Note 14- Proposed Merger
On June 28, 2012, the Company entered into the Merger Agreement with Green Dynasty Holdings Limited, a Cayman Islands exempted company ("Holdco"), Green Dynasty Limited, a Cayman Islands exempted company wholly owned by Holdco ("Parent") and Green Dynasty Acquisition, Inc., a Nevada corporation wholly owned by Parent ("Merger Sub"). Holdco is an entity controlled by Mr. Fu, Chairman and Co-CEO of the Company.
Pursuant to the Merger Agreement, at the effective time of the merger, Merger Sub will be merged with and into the Company, and as a result, the Company will continue as the surviving corporation and a wholly owned subsidiary of Parent. Each share of the Company's common stock issued and outstanding immediately prior to the effective time of the merger (the "Shares") will be converted into the right to receive $9.50 in cash without interest. Shares held in the treasury of the Company or owned, directly or indirectly, by Parent, Merger Sub, or any wholly owned subsidiary of the Company immediately prior to the effective time of the merger will be cancelled without consideration. Shares of the Company's common stock beneficially owned by Mr. Fu and his affiliates and affiliates of Abax, will be cancelled for no consideration, because these parties are contributing their shares to Parent in exchange for ownership interests in Holdco. Each then-outstanding option to purchase shares of the Company's common stock granted under any equity plan of the Company, whether or not vested or exercisable, will become fully vested and exercisable, contingent upon the occurrence of the merger, and will be converted into the right to receive an amount in cash equal to the product of (i) the excess, if any, of the merger consideration of $9.50 per share over the applicable exercise price per share of such stock option and (ii) the number of shares of the Company's common stock such holder could have purchased had such holder exercised such stock option in full immediately prior to the effective time of the merger. Each then-outstanding nonvested share of the Company's common stock granted under any equity plan of the Company, will vest in full, contingent upon the occurrence of the merger (and all restrictions thereon will immediately lapse), and be converted at the effective time into the right to receive an amount in cash equal to $9.50.
The Company's Board of Directors, acting upon the unanimous recommendation of the Special Committee approved the Merger Agreement and has recommended that the Company's stockholders vote to approve the Merger Agreement. The Merger is scheduled to be subject to the stockholders' vote on December 11, 2012.
The Merger Agreement must be approved by the holders of (i) at least a majority of the combined voting power of the outstanding shares of the Company's common stock, and (ii) at least 60% of the combined voting power of the outstanding shares of the Company's common stock not beneficially owned by the buyer group, which is comprised of Parent, Merger Sub, Holdco, Mr. Fu and his affiliates, and Abax and its affiliates, and any affiliate of any buyer group member.
The financing for the merger contemplated by the Merger Agreement will be obtained through (i) a facility agreement, dated June 27, 2012, by and between Parent and China Development Bank Corporation Hong Kong Branch ("CDB") pursuant to which CDB will provide a term loan facility of up to $185 million to Parent; (ii) an equity commitment letter, dated as of June 28, 2012, by and between Abax and Holdco pursuant to which Abax will provide equity financing of $30 million to Holdco; and (iii) an equity commitment letter, dated as of June 28, 2012, by and between Mr. Fu and Holdco pursuant to which Mr. Fu will provide equity financing of $45 million to Holdco.
As of September 30, 2012, the Company recorded a total merger cost of $5.1 million consisting of investment banking, legal and other costs associated with the proposed merger. The merger cost is recorded in general and administration expenses when incurred.