served basis. If you plan to attend the
special meeting, please note that you may be asked to present valid photo
identification, such as a drivers license or passport. Stockholders owning
stock in brokerage accounts must bring a copy of a brokerage statement
reflecting stock ownership as of the record date. Cameras, recording devices and
other electronic devices will not be permitted at the meeting.
Purpose of the Special Meeting
The special meeting is being held for the following
purposes:
-
to approve the merger agreement (see
The Merger Agreement
beginning on page 66); and
-
to approve the adjournment of the special meeting, if necessary or
appropriate, to solicit additional proxies if there are insufficient votes at
the time of the special meeting to approve the merger agreement.
A copy of the merger agreement is attached as Annex A to this
proxy statement.
Recommendation of Our Board of Directors and Special
Committee
The board of directors of the Company, after careful
consideration and acting on the unanimous recommendation of the special
committee composed entirely of independent directors, deemed it advisable, fair
to and in the best interests of the Company and the unaffiliated stockholders
that the Company enter into the merger agreement, determined that the merger
agreement and the transactions contemplated by the merger agreement, including
the merger, are advisable, fair to and in the best interests of the Company and
the unaffiliated stockholders and recommended that the Companys stockholders
approve the merger agreement at the special meeting. The board of directors of
the Company recommends that you vote
FOR
the approval of the merger
agreement.
Our board of directors also recommends that you vote
FOR
the proposal to approve the adjournment of the special meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the merger
agreement.
Record Date; Stockholders Entitled to Vote; Quorum
Only holders of record of Company common stock at the close of
business, New York time, on
, 2012, the record date, are entitled to notice of
and to vote at the special meeting. On the record date,
shares of Company common
stock were issued and outstanding and held by
holders of record. Holders of
record of shares of Company common stock on the record date are entitled to one
vote per share of Company common stock at the special meeting on each proposal.
For ten days prior to the meeting, a complete list of stockholders entitled to
vote at the meeting will be available for examination by any stockholder, for
any purpose relating to the meeting, during ordinary business hours at our
offices located at 9th Floor, Vision Building, No. 39 Xueyuanlu, Haidian
District, Beijing, PRC, 100191.
Shares of Company common stock represented by proxies
reflecting abstentions will be counted as present and entitled to vote for
purposes of determining a quorum. Broker non-votes will not be counted for
purposes of determining a quorum. A broker non-vote occurs when a broker,
dealer, commercial bank, trust company or other nominee does not vote on a
particular matter because such broker, dealer, commercial bank, trust company or
other nominee does not have the discretionary voting power with respect to that
proposal and has not received voting instructions from the beneficial owner.
Brokers, dealers, commercial banks, trust companies and other nominees will not have discretionary voting power with respect to the
proposal to approve the merger agreement or the adjournment proposal. The
presence at the special meeting in person or by proxy of the holders of a
majority of shares of the Companys capital stock issued and outstanding and
entitled to vote at the special meeting as of the record date will constitute a
quorum for purposes of the special meeting. In the event that a quorum is not
present, or if there are insufficient votes to approve the merger agreement at
the time of the special meeting, it is expected that the meeting will be
adjourned or postponed to solicit additional proxies.
62
Vote Required
Proposal No. 1
The approval of the merger agreement by our stockholders
requires the affirmative vote of both (i) the holders of a majority of the
shares of Company common stock and (ii) the holders of a majority of the shares
of Company common stock (excluding Rollover Shares).
The requirement that the merger agreement be approved by the
holders of a majority of the shares of Company common stock (excluding Rollover
Shares) is not mandated by Nevada law but was negotiated by the special
committee in order to further protect the interests of the unaffiliated
stockholders in connection with the merger.
Failure to vote your shares of Company common stock will have
the same effect as a vote AGAINST the proposal to approve the merger
agreement.
Proposal No. 2
For the approval of the adjournment or postponement of the
special meeting, the affirmative vote of the holders of at least a majority of
the shares of Company common stock present in person or represented by proxy at
the meeting and entitled to vote, whether or not a quorum is present, is
required.
Stock Ownership and Interests of Certain Persons
As
of
, 2012, the record date for the special meeting, our directors (including
Mr. Xia and Ms. Danxia Huang) and current executive officers owned, in the
aggregate,
shares of Company common stock, or collectively
approximately
% of the outstanding shares of Company common stock. See
Common Stock
Ownership of Management and Certain Beneficial Owners
beginning on page
81 for additional information. Our directors and current executive officers
have informed us that they intend, as of the date hereof, to vote all of their
shares of Company common stock in favor of the approval of the merger agreement.
Certain members of our management and the board of directors of
the Company have interests that may be different from, or in addition to, those
of our stockholders generally. See
Special Factors Relating to the
MergerInterests of the Companys Directors and Officers in the Merger
beginning on page 53 for additional information.
Voting Procedures
Ensure that your shares of Company common stock can be voted
at the special meeting by submitting your proxy or contacting your broker,
dealer, commercial bank, trust company or other nominee.
If your shares of Company common stock are registered in
the name of a broker, dealer, commercial bank, trust company or other
nominee
: check the voting instruction card forwarded by your broker,
dealer, commercial bank, trust company or other nominee to see which voting
options are available or contact your broker, dealer, commercial bank, trust
company or other nominee in order to obtain directions as to how to ensure that
your shares of Company common stock are voted at the special meeting.
If your shares of Company common stock are registered in
your name:
submit your proxy as soon as possible by telephone, via the
Internet or by signing, dating and returning the enclosed proxy card in the
enclosed postage-paid envelope, so that your shares of Company common stock can
be voted at the special meeting.
Instructions regarding telephone and Internet voting are
included on the proxy card.
63
The failure to vote will have the same effect as a vote against
the proposal to approve the merger agreement. If you sign, date and mail your
proxy card without indicating how you wish to vote, your proxy will be voted
FOR
the approval of the merger agreement and the proposal to postpone
or adjourn the special meeting, if necessary or appropriate, to solicit
additional proxies in the event there are insufficient votes at the time of the
special meeting to approve the merger agreement.
The failure to instruct your broker, dealer, commercial bank,
trust company or other nominee to vote your shares of our common stock FOR the
proposal to approve the merger agreement will have the same effect as a vote
AGAINST the proposal to approve the merger agreement.
For additional questions about the merger, assistance in
submitting proxies or voting shares of Company common stock, or to request
additional copies of the proxy statement or the enclosed proxy card, please
contact:
Okapi Partners LLC
437 Madison Avenue, 28th Floor
New
York, New York 10022
Banks and Brokerage Firms, Call: (212) 297 0720
Stockholders and All Others, Call Toll-Free: (855) 305 0855
Email:
info@okapipartners.com
Voting by Proxy or in Person at the Special Meeting
Holders of record can ensure that their shares of Company
common stock are voted at the special meeting by completing, signing, dating and
delivering the enclosed proxy card in the enclosed postage-paid envelope.
Submitting by this method or voting by telephone or the Internet as described
below will not affect your right to attend the special meeting and to vote in
person. If you plan to attend the special meeting and wish to vote in person,
you will be given a ballot at the special meeting. Please note, however, that if
your shares of Company common stock are held in street name by a broker,
dealer, commercial bank, trust company or other nominee and you wish to vote at
the special meeting, you must bring to the special meeting a proxy from the
record holder of those shares of Company common stock authorizing you to vote at
the special meeting.
If you vote your shares of Company common stock by submitting a
proxy, your shares will be voted at the special meeting as you indicated on your
proxy card or Internet or telephone proxy. If no instructions are indicated on
your signed proxy card, all of your shares of Company common stock will be voted
FOR
the approval of the merger agreement and the approval to
postpone or adjourn the special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time of the special
meeting to approve the merger agreement. You should return a proxy by mail, by
telephone or via the Internet even if you plan to attend the special meeting in
person.
Electronic Voting
Our holders of record and many stockholders who hold their
shares of Company common stock through a broker, dealer, commercial bank, trust
company or other nominee will have the option to submit their proxy cards or
voting instruction cards electronically by telephone or the Internet. Please
note that there are separate arrangements for voting by telephone and Internet
depending on whether your shares of Company common stock are registered in our
records in your name or in the name of a broker, dealer, commercial bank, trust
company or other nominee. If you hold your shares of Company common stock
through a broker, bank or other nominee, you should check your voting
instruction card forwarded by your broker, dealer, commercial bank, trust
company or other nominee to see which options are available.
Please read and follow the instructions on your proxy card or
voting instruction card carefully.
Other Business
We do not expect that any matter other than (i) the proposal to
approve the merger agreement and (ii) the approval of the adjournment or
postponement of the special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time of the
special meeting to approve the merger agreement, will be brought before the
special meeting. If, however, other matters are properly presented at the
special meeting, the persons named as proxies will vote in accordance with their
best judgment with respect to those matters.
64
Adjournments and Postponements
The Company may request the adjournment or postponement of the
special meeting, and the holders of a majority of the shares of Company common
stock present in person or by proxy at the special meeting may approve any
adjournment or postponement of the special meeting, whether or not a quorum
exists, without further notice other than by an announcement made at the special
meeting. If a quorum is not present at the special meeting, or if a quorum is
present at the special meeting but there are not sufficient votes at the time of
the special meeting to approve the merger agreement, the Company may, at its
sole discretion, adjourn or postpone the special meeting so as to permit the
further solicitation of proxies.
The Company is permitted to delay, postpone, or cancel the
special meeting if in the good faith judgment of our board of directors, acting
upon a recommendation of the special committee, a failure to do so would be
inconsistent with their respective fiduciary duty obligations. The Company is
permitted to delay the meeting in order to allow for completion of the proxy
solicitation process.
Revocation of Proxies
Submitting a proxy on the enclosed form does not preclude a
stockholder from voting in person at the special meeting. A stockholder of
record may revoke a proxy at any time before it is voted by filing with our
corporate secretary a duly executed revocation of proxy, by properly submitting
a proxy by mail, the Internet or telephone with a later date or by appearing at
the special meeting and voting in person. A stockholder of record may revoke a
proxy by any of these methods, regardless of the method used to deliver the
stockholders previous proxy. Attendance at the special meeting without voting
will not itself revoke a proxy. If your shares of Company common stock are held
in street name, you must contact your broker, dealer, commercial bank, trust
company or other nominee to revoke your proxy.
Rights of Stockholders Who Object to the Merger
You do not have any dissenters rights or other statutory
rights of objection in connection with the merger under Nevada law. Section
92A.390 of the NRS does not provide any right of dissent with respect to a plan
of merger under criteria described in that section of the NRS, which the Company
satisfies.
Solicitation of Proxies
This proxy solicitation is being made by the Company on behalf
of the board of directors of the Company and will be paid for by the Company. In
addition, we have engaged Okapi Partners LLC to assist in the solicitation of
proxies for the special meeting and we estimate that we will pay Okapi Partners
LLC a fee of $
20,000
excluding certain out-of-pocket expenses. The
Companys directors, officers and employees may also solicit proxies by personal
interview, mail, e-mail, telephone, facsimile or other means of communication.
These persons will not be paid additional remuneration for their efforts. The
Company will also request brokers, dealers, commercial banks, trust companies
and other nominees to forward proxy solicitation material to the beneficial
owners of shares of Company common stock that the brokers, dealers, commercial
banks, trust companies and other nominees hold of record. Upon request, the
Company will reimburse them for their reasonable out-of-pocket expenses.
Assistance
If you need assistance in completing your proxy card or have
questions regarding the special meeting, please contact Okapi Partners LLC, toll
free at (855) 305 0855, collect at (212) 297-0720 or by email at
info@okapipartners.com.
65
PROPOSAL ONE
APPROVAL OF THE MERGER AGREEMENT
THE MERGER AGREEMENT
The following is a summary of the material terms and
conditions of the merger agreement. The description in this section and
elsewhere in this proxy statement is qualified in its entirety by reference to
the complete text of the merger agreement, dated as of June 8, 2012, a copy of
which is attached as
Annex A, and is incorporated by
reference into this proxy statement. This summary does not purport to be
complete and may not contain all of the information about the merger agreement
that is important to you. We encourage you to read the merger agreement
carefully and in its entirety because it is the legal document that governs this
merger.
