SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
(Amendment No. 5)
(RULE 13e-100)
RULE 13e-3 TRANSACTION STATEMENT UNDER
SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934
Shanda
Games Limited
(Name of the Issuer)
Shanda Games Limited
Yingfeng Zhang
Capitalhold Limited
Capitalcorp Limited
Ningxia Yilida Capital Investment Limited
Partnership
Yili Shengda Investment Holdings (Hong
Kong) Company Limited
Ningxia Zhengjun Equity Investment Partnership
Enterprise (Limited Partnership)
Ningxia Zhongyincashmere International
Group Co., Ltd.
Zhongrong Shengda Investment Holdings
(Hong Kong) Company Limited
Zhongrong Investment Holdings (Hong Kong)
Co., Ltd.
Ningxia Silkroad Equity Investment Partnership
Enterprise (Limited Partnership)
Ningxia Zhongrong Legend Equity Investment
Partnership Enterprise (Limited Partnership)
Shanghai Yingfeng Investment Management
Company Limited
Shaolin Liang
Orient Hongtai (Hong Kong) Limited
TonSung Holdings Limited
Lihua Investment Center (Shanghai)
L.P.
Orient Hongzhi (Hong Kong) Limited
HuaSung Holdings Limited
Litian Investment Center (Shanghai)
L.P.
Hao Ding International Limited
Shanghai Hai Sheng Tong Investment
Co., Ltd.
Lihai Investment Center (Shanghai)
L.P.
Liyou Investment Management (Shanghai)
Company Limited
Zhejiang Huatong Holding Group Company
Limited
Miaotong Wang
Heng Shao
Ji Wang
(Name of Persons Filing Statement)
Class A ordinary shares, par value $0.01
per share
American Depositary Shares, each representing two Class A ordinary shares
(Title of Class of Securities)
81941U105*
(CUSIP Number of Class of Securities)
Shanda Games Limited
c/o Yingfeng Zhang, Acting
Chief Executive Officer
Yingfeng Zhang
No. 1 Office Building
No. 690 Bibo Road
Pudong New Area
Shanghai 201203
The People’s Republic
of China
+86 21 5050 4740
|
Capitalhold Limited
Capitalcorp Limited
Cricket Square, Hutchins Drive, P.O.
Box 2681
Grand Cayman, KY1-1111
Cayman Islands
+86 21 5050 4740
|
Yili Shengda Investment Holdings (Hong
Kong) Company Limited
Room 2803-05, AXA Tower, Landmark East
100 How Ming Street, Kwun Tong Kowloon
Hong Kong
+852 8208 5118
Ningxia Yilida Capital Investment Limited
Partnership
Ningxia Zhengjun Equity Investment Partnership
Enterprise (Limited Partnership)
Ecological Textile Park
Lingwu, Ningxia 750400
The People’s Republic of China
+86 21 5050 4740
Shanghai Yingfeng Investment
Management Company Limited
Room 2055, No. 5358 Huyi Road
Jiading District, Shanghai 201806
The People’s Republic of China
+86 21 5050 4740 |
Zhongrong Investment Holdings
(Hong Kong) Co., Ltd.
Zhongrong Shengda Investment
Holdings (Hong Kong) Company Limited
Room 2803-05, AXA Tower, Landmark
East
100 How Ming Street, Kwun Tong Kowloon
Hong Kong
+852 8208 5118
Ningxia Zhongyincashmere International
Group Co., Ltd.
Ningxia Silkroad Equity Investment
Partnership Enterprise (Limited Partnership)
Ningxia Zhongrong Legend Equity
Investment Partnership Enterprise (Limited Partnership)
Ecological Textile Park
Lingwu, Ningxia 750400
The People’s Republic of China
+86 951 4038 950, extension
8969
Shaolin Liang
Sixth Floor, Heping Mansion
No. 6 Laiguangying East Road
Chaoyang District, Beijing 100102
The People’s Republic of China
+86 10 8517 1831, extension 849
|
Orient Hongtai (Hong Kong) Limited
Orient Hongzhi (Hong Kong) Limited
Flat 2, 19/F, Henan Building
90-92 Jaffe Road, Wanchai
Hong Kong
+86 575 8220 5036
|
Hao Ding International Limited
Shanghai Hai Sheng Tong Investment
Co., Ltd.
2810, 689 Guangdong Road
Huangpu District, Shanghai 200001
The People’s Republic of China
+86 575 8220 5036
|
TonSung Holdings Limited
HuaSung Holdings Limited
Geneva Place, Waterfront
Drive, P.O. Box 3469
Road Town, Tortola, British
Virgin Islands
+86 575 8220 5036
|
Liyou
Investment Management (Shanghai) Company Limited
55 Xili Road, Room 1547B,
15th Floor
Shanghai Free Trade Zone,
Shanghai 200131
The People’s Republic
of China
+86 575 8220 5036
|
Lihua
Investment Center (Shanghai) L.P.
55 Xili Road, Room 1545A,
15th Floor
Shanghai Free Trade Zone,
Shanghai 200131
The People’s Republic
of China
+86 575 8220 5036
|
Huatong
Holding Group Company Limited
Miaotong Wang
439 Renmin Xi Road, Shangyu
District
Shaoxing, Zhejiang
The People’s Republic
of China
+86 575 8214 8872
|
Litian
Investment Center (Shanghai) L.P.
55 Xili Road, Room 1513B,
15th Floor
Shanghai Free Trade Zone,
Shanghai 200131
The People’s Republic
of China
+86 575 8220 5036
|
Heng
Shao
Ji Wang
391 Guiping Road, New
International Commercial Center
Building A, 19th Floor
Xuhui District, Shanghai
200233
The People’s Republic
of China
+86 21 5427 8388
|
Lihai
Investment Center (Shanghai) L.P.
55 Xili Road, Room 1545A,
15th Floor
Shanghai Free Trade Zone,
Shanghai 200131
The People’s Republic
of China
+86 575 8220 5036
|
|
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Persons Filing Statement) |
With copies to: |
Robert Chu, Esq.
Sullivan & Cromwell
Level 32
101 Collins Street
Melbourne, Victoria 3000
Australia
+61 3 9635 1500
|
Chun Wei, Esq.
Sullivan & Cromwell
28th Floor
Nine Queen’s Road Central
Hong Kong
+852 2826 8688
|
Miranda So, Esq.
Davis Polk & Wardwell
The Hong Kong Club Building
3A Chater Road. Central
Hong Kong
+852 2533 3300
|
Zhan Chen, Esq.
Wilson Sonsini Goodrich & Rosati,
P.C.
Jin Mao Tower, 38F, Unit 03-04
88 Century Boulevard Shanghai 200121
The People’s Republic of China
+86 21 6167 1700 |
Peter X. Huang, Esq.
Skadden, Arps, Slate, Meagher & Flom
LLP 30/F, China World Office 2 No. 1 Jian Guo Men Wai Avenue Beijing 100004
The People’s Republic of China
+86 10 6535 5500 |
This statement is filed in connection with (check the appropriate
box):
| ¨ | The filing of solicitation materials on an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c)
under the Securities Exchange Act of 1934. |
| ¨ | The filing of a registration statement under the Securities Act of 1933. |
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: ¨
Check the following box if the filing is a final amendment
reporting the results of the transaction: ¨
CALCULATION OF FILING FEE
Transaction
Valuation** |
Amount
of Filing Fee*** |
$485,680,734.48 |
$56,436.10 |
| * | This CUSIP applies to the American Depositary Shares, evidenced by American Depositary Receipts, each representing two Class
A ordinary shares. |
| ** | Calculated solely for the purpose of
determining the filing fee in accordance with Rule 0-11(b)(1) under the Securities Exchange
Act of 1934, as amended. The filing fee is calculated based on the sum of (a) the aggregate
cash payment for the proposed per share cash payment of $3.55 for 132,133,058 issued
and outstanding ordinary shares of the issuer (which is the total outstanding shares,
including shares represented by the American depositary shares, less the rollover shares
not being acquired) subject to the transaction plus (b) the product of 9,509,180 ordinary
shares issuable under all outstanding and unexercised options multiplied by $1.536 per
share (which is the difference between $3.55 per share merger consideration and the weighted
average exercise price of approximately $2.014 per share) plus (c) the product of 23,246
outstanding shares of company restricted stock multiplied by $3.55 per share plus
(d) the product of 540,776 outstanding company restricted stock units multiplied by $3.55
per unit ((a), (b), (c) and (d) together, the “Transaction Valuation”).
|
| *** | The amount of the filing fee, calculated in accordance with Exchange Act Rule 0-11(b)(1) and the Securities and Exchange Commission
Fee Rate Advisory #1 for Fiscal Year 2015, was calculated by multiplying the Transaction Valuation by 0.0001162. |
| ¨ | Check the box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing with which
the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule,
and the date of its filing. |
Amount Previously Paid:
Form or Registration No.:
Filing Party:
Date Filed:
Introduction
This Rule 13E-3 transaction statement
on Schedule 13E-3, together with the exhibits hereto (this “Transaction Statement”), is being filed with
the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), jointly by the following persons (each, a “Filing Person,” and collectively, the “Filing Persons”): (a) Shanda Games Limited, a Cayman Islands company
(the “Company”), the issuer of the ordinary shares, par value US$0.01 per share (each, a “Share
”), including the Class A ordinary shares represented by American depositary shares (“ADSs”), each
representing two Class A Shares, that is subject to the transaction pursuant to Rule 13e-3 under the Exchange Act; (b) Mr. Yingfeng
Zhang, the chairman of the board and acting chief executive officer of the Company; (c) Capitalhold Limited (“Parent
”), an exempted company with limited liability incorporated under the laws of the Cayman Islands; (d) Capitalcorp Limited
(“Merger Sub”), an exempted company with limited liability incorporated under the laws of the Cayman Islands
and a wholly owned subsidiary of Parent; (e) Ningxia Yilida Capital Investment Limited Partnership (“Ningxia Yilida
”), a limited partnership formed under the laws of the People’s Republic of China and an affiliate of the Company’s
acting chief executive officer, Mr. Yingfeng Zhang; (f) Yili Shengda Investment Holdings (Hong Kong) Company Limited (“
Yili Shengda”), a company incorporated and existing under the laws of Hong Kong and an affiliate of Mr. Yingfeng
Zhang; (g) Ningxia Zhengjun Equity Investment Partnership Enterprise (Limited Partnership) (“Zhengjun Investment
”), a limited partnership organized and existing under the laws of the People’s Republic of China and an affiliate
of Mr. Yingfeng Zhang; (h) Shanghai Yingfeng Investment Management Company Limited (“Shanghai Yingfeng”),
a limited liability company organized under the laws of the People’s Republic of China directly and wholly owned by Mr.
Yingfeng Zhang; (i) Ningxia Zhongyincashmere International Group Co., Ltd. (“Ningxia”), a company formed
under the laws of the People’s Republic of China; (j) Zhongrong Shengda Investment Holdings (Hong Kong) Company Limited
(“Zhongrong Shengda”), a company incorporated and existing under the laws of Hong Kong and an affiliate of
Ningxia; (k) Zhongrong Investment Holdings (Hong Kong) Co., Ltd. (“Zhongrong Investment”), a company incorporated
and existing under the laws of Hong Kong and an affiliate of Ningxia; (l) Ningxia Silkroad Equity Investment Partnership Enterprise
(Limited Partnership) (“Ningxia Silkroad”), a limited partnership organized and existing under the laws of
the People’s Republic of China and an affiliate of Ningxia; (m) Ningxia Zhongrong Legend Equity Investment Partnership Enterprise
(Limited Partnership) (“Zhongrong Legend”), a limited partnership organized and existing under the laws of
the People’s Republic of China and an affiliate of Ningxia; (n) Mr. Shaolin Liang, a director of the Company and a vice
general manager of Ningxia; (o) Mr. Miaotong Wang, Mr. Heng Shao and Mr. Ji Wang, affiliates of the Company (collectively, the
“Li-Funds Persons”); (p) Orient Hongtai (Hong Kong) Limited (“Orient Hongtai”), a company
incorporated and existing under the laws of Hong Kong and an affiliate of the Li-Funds Persons; (q) Orient Hongzhi (Hong Kong)
Limited (“Orient Hongzhi”), a company incorporated and existing under the laws of Hong Kong and an affiliate
of the Li-Funds Persons; (r) Hao Ding International Limited (“Hao Ding”), a company established under the
laws of the British Virgin Islands and an affiliate of the Li-Funds Persons; (s) TonSung Holdings Limited (“TonSung
”), a company established under the laws of the British Virgin Islands and an affiliate of the Li-Funds Persons; (t)
HuaSung Holdings Limited (“HuaSung”), a company established under the laws of the British Virgin Islands
and an affiliate of the Li-Funds Persons; (u) Shanghai Hai Sheng Tong Investment Co., Ltd. (“Hai Sheng Tong”),
a limited liability company organized and existing under the laws of the People’s Republic of China and an affiliate of
the Li-Funds Persons; (v) Lihua Investment Center (Shanghai) L.P. (“Lihua”), a limited partnership organized
and existing under the laws of the People’s Republic of China and an affiliate of the Li-Funds Persons; (w) Litian Investment
Center (Shanghai) L.P. (“Litian”), a limited partnership organized and existing under the laws of the People’s
Republic of China and an affiliate of the Li-Funds Persons; (x) Lihai Investment Center (Shanghai) L.P. (“Lihai
”), a limited partnership organized and existing under the laws of the People’s Republic of China and an affiliate
of the Li-Funds Persons; (y) Liyou Investment Management (Shanghai) Company Limited (“Liyou”), a limited
partnership organized and existing under the laws of the People’s Republic of China and an affiliate of Mr. Heng Shao and
Mr. Ji Wang; and (z) Huatong Holding Group Company Limited (“Huatong”), a limited liability company organized
and existing under the laws of the People’s Republic of China and an affiliate of Mr. Miaotong Wang.
On April 3, 2015, Parent, Merger Sub
and the Company entered into an agreement and plan of merger providing for the merger of Merger Sub with and into the Company
(the “Merger”), with the Company continuing as the surviving corporation and becoming a wholly owned subsidiary
of Parent. At the effective time of the Merger (the “Effective Time”), Parent will be beneficially owned by
Ningxia Yilida, Ningxia, Orient Hongtai, Orient Hongzhi, Hao Ding, Zhengjun Investment, Ningxia Silkroad and Zhongrong Legend.
On September 23, 2015, Parent, Merger Sub and the Company amended and restated the merger agreement entered into on April 3,
2015 to (i) extend the date after which either Parent or the Company may terminate the merger agreement without payment of a termination
fee from October 3, 2015 to December 31, 2015 and (ii) make certain technical amendments. Such agreement and plan of merger, as
amended and restated from time to time, is referred to herein as the “Merger Agreement”.
If the Merger is completed, each Share
issued and outstanding immediately prior to the Effective Time will be cancelled and cease to exist and will be converted into
and exchanged for the right to receive US$3.55 and each issued and outstanding ADS will represent the right to surrender one ADS
in exchange for US$7.10 (less US$0.05 per ADS cancellation fees pursuant to the terms of the Deposit Agreement, dated as of September
24, 2009, among the Company, JPMorgan Chase Bank, N.A., as depositary, and the holders of ADSs issued thereunder), in each case,
in cash, without interest and net of any applicable withholding taxes. Notwithstanding the foregoing, if the Merger is completed,
the following Shares (including Shares represented by ADSs) will be cancelled and cease to exist at the Effective Time but will
not be converted into the right to receive the consideration described in the immediately preceding sentence:
| (a) | 48,759,187 Class B ordinary shares held by Yili Shengda, 48,759,187 Class B ordinary shares held by Zhongrong Shengda,
61,766,334 Class A ordinary shares held by Orient Hongtai, 61,766,335 Class A ordinary shares held by Orient Hongzhi,
80,577,828 Class A ordinary shares held by Zhongrong Investment, 107,438,129 Class A ordinary shares held by Hao Ding and the
Shares held by Parent, the Company or any of their subsidiaries immediately prior to the Effective Time, which will be
cancelled without payment of any consideration or distribution therefor; and |
| (b) | Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their
dissenters’ rights under the Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) (the
“ Cayman Islands Companies Law”), which will be cancelled and will entitle the former holders thereof to
receive the fair value thereon in accordance with such holders’ dissenters’ rights under the Cayman Islands
Companies Law. |
In addition to the foregoing, at the
Effective Time, (i) each option to purchase Shares, whether vested or unvested (“Company Options”), that
is issued and outstanding immediately prior to the Effective Time, will be cancelled and converted into the right to receive,
as soon as practicable after the Effective Time, an amount equal to the product of the total number of Shares issuable under such
Company Option immediately prior to the Effective Time multiplied by the excess of US$3.55 over the exercise price payable per
Share under such Company Option, in cash, without interest and net of any applicable withholding taxes, and (ii) each restricted
Share with respect to which the restrictions have not lapsed (“Company Restricted Shares”) and each restricted
stock unit whether or not the restrictions with respect thereto have lapsed (“Company RSUs”), in each case,
that is issued and outstanding immediately prior to the Effective Time will be cancelled and converted into the right to receive,
as soon as practicable after the Effective Time, an amount equal to US$3.55, in cash, without interest and net of any applicable
withholding taxes.
Furthermore, concurrently with the
execution and delivery of the Merger Agreement on April 3, 2015, certain existing shareholders of the Company, namely Yili Shengda,
Zhongrong Shengda, Orient Hongtai, Orient Hongzhi, Zhongrong Investment and Hao Ding (collectively, the “Rollover Shareholders
”), entered into a support agreement with Parent, pursuant to which they agreed with Parent, among other things, that
(a) they will vote (or cause to be voted) all of the Shares (including Shares represented by ADSs) owned directly or indirectly
by them in favor of the proposal to approve and authorize the Merger Agreement, the plan of merger required to be filed with the
Registrar of Companies of the Cayman Islands in connection with the Merger (the “Plan of Merger”) and the
transactions contemplated by the Merger Agreement and the Plan of Merger (collectively, the “Transactions”),
including the Merger, and (b) the Shares (including Shares represented by ADSs) owned directly or indirectly by them will, in
connection with and at the Effective Time, be cancelled for no consideration in the Merger.
The Merger remains subject to
the satisfaction or waiver of the conditions set forth in the Merger Agreement, including obtaining the requisite approval of
the shareholders of the Company. The Merger Agreement, the Plan of Merger and the Transactions, including the Merger, must
be authorized and approved by a special resolution representing an affirmative vote of shareholders holding two-thirds or
more of the voting power represented by the Shares (including Shares represented by ADSs) present and voting in person or by
proxy as a single class at the extraordinary general meeting of the Company’s shareholders held in accordance with
its memorandum and articles of association.
The Company will make available to
its shareholders a proxy statement (the “Proxy Statement,” a preliminary copy of which is attached as Exhibit
(a)(1) to this Transaction Statement), relating to the extraordinary general meeting of the Company’s shareholders, at which
the Company’s shareholders will consider and vote upon, among other proposals, a proposal to authorize and approve the Merger
Agreement, the Plan of Merger and the Transactions, including the Merger. As of the date hereof, the Proxy Statement is in preliminary
form and is subject to completion.
The cross-references below are being supplied
pursuant to General Instruction G to Schedule 13E-3 and show the location in the Proxy Statement of the information required to
be included in response to the items of Schedule 13E-3. Pursuant to General Instruction F to Schedule 13E-3, the information contained
in the Proxy Statement, including all annexes thereto, is incorporated in its entirety herein by this reference, and the responses
to each item in this Schedule 13E-3 are qualified in their entirety by the information contained in the Proxy Statement and the
annexes thereto. Capitalized terms
used but not defined in this Transaction Statement shall have the meanings given to them in the Proxy Statement.
All information contained in this Transaction
Statement concerning each Filing Person has been supplied by such Filing Person. No Filing Person, including the Company, is responsible
for the accuracy of any information supplied by any other Filing Person.
The filing of this Transaction Statement
shall not be construed as an admission by any of the Filing Persons or by any affiliate of a Filing Person, that the Company is
“controlled” by any other Filing Person or that any Filing Person is an “affiliate” of the Company within
the meaning of Rule 13e-3 under Section 13(e) of the Exchange Act.
Item 1. Summary Term Sheet
The information set forth in the Proxy Statement under the following
captions is incorporated herein by reference:
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
Item 2. Subject Company Information
(a) Name and Address. The information set forth in
the Proxy Statement under the following caption is incorporated herein by reference:
| · | “Summary Term Sheet—The Parties Involved in the Merger” |
(b) Securities. The information set forth in the Proxy
Statement under the following captions is incorporated herein by reference:
| · | “Market Price of the Company’s ADSs, Dividends and Other Matters” |
| · | “The Extraordinary General Meeting—Record Date; Shares and ADSs Entitled to Vote” |
| · | “Security Ownership of Certain Beneficial Owners and Management of the Company” |
(c) Trading Market and Price. The information set
forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Market Price of the Company’s ADSs, Dividends and Other Matters—Market Price of ADSs” |
(d) Dividends. The information set forth in the Proxy
Statement under the following captions is incorporated herein by reference:
| · | “Market Price of the Company’s ADSs, Dividends and Other Matters—Dividend Policy” |
(e) Prior Public Offerings. The information set forth
in the Proxy Statement under the following captions is incorporated herein by reference:
(f) Prior Stock Purchases. The information set forth
in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Transactions in Shares and ADSs—Purchases by the Company” |
| · | “Transactions in Shares and ADSs—Transactions within the Buyer Group” |
| · | “Special Factors—Related-Party Transactions” |
Item 3. Identity and Background of Filing Person
(a) Name and Address. Shanda Games Limited is the
subject company. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet––The Parties Involved in the Merger” |
| · | “Annex F—Directors and Executive Officers of Each Filing Person” |
(b) Business and Background of Entities. The information
set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet––The Parties Involved in the Merger” |
| · | “Annex F—Directors and Executive Officers of Each Filing Person” |
(c) Business and Background of Natural Persons. The
information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet––The Parties Involved in the Merger” |
| · | “Annex F—Directors and Executive Officers of Each Filing Person” |
Item 4. Terms of the Transaction
(a) Material Terms.
(1) Tender Offers. Not applicable.
(2) Mergers or Similar Transactions. The information
set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
| · | “The Extraordinary General Meeting” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
(c) Different Terms. The information set forth in
the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
| · | “Special Factors––Effects of the Merger on the Company” |
| · | “Special Factors––Financing of the Merger” |
| · | “Special Factors––Interests of Certain Persons in the Merger” |
| · | “The Extraordinary General Meeting—Proposals to be Considered at the Extraordinary General Meeting” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
(d) Appraisal Rights. The information set forth in
the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet––Merger Consideration” |
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
| · | “The Extraordinary General Meeting––Rights of Shareholders Who Object to the Merger” |
| · | “The Merger Agreement––Merger Consideration” |
| · | “Annex D—Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) – Section 238” |
(e) Provisions for Unaffiliated Security Holders.
The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
| · | “Provisions for Unaffiliated Security Holders” |
(f) Eligibility for Listing or Trading. Not applicable.
Item 5. Past Contacts, Transactions, Negotiations and Agreements
(a) Transactions. The information set forth in the
Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet—Interests of the Company’s Executive Officers and Directors in the Merger” |
| · | “Special Factors––Interests of Certain Persons in the Merger” |
| · | “Special Factors––Related-Party Transactions” |
| · | “Transactions in Shares and ADSs” |
(b)—(c) Significant Corporate Events; Negotiations
or Contacts. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors––Position of the Buyer Group as to the Fairness of the Merger” |
| · | “Special Factors—Purposes of and Reasons for the Merger” |
| · | “Special Factors—Effects of the Merger on the Company” |
| · | “Special Factors—Plans for the Company after the Merger” |
| · | “Special Factors—Financing of the Merger” |
| · | “Special Factors—Limited Guarantees” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
(e) Agreements Involving the Subject Company’s Securities.
The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Special Factors—Plans for the Company after the Merger” |
| · | “Special Factors—Financing of the Merger” |
| · | “Special Factors—Consortium Agreement” |
| · | “Special Factors—Support Agreement” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “Special Factors—Voting by the Rollover Shareholders at the Extraordinary General Meeting” |
| · | “Transactions in Shares and ADSs” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
Item 6. Purposes of the Transaction, and Plans or Proposals
(b) Use of Securities Acquired. The information set
forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
| · | “Special Factors––Purposes of and Reasons for the Merger” |
| · | “Special Factors––Effects of the Merger on the Company” |
| · | “Special Factors––Plans for the Company after the Merger” |
| · | “Special Factors––Financing of the Merger” |
| · | “Special Factors––Interests of Certain Persons in the Merger” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
(c)(1)—(8) Plans. The information set forth in
the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors––Position of the Buyer Group as to the Fairness of the Merger” |
| · | “Special Factors—Purposes of and Reasons for the Merger” |
| · | “Special Factors—Effects of the Merger on the Company” |
| · | “Special Factors—Plans for the Company after the Merger” |
| · | “Special Factors—Financing of the Merger” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
Item 7. Purposes, Alternatives, Reasons and Effects
(a) Purposes. The information set forth in the Proxy
Statement under the following captions is incorporated herein by reference:
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors—Purposes of and Reasons for the Merger” |
| · | “Special Factors—Effects of the Merger on the Company” |
| · | “Special Factors—Plans for the Company after the Merger” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
(b) Alternatives. The information set forth in the
Proxy Statement under the following captions is incorporated herein by reference:
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors––Position of the Buyer Group as to the Fairness of the Merger” |
| · | “Special Factors—Purposes of and Reasons for the Merger” |
| · | “Special Factors—Effects on the Company if the Merger Is Not Completed” |
| · | “Special Factors—Alternatives to the Merger” |
(c) Reasons. The information set forth in the Proxy
Statement under the following captions is incorporated herein by reference:
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors––Position of the Buyer Group as to the Fairness of the Merger” |
| · | “Special Factors––Opinion of Merrill Lynch, the Special Committee’s Financial Advisor” |
| · | “Special Factors—Purposes of and Reasons for the Merger” |
| · | “Special Factors—Effects of the Merger on the Company” |
| · | “Special Factors––Plans for the Company After the Merger” |
(d) Effects. The information set forth in the Proxy
Statement under the following captions is incorporated herein by reference:
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors—Purposes of and Reasons for the Merger” |
| · | “Special Factors—Effects of the Merger on the Company” |
| · | “Special Factors––Plans for the Company After the Merger” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “Special Factors––Fees and Expenses” |
| · | “Special Factors––Material U.S. Federal Income Tax Consequences” |
| · | “Special Factors—Material PRC Income Tax Consequences” |
| · | “Special Factors—Material Cayman Islands Tax Consequences” |
| · | “The Extraordinary General Meeting––Rights of Shareholders Who Object to the Merger” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
| · | “Annex D—Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) – Section 238” |
Item 8. Fairness of the Transaction
(a)—(b) Fairness; Factors Considered in Determining
Fairness. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet—Recommendations of the Special Committee and the Board” |
| · | “Summary Term Sheet—Position of the Buyer Group as to Fairness” |
| · | “Summary Term Sheet—Opinion of Merrill Lynch, the Special Committee’s Financial Advisor” |
| · | “Summary Term Sheet—Interests of the Company’s Executive Officers and Directors in the Merger” |
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors—Position of the Buyer Group as to the Fairness of the Merger” |
| · | “Special Factors––Opinion of Merrill Lynch, the Special Committee’s Financial Advisor” |
| · | “Special Factors—Purposes of and Reasons for the Merger” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “Annex C––Opinion of Merrill Lynch as Financial Advisor” |
(c) Approval of Security Holders. The information
set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
| · | “The Extraordinary General Meeting––Record Date; Shares and ADSs Entitled to Vote” |
| · | “The Extraordinary General Meeting—Quorum” |
| · | “The Extraordinary General Meeting—Vote Required” |
The Merger does not require approval by the holders of at least
a majority of the Shares held by the Company’s unaffiliated security holders.
(d)––(e) Unaffiliated Representative; Approval
of Directors. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet—Recommendations of the Special Committee and the Board” |
| · | “Summary Term Sheet—Opinion of Merrill Lynch, the Special Committee’s Financial Advisor” |
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors—Position of the Buyer Group as to the Fairness of the Merger” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “Special Factors––Opinion of Merrill Lynch, the Special Committee’s Financial Advisor” |
| · | “Annex C––Opinion of Merrill Lynch as Financial Advisor” |
(f) Other Offers. The information set forth in the
Proxy Statement under the following captions is incorporated herein by reference:
Item 9. Reports, Opinions, Appraisals and Negotiations
(a)—(b) Report, Opinion or Appraisal; Preparer and
Summary of the Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the following captions
is incorporated herein by reference:
| · | “Summary Term Sheet—Opinion of Merrill Lynch, the Special Committee’s Financial Advisor” |
| · | “Special Factors––Background of the Merger” |
| · | “Special Factors––Certain Financial Projections” |
| · | “Special Factors––Opinion of Merrill Lynch, the Special Committee’s Financial Advisor” |
| · | “Annex C––Opinion of Merrill Lynch as Financial Advisor” |
(c) Availability of Documents.
The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
| · | “Where You Can Find More Information” |
The reports, opinions or appraisals referenced in this Item
9 will be made available for inspection and copying at the principal executive offices of the Company during its regular business
hours by any interested holder of Shares and ADSs or his, her or its representative who has been so designated in writing.
Item 10. Source and Amounts of Funds or Other Consideration
(a)—(b), (d) Source of Funds; Conditions; Borrowed
Funds. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
| · | “Summary Term Sheet––Financing of the Merger” |
| · | “Summary Term Sheet––Fees and Expenses” |
| · | “Special Factors––Financing of the Merger” |
| · | “Special Factors––Limited Guarantees” |
| · | “Special Factors––Fees and Expenses” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
(c) Expenses. The information set forth in the Proxy
Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet––Termination Fees and Reimbursement of Expenses” |
| · | “Summary Term Sheet––Fees and Expenses” |
| · | “Special Factors––Fees and Expenses” |
| · | “The Merger Agreement––Termination Fee and Reimbursement of Expenses” |
| · | “The Extraordinary General Meeting––Solicitation of Proxies” |
| · | “Annex A––Agreement and Plan of Merger” |
| · | “Annex B—Plan of Merger” |
Item 11. Interest in Securities of the Subject Company
(a) Securities Ownership. The information set forth
in the Proxy Statement under the following caption is incorporated herein by reference:
| · | “Summary Term Sheet—Interests of the Company’s Executive Officers and Directors in the Merger” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “Security Ownership of Certain Beneficial Owners and Management of the Company” |
(b) Securities Transactions. The information set forth
in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Transactions in the Shares and ADSs” |
Item 12. The Solicitation or Recommendation
(d) Intent to Tender or Vote in a Going-Private Transaction.
The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet—Recommendations of the Special Committee and the Board” |
| · | “Summary Term Sheet—Interests of the Company’s Executive Officers and Directors in the Merger” |
| · | “Summary Term Sheet—Support Agreement” |
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors—Support Agreement” |
| · | “Special Factors—Voting by the Rollover Shareholders at the Extraordinary General Meeting” |
| · | “The Extraordinary General Meeting—Vote Required” |
| · | “Security Ownership of Certain Beneficial Owners and Management of the Company” |
(e) Recommendations of Others. The information set
forth in the Proxy Statement under the following captions is incorporated herein by reference:
| · | “Summary Term Sheet—Recommendations of the Special Committee and the Board” |
| · | “Summary Term Sheet—Position of the Buyer Group as to Fairness” |
| · | “Summary Term Sheet—Interests of the Company’s Executive Officers and Directors in the Merger” |
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger––How does the Board recommend
that I vote on the proposals?” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors—Position of the Buyer Group as to the Fairness of the Merger” |
| · | “Special Factors—Purposes of and Reasons for the Merger” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “The Extraordinary General Meeting––Vote Required” |
| · | “Security Ownership of Certain Beneficial Owners and Management of the Company” |
Item 13. Financial Statements
(a) Financial Information. The audited
financial statements of the Company for the two years ended December 31, 2013 and 2014 are incorporated herein by
reference to the Company’s Form 20-F for the year ended December 31, 2014, originally filed on April 17, 2015 (see page
F-1 and following pages thereto). The information set forth in the Proxy Statement under the following captions is
incorporated herein by reference:
| · | “Where You Can Find More Information” |
(b) Pro Forma Information. Not applicable.
Item 14. Persons/Assets, Retained, Employed, Compensated
or Used
(a)—(b) Solicitations or Recommendations; Employees
and Corporate Assets. The information set forth in the Proxy Statement under the following captions is incorporated herein
by reference:
| · | “Summary Term Sheet—The Parties Involved in the Merger” |
| · | “Summary Term Sheet—Recommendations of the Special Committee and the Board” |
| · | “Summary Term Sheet—Position of the Buyer Group as to Fairness” |
| · | “Summary Term Sheet—Interests of the Company’s Executive Officers and Directors in the Merger” |
| · | “Summary Term Sheet––Fees and Expenses” |
| · | “Questions and Answers about the Extraordinary General Meeting and the Merger” |
| · | “Special Factors––Reasons for the Merger and Recommendation of the Special Committee and the Board” |
| · | “Special Factors—Position of the Buyer Group as to the Fairness of the Merger” |
| · | “Special Factors—Interests of Certain Persons in the Merger” |
| · | “Special Factors––Fees and Expenses” |
| · | “The Extraordinary General Meeting—Solicitation of Proxies” |
| · | “Annex F—Directors and Executive Officers of Each Filing Person” |
Item 15. Additional Information
(c) Other Material Information. The information set
forth in the Proxy Statement, including all annexes thereto, is incorporated in its entirety herein by reference.
Item 16. Exhibits
(a)-(1) |
Preliminary Proxy
Statement of the Company, dated as of [ ], 2015. |
(a)-(2) |
Letter to Shareholders, incorporated
herein by reference to the Proxy Statement. |
(a)-(3) |
Notice of Extraordinary General
Meeting of Shareholders of the Company, incorporated herein by reference to the Proxy Statement. |
(a)-(4) |
Form of Proxy Card, incorporated
herein by reference to the Proxy Statement. |
(a)-(5) |
Form of ADS Voting Instruction
Card, incorporated herein by reference to the Proxy Statement. |
(a)-(6) |
Press Release issued by the Company, dated as of April 3, 2015, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the SEC on April 3, 2015. |
(b)-(1) |
Equity
Commitment Letter, dated as of April 3, 2015, by Zhongrong Legend, incorporated herein
by reference to Exhibit 7.10 to the Schedule 13D Amendment filed by Yili Shengda on April
6, 2015. |
(b)-(2) |
Equity
Commitment Letter, dated as of April 3, 2015, by Ningxia Silkroad, incorporated herein
by reference to Exhibit 7.11 to the Schedule 13D Amendment filed by Yili Shengda on April
6, 2015. |
(b)-(3) |
Equity
Commitment Letter, dated as of April 3, 2015, by Zhengjun Investment, incorporated herein
by reference to Exhibit 7.12 to the Schedule 13D Amendment filed by Yili Shengda on April
6, 2015. |
(c)-(1) |
Opinion of Merrill Lynch, dated as of April 3, 2015, incorporated herein by reference to Annex C of the Proxy Statement. |
(c)-(2) |
Presentation/discussion
materials prepared by Merrill Lynch for discussion with the Special Committee and the Board, dated April 3, 2015,
incorporated herein by reference to Exhibit (c)-(2) to the Schedule 13E-3 Amendment filed by the Filing Persons on
August 27, 2015. |
(c)-(3) |
Presentation/discussion materials
prepared by Merrill Lynch for discussion with the Special Committee, dated September 23, 2014, incorporated herein by reference
to Exhibit (c)-(2) to the Schedule 13E-3 Amendment filed by the Filing Persons on August 27, 2015. |
(d)-(1) |
Agreement
and Plan of Merger, dated as of April 3, 2015 and amended and restated as of September
23, 2015, among Parent, Merger
Sub and the Company, incorporated herein by reference to Annex A of the Proxy Statement.
|
(d)-(2) |
Support Agreement,
dated as of April 3, 2015, by and among Parent, Yili Shengda, Zhongrong Shengda, Zhongrong Investment, Orient Hongtai, Orient
Hongzhi and Hao Ding, incorporated herein by reference to Annex E of the Proxy Statement. |
(d)-(3) |
Limited Guarantee, dated as of April 3, 2015, by Zhongrong Legend, incorporated herein by reference to Exhibit 99.3 to the Report on Form 6-K furnished by the Company to the SEC on April 3, 2015. |
(d)-(4) |
Limited Guarantee, dated as of April 3, 2015, by Ningxia Silkroad, incorporated herein by reference to Exhibit 99.4 to the Report on Form 6-K furnished by the Company to the SEC on April 3, 2015. |
(d)-(5) |
Limited Guarantee, dated as of April 3, 2015, by Zhengjun Investment, incorporated herein by reference to Exhibit 99.5 to the Report on Form 6-K furnished by the Company to the SEC on April 3, 2015. |
(d)-(6) |
Consortium Agreement, dated as of January 27, 2014, by and among Shanda Interactive Entertainment Limited, Primavera Capital (Cayman) Fund I L.P., Perfect World Co., Ltd. (which became a party on April 18, 2014 by entering into an adherence agreement), FV Investment Holdings (which became a party on April 25, 2014 by entering into an adherence agreement) and CAP IV Engagement Limited (which became a party on May 19, 2014 by entering into an adherence agreement), incorporated herein by reference to Exhibit 7.03 to the Schedule 13D filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on January 30, 2014. |
(d)-(7) |
Share Purchase Agreement, dated as of January 27, 2014, by and among Shanda SDG Investment Limited and Primavera Capital (Cayman) Fund I L.P., incorporated herein by reference to Exhibit 7.04 to the Schedule 13D filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on January 30, 2014. |
(d)-(8) |
Share Purchase Agreement, dated as of April 18, 2014, by and among Shanda SDG Investment Limited and Perfect World Co., Ltd., incorporated herein by reference to Exhibit 7.05 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on April 21, 2014. |
(d)-(9) |
Adherence Agreement, dated as of April 18, 2014, by and among Perfect World Co., Ltd., Shanda Interactive Entertainment Limited and Primavera Capital (Cayman) Fund I L.P., incorporated herein by reference to Exhibit 7.06 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on April 21, 2014. |
(d)-(10) |
Adherence Agreement, dated as of April 25, 2014, by and among FV Investment Holdings, Shanda Interactive Entertainment Limited, Primavera Capital (Cayman) Fund I L.P.and Perfect World Co., Ltd., incorporated herein by reference to Exhibit 7.07 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on April 28, 2014. |
(d)-(11) |
Adherence Agreement, dated as of May 19, 2014, by and among CAP IV Engagement Limited, Shanda Interactive Entertainment Limited, Primavera Capital (Cayman) Fund I L.P., Perfect World Co., Ltd. and FV Investment Holdings, incorporated herein by reference to Exhibit 7.08 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on May 19, 2014. |
(d)-(12) |
Share Purchase Agreement, dated as of August 31, 2014, by and between Shanda SDG Investment Limited and Orient Finance Holdings (Hong Kong) Limited, incorporated herein by reference to Exhibit 7.09 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(13) |
Share Purchase Agreement, dated as of September 1, 2014, by and between Shanda SDG Investment Limited and Shanghai Buyout Fund L.P., incorporated herein by reference to Exhibit 7.10 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(14) |
Share Purchase Agreement, dated as of September 1, 2014, by and between Shanda SDG Investment Limited and Ningxia Zhongyincashmere International Group Co., Ltd., incorporated herein by reference to Exhibit 7.11 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(15) |
Adherence Agreement, dated as of September 1, 2014, by and among Orient Finance Holdings (Hong Kong) Limited, Shanda Interactive Entertainment Limited and Primavera Capital (Cayman) Fund I L.P., incorporated herein by reference to Exhibit 7.12 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(16) |
Adherence Agreement, dated as of September 1, 2014, by and among Shanghai Buyout Fund L.P., Shanda Interactive Entertainment Limited and Primavera Capital (Cayman) Fund I L.P., incorporated herein by reference to Exhibit 7.13 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(17) |
Adherence Agreement, dated as of September 1, 2014, by and among Ningxia Zhongyincashmere International Group Co., Ltd., Shanda Interactive Entertainment Limited and Primavera Capital (Cayman) Fund I L.P., incorporated herein by reference to Exhibit 7.14 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(18) |
Withdrawal Notice, dated as of September 1, 2014, by and among Perfect World Co., Ltd., FV Investment Holdings, CAP IV Engagement Limited, Shanda Interactive Entertainment Limited and Primavera Capital (Cayman) Fund I L.P., incorporated herein by reference to Exhibit 7.15 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(19) |
Withdrawal Notice, dated as of September 1, 2014, by and among Primavera Capital (Cayman) Fund I L.P., Shanda Interactive Entertainment Limited, Orient Finance Holdings (Hong Kong) Limited, Shanghai Buyout Fund L.P. and Ningxia Zhongyincashmere International Group Co., Ltd., incorporated herein by reference to Exhibit 7.16 to the Schedule 13D Amendment filed by Premium Lead Company Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(20) |
Share Purchase Agreement,
dated as of September 1, 2014, by and among Primavera Capital (Cayman) Fund I L.P., Perfect World Co., Ltd. and Shanghai Buyout
Fund L.P., incorporated herein by reference to Exhibit 7.05 to the Schedule 13D Amendment filed by Perfect World Co., Ltd.
on September 2, 2014. |
(d)-(21) |
Consent and Release, dated
as of September 1, 2014, by and between Shanda SDG Investment Limited, Primavera Capital (Cayman) Fund I L.P. and Perfect
World Co., Ltd., incorporated herein by reference to Exhibit 7.17 to the Schedule 13D Amendment filed by Premium Lead Company
Limited, Shanda Interactive Entertainment Limited and Shanda SDG Investment Limited on September 3, 2014. |
(d)-(22) |
Exclusivity and Release,
dated as of October 28, 2014, by and between Ningxia and Shanda Interactive Entertainment Limited, incorporated herein by
reference to Exhibit 7.18 to the Schedule 13D Amendment filed by Shanda Interactive Entertainment Limited, Shanda SDG
Investment Limited and Premium Lead Company Limited on October 28, 2014. |
(d)-(23) |
Share Purchase
Agreement, dated as of November 25, 2014, by and among Shanda SDG Investment Limited, Ningxia, Zhongrong Shengda and Yili
Shengda, incorporated herein by reference to Exhibit 7.19 to the Schedule 13D Amendment filed by Shanda Interactive Entertainment
Limited, Shanda SDG Investment Limited and Premium Lead Company Limited on November 26, 2014. |
(d)-(24) |
Consortium Agreement, dated
as of December 5, 2014, by and between Ningxia Yilida and Ningxia, incorporated herein by reference to Exhibit 7.03 to the
Schedule 13D filed by Yili Shengda on December 5, 2014. |
(d)-(25) |
Consortium Agreement, dated
as of March 16, 2015, by and among Ningxia Yilida, Ningxia, Orient Hongtai, Orient Hongzhi and Hao Ding, incorporated herein
by reference to Exhibit 7.04 to the Schedule 13D filed by Yili Shengda on March 17, 2015. |
(d)-(26) |
Adherence Agreement, dated
as of April 3, 2015, by Zhongrong Legend, incorporated herein by reference to Exhibit 7.07 to the Schedule 13D Amendment filed
by Yili Shengda on April 6, 2015. |
(d)-(27) |
Adherence Agreement, dated
as of April 3, 2015, by Ningxia Silkroad, incorporated herein by reference to Exhibit 7.08 to the Schedule 13D Amendment filed
by Yili Shengda on April 6, 2015. |
(d)-(28) |
Adherence Agreement, dated
as of April 3, 2015, by Zhengjun Investment, incorporated herein by reference to Exhibit 7.09 to the Schedule 13D Amendment
filed by Yili Shengda on April 6, 2015. |
(d)-(29) |
Share Purchase Agreement,
dated as of June 25, 2015, by and among Litian Investment Center (Shanghai) L.P., Orient Zhihui Investment Center (Shanghai)
L.P., HuaSung Holdings Limited and Orient Hongzhi, incorporated herein by reference to Exhibit 7.34 to the Schedule 13D Amendment
filed by Orient Finance Holdings (Hong Kong) Limited on July 1, 2015. |
(d)-(30) |
Share Purchase Agreement,
dated as of June 25, 2015, by and among Lihua Investment Center (Shanghai) L.P., Orient Zhisheng Investment Center (Shanghai)
L.P., TonSung Holdings Limited and Orient Hongtai, incorporated herein by reference to Exhibit 7.35 to the Schedule 13D Amendment
filed by Orient Finance Holdings (Hong Kong) Limited on July 1, 2015. |
(d)-(31) |
Share
Purchase Agreement, dated as of June 25, 2015, by and among Lihai Investment Center (Shanghai)
L.P., Shanghai Buyout Fund L.P., Xizang Runda Resource Ltd., Shanghai Hai Sheng Tong
Investment Co., Ltd. and Hao Ding, incorporated herein by reference to Exhibit 7.34 to
the Schedule 13D Amendment filed by Shanghai Buyout Fund L.P. on July 1, 2015.
|
(f)-(1) |
Dissenters’ Rights,
incorporated herein by reference to the section entitled “Dissenters’ Rights” in the Proxy Statement. |
(f)-(2) |
Section 238 of the Cayman
Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised), incorporated herein by reference to Annex D to
the Proxy Statement. |
(g) |
Not applicable. |
SIGNATURE
After due inquiry and to the best of each
of the undersigned’s knowledge and belief, each of the undersigned certifies that the information set forth in this Transaction
Statement is true, complete and correct.
Dated as of October 6, 2015
Shanda
Games Limited
By: /s/ Li Yao
Name: Li Yao
Title: Chief Financial Officer
YINGFENG ZHANG
/s/ Yingfeng Zhang
Name: Yingfeng Zhang
Capitalhold
Limited
By: /s/ Yingfeng Zhang
Name: Yingfeng Zhang
Title: Director
Capitalcorp
Limited
By: /s/ Yingfeng Zhang
Name: Yingfeng Zhang
Title: Director
Ningxia
Yilida Capital Investment Limited Partnership
By Shanghai Yingfeng Investment
Management Company Limited, its general partner
By: /s/ Yingfeng Zhang
Name: Yingfeng Zhang
Title: Director
Yili
Shengda Investment Holdings (Hong Kong) Company Limited
By: /s/ Yingfeng Zhang
Name: Yingfeng Zhang
Title: Director
Ningxia
Zhengjun Equity Investment Partnership Enterprise (Limited Partnership)
By Shanghai Yingfeng Investment
Management Company Limited, its general partner
By: /s/ Yingfeng Zhang
Name: Yingfeng Zhang
Title: Director
SHANGHAI YINGFENG INVESTMENT MANAGEMENT COMPANY
LIMITED
By: /s/ Yingfeng Zhang
Name: Yingfeng Zhang
Title: Director
Ningxia
Zhongyincashmere International Group Co., Ltd.
By: /s/ Shengming Ma
Name: Shengming Ma
Title: Chairman
Zhongrong
Shengda Investment Holdings (Hong Kong) Company Limited
By: /s/ Shengming Ma
Name: Shengming Ma
Title: Director
Zhongrong
Investment Holdings (Hong Kong) Co., Ltd.
By: /s/ Shengming Ma
Name: Shengming Ma
Title: Director
Ningxia
Silkroad Equity Investment Partnership Enterprise (Limited Partnership)
By Ningxia Zhongyincashmere International
Group Co., Ltd., its general partner
By: /s/ Shengming Ma
Name: Shengming Ma
Title: Chairman
Ningxia
Zhongrong Legend Equity Investment Partnership Enterprise (Limited Partnership)
By Ningxia Zhongyincashmere International
Group Co., Ltd., its general partner
By: /s/ Shengming Ma
Name: Shengming Ma
Title: Chairman
SHAOLIN LIANG
/s/ Shaolin Liang
Name: Shaolin Liang
Orient
Hongtai (Hong Kong) Limited
By: /s/ Ji Wang
Name: Ji Wang
Title: Director
Orient
Hongzhi (Hong Kong) Limited
By: /s/ Ji Wang
Name: Ji Wang
Title: Director
Hao
Ding International Limited
By: /s/ Ji Wang
Name: Ji Wang
Title: Director
TONSUNG HOLDINGS LIMITED
By: /s/ Ji Wang
Name: Ji Wang
Title: Director
LIHUA INVESTMENT CENTER (SHANGHAI) L.P.
By: /s/ Bo Chen
Name: Bo Chen
Title: Authorized Representative
HUASUNG HOLDINGS LIMITED
By: /s/ Ji Wang
Name: Ji Wang
Title: Director
LITIAN INVESTMENT CENTER (SHANGHAI) L.P.
By:
/s/ Bo Chen
Name: Bo Chen
Title: Authorized Representative
SHANGHAI HAI SHENG TONG INVESTMENT CO., LTD.
By: /s/ Ji Wang
Name: Ji Wang
Title: Director
LIHAI INVESTMENT CENTER (SHANGHAI) L.P.
By: /s/ Bo Chen
Name: Bo Chen
Title: Authorized Representative
LIYOU INVESTMENT MANAGEMENT (SHANGHAI) COMPANY
LIMITED
By: /s/ Ji Wang
Name: Ji Wang
Title: Director
ZHEJIANG HUATONG HOLDING GROUP COMPANY LIMITED
By: /s/ Miaotong Wang
Name: Miaotong Wang
Title: Chairman
MIAOTONG WANG
/s/ Miaotong Wang
Name: Miaotong Wang
HENG SHAO
/s/ Heng Shao
Name: Heng Shao
JI WANG
/s/ Ji Wang
Name: Ji Wang
Exhibit (a)-(1)
PROXY STATEMENT OF THE COMPANY
[ ], 2015
Shareholders of Shanda Games Limited
Re: Notice of Extraordinary General Meeting of Shareholders
Dear Shareholder:
You are cordially invited to attend an
extraordinary general meeting of shareholders of Shanda Games Limited, an exempted company with limited liability incorporated
under the laws of the Cayman Islands (the “Company”), to be held on [ ],
2015 at [ ] a.m. (Hong Kong time). The meeting will be held at the offices of Davis
Polk & Wardwell, The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong. The accompanying notice of the extraordinary
general meeting and proxy statement provide information regarding the matters to be acted on at the extraordinary general meeting,
including at any adjournment thereof.
The Company entered into an agreement
and plan of merger, dated as of April 3, 2015, with Capitalhold Limited, an exempted company with limited liability incorporated
under the laws of the Cayman Islands (“Parent”), and Capitalcorp Limited, an exempted company with limited liability
incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Parent (“Merger Sub”). On September
23, 2015, Parent, Merger Sub and the Company amended and restated the merger agreement entered into on April 3, 2015 to
(i) extend the date after which either Parent or the Company may terminate the merger agreement without payment of a termination
fee from October 3, 2015 to December 31, 2015 and (ii) make certain technical amendments. Such agreement and plan of merger, as
amended and restated from time to time, is referred to herein as the “Merger Agreement.” Pursuant to the Merger Agreement,
Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation
(the “Surviving Corporation”) and becoming a wholly owned subsidiary of Parent.
The purpose of the extraordinary general
meeting is for you and the other shareholders of the Company to consider and vote upon a proposal to authorize and approve the
Merger Agreement and the plan of merger required to be filed with the Registrar of Companies of the Cayman Islands (the “Cayman
Registrar”) in connection with the Merger (the “Plan of Merger”), and the transactions contemplated by the Merger
Agreement and the Plan of Merger (collectively, the “Transactions”), including the Merger. Copies of the Merger Agreement
and the Plan of Merger are attached as Annex A and Annex B, respectively, to the accompanying proxy statement.
Merger Sub and Parent were formed solely
for the purpose of the Merger. At the effective time of the Merger (the “Effective Time”), Parent will be beneficially
owned by (a) Ningxia Yilida Capital Investment Limited Partnership (“Ningxia Yilida”), a limited partnership formed
under the laws of the People’s Republic of China and an affiliate of the Company’s acting chief executive officer,
Mr. Yingfeng Zhang, (b) Ningxia Zhongyincashmere International Group Co., Ltd. (“Ningxia”), a company formed under
the laws of the People’s Republic of China, (c) Orient Hongtai (Hong Kong) Limited (“Orient Hongtai”), a company
incorporated and existing under the laws of Hong Kong and an affiliate of Mr. Miaotong Wang, Mr. Heng Shao and Mr. Ji Wang (Mr.
Miaotong Wang, Mr. Heng Shao and Mr. Ji Wang collectively, the “Li-Funds Persons”), (d) Orient Hongzhi (Hong Kong)
Limited (“Orient Hongzhi”), a company incorporated and existing under the laws of Hong Kong and an affiliate of the
Li-Funds Persons, (e) Hao Ding International Limited (“Hao Ding”), a business company established under the laws of
the British Virgin Islands and an affiliate of the Li-Funds Persons, (f) Ningxia Zhengjun Equity Investment Partnership Enterprise
(Limited Partnership) (“Zhengjun Investment”), a limited partnership organized and existing under the laws of the
People’s Republic of China and an affiliate of Mr. Yingfeng Zhang, (g) Ningxia Silkroad Equity Investment Partnership Enterprise
(Limited Partnership) (“Ningxia Silkroad”), a limited partnership organized and existing under the laws of the People’s
Republic of China and an affiliate of Ningxia, and (h) Ningxia Zhongrong Legend Equity Investment Partnership Enterprise (Limited
Partnership) (“Zhongrong Legend”), a limited partnership organized and existing under the laws of the People’s
Republic of China and an affiliate of Ningxia. Unless the context otherwise requires, Ningxia Yilida, Ningxia, Orient Hongtai,
Orient Hongzhi, Hao Ding, Zhengjun Investment, Ningxia Silkroad and Zhongrong Legend are collectively referred to herein as the
“Buyer Group.”
Under our amended and restated memorandum
and articles of association, our ordinary shares, par value US$0.01 per share (each, a “Share”) are divided into Class
A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, and holders
of Class B ordinary shares are entitled to 10 votes per share. Holders of our Class A ordinary shares and Class B ordinary shares
will vote as a single class on all matters described in the accompanying proxy statement. As of the date of the accompanying proxy
statement, the Buyer Group collectively beneficially owns 311,568,626 Class A ordinary shares (including Class A ordinary shares
represented by the Company’s American depositary shares (“ADSs”), each representing two Class A ordinary shares)
and 97,518,374 Class B ordinary shares, representing approximately 75.6% of the Company’s issued and outstanding Shares
and 1,286,752,366 votes, or approximately 90.7% of the total number of votes represented by the Company’s issued and outstanding
Shares, which is more than the two-thirds majority necessary to approve a special resolution of the shareholders of the Company
as required under Cayman Islands law to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including
the Merger. If the Merger is completed, the Company will continue its operations as a privately held company and will be beneficially
owned by the Buyer Group and the Company’s ADSs will no longer be listed on the NASDAQ Global Select Market (“NASDAQ”),
and the ADS program for the Company’s Class A ordinary shares will terminate.
