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Share Name | Share Symbol | Market | Type |
---|---|---|---|
China Fire & Security Grp., Inc. (MM) | NASDAQ:CFSG | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 8.99 | 0 | 01:00:00 |
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:
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[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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[ ]
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Definitive Proxy Statement
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[ ]
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Definitive Additional Materials
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[ ]
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Soliciting Material Pursuant to §240.14a-12
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CHINA FIRE & SECURITY GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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[ ]
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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.
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(1)
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Title of each class of securities to which transaction applies:
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China Fire & Security Group, Inc. common stock, par value $0.001 (“
common stock
”)
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||
(2)
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Aggregate number of securities to which transaction applies:
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28,640,321 shares of common stock (including 27,890,321 shares outstanding and 750,000 shares of restricted stock) and 1,731,220 shares of common stock underlying options of the Company with an exercise price of $6.81 or less
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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 (set forth the amount on which the filing fee is calculated and state how it was determined):
The proposed maximum aggregate value of the transaction for purposes of calculating the filing fee is $265,584,025. The maximum aggregate value of the transaction was calculated based upon the sum of (A) (1) 28,640,321 shares of common stock (including shares of restricted stock) issued and outstanding and owned by persons other than the Company, Parent and Merger Sub on June 8, 2011, multiplied (2) by $9.00 per share (the “
per share merger consideration
”) and (B) (1) 1,731,220 shares of common stock underlying outstanding options of the Company with an exercise price of $6.81 or less, as of June 8, 2011, multiplied by (2) the excess of the per share merger consideration over the weighted average exercise price of $4.48. The filing fee equals the product of 0.00011610 multiplied by the maximum aggregate value of the transaction.
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(4)
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Proposed maximum aggregate value of transaction: $265,584,025
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(5)
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Total fee paid: $30,834.31
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[ ]
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Fee paid previously with preliminary materials.
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[ ]
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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:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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Sincerely, | |
[ ] |
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1.
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To approve the Agreement and Plan of Merger, dated May 20, 2011 (the “
merger agreement
”),
by and
among the
Company,
Amber Parent Limited, an exempted company incorporated in the Cayman Islands (“
Parent
”), and Amber Mergerco, Inc., a Florida 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 are affiliates of funds managed by Bain Capital Partners, LLC; 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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By Order of the Board of Directors, | |
[Name] | |
[Title] | |
Beijing, China | |
[ ], 2011 |
PAGE
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PROXY STATEMENT
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1
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SUMMARY TERM SHEET
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1
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
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13
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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17 |
SPECIAL FACTORS
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18
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The Parties
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18
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Background of the Merger
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19
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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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24
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Opinion of Barclays Capital, Financial Advisor to the Special Committee
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30
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Purposes and Reasons of the Sponsors, Parent and Merger Sub for the Merger
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36
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Purposes and Reasons of the Rollover Investors for the Merger
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37
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Position of the Sponsors, Parent and Merger Sub Regarding the Fairness of the Merger
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38
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Position of the Rollover Investors Regarding the Fairness of the Merger
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39
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Management’s Projected Financial Information
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40
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Certain Effects of the Merger
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41
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Effects on the Company if Merger is not Completed
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44
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Plans for the Company
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44
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Financing of the Merger
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44
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Limited Guarantee
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46
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Interests of the Company’s Directors and Executive Officers in the Merger
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46
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Dividends
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48
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Determination of the Per Share Merger Consideration
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48
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Regulatory Matters
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48
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Estimated Fees and Expenses
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48
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Certain Material United States Federal Income Tax Consequences
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49
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Accounting Treatment of the Merger
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51
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Delisting and Deregistration of the Company Common Stock
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51
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Litigation Relating to the Merger
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51
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Provisions for Unaffiliated Shareholders
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51
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THE SPECIAL MEETING
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53
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Date, Time and Place
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53
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Purpose of the Special Meeting
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53
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Recommendation of Our Board of Directors and Special Committee
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53
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Record Date; Shareholders Entitled to Vote; Quorum
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53
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Abstentions and "Broker Non-votes"
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53 |
Vote Required
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54
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Stock Ownership and Interests of Certain Persons
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54
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Voting Procedures
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54
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Other Business
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56
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Revocation of Proxies
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56
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Rights of Shareholders Who Object to the Merger
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56
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Solicitation of Proxies
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56
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Availability of Documents Incorporated by Reference
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56 |
Questions and Additional Information
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57
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THE MERGER AGREEMENT
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58
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Explanatory Note Regarding the Merger Agreement
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58
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Effects of the Merger; Directors and Officers; Articles of Incorporation; By-laws
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58
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Closing and Effective Time of the Merger
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58
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Treatment of Common Stock, Options and Restricted Stock
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59
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Representations and Warranties
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60
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Conduct of Our Business Pending the Merger
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64
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Solicitation of Acquisition Proposals
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66
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Shareholders’ Meeting
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69
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Reasonable Best Efforts
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69
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Financing; Financing Assistance
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70
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Indemnification; Directors’ and Officers’ Insurance
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71
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Other Covenants
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72
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Conditions to the Completion of the Merger
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73
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Termination of the Merger Agreement
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74
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Termination Fees; Reimbursement of Expenses
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75
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Limitations on Liabilities
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77 |
Specific Performance
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78
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Modification or Amendment
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79
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COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
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80
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COMMON STOCK TRANSACTION INFORMATION
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82
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APPRAISAL RIGHTS
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82
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SELECTED FINANCIAL INFORMATION
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84
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MARKET PRICE AND DIVIDEND INFORMATION
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85
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SUBMISSION OF SHAREHOLDER PROPOSALS
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85
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WHERE YOU CAN FIND MORE INFORMATION
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86
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ANNEX A: AGREEMENT AND PLAN OF MERGER
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A-1
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ANNEX B: OPINION OF BARCLAYS CAPITAL ASIA LIMITED
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B-1
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ANNEX C: SECTIONS 607.1301-607.1333 OF THE FLORIDA BUSINESS CORPORATION ACT
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C-1
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ANNEX D: ROLLOVER AGREEMENT
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D-1
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ANNEX E: FORM OF VOTING AGREEMENT
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E-1
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·
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each share of Company common stock issued and outstanding immediately prior to the closing (other than (a) shares owned by the Company, any subsidiary of the Company, Parent or Merger Sub, (b) shares that the Rollover Investors (as defined below) have agreed to contribute to Parent and/or Merger Sub, and (c) shares owned by shareholders who have perfected and not withdrawn a demand for, or lost the right to, appraisal rights under the Florida Business Corporation Act (the “
FBCA
”)) will be converted into the right to receive the per share merger consideration, as described below; and
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·
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all shares of Company common stock so converted will, at the closing of the merger, be canceled, and each holder of a certificate representing any shares of Company common stock shall cease to have any rights with respect thereto, except the right to receive the per share merger consideration upon surrender of such certificate (if such shares are certificated).
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·
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holders of Company common stock (other than the Rollover Investors), will no longer have any interest in, and will no longer be shareholders of, the Company, and will not participate in any of the Company’s future earnings or growth;
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·
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shares of Company common stock will cease to be listed on The NASDAQ Capital Market (the “
NASDAQ
”), and price quotations with respect to shares of Company common stock in the public market will no longer be available; and
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·
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the registration of shares of Company common stock under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”), will be terminated.
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·
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cash payments with respect to stock options that have an exercise price of less than $9.00 per share;
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·
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cash payments with respect to shares of restricted stock and other Company common stock held by them;
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·
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the expected ownership of equity interests in Parent by the Rollover Investors;
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·
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the fact that Messrs. Weigang Li and Brian Lin will also enter into new three-year employment agreements (with two conditional one-year extensions) with Parent or one of its subsidiaries following the merger;
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·
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the compensation of members of the special committee in exchange for their services in such capacity of $5,000 per month for the chairman of the special committee and RMB15,000 per month for each other member of the special committee, see
"
Special Factors - Interests of the Company's Directors and Executive Officers in the Merger - Special Committee Compensation
,
"
and
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·
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continued indemnification and liability insurance for directors and officers following completion of the merger.
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·
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solicit, initiate, facilitate and encourage any acquisition proposal from any third party, including by way of providing access to information pursuant to one or more acceptable confidentiality agreements, (provided that the Company promptly make any material non-public information provided to any such third party available to Parent and Merger Sub if not previously made available to Parent or Merger Sub); and
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·
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enter into, continue or otherwise participate in any discussions or negotiations with respect to any acquisition proposal or otherwise cooperate with or assist or participate in or facilitate any such discussions or negotiations or any effort or attempt to make any acquisition proposal.
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·
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initiate, solicit, propose or knowingly encourage or facilitate any inquiries or the making of an acquisition proposal;
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·
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engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information concerning the Company relating to, any acquisition proposal with or to any person;
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grant any waiver, amendment or release under any standstill or confidentiality agreement or takeover statutes;
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approve, endorse, recommend, execute or enter into any letter of intent, agreement in principle, merger agreement, acquisition agreement or other similar agreement with respect to any acquisition proposal, or that requires the Company to abandon the merger agreement or the merger; or
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·
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resolve, agree or publicly announce an intention to do any of the foregoing.
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·
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the merger has not been completed on or before 11:59 p.m., Hong Kong time, on November 15, 2011,
provided that a party may not terminate the merger agreement for this reason if the failure to complete the merger by that date was primarily due to such party’s material breach of any of its obligations under the merger agreement;
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·
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(i) any order of any governmental entity having competent jurisdiction is entered enjoining the Company, Parent or Merger Sub from consummating the merger and such order has become final and nonappealable or (ii) a law has been enacted or promulgated or become applicable to the parties or the transactions contemplated by the merger agreement that makes consummation of the merger illegal or otherwise prohibited;
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·
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our shareholders do not approve the merger agreement at the special meeting
or
any adjournment
thereof at which the merger agreement has been voted upon
;
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·
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Parent
or Merger Sub has breached any of its representations, warranties or covenants contained in the merger agreement, such that its breach would result in the failure of a condition to the Company’s obligation to complete the merger and subject to specified notice and cure rights, so long as the Company has not breached any of its representations, warranties or covenants contained in the merger agreement, which would result in the failure of the closing condition relating to the Company’s representations, warranties or covenants to be satisfied;
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·
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all of the conditions to closing have been satisfied or waived
by Parent
, and Parent and Merger Sub fail to complete the closing within two (2) business days following the date the closing should have occurred pursuant to the merger agreement (depending on the circumstances, the amount of the termination fee paid by Parent shall be $8.5 million or $10.7 million)
;
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·
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prior to the obtaining of the shareholder approval, (i) the board of directors has, upon recommendation of the special committee, authorized the Company to enter into an alternative acquisition agreement with respect to a superior proposal and (ii) the Company has concurrently with the termination of the merger agreement entered into, or immediately after the termination of
the merger agreement,
enters into an alternative acquisition agreement with respect to such superior proposal, provided that the Company has paid the termination fee concurrently or in advance of termination; or
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·
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prior to the obtaining of the shareholder approval,
the Company has effected a company adverse recommendation change, provided that
the Company has paid the termination fee concurrently or in advance
of termination.
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·
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the Company
has breached any of its representations, warranties or covenants contained in the merger agreement such that
the closing
condition relating to the Company’s representations, warranties or covenants would not be satisfied and subject to specified notice and cure rights, so long as Parent or Merger Sub has not breached any of its representations, warranties or covenants contained in the merger agreement, which would result in the failure of
the closing condition relating to Parent and Merger Sub’s representations, warranties or covenants to be satisfied
;
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·
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the board of directors of the Company or any committee thereof has effected a company adverse recommendation change.
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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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On May 20, 2011, 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. Both Parent and Merger Sub are affiliates of funds managed by Bain Capital. You are receiving this proxy statement in connection with the solicitation of proxies by the board of directors of the Company in favor of the approval of the merger agreement.
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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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·
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Approval of the merger agreement; and
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·
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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 shareholder, what will I receive in the merger?
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A:
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If the merger is completed, unless you properly exercise appraisal rights, you will be entitled to receive $9.00 in cash, without interest thereon and less any required withholding taxes, 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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Q:
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When and where is the special meeting of our shareholders?
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A:
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The special meeting of shareholders will be held at [ ], local time, on [ ], 2011, at [ ].
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Q:
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What vote of our shareholders is required to approve the merger agreement?
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A:
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For us to complete the merger, both (i) shareholders holding at least seventy-five percent (75%) of the outstanding shares of the Company common stock at the close of business on the record date and (ii) unaffiliated shareholders holding more than fifty percent (50%) of the outstanding shares of the Company common stock at the close of business on the record date (other than shares owned by the Rollover Investors, the Voting Shareholders, and/or any holders of Company common stock who have entered into voting agreements or other similar shareholder support agreements with Parent, Merger Sub or their affiliates following May 20, 2011, agreeing to vote in favor of the merger) must vote “
FOR”
the proposal to approve the merger agreement. At the close of business on [ ], 2011, 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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How will votes be counted?
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A:
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Votes will be counted by the inspector of election appointed for the special meeting, who will separately count “for” and “against” votes, abstentions and broker non-votes. A “broker non-vote” occurs when a
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broker, bank or other nominee holding shares does not vote because it has no discretionary authority to vote shares it holds for a beneficial owner and does not receive voting instructions with respect to the proposal from the beneficial owner. The failure to vote, broker non-votes and abstentions will have the same effect as votes against the approval of the merger agreement. However, with respect to the proposal to adjourn the special meeting to a later date to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement, the failure to vote and broker non-votes will have no effect on the proposal, while abstentions will have the same effect as votes against the proposal. You have one vote for each share of common stock that you owned as of the close of business on the record date of [ ], 2011.
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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 shareholders of record as of the close of business on [ ], 2011, 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.