Explanatory Note Regarding the Merger Agreement
The merger agreement and this summary of its terms have been
included to provide you with information regarding the terms of the merger
agreement. Factual disclosures about the Company contained in this proxy
statement or in the Companys public reports filed with the SEC may supplement,
update or modify the factual disclosures about the Company contained in the
merger agreement and described in this summary. The representations, warranties
and covenants made in the merger agreement by the Company, Parent and Merger Sub
were qualified and subject to important limitations agreed to by the Company,
Parent and Merger Sub in connection with negotiating the terms of the merger
agreement. In particular, in your review of the representations and warranties
contained in the merger agreement and described in this summary, it is important
to bear in mind that the representations and warranties were negotiated with the
principal purposes of establishing the circumstances in which a party to the
merger agreement may have the right not to close the merger if the
representations and warranties of the other party prove to be untrue due to a
change in circumstance or otherwise, and allocating risk between the parties to
the merger agreement, rather than establishing matters as facts. The
representations and warranties may also be subject to a contractual standard of
materiality different from those generally applicable to stockholders and
reports and documents filed with the SEC and in some cases were qualified by
disclosures that were made by each party to the other, which disclosures are not
reflected in the merger agreement. Moreover, information concerning the subject
matter of the representations and warranties, which do not purport to be
accurate as of the date of this proxy statement, may have changed since the date
of the merger agreement and subsequent developments or new information
qualifying a representation or warranty may have been included in this proxy
statement.
Effects of the Merger; Directors and Officers; Certificate
of Incorporation; Bylaws
The merger agreement provides for the merger of Merger Sub with
and into the Company upon the terms, and subject to the conditions, set forth in
the merger agreement. As the surviving corporation, the Company will continue to
exist following the merger. The surviving corporation will be a privately held
corporation and the unaffiliated stockholders will cease to have any ownership
interest in the surviving corporation or rights as our stockholders. Therefore,
such current stockholders will not participate in any future earnings or growth
of the surviving corporation and will not benefit from any appreciation in value
of the surviving corporation.
The board of directors of the surviving corporation will, from
and after the effective time of the merger, consist of the directors of Merger
Sub until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal. The officers of the surviving
corporation will, from and after the effective time of the merger, be the
officers of the Company until their successors have been duly appointed and
qualified or until their earlier death, resignation or removal.
At the effective time of the merger, the articles of
incorporation and bylaws of the surviving corporation will be amended in its
entirety to read as the articles of incorporation and bylaws, respectively, of
Merger Sub as in effect immediately prior to the effective time of the merger,
until thereafter amended as provided therein and by applicable law.
Closing and Effective Time of the Merger
The closing of the merger will take place on the second
business day after the satisfaction or, to the extent permitted by applicable
law, waiver by the party or parties entitled to the benefits of the conditions
to closing (described under
The Merger AgreementConditions to the
Merger
) (other than those conditions that by their nature are to be
satisfied at the closing, but subject to the satisfaction or, to the extent
permitted by law, waiver of those conditions).
66
The merger will become effective on the business day
immediately after the date on which the articles of merger are duly filed with
the Secretary of State of the State of Nevada (or on such other date and time as
Parent and the Company will agree in writing and specify in the articles of
merger, and in each case, such date may not be more than ninety days after the
date on which the articles of merger are filed).
Treatment of Common Stock, Company Options and Company
Warrants
As of the effective time of the merger, each share of Company
common stock issued and outstanding immediately prior to the effective time of
the merger (other than shares held by the Company as treasury stock or owned,
directly or indirectly, by Parent, Merger Sub or any wholly owned subsidiary of
the Company immediately prior to the effective time of the merger, including the
Rollover Shares) will be converted into the right to receive the per share
merger consideration in cash without any interest thereon.
As of the effective time of the merger, each outstanding,
vested and unexercised option to purchase shares of Company common stock will be
cancelled and converted into the right to receive, as soon as reasonably
practicable after the effective time of the merger, a cash amount equal to the
number of shares underlying such option immediately prior to the effective time
of the merger multiplied by the amount by which $5.80 exceeds the exercise price
per share of such option, net of any applicable withholding taxes.
As of the effective time of the merger, each outstanding and
unvested option to purchase shares of Company common stock will be cancelled and
converted into the right to receive, as soon as reasonably practicable after the
effective time of the merger, a restricted cash award in an amount equal to the
number of shares underlying such option immediately prior to the effective time
of the merger multiplied the amount by which $5.80 exceeds the exercise price
per share of such option. The restrictions applicable to such cash award are (i)
the same vesting conditions and vesting schedules applicable to the respective
unvested options without giving effect to the transactions contemplated in the
merger agreement and (ii) that any unvested restricted cash award is not
transferable by means of sale, assignment, exchange, pledge or otherwise.
As of the effective time of the merger, each outstanding and
unvested option to purchase shares of Company common stock will be cancelled and
converted into the right to receive, as soon as reasonably practicable after the
effective time of the merger, a restricted cash award in an amount equal to the
number of shares underlying such option immediately prior to the effective time
of the merger multiplied the amount by which $5.80 exceeds the exercise price
per share of such option.
As of the effective time of the merger, each outstanding and
unexercised warrant to purchase shares of Company common stock will be cancelled
and converted into the right to receive, as soon as reasonably practicable after
the effective time of the merger, a cash amount equal to the total number of
shares underlying such warrant immediately prior to the effective time of the
merger multiplied by the amount by which $5.80 exceeds the exercise price per
share of such warrant.
Exchange and Payment Procedures
Prior to the effective time of the merger, Parent will
designate a bank or trust company reasonably acceptable to the Company to act as
the paying agent. At or prior to the effective time of the merger, Parent will
deposit, or will cause to be deposited, with the paying agent an amount in cash
sufficient for the paying agent to make payment of the aggregate per share
merger consideration to the holders of shares of Company common stock.
Promptly after the effective time of the merger (but in any
event no later than five business days), each record holder of shares of Company
common stock will be sent (i) a letter of transmittal describing how it may
exchange its shares of Company common stock for the per share merger
consideration and (ii) instructions for effecting the surrender of share
certificates in exchange for its per share merger consideration.
67
You should not return your stock certificates with the
enclosed proxy card, and you should not forward your stock certificates to the
paying agent without a letter of transmittal.
You will not be entitled to receive the per share merger
consideration until you surrender your stock certificate or certificates along
with a duly completed and executed letter of transmittal to the paying agent or
until the paying agent receives an agents message in the case of shares held
in book-entry form and other documents reasonably required by the paying agent
and approved by Parent and us. If payment of the per share merger consideration
is to be made to a person other than the person in whose name the surrendered
certificate is registered, a check for any cash to be delivered will only be
issued if (i) the certificate shall be properly endorsed or shall otherwise be
in proper form for transfer, and (ii) the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of the
per share merger consideration to a person other than the registered holder of
such certificate surrendered or shall have established to the reasonable
satisfaction of the paying agent that such tax either has been paid or is not
payable.
No interest will be paid or accrued on the cash payable as the
per share merger consideration as provided above.
From and after the effective time of the merger, there will be
no transfers on the stock transfer books of the surviving corporation of shares
of Company common stock that were outstanding immediately prior to the effective
time of the merger. If, after the effective time of the merger, any person
presents to the surviving corporation, any certificates relating to shares
canceled in the merger, such person will be given a copy of the letter of
transmittal and told to comply with the instructions in that letter of
transmittal in order to receive the cash to which such person is entitled.
Any portion of the per share merger consideration deposited
with the paying agent that remains undistributed to holders of Company common
stock for twelve months after the effective time of the merger may be delivered
to the surviving corporation. Any holders of Company common stock who have not
complied with the above-described exchange and payment procedures will
thereafter only look to the surviving corporation for payment of the per share
merger consideration. None of the surviving corporation, Parent, the paying
agent or any other person will be liable to any holders of Company common stock
for any per share merger consideration delivered to a public official pursuant
to any applicable abandoned property, escheat or similar laws.
If you have lost a certificate, or if it has been stolen or
destroyed, then before you will be entitled to receive the per share merger
consideration, you will have to make an affidavit of the loss, theft or
destruction, and if required by the surviving corporation, deliver an agreement
of indemnification in a form reasonably satisfactory to the surviving
corporation or post a bond in a reasonable amount as indemnity against any claim
that may be made against it with respect to such certificate. These procedures
will be described in the letter of transmittal that you will receive, which you
should read carefully in its entirety.
Representations and Warranties
The merger agreement contains representations and warranties
made by the Company to Parent and Merger Sub and representations and warranties
made by Parent and Merger Sub to the Company, in each case, as of specific
dates. The statements embodied in those representations and warranties were made
for purposes of the merger agreement and are subject to important qualifications
and limitations agreed by the parties in connection with negotiating the terms
of the merger agreement (including the disclosure letter delivered by the
Company in connection therewith but not reflected in the merger agreement). In
addition, some of those representations and warranties may be subject to a
contractual standard of materiality different from that generally applicable to
stockholders, may have been made for the principal purposes of establishing the
circumstances in which a party to the merger agreement may have the right not to
close the merger if the representations and warranties of the other party prove
to be untrue due to a change in circumstance or otherwise, and allocating risk
between the parties to the merger agreement rather than establishing matters as
facts. Moreover, information concerning the subject matter of the
representations and warranties, which do not purport to be accurate as of the
date of this proxy statement, may have changed since the date of the merger
agreement and subsequent developments or new information qualifying a
representation or warranty may have been included in this proxy statement.
68
The representations and warranties made by the Company to
Parent and Merger Sub include representations and warranties relating to, among
other things:
-
due organization, existence, good standing and authority to own and use
the Companys properties and assets and to carry on the Companys businesses;
-
the absence of encumbrances on the Companys ownership of the equity
interests of its subsidiaries;
-
the Companys corporate power and authority to execute, deliver and
perform its obligations under and to consummate the transactions under the
merger agreement, and the enforceability of the merger agreement against the
Company;
-
the declaration of advisability of the merger agreement and the merger by
the special committee and by the board of directors of the Company, the
approval of the merger agreement and the merger by the board of directors of
the Company and the board of directors submission of the merger agreement to
a vote by the stockholders of the Company;
-
the required vote of the Companys stockholders to approve the merger
agreement;
-
the absence of conflicts with, or breaches or default under,
organizational documents, contracts and applicable law;
-
the Companys capitalization, the absence of preemptive or other similar
rights or any debt securities that give its holders the right to vote with the
Companys stockholders;
-
governmental consents and approvals;
-
the Companys SEC filings since January 1, 2010 and the financial
statements included therein;
-
the absence of a Company Material Adverse Effect (as defined below) and
the absence of certain other changes or events since December 31, 2011;
-
the absence of certain undisclosed liabilities;
-
the absence of legal proceedings against the Company or its subsidiaries;
-
compliance with applicable laws, licenses and permits;
-
possession of all material regulatory permits;
-
title to assets and absence of liens on assets (other than certain
permitted liens);
-
intellectual property;
-
insurance;
-
material contracts and the absence of any material default under, or
termination of, any material contract;
-
the absence of certain transactions with the Companys affiliates and
employees;
-
the Companys disclosure controls and procedures and internal controls
over financial reporting;
-
the accuracy of the information provided in the Schedule 13E-3 and this
proxy statement;
-
the opinion from William Blair;
69
-
tax matters;
-
environmental matters;
-
the absence of foreign corrupt practices;
-
the disclosure letter to the merger agreement;
-
the inapplicability of Nevada anti-takeover statutes to the merger;;
-
the absence of any undisclosed brokers or finders fees; and
-
acknowledgment as to absence of any other representations and warranties.