If the Merger is completed, each Share
issued and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right to receive US$3.55
and each issued and outstanding ADS will be cancelled in exchange for the right to receive US$7.10 (less US$0.05 per ADS cancellation
fees pursuant to the terms of the Deposit Agreement, dated as of September 24, 2009, among the Company, JPMorgan Chase Bank, N.A.
(the “ADS Depositary”) and the holders of ADSs issued thereunder (the “Deposit Agreement”)), in each case,
in cash, without interest and net of any applicable withholding taxes, other than (a) the Rollover Shares (as defined below) and
(b) the Shares held by Parent, the Company or any of their subsidiaries immediately prior to the Effective Time (collectively,
the “Excluded Shares”), which will be cancelled without payment of any consideration or distribution therefor.
In addition to the foregoing, at the Effective
Time, (a) each option to purchase Shares, whether vested or unvested (“Company Options”) and whether or not granted
under the Company’s amended and restated 2008 Equity Compensation Plan (the “Share Incentive Plan”), that is
issued and outstanding immediately prior to the Effective Time, will be cancelled and converted into the right to receive, as
soon as practicable after the Effective Time, an amount equal to the product of the total number of Shares issuable under such
Company Option immediately prior to the Effective Time multiplied by the excess of US$3.55 over the exercise price payable per
Share under such Company Option, in cash, without interest and net of any applicable withholding taxes, and (b) each restricted
Share with respect to which the restrictions have not lapsed and each restricted stock unit, whether or not the restrictions with
respect thereto have lapsed, in each case, whether or not awarded under the Share Incentive Plan, that is issued and outstanding
immediately prior to the Effective Time, will be cancelled and converted into the right to receive, as soon as practicable after
the Effective Time, an amount equal to US$3.55, in cash, without interest and net of any applicable withholding taxes.
A special committee (the “Special
Committee”) of the board of directors of the Company (the “Board”), composed solely of directors who are unaffiliated
with any member of the Buyer Group or any member of the management of the Company, reviewed and considered the terms and conditions
of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger. At a meeting on April 3, 2015, the Special
Committee, after due consideration, unanimously (a) determined that the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, were fair to, and in the best interests of, the Company and its shareholders and ADS holders, other than
the members of the Buyer Group and their respective affiliates (such shareholders and ADS holders, the “Unaffiliated Holders”);
(b) declared advisable the Merger Agreement, the Plan of Merger and the Transactions, including the Merger; and (c) recommended
that the Board authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.
At a meeting on April 3, 2015, the Board,
acting upon the unanimous recommendation of the Special Committee, unanimously (a) determined that it was fair to, advisable
and in the best interests of the Company and the Unaffiliated Holders to consummate the Transactions, including the Merger, (b)
authorized and approved the execution, delivery and performance by the Company of the Merger Agreement, the Plan of Merger and
the limited guarantees by Zhengjun Investment, Ningxia Silkroad and Zhongrong Legend in favor of the Company (the “Limited
Guarantees”) pursuant to which such guarantors have collectively guaranteed in favor of the Company the entire portion of
the payment obligations of Parent and Merger Sub under the Merger Agreement, and (c) resolved to recommend in favor of the
authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the
Merger, to the shareholders of the Company and directed that the Merger Agreement, the Plan of Merger and the consummation of
the Transactions, including the Merger, be submitted to a vote of the shareholders of the Company for authorization and approval.
Subsequent to the foregoing determination,
declaration and recommendation, 230,990,798 Class A ordinary shares were indirectly purchased for RMB6,374,000,000 (approximately
US$1,026,218,970 or US$4.44 per Class A ordinary share) in privately negotiated transactions that closed on June 30, 2015. See
“Transactions in Shares and ADSs—Transactions within the Buyer Group” beginning on page 110 for additional information
regarding these transactions. At a meeting on August 25, 2015, the Special Committee, after due consideration, unanimously (a)
determined that the Transactions, including the Merger, are fair to, and in the best interests of, the Company and the shareholders
and ADS holders of the Company who are unaffiliated with the Company and whose securities are to be purchased pursuant to the
terms of the Merger Agreement, (b) affirmed its April 3, 2015 resolutions (i) determining that the Merger Agreement, the Plan
of Merger and the Transactions, including the Merger, would be fair to, and in the best interests of, the Company and the Unaffiliated
Holders; (ii) declaring that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are advisable;
and (iii) recommending that the Board authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including
the Merger, (c) authorized each member of the Special Committee to take, or cause to be taken, any actions to give effect to the
resolutions described in (a) or (b) above and (d) ratified all previous actions taken by the Special Committee in connection
with the matters described in the resolutions set forth in (a) or (b) above. Following the meeting of the Special Committee, the
Board met via video conference on August 26, 2015, with representatives of Davis Polk, Sullivan & Cromwell and Conyers. Sullivan
& Cromwell, on behalf of the Special Committee, briefed the Board on the work undertaken by the Special Committee and its
advisors to date in connection with the Merger, including its consideration of the Li-Funds Purchase (as defined below), and reported
to the Board the resolutions adopted by the Special Committee on August 25, 2015. Representatives of Davis Polk provided
the Board with an update of the overall status of the Merger since the execution of the Merger Agreement on April 3, 2015. Representatives
of Conyers advised the Board members of their fiduciary duties under Cayman Islands law. Members of the Board then discussed
the fairness of the Merger in light of the Li-Funds Purchase. Following this discussion, the Board, acting upon the unanimous
affirmation of the Special Committee, unanimously (a) determined that the Merger and other transactions contemplated by the Merger
Agreement are fair to, and in the best interests of, the Company and the Unaffiliated Holders and (b) affirmed its April 3, 2015
resolutions (i) determining it was fair to, advisable and in the best interests of the Company and the Unaffiliated Holders to
consummate the Merger; (ii) authorizing and approving the execution, delivery and performance by the Company of the Merger Agreement;
and (iii) resolving to recommend in favor of the authorization and approval of the Merger Agreement, and the consummation of the
Merger, to the shareholders of the Company for authorization and approval.
The Board unanimously recommends that
you vote FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the
Merger, FOR the proposal to authorize the directors to do all things necessary to give effect to the Merger Agreement, the Plan
of Merger and the Transactions, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in order
to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the
extraordinary general meeting to pass the resolutions to be proposed at the extraordinary general meeting.
In considering the recommendation of
the Special Committee made on April 3, 2015, which was subsequently affirmed by the Special Committee on August 25, 2015, and
the recommendation of the Board made on April 3, 2015, which was subsequently affirmed by the Board on August 26, 2015, you should
be aware that some of the Company’s directors and executive officers have interests in the Merger that are different from,
or in addition to, the interests of the shareholders of the Company generally. As of the date of the accompanying proxy statement,
Mr. Yingfeng Zhang, the chairman of the Board and acting chief executive officer of the Company, is the sole shareholder of Shanghai
Yingfeng Investment Management Company Limited (“Shanghai Yingfeng”), a limited liability company organized under
the laws of the People’s Republic of China and, the general partner of Ningxia Yilida and Zhengjun Investment. Both Ningxia
Yilida and Zhengjun Investment are members of the Buyer Group and therefore, Mr. Yingfeng Zhang has interests that are different
from, or in addition to, the interests of the shareholders of the Company generally. Mr. Shaolin Liang, a director of the Company,
serves as a vice general manager of Ningxia, which is a member of the Buyer Group. Mr. Lijun Lin, a director of the Company, served
as the chief executive officer of China Universal Asset Management Co., Ltd., which was an affiliate of Orient Hongtai and Orient
Hongzhi prior to June 30, 2015, each of which is a member of the Buyer Group, from April 2004 to April 16, 2015. Therefore, both
Mr. Shaolin Liang and Mr. Lijun Lin may have interests that are different from, or in addition to, the interests of the shareholders
of the Company generally. Yili Shengda, Zhongrong Shengda, Orient Hongtai, Orient Hongzhi, Zhongrong Investment and Hao Ding (collectively,
the “Rollover Shareholders”) have executed with Parent a support agreement, dated as of April 3, 2015 (as may be amended
from time to time, the “Support Agreement”), providing that, among other things, (a) the Rollover Shareholders will
vote all of the Shares (including Shares represented by ADSs) owned directly or indirectly by them in favor of the authorization
and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and (b) the Rollover Shareholders
agree that 48,759,187 Class B ordinary shares held by Yili Shengda, 48,759,187 Class B ordinary shares held by Zhongrong Shengda,
61,776,334 Class A ordinary shares held by Orient Hongtai, 61,776,335 Class A ordinary shares held by Orient Hongzhi, 80,577,828
Class A ordinary shares held by Zhongrong Investment and 107,438,129 Class A ordinary shares held by Hao Ding (collectively, the
“Rollover Shares”) will, at the Effective Time, be cancelled for no consideration in the Merger. As of the date of
the accompanying proxy statement, the Rollover Shareholders beneficially own an aggregate of 311,568,626 Class A ordinary shares
(including Class A ordinary shares represented by ADSs) and 97,518,374 Class B ordinary shares, representing approximately 75.6%
of the Company’s issued and outstanding Shares and 1,286,752,366 votes, or approximately 90.7% of the total number of votes
represented by the Company’s issued and outstanding Shares, which is more than the two-thirds majority necessary to approve
a special resolution of the shareholders of the Company as required under Cayman Islands law to authorize and approve the Merger
Agreement, the Plan of Merger and the Transactions, including the Merger. You should also be aware that subsequent to the recommendation
of the Special Committee and the Board made on April 3, 2015, but prior to the Special Committee’s affirmation of its April
3, 2015 recommendation on August 25, 2015 and the Board’s affirmation of its April 3, 2015 recommendation on August 26,
2015, 230,990,798 Class A ordinary shares were indirectly purchased for RMB6,374,000,000 (approximately US$1,026,218,970 or US$4.44
per Class A ordinary share) in privately negotiated transactions that closed on June 30, 2015. See “Transactions in Shares
and ADSs—Transactions within the Buyer Group” beginning on page 110 for additional information regarding these transactions.
The accompanying proxy statement provides
detailed information about the Merger and the extraordinary general meeting. We encourage you to read the entire document and
all of the attachments and other documents referred to or incorporated by reference herein carefully. You may also obtain more
information about the Company from documents the Company has filed with the United States Securities and Exchange Commission (the
“SEC”), which are available for free at the SEC’s website at www.sec.gov.
Regardless of the number of Shares that
you own, your vote is very important. The Merger cannot be completed unless the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, are authorized, approved and adopted by a special resolution representing an affirmative vote of shareholders
holding two-thirds or more of the voting power represented by the Shares (including Shares represented by ADSs) present and voting
in person or by proxy as a single class at the extraordinary general meeting.
Voting at the extraordinary general meeting
will take place by poll voting, as the chairman of the Board has undertaken to demand poll voting at the meeting. Whether or not
you plan to attend the extraordinary general meeting, please complete the accompanying proxy card, in accordance with the instructions
set forth on the proxy card, as promptly as possible. The deadline to lodge your proxy card is [ ],
2015 at 10:00 a.m. (Hong Kong time).
Completing the proxy card in accordance
with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting
and vote your Shares in person. Please note, however, that if your Shares are held of record by a broker, bank or other nominee
and you wish to vote at the extraordinary general meeting in person, you must obtain from the record holder a proxy issued in
your name. If you submit a signed proxy card without indicating how you wish to vote, the Shares represented by your proxy card
will be voted FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including
the Merger, FOR the proposal to authorize the directors to do all things necessary to give effect to the Merger Agreement, the
Plan of Merger and the Transactions, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in
order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time
of the extraordinary general meeting to pass the resolutions to be proposed at the extraordinary general meeting.
As the record holder of the Shares represented
by ADSs, the ADS Depositary will endeavor to vote (or will endeavor to cause the vote of) the Shares it holds on deposit at the
extraordinary general meeting in accordance with the voting instructions timely received from holders of ADSs at the close of
business in New York City on [ ], 2015 (the “ADS Record Date”).
The ADS Depositary must receive such instructions no later than 12:00 p.m. (New York City time) on [ ],
2015. If any holder of ADSs does not timely deliver specific voting instructions to the ADS Depositary, or if the ADS Depositary
timely receives voting instructions from an ADS that fail to specify the manner in which the ADS Depositary is to vote the Shares
represented by the holder’s ADSs, the ADS Depositary has advised the Company that it will not vote or attempt to exercise
the right to vote any Shares underlying such holder’s ADSs. If you hold your ADSs in a brokerage, bank or other nominee
account, you must follow the procedures of the broker, bank or other nominee through which you hold your ADSs if you wish to vote.
Holders of ADSs will not be able to attend
the extraordinary general meeting unless they cancel their ADSs and become holders of Shares prior to the close of business in
the Cayman Islands on [ ], 2015 (the “Share Record Date”).
An ADS holder who wishes to cancel its ADSs needs to make arrangements to deliver the ADSs (or to the extent ADSs are certificated,
the certificates evidencing such ADSs) to the ADS Depositary for cancellation before 12:00 p.m. (New York City time) on [ ],
2015 together with (a) delivery instructions for the corresponding Shares (including the name and address of the person who will
be the registered holder of such Shares), (b) payment of the ADS cancellation fees (US$0.05 per ADS to be cancelled pursuant to
the terms of the Deposit Agreement) and any applicable taxes and (c) a certification that the ADS holder either (i) held the ADSs
as of the ADS Record Date and has not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being
cancelled, or has given voting instructions to the ADS Depositary as to the ADSs being cancelled but undertakes not to vote the
corresponding Shares at the extraordinary general meeting or (ii) did not hold the ADSs as of the ADS Record Date and undertakes
not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other
nominee account, please contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker,
bank or other nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS Depositary will arrange for JPMorgan
Chase Bank, N.A., Hong Kong branch, the custodian holding the Shares, to transfer registration of the Shares to the former ADS
holder (or a person designated by the former ADS holder). If after the registration of Shares in your name you wish to receive
a certificate evidencing the Shares registered in your name, you will need to make a request to the Company’s Registered
Office at Codan Trust Company (Cayman), c/o Conyers Dill & Pearman, 2901 One Exchange Square, 8 Connaught Place, Central,
Hong Kong, to issue and mail a certificate to your attention. If the Merger is not completed, the Company would continue to be
a public company in the United States and the ADSs would continue to be listed on NASDAQ. Shares are not listed and cannot be
traded on any stock exchange other than NASDAQ, and in such case only in the form of ADSs. As a result, if you have cancelled
your ADSs to attend the extraordinary general meeting and the Merger is not completed and you wish to be able to sell your Shares
on a stock exchange, you would need to deposit your Shares into the Company’s ADS program for the issuance of the corresponding
number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including, among other things,
payment of relevant fees of the ADS Depositary for the issuance of ADSs and applicable share transfer taxes (if any) and related
charges pursuant to the Deposit Agreement.
Shareholders who elect to dissent from
the Merger will have the right to receive payment of the fair value of their Shares if the Merger is completed, but only if they
deliver to the Company, before the vote for the Merger is taken at the extraordinary general meeting, a written objection to the
Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Law Cap. 22
(Law 3 of 1961, as consolidated and revised) (the “Cayman Islands Company Law”) for the exercise of dissenters’
rights, which is attached as Annex D to the accompanying proxy statement. The fair value of your Shares as determined under that
statute could be more than, the same as or less than the merger consideration you would receive pursuant to the Merger Agreement
if you do not exercise dissenters’ rights with respect to your Shares.
ADS HOLDERS WILL NOT HAVE THE RIGHT
TO EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY
WILL NOT ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER
REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE
ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR ADSs, PROVIDE INSTRUCTIONS FOR THE
REGISTRATION OF THE CORRESPONDING SHARES IN THE COMPANY’S REGISTER OF MEMBERS, CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL
NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE CORRESPONDING SHARES) BEFORE 12:00
P.M. (NEW YORK CITY TIME) ON [ ], 2015 AND BECOME REGISTERED HOLDERS
OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON THE SHARE RECORD DATE. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY
WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE
CAYMAN ISLANDS COMPANIES LAW. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE UNITED
STATES AND THE ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER
THAN NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS ADSs
TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS,
HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS, HER OR ITS SHARES INTO THE COMPANY’S
ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE
DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs AND
APPLICABLE SHARE TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.
Neither the SEC nor any state securities
regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the
adequacy or accuracy of the disclosure in this letter or in the accompanying notice of the extraordinary general meeting or proxy
statement. Any representation to the contrary is a criminal offense.
If you have any questions or need assistance
voting your Shares, please call Georgeson Inc., the proxy solicitor, toll-free at +1 800 509 0983 (or +1 781 575 2137 outside
of North America) or by email at ShandaGames@georgeson.com.
Thank you for your cooperation and continued
support.
|
|
Sincerely, |
|
|
Yingfeng Zhang |
|
|
Chairman of the Board |
The accompanying proxy statement is
dated [ ], 2015, and is first being mailed to the Company’s shareholders
and ADS holders on or about [ ], 2015.
SHANDA GAMES LIMITED
NOTICE OF EXTRAORDINARY GENERAL MEETING
OF SHAREHOLDERS TO BE HELD ON [ ], 2015
Dear Shareholder:
Notice is hereby given that an extraordinary
general meeting of the shareholders of Shanda Games Limited (referred to herein alternately as “the Company,” “us,”
“we” or other terms correlative thereto), will be held on [ ],
2015 at [ ] a.m. (Hong Kong time) at the offices of Davis Polk & Wardwell, The Hong Kong
Club Building, 3A Chater Road, Central, Hong Kong.
Only registered holders of ordinary shares
of the Company, par value US$0.01 per share (each, a “Share”), at the close of business in the Cayman Islands on [ ],
2015 (the “Share Record Date”) or their proxy holders are entitled to vote at this extraordinary general meeting or
any adjournment thereof. At the extraordinary general meeting, you will be asked to consider and vote upon the following resolutions:
| · | as a special
resolution: |
THAT the Agreement and Plan of
Merger, dated as of April 3, 2015 (as amended and restated from time to time, the “Merger Agreement”), among Capitalhold
Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”),
Capitalcorp Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly
owned subsidiary of Parent (“Merger Sub”), and the Company (the Merger Agreement being in the form attached as Annex
A to the accompanying proxy statement and to be produced and made available for inspection at the extraordinary general meeting),
the plan of merger (the “Plan of Merger”) required to be registered with the Registrar of Companies in the Cayman
Islands (the Plan of Merger being in the form attached as Annex B to the accompanying proxy statement and to be produced and made
available for inspection at the extraordinary general meeting) in order to give effect to the merger of Merger Sub with and into
the Company, with the Company continuing as the surviving corporation (the “Surviving Corporation”) and becoming a
wholly owned subsidiary of Parent (the “Merger”), and any and all transactions contemplated by the Merger Agreement
and the Plan of Merger (collectively, the “Transactions”), including without limitation (i) the Merger, (ii) the amendment
of the authorized share capital of the Company from US$200,000,000 divided into 16,000,000,000 Class A ordinary shares of a par
value of US$0.01 each and 4,000,000,000 Class B ordinary shares of a par value of US$0.01 each to US$1,000 divided into 100,000
ordinary shares of a par value of US$0.01 each, and (iii) the replacing of the existing memorandum and articles of association
in their entirety with a new memorandum and articles of association, a copy of which is attached as Appendix II to the Plan of
Merger, be authorized, approved and adopted; and
| · | as an ordinary
resolution: |
THAT the directors of the Company be authorized
to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger;
and
| · | if necessary,
as an ordinary resolution: |
THAT the chairman of the extraordinary general
meeting be instructed to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies
in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the resolutions
to be proposed at the extraordinary general meeting.
Please refer to the accompanying proxy
statement, which is attached to and made a part of this notice. A list of the Company’s shareholders will be available at
its principal executive offices at No. 1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the People’s
Republic of China (the “PRC”), during ordinary business hours for the two business days immediately prior to the extraordinary
general meeting.
Certain existing shareholders of the
Company, namely (a) Yili Shengda Investment Holdings (Hong Kong) Company Limited (“Yili Shengda”), a company incorporated
and existing under the laws of Hong Kong and an affiliate of the Company’s acting chief executive officer, Mr. Yingfeng
Zhang, (b) Zhongrong Shengda Investment Holdings (Hong Kong) Company Limited (“Zhongrong Shengda”), a company incorporated
and existing under the laws of Hong Kong and an affiliate of Ningxia Zhongyincashmere International Group Co., Ltd. (“Ningxia”),
a company formed under the laws of the PRC, (c) Orient Hongtai (Hong Kong) Limited (“Orient Hongtai”), a company incorporated
and existing under the laws of Hong Kong and an affiliate of Mr. Miaotong Wang, Mr. Heng Shao and Mr. Ji Wang (Mr. Miaotong Wang,
Mr. Heng Shao and Mr. Ji Wang, collectively, the “Li-Funds Persons”), (d) Orient Hongzhi (Hong Kong) Limited (“Orient
Hongzhi”), a company incorporated and existing under the laws of Hong Kong and an affiliate of the Li-Funds Persons, (e)
Zhongrong Investment Holdings (Hong Kong) Co., Ltd. (“Zhongrong Investment”), a company incorporated and existing
under the laws of Hong Kong and an affiliate of Ningxia, and (f) Hao Ding International Limited (“Hao Ding”), a business
company established under the laws of the British Virgin Islands and an affiliate of the Li-Funds Persons (collectively, the “Rollover
Shareholders”), entered into a support agreement, dated as of April 3, 2015 (as may be amended from time to time, the “Support
Agreement”) with Parent, pursuant to which they agreed, among other things, that (i) the Rollover Shareholders will vote
all of the Shares (including Shares represented by the Company’s American depositary shares (“ADSs”), each representing
two Class A ordinary shares) owned directly or indirectly by them in favor of the authorization and approval of the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger, and (ii) 48,759,187 Class B ordinary shares held by Yili Shengda,
48,759,187 Class B ordinary shares held by Zhongrong Shengda, 61,776,334 Class A ordinary shares held by Orient Hongtai, 61,776,335
Class A ordinary shares held by Orient Hongzhi, 80,577,828 Class A ordinary shares held by Zhongrong Investment and 107,438,129
Class A ordinary shares held by Hao Ding (collectively, the “Rollover Shares”) will, at the Effective Time, be cancelled
for no consideration in the Merger. As of the date of the accompanying proxy statement, the Rollover Shareholders beneficially
own an aggregate of 311,568,626 Class A ordinary shares (including Class A ordinary shares represented by ADSs) and 97,518,374
Class B ordinary shares, representing approximately 75.6% of the Company’s issued and outstanding Shares and 1,286,752,366
votes, or approximately 90.7% of the total number of votes represented by the Company’s issued and outstanding Shares, which
is more than the two-thirds majority necessary to approve a special resolution of the shareholders of the Company as required
under Cayman Islands law to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the
Merger. Immediately following the consummation of the Merger, Parent and the Company will be beneficially owned by (a) Ningxia
Yilida Capital Investment Limited Partnership (“Ningxia Yilida”), a limited partnership formed under the laws of the
PRC and an affiliate of Mr. Yingfeng Zhang, (b) Ningxia, (c) Orient Hongtai, (d) Orient Hongzhi, (e) Hao Ding, (f) Ningxia Zhengjun
Equity Investment Partnership Enterprise (Limited Partnership) (“Zhengjun Investment”), a limited partnership organized
and existing under the laws of the PRC and an affiliate of Mr. Yingfeng Zhang, (g) Ningxia Silkroad Equity Investment Partnership
Enterprise (Limited Partnership) (“Ningxia Silkroad”), a limited partnership organized and existing under the laws
of the PRC and an affiliate of Ningxia, and (h) Ningxia Zhongrong Legend Equity Investment Partnership Enterprise (Limited Partnership)
(“Zhongrong Legend”), a limited partnership organized and existing under the laws of the PRC and an affiliate of Ningxia.
Unless the context otherwise requires, Ningxia Yilida, Ningxia, Orient Hongtai, Orient Hongzhi, Hao Ding, Zhengjun Investment,
Ningxia Silkroad and Zhongrong Legend are collectively referred to herein as the “Buyer Group.”
After careful consideration and acting
upon the unanimous recommendation made on April 3, 2015 of a special committee (the "Special Committee") of the board of directors
of the Company (the "Board"), composed solely of directors who are unaffiliated with any member of the Buyer Group or any member
of the management of the Company, the Board on April 3, 2015 unanimously (a) determined that it was fair to, advisable and in
the best interests of the Company, its shareholders and ADS holders, other than the members of the Buyer Group and their respective
affiliates (such shareholders and ADS holders the "Unaffiliated Holders"), to consummate the Transactions, including the Merger,
(b) authorized and approved the execution, delivery and performance by the Company of the Merger Agreement, the Plan of Merger
and the limited guarantees by Zhengjun Investment, Ningxia Silkroad and Zhongrong Legend in favor of the Company (the "Limited
Guarantees") pursuant to which such guarantors have collectively guaranteed in favor of the Company the entire portion of the
payment obligations of Parent and Merger Sub under the Merger Agreement, and (c) resolved to recommend in favor of the authorization
and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, to the
shareholders of the Company and directed that the Merger Agreement, the Plan of Merger and the consummation of the Transactions,
including the Merger, be submitted to a vote of the shareholders of the Company for authorization and approval. After careful
consideration and acting upon the Special Committee's unanimous affirmation made on August 25, 2015 of the Special Committee's
April 3, 2015 recommendation, the Board on August 26, 2015 unanimously (a) determined that the Merger and other transactions contemplated
by the Merger Agreement are fair to, and in the best interests of, the Company and the Unaffiliated Holders and (b) affirmed its
April 3, 2015 resolutions (i) determining it was fair to, advisable and in the best interests of the Company and the Unaffiliated
Holders to consummate the Merger; (ii) authorizing and approving the execution, delivery and performance by the Company of the
Merger Agreement; and (iii) resolving to recommend in favor of the authorization and approval of the Merger Agreement, and the
consummation of the Merger, to the shareholders of the Company for authorization and approval. The Board unanimously recommends
that you vote FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including
the Merger, FOR the proposal to authorize the directors to do all things necessary to give effect to the Merger Agreement, the
Plan of Merger and the Transactions, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in
order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time
of the extraordinary general meeting to pass the resolutions to be proposed at the extraordinary general meeting.
Regardless of the number of Shares that
you own, your vote is very important. The Merger cannot be completed unless the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, are authorized, approved and adopted by a special resolution representing an affirmative vote of shareholders
holding two-thirds or more of the voting power represented by the Shares (including Shares represented by ADSs) present and voting
in person or by proxy as a single class at the extraordinary general meeting.
Even if you plan to attend the extraordinary
general meeting in person, we request that you submit your proxy in accordance with the instructions set forth on the proxy card
as promptly as possible. To be valid, your proxy card must be completed, signed and returned to the Company’s offices at
No. 1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC, Attention: Investor Relations Department,
no later than [ ], 2015 at 10:00 a.m. (Hong Kong time). The proxy card
is the “instrument of proxy” as referred to in the Company’s articles of association. Voting at the extraordinary
general meeting will take place by poll voting as the chairman of the Board has undertaken to demand poll voting at the meeting.
If you receive more than one proxy card because you own Shares that are registered in different names, please vote all of your
Shares shown on each of your proxy cards in accordance with the instructions set forth on the proxy card.
Completing the proxy card in accordance
with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting
and vote your Shares in person. Please note, however, that if your Shares are registered in the name of a broker, bank or other
nominee and you wish to vote at the extraordinary general meeting in person, you must obtain from the record holder a proxy issued
in your name.
If you abstain from voting, fail to cast
your vote in person, fail to complete and return your proxy card in accordance with the instructions set forth on the proxy card,
or fail to give voting instructions to your broker, bank or other nominee, your vote will not be counted.
When proxies are properly dated, executed
and returned by holders of Shares, the Shares they represent will be voted at the extraordinary general meeting in accordance
with the instructions of the shareholders. If no specific instructions are given by such shareholders, such Shares will be voted
“FOR” the proposals as described above, unless you appoint a person other than the chairman of the meeting as proxy,
in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.
If you own ADSs as of the close of business
in New York City on [ ], 2015 (the “ADS Record Date”)
(and do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained below), you cannot
vote at the extraordinary general meeting directly, but you may instruct JPMorgan Chase Bank, N.A., in its capacity as the ADS
depositary (the “ADS Depositary”) and the holder of the Shares underlying your ADSs how to vote the Shares underlying
your ADSs. The ADS Depositary must receive your instructions no later than 10:00 a.m. (New York City time) on [ ],
2015 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting. If you hold your
ADSs in a brokerage, bank or other nominee account, you must follow the procedures of the broker, bank or other nominee through
which you hold your ADSs if you wish to vote. Alternatively, if you own ADSs as of the close of business in New York City on the
ADS Record Date, you may vote at the extraordinary general meeting directly if you cancel your ADSs and become a registered holder
of the Shares underlying your ADSs prior to the close of business in the Cayman Islands on [ ],
2015, the Share Record Date. If you wish to cancel your ADSs for the purpose of voting Shares directly, you need to make arrangements
to deliver your ADSs to the ADS Depositary for cancellation before 12:00 p.m. (New York City time) on [ ],
2015 together with (a) delivery instructions for the corresponding Shares (including the name and address of the person who will
be the registered holder of such Shares), (b) payment of the ADS cancellation fees (US$0.05 per ADS to be cancelled pursuant to
the terms of the Deposit Agreement, dated as of September 24, 2009, among the Company, the ADS Depositary and the holders of ADSs
issued thereunder (the “Deposit Agreement”)) and any applicable taxes and (c) a certification that you either (i)
held the ADSs as of the ADS Record Date and have not given, and will not give, voting instructions to the ADS Depositary as to
the ADSs being cancelled or have given voting instructions to the ADS Depositary as to the ADSs being cancelled but undertake
not to vote the corresponding Shares at the extraordinary general meeting or (ii) did not hold the ADSs as of the ADS Record Date
and undertake not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage,
bank or other nominee account, please contact your broker, bank or other nominee to find out what actions you need to take to
instruct the broker, bank or other nominee to cancel the ADSs on your behalf.
Shareholders who dissent from the Merger
will have the right to seek payment of the fair value of their Shares if the Merger is completed, but only if they deliver to
the Company, before the vote is taken, a written objection to the Merger and subsequently comply with all procedures and requirements
of Section 238 of the Cayman Islands Companies Law for the exercise of dissenters’ rights, which is attached as Annex D
to the accompanying proxy statement. The fair value of their Shares as determined under that statute could be more than, the same
as or less than the merger consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’
rights with respect to their Shares.
ADS HOLDERS WILL NOT HAVE THE RIGHT
TO EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY
WILL NOT ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER
REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE
ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR ADSs, PROVIDE INSTRUCTIONS FOR THE
REGISTRATION OF THE CORRESPONDING SHARES IN THE COMPANY’S REGISTER OF MEMBERS, CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL
NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE CORRESPONDING SHARES) BEFORE 12:00
P.M. (NEW YORK CITY TIME) ON [ ], 2015 AND BECOME REGISTERED HOLDERS
OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON THE SHARE RECORD DATE. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY
WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE
CAYMAN ISLANDS COMPANIES LAW. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE UNITED
STATES AND THE ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER
THAN NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS ADSs
TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS,
HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS, HER OR ITS SHARES INTO THE COMPANY’S
ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE
DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs AND
APPLICABLE SHARE TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.
PLEASE DO NOT SEND YOUR SHARE CERTIFICATES
OR CERTIFICATES EVIDENCING ADSs AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER
OF YOUR SHARE CERTIFICATES OR ADRs.
If you have any questions or need assistance
voting your Shares, please call Georgeson Inc., the proxy solicitor, toll-free at +1 800 509 0983 (or +1 781 575 2137 outside
of North America) or by email at ShandaGames@georgeson.com.
The Merger Agreement, the Plan of Merger
and the Transactions, including the Merger, are described in the accompanying proxy statement. Copies of the Merger Agreement
and the Plan of Merger are included as Annex A and Annex B, respectively, to the accompanying proxy statement. We urge you to
read the entire accompanying proxy statement carefully.
Notes:
| 1. | In the case of joint holders, the vote of the senior holder who
tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the
votes of the joint holders. For this purpose, seniority will be determined by the order
in which the names stand in the register of members of the Company. |
| 2. | The instrument appointing a proxy must be in writing under the
hand of the appointer or of his or her attorney duly authorized in writing or, if the
appointer is a corporation, either under seal or under the hand of an officer or attorney
duly authorized. |
| 3. | A proxy need not be a member (registered shareholder) of the Company. |
| 4. | The chairman of the extraordinary general meeting may at his or
her discretion direct that a proxy card will be deemed to have been duly deposited where
sent by email or telefax upon receipt of email or telefax confirmation that the signed
original thereof has been sent. A proxy card that is not deposited in the manner permitted
will be invalid. |
| 5. | Votes given in accordance with the terms of a proxy card will be
valid notwithstanding the previous death or insanity of the principal or revocation of
the proxy or of the authority under which the proxy was executed, or the transfer of
the Share or Shares in respect of which the proxy is given, provided that no intimation
in writing of such death, insanity, revocation or transfer was received by the Company
at the principal executive offices of the Company at No. 1 Office Building, No. 690 Bibo
Road, Pudong New Area, Shanghai 201203, the PRC at least two hours before the commencement
of the extraordinary general meeting, or adjourned meeting at which such proxy is used. |
|
BY ORDER OF THE BOARD OF DIRECTORS, |
|
|
|
Chairman of the Board |
|
|
|
[ ], 2015 |
PROXY STATEMENT
Dated [ ],
2015
SUMMARY VOTING INSTRUCTIONS
Ensure that your shares of Shanda Games
Limited can be voted at the extraordinary general meeting by submitting your proxy or contacting your broker, bank or other nominee.
If your shares are registered in
the name of a broker, bank or other nominee: check the voting instruction card forwarded by your broker, bank or other
nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions
as to how to ensure that your shares are voted at the extraordinary general meeting.
If your shares are registered in
your name: submit your proxy as soon as possible by signing, dating and returning the accompanying proxy card in the enclosed
postage-paid envelope, so that your shares can be voted at the extraordinary general meeting unless you appoint a person other
than the chairman of the meeting as proxy, in which case the shares represented by your proxy card will be voted (or not submitted
for voting) as your proxy determines.
If you submit your proxy card without
indicating how you wish to vote, the shares represented by your proxy will be voted in favor of the resolutions to be proposed
at the extraordinary general meeting.
If your ADSs are registered in the
name of a broker, bank or other nominee: check the ADS voting instructions card forwarded by your broker, bank or other
nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions
as to how to ensure that the shares represented by your ADSs are voted at the extraordinary general meeting.
If your ADSs are registered in your
name: submit your ADS voting instructions card as soon as possible by signing, dating and returning the enclosed ADS voting
instructions card in the enclosed postage-paid envelope, so that the shares represented by your ADSs can be voted at the extraordinary
general meeting by the ADS Depositary, as the registered holder of the shares represented by your ADSs.
If you submit your ADS voting instructions
card without indicating how you wish to vote, the shares represented by your ADSs will be voted in favor of the resolutions to
be proposed at the extraordinary general meeting.
If you
have any questions, require assistance with voting your proxy card, or need additional copies of proxy material, please contact
Georgeson Inc., the proxy solicitor, at 480 Washington Boulevard, 26th Floor, Jersey City, NJ 07310 or toll-free at +1 800 509
0983 (or +1 781 575 2137 outside of North America) or by email at ShandaGames@georgeson.com.
TABLE
OF CONTENTS
Page
Summary Term Sheet |
3 |
Questions and Answers about the Extraordinary
General Meeting and the Merger |
15 |
Special Factors |
22 |
Market Price of the Company’s
ADSs, Dividends and Other Matters |
77 |
The Extraordinary General Meeting |
79 |
The Merger Agreement |
85 |
Provisions for Unaffiliated Security
Holders |
104 |
Dissenters’ Rights |
105 |
Financial Information |
107 |
Transactions in Shares and ADSs |
110 |
Security Ownership of Certain Beneficial
Owners and Management of the Company |
112 |
Future Shareholder Proposals |
114 |
Cautionary Note Regarding Forward-Looking
Statements |
115 |
Where You Can Find More Information |
116 |
ANNEX A: |
Agreement and Plan of Merger |
A-1 |
ANNEX B: |
Plan of Merger |
B-1 |
ANNEX C: |
Opinion of Merrill Lynch as Financial Advisor |
C-1 |
ANNEX D: |
Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated
and revised) – Section 238 |
D-1 |
ANNEX E: |
Support Agreement |
E-1 |
ANNEX F: |
Directors and Executive Officers of Each Filing Person |
F-1 |
FORM OF PROXY CARD
FORM OF ADS VOTING INSTRUCTIONS CARD
Summary
Term Sheet
This “Summary Term Sheet”
and the “Questions and Answers About the Extraordinary General Meeting and the Merger” highlight selected information
contained in this proxy statement regarding the Merger (as defined below) and may not contain all of the information that may
be important to your consideration of the Merger (as defined below) and other transactions contemplated by the Merger Agreement
(as defined below). You should carefully read this entire proxy statement and the other documents to which this proxy statement
refers for a more complete understanding of the matters being considered at the extraordinary general meeting. In addition, this
proxy statement incorporates by reference important business and financial information about the Company. You are encouraged to
read all of the documents incorporated by reference into this proxy statement and you may obtain such information without charge
by following the instructions in “Where You Can Find More Information” beginning on page 116. In this proxy statement,
the terms “the Company,” “us,” “we” or other terms correlative thereto refer to Shanda Games
Limited. All references to “dollars” and “US$” in this proxy statement are to U.S. dollars, and all references
to “RMB” in this proxy statement are to Renminbi, the lawful currency of the People’s Republic of China (the
“PRC”).
The Parties Involved
in the Merger
The Company
We are one of the PRC’s leading
online game companies in terms of the size and diversity of our game portfolio, our game revenues and our game player base. Through
our extensive experience in the online game industry in the PRC and in certain overseas markets, we have created a scalable approach
to develop, source and operate online games as well as to license our games to third parties. We use multiple channels to assemble
a large and diversified game portfolio of various genres. We operate a nationwide, secure network to host hundreds of thousands
of users playing simultaneously, and monitor and adjust the environment of our games to optimize our game players’ experience.
As of the date of this proxy statement, we operate 34 massively multi-player online games (“MMO games”), and 31 mobile
games and our in-house development capabilities consist of approximately 1,390 game development personnel.
We are an exempted company with limited
liability incorporated under the laws of the Cayman Islands. Our principal executive offices are located at No. 1 Office Building,
No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC. Our telephone number at this address is +86 21 5050 4740 and our
fax number is +86 21 5050 4740 ext. 897286.
For a description of our history, development,
business and organizational structure, see our Annual Report on Form 20-F for the year ended December 31, 2014, filed with the
U.S. Securities and Exchange Commission (the “SEC”) on April 17, 2015, which is incorporated herein by reference.
See “Where You Can Find More Information” beginning on page 116 for a description of how to obtain a copy of our Annual
Report.
Parent
Capitalhold
Limited (“Parent”), a Cayman Islands exempted company with limited liability,
is a holding company formed solely for the purpose of holding the equity interest in Merger Sub and completing the Transactions
(as defined below), including the Merger (as defined below). Each of Yili Shengda and Zhongrong Shengda holds 50% of the outstanding
shares of Parent. The business address of Parent is c/o Mr. Yingfeng Zhang, No. 1 Office Building, No. 690 Bibo Road, Pudong New
Area, Shanghai 201203, the PRC, and its business telephone number is +86 21 5050 4740.
Merger Sub
Capitalcorp
Limited (“Merger Sub”), a Cayman Islands exempted company with limited liability
wholly owned by Parent, was formed by Parent solely for the purpose of effecting the Merger. The business address of Merger Sub
is c/o Mr. Yingfeng Zhang, No. 1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC, and its business
telephone number is +86 21 5050 4740.
Mr. Yingfeng Zhang
Mr. Yingfeng Zhang (“Mr. Zhang”)
is the chairman of the board of directors of the Company (the “Board”) and acting chief executive officer of the Company.
He has served as the acting chief executive officer and a director of the Company since October 28, 2014 and as the chairman of
the Board since November 26, 2014. Mr. Zhang served as the general counsel of Shanda Interactive
Entertainment Limited (“Shanda Interactive”) from April 4, 2008 to September 14, 2011 and as the co-general
counsel from September 15, 2011 to December 16, 2014. Mr. Zhang also served as a vice president of Shanda Interactive from August
10, 2011 to December 16, 2014. Shanda Interactive is a company organized under the laws of the Cayman Islands with its principal
business address at 8 Stevens Road 257819 Singapore. The principal business of Shanda Interactive is investment holding. Shanda
Interactive was previously a member of the Buyer Group and our indirect controlling shareholder prior to November 25, 2014, when
it ceased to own any equity securities of the Company. Mr. Zhang is a PRC citizen.
Ningxia Yilida
Ningxia Yilida Capital Investment Limited
Partnership (“Ningxia Yilida”) is a limited partnership organized under the laws of the PRC and an affiliate of Mr.
Zhang, with its principal business address at Ecological Textile Park, Lingwu, Ningxia 750400, the PRC and its business telephone
number is +86 21 5050 4740. The general partner of Ningxia Yilida is Shanghai Yingfeng.
Yili Shengda
Yili Shengda Investment Holdings (Hong
Kong) Company Limited (“Yili Shengda”) is a company organized under the laws of Hong Kong and an affiliate of Mr.
Zhang, with its principal business address at Room 2803-05, AXA Tower, Landmark East, 100 How Ming Street, Kwun Tong, Kowloon,
Hong Kong, and its business telephone number is +852 8208 5118. Yili Shengda is directly and wholly owned by Ningxia Yilida.
Zhengjun Investment
Ningxia Zhengjun Equity Investment Partnership
Enterprise (Limited Partnership) (“Zhengjun Investment”) is a limited partnership organized under the laws of the
PRC and an affiliate of Mr. Zhang, with its principal business address at Ecological Textile Park, Lingwu, Ningxia 750400,
the PRC and its business telephone number is +86 21 5050 4740. The general partner of Zhengjun Investment is Shanghai Yingfeng.
Shanghai Yingfeng
Shanghai Yingfeng Investment Management
Company Limited (“Shanghai Yingfeng”) is a company organized under the laws of the PRC with its principal business
address at Room 2055, No. 5358 Huyi Road, Jiading District, Shanghai 201806, the PRC and its business telephone number is +86
21 5050 4740. Shanghai Yingfeng is wholly and directly owned by Mr. Zhang.
Ningxia
Ningxia Zhongyincashmere International
Group Co., Ltd. (“Ningxia”) is a company organized under the laws of the PRC with its principal business address at
Ecological Textile Park, Lingwu, Ningxia 750400, the PRC and its business telephone number is +86 951 4038 950, extension 8969.
Mr. Shengguo Ma, Mr. Shengming Ma and Mr. Wei Ma collectively own 100% of the equity interests in Ningxia.
Zhongrong Investment
Zhongrong Investment Holdings (Hong Kong)
Co., Ltd. (“Zhongrong Investment”) is a company organized under the laws of Hong Kong and an affiliate of Ningxia,
with its principal business address at Room 2803-05, AXA Tower, Landmark East, 100 How Ming Street, Kwun Tong, Kowloon, Hong Kong
and its business telephone number is +852 8208 5118. Zhongrong Investment is directly and wholly owned by Ningxia Zhongrong Culture
Industry Equity Investment Enterprise (Limited Partnership) (“Zhongrong Culture”), the general partner of which is
Ningxia.
Zhongrong Shengda
Zhongrong Shengda Investment Holdings
(Hong Kong) Company Limited (“Zhongrong Shengda”) is a company organized under the laws of Hong Kong and an affiliate
of Ningxia, with its principal business address at Room 2803-05, AXA Tower, Landmark East, 100 How Ming Street, Kwun Tong, Kowloon,
Hong Kong and its business telephone number is +852 8208 5118. Zhongrong Shengda is directly and wholly owned by Ningxia Zhongrong
Shengda Equity Investment Partnership Enterprise (Limited Partnership) (“Zhongrong Equity”), the general partner of
which is Ningxia.
Zhongrong Legend
Ningxia Zhongrong Legend Equity Investment
Partnership Enterprise (Limited Partnership) (“Zhongrong Legend”) is a limited partnership organized under the laws
of the PRC and an affiliate of Ningxia, with its principal business address at Ecological Textile Park, Lingwu, Ningxia 750400,
the PRC and its business telephone number is +86 951 4038 950, extension 8969. Zhongrong Legend’s general partner is Ningxia.
Ningxia Silkroad
Ningxia Silkroad Equity Investment Partnership
Enterprise (Limited Partnership) (“Ningxia Silkroad”) is a limited partnership organized under the laws of the PRC
and an affiliate of Ningxia, with its principal business address at Ecological Textile Park, Lingwu, Ningxia 750400, the PRC and
its business telephone number is +86 951 4038 950, extension 8969. Ningxia Silkroad’s general partner is Ningxia.
Mr. Shaolin Liang
Mr. Shaolin Liang (“Mr. Liang”)
is a director of the Company. He has served as a director of the Company since February 2015. Mr. Liang has also served as a vice
general manager of Ningxia since February 2015. From December 2007 to February 2015, Mr. Liang served at Ningxia Zhongyin Cashmere
Co., Ltd. (“Zhongyin Cashmere,” formerly known as Ningxia Lingwu Zhongyin Cashmere Co., Ltd.), an affiliate of Ningxia
and a company listed on the Shenzhen Stock Exchange, as a vice general manager and he served as a member of the board of directors
of Zhongyin Cashmere from December 2007 to December 2014. From 1999 to December 2007, Mr. Liang served as a vice president of
Zhongyin Cashmere. The business address of Mr. Liang is Sixth Floor, Heping Mansion, No. 6 Laiguangying East Road, Chaoyang District,
Beijing 100102, the PRC and his business telephone number is +86 10 8517 1831, extension 849. Mr. Liang is a PRC citizen.
Orient Hongtai
Orient Hongtai (Hong Kong) Limited (“Orient
Hongtai”) is a company organized under the laws of Hong Kong, with its principal business address at Flat 2, 19/F, Henan
Building, 90-92 Jaffe Road, Wanchai, Hong Kong and its business telephone number is +86 575 8220 5036. Orient Hongtai was formed
for the purpose of holding interests in the Company and in Parent and completing the Transactions, including the Merger. Orient
Hongtai is directly and wholly owned by TonSung Holdings Limited, a British Virgin Islands business company.
Orient Hongzhi
Orient Hongzhi (Hong Kong) Limited (“Orient
Hongzhi”) is a company organized under the laws of Hong Kong, with its principal business address at Flat 2, 19/F, Henan
Building, 90-92 Jaffe Road, Wanchai, Hong Kong and its business telephone number is +86 575 8220 5036. Orient Hongzhi was formed
for the purpose of holding interests in the Company and in Parent and completing the Transactions, including the Merger. Orient
Hongzhi is directly and wholly owned by HuaSung Holdings Limited, a British Virgin Islands business company.
Hao Ding
Hao Ding International Limited (“Hao
Ding”) is a British Virgin Islands business company, with its principal business address at 2810, No. 689 Guangdong Road,
Huangpu District, Shanghai 200001, the PRC, and its business telephone number is +86 575 8220 5036. Hao Ding was formed for the
purpose of holding interests in the Company and in Parent and completing the Transactions, including the Merger. Hao Ding is a
direct wholly owned subsidiary of Shanghai Hai Sheng Tong Investment Co., Ltd., a company organized under the laws of the PRC.
HuaSung
HuaSung Holdings Limited, a British Virgin
Islands business company (“HuaSung”), with its principal business address at Geneva Place, Waterfront Drive, P.O.
Box 3469, Road Town, Tortola, British Virgin Islands, and its business telephone number is +86 575 8220 5036. HuaSung is directly
wholly owned by Litian Investment Center (Shanghai) L.P., a limited partnership organized under the laws of the PRC.
TonSung
TonSung Holdings Limited, a British Virgin
Islands business company (“TonSung”), with its principal business address at Geneva Place, Waterfront Drive, P.O.
Box 3469, Road Town, Tortola, British Virgin Islands, and its business telephone number is +86 575 8220 5036. TonSung’s
principal business is making equity investments in private and public companies. TonSung is directly wholly owned by Lihua Investment
Center (Shanghai) L.P. is a limited partnership organized under the laws of the PRC.
Hai Sheng Tong
Shanghai Hai Sheng Tong Investment Co.,
Ltd., a company organized under the laws of the PRC (“Hai Sheng Tong”) with its principal business address at 2810,
No. 689 Guangdong Road, Huangpu District, Shanghai 200001, the PRC, and its business telephone number is +86 575 8220 5036. Hai
Sheng Tong is directly wholly owned by Lihai Investment Center (Shanghai) L.P., a limited partnership organized under the laws
of the PRC.
Lihua
Lihua Investment Center (Shanghai) L.P.
is a limited partnership organized under the laws of the PRC (“Lihua”), with its principal business address at 55
Xili Road, Room 1545A, 15th Floor, Shanghai Free Trade Zone, Shanghai, the PRC, and its business telephone number is +86 575 8220
5036. The general partners controlling Lihua are Liyou (as defined below) and Huatong (as defined below), both companies organized
under the laws of the PRC.
Orient Securities Capital Company Limited
(“Orient Capital”), a company organized under the laws of the PRC, serves as the administrative general partner of
Lihua. Pursuant to the terms of the partnership agreement with respect to Lihua, Orient Capital has no authority or power to vote
or dispose of, or to direct the voting or disposition of the securities acquired by Lihua. Accordingly, Orient Capital has no
beneficial ownership interest in any securities owned by Lihua.
Litian
Litian Investment Center (Shanghai) L.P.
is a limited partnership organized under the laws of the PRC (“Litian”), with its principal business address at 55
Xili Road, Room 1513B, 15th Floor, Shanghai Free Trade Zone, Shanghai, the PRC, and its business telephone number is +86 575 8220
5036. The general partners of Litian are Liyou (as defined below) and Huatong (as defined below), both companies organized under
the laws of the PRC.
Orient Capital serves as the administrative
general partner of Litian. Pursuant to the terms of the partnership agreement with respect to Litian, Orient Capital has no authority
or power to vote or dispose of, or to direct the voting or disposition of the securities acquired by Litian. Accordingly, Orient
Capital has no beneficial ownership interest in any securities owned by Litian.
Lihai
Lihai Investment Center (Shanghai) L.P.
is a limited partnership organized under the laws of the PRC (“Lihai”), with its principal business address at 55
Xili Road, Room 1545A, 15th Floor, Shanghai Free Trade Zone, Shanghai, the PRC, and its business telephone number is +86
575 8220 5036. The ordinary general partners of Lihai are Liyou Investment Management (Shanghai) Company Limited and Zhejiang
Huatong Holding Group Company Limited, both companies organized under the laws of the PRC.
Orient Capital serves as the administrative
general partner of Lihai. Pursuant to the terms of the partnership agreement with respect to Lihai, Orient Capital has no authority
or power to vote or dispose of, or to direct the voting or disposition of the securities acquired by Lihai. Accordingly, Orient
Capital has no beneficial ownership interest in any securities owned by Lihai.
Liyou
Liyou Investment Management (Shanghai)
Company Limited, a company organized under the laws of the PRC (“Liyou”), with its principal business address at 55
Xili Road, Room 1547B, 15th Floor, Shanghai Free Trade Zone, Shanghai, the PRC, and its business telephone number is +86 575 8220
5036. 50% of the equity interests of Liyou is directly owned by Mr. Ji Wang and the other 50% is directly owned by Mr. Heng Shao.
Huatong
Zhejiang Huatong Holding Group Company
Limited, a company organized under the laws of the PRC (“Huatong”), with its principal business address at 439 Renmin
Xi Road, Shangyu District, Shaoxing, Zhejiang, the PRC, and its business telephone number is +86 575 8214 8872. Mr. Miaotong Wang
owns 90% of the equity interests in, and is the contolling person of, Huatong.
Mr. Heng Shao
Mr. Heng Shao is a director of Zhejiang
Century Huatong Group Company Limited (“Century Huatong”), a public company organized under the laws of the PRC and
listed on the Shenzhen Stock Exchange that engages in the development and operation of online games and mobile games as well as
the manufacture of automotive accessories. Mr. Shao’s business address and telephone number are 391 Guiping Road, New International
Commercial Center, Building A, 19th Floor, Xuhui District, Shanghai 200233, the PRC and +86 21 5427 8388. Mr. Shao is a PRC
citizen.
Mr. Ji Wang
Mr.
Ji Wang is a director of Century Huatong. His business address and telephone numbers are 391 Guiping Road, New International Commercial
Center, Building A, 19th Floor, Xuhui District, Shanghai 200233, the PRC and +86 21 5427 8388. Mr. Ji Wang is a PRC citizen.
Mr. Miaotong Wang
Mr. Miaotong Wang is the chairman of the
board of directors and the manager of Huatong. He also serves as the chairman of the board of directors of Century Huatong. His
business address and telephone number are 439 Renmin Xi Road, Shangyu District, Shaoxing, Zhejiang, the PRC and +86 575 8214 8872.
Mr. Miaotong Wang is a PRC citizen.
Additional information regarding the parties
to the Merger is set forth in Annex F, which is attached hereto and incorporated herein by reference.
Throughout this proxy statement, unless
the context otherwise requires, (i) Ningxia Yilida, Ningxia, Orient Hongtai, Orient Hongzhi, Hao Ding, Zhengjun Investment, Ningxia
Silkroad and Zhongrong Legend are collectively referred to herein as the “Buyer Group” and (ii) Mr. Miaotong Wang,
Mr. Heng Shao and Mr. Ji Wang are collectively referred to herein as the “Li-Funds Persons.”
The Merger Agreement (Page 85)
The Company, Parent and Merger Sub
entered into an agreement and plan of merger on April 3, 2015 (as amended and restated from time to time, the “Merger Agreement”).
Pursuant to the Merger Agreement, once the Merger Agreement is approved by the requisite vote of the shareholders of the Company
and the other conditions to the completion of the transactions contemplated by the Merger Agreement and the plan of merger (the
“Plan of Merger”) required to be registered with the Registrar of Companies of the Cayman Islands (the “Cayman
Registrar”) (the “Transactions”) are satisfied or waived in accordance with the terms thereof, Merger Sub will
be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation (the
“Surviving Corporation”). You are being asked to vote upon a proposal to authorize and approve the Transactions, including
the Merger.
Following completion, and as a result
of, the Merger, the Company, as the Surviving Corporation, will continue to do business under the name “Shanda Games Limited”
and will be a wholly owned subsidiary of Parent. If the Merger is completed, the Company will cease to be a publicly traded company.