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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 our shareholders 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. In connection with the approval of the merger agreement by the Company’s board of directors, Mr. Weigang Li, Mr. Brian Lin and Mr. Weishe Zhang recused themselves from the voting.
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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 who are also holders of Company common stock 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 [ ], 2011, the record date for the special meeting, our directors (including Mr. Weigang Li, Mr. Brian Lin and Mr. Weishe Zhang) and current executive officers owned, in the aggregate, [ ] shares of Company common stock, or collectively approximately [ ]% of the outstanding shares of Company common stock, including shares they have or share the power to vote.
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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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Holders of Company common stock who do not vote in favor of approval of the merger agreement will have the right to seek appraisal and receive the fair value of their shares of Company common stock in lieu of receiving the per share merger consideration if the merger closes but only if they exercise and perfect their appraisal rights by complying with the required procedures under Florida law. If a shareholder properly exercises appraisal rights, the shareholder would have the right to litigate a proceeding in court, at
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the conclusion of which the shareholder will receive the judicially determined fair value of their shares of our common stock. The fair value of our common stock may be more than, equal to or less than the merger consideration to be paid to non-dissenting shareholders in the merger.
To preserve your appraisal rights, if you wish to exercise them, you must NOT vote in favor of the approval of the merger agreement and you must follow specific procedures, including, but not limited to, delivering to us at China Fire & Security Group, Inc., B-2502 TYG Center, C2 Dongsanhuanbeilu, Chaoyang District, Beijing 100027, People’s Republic of China, attention: Company Secretary, before the vote is taken at the special meeting (i.e., before [_________], 2011) a written notice of intent to demand payment of fair value pursuant to Section 607.1321 of the Florida Business Corporation Act.
Failure to follow the steps required by law for perfecting appraisal rights may lead to the loss of those rights, in which case the dissenting shareholder will be treated in the same manner as a non-dissenting shareholder. See “Appraisal Rights” beginning on page 82. For the full text of Sections 607.1301 through 607.1333 of the Florida Business Corporation Act, please see Annex C hereto.
Because of the complexity of the law relating to appraisal rights, shareholders who are considering objecting to the merger are encouraged to read these provisions carefully and consult their own legal advisors.
|
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 on [ ], 2011, 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.
|
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?
|
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 [ ], 2011 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.
|
Q:
|
What will happen if I abstain from voting or fail to vote on the proposal to approve the merger agreement?
|
A:
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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, it will have the same effect as a vote against the approval of the merger agreement.
|
Q:
|
Can I change my vote after I have delivered my proxy?
|
A:
|
Yes. If you are a record holder,
you may revoke your proxy at any time before the vote is taken at the special meeting. To revoke your proxy, you must (1) prior to the vote at the special meeting, advise the Company’s corporate secretary of the revocation by delivering a notice of revocation to B-2508 TYG Center, C2, Dongsanhuanbeilu, Chaoyang District, Beijing 100027, People’s Republic of China, Attention: Corporate Secretary, (2) prior to the vote at the special meeting, properly deliver a later-dated proxy either by mail, the Internet or telephone, or (3) attend the special meeting and vote your shares in person.
|
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Attendance at the special meeting will not by itself constitute revocation of 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.
|
Q:
|
What should I do if I receive more than one set of voting materials?
|
A.
|
You may receive more than one set of voting materials, including multiple copies of this proxy statement or multiple proxy or voting instruction cards. For example, if you hold your shares 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
.
|
Q:
|
If I am a holder of certificated shares of Company common stock, should I send in my share certificates now?
|
A:
|
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 in order to receive 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.
|
Q:
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What happens if the merger is not completed?
|
A:
|
If the merger agreement is not approved by our shareholders, or if the merger is not completed for any other reason, our shareholders will not receive any payment for their Company common stock pursuant to the merger agreement. Instead, we will remain as a public company and our common stock will continue to be registered under the Exchange Act and listed and traded on the NASDAQ. Under specified circumstances, we may be required to pay an affiliate of Parent a termination fee of $8.5 million or $6.4 million or reimburse an affiliate of Parent for up to $3 million of Parent’s reasonably documented out-of-pocket fees and expenses which will be off-set against the termination fee subsequently payable by the Company, if any, or Parent may be required to pay us a reverse termination fee of $10.7 million or $8.5 million. See “
The Merger Agreement—Termination Fees and Reimbursement of Expenses
.”
|
Q:
|
Will a proxy solicitor be used?
|
A:
|
We have retained Okapi Partners LLC (“
Okapi
”) to assist in the solicitation of proxies for the special meeting.
|
Q:
|
When is the merger expected to be completed?
|
A:
|
The merger agreement may be terminated by either Parent or the Company, subject to certain conditions under the merger agreement, if the merger is not consummated by 11:59 p.m., Hong Kong time, on November 15, 2011. We are working to complete the merger as quickly as possible. We currently expect the transaction to close in the third quarter of 2011; however, we cannot predict the exact timing of the merger. In order to complete the merger, we must obtain shareholder approvals and the other closing conditions under the merger agreement must be satisfied or waived.
|
Q:
|
What is householding and how does it affect me?
|
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 shareholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain
|
|
procedures. In such cases, each shareholder 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 instituted householding for shareholders of record. Only one copy of this proxy statement will be delivered to an address where two or more shareholders reside unless we have received contrary instructions from a shareholder at the address. A separate proxy card will be delivered to each shareholder at the shared address. If you are a shareholder who lives at a shared address and you would like additional copies of this proxy statement, contact the Company Secretary at B-2508 TYG Center, C2 Dongsanhuanbeilu, Chaoyang District, Beijing 100027, People’s Republic of China, telephone number 86-10-8441-7400, or Okapi at 437 Madison Avenue, 28
th
Fl., New York, NY 10022, U.S.A., toll free number at 1-877-869-0171, collect at 1-212-297-0720 or by e-mail to info@okapipartners.com
and we or Okapi will promptly mail you copies.
|
Q:
|
Who can help answer my questions?
|
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 toll-free at (877) 869-0171, collect at (212) 297-0720, by email at info@okapipartners.com or at 437 Madison Avenue, 28
th
Fl., New York, NY 10022.
|
·
|
Li Brothers, holder of approximately 41.9% of the total number of outstanding shares of Company common stock as of June 8, 2011. Mr. Weigang Li, our chairman of the Board, beneficially owned 46.8% of Li Brothers through LWG Family Trust, a trust for the family of Mr. Weigang Li, in which Mr. Weigang Li has 100% voting power. The remaining 53.2% of Li Brothers was beneficially owned by LGJ Family Trust, a trust for the family of Mr. Gangjin Li, Mr. Weigang Li's late brother and our
|
|
former chairman of the board, over which Mr. Weigang Li shares voting control with his sister Ms. Jincai Li, as co-trustees;
|
·
|
Jin Zhan Limited, holder of approximately 2.7% of the total number of outstanding shares of Company common stock as of June 8, 2011, was 100% beneficially owned by Mr. Weigang Li, our chairman of the Board;
|
·
|
Vyle Investment Inc., holder of approximately 2.7% of the total number of outstanding shares of Company common stock as of June 8, 2011, was 100% beneficially owned by Mr. Brian Lin, our chief executive officer and one of our directors; ; and
|
·
|
Small Special Technology Inc., holder of approximately 1.8% of the total number of outstanding shares of Company common stock as of June 8, 2011, was 100% beneficially owned by Mr. Weishe Zhang, our vice president of strategic planning and one of our directors.
|
·
|
Given that Party A’s proposed offer price was slightly higher than Bain Capital’s offer price, the special committee and its advisors would engage Party A in further discussions. The special committee and its advisors would simultaneously continue to negotiate with Bain Capital and to finalize all transaction documents as soon as possible.
|
·
|
Barclays Capital would discuss with Party A’s financial advisor and get clarification on Party A’s sources of funds and request Party A to provide more certainty with respect to its funding capabilities.
|
·
|
Shearman & Sterling would revise the Party A Merger Agreement to reflect the key terms agreed upon with Bain Capital.
|
·
|
the current and historical market prices of the Company common stock, including the fact that the per share merger consideration of $9.00 represented (i) a 24% premium over the closing price of $7.26 per share on May 19, 2011, the last trading day before the merger agreement was signed, (ii) a 44% premium over the closing price of $6.26 per share on March 4, 2011, the last trading day prior to the Company’s announcement regarding receipt of a “going private” proposal, and (iii) a 38% premium over the Company’s 90-trading day volume weighted average price calculated as of May 19, 2011;
|
·
|
the fact that the per share merger consideration of $9.00 represented a valuation of the Company at a 12.9 multiple to the Company’s EBITDA for the 12 months ended December 31, 2010;
|
·
|
the possibility that it could take a considerable period of time before the trading price of the Company common stock would reach and sustain at least the per share merger consideration of $9.00, as adjusted for present value, taking into consideration Company management’s outlook of the business based on management’s projected financial information;
|
·
|
the fact that the consideration to be paid in the proposed merger is all cash, which provides certainty of value and liquidity to the Company’s shareholders, and the shareholders will not be exposed to the risks and uncertainties relating to the Company’s prospects (including the prospects described in management’s projections summarized under “
Special Factors
—
Management’s Projected Financial Information
”);
|
·
|
the financial analyses presented to the special committee by Barclays Capital, as well as the opinion of Barclays Capital delivered to the special committee to the effect that, based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth therein, the $9.00 per share merger consideration to be received by the Company’s shareholders (other than the Rollover Investors) pursuant to the merger agreement was fair, from a financial point of view, to such shareholders. The full text of the written opinion of Barclays Capital is attached as Annex B to this proxy statement;
|
·
|
the facts that Party A failed to provide adequate evidence of sufficient funding to complete a transaction in a timely manner, that the Company is permitted to continue its discussion with Party A during the go shop period (as defined below), that Party A’s offer price did not represent a material premium over Bain Capital’s offer price, and that certain key issues in connection with the share exchange and voting arrangements between Party A and the Rollover Investors remained unresolved and the Rollover Investors indicated their preference to enter into an agreement with Bain Capital over Party A, as described under “
Special Factors – Background of the Merger,
”;
|
·
|
the possible alternatives to a sale to Bain Capital, including continuing as a standalone company, which alternatives the special committee, upon consultation with Barclays Capital and Shearman & Sterling, determined were less favorable to the Company’s shareholders than the proposed merger given the potential risks, rewards and uncertainties associated with those alternatives;
|
·
|
the likelihood that the merger would be completed based on, among other things:
|
·
|
Bain Capital’s reputation, financial resources and proven experience in completing similar transactions;
|
·
|
the fact that Parent and Merger Sub had obtained committed debt and equity financing commitment letters for the transaction, the limited number and nature of the conditions to the debt and equity financings, the reputation of the financing sources 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 financings being completed;
|
·
|
the absence of a financing condition in the merger agreement;
|
·
|
the fact that the merger agreement provides that, in the event of a failure of the proposed merger to be consummated under certain circumstances, Parent will pay the Company a termination fee of $10.7 million or $8.5 million, as applicable, without the Company having to establish any damages, and the guarantee of such payment obligation by the Guarantor pursuant to the limited guarantee;
|
·
|
the Company’s ability, under certain circumstances pursuant to the merger agreement and the equity commitment letter, to seek specific performance of Parent’s obligation to cause the equity financing to be funded and the Sponsors’ obligation to fund the equity financing; and
|
·
|
the other terms of the merger agreement and related agreements, including:
|
·
|
the Company’s ability during the period beginning on the date of the merger agreement and continuing until 11:59 p.m., New York City time, on July 14, 2011 (the “
go shop period
”) to initiate, solicit and encourage any alternative acquisition proposals from third parties, and to provide non-public information to and engage in discussions or negotiations with third parties with respect to alternative acquisition proposals;
|
·
|
the Company’s ability to continue discussions after the end of the go shop period until 11:59 p.m., New York City time, on July 29, 2011 (the “
cut-off date
”), with parties from whom the Company has received during the go shop period an acquisition proposal that the special committee determines in good faith, as of the end of the go shop period, would reasonably be expected to result in a superior proposal;
|
·
|
the Voting Shareholders’ ability to engage in discussions with potential bidders during the go shop period under certain limited circumstances;
|
·
|
the Company’s ability, at any time from and after the end of the go shop period but prior to the time the Company shareholders approve the merger agreement, to provide information to third parties with respect to unsolicited alternative acquisition proposals under certain circumstances and participate in discussions or negotiations with the third party that submitted such acquisition proposal, if the special committee determines that any such acquisition proposal constitutes or is reasonably likely to result in a superior proposal;
|
·
|
the ability of our board of directors (acting upon the recommendation of the special committee), under certain circumstances, to withhold, withdraw, qualify or modify its recommendation that the Company’s shareholders vote to approve the merger agreement;
|
·
|
the fact that our board of directors is not required to submit the merger proposal to a vote of the Company’s shareholders if the board of directors or the special committee were to withdraw, withhold or modify its recommendation in favor of the merger agreement;
|
·
|
the Company’s ability, under certain circumstances, to terminate the merger agreement and to enter into an agreement providing for a superior proposal, provided that the Company prior to or concurrently with the termination of the merger agreement pays to Parent a termination fee of $6.4 million, in connection with an agreement for a superior proposal entered into prior to the end of the go shop period or with a continuing party prior to the cut-off date, or $8.5 million in all other circumstances;
|
·
|
the termination fee and expenses payable by the Company to Parent under certain circumstances, which the special committee concluded were reasonable in the context of termination fees and expenses payable in comparable transactions and in light of the overall terms of the merger agreement including the per share merger consideration; and
|
·
|
the availability of appraisal rights under Florida law to holders of Company common stock who comply with all of the required procedures under Florida law, which allows such holders to seek appraisal of the fair value of their shares of Company common stock as determined by the appropriate court in and for Broward County, Florida (i.e., as required under Section 607.1330(2) of the Florida Business Corporation Act, the county in which the Company's registered office in Florida is located).