Many of the representations and warranties in the merger
agreement made by the Company are qualified as to materiality or Material
Adverse Effect. For purposes of the merger agreement, a Material Adverse
Effect means any circumstance, event, change, effect or development, that
individually or in the aggregate with all other circumstances, events, changes,
effects, or developments, has had or would reasonably be expected to have a
material adverse effect on the financial condition, results of operations,
prospects, assets, liabilities, properties or business of the Company and its
subsidiaries, taken as a whole. However, a Material Adverse Effect does not
include the effects relating to or resulting from:
-
changes or modifications in GAAP or regulatory accounting requirements or
changes in laws (or interpretations thereof) applicable to the Company or any
of its subsidiaries;
-
changes, effects or circumstances in the industries or markets in which
the Company or any of its subsidiaries operates;
-
changes in general business, economic, political or financial market
conditions;
-
changes in the financial, credit or securities markets in the United
States, the PRC or any other country or region in the world, including changes
in interest rates, foreign exchange rates and sovereign credit ratings;
-
the public disclosure of the merger agreement or the transactions
contemplated or the consummation of the transactions contemplated or the
announcement of the execution of the merger agreement, including, without
limitation, any stockholder litigation relating to the merger agreement;
-
any change in the price of the shares of Company common stock or trading
volume as quoted on the NASDAQ Global Market;
-
any outbreak or escalation of hostilities, declared or undeclared acts of
war or terrorism, acts of God or natural disasters;
-
actions or omissions taken with the prior written consent of or at the
written request of the other parties under the merger agreement or required or
permitted by the merger agreement;
-
the failure by the Company or any of its subsidiaries to meet any internal
or industry estimates, expectations, forecasts, projections or budgets for any
period ;
-
any change or prospective change in the Companys credit ratings; or
-
any loss of, or change in, the relationship of the Company or any of its
subsidiaries, contractual or otherwise, with its brokers, customers,
suppliers, vendors, lenders, employees, investors, or joint venture partners
arising out of the execution, delivery or performance of the merger agreement,
the consummation of the transactions contemplated or the announcement of any
of the foregoing.
70
The representations and warranties made by Parent and Merger
Sub to the Company include representations and warranties relating to, among
other things:
-
their due organization, existence and good standing;
-
their corporate power and authority to execute, deliver and perform their
obligations under and to consummate the transactions contemplated by the
merger agreement, and the enforceability of the merger agreement against them;
-
the absence of conflicts with, or breaches or defaults under,
organizational documents, contracts and applicable law;
-
governmental consents and approvals;
-
operations and ownership of Merger Sub;
-
the absence of legal proceedings against Parent, Merger Sub or any of
their respective affiliates;
-
the accuracy of the information provided by Parent or Merger Sub or any of
its subsidiaries for inclusion in the Schedule 13E-3 and this proxy statement;
-
sufficiency of funds in the financing to pay the aggregate merger
consideration and other amounts required to be paid in connection with the
consummation of the transactions contemplated by the merger agreement;
-
delivery of the facility agreement, the equity commitment letters and the
contribution agreements and the absence of any default thereunder;
-
Parent and Merger Sub has no reason to believe that it will be unable to
satisfy on a timely basis each and every term or condition of closing to be
satisfied by it in any of the financing documents or the contribution
agreements, on or prior to the closing date of the merger;
-
the absence of conditions precedent to the funding or investing of the
full amount of the debt financing and the equity financing other than as
expressly set forth in or contemplated by the financing documents;
-
the absence of any side letters or other agreements to which Parent or its
affiliates are a party relating to the financing or investing;
-
the absence of any undisclosed brokers or finders fees;
-
the absence of any other arrangements between or among Mr. Xia, Holdco,
Parent, Merger Sub, SAIF IV, guarantor or any of their respective affiliates,
on the one hand, and any stockholder, member of the Company board or officer
of the Company, on the other hand relating to the merger agreement, the merger
or any other transactions contemplated by the merger agreement, or the
ownership or operation of Parent, the surviving corporation or any of its
subsidiaries, businesses or operations (including as to continuing employment)
from and after the effective time of the merger;
-
the absence of any undisclosed side letters or other agreements among the
Mr. Xia, Holdco, SAIF IV, Parent, Merger Sub and guarantor or any of their
respective affiliates relating to the transactions contemplated by the merger
agreement;
-
independent investigation conducted by Parent and Merger Sub and
non-reliance on the Companys estimates, projections, forecasts, plans or
budgets;
71
-
the execution and the validity and enforceability of the limited guarantee
provided by Mr. Xia and SAIF IV of certain obligations of Parent and the
absence of any default thereunder;
-
solvency of Parent, Merger Sub and the surviving corporation immediately
following consummation of the merger; and
-
acknowledgement as to the absence of any other representations and
warranties.
Many of the Parents and Merger Subs representations and
warranties are qualified as to, among other things materiality or Parent
material adverse effect. For purposes of the merger agreement, Parent material
adverse effect means any circumstance, event, change, effect or development
that, individually or in the aggregate, prevents, materially impedes, interferes
with, hinders or delays the consummation by Parent or Merger Sub of the
transactions contemplated by the merger agreement on a timely basis, including
the merger.
Conduct of Business Prior to Closing
Under the merger agreement, the Company has agreed that,
subject to certain exceptions set forth in the merger agreement and the
disclosure letter the Company delivered in connection with the merger agreement
or with the written consent of Parent, from the date of the merger agreement
until the earlier of the effective time of the merger or the termination of the
merger agreement, the Company will and will cause each of its subsidiaries to
conduct its business in the ordinary course in all material respects and use
reasonable best efforts to maintain and preserve intact its business
organizations and advantageous business relationships, and keep available the
services of its current key officers and employees.
Subject to certain exceptions set forth in the merger agreement
and the disclosure letter the Company delivered in connection with the merger
agreement or as required by applicable law or a governmental entity, unless
Parent consents in writing, the Company will not and will not permit its
subsidiaries to, among other things:
-
issue, sell, pledge, dispose, encumber, grant, or authorize any capital
stock of the Company or any of its subsidiaries, subject to certain
exceptions;
-
make, declare, pay or set aside dividends or other distribution with
respect to the capital stock of the Company or any of its subsidiaries (except
for dividends paid by any subsidiaries);
-
adjust, split, combine, redeem, or otherwise acquire any of the capital
stock of the Company or any of its subsidiaries, subject to certain
exceptions;
-
sell, transfer, mortgage, encumber, or otherwise dispose of or discontinue
any of the Companys assets, deposits, business or properties, other than in
the ordinary course of business;
-
acquire all or any portion of assets, business, deposits or properties of
any other entity;
-
amend the governing documents of the Company or its subsidiaries in any
material respect;
-
change accounting principles or methods, except as required by United
States generally accepted accounting principles or applicable regulatory
accounting requirements or as a result of change in law;
-
grant any material increases in the compensation of any of the Companys
or its subsidiaries directors or executive officers other than in the
ordinary course of business;
-
except in the ordinary course of business and consistent with past
practice, (a) grant or increase any severance, change in control, termination
or similar compensation or benefits payable to any director, officer or
employee, (b) accelerate the time of payment or vesting of, or the lapsing of
restrictions with respect to, or fund or otherwise secure the payment of, any
compensation or benefits under any Company option plan, (c) enter into,
terminate or materially amend any Company option plan (or any plan, program,
agreement, or arrangement that would constitute a plan if in effect on the date hereof), (d)
enter into any employment agreement with any officer or employee of the
Company or any subsidiary of the Company, (e) establish, adopt, enter into or
amend any collective bargaining agreement, plan, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees of the Company or its subsidiaries or any of their beneficiaries, or
(f) issue or grant any options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exercisable or exchangeable for, or giving
any person any right to subscribe for or acquire, for any shares of Company
common stock, or contracts, commitments, understandings or arrangements by
which the Company or any subsidiary is or may become bound to issue additional
shares of Company common stock or preferred stock;
72
-
incur or guarantee any long-term indebtedness for borrowed money;
-
enter into, terminate, modify or amend any contracts that calls for annual
aggregate payments of $1,000,000 or more with a term longer than one year
which cannot be terminated without material penalty upon notice of ninety days
or less, other than in the ordinary course of business; or
-
agree to take any of the actions prohibited by the foregoing.
Parent Forbearance
Except as expressly contemplated by or permitted by the merger
agreement or with the written consent of the Company, during the period from the
date of the merger agreement until the earlier of the effective time of the
merger or the termination of the merger agreement, neither Parent nor Merger Sub
shall, and Parent shall cause Merger Sub not to, engage in any business activity
or operations.
Access to Information
Upon reasonable notice and subject to applicable laws relating
to the confidentiality of information or requirements of governmental entities
and certain other exceptions, the Company shall, and shall cause each of its
subsidiaries to, afford Parents representatives reasonable access, during
normal business hours, upon reasonable advance notice, to all of its properties,
books, contracts, commitments and records, and, during such period, each of
Parent and the Company shall, and shall cause its subsidiaries to, make
available to the other party (a) to the extent not publicly available, a copy of
each report, schedule, correspondence, registration statement and other document
filed or received by it during such period pursuant to the requirements of
federal or state securities laws and (b) all other information concerning its
business, properties and personnel as the other party may reasonably
request.
Alternative Takeover Proposals
From June 8, 2012 until 11:59 p.m. New York City time on July 18, 2012
(the go-shop period), the
Company and its subsidiaries and their respective representatives are permitted
to:
-
solicit, initiate, facilitate and encourage any inquiry or the making of
takeover proposals from third parties, including by providing third parties
access to information pursuant to confidentiality agreements containing terms
at least as restrictive with respect to such third parties as the
confidentiality terms contained in the merger agreement (provided that the
Company simultaneously or as promptly as reasonably practicable provides any
material non-public information concerning the Company or its subsidiaries to
Parent if not previously provided to Parent); and
-
enter into, continue or otherwise participate in discussions or
negotiations with any person with respect to any takeover proposal, or
otherwise cooperate with, assist, participate in, facilitate or take any
action in connection with such inquiries, proposals, discussions or
negotiations.
73
From and after 12:00 a.m. New York City time on July 19, 2012,
the Company and its subsidiaries and their respective representatives are
required to immediately cease any discussions or negotiations with any persons
that may be ongoing with respect to any takeover proposals, except as may relate
to continuing parties (as defined below). From and after 12:00 a.m. New York City on July 19,
2012 until the earlier of the effective time of the merger or the termination of
the merger agreement, the Company and its subsidiaries and their respective
representatives will not:
-
solicit, initiate, knowingly encourage or knowingly induce the making of
takeover proposals from any third parties;
-
provide any material non-public information concerning the Company or its
subsidiaries to a third party in connection with a takeover proposal; or
-
engage in discussions or negotiations with any third party concerning a
takeover proposal.
However, the Company may continue to engage in the actions
described in the first and second bullet above 11:59 p.m. New York City time on
August 2, 2012 with a continuing party.
During the go-shop period, at the direction of the special committee, William Blair contacted 59
parties, including 30 financial sponsors and 29 strategic parties, to solicit
interest in a possible alternative transaction. Prior to the expiration of the
go-shop period, two potential buyers indicated interests in an alternative
transaction involving the Company. However, after their discussions with the
financial and legal advisors to the special committee, neither of these two
potential buyers entered into a non-disclosure agreement with the Company in a
form and on terms that are customary in similar transactions and satisfactory to
the Company, and therefore, the negotiations and discussions with both potential
buyers were suspended. As a result, despite these efforts, the Company did not
receive any alternative takeover proposals during the go-shop period.
Prior to the time the Companys stockholders approve the merger
agreement, if the Company receives an unsolicited written takeover proposal from
a third party that the special committee determines in good faith (after
consultation with its financial and legal advisors) could result in a superior
proposal and the failure to take action would result in a breach of its
fiduciary duties under applicable law, the Company may:
-
contact such party to clarify and understand the terms and conditions
thereof to the extent the special committee shall have determined in good
faith that such contact is necessary to determine whether such proposal or is
reasonably likely to result in a superior proposal;
-
furnish information to such party pursuant to an acceptable
confidentiality agreement; and
-
engage in discussions or negotiations with such party with respect to such
proposal.
The Company shall promptly advise Parent within 24 hours,
orally or in writing, of any takeover proposal, any initial request for
non-public information and any initial request for discussions or negotiations
related to a takeover proposal. In connection with such notice, Company must
also provide the material terms and conditions and the identity of the third
party making the takeover proposal or request. The Company must also keep Parent
informed in all material respects of the status and details of such takeover
proposal or request.