Copies of the Merger Agreement and the
Plan of Merger are attached as Annex A and Annex B, respectively, to this proxy statement. You should read the Merger Agreement
and the Plan of Merger in their entirety because they, and not this proxy statement, are the legal documents that govern the Merger.
Merger Consideration (Page 85)
Under the terms of the Merger Agreement,
at the effective time of the Merger (the “Effective Time”), each issued and outstanding Class A ordinary share (other
than (a) the Rollover Shares (as defined below) and (b) the ordinary shares of the Company, par value US$0.01 per share (each,
a “Share”), held by Parent, the Company or any of their subsidiaries immediately prior to the Effective Time (collectively,
the “Excluded Shares”), the Shares held by shareholders who have validly exercised and not effectively withdrawn or
lost their rights to dissent from the Merger in accordance with Section 238 of the Cayman Islands Companies Law (the “Dissenting
Shares”) and Class A ordinary shares represented by American depositary shares (“ADSs”)) will be cancelled in
exchange for the right to receive consideration of US$3.55 in cash per Class A ordinary share, without interest (the “Per
Share Merger Consideration”), net of any applicable withholding taxes; each outstanding ADS (other than any ADS that represents
Excluded Shares), and the Class A ordinary shares represented by such ADS, will be cancelled in exchange for the right to receive
consideration of US$7.10 in cash per ADS, without interest (the “Per ADS Merger Consideration”) (less US$0.05 per
ADS for cancellation fees pursuant to the terms of the Deposit Agreement, dated as of September 24, 2009, among the Company, JPMorgan
Chase Bank, N.A. (the “ADS Depositary”), and the holders of ADSs issued thereunder (the “Deposit Agreement”)),
net of any applicable withholding taxes; and each Dissenting Share will be entitled to receive only the payment resulting from
the procedures set forth in Section 238 of the Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised)
(the “Cayman Islands Company Law”). See “Dissenters’ Rights” beginning on page 105 for additional
information. At the Effective Time, each issued and outstanding Excluded Share will be cancelled without payment of any consideration
or any distribution therefor.
At the Effective Time, each ordinary share,
par value US$0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into
one validly issued, fully paid and non-assessable ordinary share, par value US$0.01 per share, of the Surviving Corporation, and
such shares will constitute the only issued and outstanding share capital of the Surviving Corporation. As a result, current shareholders
and ADS holders of the Company, other than the members of the Buyer Group, will no longer have any equity interest in, or be shareholders
or ADS holders of, the Company upon completion of the Merger.
Treatment of Company Options (Page 86)
At the Effective Time, each option to
purchase Shares, whether vested or unvested (“Company Option”), that is outstanding and unexercised immediately prior
to the Effective Time, whether or not vested or exercisable, will be cancelled. In exchange for a cancelled Company Option, the
former holder (or his or her designee) of such Company Option will be paid in cash, without interest and net of any applicable
withholding taxes, by the Surviving Corporation or one of its subsidiaries, as soon as practicable after the Effective Time, an
amount equal to the product of (a) the total number of ordinary shares of the Company underlying such Company Option immediately
prior to the Effective Time multiplied by (b) the excess of US$3.55 over the exercise price payable per Share under such
Company Option. If the exercise price per Share of any such Company Option is equal to or greater than US$3.55, such Company Option
will be cancelled without any payment therefor.
Treatment of Company Restricted Shares and Company RSUs
(Page 86)
At the Effective Time, each restricted
Share with respect to which the restrictions have not lapsed (“Company Restricted Share”) and each restricted stock
unit, whether or not the restrictions with respect thereto have lapsed (“Company RSU”) that is outstanding immediately
prior to the Effective Time will be cancelled. In exchange for a cancelled Company Restricted Share or Company RSU, each former
holder (or his or her designee) of such Company Restricted Share or Company RSU will be paid in cash, without interest and net
of any applicable withholding taxes, by the Surviving Corporation or one of its subsidiaries, as soon as practicable after the
Effective Time, an amount equal to US$3.55 for each such cancelled Company Restricted Share or Company RSU. Each Company RSU granted
by the Company represents the right to receive one Class A ordinary share of the Company. Upon vesting of any Company RSU, the
Company’s practice is to promptly allocate the underlying Class A ordinary shares to the holder of such Company RSU after
which such Company RSU is no longer outstanding. As a result of this practice, unless otherwise specifically noted, numbers
of Company RSUs in this proxy statement do not include any vested Company RSUs.
Support Agreement (Annex E)
Concurrently with the execution and
delivery of the Merger Agreement on April 3, 2015, Yili Shengda, Zhongrong Shengda, Orient Hongtai, Orient Hongzhi, Zhongrong
Investment and Hao Ding (collectively, the “Rollover Shareholders”) entered into a support agreement, dated as of
April 3, 2015 (as may be amended from time to time, the “Support Agreement”) with Parent, pursuant to which they agreed,
among other things, that:
| · | they will vote
the Shares held directly or indirectly by them in favor of the authorization and approval
of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
and |
|
· |
the (a) 48,759,187 Class B ordinary shares
held by Yili Shengda, (b) 48,759,187 Class B ordinary shares held by Zhongrong Shengda, (c) 61,776,334 Class A ordinary shares
held by Orient Hongtai, (d) 61,776,335 Class A ordinary shares held by Orient Hongzhi, (e) 80,577,828 Class A ordinary shares
held by Zhongrong Investment and (f) 107,438,129 Class A ordinary shares held by Hao Ding, including, in each case, such ordinary
shares represented by ADSs (collectively, the “Rollover Shares”) will, at the Effective Time, be cancelled for
no consideration in the Merger. A copy of the Support Agreement is attached as Annex E to this proxy statement and is incorporated
herein by reference. |
Purposes and Effects of the Merger (Page 58)
The purpose of the Merger is to enable
Parent to acquire 100% control of the Company in a transaction in which the holders of the Class A ordinary shares of the Company
and ADSs (other than Excluded Shares, ADSs representing Excluded Shares and Dissenting Shares) will be cashed out in exchange
for the Per Share Merger Consideration or the Per ADS Merger Consideration, as applicable. See “Special Factors—Purposes
of and Reasons for the Merger” beginning on page 58 for additional information.
ADSs representing Shares are currently
listed on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “GAME.” It is expected that, following
the consummation of the Merger, the Company will cease to be a publicly traded company and will instead become a private company
beneficially owned by the Buyer Group. See “Special Factors—Effects of the Merger on the Company” beginning
on page 59 for additional information.
Plans for the Company after the Merger (Page 62)
Following the completion of the Merger,
Parent will indirectly own 100% of the equity interest in the Surviving Corporation. The Buyer Group anticipates that the Company
will continue to conduct its operations substantially as they are currently being conducted, except that it will cease to be a
publicly traded company and will instead be an indirect wholly owned subsidiary of Parent.
Following the completion of the Merger
and the anticipated deregistration of the Class A ordinary shares of the Company and the ADSs, the Company will no longer be subject
to the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”) and NASDAQ compliance and reporting
requirements and the related direct and indirect costs and expenses.
Recommendations of the Special Committee and the Board
(Page 37)
The special committee of the Board (the
“Special Committee”), composed solely of directors who are unaffiliated with any member of the Buyer Group or any
member of the management of the Company, reviewed and considered the terms and conditions of the Merger Agreement, the Plan of
Merger and the Transactions, including the Merger. On April 3, 2015, the Special Committee, after due consideration, unanimously:
| · | determined
that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
were fair to and in the best interests of the Company and its shareholders and ADS holders,
other than the members of the Buyer Group and their respective affiliates (such shareholders
and ADS holders, the “Unaffiliated Holders”), |
| · | declared advisable
the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
and |
| · | recommended
that the Board authorize and approve the Merger Agreement, the Plan of Merger and the
Transactions, including the Merger. |
Such determination, declaration and recommendation
were unanimously affirmed by the Special Committee on August 25, 2015.
ACCORDINGLY, THE BOARD UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AUTHORIZE AND APPROVE THE MERGER AGREEMENT, THE PLAN OF MERGER AND THE TRANSACTIONS,
INCLUDING THE MERGER, FOR THE PROPOSAL TO AUTHORIZE THE DIRECTORS TO DO ALL THINGS NECESSARY TO GIVE EFFECT TO THE MERGER AGREEMENT,
THE PLAN OF MERGER AND THE TRANSACTIONS, INCLUDING THE MERGER, AND FOR THE PROPOSAL TO ADJOURN THE EXTRAORDINARY GENERAL MEETING
IN ORDER TO ALLOW THE COMPANY TO SOLICIT ADDITIONAL PROXIES IN THE EVENT THAT THERE ARE INSUFFICIENT PROXIES RECEIVED AT THE TIME
OF THE EXTRAORDINARY GENERAL MEETING TO PASS THE RESOLUTIONS TO BE PROPOSED AT THE EXTRAORDINARY GENERAL MEETING.
For a detailed discussion of the material
factors considered by the Special Committee and the Board in determining to recommend the approval of the Merger Agreement and
the Plan of Merger and the approval of the Transactions, including the Merger, and in determining that the Merger is fair to,
advisable and in the best interests of the Company and the Unaffiliated Holders, see “Special Factors—Reasons for
the Merger and Recommendation of the Special Committee and the Board” beginning on page 37 and “Special Factors—Effects
of the Merger on the Company—Primary Benefits and Detriments of the Merger” beginning on page 60 for additional information.
The foregoing summary is qualified in its entirety by reference to these sections.
Position of the Buyer Group as to Fairness (Page 44)
Each member of the Buyer Group believes
that the Merger is fair to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act. This
belief is based upon the factors discussed under the section entitled “Special Factors—Position of the Buyer Group
as to the Fairness of the Merger” beginning on page 44.
Financing of the Merger (Page 64)
The Company and the Buyer Group estimate
that the total amount of funds necessary to complete the Transactions, including the Merger, will be approximately US$486 million,
assuming no exercise of dissenters’ rights by shareholders of the Company.
The Buyer Group expects this amount
will be provided through a combination of (a) the equity commitments contemplated by the equity commitment letters (the “Equity
Commitment Letters”), dated as of April 3, 2015, by and between Parent and each of Zhengjun Investment, Ningxia Silkroad
and Zhongrong Legend (the “Sponsors”) and (b) cash from the Company and its subsidiaries. See “Special Factors—Financing
of the Merger” beginning on page 64 for additional information.
Opinion of Merrill Lynch, the Special Committee’s
Financial Advisor (Page 50)
The Special Committee retained Merrill
Lynch (Asia Pacific) Limited (“Merrill Lynch”) to act as its independent financial advisor in connection with the
Merger. At the meeting of the Special Committee on April 3, 2015, Merrill Lynch rendered its oral opinion, which was subsequently
confirmed in writing, that, as of such date, based upon and subject to the assumptions made, procedures followed, matters considered
and qualifications and limitations on the review undertaken by Merrill Lynch set forth in its opinion, the Per Share Merger Consideration
or Per ADS Merger Consideration, as applicable, to be received in the Merger by holders of Class A ordinary shares of the Company
or ADSs (other than holders of Excluded Shares) is fair, from a financial point of view, to such holders.
On June 30, 2015, the Li-Funds Persons
completed the Li-Funds Purchase, which is the purchase of 230,990,798 Class A ordinary shares of the Company. The consideration
of the Li-Funds Purchase was approximately US$4.44 per Class A ordinary share, which is higher than the US$3.55 Per Share
Merger Consideration. Following the Li-Funds Purchase, the Special Committee did not request an updated fairness opinion from
Merrill Lynch, and does not intend to do so, for the reasons set forth in the paragraph below.
After the Li-Funds Purchase, the Special
Committee undertook a comprehensive due diligence investigation, as described in detail under “Special Factors—Background
of the Merger,” in order to ascertain and analyze the circumstances and motivations behind the Li-Funds Purchase and to
determine whether the price paid in the Li-Funds Purchase presents a meaningful comparison for the Per Share Merger Consideration.
Based on the results of such due diligence investigation, and for the reasons set forth under “Special Factors—Reasons
for the Merger and Recommendation of the Special Committee and the Board,” the Special Committee formed the view that the
Li-Funds Purchase reflected a unique set of circumstances particular to the goals and strategies pursued by the Li-Funds Persons
and, absent such a unique set of circumstances, other persons are unlikely to be willing to pay the premium paid by the Li-Funds
Persons. Accordingly, the Special Committee believes that the purchase price paid in connection with the Li-Funds Purchase is
not a meaningful benchmark for evaluating whether the merger consideration is fair to the Unaffiliated Holders. In addition, as
also discussed under “Special Factors—Reasons for the Merger and Recommendation of the Special Committee and the Board,”
the Special Committee examined the Company’s recent business performance, financial condition, results of operations and
competitive position, which had not improved in any material respect since the Company entered into the Merger Agreement on April
3, 2015. Accordingly, the Special Committee continued to believe that the Merger would be financially more favorable to the Unaffiliated
Holders than any alternative reasonably available to the Company and the Unaffiliated Holders. In its consideration of the Li-Funds
Purchase and its affirmation on August 25, 2015 of its original fairness determination, the Special Committee did not believe
that an updated fairness opinion would yield any material insights not already achieved through the comprehensive due diligence
investigation of the Li-Funds Purchase and the consideration of the Company’s recent performance and prospects. Accordingly,
the Special Committee did not request an updated fairness opinion from Merrill Lynch, and does not intend to do so.
See “Special Factors—Opinion
of Merrill Lynch, the Special Committee’s Financial Advisor” beginning on page 50 for additional information.
Interests of the Company’s Executive Officers and
Directors in the Merger (Page 66)
In considering the recommendations of
the Board, the Company’s shareholders should be aware that certain of the Company’s directors, executive officers
and employees have interests in the transaction that are different from, and/or in addition to, the interests of the Company’s
shareholders and ADS holders generally. These interests include, among others:
| · | the beneficial
ownership of Mr. Zhang, the chairman of the Board and acting chief executive officer
of the Company, in Shanghai Yingfeng, a limited liability company organized under the
laws of the PRC and the general partner of Ningxia Yilida and Zhengjun Investment, each
of which is a member of the Buyer Group; |
| · | the fact that
Mr. Shaolin Liang, a director of the Company, is a vice general manager of Ningxia, which
is a member of the Buyer Group; |
| · | the fact that
Mr. Zhang, the chairman of the Board and acting chief executive officer of the Company,
is a director of Merger Sub, and if he remains in such position until immediately before
the Effective Time, he will become a director of the Surviving Corporation after completion
of the Merger. |
|
· |
the fact that Mr. Lijun Lin (“Mr.
Lin”), a director of the Company, served as the chief executive officer of China Universal Asset Management Co., Ltd.,
which was an affiliate of Orient Hongtai and Orient Hongzhi prior to June 30, 2015, each of which is a member of the Buyer
Group, from April 2004 to April 16, 2015; |
| · | the potential
enhancement or decline of share value for Parent, of which the members of the Buyer Group
will be beneficial owners upon the completion of the Merger, as a result of the Merger,
and the future performance of the Surviving Corporation; |
| · | the cash-out
of in-the-money Company Options and cash-out of Company Restricted Shares and Company
RSUs held by the Company’s directors and executive officers, including members
of the Special Committee; |
| · | the continued
indemnification rights, rights to advancement of fees and directors and officers liability
insurance to be provided by the Surviving Corporation to current and former directors
and officers of the Company; |
| · | the compensation
of the members of the Special Committee in exchange for their services in such capacity
at a rate of US$10,000 per month for the chairman of the Special Committee and US$6,800
per month for each other member of the Special Committee (in each case, the payment of
which is not contingent upon the completion of the Merger or the Special Committee’s
or the Board’s recommendation of the Merger); |
| · | the potential
continuation of service of the executive officers of the Company with the Surviving Corporation
in positions that are substantially similar to their current positions, allowing them
to benefit from remuneration arrangements, including equity compensation, with the Surviving
Corporation; and |
| · | the contingent
equity awards to be granted to certain game producers of the Company following the completion
of the Merger pursuant to the commitment letters entered into between the Company and
such game producers on September 18, 2014, which awards are subject to compliance with
applicable laws, rules and regulations, the completion of the Merger and the other terms
and conditions set forth in the commitment letters. |
The Special Committee and the Board
were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions and
recommendations with respect to the Merger Agreement and related matters. See “Special Factors—Interests of Certain
Persons in the Merger” beginning on page 66 for additional information.
No Solicitation of Competing Transactions (Page 93)
The Merger Agreement restricts the
ability of the Company and its subsidiaries until the Effective Time or, if earlier, the termination of the Merger Agreement,
to solicit or engage in discussions or negotiations with third parties regarding Competing Transactions (as defined in the section
entitled “The Merger Agreement—No Solicitation of Competing Transactions”). Subject to specified conditions
and prior to obtaining the required shareholder authorization and approval of the Merger Agreement, the Plan of Merger and the
Transactions, including the Merger, the Company may, however, provide information to a third party in response to an unsolicited
proposal or offer regarding a Competing Transaction from a third party if the Board (acting only upon recommendation of the Special
Committee) or the Special Committee determines in good faith (after consulting with its financial advisor and outside legal counsel)
that the proposal or offer constitutes, or could reasonably be expected to result in, a Superior Proposal (as defined in the section
entitled “The Merger Agreement—No Solicitation of Competing Transactions”), and, in light of such Superior Proposal,
that failure to do so would be inconsistent with its fiduciary duties under applicable law. See and read carefully “The
Merger Agreement—No Solicitation of Competing Transactions” and “The Merger Agreement—No Change of Recommendation”
beginning on page 93 and page 94, respectively.
Conditions to the Merger (Page 99)
The obligations of the Company, Parent
and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of the following mutual conditions:
| · | the Merger
Agreement, the Plan of Merger and the Transactions being authorized and approved by the
holders of ordinary shares of the Company constituting the Requisite Company Vote (as
defined in “The Merger Agreement—No Solicitation of Competing Transactions”
beginning on page 93) at the extraordinary general meeting; and |
| · | no governmental
authority of competent jurisdiction having enacted, issued, promulgated, enforced or
entered any law or award, writ, injunction, determination, rule, regulation, judgment,
decree or executive order, whether temporary, preliminary or permanent, that is in effect
and has or would have the effect of enjoining, restraining, prohibiting or otherwise
making illegal the consummation of the Transactions, and the consummation of the Transactions
not being subject to any requirement to obtain any regulatory approval under the Anti-monopoly
Law of the PRC. |
The obligations of Parent and Merger Sub
to consummate the Merger are also subject to the satisfaction, or waiver, of the following conditions:
| · | (a) representations
and warranties of the Company in the Merger Agreement regarding the Company’s power
and authority to enter into the Merger Agreement and consummate the Transactions, the
Board’s determination and recommendation with respect to the Merger, and the vote
required in connection with the Merger being true and correct in all material respects,
(b) representations and warranties of the Company in the Merger Agreement regarding the
Company’s capitalization being true and correct in all but de minimis respects,
and (c) each of the other representations and warranties of the Company set forth in
the Merger Agreement being true and correct in all respects as of the date of the Merger
Agreement and as of the closing date of the Merger, as if made on such date and time,
in each case without giving effect to any qualification as to “materiality”
or “Company Material Adverse Effect,” except in the case of (c) above, where
the failure of such representations and warranties to be true and correct would not constitute
a Company Material Adverse Effect; |
| · | the Company
having 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 date of the Merger; |
| · | since the date
of the Merger Agreement, there not having occurred a Company Material Adverse Effect
(as defined below); |
| · | the Company
having delivered to Parent a certificate, dated the closing date of the Merger, signed
by a senior executive officer of the Company, certifying as to the satisfaction of the
above conditions; and |
| · | the holders
of no more than 10% of the ordinary shares of the Company having validly exercised dissenters’
rights under the Cayman Islands Companies Law. |
The obligations of the Company to consummate
the Merger are also subject to the satisfaction, or waiver by the Company, of the following conditions:
| · | the representations
and warranties of Parent and Merger Sub in the Merger Agreement (without giving effect
to qualification by “materiality”) being true and correct in all respects
as of the date of the Merger Agreement and as of the closing date of the Merger, as if
made on and at date and time (other than representations and warranties that by their
terms address matters only as of such a specified other time, which must be true and
correct as of such time), except where the failure of such representations and warranties
to be true and correct, individually or in the aggregate, have not, and would not reasonably
be expected to, prevent, materially delay or materially impede or impair the ability
of Parent and Merger Sub to consummate any of the Transactions; |
| · | each of Parent
and Merger Sub having performed or complied in all material respects with all covenants
and agreements required to be performed or complied with by it under the Merger Agreement
prior to or on the closing date of the Merger; and |
| · | Parent having
delivered to the Company a certificate, dated the closing date of the Merger, signed
by an executive officer of Parent, certifying as to the fulfillment of the above conditions. |
Termination of the Merger Agreement (Page 100)
The Merger Agreement may be terminated
at any time prior to the Effective Time:
| · | by mutual written
consent of the Company and Parent with the approval of their respective boards of directors
(or in the case of the Company, acting upon the recommendation of the Special Committee); |
| · | by either the
Company (acting only upon the recommendation of the Special Committee) or Parent (provided
that this termination right is not available to the party whose failure to fulfill any
of its obligations under the Merger Agreement has been a material cause of, or resulted
in, the failure of any applicable condition to the Merger being satisfied), upon (each
as defined in the section entitled “The Merger Agreement—Termination of the
Merger Agreement”): |
| ○ | a Termination Date Termination Event; |
| ○ | a Permanent Order Termination Event; or |
| ○ | a
No-Vote Termination Event; |
| · | by the Company
(acting only upon the recommendation of the Special Committee) at any time prior to the
Effective Time, upon (each as defined in the section entitled “The Merger Agreement—Termination
of the Merger Agreement”): |
| ○ | a
Parent and Merger Sub Breach Termination Event; |
| ○ | a
Parent and Merger Sub Failure to Close Termination Event; or |
| ○ | a
Superior Proposal Termination Event; or |
| · | by Parent,
at any time prior to the Effective Time, upon (each as defined in the section entitled
“The Merger Agreement—Termination of the Merger Agreement”): |
| ○ | a
Company Breach Termination Event; or |
| ○ | a Change in the Company Recommendation Termination Event. |
Termination Fees and Reimbursement of Expenses (Page
102)
The Company is required to pay Parent
a termination fee of US$57,250,000 in the event the Merger Agreement is terminated:
| · | by either the
Company or Parent if: |
| ○ | a
bona fide proposal or offer with respect to a Competing Transaction has been publicly
made, proposed or communicated and not publicly withdrawn after the date of the Merger
Agreement and prior to the extraordinary general meeting (or prior to the termination
of the Merger Agreement if there has been no extraordinary general meeting); |
| ○ | following
the occurrence of an event described in the preceding clause, the Company or Parent terminates
the Merger Agreement due to a Termination Date Termination Event or No-Vote Termination
Event; and |
| ○ | within
12 months after the termination of the Merger Agreement, the Company consummates or enters
into a definitive agreement in connection with any of the following transactions with
a third party: (i) any merger, consolidation, share exchange, business combination,
scheme of arrangement, amalgamation, recapitalization, liquidation, dissolution or other
similar transaction involving the Company or any of its subsidiaries whose assets, individually
or in the aggregate, constitute 50% or more of the consolidated assets of the Company
or to which 50% or more of the total revenue or net income of the Company are attributable,
(ii) any sale, lease, exchange, transfer or other disposition of assets or businesses
that constitute or represent 50% or more of the total revenue, net income or assets of
the Company and its subsidiaries, taken as a whole, (iii) any sale, exchange, transfer
or other disposition of 50% or more of any class of equity securities of the Company,
or securities convertible into or exchangeable for 50% or more of any class of equity
securities of the Company, (iv) any tender offer or exchange offer that, if consummated,
would result in any person beneficially owning 50% or more of any class of equity securities
of the Company or (v) any combination of the foregoing; |
| · | by Parent pursuant
to a Company Breach Termination Event or Change in the Company Recommendation Termination
Event; or |
| · | by the Company
pursuant to a Superior Proposal Termination Event. |
Parent is required to pay the Company
a termination fee of US$114,500,000 in the event the Merger Agreement is terminated:
| · | by the Company
pursuant to a Parent and Merger Sub Breach Termination Event; or |
| · | by the Company
pursuant to a Parent and Merger Sub Failure to Close Termination Event. |
Additionally, (a) in the event the Merger
Agreement is terminated by the Company pursuant to a Parent and Merger Sub Breach Termination Event or a Parent and Merger Sub
Failure to Close Termination Event, then Parent must pay to the Company, as promptly as possible (but in any event within three
business days) following the delivery by the Company of an invoice therefor, all expenses incurred by the Company and its affiliates
in connection with the Transactions, up to a maximum amount equal to US$3,000,000, and (b) in the event the Merger Agreement is
terminated by Parent pursuant to a Company Breach Termination Event or Change in the Company Recommendation Termination Event,
then the Company must pay to Parent, as promptly as possible (but in any event within three business days) following the delivery
by Parent of an invoice therefor, all expenses incurred by Parent, Merger Sub and their respective affiliates in connection with
the Transactions, including the equity financing, up to a maximum amount equal to US$3,000,000.
In the event that the Company or Parent
fails to pay the applicable termination fee or any expenses when due and in accordance with the requirements of the Merger Agreement,
the Company or Parent, as the case may be, is required to reimburse the other party for reasonable costs and expenses actually
incurred or accrued by the other party (including fees and expenses of counsel) in connection with collection of such unpaid termination
fee or any expenses, together with accrued interest on such unpaid termination fee or any expenses.
Except as described above or as otherwise
provided in the Merger Agreement, whether or not the Merger or any other Transaction is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the Transactions will be paid by the party incurring such costs and expenses.
Regulatory Matters (Page 72)
The Company does not believe that any
material federal or state regulatory approvals, filings or notices are required in connection with effecting the Merger other
than the approvals, filings or notices required under the federal securities laws and the filing of the Plan of Merger (and supporting
documentation as specified in the Cayman Islands Companies Law) with the Cayman Registrar and, in the event the Merger becomes
effective, a copy of the Certificate of Merger being given to the shareholders and creditors of the Company and Merger Sub as
at the time of the filing of the Plan of Merger and notice of Merger published in the Cayman Islands Gazette.
Litigation Related to the Merger (Page 72)
On October 10, 2014, Kilometre Capital
Management Cayman (“Kilometre”) issued a writ of summons endorsed with a statement of claim against the Company from
the Court of First Instance of the High Court of the Hong Kong Special Administrative Region in connection with the proposed “going
private” transaction. Kilometre seeks outstanding consulting fees in an aggregate sum of US$25.6 million (or alternatively,
damages), certain declaratory relief, interest, costs and further and/or other relief as the court deems fit. On February 10,
2015, Kilometre amended its statement of claim to seek outstanding consulting fees in an aggregate sum of US$44.9 million (or
alternatively, damages), certain declaratory relief, interest, costs and further and/or other relief as the court deems fit. On
February 17, 2015, Kilometre applied for a summary judgment for consulting fees of US$39,229,944.32, interest and/or other relief
as the court deems fit. In April 2015, Kilometre issued an invoice to the Company asserting an increased entitlement to US$45.8
million; however, this amount is yet to be reflected in any further amendment to the statement of claim. On July 8, 2015, a Hong
Kong High Court Judge dismissed Kilometre’s summary judgment application and granted the Company unconditional leave to
defend Kilometre’s claim. The effect of the dismissal of the summary judgment application, subject to any appeal, is that
Kilometre's claim will now follow the usual litigation procedure. It can typically take 18-24 months to proceed to trial in Hong
Kong. There is, at present, no scheduled hearing or further judgment expected from the Hong Kong Courts.
In addition, Kilometre served a statutory
demand on the Company in the Cayman Islands on May 21, 2015 requesting the Company to pay a purported debt of US$39,229,944.32
within 21 days. On June 9, 2015, the Grand Court of the Cayman Islands (the “Grand Court”) granted an injunction restraining
Kilometre from representing a winding-up petition against the Company based upon the statutory demand or any other statutory demand
in relation to the same claim. On the same day, the Company issued an originating summons from the Grand Court seeking to set
aside the statutory demand. On July 22, 2015, following the dismissal of the Hong Kong summary judgment application, Kilometre
gave an undertaking to the Grand Court not to present a winding-up petition against the Company on the basis of the statutory
demand pending the resolution of the Hong Kong proceedings.
The Company intends to vigorously defend
itself against all legal actions taken by Kilometre on the merits. If the Merger is completed prior to the resolutions of the
disputes between the Company and Kilometre, then pursuant to the Merger Agreement and the effects of the Merger, the Surviving
Corporation will become party to such unresolved disputes and succeed to and assume all of the Company’s rights and obligations
with respect thereto.
Other than as set forth above, the Company
is not aware of any lawsuit that challenges the Merger Agreement, the Plan of Merger or any of the Transactions, including the
Merger.
Accounting Treatment of the Merger (Page 72)
The Merger is expected to be accounted
for, at carryover basis, as a Merger of entities under common control in accordance with Accounting Standards Codification 805-50,
“Business Combinations—Related Issues.”
Market Price of the ADSs (Page 77)
The closing price of the Company’s
ADSs as quoted by NASDAQ on January 24, 2014, the last trading day immediately prior to the Company’s announcement on January
27, 2014 that it had received the Proposal (as defined in the section entitled “Special Factors—Background of the
Merger” beginning on page 22), was US$5.65 per ADS. The consideration of US$7.10 per ADS to be paid in the Merger represents
a premium of approximately 25.7% over that closing price.
Fees and Expenses (Page 71)
Whether or not the Merger is completed,
all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring such costs and expenses except as otherwise provided in the Merger Agreement and the consortium agreement
among Ningxia Yilida, Ningxia, Orient Hongtai, Orient Hongzhi, Hao Ding, dated as of March 16, 2015 (the “Third Consortium
Agreement,” to which each of Zhongrong Legend, Ningxia Silkroad and Zhengjun Investment became a party by entering into
an adherence agreement on April 3, 2015).
Remedies (Page 103)
The parties to the Merger Agreement
may be entitled to the payment of a termination fee or the grant of specific performance of the terms of the Merger Agreement,
including an injunction or injunctions to prevent breaches of the Merger Agreement, in addition to any other remedy at law or
equity, subject to certain limitations as described under the section entitled “The Merger Agreement—Remedies”
beginning on page 103.
While the parties to the Merger Agreement
may pursue both a grant of specific performance and monetary damages, upon payment of the applicable termination fee and certain
expenses, the remedy of specific performance will not be available against the party paying such amount.
Questions
and Answers about the Extraordinary General
Meeting and the Merger
The following questions and answers
address briefly some questions you may have regarding the extraordinary general meeting and the Merger. These questions and answers
may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed
information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or
incorporated by reference in this proxy statement.
| Q: | When and where will the extraordinary general meeting
be held? |
| A: | The extraordinary general meeting will take place on [ ],
2015, at [ ] a.m. (Hong Kong
time) at the offices of Davis Polk & Wardwell, The Hong Kong Club Building, 3A Chater
Road, Central, Hong Kong. |
| Q: | What vote of the Company’s shareholders is required
to authorize and approve the Merger Agreement and the Plan of Merger? |
| A: | In order for the Merger to be completed, the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger, must be authorized, approved
and adopted by a special resolution of the Company’s shareholders, which requires
an affirmative vote of shareholders holding two-thirds or more of the voting power represented
by the Shares (including Shares represented by ADSs) present and voting in person or
by proxy as a single class at the extraordinary general meeting. Under the Company’s
amended and restated memorandum and articles of association, the Shares are divided into
Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares
are entitled to one vote per share, and holders of Class B ordinary shares are entitled
to 10 votes per share. Holders of the Company’s Class A ordinary shares and Class
B ordinary shares will vote as a single class on all matters described in the accompanying
proxy statement. |
At the close of business in the Cayman Islands
on [ ], 2015 (the “Share Record Date”), the record date for voting
Shares at the extraordinary general meeting, 443,701,684 Class A ordinary
shares and 97,518,374 Class B ordinary shares are expected to be issued and outstanding and entitled to vote at the extraordinary
general meeting.
Pursuant to the Support Agreement, each of the Rollover
Shareholders has agreed to vote all of the Shares (including Shares represented by ADSs) owned directly or indirectly by it in
favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.
As of the date of this proxy statement, the Rollover Shareholders collectively own an aggregate of 311,568,626 Class A ordinary
shares and 97,518,374 Class B ordinary shares, representing approximately 75.6% of the Company’s issued and outstanding
Shares and 1,286,752,366 votes, or approximately 90.7% of the total number of votes represented by the Company’s issued
and outstanding Shares, which is more than the two-thirds majority necessary to approve a special resolution of the shareholders
of the Company as required under Cayman Islands law to authorize and approve the Merger Agreement, the Plan of Merger and the
Transactions, including the Merger.
| Q: | What vote of the Company’s shareholders is required
to approve the proposal to adjourn the extraordinary general meeting, if necessary, to
solicit additional proxies? |
| A: | The
proposal to adjourn the extraordinary general meeting, if necessary, to solicit additional
proxies must be authorized and approved by an affirmative vote of shareholders holding
at least 25% of the total voting power of all shareholders of the Company having the
right to vote at the extraordinary general meeting. Under the Company’s amended
and restated memorandum and articles of association, the Shares are divided into Class
A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are
entitled to one vote per share, and holders of Class B ordinary shares are entitled to
10 votes per share. Based on the number of Class A ordinary shares and Class B ordinary
shares we expect to be issued and outstanding and entitled to vote on the Share Record
Date and assuming all issued and outstanding Shares are present in person or by proxy
and voting at the meeting, Shares representing 354,721,356 votes must be cast in favor
of the proposal to adjourn the extraordinary general meeting to allow us, if necessary,
to solicit additional proxies. |
| Q: | How does the Board recommend that I vote on the proposals?
|
|
A: |
After careful consideration and acting upon
the unanimous recommendation of the Special Committee, made on April 3, 2015 and
affirmed on August 25, 2015, the Board unanimously
recommends that you vote: |
| · | FOR the proposal
to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger; |
| · | FOR the proposal
to authorize the directors to do all things necessary to give effect to the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger; and |
| · | FOR the proposal
to adjourn the extraordinary general meeting in order to allow the Company to solicit
additional proxies in the event that there are insufficient proxies received at the time
of the extraordinary general meeting to pass the resolutions to be proposed at the extraordinary
general meeting. |
You should read “Special Factors—Reasons
for the Merger and Recommendation of the Special Committee and the Board” beginning on page 37 for a discussion of the factors
that the Special Committee and the Board considered in deciding to recommend the approval of the Merger Agreement. In addition,
in considering the recommendation of the Special Committee and the Board made on April 3, 2015 with respect to the Merger Agreement,
you should be aware that some of the Company’s directors, executive officers and employees have interests in the Merger
that are different from, or in addition to, the interests of the Company’s shareholders generally. See “Special Factors—Interests
of Certain Persons in the Merger” beginning on page 66 for additional information.
| Q: | Who is entitled to vote at the extraordinary general
meeting? |
| A: | The Share Record Date is [ ],
2015. Only shareholders entered in the register of members of the Company at the close
of business in the Cayman Islands on the Share Record Date or their proxy holders are
entitled to vote at the extraordinary general meeting or any adjournment thereof. |
The record date with respect to ADSs is [ ],
2015 (the “ADS Record Date”). Only ADS holders of the Company at the close of business in New York City on the ADS
Record Date are entitled to instruct the ADS Depositary to vote at the extraordinary general meeting. Alternatively, you may vote
at the extraordinary general meeting if you cancel your ADSs by the close of business in New York City on [ ],
2015 and become a holder of Shares by the close of business in the Cayman Islands on the Share Record Date.
| Q: | What constitutes a quorum for the extraordinary general
meeting? |
| A: | The presence of one or more shareholders entitled to vote and present
in person or by proxy representing not less than 50% of the voting rights represented
by the issued and voting Shares will constitute a quorum for the extraordinary general
meeting. |
| Q: | When do you expect the Merger to be completed? |
| A: | We are working toward completing the Merger as quickly as possible
and currently expect the Merger to close during the second half of 2015, after all conditions
to the Merger have been satisfied or waived. In order to complete the Merger, we must
obtain shareholder approval of the Merger at the extraordinary general meeting and the
other closing conditions under the Merger Agreement must be satisfied or waived in accordance
with the Merger Agreement. |
| Q: | What happens if the Merger is not completed? |
| A: | If the Company’s shareholders do not authorize and approve
the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
or if the Merger is not completed for any other reason, the Company’s shareholders
will not receive any payment for their Shares or ADSs pursuant to the Merger Agreement,
nor will the holders of any Company Options, Company Restricted Shares or Company RSUs
receive payment pursuant to the Merger Agreement. In addition, the Company will remain
a publicly traded company. The ADSs will continue to be listed and traded on NASDAQ,
provided that the Company continues to meet NASDAQ’s listing requirements. In addition,
the Company will remain subject to the reporting obligations of the SEC. Therefore, the
Company’s shareholders will continue to be subject to similar risks and opportunities
as they currently are with respect to their ownership of Shares and ADSs. |
Under specified circumstances, the Company may
be required to pay Parent or its designees a termination fee and/or reimburse Parent and its affiliates for their expenses in
connection with the Transactions, or Parent may be required to pay the Company a termination fee and/or reimburse the Company
and its affiliates for certain expenses in connection with the Transactions, in each case as described in “The Merger Agreement—Termination
Fee and Reimbursement of Expenses” beginning on page 102.
| Q: | How will the Company’s directors and executive
officers vote on the proposal to authorize and approve the Merger Agreement? |
| A: | Pursuant to the Support Agreement, each of the Rollover Shareholders
has agreed to vote all of the Shares and ADSs that they directly or indirectly hold in
favor of the authorization and approval of the Merger Agreement, the Plan of Merger and
the Transactions, including the Merger. |
In addition, each of the Company’s directors
who beneficially owns Shares (including Shares represented by ADSs) has informed the Company that, as of the date of this proxy
statement, he or she intends to vote all of his or her Shares in favor of approval and authorization of the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger.
You should be aware that some of the
Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the
interests of the shareholders of the Company generally. As of the date of this proxy statement, Mr. Zhang, the chairman of
the Board and acting chief executive officer of the Company, is the sole shareholder of Shanghai Yingfeng, a limited
liability company organized under the laws of the PRC and the general partner of Ningxia Yilida and Zhengjun Investment. Both
Ningxia Yilida and Zhengjun Investment are members of the Buyer Group and therefore, Mr. Zhang has interests that are
different from, or in addition to, the interests of the shareholders of the Company generally. Mr. Shaolin Liang, a director
of the Company, serves as a vice general manager of Ningxia, which is a member of the Buyer Group. Mr. Lin, a director of the
Company, served as the chief executive officer of China Universal Asset Management Co., Ltd., which was an affiliate of
Orient Hongtai and Orient Hongzhi prior to June 30, 2015, each of which is a member of the Buyer Group, from April 2004 to
April 16, 2015. Therefore, both Mr. Shaolin Liang and Mr. Lin may have interests that are different from, or in addition to,
the interests of the shareholders of the Company generally. As of the date of this proxy statement, the Company’s
directors and executive officers beneficially own, in the aggregate, 52,035,382 Shares, which consist of (a) 49,616,759
issued and outstanding ordinary shares, (b) issued and unexercised Company Options to purchase 2,418,623 Class A ordinary
shares issued pursuant to the Company’s amended and restated 2008 Equity Compensation Plan (the “Share Incentive
Plan”) and exercisable within 60 days following the date of this proxy statement, (c) zero (0) Company Restricted
Shares the restrictions over which will lapse within 60 days following the date of this proxy statement, and (d) zero (0)
Company RSUs the restrictions over which will lapse within 60 days following the date of this proxy statement, which in the
aggregate represent approximately 9.6% of the total issued and outstanding Shares. See “Special
Factors—Interests of Certain Persons in the Merger” beginning on page 66 and “Security Ownership of Certain
Beneficial Owners and Management of the Company” beginning on page 112 for additional information.
| Q: | What do I need to do now? |
| A: | We urge you to read this proxy statement carefully, including its
annexes, exhibits, attachments and the other documents referred to or incorporated by
reference herein and to consider how the Merger affects you as a shareholder. After you
have done so, please vote as soon as possible. |
| Q: | How do I vote if my Shares are registered in my name
(that is, I do not hold ADSs)? |
| A: | If Shares are registered in your name (that is, you do not hold
ADSs) as of the Share Record Date for shareholder voting, you should simply indicate
on your proxy card how you want to vote, and sign and mail your proxy card in the accompanying
return envelope as soon as possible. The deadline to lodge your proxy card so that your
Shares may be represented and voted at the extraordinary general meeting is [ ],
2015 at 10:00 a.m. (Hong Kong time). |
Alternatively, you can attend the extraordinary
general meeting and vote in person. If you decide to sign and send in your proxy card, and do not indicate how you want to vote,
Shares represented by your proxy will be voted FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger
and the Transactions, including the Merger, FOR the proposal to authorize the directors to do all things necessary to give effect
to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and FOR the proposal to adjourn the extraordinary
general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received
at the time of the extraordinary general meeting to pass the resolutions to be proposed at the extraordinary general meeting,
unless you appoint a person other than the chairman of the meeting as proxy, in which case Shares represented by your proxy card
will be voted (or not submitted for voting) as your proxy determines.
If your Shares are held by your broker, bank or
other nominee, please see below for additional information.
| Q: | How do I vote if I own ADSs? |
| A: | If you own ADSs as of the close of business in New York City on
the ADS Record Date (and do not cancel such ADSs and become a registered holder of the
Shares underlying your ADSs as explained below), you cannot vote at the extraordinary
general meeting directly, but you may instruct the ADS Depositary (as the holder of Shares
underlying your ADSs) how to vote the Shares underlying your ADSs by completing and signing
the ADS voting instruction card and returning it in accordance with the instructions
printed on it as soon as possible. The ADS Depositary must receive such instructions
no later than 12:00 p.m. (New York City time) on [ ],
2015 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary
general meeting. The ADS Depositary will endeavor to vote (or will endeavor to cause
the vote of) the Shares it holds on deposit at the extraordinary general meeting in accordance
with the voting instructions timely received from holders of ADSs. If any holder of ADSs
does not timely deliver specific voting instructions to the ADS Depositary, or if the
ADS Depositary timely receives voting instructions from an ADS holder that fail to specify
the manner in which the ADS Depositary is to vote the Shares represented by the holder’s
ADS, the ADS Depositary has advised the Company that it will not vote or attempt to exercise
the right to vote any Shares underlying such holder’s ADSs. If you hold your ADSs
in a brokerage, bank or other nominee account, you must follow the procedures of the
broker, bank or other nominee through which you hold your ADSs if you wish to vote. |
Alternatively, if you own ADSs as of the close of
business in New York City on the ADS Record Date, you may vote at the extraordinary general meeting directly if you cancel your
ADSs and become a holder of the Shares underlying your ADSs prior to the close of business in the Cayman Islands on the Share
Record Date. If you wish to cancel your ADSs for the purpose of voting Shares, you need to make arrangements to deliver your ADSs
to the ADS Depositary for cancellation before 12:00 p.m. in New York City on [ ],
2015 together with (a) delivery instructions for the corresponding Shares (including the name and address of the person who will
be the registered holder of such Shares), (b) payment of the ADS cancellation fees (US$0.05 per ADS to be cancelled pursuant to
the terms of the Deposit Agreement) and any applicable taxes and (c) a certification that you either (i) held the ADSs as of the
ADS Record Date and have not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being cancelled,
or have given voting instructions to the ADS Depositary as to the ADSs being cancelled but undertake not to vote the corresponding
Shares at the extraordinary general meeting or (ii) did not hold the ADSs as of the ADS Record Date and undertake not to vote
the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other nominee account,
please contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker, bank or other
nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS Depositary will arrange for JPMorgan Chase Bank,
N.A., Hong Kong branch, the custodian holding the Shares, to transfer registration of the Shares to the former ADS holder (or
a person designated by the former ADS holder). If after the registration of Shares in your name you wish to receive a certificate
evidencing the Shares registered in your name, you will need to make a request to the Company’s registered office at Codan
Trust Company (Cayman), c/o Conyers Dill & Pearman, 2901 One Exchange Square, 8 Connaught Place, Central, Hong Kong,
to issue and mail a certificate to your attention. If the Merger is not completed, the Company would continue to be a public company
in the United States and the ADSs would continue to be listed on NASDAQ. Shares are not listed and cannot be traded on any stock
exchange other than NASDAQ, and in such case only in the form of ADSs. As a result, if you have cancelled your ADSs to attend
the extraordinary general meeting and the Merger is not completed and you wish to be able to sell your Shares on a stock exchange,
you would need to deposit your Shares into the Company’s ADS program for the issuance of the corresponding number of ADSs,
subject to the terms and conditions of applicable law and the Deposit Agreement, including, among other things, payment of relevant
fees of the ADS Depositary for the issuance of ADSs and applicable share transfer taxes (if any) and related charges pursuant
to the Deposit Agreement.
| Q: | If my Shares or ADSs are held in a brokerage, bank or
other nominee account, will my broker, bank or other nominee vote my Shares or ADSs on
my behalf? |
| A: | Your broker, bank or other nominee will only vote your Shares on
your behalf or give voting instructions with respect to the Shares underlying your ADSs
if you instruct it how to vote. Therefore, it is important that you promptly follow the
directions provided by your broker, bank or other nominee regarding how to instruct it
to vote your Shares or ADSs. If you do not instruct your broker, bank or other nominee
how to vote your Shares that it holds, those Shares or ADSs may not be voted. |
| Q: | What will happen if I abstain from voting or fail to
vote on the proposal to authorize and approve the Merger Agreement? |
| A: | If you abstain from voting, fail to cast your vote in person, fail
to complete and return your proxy card in accordance with the instructions set forth
on the proxy card, or fail to give voting instructions to the ADS Depositary, your broker,
bank or other nominee, your vote will not be counted. |
| A: | Yes. If you are a holder of Shares, you may change your vote in
one of the following three ways: |
| · | First, you
may revoke a proxy by written notice of revocation given to the chairman of the extraordinary
general meeting at least two hours before the extraordinary general meeting commences.
Any written notice revoking a proxy should be sent to Shanda Games Limited, No. 1 Office
Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC, Attention: Investor
Relations Department; |
| · | Second, you
may complete, date and submit a new proxy card bearing a later date than the proxy card
sought to be revoked to the Company no later than 10:00 a.m. (Hong Kong time) on [ ],
2015, which is the deadline to lodge your proxy card; or |
| · | Third, you
may attend the extraordinary general meeting and vote in person. Attendance, by itself,
will not revoke a proxy. It will only be revoked if the shareholder actually votes at
the extraordinary general meeting. |
If you hold Shares through a broker, bank or other
nominee and have instructed the broker, bank or other nominee to vote your Shares, you must follow directions received from the
broker, bank or other nominee to change your instructions.
Holders of ADSs may revoke their voting instructions
by notification to the ADS Depositary in writing at any time prior to 12:00 p.m. (New York City time) on [ ],
2015. A holder of ADSs can do this by completing, dating and submitting a new ADS voting instruction card to the ADS Depositary
bearing a later date than the ADS voting instruction card that the ADS holder is seeking to revoke.
If you hold ADSs through a broker, bank or other
nominee and you have instructed your broker, bank or other nominee to give ADS voting instructions to the ADS Depositary, you
must follow the directions of your broker, bank or other nominee to change those instructions.
| 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 or ADSs in more than one brokerage, bank or other
nominee account, you will receive a separate voting instruction card for each brokerage,
bank or other nominee account in which you hold Shares or ADSs. If you are a holder of
record and your Shares or ADSs are registered in more than one name, you will receive
more than one proxy or voting instruction card. Please submit each proxy card that you
receive. |
| Q: | Should I send in my Share certificates or my American
Depositary Receipts representing ADSs (“ADRs”) now? |
| A: | No. After the Merger is completed, you will be sent a form of letter
of transmittal with detailed written instructions for exchanging your Share certificates
for the merger consideration. Please do not send in your certificates now. Similarly,
you should not send in the ADRs that represent your ADSs at this time. Promptly after
the Merger is completed, the ADS Depositary will call for the surrender of all ADRs for
delivery of the merger consideration. ADR holders will be receiving a similar form of
letter of transmittal and written instructions from the ADS Depositary relating to the
foregoing. |
All holders of uncertificated Shares and uncertificated
ADSs (i.e., holders whose Shares or ADSs are held in book entry) will automatically receive their merger consideration
shortly after the Merger is completed without any further action required on the part of such holders.
If your Shares or your ADSs are held in “street
name” by your broker, bank or other nominee you will receive instructions from your broker, bank or other nominee as to
how to effect the surrender of your Share certificates or ADRs in exchange for the merger consideration.
| Q: | What happens if I sell my Shares or ADSs before the extraordinary
general meeting? |
| A: | The Share Record Date for voting at the extraordinary general meeting
is earlier than the date of the extraordinary general meeting and the date that the Merger
is expected to be completed. If you transfer your Shares after the Share Record Date
for voting but before the extraordinary general meeting, you will retain your right to
vote at the extraordinary general meeting unless you have given, and not revoked, a proxy
to the person to whom you transfer your Shares, but will transfer the right to receive
the Per Share Merger Consideration in cash without interest to such person, so long as
such person is registered as the owner of such Shares when the Merger is completed. In
such case, your vote is still very important and you are encouraged to vote. |
The ADS Record Date is the close of business in
New York City on [ ], 2015. If you transfer your ADSs after the ADS
Record Date but before the extraordinary general meeting, you will retain your right to instruct the ADS Depositary to vote at
the extraordinary general meeting, but will transfer the right to receive the Per ADS Merger Consideration in cash and net of
any applicable withholding taxes to the person to whom you transfer your ADSs, so long as such person owns such ADSs when the
Merger is completed. In such case, your vote is still very important and you are encouraged to vote.
| Q: | Am I entitled to dissenters’ rights? |
| A: | Shareholders who dissent from the Merger will have the right to
receive payment of the fair value of their Shares if the Merger is completed, but only
if they deliver to the Company, before the vote to authorize and approve the Merger is
taken, a written objection to the Merger and subsequently comply with all procedures
and requirements of Section 238 of the Cayman Islands Companies Law for the exercise
of dissenters’ rights, which is attached as Annex D to this proxy statement. The
fair value of their Shares as determined under that statute could be more than, the same
as, or less than the Per Share Merger Consideration they would receive pursuant to the
Merger Agreement if they do not exercise dissenters’ rights with respect to their
Shares. |
ADS holders will not have the right to exercise
dissenters’ rights and receive payment of the fair value of the Shares underlying their ADSs. The ADS Depositary will not
attempt to exercise any dissenters’ rights with respect to any of the Shares that it holds, even if an ADS holder requests
the ADS Depositary to do so. ADS holders wishing to exercise dissenters’ rights must surrender their ADSs to the ADS Depositary,
pay the ADS Depositary’s fees required for the cancellation of their ADSs, provide instructions for the registration of
the corresponding Shares in the Company’s register of members, and certify that they have not given, and will not give,
voting instructions as to their ADSs (or, alternatively, that they will not vote the corresponding Shares) before 12:00 p.m. (New
York City time) on [ ], 2015, and become registered holders of Shares by the close
of business in the Cayman Islands on the Share Record Date. Thereafter, such former ADS holders must comply with the procedures
and requirements for exercising dissenters’ rights with respect to the Shares under Section 238 of the Cayman Islands Companies
Law. If the Merger is not completed, the Company would continue to be a public company in the United States and ADSs would continue
to be listed on NASDAQ. Shares are not listed and cannot be traded on any stock exchange other than NASDAQ, and in such case only
in the form of ADSs. As a result, if a former ADS holder has cancelled his, her or its ADSs to exercise dissenters’ rights
and the Merger is not completed and such former ADS holder wishes to be able to sell his, her or its Shares on a stock exchange,
such former ADS holder would need to deposit his, her or its Shares into the Company’s ADS program for the issuance of the
corresponding number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including, among
other things, payment of relevant fees of the ADS Depositary for the issuance of ADSs and applicable Share transfer taxes (if
any) and related charges pursuant to the Deposit Agreement.
We encourage you to read the section of this
proxy statement entitled “Dissenters’ Rights” beginning on page 105 as well as “Annex D—Cayman Islands
Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised)—Section 238” to this proxy statement carefully
and to consult your own Cayman Islands legal counsel if you desire to exercise your dissenters’ rights.
| Q: | If I own ADSs and seek to exercise dissenters’
rights, how do I convert my ADSs to Shares, and when is the deadline for completing the
conversion of ADSs to Shares? |
| A: | If you own ADSs and wish to exercise dissenters’ rights,
you must deliver the ADSs (or to the extent ADSs are certificated, the ADRs) to the ADS
Depositary for cancellation before 12:00 p.m. (New York City time) on [ ],
2015 together with (a) delivery instructions for the corresponding Shares (including
the name and address of the person who will be the registered holder of such Shares),
(b) payment of the ADS cancellation fees (US$0.05 per ADS to be cancelled pursuant to
the terms of the Deposit Agreement) and any applicable taxes and (c) a certification
that you either (i) held the ADSs as of the ADS Record Date and have not given, and will
not give, voting instructions to the ADS Depositary as to the ADSs being cancelled, or
have given voting instructions to the ADS Depositary as to the ADSs being cancelled but
undertake not to vote the corresponding Shares at the extraordinary general meeting or
(ii) did not hold the ADSs as of the ADS Record Date and undertake not to vote the corresponding
Shares at the extraordinary general meeting. |
You must become a registered holder of the Shares
underlying your ADSs and deliver to the Company, before the vote is taken at the extraordinary general meeting, a written objection
to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Law,
which is attached as Annex D to this proxy statement, for the exercise of dissenters’ rights.
We encourage you to read the section of this
proxy statement entitled “Dissenters’ Rights” beginning on page 105, as well as “Annex D—Cayman
Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised)—Section 238” to this proxy statement carefully
and to consult your own Cayman Islands legal counsel if you desire to exercise your dissenters’ rights.
| Q: | Will any proxy solicitors or information agents be used
in connection with the extraordinary general meeting? |
| A: | Yes. To assist in the solicitation of proxies, the Company has
engaged Georgeson Inc. as its proxy solicitor. |
| Q: | Who can help answer my questions? |
| A: | If you have any questions about the Merger or if you need additional
copies of this proxy statement or the accompanying proxy card, you should contact Georgeson
Inc., the Company’s proxy solicitor, toll-free at +1 800 509 0983 (or +1 781
575 2137 outside of North America) or by email at ShandaGames@georgeson.com. |
In order for you to receive timely delivery of any
additional copy of this proxy statement or the accompanying proxy card in advance of the extraordinary general meeting, you must
make your request no later than five business days prior to the date of the extraordinary general meeting.
Special
Factors
Background of the Merger
All dates and times referenced in this Background of the
Merger refer to China Standard Time.