|
·
|
the fact that the special committee is comprised of three independent directors who are not affiliated with either the Rollover Investors, the Voting Shareholders, Bain Capital, the Guarantor, the Sponsors, Parent, Merger Sub or any direct or indirect wholly owned subsidiary of Parent (together with Parent and Merger Sub, the “
Parent Affiliates
”) and are not employees of the Company or any of its subsidiaries;
|
·
|
the fact that, other than their receipt of compensation as members of the board of directors and the special committee (which are not contingent upon the consummation of the merger or the special committee’s recommendation of the merger) and their interests described under “
Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger
,” members of the special committee do not have interests in the merger different from, or in addition to, those of the Company’s unaffiliated shareholders;
|
·
|
the fact that the determination to engage in discussions related to the proposed merger and the consideration and negotiation of the price and other terms of the proposed merger was conducted entirely under the oversight of the members of the special committee and without any limitation on the authority of the special committee to act with respect to any alternative transaction or any related matters, the Rollover Investors commenced discussions on the rollover and voting arrangements after the special committee and Bain Capital had reached agreement on material commercial terms of the merger agreement, the Rollover Investors were not present at most meetings between the special committee and Bain Capital, and the Rollover Investors recused themselves from voting at and from a part of the board meeting held on May 20, 2011 to give the other members of our board of directors an opportunity to fully discuss and approve the merger agreement and the transactions contemplated by the merger agreement;
|
·
|
the recognition by the special committee that it had the authority not to recommend the approval of the merger or any other transaction;
|
·
|
extensive negotiations between the special committee and Bain Capital, which resulted in significantly better contractual terms to the Company and its shareholders than initially proposed by Bain Capital;
|
·
|
the fact that the special committee was advised by Barclays Capital, as financial advisor, and Shearman & Sterling, as legal advisor, each an internationally recognized firm, and the fact that the special committee requested and received from Barclays Capital an opinion (based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth therein), dated May 20, 2011, with respect to the fairness of the per share merger consideration to be received by the holders of Company common stock (other than the Rollover Investors);
|
·
|
the fact that the merger agreement must be approved by the affirmative vote of (i) shareholders holding at least seventy-five percent (75%) of the outstanding shares of the Company common stock at the close of business on the record date and (ii) unaffiliated shareholders holding more than fifty percent (50%) of the outstanding shares of the Company common stock at the close of business on the record date (other than shares owned by the Rollover Investors, the Voting Shareholders and/or any holders of Company common stock who have entered into voting agreements or other similar shareholder support agreements with Parent, Merger Sub or their affiliates following May 20, 2011);
|
·
|
the fact that the terms and conditions of the merger agreement were designed to encourage a superior proposal, including a 55-day go-shop period during which the Company may solicit and consider alternative proposals, which may be extended with respect to any continuing parties, and the Company’s ability, at any time from and after the end of the go-shop period but prior to the time the Company shareholders approve the merger agreement, to provide information to third parties with respect to unsolicited alternative acquisition proposals under certain circumstances and participate in discussions or negotiations with the third party that submitted such acquisition proposal, if the special committee determines that any such acquisition proposal constitutes or is reasonably likely to result in a superior proposal.
|
·
|
the risk that the proposed merger might not be completed in a timely manner or at all, including the risk that the proposed merger will not occur if the financings contemplated by the equity and debt financing commitments, described under “
Special Factors
—
Financing of the Merger
,” are not obtained;
|
·
|
the fact that Party A had submitted to the Company a firm offer to acquire all of the outstanding shares of Company common stock at $9.05 per share, described under “
Special Factors
—
Background of the Merger;
”
|
·
|
the fact that the shareholders of the Company (other than the Rollover Investors) will have no ongoing equity in the surviving corporation following the proposed merger, meaning that the shareholders (other than the Rollover Investors) will cease to participate in the Company’s future earnings or growth of, or to benefit from any increases in, the value of the Company common stock;
|
·
|
the restrictions on the conduct of the Company’s business prior to the completion of the proposed merger, which 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 proposed merger;
|
·
|
the risks and costs to the Company if the proposed merger does not close, including the diversion of our management and employee attention, the potential negative impact on our ability to attract and retain key employees and the potential disruptive effect on our business and customer relationships;
|
·
|
the fact that the Company will be required to, under certain circumstances, pay Parent a termination fee of $6.4 million or $8.5 million, as applicable, or reimburse Parent’s expenses (up to $3 million), which could discourage other potential acquirers from making a competing bid to acquire the Company;
|
·
|
the fact that if the proposed merger is not completed, the Company will be required to pay its own expenses associated with the merger agreement, the merger and the other transactions contemplated by the merger agreement as well as, under certain circumstances, pay Parent a termination fee of $6.4 million or $8.5 million, as applicable, or reimburse Parent’s expenses (up to a $3 million), in connection with the termination of the merger agreement;
|
·
|
the fact that Parent and Merger Sub are newly formed corporations with essentially no assets other than the equity commitments of the Sponsors, that the Company’s remedy in the event of breach of the merger agreement by Parent or Merger Sub may be limited to receipt of a termination fee of $8.5 million or $10.7 million, as applicable, which is guaranteed by the Guarantor, and that under certain circumstances the Company may not be entitled to a termination fee at all;
|
·
|
the fact that an all cash transaction would be taxable to the Company’s shareholders that are U.S. holders for U.S. federal income tax purposes; and
|
·
|
the terms of the Rollover Investors’ participation in the merger and the fact that the Rollover Investors and our other executive officers and directors may have interests in the transaction that are different from, or in addition to, those of our unaffiliated shareholders; see “
Special Factors
—
Interests of the Company’s Directors and Executive Officers in the Merger.
”
|
·
|
determined that the merger and the other transactions contemplated by the merger agreement were fair and advisable to and in the best interest of the Company and its shareholders, approved and adopted the merger agreement and the consummation of the transactions contemplated by the merger agreement and resolved to recommend the approval of the merger agreement by the Company’s shareholders; and
|
·
|
directed the merger agreement be submitted to the Company’ shareholders for their approval at a meeting of the Company’s shareholders.
|
·
|
the special committee’s analysis, conclusions and unanimous determination that the merger agreement, the merger and the other transactions contemplated by the merger agreement were fair and advisable to and in the best interest of the Company and its shareholders and the special committee’s unanimous recommendation that the board of directors adopt and approve the merger agreement, submit the merger agreement to the Company’s shareholders for approval at a meeting of the Company’s shareholders and recommend that the shareholders vote for the approval of the merger agreement and the consummation of the merger and other transactions contemplated by the merger agreement;
|
·
|
the fact that, other than their receipt of compensation as members of the board of directors and the special committee (which are not contingent upon the consummation of the merger or the special committee’s recommendation of the merger) and their interest described under “
Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger
,” members of the special committee do not have interests in the merger different from, or in addition to, those of the Company’s unaffiliated shareholders;
|
·
|
the opinion of Barclays Capital, dated May 20, 2011, to the special committee to the effect that, based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth therein, the $9.00 per share merger consideration to be received by the holders of shares of Company common stock (other than the Rollover Investors) pursuant to the merger agreement was fair, from a financial point of view, to such holders;
|
·
|
the process undertaken by the special committee and its advisors in connection with evaluating the proposed merger, as described in “
Special Factors
—
Background of the Merger;
”
|
·
|
the availability of appraisal rights under Florida law for our shareholders who oppose the merger.
|
·
|
the final draft of merger agreement dated May 20, 2011 and the specific terms of the merger agreement;
|
·
|
certain publicly available information concerning the Company that it believed to be relevant to its analysis, including the Company’s financial statements;
|
·
|
financial and operating information with respect to the business, operations and prospects of the Company furnished to it by the Company, including financial projections of the Company prepared by management of the Company dated April 7, 2011;
|
·
|
estimates of independent broker research analysts with respect to the future price targets of the Company common stock and financial projections of the Company;
|
·
|
a comparison of the trading history of the Company common stock with that of securities of certain publicly-traded companies that it deemed to be generally relevant;
|
·
|
a comparison of the financial performance of the Company with that of certain publicly-traded companies that it deemed to be generally relevant;
|
·
|
a comparison of the financial terms of the merger with the financial terms of certain other recent transactions that it deemed to be generally relevant; and
|
·
|
the premia paid in certain publicly available transactions that it deemed to be generally relevant.
|
·
|
the closing price of the Company common stock on March 4, 2011 (“
Undisturbed Share Price
”), the last trading day prior to the announcement of a “going private” proposal received by the Company; and
|
·
|
the volume weighted average price (“
VWAP
”) of the Company common stock for each of the one-month, three-month, six-month and twelve-month periods ended on May 13, 2011 (referred to herein as the “
Reference Date
”).
|
|
The results of this analysis are summarized in the following table:
|
Time Period
|
Price for Period Ended
on the Reference Date
|
Implied Premium / (Discount)
|
March 4, 2011 (Undisturbed Share Price)
|
$6.26
|
43.8%
|
1-month VWAP
|
$6.94
|
29.7%
|
3-month VWAP
|
$6.53
|
37.7%
|
6-month VWAP
|
$6.62
|
36.0%
|
12-month VWAP
|
$8.20
|
9.8%
|
Financial Multiple
|
Price on the Reference Date
($7.25 per share)
|
Merger Consideration
($9.00 per share)
|
EV/ EBITDA LTM
|
10.0x
|
12.9x
|
P/E LTM
|
13.8x
|
17.2x
|
I/B/E/S Consensus Estimates
|
||
EV/EBITDA FY2011E
|
9.7x
|
12.5x
|
EV/EBITDA FY2012E
|
8.0x
|
10.3x
|
P/E FY2011E
|
13.1x
|
16.4x
|
P/E FY2012E
|
11.0x
|
13.8x
|
Management Plan
|
||
EV/EBITDA FY2011E
|
9.4x
|
12.2x
|
EV/EBITDA FY2012E
|
8.2x
|
10.5x
|
P/E FY2011E
|
12.5x
|
15.7x
|
P/E FY2012E
|
10.9x
|
13.6x
|
Selected China Industrial Technology
Companies
|
Selected U.S.-listed Chinese
Companies
|
Selected Global Fire Products
and Services Companies
|
China Automation Group
|
China Information Technology
|
Honeywell International
|
China Security & Surveillance Technology
|
China Sunergy
|
Tyco International
|
Hollysys Automation Technologies
|
China Valves Technology
|
United Technologies Corporation
|
China XD Plastics
|
||
Fushi Copperweld
|
||
Jinpan International
|
||
Lihua International
|
EV/EBITDA FY2011E
|
P/E FY2011E
|
|
Selected China Industrial Technology Companies
|
||
Range
|
5.2x – 10.7x
|
5.7x – 14.8x
|
Median
|
10.0x
|
14.0x
|
Selected U.S.-listed Chinese Companies
|
||
Range
|
1.7x – 9.0x
|
3.0x – 11.5x
|
Median
|
3.3x
|
4.3x
|
Selected Global Fire Products and Services Companies
|
||
Range
|
7.2x – 9.1x
|
15.3x – 16.4x
|
Median
|
8.5x
|
15.7x
|
China Fire & Security Group (closing price as of Reference Date)
|
9.7x
|
13.1x
|
China Fire & Security Group (merger consideration $9.00 per share)
|
12.5x
|
16.4x
|
Date Announced
|
Acquirer
|
Target
|
November 2009
|
United Technologies
|
GE Security
|
August 2009
|
United Technologies
|
GST Holdings
|
August 2007
|
Schneider Electric
|
Pelco
|
March 2007
|
United Technologies
|
Initial Electronic Security
|
May 2006
|
Assa Abloy
|
Fargo Electronics
|
March 2005
|
United Technologies
|
Lenel
|
March 2005
|
Axsys Technologies
|
Diop
|
November 2004
|
General Electric
|
Edwards Systems Technology
|
May 2004
|
Schneider Electric
|
Andover Controls
|
March 2004
|
General Electric
|
Invision Technologies
|
October 2003
|
Honeywell
|
Silent Witness
|
December 2001
|
General Electric
|
Interlogix
|
August 2001
|
Tyco International
|
Sensormatic
|
December 2000
|
Kaba Holding
|
Unican Security Systems
|
December 2000
|
Tyco International
|
Simplex
|
November 2000
|
Assa Abloy
|
HID
|
December 1999
|
Honeywell
|
Pittway
|
EV/LTM EBITDA Range
|
||||
Average
|
Median
|
1
st
Quartile
|
3
rd
Quartile
|
|
Precedent Transactions
|
12.8x
|
11.8x
|
9.4x
|
14.2x
|
Implied multiple based on merger
consideration of $9.00 per share
|
12.9x
|
Selected Transactions Premia Paid
|
|||
1 Day Prior
|
1 Week Prior
|
1 Month Prior
|
|
Average
|
32%
|
33%
|
35%
|
Implied premia based on merger
consideration of $9.00 per share
|
44%
|
56%
|
57%
|
·
|
the special committee, consisting entirely of directors who are not officers or employees of the Company and who are not affiliated with the Sponsors, Parent and Merger Sub, was established and given authority to, among other things, review, evaluate and negotiate the terms of the proposed merger and to recommend to the Company’s board of directors what action should be taken by the Company, including not to engage in the merger;
|
·
|
the members of the special committee do not have any interests in the proposed merger different from, or in addition to, those of the Company’s unaffiliated shareholders, other than the members’ receipt of the board of directors and special committee compensation (which are not contingent upon the consummation of the proposed merger or special committee’s or the board of directors’ recommendation of the proposed merger);
|
·
|
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 Company’s 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 each member of the special committee and the board of directors although neither the special committee nor the board of directors had any obligation to recommend approval of the merger or approval of the merger agreement or any other transaction;
|
·
|
the per share merger consideration of $9.00 represents a premium over the current and historical market prices of the Company common stock, including a premium of approximately 22.8% over the $7.33 closing price of the Company common stock on March 20, 2010, the date on which the merger agreement was signed by parties thereto;
|
·
|
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 the special committee and its advisors and Bain Capital;
|
·
|
the merger agreement must be approved by the affirmative vote of (i) shareholders holding at least seventy-five percent (75%) of the outstanding shares of the Company common stock at the close of business on the record date and (ii) unaffiliated shareholders holding more than fifty percent (50%) of the outstanding shares of the Company common stock at the close of business on the record date (other than shares owned by the Rollover Investors, the Voting Shareholders, and/or any holders of Company common stock who have entered into voting agreements or other similar shareholder support agreements with Parent, Merger Sub or their affiliates following May 20, 2011, agreeing to vote in favor of the merger);
|
·
|
that the terms and conditions of the merger agreement were designed to encourage a superior proposal, including a negotiated 55-day "go-shop" period during which the Company may solicit and consider alternative proposals
, which may be extended with respect to any continuing parties, and the Company’s ability, at any time from and after the end of the go-shop period but prior to the time the Company shareholders approve the merger agreement, to provide information to third parties with respect to unsolicited alternative acquisition proposals under certain circumstances and participate in discussions or negotiations with the third party that submitted such acquisition proposal, if the special committee determines that any such acquisition proposal constitutes or is reasonably likely to result in a superior proposal;
|
·
|
the special committee received from its financial advisor an opinion, dated May 20, 2011, with respect to the fairness of the per share merger consideration to be received by the holders of Company common stock (other than the Rollover Investors);
|
·
|
under the terms of the merger agreement, in certain circumstances prior to obtaining the requisite shareholder approvals of the merger, the Company is permitted to provide information to third parties with respect to unsolicited alternative acquisition proposals;
|
·
|
the ability of the Company to terminate the merger agreement (in accordance with the terms of the merger agreement) upon acceptance of a superior proposal; and
|
·
|
the availability of appraisal rights to the unaffiliated shareholders who comply with all of the required procedures under Florida law for exercising appraisal rights, which allow such holders to seek appraisal of the fair value of their stock in lieu of receiving the merger consideration.