The merger agreement provides that the board of directors of
the Company can only (a)(i) withdraw (or modify in a manner adverse to Parent
and Merger Sub), or propose publicly to withdraw (or modify in a manner adverse
to Parent and Merger Sub), the board of directors recommendation or (ii) adopt,
approve or recommend, or propose publicly to adopt, approve or recommend, any
takeover proposal (any action in this clause (a) being referred to as a
change of recommendation
) or (b) adopt, approve or recommend, or allow
the Company or any of its subsidiaries to execute or enter into, any letter of
intent, memorandum of understanding, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement constituting
or related to, or that would reasonably be expected to result in, any takeover
proposal (other than a confidentiality agreement referred to under the merger
agreement) if at any time prior to the receipt of the requisite stockholder
approvals of the merger, (x) the special committee determines in good faith
(after consultation with the Companys outside legal advisors) that the failure
to do so would be inconsistent with its fiduciary duties under applicable law,
then the board of directors of the Company, acting upon the recommendation of
the special committee, may make a change of recommendation; and (y) the board of
directors of the Company determines in good faith (after consultation with the
Companys outside financial and legal advisors) that a takeover proposal
constitutes a superior proposal, then the Company may enter into a definitive
written agreement with respect to such superior proposal and terminate the
merger agreement.
The Company is not entitled to effect a change of
recommendation or terminate the merger agreement unless (i) the Company has
provided written notice at least five business days in advance to Parent and
Merger Sub advising Parent that the board of directors of the Company intends to
make a change of recommendation or enter into a definitive written agreement
with respect to such superior proposal, as applicable, and specifying the
reasons therefor, including in the case of a superior proposal the material
terms and conditions of such superior proposal that is the basis of the proposed
action by the board of directors of the Company (including the identity of the
third party making the superior proposal and any financing materials
related thereto, if any), (ii) during the five business day period following
Parents and Merger Subs receipt of the notice of superior proposal, the
Company will, and will cause its representatives to, negotiate with Parent and
Merger Sub in good faith (to the extent Parent and Merger Sub desire to
negotiate) to make such adjustments in the terms and conditions of the merger
agreement and the financing commitments so that such superior proposal ceases to
constitute a superior proposal, and (iii) following the end of the five business
day period, the board of directors of the Company and the special committee will
have determined in good faith, taking into account any changes to the merger
agreement and the terms of the debt financing and the equity financing proposed
in writing by Parent and Merger Sub in response to the notice of superior
proposal or otherwise, that the superior proposal giving rise to the notice of
superior proposal continues to constitute a superior proposal. Any material
amendment to the financial terms or any other material amendment of such
superior proposal will require a new notice of superior proposal and the Company
will be required to comply again with the procedures in this paragraph, provided
that references above in this paragraph to five business days will be changed to
references to three business days.
74
The Company is not restricted from issuing a stop, look and
listen communication pursuant to Rule 14d-9(f) promulgated under the Exchange
Act or taking or disclosing to its stockholders any position contemplated by
Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act or from making
any other disclosure to its stockholders to comply with applicable law.
As used in this proxy statement, the following terms shall have
the following meanings:
The term
continuing party
means any person or group
(other than Parent or Merger Sub) (i) from whom the Company has received, after
the date of the merger agreement and prior to July 18, 2012, a written takeover
proposal that the Company board and the special committee determines, as of July
18, 2012, in good faith (after consultation with its independent financial
advisor and outside legal counsel) would reasonably be expected to result in a
superior proposal and (ii) is engaged in good faith discussions with the Company
with respect to such takeover proposal immediately prior to 11:59 p.m. New York
time on July 18, 2012.
The term
takeover proposal
means any proposal or offer
made by any third party to purchase or otherwise acquire (A) beneficial
ownership (as defined under section 13(d) of the Exchange Act) of 15% or more of
any class of equity securities of the Company pursuant to a merger,
consolidation or other business combination, sale of shares of capital stock,
tender offer, exchange offer or similar transaction or (B) any one or more
assets or businesses of the Company and its subsidiaries that constitute 15% or
more of the revenues or assets of the Company and its subsidiaries, taken as a
whole.
The term
superior proposal
means a written takeover
proposal (provided that for purposes of this definition, references to 15% in
the definition of takeover proposal shall be deemed to be references to 50%)
on terms which the board of directors of the Company and the special committee
determines in good faith (after consultation with the Companys outside legal
and financial advisors) to be more favorable to the Companys unaffiliated
stockholders than the terms of the merger agreement (taking into account such
factors as the board of directors of the Company and the special committee deems
appropriate including any changes to the terms of the merger agreement proposed
by Parent) and to be reasonably capable of being consummated on the terms
proposed.
75
Indemnification; Directors and Officers Insurance
Parent and the surviving corporation will assume the
indemnification obligations, now existing in favor of the Indemnified Parties
with respect to acts or omissions occurring at or prior to the effective time of
the merger, as provided in the organizational documents of the Company or its
subsidiaries. The articles of incorporation and bylaws of the surviving
corporation will contain provisions no less favorable to the Indemnified Parties
with respect to rights to indemnification, advancement of expenses and
limitations on liabilities as set forth in the Companys organizational
documents in effect as of the date of the merger agreement. The relevant
provisions may not be amended, repealed or otherwise modified in a manner that
would adversely affect the rights of the Indemnified Parties, unless such
modification is required by applicable law.
Following the effective time of the merger, Parent and the
surviving corporation will, jointly and severally, indemnify and hold harmless
each Indemnified Party, and anyone who becomes an Indemnified Party between the
date of the merger agreement and the effective time of the merger, against any
costs or expenses (including reasonable attorneys fees and expenses),
judgments, losses, claims, damages or liabilities and amounts paid in settlement
incurred in connection with any actual or threatened proceeding, including any
matter arising in connection with the transactions contemplated by the merger
agreement, to the fullest extent permitted by applicable law (and Parent and the
surviving corporation will also advance expenses as incurred to the fullest
extent permitted under applicable law). Notwithstanding anything to the contrary
contained in the merger agreement, Parent shall not (and Parent will cause the
surviving corporation not to) settle or compromise or consent to the entry of
any judgment or otherwise terminate any proceeding, unless such settlement,
compromise, consent or termination includes an unconditional release of all of
the Indemnified Parties from all liability and does not include an admission of
fault or wrongdoing by any Indemnified Party.
For at least six years after the effective time of the merger,
(i) Parent and the surviving corporation will maintain the existing directors
and officers liability insurance and fiduciary insurance (or substitute
policies including comparable coverage) maintained by the Company as of the date
of the merger agreement, covering claims arising from facts or events that
occurred on or before the effective time of the merger, including the
transactions contemplated by the merger agreement (provided that Parent or the
surviving corporation, as applicable, will not be required to pay an annual
premium for such insurance in excess of 300% of the total annual premiums
currently paid by the Company on a yearly basis; and (ii) Parent and the
surviving corporation will not take any action that would prejudice the rights
of, or impede recovery by, the beneficiaries of any such insurance, whether in
respect of claims arising before or after the effective time of the merger. In
lieu of such insurance, prior to the effective time of the merger, the Company
may purchase a six year tail prepaid policy with substantially similar
coverage (provided that the premium for such tail policy shall not exceed an
amount equal to 300% of the total annual premiums currently paid by the Company
on a yearly basis).
Financing
As of the date of the merger agreement, Parent has delivered to
the Company a copy of the executed facility agreement from CDB, pursuant to
which CDB has committed to provided debt financing to Parent in the aggregate
amount set forth therein.
Holdco, Parent and Merger Sub will use their reasonable best
efforts to complete the debt financing and the equity financing on the terms and
conditions described in the financing documents and shall not agree to any
amendment or modification to be made to, or any waiver of any provision or
remedy under, the financing documents without the prior written consent of the
special committee if such amendments, modifications or waivers would or would
reasonably be expected to (i) reduce the aggregate amount of the debt financing
and equity financing below the amount required to consummate the merger, (ii)
impose new or additional conditions to the receipt of the debt financing or the
equity financing, (iii) prevent or materially delay the consummation of the
transactions contemplated by the merger agreement or (iv) adversely impact the
ability of Holdco, Parent or Merger Sub enforce its rights against the other
parties to the financing documents.
Holdco, Parent and Merger Sub will use their reasonable best
efforts to (i) negotiate definitive agreements with respect to the equity
financing on reasonably acceptable terms and conditions, and (ii) satisfy on a
timely basis all conditions applicable to the debt financing set forth in the
facility agreement. In the event that all conditions to funding under the
financing documents (other than, with respect to the debt financing, the
availability of the equity financing) have been satisfied, Holdco and Parent will use
their reasonable best efforts to cause the bank lender, Mr. Xia and SAIF IV to
fund the debt financing and the equity financing required to consummate the
transactions contemplated by the merger agreement.
76
In the event that any portion of the debt financing or the
equity financing on the terms and conditions contemplated by the financing
documents, (i) Parent shall promptly notify the Company, and (ii) Holdco, Parent
and Merger Sub shall each use its reasonable best efforts to arrange to obtain
alternative financing from alternative sources on terms not materially less
beneficial to Holdco, Parent and Merger Sub, in an amount sufficient to
consummate the merger as promptly as possible, but in any event no later than
the earlier of (a) thirty days after the originally contemplated closing date,
or (b) at ten business days prior to April 7, 2013.
Holdco, Parent and Merger Sub will each use its reasonable best
efforts to consummate the transactions contemplated by the contribution
agreements immediately prior to the closing on the terms and conditions
described in the contribution agreements and will not agree to any amendment or
modification to be made to, or any waiver of any provision or remedy under, the
contribution agreements that would reasonably be expected to (in the special
committees reasonable judgment) prevent, materially delay or materially impede
the consummation of the transactions contemplated by the merger agreement.
The Company and its subsidiaries will use reasonable best
efforts to provide to Holdco, Parent and Merger Sub, and to use its reasonable
best efforts to cause its representatives to provide (each at Parents sole
expense), such cooperation reasonably requested by Parent that is necessary in
connection with the debt financing, (provided that such requested cooperation
would not require the Company to pay or agree to pay any fees or expenses or
give any indemnities prior to effective time of the merger and does not
unreasonably interfere with the ongoing operations of the Company and its
subsidiaries). Parent or Merger Sub will, promptly upon request by the Company,
reimburse the Company for all reasonable and documented out-of-pocket costs
incurred by the Company or any of its subsidiary or any of their representatives
in connection with such cooperation requested by Parent.
Parent will indemnify, defend, and hold harmless the Company,
its subsidiaries and their respective representatives from and against any and
all losses suffered or incurred by them in connection with (i) any action taken
by them at the request of Holdco, Parent or Merger Sub pursuant to the foregoing
or in connection with the arrangement of any debt financing or (ii) any
information utilized in connection therewith (other than information provided by
the Company or its subsidiaries).
Obligation of Parent
At the stockholders meeting and any other meeting of the
stockholders of the Company called to seek the stockholder approvals or in any
other circumstances upon which a vote, consent or other approval (including by
written consent) with respect to the merger agreement, the merger or any other
transactions contemplated is sought, Parent will cause the Rollover Shares to be
voted in favor of granting the stockholder approvals.
Payment to Certain Creditor
Pursuant to a memorandum of cooperation between China TransInfo
Group Co., Ltd., a variable interest entity of the Company, and Beijing Shiji
Yingli Technologies, Co., Ltd. (
BSYT
), dated as of October 19, 2010,
BSYT transferred the NEDO Project to China TransInfo Group Co., Ltd. In
consideration for the benefits received in the transfer of the NEDO Project, the
Company has agreed to issue 200,000 shares to BSYT (the
NEDO Project
Shares
) or otherwise pay BSYT an amount in cash equal to the value of NEDO
Project Shares. Unless otherwise mutually agreed in writing between Parent and
BSYT, no later than two business days after the effective time of the merger,
Parent will pay, or will cause to be paid, to Mr. Xiao Yu, as the beneficiary
designated by BSYT, an amount in cash equal to $1,160,000, which is the amount
equal to (x) the merger consideration multiplied by (y) the number of the NEDO
Project Shares, in substitution for, and in full satisfaction of, the Companys
obligation to deliver the NEDO Project Shares.