The Board and senior management of the
Company periodically review the Company’s long-term strategic plans with the goal of enhancing shareholder value. As part
of this ongoing process, the Board and senior management of the Company have, from time to time, considered strategic alternatives
that may be available to the Company, including potential commercial and strategic business partnerships, acquisitions, dispositions
and new business lines.
In particular, during the course of 2012
and 2013, the Company recognized that the revenues of certain of its games and businesses were growing faster than others at the
time. With the aim of enabling the market to more accurately value the faster growing segments and facilitate the effective allocation
of management resources, certain members of the Company’s management considered splitting the Company into two entities
under three different scenarios, in accordance with which the Company would separate its businesses such that (a) one entity would
own and operate the Company’s PRC business, and the other would own and operate its overseas businesses; (b) one entity
would own and operate the Company’s two leading mature legacy games businesses, and the other would own and operate its
other faster-growing games businesses; or (c) one entity would own and operate the Company’s overseas and mobile games businesses,
and the other would own and operate the remainder of its games businesses. Although Mr. Tianqiao Chen (“Mr. Chen”),
chairman of the Board at the time, Mr. Richard Wei (“Mr. Wei”), chief financial officer of the Company at the time,
and other representatives of the Company discussed and evaluated these potential transactions, they ultimately decided not to
pursue these transactions due to concerns regarding whether these transactions would ultimately increase the valuation of the
Company as a whole. In mid-2012, Mr. Chen and Mr. Wei also engaged in preliminary discussions with a U.S. game developer with
respect to a potential merger between the Company and the game developer; however, the Company ultimately declined to pursue this
transaction due to concerns regarding the financial condition of the game developer and the value that would be assigned to the
game developer relative to the Company in the transaction.
Despite these efforts, the Company had
not been able to consummate any successful strategic alternatives. Therefore, to further pursue strategic alternatives for enhancing
shareholder value, Mr. Wei met with representatives of Kilometre on December 4 and December 6, 2013 and Mr. Chen and Mr. Wei together
met with representatives of Kilometre on December 9, 2013, in each case to discuss general industry conditions and recent trends
in strategic transactions by publicly listed PRC-based companies, as well as Kilometre’s credentials with respect to potentially
advising the Company on exploring strategic alternatives.
The Company subsequently retained Kilometre
as strategic execution consultant to the Company with respect to advising on and executing possible strategic transactions, including
potential minority, majority or change-of-control transactions that could enhance shareholder value.
Between December 18, 2013 and January
18, 2014, Kilometre contacted and introduced to the Company four private equity investors that might have been interested in a
potential transaction with the Company, including Primavera Capital Limited (“Primavera”). In connection with these
introductions, Kilometre also advised the Company with respect to the background and potential level of interest and financial
resources of such private equity investors. Kilometre also coordinated the sequence and timing of meetings between the Company
and such private equity investors. Between December 21, 2013 and January 26, 2014, the Company entered into confidentiality agreements
with these private equity investors and made due diligence materials available to them, and members of the Company’s senior
management held several meetings with representatives of each of these private equity investors to discuss the Company’s
business and operations in order to facilitate their evaluation of a potential “going private” transaction involving
the Company.
On January 27, 2014, Shanda Interactive,
the then controlling shareholder of the Company and an affiliate of Mr. Chen, and an affiliate of Primavera entered into a consortium
agreement (the “First Consortium Agreement”) pursuant to which they agreed, among other things, to form a consortium
(such consortium, as it exists from time to time, the “Buyer Group”) to jointly make a proposal to the Company for
a “going private” transaction, deal exclusively with each other in pursuing such transaction for a period of nine
months or until the termination of the First Consortium Agreement by all parties thereto, if earlier, and cooperate with respect
to such transaction.
On the same date, Shanda SDG Investment
Limited (“Shanda SDG”), a wholly owned subsidiary of Shanda Interactive, entered into a share purchase agreement with
Primavera to sell 28,959,276 Class A ordinary shares to Primavera for US$2.7625 per share (the “Primavera SPA”), which
sale was completed on February 17, 2014. Pursuant to the Primavera SPA, Primavera agreed that if a “going private”
transaction occurred within one year of the completion of such sale, where Primavera was a member of the buyer group with respect
to such “going private” transaction (or was not a member of the buyer group due to its own decision or election without
Shanda SDG’s written consent), and the price per share in the “going private” transaction was higher than the
price per share paid by Primavera, Primavera would pay to Shanda SDG, with respect to each share purchased by Primavera from Shanda
SDG, a “make-whole” payment equal to the difference between the price per share paid by Primavera and the price per
share paid in the “going private” transaction, the effect of which would be that Shanda SDG would receive the same
price per share for the shares sold to Primavera as would be paid in the “going private” transaction.
Also
on January 27, 2014, the Buyer Group submitted a preliminary non-binding letter (the “Proposal”) to the Board
proposing to acquire all of the shares of the Company not already owned by members of the Buyer Group for a cash consideration
of US$3.45 per Share and US$6.90 per ADS (the “Proposed Transaction”). In the Proposal, the Buyer Group
noted that the per ADS price to be paid in the Proposed Transaction represented a premium of approximately 44.4%
to the volume-weighted average price of the ADSs over the preceding 30 trading days. Moreover, the Buyer Group stated, among other
things, that its members had entered into the First Consortium Agreement pursuant to which they had agreed to work with each other
exclusively in pursuing the Proposed Transaction, and that it expected that the Proposed Transaction would be financed with a
combination of debt and equity capital and that the equity portion would be provided by members of the Buyer Group. The Proposal
also stated that the members of the Buyer Group did not intend to sell their Shares to any third party.
On January 28, 2014, the Board met via
conference call to discuss, among other things, the Proposal. During the meeting, representatives of Davis Polk & Wardwell
(“Davis Polk”), the Company’s U.S. legal advisor, provided the Board with an overview of the substantive requirements,
processes and duties of directors under applicable law in connection with the Proposed Transaction, including various approaches
taken by boards of directors when considering similar transactions, and the desirability of establishing a committee of independent
directors to evaluate the Proposed Transaction given the conflicts of interest that may arise from the involvement of Shanda Interactive
in the Proposed Transaction.
At the meeting, the Board determined it
was in the best interests of the Company and the Unaffiliated Holders to form the Special Committee. After discussing the various
qualifications of the members of the Board to serve on the Special Committee, including whether certain directors were sufficiently
independent for purposes of serving on the Special Committee, the Board adopted resolutions to form the Special Committee, comprised
of the following three directors, whom the Board determined were sufficiently independent for purposes of serving on the Special
Committee: Mr. Lin (to serve as chairman of the Special Committee), Mr. Heng Wing Chan (“Mr. Chan”)
and Mr. Yong Gui (“Mr. Gui”).
At the same meeting, the Board also adopted
resolutions delegating to the Special Committee the appropriate power and authority of the Board to, among other things, consider
and evaluate the Proposed Transaction and determine whether it was in the best interests of the shareholders of the Company, and
make recommendations to the Board on the Proposed Transaction; negotiate on behalf of the Board the terms of the Proposed Transaction,
including the terms of the Merger Agreement and any other document to be entered into with the Buyer Group in connection with
the Proposed Transaction; consider competing proposals or offers and other strategic alternatives and make recommendations to
the Board with respect thereto (including the recommendation that the Company not enter into any transaction and, instead, remain
independent); request information and assistance from officers of the Company in connection with its consideration of the Proposed
Transaction and any other alternative proposals; retain its own independent legal and financial advisors and other agents relating
to the Proposed Transaction and enter into contracts providing for the retention and compensation of such advisors or other agents;
submit its recommendation to the Board, together with the terms of any negotiated definitive agreement pursuant to which the “going
private” transaction or any alternative transaction would be completed that would be required to be approved by the Board;
and receive any information, assistance or documents from officers, advisors and employees of the Company that would be helpful
in discharging the duties of the Special Committee. In addition, the Board resolved that each member of the Special Committee
be indemnified by the Company to the fullest extent permitted by applicable law or the Company’s memorandum and articles
of association for any loss and damage suffered because of his role on the Special Committee. On January 29, 2014, the Company
issued a press release announcing the formation of the Special Committee to evaluate the Proposed Transaction.
The Board subsequently adopted resolutions
providing that each member of the Special Committee be compensated for his service. Such compensation was not and is not contingent
upon the completion of the Merger or on the Special Committee’s or the Board’s recommendation of the Merger.
Between January 28, 2014 and February
16, 2014, the Special Committee interviewed a number of prospective legal advisors, including Sullivan & Cromwell, with respect
to U.S. law; Walkers, with respect to Cayman Islands law; and Haiwen & Partners (“Haiwen”), with respect to PRC
law. Following these interviews, the Special Committee evaluated the credentials and independence of the law firms interviewed.
On February 17, 2014, Messrs. Lin and
Gui of the Special Committee met via conference call with representatives of Sullivan & Cromwell to confirm Sullivan & Cromwell’s
engagement as the independent legal counsel to the Special Committee with respect to U.S. law and discussed the U.S. legal requirements
applicable to the Proposed Transaction as well as the process that the Special Committee should follow in evaluating the Proposed
Transaction. Later on that date, representatives of Sullivan & Cromwell called Mr. Chan to brief him on the discussion. On
February 18, 2014, the Company issued a press release regarding the Special Committee’s appointment of Sullivan & Cromwell
as its U.S. legal counsel.
Following the Company’s announcement
of its receipt of the Proposal on January 27, 2014, the Special Committee received solicited and unsolicited proposals from, and
evaluated the qualifications of, six financial advisory firms to act as independent financial advisor to the Special Committee.
On February 18, 2014, after deliberation on the experience, qualification and reputation of each of the six financial
advisory firms, the Special Committee selected Merrill Lynch as its independent financial advisor, subject to confirmation of
its independence in connection with the Proposed Transaction. The Special Committee noted that Merrill Lynch was familiar with
the Company and its industry, had substantial experience with “going private” transactions involving U.S.-listed PRC-based
companies, and had the ability to interact in both English and Chinese. Merrill Lynch confirmed its independence on March 5,
2014, and the Special Committee executed an engagement letter with Merrill Lynch on March 6, 2014. On the same day,
the Company issued a press release regarding the Special Committee’s appointment of Merrill Lynch as its independent financial
advisor.
On February 21 and March 4, 2014, respectively,
the Special Committee retained Walkers as its independent Cayman Islands legal advisor and Haiwen as its independent PRC legal
advisor with respect to the Proposed Transaction, which engagements were confirmed in engagement letters on March 11, 2014.
On February 25, 2014, the Special Committee
held a meeting in Shanghai to consider the Proposed Transaction. Each of Messrs. Lin and Gui attended in person, and Mr. Chan
attended via telephone. Representatives of Sullivan & Cromwell and Merrill Lynch attended in person, and representatives of
Walkers attended via telephone. At the meeting, representatives of Merrill Lynch and Sullivan & Cromwell discussed the Proposed
Transaction with the Special Committee, including the composition of the Buyer Group; the structure of the Proposed Transaction;
certain considerations for the Special Committee with respect to its analysis of the value, fairness and certainty of the transaction;
the purchase price offered in the Proposed Transaction; safeguards for securing a fair deal for Unaffiliated Holders; whether
a “market check” would be likely to find competing bidders; and alternative strategic options.
Representatives of Sullivan & Cromwell
then discussed key legal considerations for the Special Committee, including the scope of authority under the Board’s resolutions;
fiduciary duty considerations for members of the Special Committee; disclosure requirements under U.S. law; and deal execution
considerations and other typical features of “going private” transactions. In particular, representatives of Sullivan
& Cromwell summarized the importance of the independence and disinterestedness of the members of the Special Committee, the
role of the Special Committee in representing the interests of Unaffiliated Holders, the importance of the Special Committee in
assuring that a fair process is undertaken with respect to the Proposed Transaction and a fair price is reached, and the importance
of considering strategic alternatives to the Proposed Transaction. Walkers also advised on the fiduciary duty considerations for
members of the Special Committee under Cayman Islands law. Over the course of the three days following the meeting, Sullivan &
Cromwell met via conference call with each member of the Special Committee to inquire as to the independence of such member, on
which conference calls each member of the Special Committee confirmed his independence for purposes of serving on the Special
Committee.
Pursuant to the Special Committee’s
instructions, on March 4, 2014, Merrill Lynch presented a questionnaire to members of the Buyer Group as part of the Special Committee’s
evaluation of the Proposed Transaction, which questionnaire covered, among other things, the financing of the Proposed Transaction,
the proposed composition of the Buyer Group, the post-closing capital structure of the Company, and potential meetings between
advisors of the Special Committee and those of potential financing sources. The Buyer Group responded to Merrill Lynch on March 7, 2014.
Between March 4, 2014 and September 30,
2014, the Special Committee regularly met via conference call with representatives of Sullivan & Cromwell and Merrill Lynch
to discuss, among other things, the status of the Proposed Transaction; Merrill Lynch’s due diligence on the financial resources
and other aspects of members of the Buyer Group; the communications and discussions between Sullivan & Cromwell and Merrill
Lynch, on the one hand, and members of the Buyer Group and their advisors, on the other; the expected timetable of the Proposed
Transaction; the due diligence process by, and negotiations of the Merger Agreement, the Equity Commitment Letters and the Limited
Guarantees (collectively, the “Transaction Documents”) with, the Buyer Group; the status of the Company’s disclosure
schedules to the Merger Agreement; updates on the financial due diligence conducted with the management of the Company and, on
September 23, 2014, a presentation on the valuation of the Company and the fairness of the consideration to be paid by the Buyer
Group to the Unaffiliated Holders in the Proposed Transaction; and additional potential investors in the Proposed Transaction.
Sullivan & Cromwell assisted the Special Committee in negotiating and concluding a confidentiality agreement with each of
the potential investors that had indicated its intention to assess the possibility of joining the Buyer Group between February
28, 2014 and August 8, 2014.
On March 17, 2014, the Company made available
to Merrill Lynch and the Buyer Group certain financial projections, which Merrill Lynch discussed with the Special Committee on
March 25, 2014.
Also on March 17, 2014, Wilson Sonsini
Goodrich & Rosati, P.C. (“WSGR”), the Buyer Group’s U.S. legal advisor, presented to Sullivan & Cromwell
an initial draft of the Merger Agreement.
On March 25, 2014, the Special Committee
and representatives of Sullivan & Cromwell and Merrill Lynch met via conference call. Representatives of Sullivan & Cromwell
summarized the Merger Agreement received from WSGR, and discussed with the Special Committee key issues in the draft and terms
to be negotiated with the Buyer Group and its counsel.
Between March 17, 2014 and April
22, 2014, Sullivan & Cromwell also held several conference calls with Latham & Watkins, counsel to Primavera, and WSGR
with respect to the Proposed Transaction. During this period, the parties discussed the specific terms of the Merger Agreement
and the Special Committee’s position with respect thereto, and exchanged drafts of the Merger Agreement.
During this period, negotiations with
respect to the Merger Agreement included discussions of, and the drafts exchanged between the parties reflected changes to, the
following terms, among others:
| · | the
circumstances under which the Board could effect a change of recommendation to
the Company’s shareholders in respect of the Proposed Transaction; |
| · | the shareholder
vote required to authorize and approve the
Merger Agreement, the Plan of Merger and the Transactions, including the Merger; |
| · | the scope of
debt and equity financing relating to the Proposed Transaction; |
| · | the circumstances
under which each party would be able to terminate the Merger Agreement; |
| · | the circumstances
under which each party would be obligated to pay the other a termination fee, and the
amount and form of such termination fee; |
| · | the level of
efforts required to be undertaken by the parties to secure requisite regulatory approvals
in connection with the Proposed Transaction; |
| · | the representations
and warranties made by the Company; and |
| · | the restrictions
on the Company’s conduct
of its business prior to the closing of the Proposed Transaction. |
During the course of these negotiations
with WSGR and the Buyer Group, Sullivan & Cromwell, after consulting with the Special Committee, obtained certain terms of
the Merger Agreement that were more favorable to the Unaffiliated Holders than those contained in the initial draft of the Merger
Agreement, including, in particular, by (a) expanding the circumstances under which the Board would be able to effect a change
of recommendation to the Company’s shareholders in respect of the Proposed Transaction, and under which the Company would
be able to terminate the Merger Agreement in order to enter into an agreement with respect to an alternative transaction that
could be more favorable to the Company and the Unaffiliated Holders; (b) limiting the circumstances under which Parent would be
able to terminate the Merger Agreement, and requiring that members of the Buyer Group vote in favor of the authorization and approval
of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and therefore, in each case, increasing
the likelihood of the Merger being completed; and (c) providing that the termination fee payable by Parent would be twice that
of the termination fee payable by the Company.
On April 1, 2014, the Special Committee
and representatives of Merrill Lynch met via conference call to discuss, among other things, requesting an increase to the merger
consideration from the Buyer Group. Shortly thereafter, representatives of Merrill Lynch proposed to representatives of the Buyer
Group that the Buyer Group increase the then-current merger consideration. In the subsequent three-week period, representatives
of Merrill Lynch and representatives of the Buyer Group engaged in various discussions concerning an increase to the merger consideration;
however, representatives of the Buyer Group ultimately informed representatives of Merrill Lynch that the Buyer Group was not
prepared to increase the merger consideration.
Between January and July 2014, Primavera
led the Buyer Group’s discussions with potential additional equity investors that were considering joining the Buyer Group.
Between February 2014 and August 2014, several of these potential equity investors signed confidentiality agreements with the
Company and assessed the possibility of joining the Buyer Group.
In April and May 2014, (a) Perfect World
Co., Ltd. (“Perfect World”), (b) an affiliate of FountainVest Partners (“FountainVest”), and (c) an affiliate
of Carlyle Asia Partners IV, L.P. (“Carlyle”) each became a party to the First Consortium Agreement and joined the
Buyer Group. On April 18, 2014, Perfect World and Shanda SDG entered into a share purchase agreement, pursuant to which Shanda
SDG sold to Perfect World 30,326,005 Class A ordinary shares of the Company at US$3.2975 per share. Such 30,326,005 Shares were
sold by Shanda SDG in the form of Class A ordinary shares converted from the same number of Class B ordinary shares because Shanda
SDG wanted to retain control of the Company after the transaction. Perfect World also agreed to pay a “make-whole”
payment to Shanda SDG on terms substantially the same as those in the Primavera SPA. The Company issued a press release in connection
with each of Perfect World, FountainVest and Carlyle joining the Buyer Group. Although Mr. Xiangdong Zhang, chief executive officer
of the Company at the time; Mr. Tunghai Chien, president of the Company; Mr. Wei; members of the Company’s investors relations
team; and certain of the Company’s game producers met separately with two other private equity investors, one of which the
Company had previously held discussions with in January 2014, on several occasions in March and April 2014 to discuss the Company’s
business and operations in order to facilitate the evaluation by these investors of joining the Buyer Group, these investors ultimately
did not join the Buyer Group.
Between May 9, 2014 and August 31,
2014, with the objective of assessing market interest for alternative transactions, representatives of Merrill Lynch also began
conducting a “market check” by initiating discussions with other potential buyers and regularly updated the Special
Committee on the status of those discussions. In all, Merrill Lynch contacted seven potential financial sponsors and nine potential
strategic investors to assess their interest in an acquisition of the Company as an alternative to the Proposed Transaction, but
each of these parties ultimately declined to make a proposal to acquire the Company.
On July 9, 2014 and July 11, 2014, representatives
of Shanda Interactive and a Chinese bank that Shanda Interactive approached had meetings and discussions with Mr. Xiangdong Zhang,
Mr. Tunghai Chien, members of the Company’s investors relations team, and certain of the Company’s game producers
to discuss the Company’s business and operations in order to facilitate the evaluation by the Chinese bank of joining the
Buyer Group; however, after these meetings and further evaluation, the Chinese bank ultimately did not join the Buyer Group.
In July 2014 and August 2014, representatives
of Primavera, on behalf of itself, Perfect World, FountainVest and Carlyle, discussed with representatives of Shanda Interactive
the progress of securing equity financing and the possibility of allowing members of the Buyer Group to separately solicit interest
from various other potential equity investors to join the Buyer Group and facilitate the Proposed Transaction.
In August 2014, representatives of Primavera
approached representatives of Shanghai Buyout Fund L.P., a limited partnership organized under the laws of the PRC (“Haitong”),
an affiliate of Haitong Securities Co., Ltd., a PRC company listed on the Shanghai Stock Exchange (“Haitong Securities”),
to solicit Haitong to join the Buyer Group. Between August 17 and September 1, 2014, representatives of Haitong discussed with
representatives of Primavera, Perfect World and Shanda Interactive the terms, requirements and process for Haitong to purchase
Class A ordinary shares from Shanda SDG, Primavera and Perfect World and join the Buyer Group. On September 1, 2014,
Haitong agreed to purchase a total of 107,438,129 Class A ordinary shares from Shanda SDG, Primavera and Perfect World for US$3.45
per share, and Hao Ding, a then affiliate of Haitong Securities, completed such purchase on behalf of Haitong on September 23,
2014. Among the 107,438,129 Class A ordinary shares sold to Haitong, 48,152,848 shares were sold by Shanda Interactive in the
form of Class A ordinary shares converted from the same number of Class B ordinary shares because Shanda Interactive wanted to
retain control of the Company after the transaction. Haitong also agreed to pay a “make-whole” payment to each of
Shanda SDG, Primavera and Perfect World on terms substantially the same as those in the Primavera SPA.
Between August 19 and August 26, 2014,
representatives of Ningxia approached and discussed with representatives of Shanda Interactive the terms, requirements and process
for Ningxia to purchase Company shares from Shanda SDG and join the Buyer Group. On September 1, 2014, Shanda Interactive agreed
to sell to Ningxia 80,577,828 Class A ordinary shares converted from the same number of Class B ordinary shares for US$3.45 per
share and Ningxia agreed to purchase such shares at the same price. Such shares were sold by Shanda Interactive in the form of
Class A ordinary shares converted from the same number of Class B ordinary shares because Shanda Interactive wanted to retain
control of the Company after the transaction. Zhongrong Investment, an affiliate of Ningxia, completed such purchase on behalf
of Ningxia on September 23, 2014. Ningxia and Zhongrong Investment also agreed to pay a “make-whole” payment
to Shanda SDG on terms substantially the same as those in the Primavera SPA.
Between August 27 and August 31, 2014,
representatives of Orient Finance Holdings (Hong Kong) Limited (“Orient Finance”), which is a direct and wholly owned
subsidiary of Orient Securities Company Limited (“Orient Securities”), a company organized under the Laws of the PRC,
and a then affiliate of Orient Hongtai and Orient Hongzhi, approached and discussed with representatives of Shanda Interactive
the terms, requirements and process for Orient Finance to purchase Class A ordinary shares from Shanda SDG and join the Buyer
Group. On August 31, 2014, Shanda Interactive agreed to sell to Orient Finance 123,552,669 Class A ordinary shares converted from
the same number of Class B ordinary shares for US$3.45 per share and Orient Finance agreed to purchase such shares at the same
price. Such shares were sold by Shanda Interactive in the form of Class A ordinary shares converted from the same number of Class
B ordinary shares because Shanda Interactive wanted to retain control of the Company after the transaction. After the transaction
was completed on September 23, 2014, such 123,552,669 Class A ordinary shares were subsequently transferred by Orient Finance
to Orient Hongtai and Orient Hongzhi, each of which is a then affiliate of Orient Finance, on November 24, 2014. Orient Finance
also agreed to pay a “make-whole” payment to Shanda SDG on terms substantially the same as those in the Primavera
SPA.
On August 30, 2014 and August 31, 2014,
representatives of Primavera, as the lead member of the Buyer Group at the time, and representatives of Shanda Interactive discussed
the withdrawal of Primavera, Perfect World, FountainVest and Carlyle from the Buyer Group. On September 1, 2014, Perfect World,
FountainVest, Carlyle and Primavera withdrew from the Buyer Group, and Haitong, Ningxia and Orient Finance joined the Buyer Group,
after which the Buyer Group was comprised of Shanda Interactive, Haitong, Ningxia and Orient Finance. On September 2, 2014,
the Company issued a press release announcing the changes to the Buyer Group.
After joining the Buyer Group, Ningxia
engaged King & Wood Mallesons (“KWM”) as its PRC legal counsel and Southwest Securities as its financial advisor
for the Proposed Transaction. KWM has provided legal services to a major subsidiary of Ningxia in the past and Ningxia selected
KWM as its PRC legal counsel for the Proposed Transaction based on KWM’s extensive experience in merger and acquisition
transactions, including going-private transactions, its familiarity with Ningxia and its ability to communicate effectively in
both English and Mandarin. Southwest Securities is an investment bank in the PRC. Although Ningxia did not have any business
relationship with Southwest Securities in the past, Ningxia selected Southwest Securities as its financial advisor for the Proposed
Transaction based on its expertise in advising outbound investments of China-based companies.
In light of his role as the chief executive
officer of China Universal Asset Management, an affiliate of Orient Finance, it was determined that Mr. Lin was no longer sufficiently
independent for purposes of serving on the Special Committee, and he promptly resigned from the Special Committee. Mr. Chan was
then elected by the Special Committee to serve as the chairman of the Special Committee. On September 4, 2014, the Special Committee
reconfirmed Sullivan & Cromwell’s appointment as its U.S. legal counsel, Merrill Lynch’s appointment as its financial
advisor (after Merrill Lynch reconfirmed its independence), Walkers’ appointment as its Cayman Islands legal counsel and
Haiwen’s appointment as its PRC legal counsel, and issued a press release announcing that the Board had reconstituted the
Special Committee formed by the Board to evaluate the Proposed Transaction.
On September 9, 2014, the Special Committee
and representatives of Sullivan & Cromwell and Merrill Lynch met via conference call to review the status of the Proposed
Transaction, particularly with respect to the change in the composition of the Buyer Group. At this meeting, the parties discussed
the status of the negotiations with respect to the Merger Agreement and the other Transaction Documents, and the changes to the
financing proposed by the Buyer Group (specifically that debt financing was no longer necessary).
On September 11, 2014, WSGR presented
to Sullivan & Cromwell a revised draft of the Merger Agreement. During the period between September 11 and September 22, 2014,
Sullivan & Cromwell held several conference calls and corresponded with WSGR with respect to the Proposed Transaction. On
these calls and during this correspondence, Sullivan & Cromwell and WSGR discussed the outstanding terms of the Merger Agreement
and the Special Committee’s position with respect to such terms and the other Transaction Documents, and exchanged various
drafts of the Merger Agreement and the other Transaction Documents. The negotiations with respect to the Merger Agreement and
the other Transaction Documents included discussions of, and the drafts exchanged between the parties reflected changes to, the
following terms, among others: (a) the circumstances under which the Board could effect a change of recommendation to the Company’s
shareholders in respect of the Proposed Transaction, (b) the scope and terms of the equity financing relating to the Proposed
Transaction, (c) the amount of termination fees and (d) the representations and warranties to be made by the Company.
On September 16, 2014, the Special Committee
and representatives of Sullivan & Cromwell and Merrill Lynch held several conference calls to discuss the terms of the Merger
Agreement in light of the changes to the Buyer Group and the Special Committee’s position with respect to the terms thereof
and the other Transaction Documents. During the conference calls, the Special Committee consulted Merrill Lynch on its preliminary
view on the then-proposed merger consideration and market practice. After discussions regarding negotiation tactics among the
Special Committee, Sullivan & Cromwell and Merrill Lynch, the Special Committee directed Merrill Lynch to seek to negotiate
an increase in the merger consideration.
On September 17, 2014, representatives
of WSGR and Sullivan & Cromwell held a conference call to discuss certain issues with respect to the Anti-monopoly Law of
the PRC and the proposed equity financing of the Proposed Transaction.
Between September 17 and September 22,
2014, representatives of Merrill Lynch held several conference calls with representatives of the Buyer Group, on which representatives
of Merrill Lynch conveyed the Special Committee’s position with respect to an increase in the merger consideration. On September
22, 2014, representatives of the Buyer Group indicated to representatives of Merrill Lynch that the Buyer Group was prepared to
increase the merger consideration to US$7.10 per ADS, and Merrill Lynch informed the Special Committee of the revised proposal.
On September 23, 2014, the Special
Committee met in Shanghai with representatives of Sullivan & Cromwell, Merrill Lynch, Walkers and Haiwen attending either
in person or via conference call. Representatives of Sullivan & Cromwell reviewed the history of the transaction, after which
representatives of Walkers reviewed the fiduciary duty considerations for members of the Special Committee under Cayman Islands
law. Sullivan & Cromwell then summarized for the Special Committee the key terms and proposed resolution of all open items
in the Merger Agreement and the other Transaction Documents, as well as disclosure requirements under U.S. law, deal execution
considerations and other typical features of “going private” transactions. Representatives of Haiwen then provided
an update on certain considerations with respect to the Anti-monopoly Law of the PRC. Representatives of Merrill Lynch then gave
a presentation on the valuation of the Company and the fairness of the consideration to be paid to the Unaffiliated Holders in
the transaction. After the presentations by its advisors, the Special Committee asked questions about Merrill Lynch’s methodology
and analysis with respect to the merger consideration, and discussed the other terms of the transaction with Sullivan & Cromwell,
after which it deliberated on such terms and the negotiation strategy with respect thereto. The Special Committee then determined
that it was prepared to proceed to negotiate the Proposed Transaction with the Buyer Group on the basis of a merger consideration
of US$3.55 per Share and US$7.10 per ADS.
On September 24, 2014, the Special Committee
held a conference call with representatives of Merrill Lynch, who discussed their financial analysis.
Between September 27 and October 19, 2014,
WSGR and Sullivan & Cromwell exchanged revised drafts of the Merger Agreement and the other Transaction Documents in consideration
of the Company and the Buyer Group’s desire to potentially sign the Merger Agreement on October 20, 2014, or shortly thereafter;
however, on October 19, 2014, WSGR informed Sullivan & Cromwell that the Buyer Group would not be in a position to sign the
Merger Agreement on October 20, 2014. Between October 19 and October 22, 2014, WSGR conveyed to Sullivan & Cromwell that members
of the Buyer Group were continuing to discuss the Proposed Transaction among themselves, after which discussions between representatives
of the Buyer Group and representatives of the Special Committee ceased for several weeks.
On October 27, 2014, the exclusivity period
under the First Consortium Agreement expired and members of the Buyer Group were no longer obligated to deal exclusively with
each other with respect to the Proposed Transaction. On October 28, 2014, Shanda Interactive and Ningxia entered into a letter
agreement, pursuant to which Shanda Interactive and Ningxia agreed to continue to work with each other exclusively in pursuing
the Proposed Transaction until November 25, 2014. Coincidentally on the same day, Mr. Xiangdong Zhang stepped down as chief executive
officer of the Company and Mr. Yingfeng Zhang was appointed by the Board as acting chief executive officer of the Company. Such
appointment was not related to the execution of the letter agreement by and between Shanda Interactive and Ningxia.
On October 29, 2014, Shanda Interactive
indicated to Ningxia that it would also consider quitting the Proposed Transaction if all of the Class B ordinary shares that
it indirectly held through Shanda SDG (the “SDG Shares”) could be sold at a premium for the super voting power carried
by the SDG Shares. Ningxia then proposed to acquire all the SDG Shares.
On
November 3, 2014, Shanda Interactive rejected Ningxia’s proposal, because if all the SDG Shares were sold to a single party,
the transaction would result in a change of control of the Company, which could trigger an anti-monopoly review by the PRC government.
Thereafter, Ningxia contacted Mr. Zhang to explore the possibility of Mr. Zhang joining the acquisition of the SDG Shares
in a manner such that neither Ningxia nor Mr. Zhang would control the Company
after the acquisition. As Mr. Zhang was interested in Ningxia’s proposal, he immediately established Yili Shengda and Ningxia
Yilida in contemplation of the possibility of pursuing the purchase of half of the SDG Shares. Yili Shengda is directly and wholly
owned by Ningxia Yilida, a PRC limited partnership, of which the general partner is Shanghai Yingfeng, a PRC company directly
and wholly owned by Mr. Zhang.
On November 7, 2014, Mr. Zhang confirmed
with representatives of Ningxia his intention to purchase half of the SDG Shares and jointly undertake the Proposed Transaction
with Ningxia. Subsequently, Mr. Zhang and representatives of Ningxia and Shanda Interactive discussed the potential sales of the
SDG Shares to affiliates of Mr. Zhang and Ningxia, respectively.
On November 19, 2014, WSGR informed Sullivan
& Cromwell that Shanda SDG intended to sell all of its Shares to affiliates of Mr. Zhang and Ningxia. On November 21, 2014,
the Special Committee and representatives of Sullivan & Cromwell and Merrill Lynch met via conference call to discuss the
status of the Proposed Transaction in light of Shanda SDG’s proposed sale and the new composition of the Buyer Group.
On November 22, 2014, representatives
of Sullivan & Cromwell, Haiwen and WSGR held a conference call to discuss Shanda SDG’s proposed sale, and the potential
implications under the Anti-monopoly Law of the PRC with respect to the Proposed Transaction in light of the composition of the
Buyer Group that would result from Shanda SDG’s proposed sale.
On November 22, 2014, Shanda Interactive
sent to Yili Shengda and Ningxia a draft share purchase agreement in respect of the sale of the SDG Shares. On November 25, 2014,
Zhongrong Shengda, an affiliate of Ningxia, and Yili Shengda, an affiliate of Mr. Zhang, each agreed to purchase 48,759,187 Class
B ordinary shares from Shanda SDG for US$5.13 per share, which purchase was completed on the same day (the “Shanda SDG Sale”).
Unlike the prior occasions when Shanda SDG converted Class B ordinary shares held by it into Class A ordinary shares and sold
such Class A ordinary shares to Primavera, Perfect World, Haitong, Ningxia and Orient Finance, or their respective affiliates,
this time Zhongrong Shengda and Yili Shengda negotiated to purchase Class B ordinary shares, which entitled their holders to 10
votes per share and, in exchange, Shanda SDG demanded a higher price than for the Class A ordinary shares. By acquiring an aggregate
of 97,518,374 Class B ordinary shares, Zhongrong Shengda and Yili Shengda together held approximately 69% of the total voting
power of the outstanding ordinary shares, which is more than the two-thirds majority necessary to approve a special resolution
of the shareholders of the Company as required under Cayman Islands law. On November 26, 2014, WSGR was engaged as U.S. legal
counsel to Ningxia and Yili Shengda with respect to the Proposed Transaction.
Upon the completion of Shanda SDG Sale,
each of Mr. Chen, Shanda Interactive and Shanda SDG ceased to own, directly or indirectly, any equity securities of the Company
and was no longer an affiliate of the Company. None of Mr. Chen, Shanda Interactive and Shanda SDG had engaged, directly or indirectly,
in any discussion on the Proposed Transaction since November 26, 2014. Also on November 26, 2014, Mr. Chen was replaced by Mr.
Zhang as the chairman of the Board and the Company issued a press release announcing that it had been informed by Shanda Interactive
that Shanda Interactive did not intend to remain a member of the Buyer Group following the completion of the Shanda SDG Sale,
after which Shanda Interactive would no longer beneficially own any Shares, but that it had been informed by Mr. Zhang and Ningxia
that they intended to continue pursuing the Proposed Transaction, after which discussions between representatives of the Buyer
Group and representatives of the Special Committee ceased for several weeks. Although Mr. Zhang’s employment contract with
Shanda Interactive was not officially terminated until December 16, 2014 (which was his monthly payroll cutoff date at Shanda
Interactive), he had ceased to work for Shanda Interactive on November 25, 2014, the date on which the Shanda SDG Sale was agreed
and completed. Since November 25, 2014, Mr. Zhang has worked exclusively and solely for the Company.
On November 26, 2014, representatives
of Sullivan & Cromwell, WSGR and Davis Polk held a conference call to discuss the status of the Proposed Transaction in light
of the Shanda SDG Sale.
On December 5, 2014, Ningxia Yilida, an
affiliate of Mr. Zhang, and Ningxia entered into a consortium agreement (the “Second Consortium Agreement”), pursuant
to which they agreed, among other things, to form a consortium to jointly make a proposal to the Company for a “going private”
transaction, deal exclusively with each other in pursuing such transaction until February 6, 2015 or the termination of the Second
Consortium Agreement, if earlier, and cooperate with respect to such transaction. All references to “Buyer Group”
or “Buyer Group members” between December 8, 2014 and March 16, 2015 refer only to Ningxia Yilida and Ningxia.
On December 18 and December 22, 2014,
representatives of WSGR and Sullivan & Cromwell held conference calls to discuss the timing and status of the Proposed Transaction,
the scope of the equity financing relating to the Proposed Transaction and the status of the Buyer Group’s review of the
Merger Agreement and the other Transaction Documents, and WSGR conveyed that the Buyer Group intended to continue pursuing the
Proposed Transaction on the terms reflected in the Transaction Documents and previously negotiated with the Special Committee
earlier in 2014. On December 23, 2014, the Special Committee and representatives of Sullivan & Cromwell and Merrill Lynch
met via conference call to discuss the same.
Between December 24 and December 26, 2014,
Sullivan & Cromwell assisted the Special Committee in negotiating a confidentiality agreement to be entered into with potential
equity investors that had contacted the Buyer Group and expressed interest in assessing the possibility of joining the Buyer Group.
Although two potential investors entered into such confidentiality agreements on January 2 and January 27, 2015, respectively,
neither ultimately joined the Buyer Group.
On January 14, 2015, Ningxia retained
Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) as its legal advisor in connection with the Proposed Transaction.
On February 17, 2015, the Special Committee
and representatives of Sullivan & Cromwell and Merrill Lynch met via conference call to discuss the status of the Proposed
Transaction in light of the two new potential equity investors and a new potential debt financing source, as well as recent news
coverage relating to the China Securities Regulatory Commission’s investigation of Zhongyin Cashmere (which investigation
was not related to the Proposed Transaction), a public company listed on the Shenzhen Stock Exchange that is an affiliate of Ningxia,
after which discussions between representatives of the Buyer Group and representatives of the Special Committee ceased for several
weeks.
On March 12, 2015, representatives of
Merrill Lynch held a conference call with Mr. Zhang to discuss the composition of the Buyer Group and the scope of the equity
financing relating to the Proposed Transaction. On March 16, 2015, representatives of WSGR informed representatives of Merrill
Lynch that a new consortium agreement would be signed within the next 24 hours.
Subsequently on March 16, 2015, Ningxia
Yilida, Ningxia, Orient Hongtai, Orient Hongzhi and Hao Ding entered into the Third Consortium Agreement, pursuant to which they
agreed to form a consortium to jointly make a proposal to the Company for a “going private” transaction, deal exclusively
with each other in pursuing such transaction for a period of approximately six weeks or until the termination of the Third Consortium
Agreement by all parties thereto, if earlier, and cooperate with respect to such transaction. On April 3, 2015, each of Zhongrong
Legend, Ningxia Silkroad, and Zhengjun Investment entered into an adherence agreement, pursuant to which each of them became a
party to the Third Consortium Agreement as a Sponsor. All references to “Buyer Group” or “Buyer Group members”
after March 16, 2015 refer only to those entities that were a party to the Third Consortium Agreement as of the relevant time.
The Third Consortium Agreement also obligated the parties thereto to vote for such transaction and against any competing proposal,
and restricted transfers of shares, warrants and options of the Company and any other securities that were convertible into or
exercisable for Shares or other equity securities of the Company, including Shares and ADSs.
On March 19, 2015, representatives of
Sullivan & Cromwell and WSGR held a conference call to discuss the status and timing of the Proposed Transaction, on which
call WSGR conveyed to Sullivan & Cromwell that the Buyer Group proposed a purchase price of US$3.45 per Share and US$6.90
per ADS, but otherwise wished to preserve the terms previously negotiated with the Special Committee during the course of 2014.
Representatives of WSGR indicated that the members of the Buyer Group had carefully considered the purchase price that they would
be prepared to pay in the Proposed Transaction. However, since such purchase price was lower than the US$3.55 per Class A ordinary
share and US$7.10 per ADS that the Buyer Group had previously expressed a willingness to entertain in September 2014, the Special
Committee determined that such lowered purchase price was not acceptable and considered requiring that the Merger Agreement and
Plan of Merger be subject to approval by the Unaffiliated Holders (in addition to the approval by all shareholders at the extraordinary
general meeting of the Company).
On March 23, 2015, the Special Committee
and representatives of Sullivan & Cromwell, Merrill Lynch and Haiwen met via conference call to discuss the offer from the
Buyer Group. The Special Committee determined that it would postpone its response to the Buyer Group until it had the opportunity
to review the Company’s estimated balance sheet, income statement and statement of cash flows for the fiscal year ended
December 31, 2014. On March 24, 2015, the Company made this financial information available to the Special Committee, which Merrill
Lynch subsequently discussed with the Special Committee.
Between March 25 and April 2, 2015, Sullivan
& Cromwell and WSGR continued to negotiate the Merger Agreement and the other Transaction Documents and to exchange drafts
thereof. During this period, negotiations with respect to the Transaction Documents included discussions of, and the drafts
exchanged between the parties reflected changes to, the merger consideration, the shareholder vote required to authorize and approve
the Merger Agreement and Plan of Merger, the scope of equity financing relating to the Proposed Transaction, the amount of the
termination fees, and certain considerations with respect to the Anti-monopoly Law of the PRC.
On March 27, 2015, the Company made available
to the Special Committee certain financial projections, which Merrill Lynch subsequently discussed with the Special Committee.
On March 31, 2015, the Special Committee
and representatives of Sullivan & Cromwell, Merrill Lynch and Haiwen met via conference call to discuss the Special Committee’s
response to the current proposal from the Buyer Group and Merrill Lynch’s opinion regarding the fairness of the consideration
to be paid to the Unaffiliated Holders in the transaction in light of the additional financial information received from the Company.
Merrill Lynch noted that, compared to financial projections previously made available by the Company, the estimated revenue and
net income of the Company for 2014 and the financial projections for subsequent years were lower, and therefore, it would be unlikely
for the revised financial projections to materially affect Merrill Lynch’s analysis of the fairness of the proposed merger
consideration presented on September 23, 2014 from a financial point of view. During the discussion, the Special Committee also
noted that the price of US$5.13 per share paid by Yili Shengda and Zhongrong Shengda for the Class B ordinary shares in the Shanda
SDG Sale exceeded the proposed merger consideration of US$7.10 per ADS and discussed with Merrill Lynch whether the price per
share paid in the Shanda SDG Sale reflected a control premium and, if so, whether it would affect the valuation of the Company
or the fairness of the consideration to be paid by the Buyer Group to the Unaffiliated Holders in the Proposed Transaction. After
discussing with Merrill Lynch, the Special Committee acknowledged that the Class B ordinary shares underlying the Shanda SDG Sale
represented the voting rights of the Company that would enable the two buyers to collectively control the Company and individually
block any potential competing transaction to the Merger, and therefore the price of US$5.13 per share is not comparable to the
merger consideration for Class A ordinary shares. After discussion among the Special Committee, Sullivan & Cromwell and Merrill
Lynch of the history of the negotiations, the Special Committee instructed Sullivan & Cromwell and Merrill Lynch to propose
that the merger consideration should be increased to US$3.55 per Class A ordinary share and US$7.10 per ADS. Subsequently on March
31, 2015, representatives of Sullivan & Cromwell and Merrill Lynch communicated to representatives of WSGR and Mr. Zhang the
Special Committee’s position that the merger consideration should be increased to US$3.55 per Class A ordinary share and
US$7.10 per ADS in view of the negotiations that had occurred in September 2014 and the purchase price paid to Shanda SDG in the
Shanda SDG Sale for Class B ordinary shares, and that approval of the Merger Agreement and Plan of Merger would need to be subject
to a separate approval by the Unaffiliated Holders if the merger consideration were any lower.
On April 1, 2015, representatives of Sullivan
& Cromwell, Merrill Lynch and WSGR held a conference call, on which WSGR conveyed that the Buyer Group, considering the protracted
nature of negotiations to that point, desired to maintain the then-current momentum of discussions between the parties and reach
a definitive agreement with respect to the Proposed Transaction, and therefore, had revised its proposal to reflect a merger consideration
of US$3.50 per Share and US$7.00 per ADS, on the conditions that the Merger Agreement be signed by April 3, 2015 and that approval
of the Merger Agreement and Plan of Merger not be subject to a separate approval by the Unaffiliated Holders. On the conference
call, representatives of WSGR indicated that the members of the Buyer Group had deliberated extensively on the purchase price
that they would be prepared to pay in the Proposed Transaction, and that the proposal of US$3.50 per Share and US$7.00 per ADS
was the highest price that the Buyer Group would agree to pay.
On April 2, 2015, the Special Committee
and representatives of Sullivan & Cromwell, Merrill Lynch and Haiwen met via conference call to discuss the proposal from
the Buyer Group. The Special Committee considered the revised proposal, and concluded that it was not prepared to recommend the
Proposed Transaction without a separate approval by the Unaffiliated Holders, unless the merger consideration was increased to
US$3.55 per Class A ordinary share and US$7.10 per ADS. After the conference call, representatives of Sullivan & Cromwell
and Merrill Lynch communicated the Special Committee’s position to representatives of WSGR.
On April 3, 2015, representatives of WSGR
informed representatives of Sullivan & Cromwell and Merrill Lynch that the Buyer Group was prepared to agree to pay US$3.55
per Class A ordinary share and US$7.10 per ADS, provided that the Merger Agreement and Plan of Merger would not be subject to
a separate approval by the Unaffiliated Holders.
On April 3, 2015, the Special Committee
and representatives of Sullivan & Cromwell, Merrill Lynch and Haiwen met via conference call. Following an update from Sullivan
& Cromwell on the status of negotiations with the Buyer Group, Sullivan & Cromwell summarized for the Special Committee
the key terms and proposed resolution of all open items on the Merger Agreement and the other Transaction Documents and reviewed
the fiduciary duty considerations for members of the Special Committee. Merrill Lynch then presented the Special Committee with
its financial analyses of the transaction and, following such presentation, orally rendered its opinion, which was subsequently
confirmed by it in writing and is attached hereto as Annex C, to the Special Committee to the effect that the consideration to
be paid to holders of the Class A ordinary shares and ADSs (other than (a) the holders of the Rollover Shares and (b) Parent,
the Company or any of their subsidiaries) in the Merger, as of April 3, 2015, based upon, and subject to, the procedures followed,
assumptions made, qualifications and limitations on the review undertaken and other matters considered by Merrill Lynch in preparing
its opinion, was fair, from a financial point of view, to such holders. Haiwen then indicated that the consummation of the Transactions
should not be subject to any requirement to obtain any regulatory approval under the Anti-monopoly Law of the PRC.
After considering the proposed terms of
the Merger Agreement and the other Transaction Documents, which were amended as a result of the negotiations as described above,
and the various presentations of Sullivan & Cromwell, Merrill Lynch, Walkers and Haiwen over the course of the transaction
to date, including the receipt of Merrill Lynch’s opinion, and taking into account the other factors described below under
the heading titled “—Reasons for the Merger and Recommendation of the Special Committee and the Board,” the
Special Committee unanimously determined that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
were fair to, and in the best interests of, the Company and the Unaffiliated Holders, and recommended that the Board authorize
and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.
Following the meeting of the Special
Committee, the Board met via conference call on April 3, 2015, with representatives of Merrill Lynch, Davis Polk and Sullivan
& Cromwell. The Board, acting upon the unanimous recommendation of the Special Committee, unanimously (a) determined that
it was fair to, advisable and in the best interests of the Company and the Unaffiliated Holders to consummate the Transactions,
including the Merger; (b) authorized and approved the execution, delivery and performance by the Company of the Merger Agreement,
the Plan of Merger and the Limited Guarantees and the consummation of the Transactions, including the Merger; and (c) resolved
to recommend in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the
Transactions, including the Merger, to the shareholders of the Company and directed that the Merger Agreement, the Plan of Merger
and the consummation of the Transactions, including the Merger, be submitted to a vote of the shareholders of the Company for
authorization and approval.
Later in the evening on April 3, 2015,
the Company, Parent and Merger Sub executed the Merger Agreement and the other Transaction Documents, and the Company issued a
press release announcing the execution thereof.
In May 2015, representatives of Messrs.
Miaotong Wang, Heng Shao and Ji Wang (collectively known herein as the “Li-Funds Persons”) approached representatives
of Haitong Securities and Orient Securities to discuss the possibility for certain affiliates of the Li-Funds Persons, namely
Litian, Lihua and Lihai, to purchase the 107,438,129 Class A ordinary shares beneficially owned by Haitong Securities and the
123,552,669 Class A ordinary shares beneficially owned by Orient Securities (such purchase from Haitong Securities and Orient
Securities, the “Li-Funds Purchase”).
The Li-Funds Persons control Century Huatong,
a company organized under the laws of the PRC and listed on the Shenzhen Stock Exchange. Huatong (of which Mr. Miaotong Wang owns
90% of the equity interests) and Messrs. Heng Shao and Ji Wang are the three largest shareholders of Century Huatong, holding
in aggregate approximately 54% of Century Huatong’s issued and outstanding shares.
Historically, Century Huatong had been
primarily engaged in manufacturing automotive parts. In light of the potentially higher profit margins to be achieved in the technology,
media and telecommunications (“TMT”) sectors, as well as the higher price-to-earnings ratios of TMT companies trading
in the PRC equity markets as compared to traditional industrial companies, Century Huatong began evaluating strategic options
for diversifying its business in 2013. In particular, Century Huatong took note of the rapid development of the web and mobile
games business in the PRC and, in 2014, Century Huatong entered the web and mobile games business by completing the acquisitions
of two PRC games companies (the “Century Huatong Games Companies”) that occupied, and continue to occupy, leading
positions in the web and mobile games business in the PRC.
Beginning in March 2014, the Century Huatong
Games Companies entered into licensing and cooperation arrangements with the Company. Under these arrangements, the Company licensed
certain intellectual property in its MMO games to the Century Huatong Games Companies, which developed web and mobile games jointly
with the Company. The Century Huatong Games Companies then marketed and operated such newly developed web games and mobile games,
and shared with the Company a percentage of the revenue generated from players of these games. These arrangements allowed the
Century Huatong Games Companies to take advantage of the market-proven story lines, characters and gaming concepts as well as
the firmly-established fan base in the Company’s PC-based MMO games, and to leverage them onto web and mobile platforms.
As a result of Century Huatong’s
acquisition of the Century Huatong Games Companies, the games segment became a significant driver of Century Huatong’s overall
business, contributing approximately 57% of Century Huatong’s net earnings for 2014. This achievement encouraged the Li-Funds
Persons to further explore opportunities to grow Century Huatong’s games business.
The Li-Funds Persons believed that cooperation
with the Company presented an attractive and reliable foundation for further developing Century Huatong’s games business. Accordingly,
they began considering ways to strengthen and safeguard that foundation within the context of Century Huatong’s strategic
transformation from a traditional industrial company to a company engaged in not only its historical core of automotive parts
manufacturing, but also in the higher-growth and higher-margin sector of web and mobile games. The Li-Funds Persons analyzed relevant
market trends and possible steps to implement a strategy for building Century Huatong’s games business that involved further
collaboration with the Company. In particular, in April 2015, the Li-Funds Persons reached a consensus around the points below:
| · | The
web and mobile games market had the potential for rapid growth in the PRC and offered
significant opportunities for Century Huatong as it further transitioned away from its
traditional industrial roots, especially if Century Huatong could capitalize on the popularity
of the intellectual property that the Company had developed in MMO games. |
| · | The
PRC games sector was entering a new phase, as technologies and user preferences shifted
from PC platforms to web and mobile platforms. As a result, the dynamics in the sector
were remarkably fluid, and commercial relationships among game developers, license holders
and other participants in the sector faced a period of change and uncertainty. |
| · | In
light of Century Huatong’s own strategic transformation as well as the potentially
disruptive shifts in the PRC games sector, a commitment to building Century Huatong’s
relationship with the Company, as could be demonstrated through acquiring a significant
equity stake in the Company, would be critical for realizing opportunities in the sector,
for the following reasons: |
| o | There was no guarantee that the Company would seek to continue
and expand its cooperation and licensing arrangements with Century Huatong in the long
term, particularly since not only Century Huatong’s competitors, but also the Company
itself, were developing capabilities in web and mobile games in response to rapidly evolving
user preferences away from PC-based MMO games to web- and mobile-based games in the PRC
market; and |
| o | Holding a significant equity stake in the Company could provide
a basis for influencing the direction of the Company in order to sustain and strengthen
the collaboration between the Company and Century Huatong and to minimize the likelihood
of developments at the Company that would be detrimental to Century Huatong and the Li-Funds
Persons. |
In considering acquiring a significant
equity stake in the Company, the Li-Funds Persons sought a transaction that could be completed expeditiously and, importantly,
without damaging Century Huatong’s relationship with the Company. Any transaction that could cause the Company’s management
or controlling shareholders, namely Mr. Zhang and Ningxia, to view Century Huatong as anything other than a reliable, long-term
business partner would have been highly counterproductive. Accordingly, the Li-Funds Persons avoided pursuing any transaction
that could have been viewed as a Competing Transaction. From this perspective, the only sizable blocks of Shares that were potentially
available for purchase were the Shares owned by Haitong Securities and Orient Securities. The Li-Funds Persons had prior dealings
with Haitong Securities and Orient Securities, as Haitong Securities had advised Century Huatong on mergers and acquisitions and
Orient Securities had served as the lead underwriter for Century Huatong’s initial public offering and the sponsor for Century
Huatong’s listing on the Shenzhen Stock Exchange in July 2011. Haitong Securities and Orient Securities, as financial investors
in the Company, were amenable to selling their Shares if a sufficiently attractive offer was made substantially earlier than any
exit after the Merger, such as with the possibility of a relisting on a PRC stock exchange (whose timing would be uncertain, if
it occurred at all).
In early May 2015, Mr. Ji Wang, on behalf
of the Li-Funds Persons, held an initial in-person meeting with representatives of Haitong Securities and separately had an initial
conference call with representatives of Orient Securities. Haitong Securities proposed a purchase price equivalent to approximately
US$4.80 per Class A ordinary share for its block of 107,438,129 Class A ordinary shares, and Orient Securities proposed a purchase
price equivalent to approximately US$5.00 per Class A ordinary share for its block of 123,552,669 Class A ordinary shares. The
Li-Funds Persons rejected these proposals as being grossly over-priced.
From early May 2015 to mid-June 2015,
the Li-Funds Persons engaged in extensive negotiations with Haitong Securities and Orient Securities with respect to the purchase
price, culminating in an agreement in principle on a purchase price equivalent to approximately US$4.44 per Class A ordinary share.
The Li-Funds Persons agreed to this purchase price while taking into account a variety of factors that they had considered during
six weeks of negotiations, including the risk that any failure or delay in reaching an agreement with Haitong Securities and Orient
Securities could result in a competitor of Century Huatong acquiring a substantial stake in the Company from either Haitong Securities
or Orient Securities, or both. The significant volatility in the PRC equities markets in June 2015 further motivated the Li-Funds
Persons to reach an agreement quickly.