|
·
|
the per share merger consideration of $9.00 represents a premium over the current and historical market prices of the Company common stock, including a premium of approximately 24% over the $7.26 closing price of the Company common stock on May 19, 2011, the date on which the merger agreement was signed by parties thereto;
|
·
|
the financial and other terms and conditions of the merger agreement were the product of arm’s-length negotiations between the special committee and its advisors, on the one hand, and the Bain Capital and its advisors, on the other hand;
|
·
|
none of the Rollover Investors participated in the deliberations of the special committee or the Board regarding, or received advice from the special committee’s legal or financial advisor as to, the fairness of the merger;
|
·
|
each member of the special committee and the Board unanimously determined that the merger agreement and the merger are fair to and in the best interests of the Company and its unaffiliated shareholders;
|
·
|
neither the special committee nor the Board had any obligation to recommend approval of the merger or adoption of the merger agreement or any other transaction;
|
·
|
the Rollover Investors have interests in the merger that are the same as those of the unaffiliated shareholders of the Company by virtue of the receipt of the per share merger consideration for a portion of the Rollover Investors’ equity interests in the Company upon completion of the merger;
|
·
|
the structure of the merger as an all-cash transaction for the unaffiliated shareholders will provide certainty of value to the unaffiliated shareholders;
|
·
|
the merger agreement must be approved by the affirmative vote of (i) shareholders holding at least seventy-five percent (75%) of the outstanding shares of the Company common stock at the close of business on the record date and (ii) unaffiliated shareholders holding more than fifty percent (50%) of the outstanding shares of the Company common stock at the close of business on the record date
(other than shares owned by the Rollover Investors, the Voting Shareholders, and/or any holders of Company common stock who have entered into voting agreements or other similar shareholder support agreements with Parent, Merger Sub or their affiliates following May 20, 2011, agreeing to vote in favor of the merger)
;
|
·
|
the availability of appraisal rights to the unaffiliated shareholders who comply with all of the required procedures under Florida law for exercising appraisal rights, which allow such holders to seek appraisal of the fair value of their stock in lieu of receiving the merger consideration.
|
Year ending December 31
|
|||||
2011E
|
2012E
|
2013E
|
2014E
|
2015E
|
|
Revenues
|
$88.9
|
$107.6
|
$115.5
|
$121.3
|
$127.4
|
Gross Profit
|
$44.2
|
$50.7
|
$53.3
|
$56.0
|
$58.8
|
EBITDA
|
$19.5
|
$22.6
|
$23.5
|
$24.6
|
$25.9
|
Net Income
|
$16.9
|
$19.5
|
$20.3
|
$21.4
|
$22.6
|
·
|
the receipt by such shareholders of $9.00 per share in cash, representing a substantial premium (44%) over the Company’s closing price on March 4, 2011 (which represents the “undisturbed” share price prior to the Company’s announcement regarding receipt of a “going private” proposal), and a 38% premium over the Company’s 90-trading day volume weighted average price calculated as of May 19, 2011.
|
·
|
the avoidance of the risk associated with any possible decrease in our future revenues and free cash flow, growth or value, the risks associated with fire protection solutions industry, such as
|
|
the avoidance of the risk associated with any possible decrease in our future revenues and free cash flow, growth or value, the risks associated with fire protection solutions industry, such as market cyclicality and competition, and the risks related to our substantial leverage, following the merger.
|
·
|
such shareholders will cease to have an interest in the Company and, therefore, will no longer benefit from possible increases in the future revenues and free cash flow, growth or value of the Company or payment of dividends on the Company common stock, if any.
|
·
|
in general, the receipt of cash pursuant to the merger will be a taxable transaction for United States federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. As a result, a U.S. Holder (as defined under “
Special Factors – Certain
Material United States Federal Income Tax Consequences
”) generally will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received in the merger and the U.S. Holder’s adjusted tax basis in the shares of Company common stock exchanged. A non-U.S. Holder (as defined under “
Special Factors – Certain Material United States Federal Income Tax Consequences
”) generally will not be subject to United States federal income tax in respect of cash received in the merger, unless such non-U.S. Holder has certain connections to the United States.
|
·
|
if the Company successfully executes its business strategies, the value of their respective investment could increase because of possible increases in future revenues and free cash flow, increases in the underlying value of the Company or the payment of dividends, if any, that will accrue to Parent.
|
·
|
the Company will no longer have continued pressure to meet quarterly forecasts set by analysts. In contrast, as a publicly-traded company, the Company currently faces public shareholder and investment analyst pressure to make decisions that may produce better short term results, but which may not over the long term lead to a maximization of its equity value.
|
·
|
the Company will have more freedom to focus on long-term strategic planning in a highly competitive business with increasing competition and regulation.
|
·
|
the Company will have more flexibility to change its capital spending strategies without public market scrutiny or analysts’ quarterly expectations.
|
·
|
the Company will be able to deploy new services or change its pricing strategies to attract customers without public market scrutiny or the pressure to meet quarterly forecasts set by analysts.
|
·
|
all of the risk of any possible decrease in the Company’s revenues, free cash flow or value following the merger will be borne by them.
|
·
|
the business risks facing the Company, including increased competition, will be borne by them.
|
·
|
an equity investment in the surviving corporation by them following the merger will involve substantial risk resulting from the limited liquidity of such an investment.
|
·
|
following the merger, there will be no trading market for the surviving corporation’s equity securities.
|
Ownership of the Company Prior to the
Merger
|
Fully Diluted Ownership of the Company
After the Merger
(1)
|
|||||||||||||||||||||||
%
Ownership
|
Net earnings
for the
fiscal year
ended
December
31, 2010
(in thousands)
|
Net book
value as
of
December
31, 2010
(in thousands)
|
%
Ownership
|
Net
earnings
for the
fiscal year
ended
December
31, 2010
(in thousands)
|
Net book
value as
of December
31, 2010
(in thousands)
|
|||||||||||||||||||
Sponsors
(2)
|
0 | % | $ | 0 | $ | 0 | 75.8 | % | $ | 11,702 | $ | 97,011 | ||||||||||||
Rollover investors
(3)
|
49.16 | % | $ | 7,589 | $ | 62,915 | 24.2 | % | $ | 3,736 | $ |
30,969
|
||||||||||||
Total
|
49.16 | % | $ | 7,589 | $ | 62,915 | 100.0 | % | $ | 15,438 | $ | 127,980 |
Fully Diluted Ownership of Parent After the Merger
(1)(2)
|
|||||||
%
Ownership
|
Net earnings
for the fiscal
year ended
December
31, 2010
(in thousands)
|
Net book
value as of
December
31, 2010
(in thousands)
|
|||||
Sponsors
(2)
|
%
|
75.8 |
%
|
$ | 11,702 |
$
|
97,011
|
Rollover Investors
)(3)
|
24.2 | % | $ | 3,736 | $ | 30,969 | |
Total
|
100 | % |
$
|
15,438 | $ |
127,980
|
(1)
|
Interest in net earnings and net book value of the Company after the merger does not take into account the effect of the transaction (other than the change in ownership percentage) and does not take into account any additional debt that may be incurred by the Company or any resulting interest expense, which would have the effect of decreasing net earnings and net book value of the Company after the merger.
|
(2)
|
Following the merger, (i) Parent will directly or indirectly own 100% of the capital stock of the Company, (ii) Sponsors will own approximately 75.8% of Parent, and (iii) the Rollover Investors will own approximately 24.2% of Parent.
These ownership percentages are subject to change as a result of each of the Sponsors' respective equity commitments being increased or decreased by amounts required to be paid pursuant to the merger agreement and related fees and expenses pursuant to the merger agreement.
|
(3)
|
The aggregate number of shares of Company common stock beneficially owned by the Rollover Investors as of June 8, 2011, includes shares of restricted stock. The aggregate share ownership percentage of the Rollover Investors prior to the merger is based on the 28,640,321 shares outstanding as of June 8, 2011.
|
Vested Stock Options
|
Unvested Stock Options
|
Aggregate Offer
Consideration for All
Stock Options
|
||||||||||||
Name
|
Shares
|
Value |
Shares
|
Value |
Shares
|
Value | ||||||||
Weigang Li
|
184,375
|
$
|
959,781.3
|
65,625
|
$
|
143,718.75
|
250,000
|
$ |
1,103,500
|
|||||
Brian Lin
|
318,750
|
1,532,063
|
131,250
|
287,437.5
|
450,000
|
1,819,500
|
||||||||
Tongzhou Qin
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||
Weishe Zhang
|
188,750
|
524,562.5
|
131,250
|
287,437.5
|
320,000
|
812,000
|
||||||||
Xianghua Li
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||
Yinqing Li
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||
Guoyou Zhang
|
2,000
|
8,980
|
0
|
0
|
2,000
|
8,980
|
||||||||
Albert McLelland
|
0
|
0
|
0
|
0
|
0
|
0
|
Name
|
Aggregate
Number of
Shares of Restricted
Stock
|
Value of
Shares of
Restricted
Stock
|
|
Weigang Li
|
52,500
|
$ 472,500
|
|
Brian Lin
|
75,000
|
675,000
|
|
Tongzhou Qin
|
15,000
|
135,000
|
|
Weishe Zhang
|
0
|
0
|
|
Xianghua Li
|
0
|
0
|
|
Yinqing Li
|
0
|
0
|
|
Guoyou Zhang
|
0
|
0
|
|
Albert McLelland
|
0
|
0
|
·
|
filing the certificate of merger with the Secretary of State of the State of Florida in accordance with the FBCA after the approval of the merger agreement by our shareholders; and
|
·
|
complying with U.S. federal securities laws.
|
Description
|
Amount (in thousands)
|
|
Financing fees and expenses and related professional fees
|
[ ]
|
|
Financial advisory fee and expenses
|
[ ]
|
|
Legal and accounting fees and expenses
|
[ ]
|
|
Printing, proxy solicitation, filing fees and mailing costs
|
[ ]
|
Special committee fees
|
[ ]
|
|
Miscellaneous
|
[ ]
|
·
|
the gain 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 United States income tax treaty, is attributable to the non-U.S. Holder’s 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 of the exchange and certain other conditions are met; or
|
·
|
the non-U.S. Holder owned (actually or constructively) more than five percent of the Company 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 United States federal income tax purposes during such time.
|
·
|
to approve the merger agreement (see “
The Merger Agreement
” beginning on page 58); 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.
|
·
|
due organization, existence, good standing of the Company and its subsidiaries and authority to carry on their respective businesses;
|
·
|
the Company’s capitalization, the absence of preemptive or other similar rights or any debt securities that give its holders the right to vote with the Company’s shareholders and the absence of encumbrances on the Company’s ownership of the equity interests of its subsidiaries;
|
·
|
the Company’s corporate power and authority to execute and deliver, to perform its obligations under and to consummate the transactions under the merger agreement, and the enforceability of the merger agreement against the Company;
|
·
|
the receipt of fairness opinion by and the recommendation from the special committee, the declaration of advisability of the merger agreement, the approval of the merger agreement and the merger by the board of directors;
|
·
|
the absence of violations of, or conflicts with, the governing documents of the Company and its subsidiaries, applicable law and certain agreements as a result of the Company entering into and performing under the merger agreement and consummating the transactions contemplated by the merger agreement;
|
·
|
the required consents and approvals of governmental entities in connection with the transactions contemplated by the merger agreement;
|
·
|
compliance with applicable laws, licenses and permits, including the United States Foreign Corrupt Practices Act and reporting and registration requirements under certain PRC foreign exchange administration rules;
|
·
|
the Company’s SEC filings since December 31, 2009 and the financial statements included therein, as well as the Company’s disclosure controls and procedures and internal controls over financial reporting;
|
·
|
the absence of certain undisclosed liabilities;
|
·
|
the absence of a Company “material adverse effect” (as defined below) and the absence of certain other changes or events since December 31, 2010;
|
·
|
employee and benefit plans;
|
·
|
labor matters;
|
·
|
the identification of certain material contracts and the absence of any breach, violation, default or termination of the material contracts;
|
·
|
the absence of legal proceedings and governmental orders against the Company or its subsidiaries;
|
·
|
environmental matters;
|
·
|
intellectual property;
|
·
|
tax matters;
|
·
|
insurance policies;
|
·
|
real property;
|
·
|
the absence of a shareholder rights plan and the inapplicability of any anti-takeover law to the merger;
|
·
|
customers;
|
·
|
the absence of any undisclosed broker’s or finder’s fees; and
|
·
|
acknowledgment as to absence of any other representations and warranties.