Conditions to the Merger
The consummation of the merger is subject to the satisfaction
or waiver by Parent and the Company of the following conditions:
77
-
the requisite stockholder approvals of the merger shall have been
obtained; and
-
no order, injunction or decree issued by any court or agency of competent
jurisdiction or other law preventing the consummation of the merger or any of
the transactions contemplated by the merger agreement is in effect.
The obligations of Parent and Merger Sub to consummate the
merger are also subject to the satisfaction, or waiver by Parent, of the
following conditions:
-
the representations and warranties of the Company set forth in the merger
agreement, without giving effect to any materiality or material adverse effect
qualifications therein, being true and correct as of the date of the merger
agreement and as of the effective time of the merger (except that
representations and warranties that by their terms speak specifically as of
the date of the merger agreement or another date shall be so true and correct
as of such date), except where the failure to be true and correct would not
reasonably be expected to have, in the aggregate, a material adverse effect,
and Parent and Merger Sub shall have received a certificate signed on behalf
of the Company by a senior executive officer of the Company to such effect;
-
the Company having performed in all material respects all obligations
required to be performed by it under the merger agreement at or before the
effective time of the merger, and Parent and Merger Sub shall have received a
certificate signed on behalf of the Company by a senior executive officer of
the Company to such effect; and
-
since the date of the merger agreement, no effect, change, event or
occurrence having occurred that has had, or would reasonably be expected to
have, a material adverse effect, and Parent and Merger Sub shall have received
a certificate signed on behalf of the Company by a senior executive officer of
the Company to such effect.
The obligations of the Company to consummate the merger are
subject to the satisfaction, or waiver by the Company, of the following
conditions:
-
the representations and warranties of Parent and Merger Sub set forth in
the merger agreement being true and correct as of the date of the merger
agreement and as of effective time of the merger (except that representations
and warranties that by their terms speak specifically as of the date of the
merger agreement or another date shall be so true and correct as of such
date), except when a failure to be true and correct would not reasonably be
expected to have, in the aggregate, a Parent material adverse effect, and the
Company shall have received a certificate signed by a senior executive officer
of Parent to such effect; and
-
each of Parent and 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 effective time of the merger, and the Company shall have
received a certificate signed by a senior executive officer of Parent to such
effect.
Termination
The merger agreement may be terminated at any time prior to the
effective time of the merger, whether before or after requisite stockholder
approvals of the merger have been obtained:
by mutual written agreement of the Company and Parent;
by either of the Company or Parent, if:
-
any governmental entity has issued a final order, injunction or decree
permanently enjoining or otherwise prohibiting consummation of the merger;
provided, that this termination right will not be available to a party if the
failure of such party to fulfill any of its obligations under the merger agreement is the primary cause or material
contributing factor to the denial of such approval, or issuance of such final
order, injunction or decree;
78
-
the merger is not completed by April 7, 2013, provided that this
termination right will not be available to a party if the failure of such
party to fulfill any of its obligations under the merger agreement is the
primary cause or material contributing factor to the failure of the closing to
occur by that date; or
-
our stockholders do not approve the merger agreement at the special
meeting or any adjournment or postponement thereof.
by the Company:
-
if Parent or Merger Sub has breached any of its representations
warranties, covenants or agreements under the merger agreement, such that the
corresponding condition to closing would not be satisfied and such breach or
inaccuracy cannot be cured or if curable, is not cured by Parent or Merger Sub
within thirty business days after written notice of such breach or if earlier,
by April 7, 2013, provided that this termination right will not be available
to the Company if a material breach of the merger agreement by the Company is
the primary cause or material contributing factor to the failure of such
condition to be satisfied;
-
if all of the closing conditions are otherwise satisfied or waived by
Parent but Parent and Merger Sub fail to close within two business days
following the date the closing should have occurred; or
-
if the Company effects a change of recommendation or enters into a
definitive written agreement with respect to a superior proposal after (a)
complying with the applicable provisions of the merger agreement and (B)
paying to Parent a termination fee payable pursuant to the merger agreement.
by Parent, if:
-
if the Company has breached any of its representations, warranties,
covenants or agreements under the merger agreement, such that the
corresponding condition to closing would not be satisfied and such breach or
inaccuracy cannot be cured or if curable, is not cured by the Company within
thirty business days after written notice of such breach or if earlier, by
April 7, 2013, provided that this termination right will not be available to
Parent if a material breach of the merger agreement by Parent is the primary
cause or material contributing factor to the failure of such condition to be
satisfied; or
-
the board of directors of the Company effects a change of recommendation.
Termination Fees and Reimbursement of Expenses
The Company is required to pay Parent a termination fee of $1.5
million, approximately 1% of the enterprise value of the Company calculated
based on the $5.80 per share merger consideration, in the event the merger
agreement is terminated:
-
by the Company in order to effect a change of recommendation or enter into
a definitive written agreement with respect to a superior proposal;
-
by Parent or the Company due to (a)(i) a failure of either the Company or
Parent to consummate the merger by April 7, 2013 or (ii) a failure by the
Company to obtain the requisite stockholder approvals of the merger and (b) on
or after the signing of the merger agreement but prior to the date of the
stockholders meeting, a third party makes a takeover proposal which is
publicly disclosed and not withdrawn and (c) within twelve months following
such termination, the Company consummates or enters into a transaction with
respect to such takeover proposal; or
79
-
by Parent due to (i) a breach by Company of any of their representations,
warranties, covenants or agreements under the merger agreement, such that the
corresponding condition to closing would not be satisfied; or (ii) the board
of directors of the Company effects a change of recommendation.
Parent is required to pay the Company a termination fee of $2.8
million, approximately 2% of the enterprise value of the Company calculated
based on the $5.80 per share merger consideration, in the event the merger
agreement is terminated by the Company:
-
due to a breach by Parent or Merger Sub of any of their representations,
warranties, covenants or agreements under the merger agreement, such that the
corresponding condition to closing would not be satisfied ; or
-
if all of the closing conditions are otherwise satisfied or waived by
Parent but Parent and Merger Sub fail to close within two business days
following the date the closing should have occurred.
Fees and Expenses
All fees and expenses incurred in connection with the merger
agreement, the merger and the other transactions contemplated thereby, other
than fees and expenses described under the section entitled
The Merger
AgreementTermination Fees and Reimbursement of Expenses
above, will be
paid by the party incurring such fees and expenses, whether or not the merger or
any of the transactions contemplated by the merger agreement are consummated.
Remedies
The Companys right to terminate the merger agreement and
receive payment of (i) a termination fee of $2.8 million, approximately 2% of
the enterprise value of the Company calculated based on the $5.80 per share
merger consideration, in connection with the merger from Parent, (ii) any
reimbursement of costs and expenses pursuant to the merger agreement, and (iii)
any amount in respect of which it is indemnified by Parent pursuant to the
merger agreement under certain circumstance is the sole and exclusive remedy to
the Company against the Parent, Merger Sub, their respective affiliates or
financing source for any loss or damage suffered as a result of any such breach
or failure to perform under the merger agreement or other failure of the merger
to be consummated. However, such limitation of remedies shall not apply in the
event Parent has not deposited or caused to be deposited in full the amounts as
set forth in the merger agreement within one business day following the
effective time of the merger.
Subject to any equitable remedies Parent may be entitled to,
Parents right to receive payment of (i) a termination fee of $1.5 million,
approximately 1% of the enterprise value of the Company calculated based on the
$5.80 per share merger consideration, and (ii) any reimbursement of costs and
expenses pursuant to the merger agreement, is the sole and exclusive remedy of
Parent and Merger Sub against the Company for any loss or damage suffered as a
result of any such breach or failure to perform under the merger agreement or
other failure of the merger to be consummated.
Parent and Merger Sub are entitled to specific performance of
the terms under the merger agreement, including an injunction or injunctions to
prevent breaches of the merger agreement and to enforce specifically the terms
and provisions of the merger agreement. The Company is not entitled to an
injunction or injunctions to prevent breaches of the merger agreement by Parent
or Merger Sub or any remedy to enforce specifically the terms and provisions of
the merger agreement.
Amendment; Waiver of Conditions
The merger agreement may be amended with the approval of the
respective boards of directors of the parties at any time; provided, however,
that in the case of the Company, the board of directors and the special
committee must approve such amendment in writing; and provided further, that
after any such approval of the merger agreement by the requisite stockholder
approvals, no amendment shall be made which changes the merger consideration,
adversely affects the unaffiliated stockholders, or otherwise requires further
approval of the stockholders by law without the further approval of such
stockholders.
80
At any time before the consummation of the merger, each of the
parties to the merger agreement may waive compliance with any of the agreements
or conditions contained in the merger agreement to the extent permitted by
applicable law.
COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS
The following table sets forth information regarding beneficial
ownership of Company common stock, as of the date of this proxy statement, (i)
by each person who is known by us to beneficially own more than 5% of Company
common stock; (ii) by each of our officers and directors; (iii) by all of our
officers and directors as a group; and (iv) the Rollover Holders. Information
concerning beneficial ownership was obtained from publicly available
filings.
Unless otherwise specified, the address of each of the persons
set forth below is in care of China TransInfo Technology Corp., 9
th
Floor, Vision Building, No. 39 Xueyuanlu, Haidian District, Beijing, PRC,
100191.
Name & Address of
Beneficial Owner
|
Office, if Any
|
Title of Class
|
Amount &
Nature
of Beneficial
Ownership
(1)
|
Percent of
Class
(2)
|
Officers and
Directors
|
Shudong Xia
|
Chairman, President, Chief Executive
Officer and Secretary
|
Common Stock,
$0.001 par value
|
7,037,077
(3)
|
27.85%
|
Rong Zhang
|
Chief Financial
Officer
|
Common Stock
$0.001 par value
|
189,337
|
*
|
Danxia Huang
|
Vice President of Operations,
Treasurer and Director
|
Common Stock
$0.001 par value
|
509,896
|
2.02%
|
Zhibin Lai
|
Vice President
|
Common Stock
$0.001 par value
|
634,378
|
2.51%
|
Zhiping Zhang
|
Vice President of Research and
Development
|
Common Stock
$0.001 par value
|
628,088
|
2.49%
|
Shan Qu
|
Vice President
|
Common Stock
$0.001 par value
|
112,500
|
*
|
Walter Teh-Ming Kwauk
|
Director
|
Common Stock
$0.001 par value
|
5,000
|
*
|
Zhongsu Chen
|
Director
|
Common Stock
$0.001 par value
|
30,000
|
*
|
Dan Liu
|
Director
|
Common Stock
$0.001 par value
|
0
|
*
|
Brandon Ho-Ping Lin
|
Director
|
Common Stock
$0.001 par value
|
30,000
|
*
|
Xingming Zhang
|
Director
|
Common Stock
$0.001 par value
|
20,000
|
*
|
All officers and directors as a
group
(11 persons named above)
|
|
Common Stock
$0.001 par value
|
9,196,276
|
36.39%
|
81
5% Securities
Holder
|
Leguna Verde
Investments, Ltd.
P.O. Box
3444
Road Town, Tortola
British Virgin Islands
|
|
Common Stock
$0.001 par value
|
1,275,218
(4)
|
5.05%
|
Karmen Investment
Holdings
Limited
P.O. Box 3444
Road Town, Tortola
British Virgin
Islands
|
|
Common Stock
$0.001 par value
|
6,005,242
(3)
|
23.76%
|
SAIF Partners III L.P.