In mid-June 2015, when agreement with
Haitong Securities and Orient Securities appeared likely, representatives of the Li-Funds Persons contacted Mr. Zhang (in his
capacity as the acting chief executive officer and major beneficial owner of the Company) and representatives of Ningxia (in its
capacity as major beneficial owner of the Company) to inform them of the Li-Funds Persons’ proposed purchase of Shares and
to express their hope that the cooperative and productive relationship between the Company and Century Huatong would be strengthened
as a result.
On June 25, 2015, share purchase agreements
were signed in connection with the transactions known collectively as the “Li-Funds Purchase”. The details of the
transactions constituting the Li-Funds Purchase are summarized below.
| · | Litian
agreed to acquire 100% of the equity interest of HuaSung from Orient Zhihui Investment
Center (Shanghai) L.P. (“Orient Zhihui”), which directly owned 100% of the
equity interest of HuaSung, which in turn directly owns 100% of the equity interest of
Orient Hongzhi, which is the sole asset of HuaSung. Orient Hongzhi directly owns 61,776,335
Class A ordinary shares of the Company, which are the sole assets of Orient Hongzhi.
The aggregate purchase price paid by Litian for the transaction was RMB1,705,000,000
(approximately US$274,506,329), or approximately US$4.44 per Class A ordinary share. |
| · | Lihua
agreed to acquire 100% of the equity interest of TonSung from Orient Zhisheng Investment
Center (Shanghai) L.P. (“Orient Zhisheng”), which directly owned 100% of
the equity interest of TonSung, which in turn directly owns 100% of the equity interest
of Orient Hongtai, which is the sole asset of TonSung. Orient Hongtai directly owns 61,776,334
Class A ordinary shares of the Company, which are the sole assets of Orient Hongtai.
The aggregate purchase price paid by Lihua for the transaction was RMB1,705,000,000 (approximately
US$274,506,329), or approximately US$4.44 per Class A ordinary share. |
| · | Lihai
agreed to acquire 100% of the equity interest of Hai Sheng Tong from Haitong and Xizang
Runda Resource Ltd., a PRC company (“Xizang Runda”), both of which collectively
and directly owned 100% of the equity interest of Hai Sheng Tong, which in turn directly
owns 100% of the equity interest of Hao Ding, which is the sole asset of Hai Sheng Tong.
Hao Ding directly owns 107,438,129 Class A ordinary shares of the Company, which are
the sole assets of Hao Ding. The aggregate purchase price paid by Lihai for the transaction
was RMB2,964,000,000 (approximately US$477,206,312), or approximately US$4.44 per Class
A ordinary share. |
The Li-Funds Purchase was completed
on June 30, 2015, as a result of which the Li-Funds Persons became the controlling persons of Orient Hongzhi, Orient Hongtai and
Hao Ding, which collectively hold 230,990,798 Class A ordinary shares of the Company. According to the Support Agreement, (i)
each of Orient Hongzhi, Orient Hongtai and Hao Ding, as a Rollover Shareholder, must appear at any shareholders’ meeting
of the Company or otherwise cause the Shares held by such Rollover Shareholder to be counted as present for the purposes of establishing
a quorum and vote or cause to be voted such Shares (a) in favor of the authorization and approval of the Merger Agreement, the
Plan of Merger and the Transactions, including the Merger and (b) against any Competing Transaction; and (ii) the Rollover Shares
(including Rollover Shares represented by ADSs) will, at the Effective Time, be cancelled for no consideration in the Merger.
None of the obligations of Orient Hongzhi, Orient Hongtai or Hao Ding under the Support Agreement are changed as a consequence
of the Li-Funds Purchase. Accordingly, in considering the implications of the Li-Funds Purchase under the terms of the Merger
Agreement, the Buyer Group has concluded as follows: (i) the Rollover Shareholders’ obligations under the Support Agreement
have not changed, (ii) Parent’s obligations under the Merger Agreement to vote, and cause the Rollover Shareholders and
their respective affiliates to vote, all Rollover Shares in favor of the authorization and approval of the Merger Agreement, the
Plan of Merger and the Transactions have not changed, and (iii) the Buyer Group does not regard the Li-Funds Purchase to constitute
an Intervening Event that requires a Change in the Company Recommendation. (See "The Merger Agreement—No Change of
Recommendation").
The Buyer Group’s position
that the US$3.55 Per Share Merger Consideration is fair to the Unaffiliated Holders is unchanged by the Li-Funds Purchase. Specifically,
the Buyer Group considered, among others, the factors discussed below:
| · | The
purchase price paid in connection with the Li-Funds Purchase is not a meaningful benchmark
for evaluating whether the merger consideration is fair to the Unaffiliated Holders. |
| o | The purchase price paid in connection
with the Li-Funds Purchase reflects the fundamentally unique strategic value placed by
the Li-Funds Persons on acquiring a significant equity stake in the Company within the
particular circumstances, as discussed above, including (i) Century Huatong’s ongoing
business transformation from a traditional industrial company to a company with a significant
games business, (ii) trends in the PRC games sector and the PRC equities market, as they
impacted Century Huatong and the Li-Funds Persons, (iii) the importance, in Century Huatong’s
perspective, of developing a strong, sustainable relationship with the Company as a way
of mitigating risks in a highly dynamic market environment, (iv) the significance of
equity ownership in the Company in laying a foundation for that relationship, and (v)
the lack of availability of any sizable block of Shares other than those held by Haitong
Securities and Orient Securities, which conferred upon Haitong Securities and Orient
Securities substantial bargaining leverage – a set of circumstances that is unlikely
to materialize in a comparable manner for any other person considering an investment
in the Company. |
| o | In fact, after the completion of the Li-Funds Purchase, Century
Huatong and the Company entered into another cooperation and license agreement on July
5, 2015, which was deemed by the Li-Funds Persons to be, in part, a realization of that
strategic value, signaling strengthened cooperation between the Company and Century Huatong. |
| · | There
have been no material changes to the circumstances underlying the fairness analysis of
the Buyer Group discussed in the section entitled “Special Factors—Position
of the Buyer Group as to the Fairness of the Merger” beginning on page 44. In particular: |
| o | the US$3.55 Per Share Merger Consideration
was determined by the parties at that time based on both the actual results of operations
and financial condition as well as on the Company’s business plan; |
| o | the Buyer Group’s understanding from management is that
the business, the financial conditions and the prospects of the Company have not improved
in any material respect since April 3, 2015, when the Merger Agreement was signed; and |
| o | the Buyer Group’s understanding from management is that
the Li-Funds Purchase has not affected in any material respect the business, financial
conditions or prospects of the Company. |
On June 29, 2015, representatives of Sullivan
& Cromwell and WSGR held a conference call during which WSGR informed Sullivan & Cromwell that Haitong Securities and
Orient Securities had transferred or were in the process of transferring their respective interests in the Company to a third
party. WSGR indicated that it would provide Sullivan & Cromwell with a further update on the following day. On June 30, 2015,
representatives of Sullivan & Cromwell and WSGR held another conference call on which WSGR briefed Sullivan & Cromwell
on the structure of the transfer and that the consideration for the transfer was approximately US$4.44 per Class A ordinary share.
Sullivan & Cromwell indicated on the conference call that the Special Committee would need additional information on the transfer,
including the parties involved, the timing of the transaction and the reason for the premium paid in connection with the transfer
compared to the merger consideration. Sullivan & Cromwell then updated the members of the Special Committee and Merrill Lynch
on this new development via e-mails.
On June 30, 2015, Century Huatong, which
is controlled by the Li-Funds Persons, announced that it may acquire all of the equity interests and assets of TonSung, HuaSung,
Hai Sheng Tong from Litian, Lihua and Lihai at their overall cost within one year after the closing of the Merger; however,
no agreement has been entered into with respect to this potential transaction.
Between July 2, 2015 and July 3, 2015,
each of Liyou, Orient Finance and Haitong made Schedule 13D filings with respect to the Company’s securities stating that
the Li-Funds Purchase had occurred. On July 6, 2015, the Company issued a press release regarding the Li-Funds Purchase as reported
in the Schedule 13D filings made on July 2, 2015 and July 3, 2015.
On July 2, 2015, the Special Committee
met via conference call. Sullivan & Cromwell and Merrill Lynch discussed the Li-Funds Purchase and provided an update on the
overall status of the Transactions. The members of the Special Committee noted the premium paid in the Li-Funds Purchase compared
to the merger consideration. Representatives of Sullivan & Cromwell briefed the Special Committee on the terms of the Merger
Agreement and other Transaction Documents that might be relevant to this development. Representatives of Merrill Lynch provided
an update on general market conditions since the signing of the Merger Agreement. The Special Committee decided to request further
information about the Li-Funds Purchase, including the reason for the premium paid in the Li-Funds Purchase compared to the merger
consideration, in order to obtain sufficient information to evaluate the impact of the Li-Funds Purchase on the closing of the
Merger, if any, and to urge WSGR to provide such information as soon as possible in order for the Special Committee to consider
the fairness of the merger consideration.
On July 4, 2015, representatives of Sullivan
& Cromwell and WSGR held a conference call. Sullivan & Cromwell requested that the Buyer Group provide further information
with respect to why the Li-Funds Persons were willing to enter into the Li-Funds Purchase at a consideration of approximately
US$4.44 per Class A ordinary share and also requested that the Buyer Group consider increasing the merger consideration.
On July 6, 2015, WSGR provided Sullivan
& Cromwell with background information from the Buyer Group with respect to why the Li-Funds Persons were willing to enter
into the Li-Funds Purchase at a consideration of approximately US$4.44 per Class A ordinary share. On the same day, representatives
of Sullivan & Cromwell and Davis Polk held a conference call to further discuss the possible implications of the Li-Funds
Purchase. Also on the same day, representatives of Sullivan & Cromwell, Davis Polk, WSGR and Skadden held a conference call
to discuss the status of the Transactions. On that call, representatives of WSGR and Skadden expressed the Buyer Group’s
view that the merger consideration continues to be fair, and that the premium paid in the Li-Funds Purchase compared to the merger
consideration reflects, among other things, the strategic value which the Li-Funds Persons believe Century Huatong would achieve
through the Transactions, which is a value that is specific to the Li-Funds Persons and not to the Unaffiliated Shareholders.
Sullivan & Cromwell expressed the view that the information disclosed by related parties in their Schedule 13D filings and
provided by the Buyer Group did not contain sufficiently specific information for the Special Committee’s evaluation and
consideration, and requested that the Buyer Group consider increasing the merger consideration. Sullivan & Cromwell provided
further comments on the information regarding the Li-Funds Purchase provided by the Buyer Group after the conference call on the
same day.
On July 7, 2015, WSGR provided Sullivan
& Cromwell with further information from the Buyer Group on the Li-Funds Purchase in response to Sullivan & Cromwell’s
comments of July 6, 2015. Also on July 7, 2015, representatives of Sullivan & Cromwell and Merrill Lynch held a conference
call to discuss Merrill Lynch’s views on the price paid in connection with the Li-Funds Purchase compared to the merger
consideration. Merrill Lynch noted that it was still reviewing the facts and circumstances surrounding the Li-Funds Purchase and
had not reached a view with respect to the Li-Funds Purchase. Merrill Lynch also noted that it would need further information
from the Buyer Group in order to consider this question. On the same day, representatives of Sullivan & Cromwell, WSGR, Skadden
and Davis Polk also held a conference call. WSGR noted that the Buyer Group would not agree to an increase in the merger consideration.
Sullivan & Cromwell noted that the Special Committee would require time to conduct due diligence on the Li-Funds Purchase
and to consider whether the premium paid in the Li-Funds Purchase compared to the merger consideration would affect the fairness
of the Merger. Sullivan & Cromwell, WSGR, Skadden and Davis Polk also discussed the inclusion of disclosure reflecting the
status of the Special Committee’s deliberations in an amendment to the Schedule 13E-3 regarding the Transactions and various
considerations related to the obligations of the various parties under the Merger Agreement and other Transaction Documents.
On July 7, 2015 and July 8, 2015, the
Special Committee met via conference call with representatives of Sullivan & Cromwell. The Special Committee and Sullivan
& Cromwell discussed advice received from Walkers regarding the fiduciary duties of the members of the Special Committee under
Cayman Islands law, the foregoing discussions among counsel for the parties to the Merger regarding merger consideration and matters
related to the filing of an amendment to the Schedule 13E-3. The Special Committee determined to request that the Buyer Group
further clarify the information regarding, and the reasons for, the premium paid in the Li-Funds Purchase compared to the merger
consideration, and to instruct Merrill Lynch to assist in the due diligence of such information and reasons.
On July 9, 2015, Sullivan & Cromwell
provided WSGR with a detailed set of due diligence questions with respect to the Li-Funds Purchase. These questions inquired about:
(a) the background and timing of the negotiations that led to the Li-Funds Purchase; (b) the views of the Li-Funds Persons with
respect to the web games and mobile games industry in China and how such views relate to their valuation of the Company; and (c)
the reasons for which the Li-Funds Persons pursued an investment in the equity interests of the Company, including (i) why the
Li-Funds Persons pursued the acquisition at the time they did, (ii) why the Li-Funds Persons pursued an investment in the Company
specifically, (iii) why the Li-Funds Persons carried out their investment in the Company through purchases from Orient Securities
and Haitong Securities and (iv) the factors considered by the Li-Funds Persons in reaching a decision to pay a significant premium,
as reflected in the consideration of approximately US$4.44 per Class A ordinary share.
On July 10, 2015, representatives of Sullivan
& Cromwell, Davis Polk and WSGR held a conference call to discuss the status of the due diligence with respect to the Li-Funds
Purchase and the filing of an amendment to the Schedule 13E-3. Also on July 10, 2015, representatives of Sullivan & Cromwell,
Merrill Lynch and WSGR and Mr. Ji Wang, who is one of the Li-Funds Persons and is also the general manager of Shanghai T2 Entertainment
Company Limited, one of the Century Huatong Games Companies, held a conference call, during which Mr. Ji Wang provided background
information with respect to the Li-Funds Purchase as well as the business cooperation between Century Huatong and the Company.
On July 13, 2015, representatives of
Sullivan & Cromwell, Merrill Lynch, Davis Polk, WSGR and DaCheng Law Offices (“DaCheng”), counsel to Orient Hongzhi,
Orient Hongtai and Hao Ding conducted a conference call with Mr. Ji Wang, as a representative of the Li-Funds Persons.
During the conference call, Mr. Ji Wang, as a representative of the Li-Funds Persons, provided additional information with respect
to the Li-Funds Purchase, including the reasons for which the Li-Funds Persons were willing to pay a consideration of approximately
US$4.44 per Class A ordinary share, as well as the history and status of the business relationship between Century Huatong and
the Company. In particular, Mr. Ji Wang noted that the established position of Shanda Games in the PRC gaming industry
and its portfolio of well-known games in the traditional PC-based platform were highly complementary to Century Huatong’s
plans for developing a games business focused on web- and mobile-based games. Moreover, Mr. Ji Wang underscored that
the initial licensing arrangements between the Company and Century Huatong had yielded promising results for Century Huatong.
However, Mr. Ji Wang also noted that there was no guarantee that Century Huatong would be able to maintain its existing
business relationship with the Company, since the Company had entered into similar licensing arrangements with other developers,
and that Century Huatong and the Li-Funds Persons were concerned that a competitor of Century Huatong might acquire a significant
stake in the Company. Mr. Ji Wang further noted that, in light of the existing business relationship between Century
Huatong and the Company and the importance of this relationship to Century Huatong, the Li-Funds Persons were willing to acquire
beneficial ownership of the Company’s equity interests at a consideration of approximately US$4.44 per Class A ordinary
share in order to sustain and strengthen the cooperative relationship between Century Huatong and the Company and with the hope
of exercising greater influence over the management of the Company in the future as a significant shareholder. Mr. Ji Wang also
noted that, while the Li-Funds Persons were considering the acquisition of a significant equity stake in the Company, they sought
a transaction with a high degree of certainty that could be completed quickly and without disrupting Century Huatong’s relationship
with the Company and its existing major shareholders and management, and therefore were not interested in making a proposal for
a Competing Transaction, which would have involved a high degree of uncertainty and required a lengthy process to completion.
On July 21, 2015,
the Special Committee and representatives of Sullivan & Cromwell, Merrill Lynch and Walkers met via conference call. During
the meeting, Sullivan & Cromwell summarized the information that it had received from the Buyer Group and its counsel, including
information with respect to the Li-Funds Purchase and the discussions that Sullivan & Cromwell had conducted with the Buyer
Group with respect to a potential increase in the merger consideration. Walkers summarized the Special Committee’s fiduciary
duties and the requirements and procedure for exercising dissenters’ rights under Cayman Islands law. Merrill Lynch summarized
the results of due diligence with respect to the Li-Funds Purchase, including a description of the primary business operations
of Century Huatong, as well as the market reaction to the Li-Funds Purchase, including changes in the stock price of the Company
since the Li-Funds Purchase and the feedback that Merrill Lynch had received from certain of the Unaffiliated Holders with respect
to the Li-Funds Purchase. Following discussions of these topics among the Special Committee, Sullivan & Cromwell, Merrill
Lynch and Walkers, the Special Committee instructed Merrill Lynch to confirm with the Buyer Group whether the Buyer Group was
prepared to consider an increase of the merger consideration from US$7.10 per ADS and instructed Sullivan & Cromwell to continue
the diligence effort, including following up on any outstanding questions. Later on the same day, following a call with Mr. Yingfeng
Zhang, Merrill Lynch informed the Special Committee, Sullivan & Cromwell and Walkers that the Buyer Group, as conveyed by
Mr. Yingfeng Zhang, was not prepared to increase the merger consideration.
On August 6, 2015, the Special Committee
met via conference call with representatives of Merrill Lynch, Sullivan & Cromwell and Walkers. During this meeting, the Special
Committee considered the information that it had received regarding the Li-Funds Purchase and whether such information was sufficient
to evaluate the fairness of the merger consideration. The Special Committee instructed Sullivan & Cromwell and Merrill Lynch
to continue to engage in diligence on the Li-Funds Purchase.
On August 7, 2015, representatives of
Sullivan & Cromwell, Davis Polk, WSGR, Skadden and DaCheng held a conference call. During the call, Sullivan & Cromwell
requested that the Buyer Group provide further information related to the Li-Funds Purchase. Later that day, Sullivan & Cromwell
forwarded to DaCheng a number of due diligence questions regarding the Li-Funds Purchase, including with respect to how the Li-Funds
Persons initiated discussions with Haitong Securities and Orient Securities regarding the Li-Funds Purchase, and how the Li-Funds
Purchase (including the price paid) was negotiated.
On August 12, 2015, the Special Committee
met via conference call with representatives of Sullivan & Cromwell. During this conference call, the Special Committee decided
to meet with Mr. Zhang, in his capacity as acting chief executive officer of the Company and chairman of the Board, to brief him
on the status of the Transactions and diligence related to the Li-Funds Purchase.
On August 15, 2015, Messrs. Chan and Gui
met with Mr. Zhang in Shanghai and briefed him on the status of the Transactions and the Special Committee’s diligence related
to the Li-Funds Purchase.
On August 17, 2015, a conference call
was held among Messrs. Chan, Gui and Zhang, the other members of the Board and representatives of the Buyer Group, WSGR, Skadden,
DaCheng, Davis Polk, Merrill Lynch and Sullivan & Cromwell to address outstanding questions regarding the Li-Funds Purchase.
During this call, Mr. Ji Wang explained the commercial rationale for the Li-Funds Purchase, which was to strengthen and protect
Century Huatong’s games business in light of Century Huatong’s strategic transformation from a traditional industrial
company to a company engaged in both automotive parts manufacturing and web and mobile games development.
On August 25, 2015, the Special Committee
met via conference call with representatives of Haiwen, Merrill Lynch, Sullivan & Cromwell and Walkers. Sullivan & Cromwell
provided the Special Committee with an update on the overall status of the Merger and other transactions contemplated by the Merger
Agreement. Following this briefing, Walkers advised the Special Committee on the fiduciary duty considerations for members of
the Special Committee under Cayman Islands law.
Following these discussions and taking
into consideration the factors described below under the heading titled “—Reasons for the Merger and Recommendation
of the Special Committee and the Board”, the Special Committee (a) determined that the Transactions, including the Merger,
are fair to, and in the best interests of, the Company and the shareholders and ADS holders of the Company who are unaffiliated
with the Company and whose securities are to be purchased pursuant to the terms of the Merger Agreement, (b) affirmed its April
3, 2015 resolutions (i) determining that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
are fair to, and in the best interests of, the Company and the Unaffiliated Holders; (ii) determining that the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger, are advisable; and (iii) recommending that the Board authorize
and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, (c) authorized each member
of the Special Committee to take, or cause to be taken, any actions to give effect to the resolutions described in (a) or (b)
above and (d) ratified all previous actions taken by the Special Committee in connection with the matters described in the
resolutions set forth in (a) or (b) above.
Following the meeting of the Special Committee,
the Board met via video conference on August 26, 2015, with representatives of Davis Polk, Sullivan & Cromwell and Conyers.
Sullivan & Cromwell, on behalf of the Special Committee, briefed the Board on the work undertaken by the Special Committee
and its advisors to date in connection with the Merger, including its consideration of the Li-Funds Purchase, and reported to
the Board the resolutions adopted by the Special Committee on August 25, 2015. Representatives of Davis Polk provided the Board
with an update of the overall status of the Merger since the execution of the Merger Agreement on April 3, 2015. Representatives
of Conyers advised the Board members of their fiduciary duties under Cayman Islands law. Members of the Board then discussed the
fairness of the Merger in light of the Li-Funds purchase. Following this discussion, the Board, acting upon the unanimous affirmation
of the Special Committee, unanimously (a) determined that the Merger and other transactions contemplated by the Merger Agreement
are fair to, and in the best interests of, the Company and the Unaffiliated Holders and (b) affirmed its April 3, 2015 resolutions
(i) determining it was fair to, advisable and in the best interests of the Company and the Unaffiliated Holders to consummate
the Merger; (ii) authorizing and approving the execution, delivery and performance by the Company of the Merger Agreement; and
(iii) resolving to recommend in favor of the authorization and approval of the Merger Agreement, and the consummation of the Merger,
to the shareholders of the Company for authorization and approval.
On September 18, 2015, Sullivan &
Cromwell presented WSGR with a draft amendment and restatement of the Merger Agreement. Under the terms of the Merger Agreement,
either the Company or Parent may terminate the Merger Agreement without payment of a termination fee if the Merger is not consummated
by a defined termination date (the “Termination Date”). The only material amendment to the Merger Agreement
reflected in the draft amendment and restatement presented by Sullivan & Cromwell was the extension of the Termination Date
from October 3, 2015 to December 31, 2015. Between September 19, 2015 and September 23, 2015, representatives of Sullivan &
Cromwell and WSGR held several calls and corresponded with respect to the draft amendment and restatement of the Merger Agreement.
At a meeting held via conference
call on September 21, 2015, the Special Committee, after due consideration, unanimously (a) determined that the Transactions,
including the Merger, are fair to, and in the best interests of, the Company and the shareholders and ADS holders of the
Company who are unaffiliated with the Company and whose securities are to be purchased pursuant to the terms of the Merger
Agreement, as amended and restated by the proposed amendment and restatement, (b) recommended that the Board enter into the
proposed amended and restated Merger Agreement. Following the meeting of the Special Committee, the Board, acting upon the
unanimous recommendation of the Special Committee, through unanimous written consent, (a) determined that the Transactions,
including the Merger, are fair to, and in the best interest of, the Company and the Shareholders and ADS holders of the
Company who are unaffiliated with the Company and whose securities are to be purchased pursuant to the terms of the proposed
amended and restated Merger Agreement, and (b) approved the proposed amended and restated Merger Agreement. On September
23, 2015, Parent, Merger Sub and the Company entered into the amended and restated Merger Agreement.
Reasons for the Merger and Recommendation of the Special
Committee and the Board
The Board, acting upon the unanimous recommendation
of the Special Committee made on April 3, 2015 and affirmed on August 25, 2015, which Special Committee acted with the advice
and assistance of the Company’s management and its independent financial and outside legal advisors, evaluated the Merger
Agreement, the Plan of Merger and the Transactions.
In general, the Board believes that, as
a privately held entity, the Company’s management may have greater flexibility to focus on improving the Company’s
long-term financial performance without the pressures created by the public equity market’s emphasis on short-term period-to-period
financial performance.
In addition, as an SEC-reporting company,
the Company’s management and accounting staff, which comprises a relatively small number of individuals, must devote significant
time to SEC reporting and compliance. The Company is also required to disclose a considerable amount of business information to
the public, some of which is commercially sensitive and would not be disclosed by a non-reporting company. As a result, the Company’s
actual or potential competitors, customers, lenders, intellectual property licensors and other vendors all have ready access to
this information, which may help them compete against the Company or make it more difficult for the Company to negotiate favorable
terms with them, as the case may be.
The Special Committee met regularly with
its advisors between January 2014 and April 2015 to consider and review, among other things, any possible strategic alternatives
to the Proposed Transaction and the terms of the Proposed Transaction, and to review, consider, discuss with its advisors regarding
and give its advisors instructions on the status and tactics of negotiations with the Buyer Group on the proposed merger consideration
and other terms of the Proposed Transaction. These efforts are described in greater detail under the section entitled “—Background
of the Merger.” At a meeting on April 3, 2015, the Special Committee reviewed and considered the terms and conditions of
the Merger Agreement, the Plan of Merger and the Transactions, including the Merger. The Special Committee, after due consideration,
unanimously (a) determined that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, were fair
to, and in the best interests of, the Company and the Unaffiliated Holders; (b) declared advisable the Merger Agreement, the Plan
of Merger and the Transactions, including the Merger; and (c) recommended that the Board authorize and approve the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger.
At a meeting on April 3, 2015, the Board,
acting upon the unanimous recommendation of the Special Committee, unanimously (a) determined that it was fair to, advisable and
in the best interests of the Company and the Unaffiliated Holders to consummate the Transactions, including the Merger; (b) authorized
and approved the execution, delivery and performance by the Company of the Merger Agreement, the Plan of Merger and the Limited
Guarantees and the consummation of the Transactions, including the Merger; and (c) resolved to recommend in favor of the authorization
and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, to the
shareholders of the Company and directed that the Merger Agreement, the Plan of Merger and the consummation of the Transactions,
including the Merger, be submitted to a vote of the shareholders of the Company for authorization and approval.
In the course of reaching their determinations
on April 3, 2015, each of the Special Committee and the Board considered the following substantive factors and potential benefits
of the Merger, which are not listed in any relative order of importance, each of which the Special Committee and the Board believed
supported their decisions:
|
· |
the Special
Committee and the Board had knowledge of the Company’s business, financial condition, results of operations, prospects
and competitive position and believed that the Merger would be financially more favorable to the Unaffiliated Holders than
any alternative reasonably available to the Company and the Unaffiliated Holders; |
| · | the consideration
of US$7.10 per ADS offered to the Unaffiliated Holders in the Merger represents a premium
of approximately 25.7% over the Company’s closing price as quoted by NASDAQ on
January 24, 2014, the last trading day immediately prior to the Company’s announcement
on January 27, 2014 that it had received the Proposal, and a premium of approximately
46.5% and 53.8%, respectively, over the Company’s 30- and 60-trading day volume-weighted
average price as quoted by NASDAQ prior to, and including, January 24, 2014; |
| · | it could take
a considerable period of time, if ever, before the trading price of the ADSs would reach
and sustain a level equal to or greater than the merger consideration of US$7.10 per
ADS, as adjusted for present value; |
| · | the Special
Committee determined that, following extensive negotiations with the Buyer Group, US$3.55
per Share and US$7.10 per ADS were the highest price per Share and per ADS that the Buyer
Group would agree to pay, with the Special Committee basing its belief on a number of
factors, including the duration and tenor of negotiations and the experience of the Special
Committee and its advisors; |
| · | the all-cash
merger consideration allows the Unaffiliated Holders to immediately realize liquidity
for their investment and provides them with a specific amount of cash consideration for,
and corresponding certainty of the value of, their Shares and/or ADSs; |
| · | following its
formation, the Special Committee had independent control of the sale process with the
advice and assistance of Merrill Lynch as its independent financial advisor and Sullivan
& Cromwell, Walkers and Haiwen as its independent legal advisors, which, in each
case, reported solely to the Special Committee; |
| · | the Special
Committee reviewed and discussed with Merrill Lynch its financial analysis, and Merrill
Lynch rendered an opinion to the Special Committee on April 3, 2015 that the consideration
to be paid to holders of the Class A ordinary shares and ADSs (other than (a) the Excluded
Shares and (b) ADSs representing Excluded Shares) in the Merger, as of April 3, 2015,
based upon, and subject to, the procedures followed, assumptions made, qualifications
and limitations on the review undertaken and other matters considered by Merrill Lynch
in preparing its opinion, was fair, from a financial point of view (see “—Opinion
of Merrill Lynch, the Special Committee’s Financial Advisor” beginning on
page 50 for additional information); |
| · | the forecasts
of the Company’s future financial performance prepared by the Company’s management,
together with the Company’s management’s view of the Company’s financial
condition, results of operations, business, prospects and competitive position, were
made available to the Special Committee; |
| · | the Company’s
revenues are highly concentrated in a small number of mobile games and MMO games (which
include massively multi-player online role-playing games (“MMORPGs”) and
advanced casual games), and there can be no certainty that MMO games and/or MMORPGs will
remain popular or that the Company will be able to introduce new games that are comparably
successful due to the risks faced by the Company, including, in particular, that: |
| ○ | the
Company is currently dependent on three MMORPGs for approximately 53.3% of its net revenues,
the popularity of which is unpredictable and may not remain for the duration anticipated
by the Company; |
| ○ | the
Company may not be able to develop commercially successful games or expansion packs for
existing games according to its timetable or at all; |
| ○ | the
Company may not be able to continue to create successful mobile games, which have a lower
operating margin than MMO games; and |
| ○ | the
Company’s item-based revenue model, which allows players to play the basic features
of each game for free and relies on players purchasing virtual items to generate revenues,
may not be successful; |
| · | members of
the Buyer Group together hold approximately 90.7% of the total voting power of the outstanding
ordinary shares, more than the two-thirds majority necessary to approve a special resolution
of the shareholders of the Company, and have agreed not to sell their respective Shares
and/or ADSs to any third party; |
| · | the Special
Committee considered factors of the transaction that could impact deal certainty, including: |
| ○ | the
fact that Parent and Merger Sub have obtained committed equity financing necessary to
complete the Merger, and Merrill Lynch has performed due diligence on the financial resources
of the equity investors; and |
| ○ | the
Merger Agreement contains a limited scope of conditions to closing; |
| · | the Merger
Agreement provides that, in the event of the failure of the Merger to be completed under
certain circumstances, Parent will pay the Company a termination fee of US$114,500,000
(see “The Merger Agreement—Termination Fee and Reimbursement of Expenses”
beginning on page 102 for additional information); |
| · | Merrill Lynch,
under the direction of the Special Committee, conducted a “market check”
of parties deemed to be potentially interested in and capable of acquiring the Company,
and all such parties ultimately declined to engage in discussions with the Special Committee
regarding such acquisition or any alternative transaction; |
| · | since the announcement
of the Proposal on January 27, 2014, no party other than the Buyer Group, as it
existed from time to time, had made any proposal to the Company or the Special Committee
with respect to any alternative transaction with the Company; and |
| · | the Special
Committee believed that it was unlikely that any transaction with a third party could
be completed given that the Third Consortium Agreement (as further discussed under the
section entitled “—Background of the Merger”) provides that, subject
to the terms and conditions set forth therein, the Buyer Group members that are a party
thereto, which beneficially own an aggregate of 311,568,626 Class A ordinary shares (including
Class A ordinary shares represented by ADSs) and 97,518,374 Class B ordinary shares,
representing approximately 75.6% of the Company’s issued and outstanding Shares
and approximately 90.7% of the total number of votes represented by the Company’s
issued and outstanding Shares, will only vote in favor of the Merger and will vote against
any transaction involving a third party, in each case in their capacities as shareholders
of the Company. |
In addition, the Special Committee and
the Board believed that sufficient procedural safeguards were and are present to ensure that the Merger is procedurally fair to
the Unaffiliated Holders and to permit each of the Special Committee and the Board to represent effectively the interests of such
Unaffiliated Holders. The procedural safeguards, which are not listed in any relative order of importance, include the following:
| · | in considering
the transaction with the Buyer Group, the Special Committee acted solely to represent
the interests of the Unaffiliated Holders, and the Special Committee had independent
control of its legal and financial advisors; |
| · | the consideration
and negotiation of the Merger Agreement were conducted under the control and supervision
of the Special Committee, and all of the members of the Special Committee that recommended
authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, during the entire process were and are independent directors and
free from any affiliation with the Buyer Group; none of the members of the Special
Committee that recommended approval of the Merger Agreement, the Plan of Merger and the
consummation of the Transactions is or ever was an employee of the Company or any of
its subsidiaries or affiliates and none of such members has any financial interest in
the Merger that is different from that of the Unaffiliated Holders other than the cash-out
of Company Restricted Shares and Company RSUs held by such members, such members’
receipt of Board and Special Committee compensation (which was not and is not contingent
upon the completion of the Merger, or the Special Committee’s or the Board’s
recommendation of the Merger) and their indemnification and liability insurance rights
under the Merger Agreement and the Company’s memorandum and articles of association;
during all dealings as a member of the Special Committee prior to his resignation on
September 4, 2014, Mr. Lin was also an independent director and free from any
affiliation with the Buyer Group as it was composed prior to the addition of Orient Finance
to the Buyer Group on September 1, 2014; and, finally, Mr. Lin resigned as
a member of the Special Committee following the addition of Orient Finance to the Buyer
Group on September 1, 2014 (see “—Background of the Merger” beginning
on page 22 for additional information); |
| · | the Special
Committee was assisted in negotiations with the Buyer Group and in its evaluation of
the Merger by Merrill Lynch as its independent financial advisor and Sullivan & Cromwell,
Walkers and Haiwen as its independent legal advisors; |
| · | the Special
Committee was broadly empowered to consider, attend to and take any and all actions in
connection with the Proposal from the Buyer Group in relation to the Merger Agreement,
the Plan of Merger and the Transactions from the date the Special Committee was established,
and no evaluation, negotiation or response regarding the Merger Agreement, the Plan of
Merger and the Transactions in connection therewith from that date forward was considered
by the Board for approval until the Special Committee had recommended such action to
the Board; |
| · | the terms and
conditions of the Merger Agreement were the product of extensive negotiations between
the Special Committee and its advisors, on the one hand, and the Buyer Group and its
advisors, on the other hand; |
| · | the Special
Committee was broadly empowered to exercise the full power and authority of the Board
in relation to the negotiation of the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, and related process; |
| · | the Special
Committee met regularly to consider and review the terms of the Merger Agreement, the
Plan of Merger and the Transactions, including the Merger; |
| · | the Special
Committee and the Board recognized that the Special Committee had no obligation to recommend
the Merger or any other transaction; |
| · | the Special
Committee and the Board recognized that, under the terms of the Merger Agreement, prior
to the approval and adoption of the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, by the shareholders of the Company, the Special Committee has the
ability to consider any acquisition proposal reasonably likely to lead to a Superior
Proposal; |
| · | the Company
has the ability, subject to compliance with the terms and conditions of the Merger Agreement
and prior to the approval and adoption of the Merger Agreement, the Plan of Merger and
the Transactions, including the Merger, by the shareholders of the Company, to terminate
the Merger Agreement in order to enter into an agreement with respect to a Superior Proposal; |
| · | the Board
and the Special Committee have the ability, under certain circumstances, to change, withhold,
withdraw, qualify or modify the Company Recommendation (as defined in the section entitled
“Merger Agreement—No Solicitation of Competing Transactions” beginning
on page 93) that the Company’s shareholders vote to approve and adopt the Merger
Agreement, Plan of Merger and the Transactions, including the Merger; and |
| · | dissenters’
rights are available to the shareholders who comply with all of the required procedures
under the Cayman Islands Companies Law for exercising dissenters’ rights, which
allow such shareholders to receive payment of the fair value of their Shares. |
Each of the Special Committee and the
Board also considered a variety of potentially negative factors concerning the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, including the following, which are not listed in any relative order of importance:
| · | the Unaffiliated
Holders will have no on-going equity participation in the Company following the Merger,
and they will cease to participate in the Company’s future earnings or growth,
if any, and to benefit from increases, if any, in the value of the Company’s equity,
and will not participate in any potential future sale of the Company to a third party
or any potential recapitalization of the Company, which could include a dividend to shareholders; |
| · | approval of
the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
is not subject to a separate approval by the Unaffiliated Holders and, given that the
Buyer Group has, in the aggregate, approximately 90.7% of the voting power of the outstanding
Shares, the Buyer Group has the ability to determine the authorization and approval of
the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
at the extraordinary general meeting; |
| · | the restrictions
on the conduct of the Company’s business prior to the completion of the Merger
may delay or prevent the Company from undertaking business opportunities that may arise
or any other action it would otherwise take with respect to the operations of the Company
pending completion of the Merger; |
| · | since the Company
became publicly listed on NASDAQ on September 25, 2009, the highest historical closing
price of ADSs (US$13.00 per ADS in September 2009) exceeds the consideration of US$7.10
per ADS to be paid in the Merger, although the ADSs have not had a closing price above
US$7.10 per ADS since June 2, 2011; |
| · | there are risks
and costs to the Company if the Merger does not close, including the diversion of management
and employee attention, potential employee attrition and the potential disruptive effect
on the Company’s business and customer relationships; |
| · | the Company
may be required, under certain circumstances, to pay Parent a termination fee of US$57,250,000
in connection with the termination of the Merger Agreement; |
| · | the Company’s
remedy in the event of breach of the Merger Agreement by Parent or Merger Sub is limited,
under certain circumstances, to the receipt of a reverse termination fee of US$114,500,000,
and under certain circumstances the Company may not be entitled to a reverse termination
fee or expenses at all; |
| · | the Buyer
Group has interests in the Merger that are different from, or in addition to, those of
the Unaffiliated Holders (see “—Interests of Certain Persons in the Merger”
beginning on page 66 for additional information), particularly in light of the terms
of the Buyer Group’s participation in the Merger; |
| · | it is possible
that the Merger might not be completed and the negative impact of such a public announcement
on the Company’s sales and operating results, and the Company’s ability to
attract and retain key management, marketing and technical personnel; and |
| · | an all-cash
transaction is taxable to the Unaffiliated Holders who are U.S. Holders (as defined under
“—Material U.S. Federal Income Tax Consequences”) for U.S. federal
income tax purposes, and is likely taxable to the Unaffiliated Holders in other jurisdictions. |
Following the Li-Funds Purchase in June
2015, the Special Committee and its advisors engaged with the Buyer Group and its advisors to evaluate the circumstances surrounding
the Li-Funds Purchase in order to evaluate the fairness of the Merger in light of developments subsequent to the execution of
the Merger Agreement. These efforts are described in greater detail under the section entitled “—Background of the
Merger.” At a meeting on August 25, 2015, the Special Committee, after due consideration, unanimously (a) determined that
the Transactions, including the Merger, are fair to, and in the best interests of, the Company and the shareholders and ADS holders
of the Company who are unaffiliated with the Company and whose securities are to be purchased pursuant to the terms of the Merger
Agreement, (b) affirmed its April 3, 2015 resolutions (i) determining that the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, would be fair to, and in the best interests of, the Company and the Unaffiliated Holders; (ii) declaring
that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are advisable; and (iii) recommending
that the Board authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, (c) authorized
each member of the Special Committee to take, or cause to be taken, any actions to give effect to the resolutions described in
(a) or (b) above and (d) ratified all previous actions taken by the Special Committee in connection with the matters described
in the resolutions set forth in (a) or (b) above.
At a meeting on August 26, 2015, the Board,
acting upon the unanimous affirmation of the Special Committee, unanimously (a) determined that the Merger and other transactions
contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and the Unaffiliated Holders, (b)
affirmed its April 3, 2015 resolutions (i) determining it was fair to, advisable and in the best interests of the Company and
the Company’s Unaffiliated Holders to consummate the Merger; (ii) authorizing and approving the execution, delivery and
performance by the Company of the Merger Agreement; and (iii) resolving to recommend in favor of the authorization and approval
of the Merger Agreement, and the consummation of the Merger, to the shareholders of the Company for authorization and approval.
In the course of reaching their respective
determinations on August 25, 2015 and August 26, 2015, the Special Committee and the Board considered the following factors, which
are not listed in any relative order of importance:
| · | Based
on a series of detailed discussions among representatives of the Special Committee and
representatives of the Li-Funds Persons, the Company and the Buyer Group (which are discussed
in “Special Factors—Background of the Merger”), as well as public materials
concerning Century Huatong and its business history and plans, the Special Committee
and the Board believed that the Li-Funds Persons were strategic investors who, in pursuing
a long-term plan of corporate transformation of Century Huatong through diversification
into the PRC games sector, sought to secure and strengthen Century Huatong’s existing
relationship with the Company as a foundation of that transformation by purchasing the
only significant blocks of Shares that were available in the immediate term, while taking
into account possible actions by competitors of Century Huatong – in particular: |
| o | The Special Committee
and the Board noted the fact that the PRC web and mobile games business has grown rapidly.
According to research data released by the China Games Publishing Committee, which is
subordinate to the China Audiovisual and Digital Publishing Association, the web games
and mobile games segments of the PRC market expanded by 58.8% and 144.6%, respectively,
in 2014, and by 57.4% and 246.9%, respectively, in 2013, in terms of total sales. Representatives
of the Li-Funds Persons indicated that, following a strategic review of its business
in 2013 that evaluated the PRC games business as a possible focus of diversification,
Century Huatong entered the web and mobile games business in 2014 by completing the acquisitions
of what are now the Century Huatong Games Companies. According to the 2014 Annual Report
of Century Huatong, as a result of Century Huatong’s acquisition of the Century
Huatong Games Companies, the games segment became a significant driver of Century Huatong’s
overall business, contributing approximately 57% of Century Huatong’s net earnings
for 2014. |
| o | According to information
provided by the Company’s management, between March and August 2014, before the
completion of the Li-Funds Purchase, the Century Huatong Games Companies had already
entered into three agreements with the Company to license certain intellectual property
from the Company as the basis for developing a new generation of web- and mobile-based
games that could leverage off the story lines and characters that the Company had made
popular as well as the customer base that the Company had cultivated. During a conference
call among representatives of Sullivan & Cromwell, Merrill Lynch, Davis Polk, WSGR,
DaCheng and the Li-Funds Persons on July 13, 2015, representatives of the Li-Funds Persons
indicated that the leading position of Shanda Games in the PRC gaming industry and the
specialization of Century Huatong in the web and mobile games business were highly complementary
and formed the basis for a productive business relationship between Century Huatong and
the Company, and that the early success of that relationship convinced the Li-Funds Persons
and Century Huatong that it would be critical to sustain and expand the relationship
with the Company. Thus, the Special Committee and the Board believed that Century Huatong
and the Li-Fund Persons, as the controlling shareholders of Century Huatong, had a distinct
reason to be strategically focused on not just the PRC games sector, but specifically
the Company. |
| o | During the July 13, 2015
conference call, representatives of the Li-Funds Persons indicated that the Li-Funds
Persons viewed the acquisition of a significant equity stake in the Company as an important
strategic step in securing the relationship between Century Huatong and the Company.
Representatives of the Li-Funds Persons also indicated that the Li-Funds Persons were
only prepared to make such an investment if they could do so expeditiously and without
disrupting Century Huatong’s existing relationship with the Company and its existing
major shareholders and management. After analyzing the shareholdings in the Company,
the Li-Funds Persons concluded that the Shares held by Haitong Securities and Orient
Securities were the only blocks of Shares available for purchase that met such requirements. |
| o | During the July 13, 2015
conference call, representatives of the Li-Funds Persons indicated that there was no
guarantee that Century Huatong would be able to continue to maintain its existing business
relationship with the Company, since the Company has entered into similar licensing arrangements
with other developers, and that the Li-Funds Persons were concerned that a competitor
of Century Huatong could acquire a significant stake in the Company. Based on the information
provided by representatives of the Li-Funds Persons, the Special Committee and the Board
believed that, from the perspective of the Li-Funds Persons, failure to acquire the Shares
held by Haitong Securities and Orient Securities would have put Century Huatong in a
precarious competitive position, potentially setting back the Li-Funds Persons’
transformation plan for Century Huatong for years. |
| o | The Special Committee
and the Board believed that the Li-Funds Purchase reflected a unique set of circumstances
particular to the Li-Funds Persons, and absent such unique set of circumstances, other
persons are unlikely to be willing to pay the premium paid by the Li-Funds Persons. Accordingly,
the Special Committee and the Board believed that the purchase price paid in connection
with the Li-Funds Purchase is not a meaningful benchmark for evaluating whether the merger
consideration is fair to the Unaffiliated Holders. |
| · | The
Special Committee and the Board were advised of and considered the Company’s latest
business performance, financial condition, results of operations and competitive position,
which have not improved in any material respect since the Company entered into the Merger
Agreement on April 3, 2015, and continued to believe that the Merger would be financially
more favorable to the Unaffiliated Holders than any alternative reasonably available
to the Company and the Unaffiliated Holders. |
| · | Since
the Company first received a “going private” proposal on January 27, 2014,
the composition of the Buyer Group has changed completely, and no Superior Proposal has
emerged. |
| · | The
outlook for U.S.-listed PRC-based companies (including technology companies) is highly
competitive in light of recent volatility and declines in the U.S. and PRC equity markets
(the Dow Jones BRIC 50 China Subindex has fallen from 737.55 on April 3, 2015, to 588.69
as of August 24, 2015, and the Dow Jones Global Technology Index has fallen from 677.50
on April 3, 2015 to 591.96 as of August 24, 2015). |
| · | The
Special Committee and the Board have considered the possible implications of the Li-Funds
Purchase under the terms of the Merger Agreement, and do not regard it to constitute
an Intervening Event that requires, for reasons of fiduciary duty, a Change in the Company
Recommendation (See "The Merger Agreement—No Change of Recommendation"). |
|
· |
The Merger Agreement provides that either party may terminate the Merger
if it is not consummated by October 3, 2015 (which date was extended to December 31, 2015 by the amendment and restatement of
the Merger Agreement entered into on September 23, 2015), and any further
delay will present significant risks that the Merger may not be consummated at all. |
| · | Given
the Buyer Group controls approximately 90.7% of the total number of votes represented
by the Company's issued and outstanding Shares, any alternative transaction would require
the support of the Buyer Group, and if the Merger is not consummated, in light of current
market conditions, it is possible that the Unaffiliated Shareholders would not have another
opportunity to be cashed out through a strategic transaction in the near future or ever. |
The foregoing discussion of information
and factors considered by the Special Committee and the Board is not intended to be exhaustive, but includes a number of the factors
considered by the Special Committee and the Board. In view of the wide variety of factors considered by the Special Committee
and the Board, neither the Special Committee nor the Board found it practicable to quantify or otherwise assign relative weights
to the foregoing factors in reaching its conclusions. In addition, individual members of the Special Committee and the Board may
have given different weights to different factors and may have viewed some factors more positively or negatively than others.
The Special Committee recommended that the Board authorize and approve, and the Board authorized and approved, the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger, based upon the totality of the information presented to and considered
by it.
In reaching its conclusion regarding
the fairness of the Merger to the Unaffiliated Holders and its decision to recommend the authorization and approval of the Merger
Agreement, the Plan of Merger and the Transactions, including the Merger, the Special Committee considered financial analyses
presented by Merrill Lynch as an indication of the going-concern value of the Company. These analyses included, among others,
a historical trading range analysis, broker target price analysis, selected comparable public companies analysis, discounted cash
flow analysis and premiums paid analysis. All of the material analyses as presented to the Special Committee on April 3, 2015
are summarized below under the section entitled “—Opinion of Merrill Lynch, the Special Committee’s Financial
Advisor” beginning on page 50. The Special Committee expressly adopted these analyses and the opinion of Merrill Lynch,
among other factors considered, in reaching its determination as to the fairness of the Transactions, including the Merger.
On June 30, 2015, the Li-Funds
Persons completed the Li-Funds Purchase, which is the purchase of 230,990,798 Class A ordinary shares of the Company. The
consideration of the Li-Funds Purchase was approximately US$4.44 per Class A ordinary share, which is higher than the US$3.55
Per Share Merger Consideration. Following the Li-Funds Purchase, the Special Committee did not request an updated fairness opinion
from Merrill Lynch, and does not intend to do so, for the reasons set forth in the paragraph below.
After the Li-Funds Purchase, the Special
Committee undertook a comprehensive due diligence investigation, as described in detail under “—Background of the
Merger,” in order to ascertain and analyze the circumstances and motivations behind the Li-Funds Purchase and to determine
whether the price paid in the Li-Funds Purchase presents a meaningful comparison for the Per Share Merger Consideration. Based
on the results of such due diligence investigation, and for the reasons set forth in this section, the Special Committee formed
the view that the Li-Funds Purchase reflected a unique set of circumstances particular to the goals and strategies pursued by
the Li-Funds Persons and, absent such a unique set of circumstances, other persons are unlikely to be willing to pay the premium
paid by the Li-Funds Persons. Accordingly, the Special Committee believes that the purchase price paid in connection with the
Li-Funds Purchase is not a meaningful benchmark for evaluating whether the merger consideration is fair to the Unaffiliated Holders.
In addition, as also discussed in this section, the Special Committee examined the Company’s recent business performance,
financial condition, results of operations and competitive position, which had not improved in any material respect since the
Company entered into the Merger Agreement on April 3, 2015. Accordingly, the Special Committee continued to believe that
the Merger would be financially more favorable to the Unaffiliated Holders than any alternative reasonably available to the Company
and the Unaffiliated Holders. In its consideration of the Li-Funds Purchase and its affirmation on August 25, 2015 of its
original fairness determination, the Special Committee did not believe that an updated fairness opinion would yield any material
insights not already achieved through the comprehensive due diligence investigation of the Li-Funds Purchase and the consideration
of the Company’s recent performance and prospects. Accordingly, the Special Committee did not request an updated fairness
opinion from Merrill Lynch, and does not intend to do so.
Neither the Special Committee nor the
Board considered the liquidation value of the Company’s assets because each considers the Company to be a viable going-concern
business where value is derived from cash flows generated from its continuing operations. In addition, each of the Special Committee
and the Board believes that the value of the Company’s assets that might be realized in a liquidation would be significantly
less than its going-concern value. Each of the Special Committee and the Board believes the analyses and additional factors it
reviewed provided an indication of the Company’s going-concern value. Each of the Special Committee and the Board also considered
the historical market prices of the ADSs as described under the section entitled “Market Price of the Company’s ADSs,
Dividends and Other Matters—Market Price of the ADSs” beginning on page 77. Each of the Special Committee and
the Board considered the purchase prices paid in previous purchases as described under “Transactions in Shares and ADSs.”
Neither the Special Committee nor the Board, however, considered the Company’s net book value, which is defined as total
assets minus total liabilities, attributable to the Company’s shareholders, as a factor. Each of the Special Committee and
the Board believes that net book value is not a material indicator of the value of the Company as a going concern as it does not
take into account the future prospects of the Company, market conditions, trends in the industry related to the development and
marketing of MMO games and mobile games or the business risks inherent in competing with other companies in that industry. The
Board and the Special Committee note, however, that the merger consideration of US$3.55 per Share and US$7.10 per ADS is in each
case substantially higher than the Company’s net book value per Share of US$0.57 as of December 31, 2014 (based on
the weighted average number of issued and outstanding Shares during 2014).
In reaching its determination on April
3, 2015, which it affirmed on August 26, 2015, that the Merger Agreement, the Plan of Merger and the Transactions, including the
Merger, are fair to, and in the best interests of, the Company and the Unaffiliated Holders, and its decision to authorize and
approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and its recommendation to authorize
and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, by the Company’s shareholders,
the Board, on behalf of the Company, considered the analysis and recommendation of the Special Committee and the factors examined
by the Special Committee as described above under this section and under “—Background of the Merger,” and adopted
such recommendations and analysis.
In addition, the Special Committee and
the Board considered that it is appropriate for the Company to undertake the Transactions at this time and not to remain independent
after considering (a) the incremental uncertainties in the Company’s future financial performance and the risks that such
uncertainties pose to the Unaffiliated Holders, based on the Company’s past financial performance and projections and, in
particular, (i) that the estimated revenue and net income of the Company for 2014 and the financial projections for subsequent
years were lower than previously estimated and, based on the Company’s projections, the Company’s revenue and net
income will not be higher than those for 2012 until 2018; (ii) the prospect that it could take a considerable period of time,
if ever, before the trading price of the ADSs would reach and sustain a level equal to or greater than the merger consideration
of US$7.10 per ADS, as adjusted for present value; and (iii) the Company’s ongoing dependence on mobile games and MMO games
and the risks associated with such dependence and, in particular, the Company’s dependence on three MMORPGs for 53.3% of
its net revenue in 2014, two of which were released over ten years ago, together with the fact that all games have finite commercial
lifespans notwithstanding the Company’s efforts to extend these commercial lifespans; (b) the consideration and evaluation
of alternative strategic options by the Company’s senior management in 2012 and 2013, and the failure of such efforts to
produce any successful strategic alternatives due to concerns relating to valuation; and (c) the fact that the merger consideration
proposal of the Buyer Group on April 3, 2015 was the highest proposal by the Buyer Group (as it existed with various members from
time to time) since the Buyer Group was first formed on January 27, 2014 and not to be subsequently aborted by the Buyer Group
(the earlier proposal by the Buyer Group on September 22, 2014, though it had the same merger consideration, was aborted by the
Buyer Group on October 19, 2014).
During its consideration of the Merger
Agreement and the Transactions, including the Merger, the Board was also aware that some of the Company’s directors and
shareholders, including Mr. Zhang, the chairman of the Board and acting chief executive officer of the Company, Mr. Chen, the
former chairman of the Board, and other employees of the Company, have, or had at times during the negotiation of the Merger Agreement,
interests with respect to the Merger that are or may be, or were or may have been, different from or in addition to those of the
Unaffiliated Holders generally, as described under the section entitled “—Interests of Certain Persons in the Merger”
beginning on page 66.
For the foregoing reasons, the Company
believes that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are fair to, and in the best
interests of, the Company and its unaffiliated security holders.