|
·
|
changes affecting the economic conditions or financial markets generally in any country or region in which the Company or any of its subsidiaries conducts business (it being understood that any fact, event, circumstance, development, condition, change, occurrence or effect giving rise to such changes may be taken into account in determining whether a Company material adverse effect has occurred or reasonably would be expected to occur, to the extent it has a materially disproportionate impact on the Company and its subsidiaries, taken as a whole, relative to the other participants in the industries and geographic markets in which the Company and its subsidiaries conduct their businesses);
|
·
|
changes in (i) GAAP, (ii) any applicable laws, rules or regulations or (iii) directives or policies of a governmental entity of general applicability that are binding on the Company or its subsidiaries other than as a result of any breach by the Company, any of its subsidiaries or any of their representatives of any such directives, policies or other laws or, in the case of (ii) or (iii), any interpretation thereof after the date of the merger agreement (it being understood that any fact, event, circumstance, development, condition, change, occurrence or effect giving rise to such changes may be taken into account in determining whether a Company material adverse effect has occurred or reasonably would be expected to occur, to the extent it has a materially disproportionate impact on the Company and its subsidiaries, taken as a whole, relative to the other participants in the industries and geographic markets in which the Company and its subsidiaries conduct their businesses);
|
·
|
changes that are the result of factors generally affecting the industries in which the Company and its subsidiaries operate (it being understood that any fact, event, circumstance, development, condition, change, occurrence or effect giving rise to such changes may be taken into account in determining whether a Company material adverse effect has occurred or reasonably would be expected to occur, to the extent it has a materially disproportionate impact on the Company and its subsidiaries, taken as a whole, relative to the other participants in the industries and geographic markets in which the Company and its subsidiaries conduct their businesses);
|
·
|
effects resulting from the public announcement of the merger agreement and the transactions contemplated thereby, including, without limitation, the initiation of litigation or other legal proceeding by any person with respect to the merger agreement or the transactions contemplated thereby or any losses of employees;
|
·
|
the Company’s failure to meet any estimates, forecasts or expectations of the Company’s revenue, earnings or other financial performance or results of operation or a change in the Company’s credit ratings (it being understood that any fact, event, circumstance, development, condition, change, occurrence or effect causing, contributing to or resulting from such failure to meet any estimates, forecasts or expectations or such change in credit ratings may be taken into account in determining whether a Company material adverse effect has occurred or reasonably would be expected to occur);
|
·
|
natural disasters, declarations of war, acts of sabotage or terrorism or armed hostilities, in each case occurring after the date of the merger agreement (it being understood that any fact, event, circumstance, development, condition, change, occurrence or effect giving rise to such changes may be taken into account in determining whether a Company material adverse effect has occurred or reasonably would be expected to occur, to the extent it has a materially disproportionate impact on the Company and its subsidiaries, taken as a whole, relative to the other participants in the industries and geographic markets in which the Company and its subsidiaries conduct their businesses);
|
·
|
changes in the market price or trading volume of the Company common stock (it being understood that any fact, event, circumstance, development, condition, change, occurrence or effect causing or contributing to such change in market price or trading volume may be taken into account in determining whether a Company material adverse effect has occurred or reasonably would be expected to occur);
|
·
|
actions taken (or omitted to be taken) at the request of Parent; or
|
·
|
effects resulting from the identity of Parent or its affiliates.
|
·
|
their due organization, existence and good standing;
|
·
|
their corporate power and authority to execute and deliver, to 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 violations of, or conflicts with, their governing documents, applicable law and certain agreements as a result of entering into and performing under the merger agreement and consummating the transactions contemplated by the merger agreement;
|
·
|
governmental consents and approvals;
|
·
|
the absence of legal proceedings against Parent and Merger Sub;
|
·
|
Parent ownership of Merger Sub and the operations of Merger Sub;
|
·
|
sufficiency of funds in the financing contemplated by the debt financing commitment letter, the equity financing commitment letter and the rollover agreement;
|
·
|
the absence of contingencies related to the funding of the financing other than as set forth in the debt financing commitment letter or the equity financing commitment letter;
|
·
|
Parent not having any reason to believe the conditions to the financing and the rollover agreement will not be satisfied or that the financing and the equity rollover contribution will not be available;
|
·
|
the absence of any default under the debt financing commitment letter, the equity financing commitment letter and the rollover agreement;
|
·
|
the absence of any undisclosed broker’s or finder’s fees;
|
·
|
the execution and the validity and enforceability of a limited guarantee of certain obligations of Parent and the lack of any default thereunder;
|
·
|
solvency of Parent and the surviving corporation immediately following consummation of the merger;
|
·
|
the absence of ownership or any other economic interests in the Company, other than as result of the merger agreement and the other agreements contemplated thereby;
|
·
|
the absence of certain agreements;
|
·
|
the absence of any side letters or other agreements between the Sponsors or their affiliates and the Rollover Investors or their affiliates relating to the transactions contemplated by the merger agreement;
|
·
|
acknowledgement as to independent investigation, review and analysis of the Company and its subsidiaries and adequate access provided by the Company; and
|
·
|
acknowledgement as to non reliance of any estimates, forecasts, projections, forecasts, plans and budgets provided by the Company.
|
·
|
amend or otherwise change the governing documents of the Company or its subsidiaries;
|
·
|
issue, deliver, sell, pledge, transfer, encumber or otherwise dispose of, or authorize, propose or agree to the issuance, delivery, sale, pledge, transfer, encumbrance or disposition of, any shares of any class or series of its capital stock or other equity interests, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of any class or series of its capital stock or other equity interests;
|
·
|
declare, set aside, establish a record date for, make or pay any dividend or other distribution with respect to any of its capital stock, or enter into any agreement with respect to the voting of its capital stock;
|
·
|
reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire or offer to acquire any of its capital stock or other equity or securities interests;
|
·
|
acquire any interest in any person or any assets thereof, or make any loan, advance or capital contribution to, or investment in, any person, except any such acquisitions, loans, advances, contributions or investments that are consistent with past practice and are for consideration not in excess of $300,000 individually or $1,000,000 in the aggregate for all such transactions by the Company and its subsidiaries;
|
·
|
redeem, repurchase, prepay, defease, cancel, incur or otherwise acquire, or modify the terms of, any indebtedness or issue any debt securities or other contracts evidencing indebtedness or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any person for indebtedness, except for (A) indebtedness incurred under the Company’s or any of its subsidiary’s existing credit facilities as in effect on the date of the merger agreement in an aggregate amount not to exceed the maximum amount authorized under the contracts evidencing such indebtedness, (B) indebtedness for borrowed money incurred in the ordinary course of business consistent with past practices in a principal amount not in excess of $1,000,000 for all such indebtedness by the Company and its subsidiaries in the aggregate and (C) indebtedness owed by any subsidiary to the Company or any wholly-owned subsidiary of the Company;
|
·
|
grant any lien on the assets of the Company or any of its subsidiaries having a value in excess of $3,500,000;
|
·
|
sell, transfer, lease, license, assign or otherwise dispose of any entity, business, tangible assets or tangible properties of the Company or any of its subsidiaries having a current value in excess of $1,000,000 in the aggregate (other than the sale of inventory in the ordinary course of business consistent with past practice);
|
·
|
sell, transfer, license, assign or otherwise dispose of, abandon, permit to lapse or fail to maintain or enforce any material Company intellectual property owned by the Company or its subsidiaries, or disclose to any person any confidential information;
|
·
|
authorize, or make any commitment with respect to, any single capital expenditure in excess of $100,000 or capital expenditures for the Company and its subsidiaries in excess of $400,000 in the aggregate;
|
·
|
enter into any new line of business outside of its existing business segments;
|
·
|
(A) grant or announce any stock option, equity, equity-linked or incentive awards or change the vesting dates of any Company option or Company restricted stock, (B) grant or announce any increase in the salaries, bonuses or other compensation and benefits payable by the Company or its subsidiaries to any of the employees, officers, directors, shareholders or other service providers of the Company or its subsidiaries having a total annual base salary and incentive compensation opportunity in excess of $100,000, other than in the ordinary course of business consistent with past practice, (C) hire (or enter into any employment agreements with) any employees having a total annual base salary and incentive compensation opportunity in excess of $100,000, (D) pay or agree to pay any pension, retirement allowance, termination or severance pay, bonus or other employee benefit not required by any existing benefit plan or (E) enter into or adopt any new, or materially increase benefits under or renew, amend or terminate any existing benefit plan or benefit arrangement or any collective bargaining agreement;
|
·
|
make any change in accounting principles, policies, practices, procedures or methods;
|
·
|
change any method of tax accounting, make or change any tax election, adopt or change any accounting method, file any amended tax return, settle or compromise any tax liability, agree to an extension or waiver of the statute of limitations with respect to the assessment or determination of taxes, enter into any closing agreement with respect to any tax, surrender any right to claim a tax refund or fail to pay any material taxes as they become due and payable, except taxes which are being or may be contested in good faith after the date of the merger agreement;
|
·
|
settle, release, waive or compromise any pending or threatened action of or against the Company or any of its subsidiaries (A) for an amount in excess of $500,000 in the aggregate, (B) entailing the incurrence of (x) any obligation or liability of the Company or any of its subsidiaries in excess of such amount, or (y) obligations that would impose any material restrictions on the business or operations of the Company or any of its subsidiaries, or (C) that is brought by or on behalf of any current, former or purported holder of any capital stock or debt securities of the Company or any of its subsidiaries relating to the transactions contemplated by the merger agreement;
|
·
|
(A) enter into, terminate or materially amend or modify any material contract, or (B) waive any material default under, or release, settle or compromise any material claim against the Company or liability or obligation owing to the Company under any material contract, in each case, which would reasonably be expected to adversely impact the Company or any of its subsidiaries in any material respect;
|
·
|
adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries; or
|
·
|
knowingly commit, authorize or agree to take any of the foregoing actions or enter into any letter of intent (binding or non-binding) or similar agreement or arrangement with respect to any of the foregoing actions.
|
·
|
solicit, initiate, facilitate and encourage any acquisition proposal from any third party, including by way of providing access to information pursuant to one or more acceptable confidentiality agreements, (provided that the Company promptly make any material non-public information provided to any such third party available to Parent and Merger Sub if not previously made available to Parent or Merger Sub); and
|
·
|
enter into, continue or otherwise participate in any discussions or negotiations with respect to any acquisition proposal or otherwise cooperate with or assist or participate in or facilitate any such discussions or negotiations or any effort or attempt to make any acquisition proposal.
|
·
|
initiate, solicit, propose or knowingly encourage or facilitate any inquiries or the making of an acquisition proposal;
|
·
|
engage in, continue or otherwise participate in any discussions or negotiations with any person with respect to any acquisition proposal;
|
·
|
grant any waiver, amendment or release under any standstill or confidentiality agreement or takeover statutes;
|
·
|
approve, endorse, recommend, execute or enter into any letter of intent, agreement in principle, merger agreement, acquisition agreement or other similar agreement with respect to any acquisition proposal, or that requires the Company to abandon the merger agreement or the merger; or
|
·
|
resolve, agree or publicly announce an intention to do any of the foregoing.
|
·
|
the special committee determines in good faith, after consultation with its independent nationally recognized financial advisor and outside legal counsel, that failure to do so would be inconsistent with the directors’ fiduciary duties under applicable laws;
|
·
|
prior to effecting a company adverse recommendation change or terminating the merger agreement to enter into an alternative acquisition agreement in accordance with (ii) above, (A) the Company must have provided prior written notice to Parent at least five (5) business days in advance, to the effect that the Company has received an acquisition proposal that is not withdrawn and that the special committee concludes in good faith constitutes a superior proposal and, absent any revision to the terms and conditions of the merger agreement, the special committee has resolved to effect a company adverse recommendation change and/or to terminate the merger
|
|
agreement, which notice shall specify the identity of the party making the superior proposal, the material terms thereof and copies of all relevant documents relating to such superior proposal, and (B) the Company must (1) negotiate with Parent and the Parent representatives in good faith (to the extent Parent desires to negotiate) to make such adjustments in the terms and conditions of the merger agreement, so that such acquisition proposal would cease to constitute a superior proposal, and (2) permit Parent and the Parent representatives to make a presentation to the board of directors and the special committee regarding the merger agreement and any adjustments with respect thereto (to the extent Parent desires to make such presentation); provided that in the event of any material revisions to the acquisition proposal that the board of directors has determined to be a superior proposal, the Company shall deliver a new written notice at least two (2) business days in advance to Parent and to comply with the applicable requirements.
|
·
|
prior to or concurrently with terminating the merger agreement to enter into an alternative acquisition agreement in accordance with (i) B or (ii) (B) above, the Company shall pay a termination fee to Parent.