#2516, Two Pacific
Place,
88 Queensway,
Admiralty,
Hong Kong
|
|
Common Stock
$0.001 par value
|
4,151,152
(5)
|
16.43%
|
Andrew Y. Yan
#2516, Two
Pacific Place,
88 Queensway,
Admiralty,
Hong Kong
|
|
Common Stock
$0.001 par value
|
4,151,152
(5)
|
16.43%
|
Total Shares Owned by Persons Named above:
|
|
Common Stock
$0.001 par value
|
14,548,590
|
56.87%
|
Rollover
Holder
|
Shudong Xia
|
Chairman, President, Chief Executive
Officer and Secretary
|
Common Stock,
$0.001 par value
|
7,037,077
(3)
|
27.85%
|
Karmen Investment
Holdings
Limited
P.O. Box 3444
Road Town, Tortola
British Virgin
Islands
|
|
Common Stock
$0.001 par value
|
6,005,242
(3)
|
23.76%
|
SAIF Partners III L.P.
#2115, Two Pacific
Place,
88 Queensway,
Admiralty,
Hong Kong
|
|
Common Stock
$0.001 par value
|
4,151,152
(5)
|
16.43%
|
Danxia Huang
|
Vice President of
Operations, Treasurer and Director
|
Common Stock
$0.001 par value
|
509,896
|
2.02%
|
Shufeng Xia
|
|
Common Stock
$0.001 par value
|
500,000
|
1.98%
|
82
*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
Company common stock.
|
|
|
(2)
|
A total of 25,270,069 shares of Company common stock as
of date of this proxy statement are considered to be outstanding pursuant
to SEC Rule 13d-3(d)(1). For each beneficial owner above, any options
exercisable within 60 days have been included in the
denominator.
|
|
|
(3)
|
Includes 6,005,242 shares of Company common stock owned
by Karmen, which is wholly owned by East Action Investment Holdings Ltd.
of which Shudong Xia is the sole shareholder. Mr. Xia is deemed to be a
beneficial owner of the shares held by Karmen.
|
|
|
(4)
|
Chuang Yang is the owner of Leguna Verde Investments,
Ltd. and exercises voting and investment power over the shares owned by
Leguna Verde Investments, Ltd. Mr. Yang is deemed to be a beneficial owner
of the shares held by Leguna Verde Investments, Ltd.
|
|
|
(5)
|
Andrew Y. Yan is the sole shareholder and sole director
of SAIF III GP Capital Ltd., a limited liability entity formed under the
laws of the Cayman Islands, the sole general partner of SAIF III GP, L.P.,
a limited partnership formed under the laws of the Cayman Islands, which
in turn is the sole general partner of SAIF Partners III L.P., a limited
partnership formed under the laws of the Cayman Islands. Mr. Yan is deemed
to have shared voting and dispositive powers with respect to the
securities held by SAIF Partners III L.P.
|
Changes in Control
Except for the proposed merger, there are currently no other
arrangements known to us, including any pledge by any person of our securities,
the operation of which may at a subsequent date result in a change in control of
the Company.
COMMON STOCK TRANSACTION INFORMATION
The Company has not made any underwritten public offering of
Company common stock for cash during the past three years that was registered
under the Securities Act or exempt from registration under Regulation A of the
Securities Act.
The Company has not purchased any shares of Company common
stock within the past two years.
The following table shows purchases of the Company common stock
during the past two years effected by Mr. Xia, showing the number of Company
common stock purchased, the range of prices paid for those shares and the
average price paid per quarter:
Quarter
|
Amount
|
Minimum Daily
Weighted Average
Price
(1)
(US$)
|
Maximum Daily
Weighted Average
Price
(2)
(US$)
|
Average Price (US$)
|
Quarter ended June 30, 2012
|
0
|
|
|
|
Quarter ended March 31, 2012
|
23,600
|
3.650
|
3.980
|
3.694
|
Quarter ended December 31, 2011
|
399,272
|
2.421
|
3.626
|
3.299
|
Quarter ended September 30, 2011
|
174,763
|
2.562
|
3.729
|
3.191
|
Quarter ended June 30, 2011
|
169,000
|
3.286
|
4.728
|
4.394
|
Quarter ended March 31, 2011
|
265,200
|
4.379
|
4.786
|
4.587
|
Quarter ended December 31, 2010
|
0
|
|
|
|
Quarter ended September 30, 2010
|
0
|
|
|
|
83
(1) The price reported is the lowest price from a comparison of
all daily weighted average prices (each calculated as the weighted average price
of all Company common stock purchased in a given day) in the applicable quarter.
(2) The price reported is the highest price from a comparison
of all daily weighted average prices (each calculated as the weighted average
price of all Company common stock purchased in a given day) in the applicable
quarter.
Other than the transactions listed above in this section, there
have been no prior stock purchases of Company common stock by any member of the
buyer group during the past two years.
APPRAISAL RIGHTS
You are not entitled to dissenters rights or any other
statutory rights of objection in connection with the merger under Nevada law.
Section 92A.390 of the NRS does not provide any right of dissent with respect to
a plan of merger under criteria described in that section of the NRS, which the
Company satisfies.
84
SELECTED FINANCIAL INFORMATION
Selected Historical Financial Information
Set forth below is certain selected historical consolidated
financial data relating to the Company. The financial data has been derived from
the audited financial statements filed as part of our Annual Report on Form 10-K
for the year ended December 31, 2011 and the unaudited financial statements
filed as part of our Quarterly Reports on Form 10-Q for the periods ended March
31, 2012 and 2011. The information set forth below is not necessarily indicative
of future results and should be read in conjunction with the financial
statements and the related notes and other financial information contained in
such Form 10-K and Forms 10-Q. See
Where You Can Find More Information
.
|
|
Three Months
Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
28,928,717
|
|
$
|
36,499,159
|
|
$
|
167,023,594
|
|
$
|
122,727,958
|
|
Gross Profit
|
|
9,582,605
|
|
|
10,393,121
|
|
|
44,675,825
|
|
|
42,448,493
|
|
Income From Operations
|
|
2,645,559
|
|
|
4,072,062
|
|
|
14,850,745
|
|
|
19,966,735
|
|
Net Income
|
|
2,419,296
|
|
|
2,967,276
|
|
|
13,967,152
|
|
|
15,469,158
|
|
Earnings Per Share From Continuing Operations
(Basic)
|
$
|
0.10
|
|
$
|
0.16
|
|
$
|
0.59
|
|
$
|
0.81
|
|
Earnings Per Share From
Continuing Operations (Diluted)
|
|
0.10
|
|
|
0.16
|
|
|
0.59
|
|
|
0.81
|
|
Net Income Per Share (Basic)
|
|
0.10
|
|
|
0.12
|
|
|
0.55
|
|
|
0.63
|
|
Net Income Per Share
(Diluted)
|
|
0.10
|
|
|
0.12
|
|
|
0.55
|
|
|
0.63
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
$
|
166,708,534
|
|
$
|
140,442,728
|
|
$
|
158,897,783
|
|
$
|
142,844,608
|
|
Total Non-current Assets
|
|
54,523,018
|
|
|
44,835,383
|
|
|
52,609,633
|
|
|
37,681,244
|
|
Total Assets
|
|
221,231,552
|
|
|
185,278,111
|
|
|
211,507,416
|
|
|
180,525,852
|
|
Total Current Liabilities
|
|
63,854,360
|
|
|
56,086,367
|
|
|
61,605,570
|
|
|
69,093,964
|
|
Total Long Term Liabilities
|
|
27,086
|
|
|
-
|
|
|
-
|
|
|
200,699
|
|
Total Equity
|
|
157,350,106
|
|
|
129,191,744
|
|
|
149,901,846
|
|
|
111,231,189
|
|
Ratio of Earnings to Fixed Charges
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Ratio of Earnings to Fixed
Charges(1)
|
|
31.79
|
|
|
24.12
|
|
|
45.92
|
|
(1) For purposes of calculating the ratio of earnings to fixed
charges, earnings consist of income before income taxes plus fixed charges.
Fixed charges consist of interest expense. The Ratio of Earnings to Fixed
Charges should be read in conjunction with the Consolidated Financial Statements
and Managements Discussion and Analysis of Financial Condition and Results of
Operations filed with the Companys Annual Report on Form 10-K and Quarterly
Report on Form 10-Q for the relevant periods.
Net Book Value per Share of Company Common Stock
The net book value per share of Company common stock as of
March 31, 2012 was $6.23, computed by dividing stockholders equity at the end
of such period by the weighted average number of shares of Company common stock
outstanding.
85
No separate financial information is provided for Parent
because Parent is a newly formed entity formed in connection with the merger and
has no independent operations. No pro forma data giving effect to the merger has
been provided. The Company does not believe that such information is material to
stockholders in evaluating the proposed merger and merger agreement because (i)
the proposed per share merger consideration is all-cash, and (ii) if the merger
is completed, Company common stock will cease to be publicly traded.
MARKET PRICE AND DIVIDEND INFORMATION
The Company common stock is listed for trading on the NASDAQ
Global Market under the symbol CTFO. The following table sets forth the
quarterly high and low sales prices of a share of Company common stock as
reported by the NASDAQ Global Market for the periods indicated. The quotations
listed below reflect inter-dealer prices, without retail mark-ups, mark-downs or
commissions and may not necessarily represent actual transactions.
|
|
Closing Bid Prices
|
|
|
|
High
|
|
|
Low
|
|
Year Ended December 31,
2012
|
|
|
|
|
|
|
1st Quarter
|
$
|
5.20
|
|
$
|
3.51
|
|
2nd Quarter
|
|
5.55
|
|
|
4.41
|
|
3rd Quarter (through August 9, 2012)
|
|
5.58
|
|
|
5.54
|
|
Year Ended December 31,
2011
|
|
|
|
|
|
|
1st Quarter
|
$
|
5.31
|
|
$
|
4.45
|
|
2nd Quarter
|
|
5.01
|
|
|
2.45
|
|
3rd Quarter
|
|
3.94
|
|
|
2.46
|
|
4th Quarter
|
|
3.63
|
|
|
2.43
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
1st Quarter
|
$
|
9.72
|
|
$
|
6.33
|
|
2nd Quarter
|
|
7.78
|
|
|
5.05
|
|
3rd Quarter
|
|
7.85
|
|
|
5.15
|
|
4th Quarter
|
|
6.43
|
|
|
4.28
|
|
If the merger is closed, there will be no further market for
shares of Company common stock and shares of Company common stock will be
delisted from the NASDAQ Global Market and deregistered under the Exchange
Act.
The Company has never paid dividends.
Accordingly, we do not
expect to declare or pay any further dividends prior to the merger, and under
the terms of the merger agreement, are prohibited from doing so.
On June 7, 2012, the last full trading day prior to the public
announcement of the terms of the offer and the merger, the reported closing
sales price per share on the NASDAQ Global Market was $4.52. On the record date,
the closing price per share was $ . You are encouraged to obtain current market
quotations for shares of Company common stock in connection with voting your
shares of Company common stock.
As of the record date, there were approximately
record holders
of shares of Company common stock.
PROPOSAL TWOADJOURNMENT OR POSTPONEMENT OF THE SPECIAL
MEETING
If there are insufficient votes at the time of the special
meeting to approve the merger agreement, we may propose to adjourn or postpone
the special meeting for the purpose of soliciting additional proxies to approve
the merger agreement. We currently do not intend to propose adjournment or
postponement at the special meeting if there are sufficient votes to approve the
merger agreement. If approval of the proposal to adjourn or postpone the special
meeting for the purpose of soliciting additional proxies is submitted to our
stockholders for approval, such approval requires the affirmative vote of the
holders of a majority of the shares of Company common stock present or
represented by proxy and voting on the matter.
86
Our board of directors unanimously recommends that you vote
FOR the proposal to adjourn or postpone the special meeting, if necessary or
appropriate, to solicit additional proxies if there are insufficient votes at
the time of the meeting to approve the merger agreement.
OTHER MATTERS
Other Matters for Action at the Special Meeting
As of the date of this proxy statement, the board of directors
of the Company knows of no other matters which may be presented for
consideration at the special meeting. However, if any other matter is presented
properly for consideration and action at the meeting or any adjournment or
postponement thereof, it is intended that the proxies will be voted with respect
thereto in accordance with the best judgment and in the discretion of the proxy
holders.