Position of the Buyer Group as to the Fairness of the Merger
Under SEC rules governing “going
private” transactions, each member of the Buyer Group is deemed to be an affiliate of the Company and is required to express
its beliefs as to the fairness of the Merger to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of
the Exchange Act. Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying
with the requirements of Rule 13e-3 and related rules under the Exchange Act. The Buyer Group does not rely on or adopt the analysis
of the Special Committee or Merrill Lynch in considering the fairness of the Merger to the Unaffiliated Holders. The views of
the Buyer Group as to the fairness of the Merger are not intended to be and should not be construed as a recommendation to any
shareholder of the Company or holder of ADSs as to how to vote on the proposal to authorize and approve the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger. The Buyer Group has interests in the Merger that are different
from, and/or in addition to, those of the Unaffiliated Holders of the Company by virtue of its continuing interests in the Surviving
Corporation after the consummation of the Merger. These interests are described under the caption “—Interests of Certain
Persons in the Merger—Interests of the Buyer Group” beginning on page 66.
The Buyer Group believes the interests
of the Unaffiliated Holders were represented by the Special Committee, which negotiated the terms and conditions of the Merger
Agreement with the assistance of its independent legal counsel and independent financial advisor. The Buyer Group attempted to
negotiate a transaction that would be most favorable to it, and not to the Unaffiliated Holders and, accordingly, did not negotiate
the Merger Agreement with a goal of obtaining terms that were substantively or procedurally fair to such Unaffiliated Holders.
The Buyer Group did not participate in the deliberations of the Special Committee regarding, and did not receive any advice from
the Special Committee’s independent legal counsel or financial advisors as to, the fairness of the Merger to the Unaffiliated
Holders. Furthermore, the members of the Buyer Group did not themselves undertake a formal evaluation of the fairness of the Merger
and did not receive any independent reports, opinions or appraisals from any third party related to the Merger, and thus did not
consider any such reports, opinions or appraisals in determining the substantive and procedural fairness of the Merger to the
Unaffiliated Holders.
Based on its knowledge and analysis
of available information regarding the Company, as well as discussions with the Company’s senior management regarding the
Company and its business and the factors considered by, and findings of, the Special Committee and the Board discussed under the
caption “—Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page
37 (which considerations and findings are adopted by the Buyer Group solely for the purposes of making the statements in this
section), the Buyer Group believes that the Merger is both substantively and procedurally fair to the Unaffiliated Holders based
on the following factors, which are not listed in any relative order of importance:
| · | none of the
members of the Special Committee that recommended the authorization and approval of the
Merger Agreement, the Plan of Merger and the Transactions, including the Merger, is or
ever was an employee of the Company or any of its subsidiaries or affiliates and none
of such members has any financial interest in the Merger that is different from that
of the Unaffiliated Holders other than the cash-out of Company Restricted Shares and
Company RSUs held by such members, such members’ receipt of Board and Special Committee
compensation (which was not and is not contingent upon the completion of the Merger,
or the Special Committee’s or the Board’s recommendation of the Merger) and
their indemnification and liability insurance rights under the Merger Agreement and the
Company’s memorandum and articles of association; |
| · | the Special
Committee and the Board had no obligation to recommend the authorization and approval
of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger; |
| · | the
Special Committee retained Merrill Lynch as its independent financial advisor and Sullivan
& Cromwell, Walkers and Haiwen as its independent legal advisors, each of whom is
experienced in advising committees such as the Special Committee in similar transactions;
with the advice and assistance of such advisors, the Special Committee had
independent control of the sale process; |
| · | the Buyer Group
did not participate in or have any influence over the deliberative process of, or the
conclusions reached by, the Special Committee or the negotiating positions of the Special
Committee; |
| · | the consideration
of US$7.10 per ADS offered to the Unaffiliated Holders in the Merger represents a 25.7%
premium over the Company’s closing price as quoted by NASDAQ on January 24, 2014,
the last trading day immediately prior to the Company’s announcement on January
27, 2014 that it had received the Proposal, and a premium of approximately 46.5% and
53.8%, respectively, over the Company’s 30- and 60-trading day volume-weighted
average price as quoted by NASDAQ prior to, and including, January 24, 2014; |
| · | the lowest
closing price of the Company’s ADSs was US$2.74 per ADS during the 52-week period
prior to the announcement of the Company’s receipt of the Proposal; |
| · | notwithstanding
that the Buyer Group may not rely upon the opinion provided by Merrill Lynch to the Special
Committee on April 3, 2015, the Special Committee received an opinion from Merrill Lynch
stating that, as of the date of the Merger Agreement, and based upon and subject to the
procedures followed, assumptions made, qualifications and limitations on the review undertaken
and other matters considered by Merrill Lynch in preparing its opinion, the Per Share
Merger Consideration and Per ADS Merger Consideration to be received by holders of the
Class A ordinary shares and ADSs (other than the Excluded Shares and ADSs representing
Excluded Shares) in the Merger were fair, from a financial point of view, to such holders; |
| · | the Special
Committee on April 3, 2015 unanimously (a) determined that the Merger Agreement, the
Plan of Merger and the Transactions, including the Merger, were fair to, and in the best
interests of, the Company and the Unaffiliated Holders; (b) declared advisable the Merger
Agreement, the Plan of Merger and the Transactions, including the Merger; and (c) recommended
that the Board authorize and approve the Merger Agreement, the Plan of Merger and the
Transactions, including the Merger; and such determination, declaration and recommendation
were unanimously affirmed by the Special Committee on August 25, 2015; |
| · | the
Board, acting upon the unanimous recommendation of the Special Committee, on April 3,
2015 unanimously (a) determined that it was fair to, advisable and in the best interests
of the Company and the Unaffiliated Holders to consummate the Transactions, including
the Merger; (b) authorized and approved the execution, delivery and performance by the
Company of the Merger Agreement, the Plan of Merger and the Limited Guarantees and the
consummation of the Transactions, including the Merger; and (c) resolved to recommend
in favor of the authorization and approval of the Merger Agreement, the Plan of Merger
and the consummation of the Transactions, including the Merger, to the shareholders of
the Company; and such determination, authorization, approval and resolution were unanimously
affirmed by the Board on August 26, 2015;
|
| · | the Company
has the ability, under certain circumstances, to specifically enforce the terms of the
Merger Agreement; |
| · | under the terms
of the Merger Agreement, in certain circumstances prior to obtaining shareholder approval
of the Merger, the Company is permitted to furnish information to and participate in
discussions or negotiations with persons making acquisition proposals and the Board and
the Special Committee have the ability to change, withhold, withdraw, qualify or modify
their recommendations to approve the Merger Agreement; |
| · | the Company
may terminate the Merger Agreement under the terms of the Merger Agreement upon acceptance
of a Superior Proposal, subject to compliance with the terms and conditions of the Merger
Agreement; |
| · | the Merger
is not conditioned on any financing being obtained by Parent or Merger Sub, thus increasing
the likelihood that the Merger will be consummated and the Per Share Merger Consideration
and Per ADS Merger Consideration will be paid to the Unaffiliated Holders; |
| · | the consideration
to be paid to the Unaffiliated Holders in the Merger is all cash, allowing the Unaffiliated
Holders to immediately realize a certain and fair value for all of their Shares and ADSs,
without incurring brokerage and other costs typically associated with market sales; and |
| · | dissenters’
rights are available to the shareholders who comply with all of the required procedures
under the Cayman Islands Companies Law for exercising dissenters’ rights, which
allow such shareholders to receive payment of the fair value of their Shares. |
The Buyer Group did not consider the Company’s
liquidation value to be a relevant valuation method because it considers the Company to be a viable going concern and because
the Company will continue to operate its business following the Merger. The Buyer Group views the trading history of the ADSs
as an indication of the Company’s going concern value, and, accordingly, did not believe liquidation value to be relevant
to a determination as to the fairness of the Merger.
The Buyer Group did not consider the Company’s
net book value, which is defined as total assets minus total liabilities, attributable to the Company’s shareholders, as
a factor. The Buyer Group believes that net book value, as an accounting concept based on historical costs, is not a material
indicator of the value of the Company as a going concern because it does not take into account quality of earnings, cash generation
capability, the future prospects of the Company, market conditions, trends in the industry in which the Company conducts its business
or the business risks inherent in competing with other companies in the same industry but rather is indicative of historical costs.
Therefore, the Buyer Group does not believe that net book value is a relevant measure in the determination as to the fairness
of the Merger. The Buyer Group notes, however, that the merger consideration of US$3.55 per Class A ordinary share and US$7.10
per ADS are substantially higher than the Company’s net book value per Share of US$0.57 as of December 31, 2014 (based on
the weighted average number of issued and outstanding Shares during 2014).
The Buyer Group did not establish, and
did not consider, a going concern value for the Company as a public company to determine the fairness of the merger consideration
to the Unaffiliated Holders because, following the Merger, the Company will have a significantly different capital structure.
However, to the extent the pre-Merger going concern value was reflected in the pre-announcement price of the Company’s ADSs,
the merger consideration of US$7.10 per ADS represents a premium to the going concern value of the Company.
Other than the transactions among the
current and former members of the Buyer Group as described under the caption “Transactions in Shares and ADSs—Transactions
within the Buyer Group” beginning on page 110, no member of the Buyer Group purchased any Share or ADS during the past two
years. Because each Class A ordinary share is entitled to one vote and is not convertible into a Class B ordinary share while
each Class B ordinary share is entitled to 10 votes and is convertible at any time into one Class A ordinary share at the election
of its holder, the Buyer Group did not consider these intra-group transfers (except for the Li-Funds Purchase) in considering
the fairness of the Merger primarily because of the following reason. The Buyer Group considers that the higher price of US$5.13
per share paid by Yili Shengda and Zhongrong Shengda for the Class B ordinary shares in the Shanda SDG Sale reflected a control
premium as such Class B ordinary shares, unlike Class A ordinary shares and ADSs held by the Unaffiliated Holders, collectively
represented approximately 69% of the total voting power represented by the Company’s outstanding ordinary shares, more than
the two-thirds majority necessary to approve a special resolution of the shareholders of the Company as required under Cayman
Islands law. As such, the price paid in the Shanda SDG Sale was not directly comparable to the US$3.55 Per Share Merger Consideration.
The Buyer Group notes that the price per share for the Class A ordinary shares in the transfers among the current and former members
of the Buyer Group (except for the price per share in the Li-Funds Purchase) will equal the Per Share Merger Consideration after
“make-whole” payments pursuant to the terms of the relevant share purchase agreements. The price of $5.127 per Class
B ordinary share in the Shanda SDG Sale was the result of arm’s length negotiation between Shanda Interactive, on the one
hand, and Ningxia and Mr. Zhang, on the other hand. The price of $3.55 Per Share Merger Consideration was the result of arm’s
length negotiation between the Special Committee, on the one hand, and the Buyer Group, on the other hand.
The Buyer Group’s position that
the Merger is fair to the Unaffiliated Holders is unchanged by the Li-Funds Purchase for an aggregate price of RMB6,374,000,000
(approximately US$1,026,218,970 or US$4.44 per Class A ordinary share). The Buyer Group bases its position upon the fact that
there have been no material changes to the circumstances underlying the fairness analysis of the Buyer Group discussed above beginning
on page 44 that would suggest that the Merger was unfair to the Unaffiliated Holders. In particular:
|
· |
the US$3.55 Per Share Merger Consideration was determined
by the parties at that time based on both the actual results of operations and financial
condition as well as on the Company’s business plan; |
|
|
|
|
· |
the Buyer Group’s understanding
from management is that the business, the financial conditions and the prospects of the Company have not improved in any material
respect since April 3, 2015, when the Merger Agreement was signed; and |
|
|
|
|
· |
the Buyer Group’s understanding
from management is that the Li-Funds Purchase has not affected in any material respect the business, financial conditions
or prospects of the Company. |
The purchase price paid in connection
with the Li-Funds Purchase is not viewed by the Buyer Group as a meaningful benchmark for evaluating whether the merger consideration
is fair to the Unaffiliated Holders. Such price reflects the fundamentally unique strategic value placed by the Li-Funds Persons
on acquiring a significant equity stake in the Company within the particular circumstances, as described under the
caption “—Background of the Merger” beginning on page 22, including (i) Century Huatong’s ongoing business
transformation from a traditional industrial company to a company with a significant games business and an attendant higher valuation
in the PRC equities market, (ii) trends in the PRC games sector, as they impacted Century Huatong and the Li-Funds Persons, (iii)
the importance, in Century Huatong’s perspective, of developing a strong, sustainable relationship with the Company as a
way of mitigating risks in a highly dynamic market environment, (iv) the significance of equity ownership in the Company in laying
a lasting foundation for that relationship, and (v) the lack of availability of any sizable block of Shares other than those
held by Haitong Securities and Orient Securities, which conferred upon Haitong Securities and Orient Securities substantial bargaining
leverage – a set of circumstances that is unlikely to materialize in a comparable manner for any other person considering
an investment in the Company.
Although Cayman Islands law does not require,
and the Merger Agreement is not subject to, approval by a majority of the unaffiliated shareholders of the Company, as a result
of the procedural safeguards described above, the Buyer Group concluded that the Merger is procedurally fair to the Unaffiliated
Holders.
The foregoing is a summary of the information
and factors considered and given weight by the Buyer Group in connection with its evaluation of the fairness of the Merger to
the Unaffiliated Holders, which is not intended to be exhaustive, but is believed by the Buyer Group to include all material factors
considered by it. The Buyer Group did not find it practicable to assign, and did not assign, relative weights to the individual
factors considered in reaching their conclusion as to the fairness of the Merger to the Unaffiliated Holders. Rather, its fairness
determination was made after consideration of all of the foregoing factors as a whole.
The Buyer Group believes these factors
provide a reasonable basis for its belief that the Merger is both substantively and procedurally fair to the unaffiliated security
holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Buyer Group to any
shareholder of the Company as to how such shareholder should vote with respect to the approval of the Merger Agreement, the Plan
of Merger and the Transactions, including the Merger.
Certain Financial Projections
Other than guidance on the coming quarter
provided in earnings releases and on earnings conference calls for quarterly periods prior to the third quarter of 2013, the Company’s
management does not, as a matter of course, make available to the public future financial projections. However, in connection
with the Buyer Group’s due diligence review of the Company, the Company’s management provided financial projections
for the fiscal year ended December 31, 2013 through the fiscal year ending December 31, 2018 and for the fiscal year ended December
31, 2014 through the fiscal year ending December 31, 2019 to the Buyer Group in March 2014 and March 2015, respectively, and in
connection with Merrill Lynch’s financial analysis of the consideration to be paid in the Merger, the Company’s management
provided financial projections for the fiscal year ended December 31, 2013 through the fiscal year ending December 31, 2018 and
for the fiscal year ended December 31, 2014 through the fiscal year ending December 31, 2019 to Merrill Lynch, as the financial
advisor to the Special Committee, on March 17, 2014 and March 27, 2015, respectively. See “—Background of the Merger”
beginning on page 22 for additional information. These financial projections, which were based on management’s projection
of the Company’s future financial performance as of the date provided, were prepared by the Company’s management for
internal use and for use by Merrill Lynch in its financial analyses, and were not prepared with a view toward public disclosure
or compliance with published guidelines of the SEC regarding forward-looking information or the guidelines established by the
American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or U.S. generally accepted
accounting principles (“U.S. GAAP”).
The financial projections are not a guarantee
of performance. In compiling the projections, the Company’s management took into account historical performance of legacy
games, projected launch dates of new games in the Company’s pipeline, and projected revenues for each new game, combined
with estimates regarding gross margin, operating expenses, tax rates, capital expenditure, EBITDA and net income. Although the
projections are presented with numerical specificity, they were based on numerous assumptions and estimates as to future events
made by management that management believed were reasonable at the time the projections were prepared. This information is not,
however, fact and should not be relied upon as being necessarily indicative of actual future results. In addition, factors such
as industry performance, the market for the Company’s existing and new games, gamers’ behavior and preferences, the
competitive environment, expectations regarding future acquisitions or any other transaction and general business, economic, regulatory,
market and financial conditions, all of which are difficult to predict and beyond the control of management, may cause actual
future results to differ materially from the results forecasted in these financial projections. In addition, the projections do
not take into account any circumstances or events occurring after the date that they were prepared. For instance, the projections
do not give effect to the Merger or any changes to the Company’s operations or strategy that may be implemented after the
time the projections were prepared. We cannot assure you that the projections will be realized or that actual results will not
be significantly different from those contained in the projections.
Neither the Company’s independent
registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP (“PwC”), nor any other independent accountants
have examined, compiled or performed any procedures with respect to the financial projections or any amounts derived therefrom
or built thereupon and, accordingly, they have not expressed any opinion or given any form of assurance on the financial projections
or their achievability. The PwC report accompanying the Company’s audited consolidated financial statements included in
the Company’s Annual Report on Form 20-F for the year ended December 31, 2014 incorporated by reference in this proxy statement
refers exclusively to the Company’s historical information and does not cover any other information in this proxy statement
and should not be read to do so. The financial projections included in this proxy statement are included solely to give shareholders
access to certain information that was made available to the financial advisor and are not included for the purpose of influencing
any shareholder to make any investment decision with respect to the Merger, including whether or not to seek appraisal for his,
her or its Shares.
The following table summarizes the financial
projections provided by management to the Buyer Group and Merrill Lynch in March 2014:
| |
Management
Projections | |
| |
Fiscal
Year Ending December 31, | |
| |
2013E(1) | | |
2014E | | |
2015E | | |
2016E | | |
2017E | | |
2018E | |
| |
(RMB in millions)(2) | |
Total Net Revenues | |
| 4,346 | | |
| 4,210 | | |
| 5,222 | | |
| 6,228 | | |
| 6,976 | | |
| 7,589 | |
Growth | |
| -7.9 | % | |
| -3.1 | % | |
| 24.0 | % | |
| 19.3 | % | |
| 12.0 | % | |
| 8.8 | % |
Gross Profit | |
| 3,210 | | |
| 3,146 | | |
| 3,852 | | |
| 4,555 | | |
| 5,098 | | |
| 5,461 | |
Gross Margin | |
| 73.9 | % | |
| 74.7 | % | |
| 73.8 | % | |
| 73.1 | % | |
| 73.1 | % | |
| 72.0 | % |
Total Operating Expenses | |
| 1,481 | | |
| 1,561 | | |
| 1,895 | | |
| 2,213 | | |
| 2,427 | | |
| 2,615 | |
Income from Operations | |
| 1,729 | | |
| 1,585 | | |
| 1,957 | | |
| 2,342 | | |
| 2,671 | | |
| 2,847 | |
Operating Margin | |
| 39.8 | % | |
| 37.6 | % | |
| 37.5 | % | |
| 37.6 | % | |
| 38.3 | % | |
| 37.5 | % |
Net
Income attributable to Shanda Games Limited | |
| 1,589 | | |
| 1,326 | | |
| 1,648 | | |
| 1,972 | | |
| 2,206 | | |
| 2,385 | |
| (1) | These
projections were prepared by the Company’s management during the first quarter
of 2014. At the time these projections were prepared, the audit for the fiscal year ended
December 31, 2013 had not been completed. Accordingly, management estimates for fiscal
year 2013 may vary materially from the Company’s audited financial statements. |
| (2) | Financial
projections were prepared and provided in RMB. |
The following table summarizes the financial
projections provided by management to the Buyer Group and the Merrill Lynch in March 2015:
| |
Management
Projections | |
| |
Fiscal
Year Ending December 31, | |
| |
2014E(1) | | |
2015E | | |
2016E | | |
2017E | | |
2018E | | |
2019E | |
| |
(RMB in millions)(2) | |
Total Net Revenues | |
| 3,717 | | |
| 3,591 | | |
| 4,700 | | |
| 5,662 | | |
| 6,465 | | |
| 7,661 | |
Growth | |
| -14.5 | % | |
| -3.4 | % | |
| 30.9 | % | |
| 20.5 | % | |
| 14.2 | % | |
| 18.5 | % |
Gross Profit | |
| 2,777 | | |
| 2,723 | | |
| 3,463 | | |
| 4,066 | | |
| 4,548 | | |
| 5,491 | |
Gross Margin | |
| 74.7 | % | |
| 75.8 | % | |
| 73.7 | % | |
| 71.8 | % | |
| 70.3 | % | |
| 71.7 | % |
Total Operating Expenses | |
| 1,594 | | |
| 1,386 | | |
| 1,799 | | |
| 2,105 | | |
| 2,323 | | |
| 2,826 | |
Income from Operations | |
| 1,183 | | |
| 1,337 | | |
| 1,663 | | |
| 1,961 | | |
| 2,225 | | |
| 2,665 | |
Operating Margin | |
| 31.8 | % | |
| 37.2 | % | |
| 35.4 | % | |
| 34.6 | % | |
| 34.4 | % | |
| 34.8 | % |
Net
Income attributable to Shanda Games Limited | |
| 1,040 | | |
| 1,234 | | |
| 1,462 | | |
| 1,602 | | |
| 1,848 | | |
| 1,902 | |
| (1) | These
projections were prepared by the Company’s management during the first quarter
of 2015. At the time these projections were prepared, the audit for the fiscal year ended
December 31, 2014 had not been completed. Accordingly, management estimates for fiscal
year 2014 may vary materially from the Company’s audited financial statements. |
| (2) | Financial
projections were prepared and provided in RMB. |
In preparing these projections,
the Company’s management necessarily made certain assumptions about future financial factors affecting the Company’s
business, including, primarily, that (a) material costs and expenses would increase in line with the Company’s revenue increase,
(b) the growth of personal computer and smartphone markets in the PRC and elsewhere would continue in line with management’s
expectation, (c) the Company would be able to successfully develop or license new MMORPGs that attract and retain new and existing
players and result in online game revenues consistent with management’s expectations, (d) the popularity of MMORPGs would
remain stable in the geographic markets in which the Company operates, and (e) the Company would be able to further expand its
small but growing mobile game business by developing and licensing more successful mobile games. The Company’s management
also assumed that the overall economy in the PRC will remain stable, and that there will be no material change in competition
affecting the Company.
For the reasons discussed in this proxy
statement, including the bases and assumptions on which the financial projections and forecasts were compiled, the inclusion of
specific portions of the financial projections and forecasts in this proxy statement should not be regarded as an indication that
the Company, the Special Committee or the Board considers such financial projections or forecasts to be an accurate prediction
of future events, and the projections and forecasts should not be relied on as such an indication. No one has made any representation
to any shareholders of the Company or anyone else regarding the information included in the financial projections and forecasts
discussed above.
The financial projections and forecasts
included in this proxy statement should not be considered in isolation or in lieu of the Company’s operating and other financial
information prepared in accordance with U.S. GAAP (see “Financial Information—Selected Historical Financial Information”
beginning on page 107 for additional information).
The financial projections are forward-looking
statements. For information on factors that may cause the Company’s future financial results to materially vary, see “Cautionary
Note Regarding Forward-Looking Statements” beginning on page 115 and “Item 3. Key Information—D. Risk Factors”
included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, incorporated by reference
into this proxy statement.
Merrill Lynch reviewed certain financial
analyses that were based, in part, on the financial projections above. For additional information regarding the Merrill Lynch’s
analysis, see “Presentation/discussion materials prepared by Merrill Lynch for discussion with the Special Committee and
the Board, dated April 3, 2015” and “Presentation/discussion materials prepared by Merrill Lynch for discussion with
the Special Committee, dated September 23, 2014,” filed as Exhibit (c)-(2) and Exhibit (c)-(3), respectively, to the Company’s
transaction statement on Schedule 13E-3 and “—Opinions of Merrill Lynch, the Special Committee’s Financial Advisor”
beginning on page 50.
NONE OF THE COMPANY OR ITS AFFILIATES,
ADVISORS, OFFICERS, DIRECTORS OR REPRESENTATIVES HAS MADE OR MAKES ANY REPRESENTATION TO ANY SHAREHOLDER OR OTHER PERSON REGARDING
THE ULTIMATE PERFORMANCE OF THE COMPANY COMPARED TO THE INFORMATION CONTAINED IN THE PROJECTIONS OR THAT PROJECTED RESULTS WILL
BE ACHIEVED.
BY INCLUDING IN THIS PROXY STATEMENT A
SUMMARY OF ITS INTERNAL FINANCIAL PROJECTIONS, THE COMPANY UNDERTAKES NO OBLIGATIONS TO UPDATE, OR PUBLICLY DISCLOSE ANY UPDATE
TO, THESE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR
THAT MAY OCCUR AFTER THE PREPARATION OF THESE PROJECTIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE
FINANCIAL PROJECTIONS ARE SHOWN TO BE IN ERROR OR CHANGE, EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL SECURITIES LAW.
Opinion of Merrill Lynch, the Special Committee’s
Financial Advisor
Merrill Lynch was retained by the Special
Committee to act as its financial advisor in connection with the Proposed Transaction. At the meeting of the Special Committee
on April 3, 2015, Merrill Lynch orally rendered its opinion, which was subsequently confirmed by it in writing, that, as of such
date, based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations
on the review undertaken by Merrill Lynch set forth in the opinion, the Per Share Merger Consideration or Per ADS Merger Consideration,
as applicable, to be received in the Merger by holders of the Class A ordinary shares of the Company or ADSs (other than holders
of Excluded Shares) is fair, from a financial point of view, to such holders.
The full text of Merrill Lynch’s
written opinion, dated April 3, 2015, is attached to this proxy statement as Annex C. You should read the opinion in its entirety
for a discussion of the assumptions made, procedures followed, matters considered and qualifications to and limitations on the
review undertaken by Merrill Lynch in rendering the opinion. The following summary is qualified in its entirety by reference to
the full text of such opinion.
In arriving at its opinion, Merrill Lynch,
among other things:
| · | reviewed certain
publicly available business and financial information relating to the Company that Merrill
Lynch deemed to be relevant, including certain public research analyst estimates with
respect to the future financial performance of the Company; |
| · | reviewed certain
internal financial and operating information with respect to the business, operations
and prospects of the Company furnished to or discussed with Merrill Lynch by the management
of the Company, including certain financial forecasts relating to the Company prepared
by the management of the Company (such forecasts, the “Management Forecasts”); |
| · | discussed the
past and current business, operations, financial condition and prospects of the Company
with members of senior management of the Company; |
| · | reviewed the
trading history for the ADSs and compared that trading history with the trading histories
of certain other publicly traded companies Merrill Lynch deemed relevant; |
| · | compared certain
financial and stock market information of the Company with similar information of certain
other publicly traded companies Merrill Lynch deemed relevant; |
| · | compared certain
financial terms of the Merger to financial terms, to the extent publicly available, of
other transactions Merrill Lynch deemed relevant; |
| · | reviewed drafts
dated April 3, 2015 of the Merger Agreement, Equity Commitment Letters, Limited Guarantees
and Support Agreement; and |
| · | performed such
other analyses and studies and considered such other information and factors as Merrill
Lynch deemed appropriate, including its assessment of general economic, market and monetary
conditions. |
In arriving at its opinion, Merrill
Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information
and data publicly available or provided to or otherwise reviewed by or discussed with Merrill Lynch and relied upon the assurances
of the management of the Company that they are not aware of any facts or circumstances that would make such information or data
inaccurate or misleading in any material respect. With respect to the Management Forecasts, Merrill Lynch was advised by the Company,
and assumed, that such forecasts were reasonably prepared on bases reflecting the best available estimates and good faith judgments
of the management of the Company as to the future financial performance of the Company. Merrill Lynch did not make and was not
provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor
did it make any physical inspection of the properties or assets of the Company. Merrill Lynch did not evaluate the solvency or
fair value of the Company under any U.S. state, U.S. federal or other laws relating to bankruptcy, insolvency or other similar
matters. Merrill Lynch assumed, at the direction of the Company, that the Merger Agreement did not differ in any material respect
from the draft dated April 3, 2015 reviewed by Merrill Lynch. Merrill Lynch also assumed, at the direction of the Company, that
the Merger will be consummated in accordance with its terms, without waiver, modification or amendment of any material term or
condition and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases
and waivers for the Merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments
or modifications, will be imposed that would have an adverse effect on the Company or the contemplated benefits of the Merger.
Merrill Lynch did not express any view
or opinion as to any terms or other aspects of the Merger other than the Per Share Merger Consideration and the Per ADS Merger
Consideration, including, without limitation, the form or structure of the Merger. Merrill Lynch’s opinion was limited to
the fairness, from a financial point of view, of the Per Share Merger Consideration and the Per ADS Merger Consideration, as applicable,
to the holders of the Shares or ADSs (other than holders of Excluded Shares). No opinion or view was expressed with respect to
any consideration received in connection with the Merger by the holders of any other class of securities, creditors or other constituencies
of any party. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount,
nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the Merger, or class
of such persons, relative to the Per Share Merger Consideration or the Per ADS Merger Consideration. Furthermore, no opinion or
view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available
to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or
effect the Merger. In addition, Merrill Lynch expressed no opinion or recommendation as to how any security holder should vote
or act in connection with the Merger or any related matter.
Merrill Lynch’s opinion is necessarily
based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made
available to Merrill Lynch as of April 3, 2015, the date of its opinion. Merrill Lynch does not have any obligation to update,
revise, or reaffirm its opinion.
The following is a summary of the material
analyses performed by Merrill Lynch in connection with its opinion rendered to the Special Committee. The financial analyses summarized
below include information presented in tabular format. In order to fully understand the financial analyses used by Merrill Lynch,
the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the
financial analyses and the order of the analyses does not represent relative importance or weight given to those analyses by Merrill
Lynch. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses
and of the factors discussed, without considering the full narrative description of the analyses, as well as the methodologies
underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete
view of the process underlying Merrill Lynch’s analyses.
Historical Trading
Range Analysis
Merrill Lynch reviewed the trading performance
of the ADSs on NASDAQ in the 52-week period prior to January 24, 2014, the last trading day before the Company announced it received
the Proposal. Merrill Lynch observed that the low and high closing prices quoted by NASDAQ for the ADSs in the 52-week period
prior to January 24, 2014 were US$2.74 per ADS and US$6.25 per ADS, respectively. Merrill Lynch further observed that the merger
consideration of US$7.10 per ADS was above the range of such 52-week low and high closing prices.
Broker Target
Price Analysis
Merrill Lynch reviewed the price targets
for the ADSs prepared and published by brokers before the Company announced on January 27, 2014 that it had received the Proposal.
These targets reflected each broker’s estimate of the future public market trading price of the ADSs and were not discounted
to reflect present value. The range of undiscounted price targets for the ADSs as of January 24, 2014, the last trading day prior
to the announcement of the Proposal, was US$3.50 to US$6.50 per ADS.
The public market trading price targets
published by brokers do not necessarily reflect current market trading prices for the ADSs and these estimates are subject to
uncertainties, including the future financial performance of the Company and future financial market conditions.
Selected Comparable
Public Companies Analysis
Using publicly available financial and
stock market information, Merrill Lynch compared selected financial data of the Company with financial and trading data of selected
publicly traded comparable companies, producing valuation multiples of selected financial metrics that Merrill Lynch utilized
to estimate the implied value for the Company. The companies included in the selected comparable public company analysis were
chosen based upon the experience and judgment of Merrill Lynch and did not include all publicly traded online gaming companies.
Merrill Lynch selected companies that are currently (or were at the time they were taken private) U.S.-listed publicly traded
PRC-based gaming companies that focused on client- or web-based games similar to the business focus of the Company. Merrill Lynch
excluded gaming companies that focus on mobile games, rather than client-based or PC games, and that had a short track record
as publicly traded companies. For the purposes of its analysis, Merrill Lynch reviewed and compared certain financial information,
ratios and available public market multiples relating to the Company, some of which were publicly available and others of which
were based on internal information, including the Management Forecasts, to corresponding financial data for selected publicly
traded companies. The companies selected for the analysis were:
| · | Perfect World
Co. Limited; and |
| · | Giant Interactive
Group Inc. |
Merrill Lynch analyzed the following statistics
for comparative purposes:
| · | the ratio of
price to estimated earnings per ADS for calendar year 2015, referred to as P/E; |
| · | the ratio of
price to estimated earnings per ADS for calendar year 2016 (“2016 price-to-earnings
multiple”), referred to as P/E; |
| · | the ratio of
adjusted price, defined as price per ADS plus total debt per ADS and minority interests
per ADS less cash and cash equivalents per ADS (“Adjusted Price”), to estimated
earnings per ADS for calendar year 2015, referred to as Adjusted P/E; and |
| · | the ratio of
Adjusted Price to estimated earnings per ADS for calendar year 2016, referred to as Adjusted
P/E. |
Merrill Lynch used the following metrics
for each comparable company for the purpose of its analyses:
| |
P/E | | |
Adjusted
P/E | | |
EV/EBITDA(1) | | |
PEG(1) | |
Company | |
2014E(1) | | |
2015E | | |
2016E | | |
2014E(1) | | |
2015E | | |
2016E | | |
2014E | | |
2015E | | |
2016E | | |
2014E | | |
2015E | | |
2016E | |
Giant
Interactive Going-Private Proposal |
Broker
Consensus | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Giant Interactive
(Pre-Offer) | |
| 9.7 | x | |
| 9.0 | x | |
| 9.8 | x | |
| 7.7 | x | |
| 7.2 | x | |
| 7.8 | x | |
| 7.0 | x | |
| 6.0 | x | |
| 7.1 | x | |
| 0.8 | x | |
| 0.7 | x | |
| 0.9 | x |
Giant Interactive (First Offer) | |
| 11.3 | | |
| 10.5 | | |
| 11.4 | | |
| 8.5 | | |
| 7.9 | | |
| 8.6 | | |
| 7.7 | | |
| 6.6 | | |
| 8.7 | x | |
| 0.9 | | |
| 0.8 | | |
| 1.0 | |
Giant Interactive (Final Offer) | |
| 11.5 | | |
| 10.7 | | |
| 11.6 | | |
| 8.7 | | |
| 8.1 | | |
| 8.8 | | |
| 7.9 | | |
| 6.8 | | |
| 8.9 | x | |
| 0.9 | | |
| 0.9 | | |
| 1.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Management
Projections | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Giant Interactive (Pre-Offer) | |
| 9.8 | x | |
| 8.3 | x | |
| 7.6 | x | |
| 7.8 | x | |
| 6.6 | x | |
| 6.1 | x | |
| 7.1 | x | |
| 5.5 | x | |
| 4.7 | x | |
| 0.8 | x | |
| 0.7 | x | |
| 0.6 | x |
Giant Interactive (First Offer) | |
| 11.4 | | |
| 9.6 | | |
| 8.8 | | |
| 8.6 | | |
| 7.3 | | |
| 6.7 | | |
| 7.8 | | |
| 6.0 | | |
| 5.1 | | |
| 0.9 | | |
| 0.8 | | |
| 0.7 | |
Giant Interactive (Final Offer) | |
| 11.6 | | |
| 9.8 | | |
| 9.0 | | |
| 8.8 | | |
| 7.5 | | |
| 6.9 | | |
| 8.0 | | |
| 6.2 | | |
| 5.3 | | |
| 0.9 | | |
| 0.8 | | |
| 0.7 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Perfect
World Going-Private Proposal | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
|
|
|
Broker
Consensus | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Perfect World (Pre-Offer)(2) | |
| 8.1 | x | |
| 7.1 | x | |
| 6.0 | x | |
| 3.5 | x | |
| 3.1 | x | |
| 2.5 | x | |
| 3.1 | x | |
| 2.5 | x | |
| 2.1 | x | |
| 0.5 | x | |
| 0.5 | x | |
| 0.4 | x |
Perfect World (At Offer)(2) | |
| 10.3 | | |
| 9.0 | | |
| 7.6 | | |
| 6.1 | | |
| 5.4 | | |
| 4.4 | | |
| 5.4 | | |
| 4.4 | | |
| 3.6 | | |
| 0.7 | | |
| 0.6 | | |
| 0.5 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Public
Comparables | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
|
|
|
Broker
Consensus | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Netease(3) | |
| 17.9 | x | |
| 15.5 | x | |
| 13.1 | x | |
| 13.0 | x | |
| 11.4 | x | |
| 9.7 | x | |
| 12.6 | x | |
| 10.5 | x | |
| 8.8 | x | |
| 1.2 | x | |
| 1.0 | x | |
| 0.9 | x |
Changyou(4) | |
| nm | | |
| 9.9 | | |
| 9.4 | | |
| nm | | |
| 8.2 | | |
| 7.9 | | |
| nm | | |
| 7.3 | | |
| 6.7 | | |
| nm | | |
| nm | | |
| 1.6 | |
| (1) | The
following statistics, which are provided in the table above, are provided for informational
purposes only and were not used for comparative purposes: (a) the ratio of price to estimated
earnings per ADS for calendar year 2014 (“2014 price-to-earnings multiple”);
(b) the ratio of Adjusted Price to estimated earnings per ADS for calendar year 2014;
(c) the ratios of enterprise value, defined as fully diluted market value plus total
debt and minority interests less cash and cash equivalents (“EV”), as of
March 27, 2015, to estimated calendar years 2014, 2015 and 2016 EBITDA; and (d) the ratios
of 2014, 2015 and 2016 price-to-earnings multiple to estimated long-term earnings per
ADS growth rate (“PEG”). |
| (2) | Perfect
World’s cash balance adjusted for US$3.6 million paid to acquire Digital Extremes. |
| (3) | Netease’s
cash balance adjusted for dividend declared and unpaid of US$0.39/ADS for the fourth
quarter of 2014, to be paid on March 6, 2015, assuming that dividends accrue to unvested
restricted share units. Netease’s net debt excludes (US$5.7 million) deficit minority
interest, which is a result of retrospective presentation and disclosure requirements
on the noncontrolling interest which became effective for fiscal years beginning on or
after December 31, 2008. The noncontrolling interest will continue to be attributed its
share of losses even if that attribution results in a deficit noncontrolling interest
balance. |
Based on the analysis of the relevant
metrics for each of the comparable public companies, Merrill Lynch selected a representative range of financial multiples of the
comparable public companies and applied this range of multiples to the relevant Company financial statistic.
The value of the range of multiples selected
by Merrill Lynch was in some cases lower than the value of the P/E multiples and Adjusted P/E multiples of individual comparable
public companies set forth above. Mathematical analysis (such as determining the mean or median) is not in itself a meaningful
method of using comparable public company data. No company utilized in the comparable-company analysis is identical to the Company.
In evaluating comparable public companies and determining the implied multiple range, Merrill Lynch made complex considerations,
judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and
other matters, which could affect the public trading or other values of the companies to which the Company was compared.
The following table reflects the results
of the analysis and the corresponding representative multiples for the comparable companies:
Calendar
Year Financial | |
| Representative
Range | | |
| Implied
Per ADS Value | |
Price to Estimated 2015 Earnings per ADS | |
| 8.5x – 9.5x | | |
| US$6.29 – US$7.03 | |
Price to Estimated 2016 Earnings per ADS | |
| 8.0x – 9.0x | | |
| US$7.04 – US$7.92 | |
Adjusted Price to Estimated 2015 Earnings per ADS | |
| 7.5x – 8.5x | | |
| US$5.83 – US$6.57 | |
Adjusted Price to Estimated 2016 Earnings per ADS | |
| 7.0x – 8.0x | | |
| US$6.42 – US$7.30 | |
Discounted
Cash Flow Analysis
Merrill Lynch conducted a discounted
cash flow analysis for the purpose of determining an illustrative range of implied equity value per ADS. A discounted cash flow
analysis is a method of evaluating an asset using estimates of the unlevered, after-tax free cash flows generated by the asset
and taking into consideration the time value of money with respect to those future cash flows by calculating their “present
value.” “Present value” refers to the current value of one or more future cash payments from the asset, which
is referred to as that asset’s cash flows, and is obtained by discounting those cash flows back to the present using a discount
rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns
and other appropriate factors. “Terminal value” refers to the capitalized value of all cash flows from an asset for
periods beyond the final forecast period. For purposes of its discounted cash flow analysis, Merrill Lynch utilized the Management
Forecasts, which can be found under the caption “—Certain Financial Projections” beginning on page 48.
Merrill Lynch calculated ranges of the
estimated net present values of the Company’s unlevered, after-tax free cash flows that the Company was forecasted to generate
from 2015 to 2019 based on Management’s Forecasts. Merrill Lynch calculated the estimated net present value of unlevered,
after-tax cash flows that the Company was forecasted to generate after fiscal year 2019 (the “Terminal Value”) using
a perpetual growth rate range of 1.0% to 2.0%. Merrill Lynch selected this perpetual growth rate range based on its experience
and judgment.
The projected unlevered, after-tax free
cash flows the Company forecasted to generate from 2015 to 2019 and the Terminal Value were discounted at a rate ranging from
16.0% to 18.0%. In selecting this discount range, Merrill Lynch took into account, among other things: (a) a weighted average
cost of capital calculation based on factors commonly considered for purposes of calculating an estimated weighted average cost
of capital, including a market risk premium based on Bloomberg; (b) the risk-free rate (based on the spot rate for 10-year PRC
treasury as of March 27, 2015); (c) an estimated beta for the ADSs (based on peer companies’ average trading volatility
of ADSs relative to the overall market, adjusted for the Company’s capital structure); and (d) a size premium based
on market capitalization of the Company.
Merrill Lynch then, based upon certain
assumptions described by and discussions held with the management of the Company, adjusted the ranges of the estimated net present
values of the Company’s unlevered free cash flows and the Terminal Value by:
| · | subtracting
(i) the Company’s cash and cash equivalents as at December 31, 2014 of US$130.8
million and (ii) the Company’s available short-term investments at December 31,
2014 of US$47.5 million; |
| · | adding (i)
the Company’s short-term borrowings and long-term borrowings (excluding the amounts
which were secured by the Company’s short-term investments) as at December 31,
2014, each of which was nil and (ii) the Company’s dividends payable of US$0.3
million as at December 31, 2014; and |
| · | adding the
Company’s non-controlling interests of US$46.7 million as at December 31, 2014.
These analyses resulted in a range of implied enterprise values for the Company of US$1,638
million to US$1,963 million and a range of implied prices of US$6.50 to US$7.69 per ADS
of the Company, in each case as of March 27, 2015. |
Premiums Paid
Analysis
Merrill Lynch compared the premiums paid
in the going-private transactions of 12 U.S.-listed PRC-based companies and 17 U.S.-listed non-PRC-based companies that were announced
since 2009, where the acquiror owned over 50% of the target prior to the transaction with a transaction value inclusive of the
acquiror’s stake that was between US$100 million and US$3 billion based on final offer price. Merrill Lynch selected transactions
that, based on its experience and judgment, were similar to the Merger. Merrill Lynch excluded transactions involving minority
strategic investments, as well as announced transactions that were terminated. For each of these transactions, Merrill Lynch reviewed
the premium paid to the target company’s closing stock price for the one day, one week and one month prior to the announcement
date of each transaction. The relevant metrics for each of the selected going-private transactions are set out below.
| |
Final Offer
Over Trading Price Premium Prior to Announcement | |
Target Company | |
1 Day
(%) | | |
1 Week
(%) | | |
1 Month
(%) | |
U.S.-Listed PRC-based Companies | |
| | | |
| | | |
| | |
Perfect World | |
| 26.9 | % | |
| 26.3 | % | |
| 22.9 | % |
Noah Education Holdings | |
| 24.4 | % | |
| 22.3 | % | |
| 16.2 | % |
Charm Communications | |
| 17.2 | % | |
| 7.3 | % | |
| 17.2 | % |
ShangPharma Corp | |
| 30.8 | % | |
| 32.2 | % | |
| 48.5 | % |
China Nuokang Bio-Pharmaceutical | |
| 56.8 | % | |
| 57.6 | % | |
| 59.8 | % |
Winner Medical Group | |
| 32.3 | % | |
| 42.9 | % | |
| 21.6 | % |
China Real Estate Information Corp | |
| 25.3 | % | |
| 35.9 | % | |
| 37.0 | % |
Shanda Interactive Entertainment | |
| 23.5 | % | |
| 27.7 | % | |
| 16.7 | % |
Tiens Biotech Group (USA) | |
| 67.0 | % | |
| 63.8 | % | |
| 30.2 | % |
Funtalk China Holdings | |
| 17.1 | % | |
| 25.7 | % | |
| 43.1 | % |
Chemspec International | |
| 28.2 | % | |
| 22.2 | % | |
| 30.6 | % |
Tongjitang Chinese Medicines | |
| 19.0 | % | |
| 20.3 | % | |
| 17.8 | % |
U.S.-Listed Non-PRC-based Companies | |
| | | |
| | | |
| | |
Brookfield Residential Properties | |
| 27.5 | % | |
| 33.5 | % | |
| 23.6 | % |
PAA Natural Gas Storage | |
| 9.1 | % | |
| 10.8 | % | |
| 3.9 | % |
Pioneer Southwest Energy Partners | |
| 19.4 | % | |
| 18.5 | % | |
| 24.5 | % |
Cornerstone Therapeutics | |
| 72.7 | % | |
| 76.6 | % | |
| 70.3 | % |
BBX Capital Corp | |
| (8.8 | %) | |
| (3.4 | %) | |
| 40.6 | % |
Bluegreen Corp | |
| 73.6 | % | |
| 71.8 | % | |
| 58.7 | % |
Stream Global Services | |
| 1.6 | % | |
| (0.9 | %) | |
| (1.8 | %) |
Venoco | |
| 39.2 | % | |
| 45.5 | % | |
| (1.7 | %) |
C&D Technologies | |
| 18.3 | % | |
| 17.5 | % | |
| 22.3 | % |
Duncan Energy Partners | |
| (32.2 | %) | |
| (32.2 | %) | |
| (31.3 | %) |
XO Holdings | |
| 84.2 | % | |
| 93.1 | % | |
| 102.9 | % |
Caraco Pharmaceutical Laboratories | |
| 16.4 | % | |
| 18.2 | % | |
| 19.3 | % |
CNA Surety Corp | |
| 37.9 | % | |
| 37.7 | % | |
| 46.9 | % |
Cascal NV | |
| (11.3 | %) | |
| (7.0 | %) | |
| 0.2 | % |
Landry’s Restaurants | |
| 127.7 | % | |
| 116.0 | % | |
| 138.3 | % |
OSG America | |
| 41.4 | % | |
| 56.5 | % | |
| 54.1 | % |
Cox Radio | |
| 45.5 | % | |
| 47.7 | % | |
| (6.3 | %) |
The precedent going-private transactions
premiums analysis indicated the following minimums, maximums, means and medians:
| |
Final Offer
Over Trading Price Premium Prior to Announcement | |
| |
1 Day
(%) | | |
1 Week
(%) | | |
1 Month
(%) | |
U.S.-Listed PRC-based Companies | |
| | | |
| | | |
| | |
Minimum | |
| 17.1 | % | |
| 7.3 | % | |
| 16.2 | % |
Maximum | |
| 67.0 | % | |
| 63.8 | % | |
| 59.8 | % |
Mean | |
| 30.7 | % | |
| 32.0 | % | |
| 30.1 | % |
Median | |
| 26.1 | % | |
| 27.0 | % | |
| 26.6 | % |
| |
| | | |
| | | |
| | |
U.S.-Listed Non-PRC-based Companies | |
| | | |
| | | |
| | |
Minimum | |
| (32.2 | %) | |
| (32.2 | %) | |
| (31.3 | %) |
Maximum | |
| 127.7 | % | |
| 116.0 | % | |
| 138.3 | % |
Mean | |
| 33.1 | % | |
| 35.3 | % | |
| 33.2 | % |
Median | |
| 27.5 | % | |
| 33.5 | % | |
| 23.6 | % |
| |
| | | |
| | | |
| | |
All Companies | |
| | | |
| | | |
| | |
Minimum | |
| (32.2 | %) | |
| (32.2 | %) | |
| (31.3 | %) |
Maximum | |
| 127.7 | % | |
| 116.0 | % | |
| 138.3 | % |
Mean | |
| 32.1 | % | |
| 33.9 | % | |
| 31.9 | % |
Median | |
| 26.9 | % | |
| 27.7 | % | |
| 23.6 | % |
Merrill Lynch observed that the merger
consideration of US$7.10 per ADS represented a one-day, one-week and one-month premium of approximately 25.7%, 48.8% and 57.6%,
respectively, over the applicable closing prices of the ADSs as quoted by NASDAQ measured from January 24, 2014, the last trading
day before the Company announced it had received the Proposal.
The precedent going-private transactions
premiums analysis indicated the following implied price per ADS for the Company, in each case, using a premium range of 20% to
40%:
|
|
|
Price
per ADS |
|
|
|
|
Closing
Price |
|
|
|
Implied
Price |
|
1-Day |
|
|
US$5.65 |
|
|
|
US$6.78 – US$7.91 |
|
1-Week |
|
|
US$4.77 |
|
|
|
US$5.72 – US$6.68 |
|
1-Month |
|
|
US$4.48 |
|
|
|
US$5.38 – US$6.27 |
|
None of the selected precedent transactions
analyzed by Merrill Lynch is identical to the Merger. Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of the results and involves complex qualitative considerations and judgments.
General
In preparing its opinion to the Special
Committee, Merrill Lynch performed a variety of analyses, including those described above. The summary of Merrill Lynch’s
analyses above does not purport to be a complete description of the analyses performed by Merrill Lynch. The preparation of a
fairness opinion is a complex analytic process involving various quantitative and qualitative judgments and determinations as
to the most appropriate and relevant financial, comparative and other analytical methods employed and the adaptation and application
of these methods to the unique facts and circumstances presented. As a consequence, neither the opinion nor its underlying analyses
is readily susceptible to partial analysis or summary description. Merrill Lynch arrived at its opinion based on the results of
all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual
analysis, methodology or factor. Each analytical technique has inherent strengths and weaknesses, and the nature of the available
information may further affect the value of particular techniques. The analyses performed by Merrill Lynch include analyses based
upon forecasts of future results, which results may be significantly more or less favorable than the actual results or any results
suggested by Merrill Lynch’s analyses.
In performing its analyses, Merrill Lynch
considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed
on, and could be evaluated as of, the date of the opinion. The analyses were prepared solely for the purposes of Merrill Lynch
rendering its opinion to the Special Committee. Merrill Lynch’s analyses involved judgments and assumptions with regard
to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which
are beyond the control of the Company, such as the impact of competition on the business of the Company and on the industry generally,
industry growth and the absence of any adverse material change in the financial condition and prospects of the Company or the
industry or in the markets generally. No company, transaction or business used in Merrill Lynch’s analyses for comparative
purposes is identical to the Company or the Merger, as applicable, and an evaluation of the results of those analyses is not entirely
mathematical. Merrill Lynch believes that mathematical derivations (such as determining average and median) of financial data
are not by themselves meaningful and should be considered together with qualitative factors, judgments and informed assumptions.
The estimates contained in the Company’s analyses and the implied reference range values indicated by Merrill Lynch’s
analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, companies,
businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may
be sold, which may depend on a variety of factors, many of which are beyond the control of the Company. Much of the information
used in, and accordingly the results of, Merrill Lynch’s analyses are inherently subject to substantial uncertainty.
Merrill Lynch’s opinion was provided
to the Special Committee in connection with its consideration of the Proposed Transaction and was only one of many factors considered
by the Special Committee in evaluating the Merger and the fairness of the merger consideration. Neither Merrill Lynch’s
opinion nor its analyses were determinative of the merger consideration or of the views of the Special Committee or management
with respect to the Merger Agreement, the Plan of Merger and the Transactions, including the merger consideration. The type and
amount of consideration payable in the Merger were determined through negotiation between the Special Committee and the Buyer
Group, and the recommendation that the Board authorize and approve the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger, was solely that of the Special Committee and was made on April 3, 2015.
Merrill Lynch has acted as financial advisor
to the Special Committee in connection with the Proposed Transaction and provided financial advisory services, including an opinion
to the Special Committee regarding the fairness, from the financial point of view, of the Per Share Merger Consideration and the
Per ADS Merger Consideration, as applicable, to the holders of the Shares or ADSs (other than holders of Excluded Shares), based
upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other
matters considered by Merrill Lynch in preparing its opinion. Under the terms of its engagement, the Company has agreed to pay
Merrill Lynch a fee of US$1,400,000 due upon delivery of Merrill Lynch’s opinion, regardless of the conclusions reached
therein. In addition, the Company may, at its sole discretion, pay an additional US$600,000 to Merrill Lynch immediately prior
to or upon consummation of the Merger. In addition, the Company has agreed to reimburse Merrill Lynch’s expenses and indemnify
Merrill Lynch, its affiliates and certain related parties against certain liabilities arising out of the engagement.
Merrill Lynch and its affiliates comprise
a full-service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange
and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset
and investment management, financing and financial advisory services and other commercial services and products to a wide range
of companies, governments and individuals. In the ordinary course of its businesses, Merrill Lynch and its affiliates may invest
on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions
or trade or otherwise effect transactions in equity, debt or other securities or financial instruments (including derivatives,
bank loans or other obligations) of the Company and certain of its affiliates.
Merrill Lynch and its affiliates in the
past have provided, and in the future may provide, investment banking, commercial banking and other financial services to the
Company and certain of its current, former or future affiliates, including acting as financial advisor to the special committee
of the board of directors of Shanda Interactive in a “going-private” proposal until the completion of that role on
February 14, 2012 and acting as Joint Bookrunner in connection with the proposed Initial Public Offering of Cloudary Corporation
until the termination of that role prior to July 12, 2011. Merrill Lynch has, and in the future may, receive compensation for
rendering investment banking, commercial banking or other financial services to the Company and its affiliates.
For additional information on Merrill
Lynch’s analysis, please see “Presentation/discussion materials prepared by Merrill Lynch for discussion with the
Special Committee and the Board, dated April 3, 2015” and “Presentation/discussion materials prepared by Merrill Lynch
for discussion with the Special Committee, dated September 23, 2014,” filed as Exhibit (c)-(2) and Exhibit (c)-(3), respectively,
to the Company’s transaction statement on Schedule 13E-3.
Copies of Merrill Lynch’s opinion
dated April 3, 2015 and written presentations to the Special Committee on September 23, 2014 and April 3, 2015, are available
for inspection and copying at the principal executive offices of the Company during regular business hours by any interested stockholder
of the Company or representative who has been so designated in writing.
Purposes of and Reasons for the Merger
The Buyer Group
Under a possible interpretation of the
SEC rules governing “going private” transactions, each member of the Buyer Group may be deemed to be engaged in a
“going private” transaction and, therefore, required to express its reasons for the Merger to the Company’s
unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act. Each member of the Buyer Group is making the statements
included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange
Act. For the Buyer Group, the purpose of the Merger is to enable Parent to acquire 100% control of the Company, in a transaction
in which the holders of the Class A ordinary shares of the Company and the ADSs (other than the Excluded Shares, the Dissenting
Shares and ADSs representing the Excluded Shares) will be cashed out in exchange for US$3.55 per Class A ordinary share or US$7.10
per ADS (less US$0.05 per ADS cancellation fees pursuant to the terms of the Deposit Agreement), respectively, without interest
and net of any applicable withholding taxes, so Parent will bear the rewards and risks of the sole ownership of the Company after
the ADSs and Shares are cancelled, including any increases in value of the Company as a result of improvements to the Company’s
operations or acquisitions of other businesses.