|
·
|
participating in a reasonable number of meetings, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies;
|
·
|
assisting with the preparation of materials for rating agency presentations, offering documents, private placement memoranda, bank information memoranda, prospectuses and similar documents required in connection with the financing; provided that any private placement memoranda or prospectuses shall contain disclosure and financial statements reflecting the surviving corporation and/or its subsidiaries as the obligor;
|
·
|
executing and delivering any pledge and security documents, currency or interest hedging arrangements, other definitive financing documents, or other certificates or documents as may be reasonably requested by Parent or otherwise reasonably facilitating the pledging of collateral; provided that such documents will not take effect until the effective rime;
|
·
|
furnishing Parent and its financing sources as promptly as practicable with financial and other pertinent information regarding the Company and its subsidiaries as may be reasonably requested by Parent, including all financial statements and projections and other pertinent information required by the debt financing commitment letter or as otherwise required in connection with the debt financing and the transactions contemplated by the merger agreement customary for the placement, arrangement and/or syndication of loans or distribution of debt contemplated by the debt financing commitment letter to assist in preparation of customary offering or information documents or rating agency or lender or investor presentations relating to such placement, arrangement and/or syndication of loans);
|
·
|
providing financial statements to the extent the Company customarily prepares such financial statements within the time frame such statements are prepared;
|
·
|
taking all actions reasonably necessary to (i) permit the prospective lenders involved in the financing to evaluate the Company and its subsidiaries’ current assets, cash management and accounting systems, policies and procedures relating thereto for the purpose of establishing collateral arrangements and (ii) establish bank and other accounts and blocked account agreements and lock box arrangements in connection with the foregoing; provided that such accounts, agreements and arrangements should not become active or take effect until the effective time; and
|
·
|
furnishing Parent and its financing sources promptly with all documentation and other information required by governmental entities with respect to the financing under applicable “know your customer” and anti-money laundering rules and regulations.
|
·
|
the filing of this proxy statement and the Rule 13e-3 transaction statement on Schedule 13E-3 with the SEC (and cooperation in response to any comments from the SEC with respect to either statement);
|
·
|
Parent, Merger Sub and their respect representatives’ access to the Company’s officers, employees, agents, properties, suppliers, customers, offices and other facilities, books, records and other information between the date of the merger agreement and the effective time (subject to all applicable legal or contractual obligations and restrictions);
|
·
|
notification of certain events;
|
·
|
coordination of press releases and other public announcements or filings relating to the merger;
|
·
|
resignation of directors;
|
·
|
matters relating to State takeover statutes;
|
·
|
actions to cause the disposition of our equity securities held by each individual who is a director or officer of the Company pursuant to the transactions contemplated by the merger agreement to be exempt under Rule 16b-3 promulgated under the Exchange Act;
|
·
|
obtaining requisite permits by the Company;
|
·
|
delisting and deregistration of the Company common stock.
|
Conditions to the Completion of the Merger
|
·
|
the merger agreement must have been duly approved by the affirmative vote of (i) shareholders holding at least seventy-five percent (75%) of the outstanding shares of the Company common stock at the close of business on the record date and (ii) unaffiliated shareholders holding more than fifty percent (50%) of the outstanding shares of the Company common stock at the close of business on the record date (other than shares owned by the Rollover Investors, Voting Shareholders, and/or any holders of Company common stock who have entered into voting agreements or other similar shareholder support agreements with Parent, Merger Sub or their affiliates following May 20, 2011, agreeing to vote in favor of the merger);
|
·
|
The PRC Anti-Monopoly Bureau must have issued a decision under the PRC Anti-Monopoly Law approving the merger;
|
·
|
No order (whether temporary, preliminary or permanent in nature) issued by any court of competent jurisdiction or other restraint or prohibition of any governmental entity is in effect, and no law has been enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that, in any case, prohibits or makes illegal the consummation of the merger.
|
·
|
the representations and warranties of the Company set forth in the merger agreement (i) (other than regarding the Company’s capitalization, corporate authority, compliance with anti-corruption laws, the absence of any company material adverse effect and the absence of any undisclosed broker’s or finder’s fee) shall be true and correct in all respects when made and as of the closing as if made at such time (or, to the extent such representations and warranties speak as of a specified date, they need only be true and correct in all respects as of such specified date), interpreted without giving effect to the words “materially” or “material” or to any qualifications based on such terms or based on the defined term “company material adverse effect,” except where the failure of such representations and warranties to be true and correct, in the aggregate, does not constitute a company material adverse effect, (ii) regarding the Company’s corporate authority and the absence of any undisclosed broker’s or finder’s fee, shall be true and correct in all material respects when made and as of the closing as if made at such time (or, to the extent such representations and warranties speak as of a specified date, they need only be true and correct in all material respects as of such specified date) interpreted without giving effect to the words “materially” or “material” or to any qualifications based on such terms or based on the defined term “company material adverse effect,” (iii) regarding the Company’s capitalization shall be true and correct in all respects when made and as of the closing as if made at such time, except for inaccuracies that do not, individually or in the aggregate, require payments at or after the closing in excess of $100,000, and (iv) regarding the Company’s compliance with anti-corruption laws and the absence of any company material adverse effect shall be true and correct in all respects when made and as of the closing as if made at such time;
|
·
|
the Company has performed or complied in all material respects with all agreements and covenants required by the merger agreement to be performed or complied with by it on or prior to the closing;
|
·
|
Parent has received a certificate of a duly authorized officer of the Company confirming the satisfaction of the conditions with respect to the representations and warranties and covenants of the Company under the merger agreement described above; and
|
·
|
there shall not have occurred a company material adverse effect since the date of the merger agreement.
|
·
|
The representations and warranties of Parent and Merger Sub contained in the merger agreement shall be true and correct in all respects when made and as of the closing as if made at such time (or, to the extent such representations and warranties speak as of a specified date, they need only be true and correct in all respects as of such specified date) interpreted without giving effect to the words “materially” or “material” or to any qualifications based on such terms, except for such failure to be true and correct which, individually or in the aggregate, have not and would not reasonably be expected to prevent, materially delay or materially impede the performance by Parent or Merger Sub of its obligations under the merger agreement;
|
·
|
Parent and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by the merger agreement to be performed or complied with by Parent and/or Merger Sub on or prior to the closing; and
|
·
|
The Company has received a certificate of a duly authorized officer of Parent confirming the satisfaction of the conditions with respect to the representations and warranties and covenants of the Parent and Merger Sub under the merger agreement described above.
|
·
|
the merger has not been completed on or before 11:59 p.m., Hong Kong time, on November 15, 2011, provided that a party may not terminate the merger agreement for this reason if the failure to complete the merger by that date was primarily due to such party’s material breach of any of its obligations under the merger agreement;
|
·
|
(i) any order of any governmental entity having competent jurisdiction is entered enjoining the Company, Parent or Merger Sub from consummating the merger and such order has become final and nonappealable or (ii) a law has been enacted or promulgated or become applicable to the parties or the transactions contemplated by the merger agreement that makes consummation of the merger illegal or otherwise prohibited;
|
·
|
our shareholders do not approve the merger agreement at the special meeting thereof at which the merger agreement has been voted upon;
|
·
|
Parent
or Merger Sub has breached any of its representations, warranties or covenants contained in the merger agreement, such that its breach would result in the failure of a condition to the Company’s obligation to complete the merger and subject to specified notice and cure rights, so long as the Company has not breached
any of its representations, warranties or covenants
|
contained in the merger agreement, which would result in the failure of the closing condition relating to the Company’s representations, warranties or covenants to be satisfied;
|
·
|
all of the conditions to closing have been satisfied or waived
by Parent
and Parent and Merger Sub fail to complete the closing within two (2) business days following the date the closing should have occurred pursuant to the merger agreement (depending on the circumstances, the amount of the termination fee paid by Parent may be different)
;
|
·
|
prior to the obtaining of the shareholder approval, (i) the board of directors has, upon recommendation of the special committee, authorized the Company to enter into an alternative acquisition agreement with respect to a superior proposal and (ii) the Company has concurrently with the termination of the merger agreement entered into, or immediately after the termination of the merger agreement, enters into an alternative acquisition agreement with respect to the superior proposal, provided that the Company has paid the termination fee concurrently or in advance of such termination; or
|
·
|
prior to the obtaining of the shareholder approval,
the Company has effected a company adverse recommendation change, provided that
the Company has paid the termination fee concurrently or in advance of termination;
|
·
|
the Company has breached any of its representations, warranties or covenants contained in the merger agreement such that the closing condition relating to the Company’s representations, warranties or covenants would not be satisfied and subject to specified notice and cure rights, so long as Parent or Merger Sub has not breached any of its representations, warranties or covenants contained in the merger agreement, which would result in the failure of the closing condition relating to Parent and Merger Sub’s representations, warranties or covenants to be satisfied;
|
·
|
the board of directors of the Company or any committee thereof has effected a company adverse recommendation change.
|
·
|
the merger agreement is terminated by the Company
|
o
|
if prior to the obtaining of the shareholder approval, (x) the board of directors has, upon recommendation of the special committee, authorized the Company to enter into an alternative acquisition agreement with respect to a superior proposal and (y) the Company has concurrently with the termination of the merger agreement entered into, or immediately after the termination of the merger agreement, enters into, an alternative acquisition agreement with respect to the superior proposal referred to in the foregoing clause (x) after the specified go-shop period; or
|
o
|
if prior to the obtaining of the shareholder approval the Company has effected a company adverse recommendation change but failed to enter into an alternative acquisition agreement within the go-shop period.
|
·
|
the merger agreement is terminated by Parent
|
o
|
if the Company has breached or failed to perform any of its representations, warranties, covenants or agreements, which breach or failure would cause certain conditions to the obligation of Parent and Merger Sub to effect the merger set forth in “
The Merger Agreement—Conditions to the Completion of the Merger
” not to be satisfied; or
|
o
|
if the board of directors or any committee thereof shall have effected a company adverse recommendation change and the Company failed to enter into an alternative acquisition agreement within the go-shop period.
|
·
|
(x) an acquisition proposal (or the intention of any Person to make an acquisition proposal), whether or not conditional, shall have been made public and not withdrawn prior to the termination of the merger agreement, (y) the merger agreement is terminated by either Parent or the Company if the merger shall not have been consummated by 11:59 p.m., Hong Kong time, on November 15, 2011, and (z) after the date of the merger agreement and prior to the first (1st) anniversary of the termination of the merger agreement, the Company consummates an acquisition proposal (whether or not such acquisition proposal was the same acquisition proposal referred to in the preceding clause (x)); provided that all percentages in the definition of acquisition proposal shall be replaced with 50% for purpose of termination in this regard.
|
·
|
the merger agreement is terminated by the Company
|
o
|
if prior to the obtaining of the shareholder approval, the board of directors has, upon recommendation of the special committee, authorized the Company to enter into an alternative acquisition agreement with respect to a superior proposal, and prior to or concurrently with such termination the Company enters into an alternative acquisition agreement with any person or group (other than any person who has submitted an acquisition proposal prior to May 20, 2011 or any of such party’s affiliates)
prior to July 14, 2011 or a continuing party (other than any person who has submitted an acquisition proposal prior to May 20, 2011 or any of such party’s affiliates), prior to July 29, 2011;
|
o
|
if prior to the obtaining of the shareholder approval the Company has effected a company adverse recommendation change, and prior to or concurrently with such termination the Company enters into an alternative acquisition agreement with any person or group (other than any person who has submitted an acquisition proposal prior to May 20, 2011 or any of such party’s affiliates) prior to July 14, 2011 or a continuing party (other than any person who has submitted an acquisition proposal prior to May 20, 2011 or any of such party’s affiliates), prior to July 29, 2011;
|
·
|
the merger agreement is terminated by Parent
|
o
|
if the board of directors or any committee thereof shall have effected a company adverse recommendation change, and prior to or concurrently with such termination the Company enters into an alternative acquisition agreement with any person or group (other than any person who has submitted an acquisition proposal prior to May 20, 2011 or any of such party’s affiliates) prior to July 14, 2011 or a continuing party (other than any person who has submitted an acquisition proposal prior to May 20, 2011 or any of such party’s affiliates), prior to July 29, 2011;
|
·
|
the merger agreement is terminated by either Parent or the Company
|
o
|
if (x) an acquisition proposal (or the intention of any person to make an acquisition proposal), whether or not conditional, shall have been made public and not withdrawn prior to the termination of the merger agreement, (y) the shareholder approval is not obtained at the special meeting or any adjournment thereof at which the merger agreement has been voted upon, and (z) after the date of the merger agreement and prior to the first (1
st
) anniversary
of the termination of the merger agreement, the Company consummates an acquisition proposal (whether or not such acquisition proposal was the same acquisition proposal referred to in the preceding clause (x)); provided that any expenses previously paid to Parent, if any, shall be deducted from such termination fee payable and all percentages in the definition of acquisition proposal shall be replaced with 50% for purpose of termination in this regard.
|
·
|
if Parent or Merger Sub has breached or failed to perform any of its representations, warranties, covenants or agreements, which breach or failure would cause certain conditions to the obligation of the Company to effect the merger set forth in “
The Merger Agreement—Conditions to the Completion of the Merger
” not to be satisfied;
|
·
|
if (x) all of the conditions to closing contained in the merger agreement to the obligation of Parent or Merger Sub to effect the merger have been satisfied or waived by Parent (other than those conditions that by their nature are to be satisfied at closing (but subject to their satisfaction or waiver by Parent at closing)), (y) Parent and Merger Sub fail to complete the closing within two (2) business days following the date the closing should have occurred, and (z) (A) the debt financing has been funded or the lenders have irrevocably confirmed in writing that all conditions to the funding of the debt financing have been satisfied (other than funding of the equity financing) and the debt financing will be funded during such period if the equity financing is funded during such period, or (B) on the last day of the debt financing period, none of Parent, Merger Sub or the Surviving Corporation shall have received the proceeds of the debt financing in an amount sufficient to consummate the transactions contemplated by the merger agreement and the failure to receive such proceeds is caused by a material breach by Parent or Merger Sub of any of the covenants or agreements contained in the merger agreement to be complied with by Parent or Merger Sub or a material breach of any representation or warranty of Parent or Merger Sub contained in the merger agreement.
