Item
1.01 Entry into a Material Definitive Agreement.
Agreement
and Plan of Merger
On June 15,
2020, China XD Plastics Company Limited (the “Company”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”), with Faith Dawn Limited (“Parent”), and Faith Horizon Inc. (“Merger Sub”), a Nevada
corporation and a wholly-owned subsidiary of Parent.
Parent is ultimately
wholly-owned by Mr. Jie Han (the “Chairman”), the chairman of board of directors and chief executive officer of the
Company. The Chairman and XD. Engineering Plastics Company Limited, an entity wholly-owned by the Chairman (the “Chairman
SPV”, collectively with the Chairman, the “Rollover Stockholders”) currently beneficially own 33,065,054 shares
of common stock, par value $0.0001 per share, of the Company (the “Common Shares”) and 1,000,000 shares of series
B preferred stock, par value $0.0001 per share, of the Company (the “Preferred Shares”), representing approximately
70% of the voting power and approximately 50.1% of the share capital of the Company. Parent, Merger Sub and the Rollover Stockholders
are collectively referred to as the “Buyer Group”.
Pursuant to
the Merger Agreement, Parent will acquire all of the outstanding Common Shares of the Company for a cash consideration equal to
US$1.2 per share (the “Merger Consideration”). This amount represents a premium of 25% over the Company’s closing
price of US$0.96 per share as quoted by NASDAQ Global Market (the “NASDAQ”) on May 7, 2020, the last trading day prior
to the date that the Company received a non-binding “going private” proposal from members of the Buyer Group. The
Merger Consideration also represents an increase of approximately 9.1% over the US$1.1 per share initially offered by the Buyer
Group in their initial “going-private” proposal on May 7, 2020 and a premium of approximately 15.4% over the Company’s
closing price of US$1.04 per share on June 12 , 2020, the last trading day prior to this announcement.
Subject to the
terms and conditions of the Merger Agreement, at the effective time of the merger, Merger Sub will merge with and into the Company,
with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Parent (the “Merger”), and
each of the Common Shares issued and outstanding immediately prior to the effective time of the Merger will be cancelled and cease
to exist in exchange for the right to receive the Merger Consideration of US$1.2 per share in cash, without interest and net of
any applicable withholding tax, except for (i) Common Shares and Preferred Shares held by any of Parent, Merger Sub, the Rollover
Stockholders and any of their respective affiliates; (ii) Common Shares held by the Company or any its wholly owned subsidiary
(or held in the Company’s treasury), and (iii) Common Shares reserved (but not yet allocated) for issuance, settlement and
allocation upon exercise or vesting of the Company share awards. Pursuant to Nevada Revised Statutes 92A.390(1), there are no
rights of dissent available to the holders of Common Shares in connection with the Merger.
The Company’s
board of directors, acting on the recommendation of a special committee of independent and disinterested directors (the “Special
Committee”), unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including
the Merger, and resolved to recommend that the Company’s stockholders vote to authorize and approve the Merger Agreement
and the transactions contemplated by the Merger Agreement, including the Merger. The Special Committee, which is composed solely
of independent directors of the Company who are unaffiliated with any member of the Buyer Group or management of the Company,
exclusively negotiated the terms of the Merger Agreement with the Buyer Group with the assistance of its independent financial
and legal advisors.
The Merger,
which is currently expected to close during the third quarter of 2020, is subject to various closing conditions, including the
adoption of the Merger Agreement by the Company’s stockholders. Pursuant to the Merger Agreement, adoption of the Merger
Agreement and the transactions contemplated by the Merger Agreement, including the Merger, by the Company’s stockholders
requires (i) the affirmative vote (in person or by proxy) of the holders of at least a majority of the voting power of the outstanding
Common Shares and Preferred Shares, voting together as a single class, with the holders of Preferred Shares being entitled to
an aggregate of 40% of the combined voting power of the entire share capital of the Company, and (ii) the affirmative vote (in
person or by proxy) or consent of the holders of at least a majority of the outstanding Preferred Shares, voting as a single class.
The Company will call a meeting of stockholders for the purpose of voting on the adoption of the Merger Agreement and the transactions
contemplated by the Merger Agreement as soon as practicable. If completed, the Merger will, under laws of the State of Nevada,
result in the Company becoming a privately-held company and the Common Shares of the Company would no longer be listed on the
NASDAQ.
The Merger Agreement
contains customary closing conditions, representations and warranties and covenants of each party for a transaction of this type.
Equity Commitment
Letter
Concurrently
with the execution of the Merger Agreement, on June 15, 2020, Mr. Han entered into a letter agreement with Parent, under which
Mr. Han committed, subject to the terms and conditions contained in such letter agreement and the Merger Agreement, to purchase,
or to cause his affiliates to purchase, prior to or at the closing the Merger, certain equity interests of Parent in an aggregate
amount equal to the aggregate Merger Consideration plus certain transaction costs, provided that Mr. Han will not be obligated
to pay more than US$5,000,000.
Equity Contribution
and Voting Agreement
Concurrently
with the execution of the Merger Agreement, on June 15, 2020, Parent and the Rollover Stockholders entered into an Equity Contribution
and Voting Agreement (the “Voting Agreement”), under which each Rollover Stockholder agrees to (i) contribute their
respective Common Shares and Preferred Shares to Parent immediately prior to the closing of the Merger in exchange for newly issued
ordinary shares of Parent, and (ii) vote all of the Common Shares and Preferred Shares beneficially owned by such Rollover Stockholder
at the stockholders’ meeting in favor of the adoption of the Merger Agreement.
Limited Guarantee
Concurrently
with the execution of the Merger Agreement, on June 15, 2020, Under the Limited Guarantee, the Chairman has guaranteed in favor
of the Company the entire portion of the Parent’s payment obligations with respect to the termination fee, if and when required
under the merger agreement and the reimbursement obligations pursuant to the terms of the merger agreement, provided that the
Chairman’s aggregate liability under the Limited Guarantee exceed US$2,100,000.
The foregoing
descriptions of the Merger Agreement, the Equity Commitment Letter, the Equity Contribution and Voting Agreement and the Limited
Guarantee do not purport to be complete and are qualified in their entirety by reference to the agreements, copies of which are
filed herewith as Exhibits 2.1, 10.1, 10.2 and 10.3, respectively, to this Current Report on Form 8-K and which are incorporated
herein by reference.