The Buyer Group believes the operating
environment has changed in a significant manner since the Company’s initial public offering. There is greater domestic competition
in many of the segments in which the Company operates. These changes have increased the uncertainty and volatility inherent in
the business models of companies similar to the Company. As a result, the Buyer Group is of the view that there is potential for
considerably greater short- and medium-term volatility in the Company’s earnings. Responding to current market challenges
will require tolerance for volatility in the performance of the Company’s business and a willingness to make business decisions
focused on improving the Company’s long-term profitability. The Buyer Group believes that these strategies would be most
effectively implemented in the context of a private company structure. As a privately held entity, the Company’s management
will have greater flexibility to focus on improving long-term profitability without the pressures exerted by the public market’s
valuation of the Company and its emphasis on short-term period-to-period performance.
Further, as a privately held company,
the Company will be relieved of many of the expenses, burdens and constraints imposed on companies that are subject to the public
reporting requirements under the U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act of 2002.
The Buyer Group decided to undertake the
“going private” transaction at this time because it wants to take advantage of the benefits of the Company being a
privately held company as described above and because Merger Sub was able to obtain equity financing in connection with the Merger.
In the course of considering the “going private” transaction, the Buyer Group did not consider alternative transaction
structures because the Buyer Group believed the Merger was the most direct and effective way to enable the Buyer Group to acquire
ownership and control of the Company.
The Company
The Company’s purpose for engaging
in the Merger is to enable its shareholders and ADS holders to receive US$3.55 per Share and US$7.10 per ADS in cash, without
interest and net of any applicable withholding taxes, which represents (a) approximately a 25.7% premium over the closing price
of the ADSs as quoted by NASDAQ on January 24, 2014, the last trading day immediately prior to the Company’s announcement
on January 27, 2014 that it had received the Proposal and (b) approximately a 46.5% premium over the volume-weighted average trading
price of the ADSs during the 30 trading days prior to, and including, January 24, 2014. The Company believes its long-term objectives
can best be pursued as a private company.
The Company has determined to undertake
the Merger at this time based on the analyses, determinations and conclusions of the Special Committee and the Board described
in detail above under “—Reasons for the Merger and Recommendation of the Special Committee and the Board.”
Effects of the Merger on the Company
Private Ownership
The Company’s ADSs are currently
listed on NASDAQ under the symbol “GAME.” It is expected that, immediately following the completion of the Merger,
the Company will cease to be a publicly traded company and will instead become a privately held company owned directly by Parent
and indirectly by the Buyer Group. Following the completion of the Merger, the ADSs will cease to be listed on NASDAQ, and price
quotations with respect to sales of the ADSs in the public market will no longer be available. In addition, registration of the
Company’s ADSs and the underlying Class A ordinary shares under the Exchange Act may be terminated upon the Company’s
application to the SEC if such shares are not listed on a national securities exchange and there are fewer than 300 record holders
of such shares. Ninety days after the filing of Form 15 in connection with the completion of the Merger or such shorter period
as may be determined by the SEC, registration of the ADSs and the underlying Class A ordinary shares under the Exchange Act will
be terminated. At such time, the Company will no longer be required to file periodic reports with the SEC or otherwise be subject
to the U.S. federal securities laws, including the Sarbanes-Oxley Act of 2002, applicable to public companies. After the completion
of the Merger, the Company’s shareholders will no longer enjoy the rights or protections that the U.S. federal securities
laws provide. Furthermore, the ADS program for Class A ordinary shares of the Company will terminate.
Upon completion of the Merger, each issued
and outstanding Class A ordinary share and ADS, other than the Excluded Shares, ADSs representing the Excluded Shares and the
Dissenting Shares (please see “—Dissenters’ Rights” below), will be cancelled in exchange for the
right to receive US$3.55 per Class A ordinary share and US$7.10 per ADS (less US$0.05 per ADS cancellation fees pursuant to the
terms of the Deposit Agreement), respectively, in cash, without interest and net of any applicable withholding taxes. At the Effective
Time, the Excluded Shares will be cancelled for no consideration. At the Effective Time, each ordinary share of Merger Sub issued
and outstanding immediately prior to the Effective Time will be converted into one fully paid and non-assessable ordinary share
of the Surviving Corporation. As a result, current shareholders and ADS holders of the Company, other than the members of the
Buyer Group, will no longer have any equity interest in, or be shareholders or ADS holders of, the Company upon completion of
the Merger. Consequently, the Company’s shareholders and ADS holders, other than the members of the Buyer Group, will not
have the opportunity to participate in the earnings and growth of the Company and they will not have the right to vote on corporate
matters. Similarly, the Company’s current shareholders and ADS holders, other than the members of the Buyer Group, will
not be exposed to the risk of loss in relation to their investment in the Company.
At the Effective Time, each Company Option
that is then outstanding and unexercised, whether or not vested or exercisable, will be cancelled and converted into the right
to receive a cash amount equal to (a) the total number of Shares issuable under such Company Option immediately prior to the Effective
Time multiplied by (b) the excess of US$3.55 over the exercise price payable per Share under such Company Option, without interest
and net of any applicable withholding taxes. If the exercise price per Share of a Company Option is equal to or greater than US$3.55,
such Company Option will be cancelled without any payment.
At the Effective Time, each Company Restricted
Share that is then outstanding will be cancelled and converted into the right to receive a cash amount equal to US$3.55, without
interest and net of any applicable withholding taxes.
At the Effective Time, each Company RSU
that is then outstanding will be cancelled and converted into the right to receive a cash amount equal to US$3.55, without interest
and net of any applicable withholding taxes.
We have attached the Merger Agreement
to this proxy statement as Annex A. We encourage you to read the entire Merger Agreement carefully, because it is the legal document
that governs the Merger.
Directors and Management of the Surviving
Corporation
If the Merger is completed, the current
memorandum of association and articles of association of the Company will be replaced in their entirety by the memorandum of association
and articles of association of Merger Sub, as in effect immediately prior to the Effective Time (except that, at the Effective
Time, Article I of the articles of association of the Surviving Corporation will be amended to read as follows: “The name
of the corporation is “Shanda Games Limited”.”). In addition, the directors of Merger Sub immediately prior
to the Effective Time (identified below in “Annex F—Directors and Executive Officers of Each Filing Person”)
will become the directors of the Surviving Corporation and the officers of the Company will remain the officers of the Surviving
Corporation, in each case unless otherwise determined by Parent prior to the Effective Time.
Primary Benefits and Detriments of the Merger
The primary benefits of the Merger to
the Unaffiliated Holders include the following:
| · | the receipt
by Unaffiliated Holders of a merger consideration of US$3.55 per Class A ordinary share
or US$7.10 per ADS represents a premium of approximately 46.5% and 53.8%, respectively,
over the volume-weighted average trading prices of the Company’s ADSs as quoted
by NASDAQ during the 30 and 60 trading days prior to January 24, 2014, the last trading
day prior to the Company’s announcement on January 27, 2014 that it had received
the Proposal and an approximately 9.2% premium over the Company’s closing price
as quoted by NASDAQ on January 27, 2014; and |
| · | risks to Unaffiliated
Holders in connection with any possible decrease in the Company’s future revenues,
free cash flow, growth or value following the Merger will be avoided. |
The primary detriments of the Merger to
the Unaffiliated Holders include the following:
| · | Unaffiliated
Holders 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, if any; and |
| · | in
general, the receipt of cash pursuant to the Merger or through the exercise of dissenters’
rights will be a taxable transaction for U.S. federal income tax purposes and may also
be a taxable transaction under other applicable tax laws. See “—Material
U.S. Federal Income Tax Consequences” beginning on page 73 and “—Material
PRC Income Tax Consequences” beginning on page 75 for additional information. |
The primary benefits of the Merger to
the Buyer Group include the following:
| · | if the Company
is managed and executes its business strategies successfully, the value of the Buyer
Group’s equity interests in the Company could increase due to possible increases
in future revenues, free cash flow and the underlying value of the Company or the payment
of dividends, if any, that will accrue to Parent; |
| · | the Company
will be relieved from pressure exerted by the public market’s valuation and the
emphasis on short-term period-to-period performance, which may not maximize the long-term
equity value of the Company, and as a result the Company’s management will have
greater flexibility to focus on long-term strategic planning in a highly competitive
business and on improving long-term profitability; |
| · | the Company’s
management will have more freedom to change the capital spending strategies without public
market scrutiny or analysts’ quarterly expectations; |
| · | the Company
will be able to develop and introduce new products and services or change its pricing
strategies to attract customers without public market scrutiny or the pressure to meet
short-term forecasts; and |
| · | the costs and
administrative burden resulting from operating the Company as a publicly traded company
will be reduced, including the costs in connection with regulatory filings and compliance
requirements. |
The primary detriments of the Merger to
the Buyer Group include the following:
| · | all of the
risks associated with any possible decrease in the Company’s revenues, free cash
flow or value following the Merger will be borne by Parent; |
| · | the business
risks facing the Company such as increased competition will be borne by Parent; and |
| · | following the
Merger, there will be no trading market for the Surviving Corporation’s equity
securities and Parent’s equity investment in the Surviving Corporation following
the Merger will bear material risks resulting from such limited liquidity. |
In connection with the Merger, some
of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to,
the interests of the shareholders of the Company generally, as described in more detail under “—Interests of Certain
Persons in the Merger” beginning on page 66.
The Company’s Net Book Value and
Net Earnings
After the closing of the Merger, each
member of the Buyer Group will have an indirect interest in the Company’s net book value and net earnings in proportion
to such member’s ownership interest in Parent, which will wholly own the Surviving Corporation. The Company’s net
income attributable to its shareholders for the fiscal year ended December 31, 2014 was approximately US$167.7 million and its
net book value as of December 31, 2014 was approximately US$306.0 million.
The table below sets forth the indirect
beneficial interest in the Company’s net book value and net earnings for each member of the Buyer Group before and after
the Merger, based on the historical net book value and net earnings of the Company as of and for the year ended December 31, 2014.
| |
Ownership
Prior to the Merger(1) | | |
Ownership
After the Merger(2) | |
| |
Net
Book Value | | |
Earnings | | |
Net
Book Value | | |
Earnings | |
Name | |
US$’000 | | |
% | | |
US$’000 | | |
% | | |
US$’000 | | |
% | | |
US$’000 | | |
% | |
Ningxia Yilida | |
| 27,595 | | |
| 9.0 | | |
| 15,122 | | |
| 9.0 | | |
| 27,595 | | |
| 9.0 | | |
| 15,122 | | |
| 9.0 | |
Ningxia | |
| 73,198 | | |
| 23.9 | | |
| 40,113 | | |
| 23.9 | | |
| 73,198 | | |
| 23.9 | | |
| 40,113 | | |
| 23.9 | |
Hao Ding | |
| 60,804 | | |
| 19.9 | | |
| 33,321 | | |
| 19.9 | | |
| 60,804 | | |
| 19.9 | | |
| 33,321 | | |
| 19.9 | |
Orient Hongtai | |
| 34,962 | | |
| 11.4 | | |
| 19,160 | | |
| 11.4 | | |
| 34,962 | | |
| 11.4 | | |
| 19,160 | | |
| 11.4 | |
Orient Hongzhi | |
| 34,962 | | |
| 11.4 | | |
| 19,160 | | |
| 11.4 | | |
| 34,962 | | |
| 11.4 | | |
| 19,160 | | |
| 11.4 | |
Ningxia Silkroad | |
| — | | |
| — | | |
| — | | |
| — | | |
| 37,925 | | |
| 12.2 | | |
| 20,783 | | |
| 12.2 | |
Zhengjun Investment | |
| — | | |
| — | | |
| — | | |
| — | | |
| 18,963 | | |
| 6.1 | | |
| 10,392 | | |
| 6.1 | |
Zhongrong Legend | |
| — | | |
| — | | |
| — | | |
| — | | |
| 17,597 | | |
| 6.0 | | |
| 9,643 | | |
| 6.0 | |
| (1) | Ownership percentages are based on Shares outstanding as of April
3, 2015, the date of the Merger Agreement. |
| (2) | Ownership percentages after the Merger are based on all Excluded
Shares being cancelled without payment of any consideration and all other ordinary shares
(including Class A ordinary shares represented by ADSs) and Company Options, Company
Restricted Shares and Company RSUs being cancelled in exchange for the Per Share Merger
Consideration and Per ADS Merger Consideration and other amounts due pursuant to the
terms of the Merger Agreement, as applicable. Further, such percentages are subject to
adjustment pursuant to the terms and conditions of the Merger Agreement, the Equity Commitment
Letters and the Support Agreement. |
Plans for the Company after the Merger
Following the completion of the Merger,
Parent will own 100% of the equity interest in the Surviving Corporation. The Buyer Group anticipates that the Company will continue
to conduct its operations substantially as they are currently being conducted, except that the Company will cease to be a publicly
traded company and will instead be a wholly owned subsidiary of Parent.
Except as set forth in this proxy statement
and transactions already under consideration by the Company, the Buyer Group does not have any current plans, proposals or negotiations
that relate to or would result in any of the following:
| · | an extraordinary
corporate transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries; |
| · | the sale or
transfer of a material amount of the assets of the Company or any of its subsidiaries;
or |
| · | any other
material changes in the Company, including with respect to the Company’s corporate
structure or business. |
However,
Parent has been evaluating and will continue to evaluate, from time to time, the Company’s entire business
and operations in order to determine what action is in the best interests of the Surviving Corporation and its
shareholders, which may include a disposition or acquisition of material assets or other such extraordinary transactions.
Subject to market conditions and the ability of the Buyer Group and the Surviving Corporation to obtain requisite regulatory
approvals, the Buyer Group may also consider potentially relisting the Surviving Corporation or a substantial part of its
business on an internationally recognized stock exchange in mainland China (the “Relisting”). For the purpose of
evaluating the Relisting options (as outlined below), Ningxia, a member of the Buyer Group, has conducted and will continue
to conduct research on similar going private transactions of China-based companies (such as Focus Media Holding Limited) and
their subsequent relistings or relisting plans, and has had preliminary consultations through phone calls and in-person
meetings with KWM, the PRC counsel of Ningxia, as well as Southwest Securities, the financial advisor
of Ningxia, with respect to the regulatory requirements, procedures and obstacles, possible timing and economic costs and
risks due to the recent volatility of the A-share market in the PRC, as to each Relisting option. However, given the recent
volatility of the A-share market in the PRC and, more importantly, the complexity and uncertainty of the A-share listing
approval process, the Buyer Group has not formulated any definitive plan with respect to any Relisting and its evaluation may
take significant time and may not, in the end, lead to any concrete transaction involving the Surviving Corporation. While
Ningxia has had preliminary consultations with its professional advisors as disclosed above, no comprehensive analysis or any
written or oral report, opinion or appraisal was provided by such advisors.
The following is a summary of the advice provided by KWM and Southwest Securities during the consultations mentioned above:
There are two typical Relisting options
for companies with histories similar to the Company’s. The options are an initial public offering (the “IPO”)
and a “backdoor listing” (i.e., listing through the restructuring of a company already listed on a Chinese stock exchange
(the “Listco”)). The typical steps of these two options and the indicative timing for these options are as follows:
To proceed with the IPO option, the Surviving
Corporation will be required under PRC law to (i) restructure its cross-border corporate structure such that all of the equity
interests or substantial assets of all of its subsidiaries are held by an entity incorporated in the PRC (the “Holdco”);
(ii) unwind the Company’s arrangements with its variable interest entities (the “VIEs”); (iii) re-incorporate
the Holdco as a joint-stock company under PRC law; (iv) submit an IPO application to the China Securities Regulatory Commission
(“CSRC”) for approval; (v) if the CSRC approves the application, submit a listing application to a Chinese stock exchange
for approval; and (vi) if the stock exchange approves the application, issue public shares and list its shares on the stock exchange.
In addition to the governmental approvals required
in steps (iv) and (v) above, a number of governmental procedures in connection with and approvals by PRC authorities, such as
the Ministry of Commerce (or its local counterparts) and the National Development and Reform Commission (or its local counterparts)
are also required to carry out steps (i) through (iii). The requisite procedures and governmental approvals in the IPO process
are subject to uncertainties in both timing and outcome. In particular, the CSRC’s approval of an IPO application is highly
unpredictable and step (iv) alone is usually very time-consuming. Typically, an IPO may require 2 to 3 years to complete after
the completion of the corporate restructuring in step (i), and it is not possible at this time to provide an estimate of the timing
of the Surviving Corporation’s potential Relisting through the IPO option.
| · | The
“Backdoor Listing” Option |
To proceed with the “backdoor listing”
option, (a) the Surviving Corporation will be required under PRC law to restructure such that all of the equity interests or substantial
assets of all of its VIEs are held by the Holdco and all of its arrangements with the VIEs are unwound; (b) the Surviving Corporation
will then negotiate and agree upon the terms and conditions for a “backdoor listing” transaction with the potential
Listco; (c) after the definitive agreement for the “backdoor listing” transaction is signed, it will be submitted
to the Listco’s board of directors and shareholders for approval; (d) if these approvals are received, the Listco is required
under PRC law to submit applications to the CSRC and (if applicable) other governmental authorities such as the Anti-Monopoly
Bureau of the Ministry of Commerce for approval; and (e) the “backdoor listing” transaction can only be completed
after the CSRC’s approval and all other applicable governmental approvals are obtained.
Other than the abovementioned governmental approvals
by the CSRC and other authorities in step (d), a number of procedures and governmental approvals are also required to carry out
step (a) above, such as approval by the Ministry of Commerce (or its local counterparts) and the National Development and Reform
Commission (or its local counterparts). In addition, as discussed in step (c), a “backdoor listing” transaction requires
corporate authorization by the Listco’s board of directors and shareholders. All of the above approvals and procedures,
as well as the negotiation process in step (b), are usually time-consuming and complex. Typically, it takes 1 to 2 years to complete
a “backdoor listing” after the completion of step (b), and it is not possible to provide a timing estimate for the
Surviving Corporation’s potential Relisting through the “backdoor listing” option.
In the event the Buyer Group definitively
elects to proceed with a Relisting, the Buyer Group and the Surviving Corporation will face a number of uncertainties and potential
hurdles. For example:
|
· |
to effect an A-share
listing in China, prior approval of the CSRC is required; such approval is subject to a high degree of uncertainty, particularly
given the indication by the CSRC in a press release on July 3, 2015, that, the total number of listings through initial public
offering to be approved by the CSRC will be reduced in response to the recent tumble of the A-share market (the period for
the reduction was not specified in the press release); |
|
· |
the CSRC and the relevant stock
exchanges would likely require the Surviving Corporation to engage in extensive restructuring prior to any Relisting, and
the cost imposed by such restructuring could be substantial, rendering it economically unviable for the Surviving Corporation
to continue to seek a public listing on such an exchange; and |
| · | the
negotiations involved in a public listing and related restructuring are highly time consuming
and complicated, involving multiple parties, such as other investors and shareholders,
whose interests are not always aligned. |
The above factors, together with the
volatility of the A-share market in the PRC, make it premature for the Buyer Group to state with any degree of certainty whether
the Surviving Corporation will in fact pursue Relisting after the closing of the Transaction.
Subsequent to the completion of the Merger
and the anticipated deregistration of the Company’s Class A ordinary shares and ADSs, the Company will no longer be subject
to the Exchange Act and NASDAQ compliance and reporting requirements and the related direct and indirect costs and expenses, and
may experience positive effects on profitability as a result of the elimination of such costs and expenses.
Alternatives to the Merger
The Special Committee was formed following
a Board meeting on January 28, 2014 in response to the receipt of the Proposal from the Buyer Group (which at the time was
comprised of Primavera and Shanda Interactive) on January 27, 2014. The Special Committee was reconstituted on September 4, 2014
as further discussed in “—Background of the Merger” beginning on page 22.
In light of the following factors, the
Special Committee determined that there was no viable alternative to the proposed sale of the Company to the Buyer Group:
| (i) | the express intention of the members of the Buyer Group (which
as of the date of this proxy statement is comprised of Ningxia Yilida, Ningxia, Orient
Hongtai, Orient Hongzhi, Hao Ding, Zhengjun Investment, Ningxia Silkroad and Zhongrong
Legend) not to sell their Shares and/or ADSs to any third party, and the Buyer Group’s
aggregate beneficial ownership of approximately 75.6% of the Company’s issued and
outstanding Shares and control of approximately 90.7% of the total number of votes represented
by the Company’s issued and outstanding Shares (as of the date of this proxy statement); |
| (ii) | the fact that, in the “market check” Merrill
Lynch conducted under the direction of the Special Committee, all the parties deemed
to be potentially interested in and capable of acquiring the Company and contacted by
Merrill Lynch declined to engage in discussions with the Special Committee regarding
any such acquisition; and |
| (iii) | the fact that, since the announcement of the Proposal on
January 27, 2014, no party other than the members of the Buyer Group has made any
proposal to the Company or the Special Committee with respect to any alternative transaction
with the Company. |
In addition, the Special Committee
and the Board considered, as an alternative to the Merger, that the Company remain as a public company. However, based on the
considerations set forth in the section entitled “—Reasons for the Merger and Recommendation of the Special Committee
and the Board” beginning on page 37, the Special Committee and the Board have concluded that it is more beneficial to the
Unaffiliated Holders for the Company to enter into the Merger Agreement and pursue the consummation of the Transactions, including
the Merger, rather than to remain a public company. The Special Committee also took into account that, prior to the receipt of
shareholder approval, the Company, subject to compliance with the terms and conditions of the Merger Agreement, can terminate
the Merger Agreement in order to accept an alternative transaction proposed by a third party that is a Superior Proposal, subject
to the payment of a termination fee of US$57,250,000, as provided in the Merger Agreement. In this regard, the Special Committee
recognized that it has flexibility under the Merger Agreement to respond to an alternative transaction proposed by a third party
that is or is reasonably likely to result in a Superior Proposal, including the ability to provide information to, and engage
in discussions and negotiations with, such party (and, if such proposal is a Superior Proposal, recommend such proposal to the
Company’s shareholders).
Effects on the Company if the Merger Is Not Completed
If the Merger Agreement is not authorized,
approved and adopted by the shareholders or if the Merger is not completed for any other reason, the shareholders will not receive
any payment for their Shares and/or ADSs in connection with the Merger nor will the holders of any options, Company Restricted
Shares or Company RSUs receive payment pursuant to the Merger Agreement. Instead, the Company will remain a publicly traded company,
the ADSs will continue to be listed and traded on NASDAQ, provided that the Company continues to meet NASDAQ’s listing requirements,
and the Company will remain subject to SEC reporting obligations. Therefore, the Company’s shareholders will continue to
be subject to similar risks and opportunities as they currently are with respect to their ownership of the Shares and/or ADSs.
Accordingly, if the Merger is not completed, we cannot assure you as to the effect of these risks and opportunities on the future
value of the Shares or ADSs, including the risk that the market price of the ADSs may decline to the extent that the current market
price reflects a market assumption that the Merger will be completed.
Under specified circumstances, the
Company may be required to pay Parent or its designees a termination fee of US$57,250,000 and reimburse Parent for its expenses
in connection with the Merger up to US$3,000,000, or Parent may be required to pay the Company a termination fee of US$114,500,000
and reimburse the Company for certain expenses in connection with the Merger up to US$3,000,000, in each case as described in
the section entitled “The Merger Agreement—Termination Fee and Reimbursement of Expenses” beginning on page 102.
If the Merger is not completed, the Board will, from time to time, evaluate and review, among other things, the business, operations,
dividend policy and capitalization of the Company and make such changes as are deemed appropriate, and continue to seek to identify
strategic alternatives to enhance shareholder value. If the Merger Agreement is not approved by the shareholders or if the Merger
is not completed for any other reason, we cannot assure you that any other transaction acceptable to the Company will be offered,
or that the business, prospects or results of operations of the Company will not be adversely impacted.
Financing of the Merger
The Buyer Group estimates that the
total amount of funds necessary to complete the Transactions, including the Merger, will be approximately US$486 million, assuming
no exercise of dissenters’ rights by shareholders of the Company. This amount includes the cash to be paid to the Unaffiliated
Holders and holders of Company Options, Company Restricted Shares and Company RSUs, as well as the related costs and expenses,
in connection with the Merger and the other Transactions. It does not consider the value of the Excluded Shares, which will be
cancelled for no consideration in the Merger. For additional information regarding such cancellation, please see “The Merger
Agreement—Merger Consideration” beginning on page 85.
The total amount of funds necessary to
complete the Merger and the other Transactions is expected to be provided through a combination of (a) aggregate equity commitments
of US$467,217,590.95, which are discussed below, and (b) cash from the Company and its subsidiaries. As of the date of this proxy
statement, there are no alternative financing arrangements or plans in place to acquire the funds necessary for the Merger and
the other Transactions.
The Merger and the other Transactions
are expected to be funded primarily through cash contributions contemplated by the Equity Commitment Letters, by and between Parent
and each of Ningxia Silkroad, Zhengjun Investment and Zhongrong Legend. Under the terms and subject to the conditions of the Equity
Commitment Letters, Ningxia Silkroad, Zhengjun Investment and Zhongrong Legend will provide equity financing in an aggregate amount
of US$467,217,590.95 to Parent to complete the Merger. The remaining funds necessary to complete the Merger and the other Transactions
are expected to be provided by cash from the Company and its subsidiaries.
Pursuant to these Equity Commitment Letters,
each of Ningxia Silkroad, Zhengjun Investment and Zhongrong Legend has committed to purchase, or cause the purchase of, for cash,
subject to the terms and conditions therein, equity securities of Parent, immediately prior to the Effective Time, in an amount
of US$234,542,965.55 by Ningxia Silkroad, in an amount of US$117,271,481.00 by Zhengjun Investment and in an amount of US$115,403,144.40
by Zhongrong Legend. Such funds are to be used solely for the purpose of completing the Merger and the other Transactions in accordance
with the Merger Agreement. Parent may, upon subsequent agreement with the applicable Sponsor, amend or modify the Equity Commitment
Letters so long as (a) the aggregate proceeds of the Equity Commitment Letters (as amended or modified) will be sufficient for
Parent and the Surviving Corporation to pay (i) the Merger Consideration and (ii) any other amounts required to be paid in
connection with the consummation of the Transactions upon the terms and conditions contemplated in the Merger Agreement; and (b)
such amendment or modification would not prevent, materially delay or materially impede or impair (i) the ability of Parent and
Merger Sub to consummate the Transactions or (ii) the rights and benefits of the Company under the Equity Commitment Letters.
Each Sponsor’s commitment under
its Equity Commitment Letter is conditioned upon (a) the satisfaction or waiver of the conditions to Parent and Merger Sub’s
obligations to complete the Merger under the Merger Agreement; and (b) the substantially contemporaneous consummation of the closing
of the Merger.
The obligation of each of the Sponsors
to fund the equity commitment under its Equity Commitment Letter will terminate automatically and immediately upon the earliest
to occur of (a) the valid termination of the Merger Agreement in accordance with its terms; (b) the closing of the Merger, at
which time such obligation will be discharged, but subject to the performance of such obligation; and (c) the Company or any of
its affiliates asserting a claim that would make the relevant Limited Guarantee terminable in accordance with the terms thereof.
The Company is an express third-party
beneficiary of each of the Equity Commitment Letters to the extent of its right to seek specific performance of each of the equity
commitments under the circumstances in which the Company would be permitted by the Merger Agreement to obtain specific performance
requiring Parent and Merger Sub to enforce the equity commitments. Each of the Sponsors may assign or delegate all or a portion
of its obligations to fund its equity commitment to any of its affiliates or any other investment fund advised or managed by such
affiliate so long as such Sponsor remains liable for the obligations under its Equity Commitment Letter.
Pursuant to the Merger Agreement, each
of Parent and Merger Sub is required to use its reasonable best efforts to (a) obtain financing on the terms and conditions described
in the Equity Commitment Letters; (b) maintain in effect the Equity Commitment Letters until the Merger is consummated; (c) satisfy,
or cause to be satisfied, on a timely basis all conditions to the closing of and funding under the Equity Commitment Letters applicable
to Parent and/or Merger Sub that are within its control; (d) consummate the financing at or prior to the Effective Time;
and (e) enforce the relevant parties’ funding obligations and the rights of Parent and Merger Sub under the Equity
Commitment Letters to the extent necessary to fund the Merger Consideration.
Consortium Agreement
On March 16, 2015, Ningxia Yilida, Ningxia,
Orient Hongtai, Orient Hongzhi and Hao Ding entered into the Third Consortium Agreement. Under the Third Consortium Agreement,
the consortium members agreed, among other things, (a) to form a consortium to jointly make a proposal to acquire the Company
in a “going private” transaction; (b) to deal exclusively with each other with respect to such “going private”
transaction until the earlier of (i) April 30, 2015 and (ii) termination of the Third Consortium Agreement; and (c) to cooperate
and proceed in good faith to negotiate and consummate the “going private” transaction. On April 3, 2015, each of Zhongrong
Legend, Ningxia Silkroad and Zhengjun Investment entered into an adherence agreement, pursuant to which each of Zhongrong Legend,
Ningxia Silkroad and Zhengjun Investment became a party to the Third Consortium Agreement as a sponsor.
The Third Consortium Agreement provides
that, concurrently with the execution of the Merger Agreement, Ningxia Yilida, Ningxia, Orient Hongtai, Orient Hongzhi and Hao
Ding would enter into or cause its affiliates to enter into, as applicable, a support agreement with Parent, pursuant to which
they or their affiliates, as applicable, would contribute all of their Shares of the Company (including Shares represented by
ADSs), in exchange for the same number and class of shares of the Parent, at the closing of the “going private” transaction.
In addition, the Third Consortium Agreement obligates the parties thereto to vote against any competing proposal and restrict
transfers of Shares of the Company.
Certain consortium members and/or their
affiliated entities had previously entered into the First Consortium Agreement and the Second Consortium Agreement. These previous
consortium agreements had terms and conditions, including obligations to deal with each other exclusively, similar to those of
the Third Consortium Agreement; however, the exclusivity periods under these two previous consortium agreements had both expired
at the time that the Third Consortium Agreement was entered into. See “—Background of the Merger” beginning
on page 22 for additional information.
Limited Guarantees
Concurrently with the execution and delivery
of the Merger Agreement on April 3, 2015, each of the Guarantors, namely Zhongrong Legend, Ningxia Silkroad and Zhengjun Investment
executed and delivered the Limited Guarantees. Under the Limited Guarantees, the Guarantors have collectively guaranteed in favor
of the Company the entire portion of the payment obligations of Parent and Merger Sub under the Merger Agreement.
Support Agreement
Concurrently with the execution and delivery
of the Merger Agreement on April 3, 2015, the Rollover Shareholders entered into the Support Agreement with Parent, pursuant to
which they agreed, among other things, that, from the date of the Support Agreement until the termination of the Support Agreement
in accordance with its terms (a) each Rollover Shareholder would appear at any shareholders’ meeting of the Company
or otherwise cause the Shares held by such Rollover Shareholder to be counted as present for the purposes of establishing a quorum
and vote or cause to be voted such Shares (i) in favor of the authorization and approval of the Merger Agreement, the Plan of
Merger and the Transactions, including the Merger and (ii) against any Competing Transaction; and (b) the Rollover Shares (including
Rollover Shares represented by ADSs) will, at the Effective Time, be cancelled for no consideration in the Merger. A copy of the
Support Agreement is attached as Annex E to this proxy statement and is incorporated herein by reference.
Remedies
The parties to the Merger Agreement
may be entitled to the payment of a termination fee or the grant of specific performance of the terms of the Merger Agreement,
including an injunction or injunctions to prevent breaches of the Merger Agreement, in addition to any other remedy at law or
equity, subject to certain limitations as described under the section entitled “The Merger Agreement—Remedies”
beginning on page 103.
Interests of Certain Persons in the Merger
In considering the recommendation of the
Special Committee and the Board with respect to the Merger, you should be aware that each member of the Buyer Group has interests
in the transaction that are different from, and/or in addition to, the interests of the Company’s shareholders generally.
The Board and Special Committee were aware of such interests and considered them, among other matters, in reaching their decisions
to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and recommend that
the Company’s shareholders vote in favor of authorizing and approving the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger. Except as set forth under “—Background of the Merger,” no director who is not an employee
of the Company has retained an unaffiliated representative to act solely on behalf of unaffiliated security holders for purposes
of negotiating the terms of the Transactions and/or preparing a report concerning the fairness of the Transactions.
Interests of the Buyer Group
In considering the recommendation of the
Special Committee and the Board with respect to the Merger, you should be aware that each member of the Buyer Group has interests
in the transaction that are different from, and/or in addition to, the interests of the Company’s shareholders generally.
The Special Committee and the Board were aware of such interests and considered them, among other matters, in reaching their decisions
to approve the Merger Agreement.
As a result of the Merger, Parent will
own 100% of the equity interest in the Surviving Corporation immediately following the completion of the Merger. Ningxia, Hao
Ding, Ningxia Silkroad, Orient Hongtai, Orient Hongzhi, Ningxia Yilida, Zhengjun Investment and Zhongrong Legend will beneficially
hold 23.9%, 19.9%, 12.2%, 11.4%, 11.4%, 9.0%, 6.1% and 6.0%, respectively, of the entire equity interests in Parent immediately
following the completion of the Merger. Because of Parent’s equity interest in the Surviving Corporation, each member of
the Buyer Group will directly or indirectly enjoy the benefits from any future earnings and growth of the Company after the Merger
which, if the Company is successfully managed, could exceed the value of their original investments in the Company. Parent will
also directly bear, and each member of the Buyer Group will indirectly bear, the corresponding risks of any possible decreases
in the future earnings, growth or value of the Company. Parent’s investment in the Surviving Corporation will be illiquid,
with no public trading market for the Surviving Corporation’s shares and no certainty that an opportunity will develop to
sell its shares in the Surviving Corporation at an attractive price, or that dividends paid by the Surviving Corporation will
be sufficient to recover its investment.
The Merger may also provide additional
means to enhance shareholder value for the Buyer Group, including improved profitability due to the elimination of the expenses
associated with public company reporting and compliance requirements; increased flexibility and responsiveness in management of
the business to achieve growth and respond to competition without the restrictions of short-term earnings comparisons; and additional
means for making liquidity available to the Buyer Group, such as through dividends or other distributions.
Relationship Between the Buyer Group and Certain
Directors
As of the date of this proxy statement,
Mr. Zhang, the chairman of the Board and acting chief executive officer of the Company, is the sole shareholder of Shanghai Yingfeng,
which is the general partner of Ningxia Yilida and Zhengjun Investment. Both Ningxia Yilida and Zhengjun Investment are members
of the Buyer Group. In addition, Mr. Zhang is a director of Merger Sub, and the Buyer Group expects that he will become a director
of the Surviving Corporation. Therefore, Mr. Zhang has interests that are different from, or in addition to, the interests of
the shareholders of the Company generally. Mr. Shaolin Liang, a director of the Company, serves as a vice general manager of Ningxia,
which is a member of the Buyer Group. Mr. Lin, a director of the Company, served as the chief executive officer of China Universal
Asset Management Co., Ltd., an affiliate of Orient Hongtai and Orient Hongzhi, each of which is a member of the Buyer Group, from
April 2004 to April 16, 2015. Therefore, both Mr. Shaolin Liang and Mr. Lin may have interests that are different from, or in
addition to, the interests of the shareholders of the Company generally.
Treatment of Shares, Options, Company Restricted
Shares and Company RSUs Held by Directors and Executive Officers
If the Merger is completed, at the Effective
Time, each Company Option issued and outstanding immediately prior to the Effective Time, will be cancelled and converted into
the right to receive, as soon as practicable after the Effective Time, an amount equal to the product of (a) the total number
of Shares issuable under such Company Option immediately prior to the Effective Time multiplied by (b) the excess of US$3.55 over
the exercise price payable per Share under such Company Option, in cash, without interest and net of any applicable withholding
taxes, and each Company Restricted Share and Company RSU that is outstanding immediately prior to the Effective Time will be cancelled
and converted into the right to receive, as soon as practicable after the Effective Time, an amount equal to US$3.55, in cash,
without interest and net of any applicable withholding taxes.
As of the date of this
proxy statement, the Company’s directors and executive officers (as set forth in “Security Ownership of
Certain Beneficial Owners and Management of the Company” beginning on page 112), as a group, beneficially own an
aggregate of 52,035,382 Shares. These consist of (a) 49,616,759 issued and outstanding ordinary shares, (b) issued and
unexercised Company Options to purchase 2,418,623 Class A ordinary shares issued pursuant to the Share Incentive Plan and
exercisable within 60 days from the date of this proxy statement, (c) zero (0) Company Restricted Shares the restrictions
over which will lapse within 60 days from the date of this proxy statement, and (d) 165,000 Company RSUs* the restrictions over which will lapse within 60 days from the date of this proxy
statement. The Company Options issued pursuant to the Share Incentive Plan and held by the Company’s directors and
executive officers have a weighted average exercise price of US$2.012 per Share.
The following table shows, as of the date
of this proxy statement, for each director and executive officer of the Company, (a) the number and classes of Shares owned, (b)
the cash payment that will be made in respect of the Shares at the Effective Time, (c) the number of Shares underlying Company
Options to purchase Shares granted under the Share Incentive Plan, (d) the average exercise price payable per Share for the outstanding
and unexercised Company Options held by such person, (e) the cash payment that will be made in respect of the Company Options
to purchase Shares at the Effective Time, (f) the number of Company Restricted Shares held, (g) the cash payment that will be
made in respect of the Company Restricted Shares at the Effective Time, (h) the number of Company RSUs held, (i) the cash payment
that will be made in respect of the Company RSUs at the Effective Time and (j) the total cash payment such person may receive
in respect of all payments described in this table if the Merger is consummated (in all cases before applicable withholding taxes).
|
|
Shares |
|
|
Options
to Purchase Shares |
|
|
Company
Restricted Shares |
|
|
Company
RSUs |
|
|
Total Cash Payments (including Company Restricted |
|
Name
of Directors and Executive Officers |
|
Shares
Beneficially Owned |
|
|
Cash
Payment Thereof (US$) |
|
|
Shares
Underlying |
|
|
Average
Exercise Price |
|
|
Cash
Payment Therefor (US$) |
|
|
Shares
Underlying |
|
|
Cash
Payment Therefor (US$) |
|
|
Shares
Underlying |
|
|
Cash
Payment Therefor (US$) |
|
|
Share
Payments that may be subject to Deferred Payment Arrangements) (US$) |
|
Yingfeng Zhang |
|
|
48,803,359 |
|
|
|
156,810.60 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37,500 |
|
|
|
133,125.00 |
|
|
|
289,935.60 |
|
Shaolin Liang |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Danian Chen |
|
|
500,000 |
|
|
|
1,775,000.00 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,775,000.00 |
|
Li Yao |
|
|
72,300 |
|
|
|
256,665.00 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
97,500 |
|
|
|
346,125.00 |
|
|
|
602,790.00 |
|
Lijun Lin |
|
|
25,000 |
|
|
|
88,750.00 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
88,750.00 |
|
Heng Wing Chan |
|
|
25,000 |
|
|
|
88,750.00 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
88,750.00 |
|
Yong Gui |
|
|
6,250 |
|
|
|
22,187.50 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,750 |
|
|
|
66,562.50 |
|
|
|
88,750.00 |
|
Tunghai Chien |
|
|
230 |
|
|
|
816.50 |
|
|
|
2,354,987 |
|
|
|
1.676 |
|
|
|
4,412,135.50 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,412,952.00 |
|
Jisheng Zhu |
|
|
111,268 |
|
|
|
395,001.40 |
|
|
|
1,359,469 |
|
|
|
2.206 |
|
|
|
1,827,126.34 |
|
|
|
— |
|
|
|
— |
|
|
|
37,500 |
|
|
|
133,125.00 |
|
|
|
2,355,252.74 |
|
Jin Zhang |
|
|
73,352 |
|
|
|
260,399.60 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
112,500 |
|
|
|
399,375.00 |
|
|
|
659,774.60 |
|
Total for
All Directors and Executive Officers |
|
|
49,616,759 |
|
|
|
3,044,380.60 |
|
|
|
3,714,456 |
|
|
|
2 |
|
|
|
6,239,261.84 |
|
|
|
— |
|
|
|
— |
|
|
|
303,750 |
|
|
|
1,078,312.50 |
|
|
|
10,361,954.94 |
|
* The RSUs will
vest upon the consummation of the Merger.
After the completion of the Merger,
the maximum amount of cash payments the Company’s directors and executive officers may receive in respect of their Shares,
Company Options, Company Restricted Shares and Company RSUs is approximately US$10,361,954.94, which includes (a) US$2,911,256.00
in respect of 857,572 issued and outstanding Shares held by them as of the date of this proxy statement, (b) US$6,239,261.84 in
respect of Company Options to purchase 3,714,456 Shares granted under the Share Incentive Plan which are issued but unexercised
as of the date of this proxy statement, (c) US$0 in respect of zero (0) Company Restricted Shares held by them as of the date
of this proxy statement, and (d) US$1,078,312.50 in respect of 303,750 Company RSUs held by them as of the date of this proxy
statement.
Indemnification; Directors’ and Officers’
Insurance
Pursuant to the terms of the Merger
Agreement, the Company’s directors and officers will be entitled to certain ongoing indemnification and coverage under directors’
and officers’ liability insurance policies from the Company. See the section entitled “The Merger Agreement—Indemnification;
Directors’ and Officers’ Insurance” beginning on page 97 for a description of such ongoing indemnification and
coverage obligations.
The Special Committee
On January 28, 2014, the Board established
the Special Committee to, among other things, consider and evaluate the Proposed Transaction, determine whether the Proposed Transaction
was in the best interests of the Unaffiliated Holders, make recommendations to the Board on the Proposed Transaction and negotiate
the terms of the “going private” transaction on behalf of the Board, including the terms of the Merger Agreement and
any other document to be entered into with the Buyer Group in connection with the Proposed Transaction. The Special Committee
was originally composed of the following independent directors: Mr. Chan, Mr. Gui and Mr. Lin.
On August 31, 2014, Orient Finance,
which is a direct and wholly owned subsidiary of Orient Securities and an affiliate of Orient Hongtai and Orient Hongzhi, entered
into an agreement with Shanda SDG to purchase 123,552,669 Class A ordinary shares from Shanda SDG and acceded to the Buyer Group
on September 1, 2014. In light of his role as the chief executive officer of China Universal Asset Management, an affiliate of
Orient Finance, Mr. Lin resigned from the Special Committee. See “—Background of the Merger” beginning on page
22 for additional information.
On September 4, 2014, following Mr.
Lin’s resignation, the Board announced the reconstitution of the Special Committee consisting of Messrs. Chan and Gui.
Accordingly, the Special Committee consisted solely of Messrs. Chan and Gui at the time that it unanimously (a) determined that
the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, were fair to, and in the best interests of,
the Company and the Unaffiliated Holders; (b) declared advisable the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger; and (c) recommended that the Board authorize and approve the Merger Agreement, the Plan of Merger and the
Transactions, including the Merger.
Other than the cash-out of Company
Restricted Shares and Company RSUs held by them, their receipt of Board and Special Committee compensation (which was not and
is not contingent upon the completion of the Merger, or the Special Committee’s or the Board’s recommendation of the
Merger) and their indemnification and liability insurance rights under the Merger Agreement and the Company’s memorandum
and articles of association, neither of the members of the Special Committee as reconstituted on September 4, 2014 has
a financial interest in connection with the Merger or any of the Transactions that is different from, or in addition to, those
of the Unaffiliated Holders nor is either of them related to any member of the Buyer Group. See “—Interests of Certain
Persons in the Merger” beginning on page 66 for additional information. The Board did not place any limitations
on the authority of the Special Committee regarding its investigation and evaluation of the Merger.
The Company has compensated, and intends
to continue to compensate, each member of the Special Committee in exchange for his service in such capacity at a rate of US$10,000
per month for the chairman of the Special Committee and US$6,800 per month for each other member of the Special Committee (in
each case, the payment of which is not contingent upon the consummation of the Merger or the Special Committee’s or the
Board’s recommendation of the Merger).
Contingent Equity Awards to Certain Key Personnel
On September 18, 2014, the Company entered
into commitment letters with eight game producers of the Company, pursuant to which the Company committed to grant to each such
game producer, subject to compliance with applicable laws, rules and regulations, the completion of the Merger and the other terms
and conditions set forth therein, equity awards in an amount of no less than RMB80 million (US$13 million) per individual producer
(based on a valuation of the Company of 15 times its 2013 consolidated net profits) within 30 business days following the completion
of the Merger. Based on a valuation of the Company of 15 times its 2013 consolidated net profits, the value of these equity awards
range from RMB80 million (US$12.9 million) to RMB100 million (US$16.1 million) per individual producer. None of such game producers
was involved in the review, evaluation and negotiation of the Buyer Group’s “going private” proposal, the Merger
Agreement or the Company’s other strategic alternatives.
Position with the Surviving Corporation
The directors of Merger Sub immediately
prior to the Effective Time will become the directors of the Surviving Corporation, and the officers of the Company immediately
prior to the Effective Time will become the officers of the Surviving Corporation, in each case, unless otherwise determined by
Parent prior to the Effective Time. Mr. Zhang is a director of Merger Sub, and the Buyer Group expects that he will become a director
of the Surviving Corporation.
Related-Party Transactions
We have adopted an audit committee
charter, which requires the audit committee to review and approve all related-party transactions as defined in Item 404 of Regulation
S-K on an ongoing basis. In addition to the arrangements in connection with the Merger discussed elsewhere in this proxy statement,
for a description of significant related-party transactions for the years ended December 31, 2013 and 2014, see “Item 7.
Major Shareholders and Related-Party Transactions” included in the Company’s Annual Reports on Form 20-F for the fiscal
years ended December 31, 2013 and December 31, 2014, respectively, which are incorporated by reference into this proxy statement.
See “Where You Can Find More Information” beginning on page 116 for a description of how to obtain copies of the Company’s
Annual Reports.
Related-Party Transactions in 2014 and First
Half 2015
Acquisition of Platform and Prepaid
Card Distribution Businesses
Before August 2013, we relied on Shanghai
Shengzhan Networking Technology Co., Ltd. (“Shengzhan”), and Tianjin Shengjing Trade Co., Ltd. (“Shengjing”),
for platform services and prepaid card distribution services, and paid them service fees for services including online billing,
user authentication, customer service, anti-fatigue compliance, data support services, and prepaid card marketing and distribution.
In July 2013, we entered into a transaction framework agreement and a series of ancillary agreements to acquire Shengzhan and
Shengjing from Shanda Interactive, and completed the acquisition in August 2013. Both Shengzhan and Shengjing were entities under
the common control of Shanda Interactive at the time of the acquisition. The aggregate consideration for the transaction was US$812.7
million, subject to closing adjustments and payable in a combination of cash, deferred payments and settlement of an outstanding
loan receivable from Shanda Interactive. As of December 31, 2014, the consideration has been fully paid. In addition, as a part
of the Pre-IPO Reorganization, Shengqu Information Technology (Shanghai) Co., Ltd. (“Shengqu”) entered into various
variable interest entity agreements with Shengzhan and Shengjing. See “Item 7. Major Shareholders and Related Party Transactions—B.
Related Party Transactions—Contractual Arrangements with Our VIEs and Their Shareholders” included in the Company’s
Annual Report on Form 20-F for the fiscal year ended December 31, 2014, incorporated by reference into this proxy statement. See
“Where You Can Find More Information” beginning on page 116 for a description of how to obtain a copy of the Company’s
Annual Report.
Transactions and Agreements with Shanda
Interactive
Shanda Interactive ceased to be a shareholder
of the Company on November 25, 2014. Transactions and agreements with Shanda Interactive after November 25, 2014 will no longer
be considered related-party transactions.
Pursuant to Shanda Interactive’s
reorganization effective July 1, 2008 (the “Pre-IPO Reorganization”), Shanda Interactive transferred substantially
all of its assets and liabilities related to its online game business to us. Prior to the Pre-IPO Reorganization, the Company’s
online game business was operated by Shanda Interactive through its various subsidiaries and VIEs. Effective July 1, 2008, pursuant
to the Pre-IPO Reorganization, we assumed substantially all of the assets and liabilities related to the online game business.
As a result of the Pre-IPO Reorganization, we conduct the online game business through the Company’s VIEs.
In connection with the Pre-IPO Reorganization,
we entered into agreements with Shanda Interactive with respect to various ongoing relationships between Shanda Interactive and
us, including but not limited to the following in 2014 and the first half of 2015. For more information, see “Related Party
Transactions—Transactions and Agreements with Shanda Interactive” included in the Company’s Annual Report on
Form 20-F for the fiscal year ended December 31, 2014, incorporated by reference into this proxy statement. See “Where You
Can Find More Information” beginning on page 116 for a description of how to obtain a copy of the Company’s Annual
Report.
Amended and Restated Non-Compete
Agreement
Under the amended and restated non-compete
agreement between Shanda Interactive and us, Shanda Interactive has agreed, for a period of five years commencing July 1, 2013,
not to engage in the online game and mobile game business, which refers to the sourcing, development, operation and licensing
of online games and mobile games and related intellectual property rights and activities incidental to such business, anywhere
in the world, except that (a) certain of Shanda Interactive’s subsidiaries may continue to engage in third-party billing,
payment and related services; (b) Shanda Interactive may hold or acquire equity interests in a company that does not have
more than 25.0% of its gross revenues (based on the latest annual audited financial statements of the investee company) attributable
to the online game and mobile game business; (c) Shanda Interactive may make minority, passive or venture capital investments
by its private equity and venture capital funds; and (d) Shanda Interactive may operate virtual communities with certain
online game features provided that such features do not constitute the core business model of such community. In addition, the
agreement permits Shanda Interactive to acquire or invest in any third party engaging in the online game and mobile game business
if, after using its reasonable best efforts to make such investment opportunity available to the Company as required under the
agreement, we do not pursue such opportunity; provided that Shanda Interactive’s equity interest in such third party will
not exceed 50%.
Furthermore, Shanda Interactive has agreed,
for a period of five years commencing July 1, 2013, not to solicit any customer, supplier or any other third party having any
business relationship with the Company or any of its employees.
Domain Names and Trademarks
License Agreement
As part of the Pre-IPO Reorganization,
Shengqu, one of the Company’s PRC subsidiaries, entered into a domain names and trademarks license agreement with Shanda
Computer (Shanghai) Co. Ltd (“Shanda Computer”), a company then under the common control of Shanda Interactive on
July 1, 2008, pursuant to which Shanda Computer licensed to Shengqu nine trademarks on a nonexclusive, nontransferable and royalty-free
basis. On October 14, 2014, Shanda Computer reached a supplementary agreement with Shengqu, pursuant to which such licenses were
terminated on December 31, 2014.
On January 1, 2011, Shengqu entered into
a trademarks license agreement (the “2011 Trademarks License Agreement”) with Shanghai Shanda Networking Co., Ltd.
(“Shanda Networking”), a company then under the common control of Shanda Interactive and Shanda Computer, pursuant
to which Shanda Networking and Shanda Computer licensed to Shengqu 13 trademarks on a nonexclusive, nontransferable and royalty-free
basis, including “Shanda Games.” On October 14, 2014, Shanda Networking and Shanda Computer reached a supplementary
agreement with the Company, pursuant to which the term of the 2011 Trademarks License Agreement was extended to the later of (a)
December 31, 2016 or (b) the 90th day after the earlier of (i) the Company no longer being a listed company, or (ii)
Shanda Interactive no longer holding 50% or more of the voting rights in the Company. As Shanda Interactive ceased to be a shareholder
of the Company in November 2014, the 2011 Trademarks License Agreement will terminate on December 31, 2016.
In August 2013, the Company acquired Shengzhan
and Shengjing from Shanda Interactive. As a part of the acquisition, on July 28, 2013, Shengzhan entered into two trademarks license
agreements (the “2013 Trademarks License Agreements”), with Shanda Networking and Shanda Computer, respectively, pursuant
to which Shanda Networking and Shanda Computer licensed certain trademarks to Shengzhan on an exclusive, unconditional, irrevocable
and royalty-free basis. Certain trademarks under the 2013 Trademarks License Agreements are related to the platform services and
prepaid card distribution services. On October 14, 2014, Shanda Networking and Shanda Computer each reached a supplementary agreement
with Shengzhan, pursuant to which the terms of the 2013 Trademarks License Agreements were extended to the later of (a) December
31, 2016 or (b) the 90th day after the earlier of (i) the Company no longer being a listed company, or (ii) Shanda
Interactive no longer holding 50% or more of the voting rights in the Company. As Shanda Interactive ceased to be a shareholder
of the Company in November 2014, the 2011 Trademarks License Agreement will terminate on December 31, 2016.
On October 14, 2014, Shanda Computer,
Shanda Networking, Shengqu and Shengzhan signed a trademark license agreement. Pursuant to the trademark license agreement, during
and after the process of certain trademarks being transferred from Shanda Computer to Shanda Networking, Shanda Networking, as
the transferee, will continue licensing those trademarks to the Company in accordance with the 2011 Trademarks License Agreement,
as amended, and the 2013 Trademarks License Agreements, as amended.
Lease of Office Facilities
The Company leases its office space of
approximately 19,500 square meters at No. 1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203 and No. 1, Lane
666 Zhangheng Road, Pudong New Area, Shanghai 201204, from a company controlled by Shanda Interactive. The Company incurred rental
expense of RMB18.5 million in 2013 and RMB29.2 million in 2014.
Lendings and Borrowings
Prior to the closing of the acquisition
of platform and prepaid card distribution businesses, Shengzhan and Shengjing had various intra-group loans with other entities
then under the common control of Shanda Interactive. As of December 31, 2012, Shengzhan and Shengjing extended an aggregate net
amount of RMB821.7 million to such entities. Substantially all of these intra-group loans were settled as part of the acquisition,
and the amount outstanding as of December 31, 2014 was RMB25.0 million, which represents an interest-free loan from Shengjing
to one of our billing providers, Shanghai Shengfutong Electronic Business Co., Ltd.
In July 2014, the Company extended a loan
to a company then under the common control of Shanda Interactive, the aggregate principal amount of which was RMB311.0 million
with an interest rate of 3% per year. This loan was repaid in full in September 2014.
For more details regarding interest-bearing
loans to and from Shanda Interactive or companies under its control in 2013, see Item 7.B. “Related-Party Transactions—Transactions
and Agreements with Shanda Interactive—Loans Outstanding” in the Company’s Annual Report on Form 20-F for the
year ended December 31, 2013.