|
·
|
each person who is known by us to be the beneficial owner of more than 5% of our issued and outstanding shares of common stock;
|
·
|
each of our directors, executive officers and nominees to become directors; and
|
·
|
all directors and executive officers as a group.
|
Shares Beneficially
Owned
|
||||
Number and
Nature of
Beneficial Owner
|
%
|
|||
Title of Class
|
Name and Address of Beneficial Owner*:
|
|||
Common
|
Li Brothers Holding Inc. (1)
|
12,000,000
|
41.9
|
|
Common
|
China Honour Investment Limited (2)
|
2,667,600
|
9.3
|
|
Common
|
Weigang Li (3)
|
15,699,350
|
54.4
|
|
Common
|
Jincai Li (4)
|
14,667,600
|
51.2
|
|
Common
|
Brian Lin (5)
|
1,224,100
|
4.2
|
|
Common
|
Weishe Zhang (6)
|
731,900
|
2.5
|
|
Common
|
Tongzhou Qin (7)
|
20,000
|
0.07
|
|
Common
|
Albert McLelland
|
0
|
0
|
|
Common
|
Yinqing Li
|
0
|
0
|
|
Common
|
Xianghua Li
|
0
|
0
|
|
Common
|
Guoyou Zhang (8)
|
2,000
|
0.007
|
|
Common
|
All directors and executive officers as a group (8 persons) (9)
|
17,677,350
|
60.2
|
*
|
The address for the officers and directors is B-2502 TYG Center, C2 Dongsanhuanbeilu, Chaoyang District, Beijing 100027, Beijing 100027, People’s Republic of China, (86-10) 8441-7400.
|
(1)
|
Weigang Li and Ms. Jincai Li, as directors, share the voting power of Li Brothers Holding Inc. Future Champion Limited and Alpha Great Holdings Limited are the shareholders of Li Brothers Holding Inc., holding 46.8% and 53.2% of the outstanding shares of Li Brothers Holding Inc respectively. Jade Ground Holdings Limited owns 100% of the outstanding shares of Alpha Great Holdings Limited. LGJ Family Trust owns 100% of the outstanding shares of Jade Ground Holdings Limited. Magic Express Limited owns 100% of the outstanding shares of Future Champion Limited. LWG Family Trust owns 100% of the outstanding shares of Magic Express Limited. Mr. Weigang Li is the brother of Ms. Jincai Li.
|
(2)
|
Mr. Weigang Li and Ms. Jincai Li, as directors, share the voting power of China Honour Investment Limited. Alpha Great Holdings Limited owns 100% of the outstanding shares of China Honour Investment Limited. Jade Ground Holdings Limited owns 100% of the outstanding shares of Alpha Great Holdings Limited. LGJ Family Trust owns 100% of the outstanding shares of Jade Ground Holdings Limited. Mr. Weigang Li, is the brother of Ms. Jincai Li.
|
(3)
|
Represents (i) his voting power of Li Brothers Holding Inc. and China Honour Investment Limited, (ii) his direct beneficial ownership of China Fire & Security Group, Inc., (iii) his indirect beneficial ownership of China Fire & Security Group, Inc. through Jin Zhan Limited which is 100% beneficially owned by Weigang Li, (iv) his options to purchase 193,750 shares of common stock that is exercisable within 60 days from June 8, 2011, and (v) 52,500 shares of released but unvested restricted stocks.
|
(4)
|
Represents her voting power of Li Brothers Holding Inc. and China Honour Investment Limited.
|
(5)
|
Represents (i) his direct beneficial ownership of China Fire & Security Group, Inc., (ii) his indirect beneficial ownership of China Fire & Security Group, Inc. through Vyle Investment Inc. of which he is the sole director with 100% voting power, (iii) his options to purchase 337,500 shares of common stock that is exercisable within 60 days from June 8, 2011 and (iv) 75,000 shares of released but unvested restricted stocks. Master Crest Holdings Limited, a BVI company, owns 100% of the outstanding shares of Vyle Investment Inc. Master Crest Holdings Limited is 100% owned by BL Family Trust, a Foreign Grantor Trust registered in Cayman Islands.
|
(6)
|
Represents (i) his indirect beneficial ownership of China Fire & Security Group, Inc. through Small Special Technology Inc. of which he is the sole director with 100% voting power, and (ii) his options to purchase 207,500 shares of common stock that is exercisable within 60 days from June 8, 2011.
|
(7)
|
Represents (i) his direct beneficial ownership of China Fire & Security Group, Inc., and (ii) 15,000 shares of released but unvested restricted stocks.
|
(8)
|
Represents his options to purchase 2,000 shares of common stock that is exercisable within 60 days from June 8, 2011.
|
(9)
|
Represents the number of shares of common stock plus options to purchase 740,750 shares of common stock that is exercisable within 60 days from June 8, 2011 and 142,500 shares of released but unvested restricted stocks.
|
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
Three months ended March 31
|
Years ended December 31
|
|||||||||||||||
2011
|
2010
|
2010
|
2009
|
|||||||||||||
Total Revenues
|
20,995,876 | 20,943,726 | 79,976,682 | 81,181,198 | ||||||||||||
Total cost of revenues
|
10,697,222 | 9,311,570 | 38,698,240 | 34,127,922 | ||||||||||||
Gross Profit
|
10,298,654 | 11,632,156 | 41,278,442 | 47,053,276 | ||||||||||||
Operating expenses
|
6,429,199 | 5,533,277 | 23,776,073 | 19,468,840 | ||||||||||||
Income from operations
|
3,869,455 | 6,098,879 | 17,502,369 | 27,584,436 | ||||||||||||
Net Income before non-controlling interest
|
3,108,984 | 5,215,068 | 15,352,607 | 24,359,592 | ||||||||||||
Net Income attributable controlling interest
|
3,124,390 | 5,247,225 | 15,437,935 | 24,414,836 | ||||||||||||
Basic earning per share
|
||||||||||||||||
Weighted average number of shares
|
27,855,934 | 27,595,541 | 27,618,465 | 27,590,523 | ||||||||||||
Earning per share
|
0.11 | 0.19 | 0.56 | 0.88 | ||||||||||||
Diluted Earning per share
|
||||||||||||||||
Weighted average number of shares
|
29,197,961 | 28,397,085 | 29,568,429 | 28,311,955 | ||||||||||||
Earning per share diluted
|
0.11 | 0.18 | 0.52 | 0.86 | ||||||||||||
Ratio of earnings to fixed Charges
(1)
|
N/A | N/A | N/A | N/A | ||||||||||||
(Unaudited)
|
||||||||||||||||
Three months ended March 31
|
Years ended December 31
|
|||||||||||||||
2011 | 2010 | 2010 | 2009 | |||||||||||||
Current assets
|
155,029,354 | 126,624,125 | 150,088,321 | 121,046,728 | ||||||||||||
Non Current assets
|
23,829,059 | 16,378,929 | 21,447,495 | 17,319,463 | ||||||||||||
Total assets
|
178,858,413 | 143,003,054 | 171,535,816 | 138,366,191 | ||||||||||||
Currents liabilities
|
46,032,314 | 32,373,241 | 43,556,150 | 33,966,635 | ||||||||||||
Non current liabilities
|
- | - | - | - | ||||||||||||
Total liabilities
|
46,032,314 | 32,373,241 | 43,556,150 | 33,966,635 | ||||||||||||
Book Value per common Share
|
4.77 | |||||||||||||||
(1) This ratio is not applicable as the Company does not have any debt or preference security.
|
Fiscal Year
|
High
|
Low
|
||||||
2009:
|
||||||||
First Quarter
|
$ | 8.73 | $ | 6.11 | ||||
Second Quarter
|
$ | 14.87 | $ | 7.69 | ||||
Third Quarter
|
$ | 21.72 | $ | 10.33 | ||||
Fourth Quarter
|
$ | 19.60 | $ | 12.14 | ||||
2010:
|
||||||||
First Quarter
|
$ | 16.49 | $ | 10.64 | ||||
Second Quarter
|
$ | 14.79 | $ | 9.10 | ||||
Third Quarter
|
$ | 9.78 | $ | 6.53 | ||||
Fourth Quarter
|
$ | 8.82 | $ | 6.35 | ||||
2011:
|
||||||||
First Quarter
|
$ | 7.33 | $ | 5.23 | ||||
Second Quarter (through June 8, 2011)
|
$ | 8.62 | $ | 5.79 |
·
|
our Annual Report on Form 10-K for the fiscal year ended December 31, 2010;
|
·
|
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011; and
|
·
|
our Current Reports on Form 8-K filed on January 21, 2011, March 7, 2011, March 21, 2011, March 24, 2011, and May 23, 2011.
|
Article VI Covenants | ||
Article VII Closing Conditions | ||
Article VIII Termination, Amendment and Waiver | ||
Article IX General Provisions | ||
Action
|
Section 4.12
|
Agreement
|
Preamble
|
Alternate Financing
|
Section 6.6(a)
|
Alternative Acquisition Agreement
|
Section 6.4(d)(ii)
|
Anti-Corruption Laws
|
Section 4.5(b)
|
Articles of Merger
|
Section 2.3
|
Bankruptcy and Equity Exception
|
Section 4.3(a)
|
Buyer Group Contracts
|
Section 5.12
|
Certificates
|
Section 3.2(b)
|
claim
|
Section 5.9
|
Closing
|
Section 2.2
|
Closing Date
|
Section 2.2
|
Company
|
Preamble
|
Company Adverse Recommendation Change
|
Section 6.4(d)(i)
|
Company Board
|
Recitals
|
Company Financial Advisor
|
Section 4.3(b)
|
Company Financial Statements
|
Section 4.6(b)
|
Company Group
|
Section 8.2(f)(i)
|
Company Intellectual Property
|
Section 4.14(b)
|
Company Material Contract
|
Section 4.11(a)
|
Company Preferred Stock
|
Section 4.2(a)
|
Company Recommendation
|
Section 4.3(b)
|
Company Representatives
|
Section 6.3(a)
|
Company SEC Filings
|
Section 4.6(a)
|
Company Shareholders Meeting
|
Section 6.2(e)
|
Company Subsidiary
|
Section 4.1
|
Cut-Off Date
|
Section 6.4(b)
|
D&O Insurance
|
Section 6.12(b)
|
debt
|
Section 5.9
|
Debt Financing
|
Section 5.6
|
Debt Financing Agreements
|
Section 6.6(a)
|
Debt Financing Commitment Letter
|
Section 5.6
|
Dissenting Shares
|
Section 3.1(a)
|
Dissenting Shareholders
|
Section 3.1(a)
|
Effective Time
|
Section 2.3
|
End Date
|
Section 8.1(b)(i)
|
Equity Financing
|
Section 5.6
|
Equity Financing Commitment Letter
|
Section 5.6
|
Exchange Fund
|
Section 3.2(a)
|
FBCA
|
Recitals
|
Fee Letter
|
Section 5.6
|
Financing
|
Section 5.6
|
Financing Commitment Letters
|
Section 5.6
|
Guarantor
|
Recitals
|
Indemnified Parties
|
Section 6.12(a)
|
Investments
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Section 4.2(d)
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Lenders
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Section 5.6
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Limited Guarantee
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Recitals
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Merger
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Recitals
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Merger Consideration
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Section 3.1(a)
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Merger Sub
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Preamble
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New Financing Documents
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Section 6.6(a)
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Parent
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Preamble
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Parent Expenses
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Section 8.2(d)
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Parent Group
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Section 8.2(f)(i)
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Parent Representatives
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Section 6.3(a)
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Party
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Preamble
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Paying Agent
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Section 3.2(a)
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Proxy Statement
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Section 6.2(a)
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Record Date
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Section 6.2(e)(ii)
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Required Financial Information
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Section 6.7(d)
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Rollover Agreement
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Recitals
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Rollover Shares
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Section 5.6
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Schedule 13E-3
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Section 6.2(b)
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SEC Reports
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Article IV
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Solicitation Period End Date
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Section 6.4(a)
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Solvent
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Section 5.9
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Special Committee
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Recitals
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Sponsors
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Section 5.6
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Superior Proposal Notice Period
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Section 6.4(e)(ii)
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Surviving Corporation
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Section 2.1
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Takeover Statute
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Section 4.18(a)
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Transaction Litigation
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Section 6.8
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Voting Agreement
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Recitals
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AMBER PARENT LIMITED
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By:
/s/ Paul Edgerley
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Name: Paul Edgerley
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Title: Director
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AMBER MERGERCO, INC.