Submission of Stockholder Proposals
If the merger is completed, we will cease to have public
stockholders and there will be no public participation in any future meeting of
stockholders. However, if the merger is not completed, we expect to hold our
2012 annual meeting of stockholders. If you wish to have a proposal included in
our proxy statement for 2012 annual meeting (assuming that the merger is not
completed) in accordance with Rule 14a-8 under the Exchange Act, your proposal
must have been received by the Secretary of the Company at 9th Floor, Vision Building,
No. 39 Xueyuanlu, Haidian District, Beijing, China 100191, no later than the
close of business on March 1, 2012. A proposal which is received after that date
or which otherwise fails to meet the requirements for stockholder proposals
established by the SEC will not be included.
87
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This proxy statement contains forward-looking statements that
involve risks, uncertainties and assumptions. If such risks or uncertainties
materialize or such assumptions prove incorrect, the results of the Company and
its consolidated subsidiaries and actual results of matters related to the
merger could differ materially from those expressed or implied by such
forward-looking statements and assumptions. All statements other than statements
of historical fact are statements that could be deemed forward-looking
statements. In many cases you can identify forward-looking statements by the use
of words such as believe, anticipate, intend, plan, estimate, may,
could, predict, or expect and similar expressions, although the absence of
such words does not necessarily mean that a statement is not forward-looking.
You should be aware that forward-looking statements involve
known and unknown risks and uncertainties. We cannot assure you that the actual
results or developments reflected in these forward-looking statements will be
realized or, even if they are realized, that they will have the expected effects
on the merger or on our business or operations. These forward-looking statements
speak only as of the date on which the statements were made, and we assume no
obligation and do not intend to update these forward-looking statements, except
as required by law.
Risks, uncertainties and assumptions include the occurrence of
any event, change or other circumstances that could give rise to the termination
of the merger agreement; the possibility that various closing conditions for the
merger (including the requisite stockholder approvals of the merger) may not be
satisfied or waived; the possibility that alternative acquisition proposals will
or will not be made; the failure to obtain sufficient funds to close the merger;
the failure of the merger to close for any other reason; the amount of fees and
expenses related to the merger; the diversion of managements attention from
ongoing business concerns; the effect of the announcement of the merger on our
business relationships, operating results and business generally, including our
ability to retain key employees; the merger agreements contractual restrictions
on the conduct of our business prior to the completion of the merger; the
possible adverse effect on our business and the price of our common stock if the
merger is not completed in a timely matter or at all; the outcome of any legal
proceedings, regulatory proceedings or enforcement matters that have been or may
be instituted against us and others relating to the merger and other risks that
are set forth in the Companys filings with the SEC, which are available without
charge at
www.sec.gov
.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the
Exchange Act, as amended. We file reports, proxy statements and other
information with the SEC. You may read and print these reports, proxy statements
and other information at www.sec.gov, an Internet website maintained by the SEC
that contains reports, proxy statements and other information regarding
companies and individuals that file electronically with the SEC.
You also may obtain free copies of the documents the Company
files with the SEC by going to the Investors Relations section of our website
at
www.chinatransinfo.com
. Our website address is provided as an inactive
textual reference only. The information provided on our website is not part of
this proxy statement, and therefore is not incorporated by reference.
The information contained in this proxy statement speaks only
as of the date indicated on the cover of this proxy statement unless the
information specifically indicates that another date applies.
Statements contained in this proxy statement, or in any
document incorporated in this proxy statement by reference, regarding the
contents of any contract or other document, are not necessarily complete and
each such statement is qualified in its entirety by reference to that contract
or other document filed as an exhibit with the SEC. The SEC allows us to
incorporate by reference information into this proxy statement. This means
that we can disclose important information by referring to another document
filed separately with the SEC. The information incorporated by reference is
considered to be part of this proxy statement. This proxy statement and the
information that we later file with the SEC may update and supersede the
information incorporated by reference. Similarly, the information that we later
file with the SEC may update and supersede the information in this proxy
statement. We also incorporate by reference into this proxy statement the
following documents filed by us with the SEC under the Exchange Act:
88
-
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012;
and
-
our Current Reports on Form 8-K filed on February 21, 2012, February 23,
2012, March 13, 2012, March 29, 2012, May 14, 2012 and June 8, 2012.
Notwithstanding the foregoing, information furnished under
Items 2.02 and 7.01 of any Current Report on Form 8-K, including the related
exhibits, is not incorporated by reference in this proxy statement.
We undertake to provide without charge to each person to whom a
copy of this proxy statement has been delivered, upon request, by first class
mail or other equally prompt means, within one business day of receipt of the
request, a copy of any or all of the documents incorporated by reference into
this proxy statement, other than the exhibits to these documents, unless the
exhibits are specifically incorporated by reference into the information that
this proxy statement incorporates.
Requests for copies of our filings should be directed to China
TransInfo Technology Corp., 9th Floor, Vision Building, No. 39 Xueyuanlu,
Haidian District, Beijing, PRC, 100191, Attention: Corporate Secretary, and
should be made at least five business days before the date of the special
meeting in order to receive them before the special meeting.
The proxy statement does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities, or the solicitation of a proxy,
in any jurisdiction to or from any person to whom it is not lawful to make any
offer or solicitation in that jurisdiction. The delivery of this proxy statement
should not create an implication that there has been no change in our affairs
since the date of this proxy statement or that the information herein is correct
as of any later date.
You should rely only on the information contained in this
proxy statement. We have not authorized anyone to provide you with information
that is different from what is contained in this proxy statement. Therefore, if
anyone does give you information of this sort, you should not rely on it. If you
are in a jurisdiction where the solicitation of proxies is unlawful, or if you
are a person to whom it is unlawful to direct these types of activities, then
the offer presented in this proxy statement does not extend to you. You should
not assume that the information contained in this proxy statement is accurate as
of any date other than the date of this proxy statement, unless the information
specifically indicates that another date applies. The mailing of this proxy
statement to our stockholders does not create any implication to the contrary.
89
ANNEX A
AGREEMENT AND PLAN OF MERGER
A-1
ANNEX B
LIMITED GUARANTEE
B-1
ANNEX C
FINANCIAL ADVISOR OPINION
C-1
ANNEX D
DIRECTORS AND EXECUTIVE OFFICERS OF EACH FILING PERSON
China TransInfo Technology Corp.
: Set forth below
for each director and executive officer of the Company is his respective present
principal occupation or employment, the name of the corporation or other
organization in which such occupation or employment is conducted and the
five-year employment history of each such director and executive officer. None
of the Company or any of the Companys directors or executive officers has,
during the past five years, been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors). None of the Company nor any of the
Companys directors or executive officers listed below has, during the past five
years, been a party to any judicial or administrative proceeding (except for
matters that were dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
Directors of China TransInfo Technology Corp.
Shudong Xia
. Mr. Xia has been the chairman, president,
chief executive officer and secretary of the Company since May 14, 2007. Mr. Xia
also serves on several government advisory committees for the development of GIS
services for urban planning. Mr. Xia founded the Companys affiliate, Beijing
PKU Chinafront High Technology Co., Ltd. (PKU) in 2000. Prior to his
involvement with PKU, Mr. Xia, from 1998 was involved in several research
projects at Peking University. Mr. Xia is a citizen of the PRC.
Walter Teh-Ming Kwauk.
Mr. Kwauk has been the Companys
director since December 12, 2011. Mr. Kwauk is a vice president of Motorola
Solutions, Inc. (Motorola) and its director of corporate strategic finance and
tax, Asia Pacific. He joined Motorola in January 2003 after 25 years of
professional services with KPMG in Vancouver, Hong Kong, Beijing and Shanghai.
Between 1987 and 2002, Mr. Kwauk held a number of senior positions in KPMG,
including general manager of KPMGs joint accounting firm, managing partner in
KPMGs Shanghai office and partner in KPMGs Hong Kong office. Mr. Kwauk is also
an independent non-executive director of Alibaba.com Limited. Mr. Kwauk is a
member of the Hong Kong Institute of Certified Public Accountants. Mr. Kwauk is
a citizen of Canada.
Zhongsu Chen.
Dr. Chen has been the Companys director
since May 1, 2008. Dr. Chen has more than 20 years of experience in information
technology, including nine years in Wall Street firms such as DLJ, Standard
& Poors, New York Life and Ambac Financial Group. Since May 2005, Dr. Chen
has been the managing director of Time Innovation Ventures, a venture capital
company. He also serves on the board of directors of Beijing Ahelios Consulting,
an IT consulting company and Beijing Xiakexing Network Technologies, a Chinese
company producing animation products. From 2001 to 2005, Dr. Chen worked as the
deputy chief technology officer at the Shanghai Stock Exchange. From 2003 to
2004, he led Chinas National Financial Standardization Securities Trading
Protocol Working Group, which defined Chinas Securities Trading Exchange
Protocol technology standard, and served as an advisor of the Shenzhen Stock
Exchange Technology Development Strategy Committee. In 2006, Dr. Chen was
appointed by the Chinese government as a member of the Working Group for the
Foundation of Chinas Futures Exchange. Dr. Chen is a citizen of the United
States.
Danxia Huang.
Ms. Huang became the Companys vice
president of finance and treasurer on May 14, 2007 and became the Companys
director on May 27, 2007. Currently, Ms. Huang is vice president of operations
in charge of the Companys strategic development, business administration
management and finance. Since November 2006, Ms. Huang has been Vice President
of PKU, where she is in charge of strategic development, business administration
management and finance. From April 2005 to November 2006, Ms. Huang was the vice
president of First City Investment Inc. of Hong Kong. From April 2001 to April
2005, Ms Huang worked at Beijing Business Travel Holiday Net-Tech Co., Ltd., an
internet company, as chief executive officer. Ms. Huang is a citizen of the
PRC.
Dan Liu.
Mr. Liu has been the Companys director since
May 1, 2008. Mr. Liu held several management positions at China Electronics
Import and Export Corporation for more than ten years and was vice president of
China Electronics Corporation from 1990 to 1991. From 1991 to 1997, Mr. Liu was
chairman of the board of Intel (China), a semiconductor manufacturer. Mr. Liu
was also senior advisor to Motorola (China), a provider of mobile devices and
broad band communication and enterprise mobility solutions, from 1994 to 1998.
From 1991 to 2000, Mr. Liu was the president of China Tongda Networking
Corporation, a communication system integration company. From 2001 to 2002, Mr.
Liu was the vice general manager of China Electronics Corporation. Mr. Liu is
currently a councilor at Chinese Association of Electronics, China Software
Industry Association, China News Technology Association, and China Public
Relations Association. Mr. Liu is a citizen of the PRC.
Brandon Ho-Ping Lin
. Mr. Lin has been the Companys
director since September 28, 2008. Mr. Lin is a partner at SAIF Advisors
Limited, which is one of the largest and most successful growth venture capital
funds focused on China. Prior to joining SAIF Advisors Limited in 2001, Mr. Lin
was a Vice President in investment banking with Credit Suisse/Donaldson, Lufkin
& Jenrette (DLJ) in New York from 1997 to 2001 where he executed mergers
& acquisitions, high yield debt and initial public offering transactions for
leveraged buy-outs and technology companies. From 1994 to 1997, Mr. Lin worked
as an associate with Sullivan & Cromwell LLP. Mr. Lin is also a
director of several SAIF Advisors Limiteds portfolio companies, which include
NVC Lighting Holding Limited, Jiangxi Runtian Beverage LLC and Best Elite
International Limited. Mr. Lin is a citizen of Hong Kong Special Administrative
Region, the PRC.
D-1
Xingming Zhang
. Mr. Zhang has been the Companys
director since June 11, 2010. Mr. Zhang has severed as an executive director of
investment banking in Guotai Junan Securities Co., Ltd., (Guotai), one of the
largest investment banking and securities companies in China, since March 2009.
Mr. Zhang is mainly in charge of the investment banking services of Guotai in
the transportation industry including financing, IPO, restructuring and M&A.
From May 2006 to March 2009, Mr. Zhang worked as the executive director of
Antaeus Capital Inc.s China office, which is a full service securities
brokerage and investment banking firm. From 2003 to 2006, he worked as General
Manager of the Investment Department of China Landgent Group, a company engaged
in the business of real estate development and education industry. Mr. Zhang is
a qualified securities practitioner and a charted representative of underwriters
in China. Mr. Zhang is a citizen of the PRC.
Executive Officers of China TransInfo Technology Corp.
(other than Mr. Xia and Danxia Huang)
Zhibin Lai
. Mr. Lai has been the Companys Vice
President since May 14, 2007. Mr. Lai is in charge of GIS application service
for the Transportation sector. Since 2000, Mr. Lai has been Vice President of
PKU, where he is in charge of the GIS application service for the transportation
sector. From 1988 to 2000, Mr. Lai was the head of the Software Department of
Fangda Century Group (Beijing) where he was in charge of the GIS Study Center in
City and Environment Department at Peking University. Mr. Lai is a citizen of
the PRC.
Zhiping Zhang
. Mr. Zhang has been the Companys Vice
President of Research and Development since May 14, 2007. Mr. Zhang is in charge
of the R&D and GIS application service in Land and Resources sector. Since
2001, Mr. Zhang has been Vice President of PKU, where he is in charge of the
R&D and GIS application service in Land and Resources sector. From July 1995
to 2001, Mr. Zhang was a professor of Remote Sensing at the Geography
Information Institute of Peking University. Mr. Zhang is a citizen of the
PRC.
Shan Qu.
Mr. Qu became the Companys Vice President on
January 26, 2011. Mr. Qu has served as the General Manager of Beijing UNISITS
Technology Co., Ltd. since November 2002. From September 1995 to November 2002,
he served as the general manager in the intelligent transportation and
engineering control department of Tsinghua Unisplendour Corporation Limited., a
company engaged in the business of transportation. Mr. Qu is a citizen of the
PRC.
Rong Zhang.
Mr. Zhang has been the Companys Chief
Financial Officer since January 1, 2011. Prior to joining the Company, from July
2009 to December 2010, Mr. Zhang worked in Beijing as the Chief Financial
Officer of China Vocational Training Holdings Co., Ltd., the largest automotive
technician training school chain in China. Since August 2008, Mr. Zhang has
served as a non-employee director of SVTeck, Inc., a silicon valley start-up in
online reputation grading/search business using advanced dynamic programming as
well as artificial intelligence and of OKIKI Education Management Co., Ltd., a
preschool education chain aiming at expansion in China. From August 2007 to
August 2008, Mr. Zhang worked as the Chief Financial Officer of Taizinai Group,
a major company in Chinas beverage market. From July 2005 to July 2007, Mr.
Zhang was the Asia Pacific Controller of DraftFCB as well as the Asia Pacific
Lead Area Controller of Interpublic Group of Companies, Inc. (DraftFCBs parent
company), one of the worlds largest advertising and marketing services
companies. From January 2004 to July 2005, Mr. Zhang was a Senior Analyst and
Project Leader at MCI, Inc., now a telecommunications subsidiary of Verizon
Communications Inc., a global broadband and telecommunications company. From
July 1997 to January 2004, Mr. Zhang worked in several finance and accounting
positions in the United States, including as a Senior Analyst in Atlanta at ACSI
Network Technologies, a telecommunications company that specialized in fiber
optic broadband services; Senior Auditor at Union Camp Corporation and
International Paper, an American pulp and paper company and as a Staff Auditor
at Deloitte & Touches Atlanta, Georgia office. Mr. Zhang is a U.S.
Certified Public Accountant. Mr. Zhang is a citizen of the United States.
Parent, Merger Sub and Holdco
: Set
forth below for the sole director and executive officer of each of Parent,
Merger Sub and Holdco, is his present principal occupation or employment, the
name of the organization in which such occupation or employment is conducted and
the five-year employment history of such director. During the past five years,
none of Parent, Merger Sub, Holdco and none of their respective directors has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors). During the past five years, none of Parent, Merger Sub, Holdco
and none of their respective directors has been a party to any judicial or
administrative proceeding (except for matters that were dismissed without
sanction or settlement) that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws or a finding of any violation of
federal or state securities laws.
Sole Director and Executive Officer of Parent, Merger Sub
and Holdco
Shudong Xia
. Mr. Xia has been the chairman, president,
chief executive officer and secretary of the Company since May 14, 2007. Mr. Xia
also serves on several government advisory committees for the development of GIS
services for urban planning. Mr. Xia founded the Companys affiliate, PKU in
2000. Prior to his involvement with PKU, Mr. Xia, from 1998 was involved in
several research projects at Peking University. Mr. Xia is a citizen of the PRC.
D-2
Karmen Investment Holdings Limited
: Set forth below for the sole director and executive officer of Karmen is his present principal occupation or employment, the name of the organization in which such occupation or employment is
conducted and the five-year employment history of such director. During the past five years, none of Karmen and none of Karmen’s directors or executive officers has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors). During the past five years, none of Karmen and none of Karmen’s respective directors has been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement)
that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws or a finding of any violation of federal or state securities laws.
Sole Director and Executive Officer of Karmen Investment Holdings Limited
Shudong Xia
. Mr. Xia has been the chairman, president, chief executive officer and secretary of the Company since May 14, 2007. Mr. Xia also serves on several government advisory committees for the development of GIS services for urban
planning. Mr. Xia founded the Company’s affiliate, PKU in 2000. Prior to his involvement with PKU, Mr. Xia, from 1998 was involved in several research projects at Peking University. Mr. Xia is a citizen of the PRC.
SAIF III
: Andrew Y. Yan is the sole shareholder and sole director of SAIF III GP Capital Ltd., a limited liability entity formed under the laws of the Cayman Islands, the sole general partner of SAIF III GP, L.P., a limited
partnership formed under the laws of the Cayman Islands, which in turn is the sole general partner of SAIF Partners III, a limited partnership formed under the laws of the Cayman Islands. Mr. Yan is deemed to have sole voting and dispositive powers
with respect to the securities held by SAIF Partners III.
SAIF III GP L.P.
is a limited partnership formed under the laws of the Cayman Islands and was formed for the purpose of making investments in companies in China and India. The principal business of SAIF III GP L.P. is to serve as the general
partner and adviser in various investment vehicles, including SAIF III. The registered office of SAIF III GP L.P. is c/o M&C Corporate Services Limited, P. O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman
Islands and its telephone number is +852 2918 2203.
SAIF III GP Capital Ltd.
is a limited liability entity formed under the laws of the Cayman Islands and was formed for the purpose of making investments in companies in China and India. The principal business of SAIF III GP Capital Ltd. is to
serve as the general partner and adviser in various investment vehicles, including SAIF III. The registered office of SAIF III GP Capital Ltd. is c/o M&C Corporate Services Limited, P. O. Box 309 GT, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands and its telephone number is +852 2918 2203.
Andrew Y. Yan
. Mr. Yan has been the managing partner of SAIF Advisors Limited for the past ten years. Mr. Yan is a citizen of Hong Kong, Special Administrative Region, the PRC.
SAIF IV
: Andrew Y. Yan is the sole shareholder and sole director of SAIF IV GP Capital Ltd., a limited liability entity formed under the laws of the Cayman Islands, the sole general partner of SAIF IV GP, L.P., a limited partnership
formed under the laws of the Cayman Islands, which in turn is the sole general partner of SAIF Partners IV, a limited partnership formed under the laws of the Cayman Islands. Mr. Yan is deemed to have sole voting and dispositive powers with respect
to the securities held by SAIF Partners IV L.P.
SAIF IV GP L.P.
is a limited partnership formed under the laws of the Cayman Islands and was formed for the purpose of making investments in companies in China and India. The principal business of SAIF IV GP L.P. is to serve as the general
partner and adviser in various investment vehicles, including SAIF IV. The registered office of SAIF IV GP L.P. is c/o M&C Corporate Services Limited, P. O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands
and its contact telephone number is +852 2918 2200.
SAIF IV GP Capital Ltd.
is a limited liability entity formed under the laws of the Cayman Islands and was formed for the purpose of making investments in companies in China and India. The principal business of SAIF IV GP Capital Ltd. is to
serve as the general partner and adviser in various investment vehicles, including SAIF IV. The registered office of SAIF IV GP Capital Ltd. is c/o M&C Corporate Services Limited, P. O. Box 309 GT, Ugland House, South Church Street, George Town,
Grand Cayman, Cayman Islands and its contact telephone number is +852 2918 2200.
Andrew Y. Yan.
Mr. Yan has been the managing partner of SAIF Advisors Limited for the past ten years. Mr. Yan is a citizen of Hong Kong, Special Administrative Region, the PRC.
D-3
ANNEX E
PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION
CHINA TRANSINFO TECHNOLOGY CORP.
SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD ON _____, 2012
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints _____and _____, or either of
them, as proxies, each with full power of substitution, to represent and vote as
designated on the reverse side, all the shares of common stock of China
TransInfo Technology Corp. (the
Company
) held of record by the
undersigned on _____, 2012, at the special meeting of stockholders to be held at
_____local time, on _____, 2012, at _____or any adjournment or postponement
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ON THE REVERSE SIDE. IF OTHER
MATTERS THAN THE PROPOSALS LISTED ON THE REVERSE SIDE ARE PRESENTED AT THE
SPECIAL MEETING, THE PERSONS NAMED ABOVE WILL VOTE IN ACCORDANCE WITH THEIR BEST
JUDGMENT WITH RESPECT TO THOSE MATTERS.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED REPLY ENVELOPE OR VOTE BY INTERNET OR TELEPHONE FOLLOWING THE
INSTRUCTIONS ON THE REVERSE SIDE.
(Continued and to be signed on the Reverse Side)
E-1
THERE ARE THREE WAYS TO VOTE: BY INTERNET, TELEPHONE OR MAIL
Internet and telephone voting is available 24 hours a day, 7
days a week through
11:59 PM Eastern Time the day prior to the special
meeting date.
Your Internet or telephone vote authorizes the named proxies to
vote your shares in the same manner as if you marked, signed and returned your
proxy card.
INTERNET
|
TELEPHONE
|
MAIL
|
|
|
|
|
|
|
Go to the website listed above.
|
Use any touch-tone telephone.
|
Mark, sign and date your proxy card.
|
Have your proxy card ready.
|
Have your proxy card ready.
|
Detach your proxy card.
|
Follow the simple instructions that appear
|
Follow the simple recorded
|
Return your proxy card in the
|
on your computer screen.
|
instructions.
|
postage-paid envelope provided.
|
Please Vote, Sign, Date and Return Promptly in the Enclosed
Postage-Paid Envelope
E-2
▼
DETACH PROXY CARD HERE TO VOTE BY MAIL
▼
The Board of Directors, acting on the unanimous
recommendation of the special committee composed entirely of independent
directors, recommends a vote FOR the approval of the merger agreement and a
vote FOR Proposal 2.
|
|
|
FOR
|
AGAINST
|
ABSTAIN
|
1.
|
To approve the Agreement and Plan of Merger, dated as of
June 8, 2012 (the
merger agreement
), with TransCloud Company
Limited, a Cayman Islands exempted company with limited liability
(
Parent
) and TransCloud Acquisition, Inc., a Nevada corporation
and a wholly owned subsidiary of Parent, (
Merger Sub
), providing
for the merger of Merger Sub with and into the Company (the
merger
), with the Company surviving the merger as a wholly owned
subsidiary of Parent.
|
|
[ ]
|
[ ]
|
[ ]
|
|
|
|
|
|
|
|
|
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FOR
|
AGAINST
|
ABSTAIN
|
2.
|
To approve the adjournment of the special meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the
merger agreement.
|
|
[ ]
|
[ ]
|
[ ]
|
|
Note:
Please sign your name exactly as it appears
hereon. If signing as attorney, executor, administrator, trustee or
guardian, please give full title as such, and, if signing for a
corporation, give your title. When shares are in the names of more than
one person, each should sign.
|
|
|
|
Dated:
, 2012
|
|
|
|
Signature:
|
|
|
|
Title or Authority:
|
|
|
|
Signature (if held jointly):
|
E-3
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