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By:
/s/ Paul Edgerley
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Name: Paul Edgerley
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Title: President and Secretary
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CHINA FIRE & SECURITY GROUP, INC. |
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By:
/s/ Albert McLelland
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Name: Albert McLelland
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Title: Chairman Special Committee
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Very truly yours, | |
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/s/ Barclays Capital Asia Limited
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BARCLAYS CAPITAL ASIA LIMITED |
AMBER PARENT LIMITED | ||
By: | /s/ Paul Edgerley | |
Name: Paul Edgerley | ||
Title: Director | ||
AMBER MERGERCO, INC. | ||
By: | /s/ Paul Edgerley | |
Name: Paul Edgerley | ||
Title: President and Secretary | ||
LI BROTHERS HOLDINGS INC. | ||
By: | /s/ Li Weigang | |
Name: Li Weigang | ||
Title: Director | ||
By: | /s/ Li Jincai | |
Name: Li Jincai
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||
Title: Director | ||
Address: | _________________________ | |
_________________________ | ||
_________________________ | ||
_________________________ | ||
VYLE INVESTMENT, INC. | ||
By: | /s/ Brian Lin | |
Name: Brian Lin
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||
Title: Director | ||
Address: | _________________________ | |
_________________________ | ||
_________________________ | ||
_________________________ | ||
SMALL SPECIAL TECHNOLOGY INC. | ||
By: | /s/ Weishe Zhang | |
Name: Weishe Zhang
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||
Title: Director | ||
Address: | _________________________ | |
_________________________ | ||
_________________________ | ||
_________________________ | ||
JIN ZHAN LIMITED | ||
By: | /s/ Li Weigang | |
Name: Li Weigang
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||
Title: Director | ||
Address: | _________________________ | |
_________________________ | ||
_________________________ | ||
_________________________ | ||
Name
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Rollover Shares
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Parent Issued Securities
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Li Brothers Holdings Inc.
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4,132,000
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4,132,000
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Jin Zhan Limited | 768,000 | 768,000 |
Vyle Investment, Inc.
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400,000
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400,000
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Small Special Technology Inc.
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400,000
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400,000
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Name
|
Cashed-Out Shares
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Deferred Amount
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Li Brothers Holdings Inc.
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1,222,222
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$11,000,000 (less
withholding Taxes, but
subject to
Section 12(c)
)
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Sponsor
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Funds affiliated with Bain Capital Asia, LLC (collectively with their affiliates, the "
Sponsor
"). Capitalized terms used but not defined herein shall take the meanings ascribed to such terms in the Rollover Agreement to which this term sheet is attached or, if not defined therein, in the Merger Agreement.
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Board Composition
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At Closing, the board of directors of Parent (the "
Board
") will consist of: (i) Mr. Weigang Li ("
Mr. Li
"), who shall be the Chairman of the Board; (ii) Mr. Brian Lin ("
Mr. Lin
"); and (iii) three directors designated by the Sponsor. The Rollover Shareholders, collectively, shall be entitled to appoint: (A) so long as they retain no less than 75% of the shares of Parent initially issued to the Rollover Shareholders (as appropriately adjusted for share splits, share dividends and recapitalizations), two directors, and (B) so long as they retain no less than 25% of the shares of Parent initially issued to the Rollover Shareholders (as appropriately adjusted for share splits, share dividends and recapitalizations), one director.
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Employment Agreements
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Mr. Li and Mr. Lin will each enter into a three-year employment agreement with Parent or one of its Subsidiaries that contains two automatic one-year extensions (i.e., up to five years in total) in the event certain mutually agreed upon targets set out in the annual business plan for the relevant year are achieved. The employment agreements will provide for an aggregate compensation package substantially consistent, in all material respects, with Mr. Li's and Mr. Lin's current aggregate compensation, and otherwise contain terms satisfactory to the Sponsor.
Mr. Li's employment agreement will provide that, during the employment term, Mr. Li will not be terminated other than for Cause.
Other than for Cause, Parent shall not remove or change the title of Mr. Lin as Chief Executive Officer of Parent, change the material conditions of employment or materially diminish Mr. Lin's duties, responsibilities or aggregate compensation (including employee benefits) without the consent of Mr. Li.
For purposes of the employment agreements, "
Cause
" shall mean, with respect to Mr. Li or Mr. Lin, as applicable, one or more of the following (occurring after or, other than with respect to clause (ii), before the Closing): (i) a material breach of a key term of his employment agreement; (ii) the commission of any act or omission involving dishonesty, disloyalty, fraud or illegality with respect to Parent or any of its Subsidiaries or any of their customers or suppliers that would be reasonably likely to reflect negatively upon Parent or any of its Subsidiaries; (iii) any willful or knowing act or willful or knowing omission aiding or abetting a competitor, supplier or customer of Parent or any of its Subsidiaries to the material disadvantage or detriment of Parent and its Subsidiaries; or (iv) breach of fiduciary duty, gross negligence or willful misconduct with respect to Parent or any of its Subsidiaries.
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Transfer Restrictions
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The equity securities of Parent would generally not be transferable by Parent's shareholders, whether directly or indirectly (including the Rollover Shareholders), without the prior written consent of the Sponsor, except pursuant to the Right of First Offer, Right of First Refusal, Tag-Along Rights and Drag-Along Rights discussed below and except pursuant to other customary exceptions (e.g., transfers to affiliates or to an executive's "family group" for estate planning purposes, in each case subject to compliance with SAFE requirements).
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Right of First Offer
|
Subject to customary exceptions (e.g., transfers to affiliates), the Sponsor will not be permitted to transfer equity securities of Parent to a third-party without first granting to the Rollover Shareholders a right of first offer to acquire such securities.
The Sponsor will not be permitted to effect a sale of substantially all of the business of Parent and its Subsidiaries, taken as a whole, whether structured as a sale of equity or assets of Parent or its Subsidiaries, merger, consolidation or otherwise (a "
Sale of Parent
");
provided
that, in the event that the Sponsor desires to initiate a process reasonably likely to result in a Sale of Parent, the Sponsor shall notify the Rollover Shareholders as soon as practicable and in any event no less than six (6) months prior to initiating such process such that the Rollover Shareholders shall have a right of first offer (including by introducing third parties to such sale process) to acquire such business;
provided
,
further
that the Sponsor shall notify the Rollover Shareholders of the material terms of any offer reasonably likely to result in a Sale of Parent prior to entering into a definitive agreement providing for such Sale of Parent such that the Rollover Shareholders shall have a reasonable opportunity to make a superior offer to the Sponsor.
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Right of First Refusal
|
Following the third anniversary of the Closing, each of the Rollover Shareholders may sell its equity securities without the Sponsor's consent so long as it first grants each other shareholder of Parent (including the Sponsor) a right of first refusal to acquire such equity securities. In the event that, prior to the third anniversary of the Closing, the Sponsor removes Mr. Li as Chairman of the board or Parent removes Brian Lin as Chief Executive Officer of Parent, then, following such removal, such Rollover Shareholder may sell its equity securities without the Sponsor's consent, subject to the right of first refusal as set forth in the preceding sentence.
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Tag Along/Liquidity Rights
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Subject to customary exceptions (e.g., transfers to affiliates), each of the Rollover Shareholders would be entitled to participate in all transfers by the Sponsor on a pro rata basis; provided that in the event that, following the consummation of any such transfer, the Sponsor and the Rollover Shareholders, collectively, would no longer either (i) own 50% or more of the equity securities (on a fully-diluted basis) of Parent or (ii) possess, directly or indirectly, the power to direct the management and policies of Parent (whether through the ownership of voting securities, the authority to appoint a majority of the members of the board of directors, by contract or otherwise), then each of the Rollover Shareholders shall have the right to dispose of all of its equity securities as part of such transfer on the same terms (on a per-share basis) as are applicable to the Sponsor.
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Drag Along Rights
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Subject to the provisions set forth under the heading "Right of First Offer" above, upon the request of the Sponsor, each of the Rollover Shareholders would agree to vote in favor of, participate in and raise no objections to a Sale of Parent (other than to an Affiliate of the Sponsor);
provided
that such shareholder is entitled to the same price per share as all other holders of such class of shares;
provided
,
further
, that in the event that the Sponsor exercises its drag-along right in respect of a sale of less than all of its equity securities, then each of the Rollover Shareholders shall have the right (in lieu of selling a pro rata portion of its equity securities) to dispose of all of its equity securities as part of such transfer on the same terms (on a per-share basis) as are applicable to the Sponsor. In addition, all such shareholders would agree to waive any dissenters' rights, appraisal rights and similar rights in connection with any such sale and take all necessary or desirable actions in connection therewith as requested by the Sponsor.
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Preemptive Rights
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The Rollover Shareholders would have the right to participate in any offering by Parent of any of its equity interests (x) to the Sponsor or any of its Affiliates after the Closing, subject to customary exceptions, and (y) as described under clause (vi)(C) under the heading "Veto Rights" below.
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Veto Rights
|
Subject to the terms set forth under the heading "Drag Along Right" above, so long as (x) the Rollover Shareholders, collectively, own no less than 10% of the fully-diluted issued and outstanding shares of Parent and (y) Mr. Li has not been removed for Cause or voluntarily resigned as a member of the Board, Parent shall not without the prior written consent of the Required Rollover Shareholders (as defined below):
(i) amend, restate, supplement or otherwise modify the memorandum and articles of association of Parent;
(ii) change the size of the board of directors of Parent (unless, following such change, the Rollover Shareholders shall have the right to designate a number of directors such that the percentage of the board members who are designated by the Rollover Shareholders after such change is no less than such percentage prior to such change);
(iii) declare or pay any dividend or other distribution in respect of the shares of Parent;
(iv) redeem, repurchase or otherwise acquire any equity securities of Parent, other than: (A) pursuant to the terms of any share option, share appreciation rights, phantom share or other similar plans; or (B) for a repurchase of equity securities of employees of Parent or any of its subsidiaries upon the termination of their employment or otherwise in accordance with the terms of contractual arrangements with such employees;
(v) effect a recapitalization or reorganization involving the capital structure of Parent, other than with the approval of a Special Majority of the Board;
(vi) issue equity securities, other than: (A) in connection with a public offering; (B) if the board of directors of Parent, in its good faith judgment, determines that a capital investment in Parent is required to avoid material harm to Parent and its subsidiaries, taken as a whole, as a result of any existing or anticipated insolvency event (but subject to preemptive rights by the Rollover Shareholders as described under the heading "Preemptive Rights" above); or (C) with the approval of a Special Majority of the Board, (w) to any entity that has, or in connection with such equity issuance will have, a material strategic business relationship with Parent or any of its subsidiaries; (x) to a third party lender in connection with such lender's bona fide loan to Parent or any of its subsidiaries; (y) to sellers in connection with an acquisition by Parent or any of its subsidiaries of another company or business; or (z) incentive equity securities to employees of Parent or any of its subsidiaries;
(vii) enter into, restate, supplement, amend or otherwise modify any transactions or agreements with the Sponsor or any of its affiliates, except for: (A) transactions or agreements approved by a Special Majority of the Board; or (B) agreements entered into with the Sponsor at closing and permitted by the Company;
(viii) effect a bankruptcy, liquidation or dissolution; and
(ix) consummate any transaction (other than an internal restructuring) involving a transfer, sale or other disposition of assets of Parent or its Subsidiaries (including equity securities of Parent's Subsidiaries), including by way of merger or consolidation, in each case, which transaction is material to the business or assets of Parent and its Subsidiaries, taken as a whole.
"
Required Rollover Shareholders
" shall mean Rollover Shareholders holding no less than 50% of the issued and outstanding shares of Parent that are held by the Rollover Shareholders.
"
Special Majority of the Board
" shall mean a majority of the members of the Board of Parent, including at least half of the directors appointed by the Rollover Shareholders.
To the extent permitted by applicable law, the veto rights contained in this section shall be included in the articles of association of Parent.
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Information Rights
|
So long as the Rollover Shareholders, collectively, own no less than 5% of the fully-diluted issued and outstanding shares of Parent, the Rollover Shareholders shall have the right to receive: (i) within 120 days of the end of each fiscal year of Parent, financial statements of Parent and its subsidiaries for such year; (ii) within 45 days of the end of each of the first three fiscal quarters of each fiscal year of Parent, financial statements of Parent and its subsidiaries for such quarter; and (iii) prior to the beginning of each fiscal year of Parent, a budget and business plan of Parent and its subsidiaries for the following fiscal year.
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Registration Rights
|
If Parent (or another entity that owns all or substantially all of the shares of Parent and that that was formed to serve as a listing vehicle in connection with an initial public offering) applies for the listing of its shares on a securities exchange on which registration rights are applicable, Parent (or such listing vehicle, as applicable) shall enter into a registration rights agreement pursuant to which the Sponsor and the Rollover Shareholders shall have demand and piggyback registration rights customary for an agreement of this type and on terms satisfactory to the Sponsor and the Rollover Shareholders.
|
Non-Compete
|
The Rollover Shareholders shall execute non-compete, non-solicitation and confidentiality agreements on terms and conditions customary for transactions of this nature.
|
AMBER PARENT LIMITED | ||
By: | _________________________ | |
Name: | ||
Title: | ||
AMBER MERGERCO, INC. | ||
By: | _________________________ | |
Name: | ||
Title: | ||
_________________________ | ||
Address: | _________________________ | |
_________________________ | ||
_________________________ | ||
_________________________ | ||
INTERNET
|
TELEPHONE
|
MAIL
|
www.proxyvote.com
|
(800) 454 8683
|
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Go to the website listed above.
|
Use any touch-tone telephone.
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Mark, sign and date your proxy card.
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Have your proxy card ready.
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Have your proxy card ready.
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Detach your proxy card.
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Follow the simple instructions that appear on your computer screen.
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Follow the simple recorded instructions.
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Return your proxy card in the postage-paid envelope provided.
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FOR
|
AGAINST
|
ABSTAIN
|
|||
1. |
To approve the Agreement and Plan of Merger, dated May 20, 2011 (the “merger agreement”) with Amber Parent Limited, an exempted company incorporated in the Cayman Islands (“Parent”), Amber Mergerco, Inc., a Florida 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
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AGAINST
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ABSTAIN
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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.
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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 shar es are in the names of more than one person, each should sign |
Dated: | , 2011 | ||
Signature: | |||
Title or Authority: | |||
Signature (if held jointly): |
1 Year China Fire & Security Grp., Inc. (MM) Chart |
1 Month China Fire & Security Grp., Inc. (MM) Chart |
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