Fees and Expenses
Fees and expenses incurred or to be incurred
by the Company and the Buyer Group in connection with the Merger are estimated at the date of this proxy statement to be as follows:
Description | |
Amount | |
| |
(US$ in ‘000) | |
Professional fees and
expenses | |
| 5,137 | |
Legal fees and expenses | |
| 12,850 | |
Special Committee fees | |
| 385 | |
Miscellaneous (including accounting,
filing fees, printer, proxy solicitation and mailing costs) | |
| 126 | |
ADS
cancellation and surrender fees(1) | |
| 3,200 | |
Total | |
| 21,698 | |
| (1) | Includes ADS cancellation fees for ADSs held by members of the
Rollover Shareholders. |
These expenses (other than the ADS cancellation
fees and surrender fees) will not reduce the merger consideration to be received by the Company’s shareholders and ADS holders.
If the Merger is consummated, the party incurring any costs and expenses in connection with the Merger and the Merger Agreement
will pay such costs and expenses except as otherwise provided in the Merger Agreement and the Third Consortium Agreement.
Voting by the Rollover Shareholders at the Extraordinary
General Meeting
Pursuant to the Support Agreement, the
Rollover Shareholders have agreed to vote the Shares held by such Rollover Shareholders, which as of the date of this proxy represent
approximately 75.6% of the Company’s issued and outstanding Shares and 1,286,752,366 votes, or approximately 90.7% of the
total number of votes represented by the Company’s issued and outstanding Shares (excluding, for purposes of this calculation,
Shares issuable upon the exercise of Company Options, Company Restricted Shares and Company RSUs), in favor of the proposal to
authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, at the extraordinary
general meeting.
Voting of Unvested Company Restricted Shares
Under each restricted share award document,
the person receiving the award has granted to the Company or its representative an irrevocable proxy to vote, or to execute and
deliver written consents or otherwise act in the capacity of a shareholder with respect to, all of the Company Restricted Shares
owned by such person until the earlier of (i) the date of termination of such person’s employment with the Company and (ii)
the end of the applicable vesting period under such award document.
Litigation Related to the Merger
On October 10, 2014, Kilometre issued
a writ of summons endorsed with a statement of claim against the Company from the Court of First Instance of the High Court of
the Hong Kong Special Administrative Region in connection with the proposed “going private” transaction. Kilometre
seeks outstanding consulting fees in an aggregate sum of US$25.6 million (or alternatively, damages), certain declaratory relief,
interest, costs and further and/or other relief as the court deems fit. On February 10, 2015, Kilometre amended its statement
of claim to seek outstanding consulting fees in an aggregate sum of US$44.9 million (or alternatively, damages), certain declaratory
relief, interest, costs and further and/or other relief as the court deems fit. On February 17, 2015, Kilometre applied for a
summary judgment for consulting fees of US$39,229,944.32, interest and/or other relief as the court deems fit. In April 2015,
Kilometre issued an invoice to the Company asserting an increased entitlement to US$45.8 million; however, this amount is yet
to be reflected in any further amendment to the statement of claim. On July 8, 2015, a Hong Kong High Court Judge dismissed Kilometre’s
summary judgment application and granted the Company unconditional leave to defend Kilometre’s claim. The effect of the
dismissal of the summary judgment application, subject to any appeal, is that Kilometre's claim will now follow the usual litigation
procedure. It can typically take 18-24 months to proceed to trial in Hong Kong. There is, at present, no scheduled hearing or
further judgment expected from the Hong Kong Courts.
In addition, Kilometre served a statutory
demand on the Company in the Cayman Islands on May 21, 2015 requesting the Company to pay a purported debt of US$39,229,944.32
within 21 days. On June 9, 2015, the Grand Court granted an injunction restraining Kilometre from representing a winding-up petition
against the Company based upon the statutory demand or any other statutory demand in relation to the same claim. On the same day,
the Company issued an originating summons from the Grand Court seeking to set aside the statutory demand. On July 22, 2015, following
the dismissal of the Hong Kong summary judgment application, Kilometre gave an undertaking to the Grand Court not to present a
winding-up petition against the Company on the basis of the statutory demand pending the resolution of the Hong Kong proceedings.
The Company intends to vigorously defend
itself against all legal actions taken by Kilometre on the merits. If the Merger is completed prior to the resolutions of the
disputes between the Company and Kilometre, then pursuant to the Merger Agreement and the effects of the Merger, the Surviving
Corporation will become party to such unresolved disputes and succeed to and assume all of the Company’s rights and obligations
with respect thereto.
Other than as set forth above, the Company
is not aware of any lawsuit that challenges the Merger Agreement, the Plan of Merger or any of the Transactions, including the
Merger.
Accounting Treatment of the Merger
The Merger is expected to be accounted
for, on a carryover basis, as a merger of entities under common control in accordance with Accounting Standards Codification 805-50,
“Business Combinations—Related Issues.”
Regulatory Matters
The Company does not believe that any
material federal or state regulatory approvals, filings or notices are required in connection with effecting the Merger other
than the approvals, filings or notices required under the federal securities laws and the filing of the Plan of Merger (and supporting
documentation as specified in the Cayman Islands Companies Law) with the Cayman Registrar and, in the event the Merger becomes
effective, a copy of the Certificate of Merger being given to the shareholders and creditors of the Company and Merger Sub as
at the time of the filing of the Plan of Merger and notice of Merger published in the Cayman Islands Gazette. See “The Merger
Agreement—Conditions to the Merger” beginning on page 99 for additional information.
Dissenters’ Rights
Shareholders who exercise dissenters’
rights will have the right to receive payment of the fair value of their Shares if the Merger is completed, but only if they deliver
to the Company, before the vote is taken, a written objection to the Merger and subsequently comply with all procedures and requirements
of Section 238 of the Cayman Islands Companies Law for the exercise of dissenters’ rights, which is attached as Annex D
to this proxy statement. The fair value of their Shares as determined under that statute could be more than, the same as, or less
than the merger consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights
with respect to their Shares. These procedures are complex and you should consult your Cayman Islands legal counsel. If you do
not fully and precisely satisfy the procedural requirements of the Cayman Islands Companies Law, you may lose your dissenters’
rights (as described under the section entitled “Dissenters’ Rights” on page 105).
Material U.S. Federal Income Tax Consequences
The following are certain material U.S.
federal income tax consequences to a U.S. Holder described below of the exchange of the Class A ordinary shares of the Company
or ADSs for cash pursuant to the Transactions. This discussion applies only to a U.S. Holder that holds Class A ordinary shares
or ADSs as capital assets for U.S. federal income tax purposes and it does not describe all of the tax consequences that may be
relevant in light of a U.S. Holder’s particular circumstances, including alternative minimum tax or Medicare contribution
tax consequences, and tax consequences applicable to U.S. Holders subject to special rules, such as:
|
· |
certain
financial institutions; |
| · | dealers or
certain traders in securities; |
| · | persons holding
Class A ordinary shares or ADSs as part of a straddle, wash sale, conversion transaction
or integrated transaction, or persons entering into a constructive sale with respect
to Class A ordinary shares or ADSs; |
| · | persons whose
functional currency for U.S. federal income tax purposes is not the U.S. dollar; |
| · | partnerships
or other entities classified as partnerships for U.S. federal income tax purposes; |
| · | tax-exempt
entities, including “individual retirement accounts” and “Roth IRAs”; |
| · | persons that
own or are deemed to own Class A ordinary shares or ADSs representing ten percent or
more of the voting stock of the Company; or |
| · | persons
holding Class A ordinary shares or ADSs in connection with a trade or business conducted
outside of the United States. |
If an entity that is classified as a partnership
for U.S. federal income tax purposes owns Class A ordinary shares or ADSs, the U.S. federal income tax treatment of a partner
will generally depend on the status of the partner and the activities of the partnership. Partnerships owning Class A ordinary
shares or ADSs and partners therein should consult their tax advisers as to the particular U.S. federal income tax consequences
of disposing of Class A ordinary shares or ADSs.
This discussion is based on the Internal
Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions and final, temporary
and proposed U.S. Treasury regulations, all as of the date hereof and all of which are subject to change, possibly with retroactive
effect. U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and foreign tax consequences
of disposing of Class A ordinary shares or ADSs pursuant to the Transactions in their particular circumstances.
For purposes of this discussion, a “U.S.
Holder” is a beneficial owner of Class A ordinary shares or ADSs that is, for U.S. federal income tax purposes:
|
· |
a citizen
or individual resident of the United States; |
|
· |
a corporation, or other
entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the
District of Columbia; or |
|
· |
an estate or trust the
income of which is subject to U.S. federal income taxation regardless of its source. |
Exchange of Class A ordinary shares
or ADSs for Cash. The exchange of Class A ordinary shares of the Company or ADSs for cash will be a taxable transaction for
U.S. federal income tax purposes. An exchanging or dissenting U.S. Holder will recognize gain or loss on the disposition of Class
A ordinary shares or ADSs, equal to the difference between the amount of cash received and the U.S. Holder’s tax basis in
the Class A ordinary shares or ADSs disposed of. Subject to the discussion in “—Passive Foreign Investment Company”
below, any gain or loss recognized will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder
has held the Class A ordinary shares or ADSs for more than one year. The deductibility of capital losses is subject to limitations.
As described in “—Material
PRC Income Tax Consequences,” if we were deemed to be a tax resident enterprise under PRC tax law, gains from a sale of
Class A ordinary shares of the Company or ADSs may be subject to PRC tax. U.S. Holders are entitled to use foreign tax credits
to offset only the portion of their U.S. federal income tax liability that is attributable to foreign-source income. Because under
the Code capital gains of U.S. persons generally are treated as U.S.-source income, this limitation may preclude a U.S. Holder
from claiming a credit for all or a portion of any PRC taxes imposed on any gain from the sale of Class A ordinary shares of the
Company or ADSs. However, a U.S. Holder that is eligible for the benefits of the income tax treaty between the United States and
the PRC may be able to elect to treat any such gain as foreign-source gain for foreign tax credit purposes. U.S. Holders should
consult their tax advisers regarding their eligibility for benefits under the income tax treaty between the United States and
the PRC and the creditability of any PRC tax on disposition gains in their particular circumstances.
Passive Foreign Investment Company.
Although it is not clear how the contractual arrangements between the Company and its PRC operating companies should be treated
for purposes of the passive foreign investment company (“PFIC”) rules, based on the composition of the Company’s
income and assets and the value of the Company’s assets, including goodwill, which is based, in part, on the market price
of the Company’s ADSs, the Company does not expect to be a PFIC for the current taxable year. However, because the determination
of whether a company is a PFIC is made annually after the end of each taxable year and the Company’s expectation as to its
PFIC status is based on facts that may change, the Company cannot assure you that it will not be a PFIC for the current taxable
year. In addition, as described in certain of the Company’s annual reports on Form 20-F, it is unclear whether the Company
was a PFIC for certain of its previous taxable years. If the Company was a PFIC for any previous taxable year during which a U.S.
Holder owned Class A ordinary shares of the Company or ADSs, the Company would generally continue to be treated as a PFIC with
respect to that U.S. Holder for all succeeding years during which the U.S. Holder owned the Class A ordinary shares or ADSs, even
if the Company ceased to meet the threshold requirements for PFIC status.
In general, a foreign corporation is a
PFIC for U.S. federal income tax purposes for any taxable year if (a) 75% or more of its gross income consists of passive income
(such as dividends, interest and certain rents and royalties) or (b) 50% or more of the average quarterly value of its assets
consists of assets that produce, or are held for the production of, passive income (including cash). If a corporation owns at
least 25% (by value) of the stock of another corporation, the corporation will be treated, for purposes of the PFIC tests, as
owning its proportionate share of the 25%-owned subsidiary’s assets and receiving its proportionate share of the 25%-owned
subsidiary’s income.
Generally, if the Company was a PFIC for
any taxable year during which a U.S. Holder owned Class A ordinary shares of the Company or ADSs, the amount of gain recognized
upon the disposition of Class A ordinary shares or ADSs by the U.S. Holder would be allocated ratably over the U.S. Holder’s
holding period for such shares or ADSs. The amounts allocated to the taxable year of disposition and to years before the Company
became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the
highest tax rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge would
be imposed on the tax attributable to the allocated amounts. Furthermore, a U.S. Holder would be required to file IRS Form 8621
with respect to the Company, generally with the U.S. Holder’s federal income tax return for the year of the Merger. If the
Company was a PFIC for any previous taxable year in which a U.S. Holder owned Class A ordinary shares or ADSs, the amount of gain
and the manner in which it is allocated between taxable years within the U.S. Holder’s holding period may be affected by
any valid election that the U.S. Holder may have made to either mark-to-market ADSs, or be taxed on a deemed sale of the Class
A ordinary shares of the Company or ADSs. U.S. Holders should consult their tax advisers regarding the consequences of disposing
of their Class A ordinary shares or ADSs in the case that the Company was a PFIC for any taxable year, and the effect of any previous
mark-to-market or deemed sale election that they may have made.
Information Reporting and Backup Withholding.
Payments of the cash consideration for the Class A ordinary shares or ADSs that are made within the United States or through certain
U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding,
unless (a) the U.S. Holder is a corporation or other exempt recipient or (b) in the case of backup withholding, the U.S. Holder
provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. Backup withholding
is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against
the holder’s U.S. federal income tax liability, if any, and may entitle it to a refund, provided that the required information
is timely furnished to the Internal Revenue Service.
Material PRC Income Tax Consequences
Under the PRC Enterprise Income Tax Law
(the “EIT Law”), which took effect on January 1, 2008, enterprises established outside of the PRC whose “de
facto management bodies” are located in the PRC are considered “resident enterprises,” and thus will generally
be subject to the enterprise income tax at the rate of 25% on their global income. On December 6, 2007, the State Council of the
PRC adopted the Regulation on the Implementation of PRC Enterprise Income Tax Law, effective as of January 1, 2008, which defines
the “de facto management body” as an establishment that has substantial management and control over the business,
personnel, accounts and properties of an enterprise. The State Administration of Taxation of the PRC (the “SAT”) issued
the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises
on the Basis of De Facto Management Bodies (“Circular 82”) on April 22, 2009, with retroactive effect from January
1, 2008. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of
a PRC-controlled offshore incorporated enterprise is located in the PRC. There is no assurance that the Company will not be treated
as a PRC tax resident enterprise. Under the EIT Law and its implementation regulations, PRC income tax at a rate of 10% is applicable
to any gain recognized on receipt of consideration by a “non-resident enterprise” from transfer of its equity in a
PRC resident enterprise, to the extent such gain is derived from sources within the PRC, provided that the “non-resident
enterprise” does not have a de facto management body in the PRC and also (a) does not have an establishment or place of
business in the PRC or (b) has an establishment or place of business in the PRC, but the relevant income is not effectively connected
with the establishment or place of business. Under the Individual Income Tax Law of the PRC, an individual who disposes of a capital
asset in the PRC is subject to PRC individual income tax at the rate of 20% if the gain is from sources within the PRC. Relief
from these taxes may be sought under applicable income tax treaties with the PRC. If the Company is treated as a PRC tax resident
enterprise, gain from the disposition of Class A ordinary shares of the Company or ADSs may be treated as derived from PRC-sources
and taxed as described above.
On December 10, 2009, the SAT issued the
Circular on Strengthening the Administration of Enterprises Income Tax on Non-resident Enterprises’ Equity Transfer Income
(“Circular 698”), with retroactive effect from January 1, 2008, and the Circular Concerning Various Questions on the
Administration of Enterprises Income Tax on Non-resident Enterprises (“Bulletin 24”) was issued by the SAT and became
effective as of April 1, 2011. According to Circular 698 and Bulletin 24, if any non-resident enterprise indirectly transfers
the equity of a resident enterprise, the non–resident enterprise may be subject to a 10% PRC income tax on the gain from
such equity transfer, unless such equity is to be transferred and the transfer price thereunder is determined pursuant to standard
trading rules of a public security market and not by the purchaser and the seller by mutual agreement prior to such transactions.
On February 3, 2015, the SAT further promulgated the Public Notice of State Administration of Taxation on Certain Enterprise Income
Tax Matters on Indirect Transfer of Properties by Non-resident Enterprises (“Circular 7”), effective from February 3,
2015, to replace certain provisions under Circular 698 and Bulletin 24 and to further strengthen the regulation over enterprise
income tax applicable to indirect transfer of properties by non-resident enterprises. According to Circular 7, where a non-resident
enterprise indirectly transfers equity interests in a PRC resident enterprise, properties of an establishment or place in the
PRC or immovable properties in the PRC (collectively, the “PRC Taxable Properties”), through the implementation of
a scheme, including transfer of equity interests and other similar rights of an overseas enterprise (an “Overseas Enterprise”),
without a reasonable commercial purpose and resulting in the avoidance of the enterprise income tax liability, upon review and
examination of the documents submitted, such indirect transfer may be re-characterized as a direct transfer of the PRC Taxable
Properties by the in-charge tax authorities in accordance with the EIT Law. Both parties to the indirect transfer of PRC Taxable
Properties (i.e., the transferor and the transferee) and the Chinese tax resident enterprise being indirectly transferred may
report this indirect transfer to the in-charge tax authority.
According to Circular 7, when assessing
the “reasonable commercial purpose,” a holistic approach should be used to consider all the arrangements relevant
to the indirect transfer of PRC Taxable Properties based on the actual facts and circumstances, and the following relevant factors
must be analyzed comprehensively: (a) whether the main value of the equity of the Overseas Enterprise directly or indirectly derives
from PRC Taxable Properties; (b) whether a majority of the assets of the Overseas Enterprise is directly or indirectly comprised
of investment in the PRC, or whether a majority of its income is directly or indirectly sourced from the PRC; (c) whether the
actual functions performed and risks undertaken by the Overseas Enterprise and its subsidiaries which directly or indirectly hold
the PRC Taxable Properties can substantiate the economic substance of their corporate structure; (d) the existence duration of
the shareholders, business model of the Overseas Enterprise and the relevant organizational structure; (e) overseas income taxes
applicable to the indirect transfer of PRC Taxable Properties; (f) whether the indirect investment or the indirect transfer of
the PRC Taxable Properties by the equity transferor can be substituted by a direct transfer of the PRC Taxable Properties; (g)
whether tax treaties or tax arrangements can apply to the income from indirect transfer of PRC Taxable Properties; and (h) other
related factors. A transaction will be deemed to lack a reasonable commercial purpose and thus be subject to PRC enterprise income
tax under Circular 7 if all of the following conditions are satisfied, unless the safe harbor for qualifying intra-group reorganization
applies: (a) 75% or more of the value of the equity interests of the Overseas Enterprise is directly or indirectly derived from
the PRC Taxable Properties; (b) at any time within one (1) year before the indirect transfer of PRC Taxable Properties, 90% or
more of the total assets of the Overseas Enterprise (not including cash) is directly or indirectly comprised of investment in
the PRC, or 90% or more of the Overseas Enterprise’s income in the year before the indirect transfer of PRC Taxable Properties
is directly or indirectly sourced from the PRC; (c) the Overseas Enterprise and its subsidiaries which directly or indirectly
hold the PRC Taxable Properties are incorporated in that country (region) to satisfy the legal requirement of the organizational
format, but actually only perform limited functions and undertake limited risks which are insufficient to substantiate their economic
substance; and (d) the overseas income tax payable for the indirect transfer of PRC Taxable Properties is less than the possible
tax burden in the PRC on the direct transfer of such PRC Taxable Properties.
Circular 7 also provides certain safe
harbor for indirect transfers of the PRC Taxable Properties. Circular 7 will not apply where the overall arrangement related to
the indirect transfer of the PRC Taxable Properties meets any one of the following conditions: (a) the non-resident enterprises
deriving income from indirect transfer of PRC Taxable Properties from the buying and selling of shares of the same listed Overseas
Enterprise through public stock exchanges; or (b) if the non-resident enterprises directly held and transferred the PRC Taxable
Properties, the income from the transfer of such property would otherwise be exempted from enterprise income tax according to
the applicable tax treaty or tax arrangement; or (c) if the indirect transfer of PRC Taxable Properties is deemed as qualified
intra-group reorganization, such indirect transfer will be exempt from PRC enterprise income tax, provided that the current indirect
transfer would not result in the reduction of the enterprise income tax burden on the gain arising on the subsequent potential
indirect transfer of PRC Taxable Properties compared to the tax that would have been imposed on the subsequent transfer had the
current indirect transfer not taken place, and provided that the consideration is paid by the transferee solely in the form of
its own equity of a related enterprise with which the transferee has a controlling relationship.
Circular 7 specifies that the date that
enterprise income tax liability arises as stipulated therein refers to the date when the relevant equity transfer agreement takes
effect and the relevant procedures for the change in equity ownership of the Overseas Enterprise are completed. With respect to
the legal consequences for failing to withhold and pay the enterprise income tax, Circular 7 specifies that the payor (which in
most, but not all cases, will be the transferee), regardless of whether it is a resident enterprise, is required to withhold tax
on gains realized from an indirect transfer of PRC Taxable Properties. According to Circular 7, in the event that the withholding
agent does not withhold enterprise income tax, and the transferor does not timely report and file the enterprise income tax due
for the indirect transfer of PRC Taxable Properties or does not fully settle its enterprise income tax liability, the in-charge
tax authority, besides seeking the collection of the enterprise income tax payable, may impose a penalty ranging from 50% to three
times the amount of the unpaid taxes on the withholding agent for its failure to withhold the capital gains tax, which may be
reduced or waived if the withholding agent has reported to the in-charge tax authorities by submitting the required documents
within 30 days after the equity transfer agreement for the indirect transfer is executed. If the withholding agent does not withhold
the tax or does not withhold enough amount, the transferor will report the transaction to the in-charge tax authority and settle
the tax payments within seven days from when the tax obligation arises. If the transferor fails to pay taxes due within the prescribed
time limit, the transferor is subject to a daily interest rate equal to the RMB lending benchmark rate published by the People’s
Bank of China in that tax year plus 5% for the period of such overdue tax payment. The additional 5% punitive interest charge
will be waived if the transferor voluntarily reports to the in-charge tax authorities within 30 days after the equity transfer
agreement is signed. It is worth noting that Circular 7 also applies to transactions that took place before its effective date
(i.e., February 3, 2015) but for which the relevant PRC tax treatment has not been decided upon by the Chinese in-charge tax authorities.
There is uncertainty as to the application
of Circular 7. While it appears that Circular 7 was not intended to apply to individual transferors, there is very little guidance
and practical experience regarding its application to individual transferors. Circular 7 may be determined by the tax authorities
to be applicable to the Merger where non-PRC resident corporate shareholders or ADS holders were involved, if the Company is determined
by the PRC tax authorities to lack reasonable commercial purpose. As a result, if the PRC tax authorities were to invoke Circular
7 and impose tax on the receipt of consideration for Shares or ADSs, then any gain recognized on the receipt of consideration
for such Shares or ADSs pursuant to the Merger by the Company’s shareholders who are not PRC residents could be treated
as PRC-source income that would be subject to PRC enterprise income tax at a rate of 10% (subject to applicable treaty or relief).
You should consult your own tax advisor
for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences.
Material Cayman Islands Tax Consequences
The Cayman Islands currently have no form
of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will be payable
(either by direct assessment or withholding) to the government or other taxing authority in the Cayman Islands under the laws
of the Cayman Islands in respect of the Merger or the receipt of cash for the Shares or ADSs under the terms of the Merger. This
is subject to the qualification that (a) Cayman Islands stamp duty may be payable if any transaction documents are brought to
or executed or produced before a court in the Cayman Islands; and (b) registration fees will be payable to the Cayman Registrar
to register the Plan of Merger.
Market
Price of the Company’s ADSs, Dividends and Other Matters
Market Price of the ADSs
The following table provides the intra-period
high and low prices for ADSs, each representing one Share, quoted on NASDAQ under the symbol “GAME” for (a) each quarter
of 2012, 2013 and 2014 and (b) each quarter during the current year:
|
|
Sales
Price Per ADS (in US$) |
|
|
|
High |
|
|
Low |
|
Quarterly: |
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
First quarter |
|
|
5.39 |
|
|
|
3.46 |
|
Second quarter |
|
|
5.92 |
|
|
|
3.77 |
|
Third quarter |
|
|
4.05 |
|
|
|
3.16 |
|
Fourth quarter |
|
|
3.84 |
|
|
|
2.71 |
|
2013 |
|
|
|
|
|
|
|
|
First quarter |
|
|
3.32 |
|
|
|
2.88 |
|
Second quarter |
|
|
4.20 |
|
|
|
2.68 |
|
Third quarter |
|
|
6.42 |
|
|
|
3.79 |
|
Fourth quarter |
|
|
4.98 |
|
|
|
3.87 |
|
2014 |
|
|
|
|
|
|
|
|
First quarter |
|
|
7.00 |
|
|
|
4.16 |
|
Second quarter |
|
|
6.78 |
|
|
|
6.48 |
|
Third quarter |
|
|
6.75 |
|
|
|
5.90 |
|
Fourth quarter |
|
|
6.70 |
|
|
|
5.67 |
|
2015 |
|
|
|
|
|
|
|
|
First quarter |
|
|
6.53 |
|
|
|
4.91 |
|
Second quarter |
|
|
6.97 |
|
|
|
6.37 |
|
Third quarter (through [ ],
2015) |
|
|
[ ] |
|
|
|
[ ] |
|
On January 24, 2014, the last trading
day immediately prior to the Company’s announcement on January 27, 2014 that it had received the Proposal, the reported
closing price of the Company’s ADSs as quoted by NASDAQ was US$5.65 per ADS. The merger consideration of US$7.10 per ADS
represents a premium of approximately 25.7% over the closing price of the Company’s ADSs as quoted by NASDAQ on January
24, 2014, and a premium of approximately 46.5%, 53.8% and 56.2%, respectively, to the volume-weighted average trading price as
quoted by NASDAQ during the 30, 60 and 90 trading days prior to, and including, January 24, 2014, the last trading day prior to
the Company’s announcement on January 27, 2014 that it had received the Proposal. On [ ],
2015, the most recent practicable date before the printing of this proxy statement, the high and low reported sales prices of
ADSs were US$[ ] and US$[ ], respectively. You are urged
to obtain a current market price quotation for your Shares in connection with voting your Shares.
Dividend Policy
In November 2011, the Board declared a
cash dividend in the aggregate amount of approximately US$289.4 million payable to holders of Shares. As of the date of this proxy
statement, US$288.3 million was paid to shareholders of the Company, with the remaining amount payable to holders of unvested
restricted shares upon vesting.
Under the terms of the Merger Agreement,
the Company is not permitted to pay any dividends or repurchase any Shares pending consummation of the Merger.
In the event the Merger Agreement is terminated
for any reason and the Merger is not consummated, the payment of future dividends will be subject to the discretion of the Board.
Even if the Board decides to pay dividends, the form, frequency and amount will depend upon the Company’s future operations
and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the
Board may deem relevant. If the Company pays any dividends, the ADS Depositary will distribute such payments to the Company’s
ADS holders to the same extent as holders of Shares, subject to the terms of the Deposit Agreement, including the fees and expenses
payable thereunder. Cash dividends on Shares, if any, will be paid in U.S. dollars. In addition, the Company is a holding company
incorporated in the Cayman Islands. The Company’s current and future ability to pay dividends depends substantially on the
payment of dividends to the Company by its PRC subsidiaries.
The Company generates substantially all
of its revenues through contractual arrangements with its PRC operating companies. PRC governmental authorities may, however,
require the Company to amend these contractual arrangements in a manner that would materially and adversely affect the Company’s
PRC subsidiaries’ ability to pay dividends to the Company. If the Company’s PRC subsidiaries incur debt on their own
behalf in the future, the instruments governing the debt may also restrict the ability of the Company’s PRC subsidiaries
to pay dividends to the Company. Furthermore, PRC legal restrictions permit payments of dividends by the Company’s PRC subsidiaries
only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. There is
no significant difference between retained earnings as determined in accordance with PRC accounting standards and in accordance
with U.S. GAAP. Under PRC law, the Company’s PRC subsidiaries are also required to set aside at least 10% of their net income
each year to fund their general reserves until the cumulative amount reaches 50% of their paid-in capital. The Company’s
PRC subsidiaries may also allocate a portion of their net income to their staff welfare and bonus funds. These reserves and welfare
and bonus funds are not distributable as cash dividends to the Company. Moreover, cash transfers from the Company’s PRC
subsidiaries to the Company are subject to the PRC government’s currency conversion policy, and the Company’s PRC
subsidiaries may not be able to obtain the relevant approvals or complete the requisite registrations for distributing dividends
to the Company. Any failure by any of the Company’s shareholders or any beneficial owner of Shares who is a PRC resident
to comply with the approval or registration requirements imposed by the State Administration of Foreign Exchange with respect
to their investment in the Company could also subject the Company to legal sanctions, including a restriction on the Company’s
PRC subsidiaries’ ability to distribute dividends to the Company. As a result of the foregoing restrictions on the Company’s
PRC subsidiaries and PRC operating companies, the Company’s ability to pay dividends on Shares, or indirectly on ADSs, could
be significantly limited.
The Company may be treated as a PRC
resident enterprise for PRC tax purposes and be obligated to withhold PRC income tax on payments of dividends on Shares and ADSs
to investors that are non-resident enterprises of the PRC. The withholding tax rate would generally be 10% on dividends paid to
non-resident enterprises and 20% on dividends paid to non-resident individuals, subject to applicable tax treaty reliefs. Pursuant
to a tax treaty between the PRC and the United States, a 10% rate will apply to dividends paid to non-resident individuals provided
certain conditions are met. In addition, pursuant to a tax treaty between the PRC and Hong Kong, the withholding tax rate may
be lowered to 5% if the PRC resident enterprise is at least 25% held by a Hong Kong company and other conditions set forth by
the relevant tax authorities have been met. See “Item 3. Key Information—D. Risk Factors—Risks Related to the
Regulation of Our Business—The discontinuation, reduction, delay or retroactive revocation of any of the preferential tax
treatments or the government financial incentives currently available to us in China could materially and adversely affect our
business, financial condition and results of operations,” “Item 3. Key Information—D. Risk Factors—Risks
Relating to the Countries in Which We Operate—There are significant uncertainties under the EIT Law relating to our PRC
enterprise income tax liabilities” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our
ADSs—We may be required to withhold PRC income tax on the dividends we pay you (if any), and any gain you realize on the
transfer of our ordinary shares and/or ADSs may also be subject to PRC withholding tax” in the Company’s Annual Report
on Form 20-F for the year ended December 31, 2014, which is incorporated into this proxy statement by reference. See “Where
You Can Find More Information” beginning on page 116 for a description of how to obtain a copy of the Company’s Annual
Report.
The
Extraordinary General Meeting
We are furnishing this proxy statement
to you, as a holder of the Shares, as part of the solicitation of proxies by the Board for use at the extraordinary general meeting
described below.
Date, Time and Place of the Extraordinary General Meeting
The extraordinary general meeting will
be held on [ ], 2015 at [ ] a.m.
(Hong Kong time). The meeting will be held at the offices of Davis Polk & Wardwell, The Hong Kong Club Building, 3A Chater
Road, Central, Hong Kong.
Proposals to be Considered at the Extraordinary General
Meeting
At the meeting, you will be asked to consider
and vote upon:
| · | as a special
resolution: |
THAT the Merger Agreement, the Plan of Merger
required to be registered with the Registrar of Companies in the Cayman Islands in order to give effect to the Merger, and the
Transactions, including the Merger, be authorized, approved and adopted; and
| · | as an ordinary
resolution: |
THAT the directors of the
Company be authorized to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger; and
| · | if necessary,
as an ordinary resolution: |
THAT the chairman of the extraordinary general
meeting be instructed to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies
in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the resolutions
to be proposed at the extraordinary general meeting.
At the Effective Time, all Shares will
be cancelled and cease to exist. If the Merger is completed, each issued and outstanding Share and ADS, other than the Excluded
Shares, the Dissenting Shares and ADSs representing the Excluded Shares, as the case may be, will be cancelled in exchange for
the right to receive the Per Share Merger Consideration and the Per ADS Merger Consideration (less US$0.05 per ADS cancellation
fees pursuant to the terms of the Deposit Agreement), respectively, in each case, in cash, without interest and net of any applicable
withholding taxes, in accordance with the terms and conditions set forth in the Merger Agreement. The Excluded Shares and ADSs
representing the Excluded Shares will be cancelled without payment of any consideration or distribution therefor. The Dissenting
Shares will thereafter represent only the right to receive the fair value of a Share as determined under the Cayman Islands Companies
Law.
In addition to the foregoing, at the Effective
Time,
| · | each Company
Option issued and outstanding immediately prior to the Effective Time, will be cancelled
and converted into the right to receive, as soon as practicable after the Effective Time,
an amount equal to the product of (a) the total number of Shares issuable under such
Company Option and (b) the excess of US$3.55 over the exercise price payable per Share
under such Company Option, in cash, without interest and net of any applicable withholding
taxes; |
| · | each Company
Restricted Share and each Company RSU issued and outstanding immediately prior to the
Effective Time will be cancelled and converted into the right to receive, as soon as
practicable after the Effective Time, US$3.55, in cash, without interest and net of any
applicable withholding taxes; and |
| · | each ordinary
share, par value US$0.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time will be converted into one validly issued, fully paid and
non-assessable ordinary share, par value US$0.01 per share, of the Surviving Corporation. |
The Board’s Recommendation
The Board, acting upon the unanimous recommendation
of the Special Committee made on April 3, 2015, unanimously:
| · | determined
that it was fair to, advisable and in the best interests of the Company and the Unaffiliated
Holders to consummate the Transactions, including the Merger; |
| · | authorized
and approved the execution, delivery and performance by the Company of the Merger Agreement,
the Plan of Merger and the Limited Guarantees and the consummation of the Transactions,
including the Merger; and |
| · | resolved to
recommend in favor of the authorization and approval of the Merger Agreement, the Plan
of Merger and the consummation of the Transactions, including the Merger, to the shareholders
of the Company and directed that the Merger Agreement, the Plan of Merger and the consummation
of the Transactions, including the Merger, be submitted to a vote of the shareholders
of the Company for authorization and approval. |
On August 26, 2015, the Board, acting
upon the Special Committee’s unanimous affirmation made on August 25, 2015 of its April 3, 2015 recommendation, unanimously
affirmed the Board’s April 3, 2015 determination, declaration and recommendation.
Record Date; Shares and ADSs Entitled to Vote
You are entitled to attend and vote at
the extraordinary general meeting if you have Shares registered in your name at the close of business in the Cayman Islands on
the Share Record Date. If you own Shares at the close of business in the Cayman Islands on the Share Record Date, the deadline
for you to lodge your proxy card and vote is [ ], 2015 at 10:00 a.m.
(Hong Kong time).
If you own ADSs as of the close of business
in New York City on the ADS Record Date (and do not cancel such ADSs and become a registered holder of the Shares underlying such
ADSs, as explained below), you cannot vote directly nor are you able to attend the extraordinary general meeting, but you may
instruct the ADS Depositary (as the holder of the Shares underlying your ADSs) on how to vote the Shares underlying your ADSs.
The ADS Depositary must receive your instructions no later than 12:00 p.m. (New York City time) on [ ],
2015 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting.
Holders of Class A ordinary shares
are entitled to one vote per share, and holders of Class B ordinary shares are entitled to 10 votes per share. Holders of our
Class A ordinary shares and Class B ordinary shares will vote as a single class on each matter submitted to the shareholders for
authorization and approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the Share Record
Date, there will be 541,220,058 Shares entitled to be voted at the extraordinary general meeting. See “—Procedures
for Voting” below for additional information.
Quorum
A quorum of the Company’s shareholders
is necessary to have a valid shareholders’ meeting. The required quorum for the transaction of business at the extraordinary
general meeting is the presence, in person or by proxy, of one or more shareholders entitled to vote that represent not less than
50% of the voting rights represented by the issued Shares. In the event that a quorum is not present at the extraordinary general
meeting, we currently expect that we will adjourn the extraordinary general meeting to solicit additional proxies in favor of
the authorization and approval of the Merger Agreement.
Vote Required
Under the Cayman Islands Companies Law
and the Merger Agreement, in order for the Merger to be completed, the Merger Agreement and the Plan of Merger must be approved
by a special resolution passed by the affirmative vote of shareholders holding two-thirds or more of the voting power represented
by the Shares (including Shares represented by ADSs) present and voting in person or by proxy as a single class at the extraordinary
general meeting. If this vote is not obtained, the Merger will not be completed.
As of the date of this proxy statement,
there are 443,701,684 Class A ordinary shares (including Class A ordinary
shares represented by ADSs) and 97,518,374 Class B ordinary shares issued and outstanding, all of which are entitled to vote on
the proposals at the extraordinary general meeting, subject to the procedures described below under “—Procedures for
Voting.” We expect that, as of the Share Record Date, there will be 443,701,684 Class A ordinary shares (including Class
A ordinary shares represented by ADSs) and 97,518,374 Class B ordinary shares issued and outstanding, all of which will be entitled
to vote on the proposals at the extraordinary general meeting, subject to the procedures described below under “—Procedures
for Voting.” Holders of Class A ordinary shares are entitled to one vote per share, and holders of Class B ordinary shares
are entitled to 10 votes per share. Based on the number of Shares expected to be issued and outstanding and entitled to vote as
of the close of business in the Cayman Islands on the Share Record Date, 945,923,616 votes must be cast in favor of the proposal
to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, in order for the
proposal to be authorized, approved and adopted, assuming all shareholders will be present and voting in person or by proxy at
the extraordinary general meeting. If less than all issued and outstanding Shares are present in person or by proxy and voting
at the meeting, a smaller number of Shares will be required to approve the Merger Agreement, the Plan of Merger and the Transactions,
including the Merger.
As of the date of this proxy statement,
the Rollover Shareholders beneficially own an aggregate of 311,568,626 Class A ordinary shares and 97,518,374 Class B ordinary
shares, representing approximately 75.6% of the Company’s issued and outstanding Shares and 1,286,752,366 votes, or approximately
90.7% of the total number of votes represented by the Company’s issued and outstanding Shares. See “Security Ownership
of Certain Beneficial Owners and Management of the Company” beginning on page 112 for additional information. Pursuant to
the terms of the Support Agreement, these Shares will be voted in favor of the authorization and approval of the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger, at the extraordinary general meeting.
Procedures for Voting
Shares
Only shareholders entered in the register
of members of the Company at the close of business in the Cayman Islands on the Share Record Date will receive the final proxy
statement and proxy card directly from the Company. Shareholders registered in the register of members of the Company as of the
Share Record Date or their proxy holders are entitled to vote and may participate in the extraordinary general meeting or any
adjournment thereof. Shareholders who have acquired Shares after the close of business on the Share Record Date may not attend
the extraordinary general meeting unless they receive a proxy from the person or entity who had sold them the Shares. Holders
of Class A ordinary shares are entitled to one vote per share, and holders of Class B ordinary shares are entitled to 10 votes
per share.
Shareholders wanting to vote by proxy
should simply indicate on their proxy card how they want to vote, sign and date the proxy card, and mail the proxy card in the
return envelope as soon as possible but in any event so that it is received by the Company no later than 10:00 a.m. on [ ],
2015 (Hong Kong time), the deadline to lodge the proxy card. Shareholders can also attend the extraordinary general meeting and
vote in person.
Shareholders who have questions or requests
for assistance in completing and submitting proxy cards or need additional copies of this proxy statement or the accompanying
proxy card should contact Georgeson Inc., the proxy solicitor at 480 Washington Boulevard, 26th Floor, Jersey City, NJ, 07310
or toll-free at +1 800 509 0983 (or +1 781 575 2137 outside of North America) or by email at ShandaGames@georgeson.com.
ADSs
Holders of ADSs as of the close of business
in New York City on the ADS Record Date will receive the final proxy statement and ADS voting instruction card either directly
from the ADS Depositary (in the case of registered holders of ADSs) or from a third-party service provider (in the case of beneficial
owners of ADSs who are not registered holders of ADSs). Holders of ADSs as of the close of business on [ ],
2015 (New York City time) (who do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs, as explained
in the following paragraph) cannot attend or vote at the extraordinary general meeting directly, but may instruct the ADS Depositary
how to vote the Shares underlying the ADSs by completing and signing an ADS voting instruction card provided by the ADS Depositary
and returning it in accordance with the instructions printed on such card. The ADS Depositary must receive the ADS voting instruction
card no later than 12:00 p.m. (New York City time) on [ ], 2015. The
ADS Depositary will endeavor, in so far as practicable, to vote or cause to be voted the Shares represented by ADSs in accordance
with your voting instructions. If any holder of ADSs does not timely deliver specific voting instructions to the ADS Depositary,
or if the ADS Depositary timely receives voting instructions from an ADS holder which fail to specify the manner in which the
ADS Depositary is to vote, the Shares represented by the holder’s ADSs, the ADS Depositary has advised the Company that
it will not vote or attempt to exercise the right to vote any Shares underlying such holder’s ADSs. If you hold your ADSs
in a brokerage, bank or other nominee account, you must follow the procedures of the broker, bank or other nominee through which
you hold your ADSs if you wish to vote.
Holders of ADSs will not be able to attend
the extraordinary general meeting unless they cancel their ADSs and become holders of Shares prior to the close of business in
the Cayman Islands on the Share Record Date. ADS holders who wish to cancel their ADSs need to make arrangements to deliver the
ADSs (or to the extent ADSs are certificated, the ADRs) to the ADS Depositary for cancellation before 12:00 p.m. (New York City
time) on [ ], 2015 together with (a) delivery instructions for the
corresponding Shares (name and address of person who will be the registered holder of such Shares), (b) payment of the ADS cancellation
fees (US$0.05 per ADS to be cancelled pursuant to the terms of the Deposit Agreement) and any applicable taxes and (c) a certification
that any such ADS holder either (i) held the ADSs as of the ADS Record Date and has not given, and will not give, voting instructions
to the ADS Depositary as to the ADSs being cancelled, or has given voting instructions to the ADS Depositary as to the ADSs being
cancelled but undertakes not to vote the corresponding Shares at the extraordinary general meeting, or (ii) did not hold the ADSs
as of the ADS Record Date and undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold
your ADSs in a brokerage, bank or other nominee account, please contact your broker, bank or other nominee to find out what actions
you need to take to instruct the broker, bank or other nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs,
the ADS Depositary will arrange for JPMorgan Chase Bank, N.A., Hong Kong branch, the custodian holding the Shares, to transfer
registration of the Shares to the former ADS holder (or a person designated by the former ADS holder). If after the registration
of Shares in your name you wish to receive a certificate evidencing the Shares registered in your name, you will need to make
a request to the Company’s registered office at Codan Trust Company (Cayman), c/o Conyers Dill & Pearman, 2901 One Exchange
Square, 8 Connaught Place, Central, Hong Kong, to issue and mail a certificate to your attention. If the Merger is not completed,
the Company would continue to be a public company in the United States and ADSs would continue to be listed on NASDAQ. Shares
are not listed and cannot be traded on any stock exchange other than NASDAQ, and in such case only in the form of ADSs. As a result,
if you have cancelled your ADSs to attend the extraordinary general meeting and the Merger is not completed and you wish to be
able to sell your Shares on a stock exchange, you would need to deposit your Shares into the Company’s ADS program for the
issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement,
including, among other things, payment of relevant fees of the ADS Depositary for the issuance of ADSs and applicable share transfer
taxes (if any) and related charges pursuant to the Deposit Agreement.
Persons holding ADSs in a brokerage, bank
or other nominee account should consult with their broker, bank or other nominee to obtain directions on how to provide such broker,
bank or other nominee with instructions on how to vote their ADSs.
Proxy Holders for Registered Shareholders
Shareholders registered in the register
of members of the Company as of the Share Record Date who are unable to participate in the extraordinary general meeting may appoint
as a representative another shareholder, a third party or the Company as proxy holder by completing and returning the form of
proxy in accordance with the instructions printed thereon. With regard to the items listed on the agenda and without any explicit
instructions to the contrary, the Company as proxy holder will vote in favor of the resolutions proposed at the extraordinary
general meeting according to the recommendation of the Board. If new proposals (other than those on the agenda) are put forth
before the extraordinary general meeting, the Company as proxy holder will vote in accordance with the position of the Board.
Voting of Proxies and Failure to Vote
All Shares represented by valid proxies
will be voted at the extraordinary general meeting in the manner specified by the holder. If a shareholder returns a properly
signed proxy card but does not indicate how the shareholder wants to vote, Shares represented by that proxy card will be voted
FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger,
FOR the proposal to authorize each of the directors of the Company to do all things necessary to give effect to the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger, and FOR the proposal to instruct the chairman of the extraordinary
general meeting to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the
event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the resolutions proposed
at the extraordinary general meeting, unless the shareholder appoints a person other than the chairman of the meeting as proxy,
in which case the Shares represented by that proxy card will be voted (or not submitted for voting) as the proxy determines. If
a shareholder fails to vote by proxy or in person, it will be more difficult for the Company to obtain the necessary quorum to
transact business at the extraordinary general meeting and to obtain the required votes described in “—Vote Required.”
Brokers, banks or other nominees who hold
Shares in “street name” for customers who are the beneficial owners of such Shares may not give a proxy to vote those
customers’ Shares in the absence of specific instructions from those customers. If proxies are properly dated, executed
and returned by holders of Shares and no specific instructions are given by such holders, such Shares will be voted “FOR”
the proposals and in the proxy holder’s discretion as to other matters that may properly come before the extraordinary general
meeting. Abstentions by holders of Shares are included in the determination of the number of Shares present and voting but are
not counted as votes for or against a proposal. If no proxy is given by such holders of Shares, broker non-votes will be counted
toward a quorum but will not be treated as voted on any proposals at the extraordinary general meeting.
If any holder of ADSs does not timely
deliver specific voting instructions to the ADS Depositary, or if the ADS Depositary timely receives voting instructions from
an ADS holder which fail to specify the manner in which the ADS Depositary is to vote the Shares represented by the holder’s
ADS, the ADS Depositary has advised the Company that it will not vote or attempt to exercise the right to vote any Shares underlying
such holder’s ADSs.
Brokers, banks and other nominees who
hold ADSs in “street name” for their customers do not have discretionary authority to provide the ADS Depositary with
voting instructions on how to vote the Shares underlying the ADSs with respect to the authorization and approval of the Merger
Agreement, the Plan of Merger and the Transactions, including the Merger. Accordingly, if banks, brokers or other nominees do
not receive specific voting instructions from the beneficial owner of ADSs, they may not provide the ADS Depositary with voting
instructions on how to vote the Shares underlying the ADSs with respect to the authorization and approval of the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger.
Revocability of Proxies
Registered holders of our Shares may revoke
their proxies in one of three ways:
| · | First, a registered
shareholder can revoke a proxy by written notice of revocation given to the chairman
of the extraordinary general meeting at least two hours before the extraordinary general
meeting commences. Any written notice revoking a proxy should also be sent to Shanda
Games Limited, No. 1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203,
the PRC, Attention: Investor Relations Department. |
| · | Second, a registered
shareholder can complete, date and submit a new proxy card bearing a later date than
the proxy card sought to be revoked to the Company no later than 10:00 a.m. (Hong Kong
time) on [ ], 2015, which
is the deadline for shareholders to lodge proxy cards. |
| · | Third, a registered
shareholder can attend the meeting and vote in person. Attendance, by itself, will not
revoke a proxy. It will only be revoked if the registered shareholder actually votes
at the extraordinary general meeting. |
If a shareholder holds Shares through
a broker, bank or other nominee and has instructed the broker, bank or other nominee to vote the shareholder’s Shares, the
shareholder must follow directions received from the broker, bank or other nominee to change those instructions.
Holders of the Company’s ADSs may
revoke their voting instructions by notification to the ADS Depositary in writing at any time prior to 12:00 p.m. (New York City
time) on [ ], 2015. A holder of ADSs can do this by completing, dating
and submitting a new ADS voting instruction card to the ADS Depositary bearing a later date than the ADS voting instruction card
sought to be revoked.
If you hold your ADSs through a broker,
bank or other nominee and you have instructed your broker, bank or other nominee to give ADS voting instructions to the ADS Depositary,
you must follow the directions of your broker, bank or other nominee to change those instructions.
Rights of Shareholders Who Object to the Merger
Shareholders who continue to hold their
Shares in their own name until the completion of the Merger will have the right to exercise dissenters’ rights and receive
payment of the fair value of their Shares if the Merger is completed, but only if they deliver to the Company, before the vote
to authorize and approve the Merger is taken, a written objection to the Merger and subsequently comply with all procedures and
requirements of Section 238 of the Cayman Islands Companies Law, which is attached as Annex D to this proxy statement, for the
exercise of dissenters’ rights. The fair value of your Shares as determined under that statute could be more than, the same
as, or less than the merger consideration you would receive pursuant to the Merger Agreement if you do not exercise dissenters’
rights with respect to your Shares.
ADS HOLDERS WILL NOT HAVE THE RIGHT TO
EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY
WILL NOT ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER
REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE
ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR ADSs, PROVIDE INSTRUCTIONS FOR THE
REGISTRATION OF THE CORRESPONDING SHARES IN THE COMPANY’S REGISTER OF MEMBERS, AND CERTIFY THAT THEY HAVE NOT GIVEN, AND
WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE CORRESPONDING SHARES) BEFORE
12:00 P.M. (NEW YORK CITY TIME) ON [ ], 2015, AND BECOME REGISTERED
HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON THE SHARE RECORD DATE. THEREAFTER, SUCH FORMER ADS HOLDERS
MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THEIR SHARES UNDER SECTION
238 OF THE CAYMAN ISLANDS COMPANIES LAW. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN
THE UNITED STATES AND ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE
OTHER THAN NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS
ADSs TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL
HIS, HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS, HER OR ITS SHARES INTO THE COMPANY’S
ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE
DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs AND
APPLICABLE SHARE TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.
Whom to Call for Assistance
If you need assistance, including help
in changing or revoking your proxy, please contact Georgeson Inc., which is acting as the proxy solicitor in connection with the
Merger as follows:
480 Washington Boulevard, 26th Floor,
Jersey City, NJ 07310
Shareholders, Banks and Brokers may call toll-free +1 800 509 0983
(or +1 781 575 2137 outside of North America)
or email ShandaGames@georgeson.com
Solicitation of Proxies
We have engaged Georgeson Inc. to assist
in the provision of proxy solicitation information to brokerage, banks or other nominees and individual investors for the extraordinary
general meeting. We expect that fees for services provided by Georgeson Inc. will be approximately US$7,500 plus certain costs
associated with telephone solicitations, if required, and reimbursement of out-of-pocket expenses. In addition, proxies may be
solicited by mail, in person, by telephone, by internet or by facsimile by certain of the Company’s officers, directors
and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed for reasonable
out-of-pocket expenses. We will reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable expenses in
forwarding copies of this proxy statement to the beneficial owners of Shares and in obtaining voting instructions from those owners.
We will pay all expenses of filing, printing and mailing this proxy statement.
Other Business
We are not currently aware of any business
to be acted upon at the extraordinary general meeting other than the matters discussed in this proxy statement.
The
Merger Agreement
The following summary describes material
provisions of the Merger Agreement. This summary may not include all of the information about the Merger Agreement and the Plan
of Merger that is important to you. This summary is subject to, and qualified in its entirety by reference to, the Merger Agreement
and the Plan of Merger, which are attached as Annex A and Annex B, respectively, and incorporated by reference into
this section of this proxy statement. You are urged to read each of the Merger Agreement and the Plan of Merger carefully and
in their entirety, as they are the legal documents governing the Merger.
The summary of the Merger Agreement
below is included in this proxy statement only to provide you with information regarding the terms and conditions of the Merger
Agreement, and not to provide any other factual information regarding the Company, Parent, Merger Sub or their respective businesses.
Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead
should be read only in conjunction with the information provided elsewhere in this proxy statement and in the documents incorporated
by reference into this proxy statement. See “Where You Can Find More Information” beginning on page 116.
Structure and Completion of the Merger
The Merger Agreement provides for the
merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, of the Merger Agreement and the
Plan of Merger, with the Company as the surviving entity of the Merger. If the Merger is completed, the Company will cease to
be a publicly traded company and will become a wholly owned subsidiary of Parent. The closing will occur no later than the second
business day immediately after all of the closing conditions have been satisfied or waived (other than those conditions that by
their nature are to be satisfied at the closing of the Merger, but subject to the satisfaction or, if permissible, waiver of those
conditions). At the closing of the Merger, Merger Sub and the Company will sign the Plan of Merger and file the Plan of Merger
and other related documents with the Cayman Registrar. The Merger will become effective on the date specified in the Plan of Merger
in accordance with the Cayman Islands Companies Law.
We expect that the Merger will be completed
during the second half of 2015, after all conditions to the Merger have been satisfied or waived. We cannot specify when, or assure
you that, all conditions to the Merger will be satisfied or waived; however, we intend to complete the Merger as promptly as practicable.
Memorandum and Articles of Association; Directors and Officers
of the Surviving Corporation
At the Effective Time, the memorandum
and articles of association of Merger Sub, as in effect immediately prior to the Effective Time, will become the memorandum and
articles of association of the Surviving Corporation, except that at the Effective Time, the memorandum and articles of association
will be amended to (a) refer to the name of the Surviving Corporation as “Shanda Games Limited”; (b) refer to the
correct authorized capital of the Surviving Corporation as approved in the Plan of Merger (if necessary); and (c) contain provisions
no less favorable to the intended beneficiaries with respect to exculpation and indemnification of liability and advancement of
expenses than were set forth in the memorandum and articles of association of the Company on the date of the Merger Agreement
in accordance with the terms of the Merger Agreement.
The directors of Merger Sub immediately
prior to the Effective Time will become the directors of the Surviving Corporation, and the officers of the Company immediately
prior to the Effective Time will become the officers of the Surviving Corporation, in each case, unless otherwise determined by
Parent prior to the Effective Time.
Merger Consideration
At the Effective Time, each issued
and outstanding Class A ordinary share (other than the Excluded Shares, Dissenting Shares and Class A ordinary shares represented
by ADSs) will be cancelled in exchange for the right to receive the Per Share Merger Consideration, net of any applicable withholding
taxes; each outstanding ADS (other than any ADS that represents Excluded Shares), and the Class A ordinary shares represented
by such ADS, will be cancelled in exchange for the right to receive the Per ADS Merger Consideration (less US$0.05 per ADS for
cancellation fees pursuant to the terms of the Deposit Agreement), net of any applicable withholding taxes; and each Dissenting
Share will be entitled to receive only the payment resulting from the procedures set forth in Section 238 of the Cayman Islands
Companies Law (such required payments collectively, the “Merger Consideration”). See “Dissenters’
Rights” beginning on page 105 for additional information.
Each issued and outstanding Excluded
Share will be cancelled without payment of any consideration or any distribution therefor. See “The Merger Agreement—Treatment
of Options” and “The Merger Agreement—Treatment of Restricted Shares and Restricted Share Units” beginning
on page 86 for information regarding the treatment of Company Options, Company Restricted Shares and Company RSUs.
At the Effective Time, each ordinary share,
par value US$0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into
one validly issued, fully paid and non-assessable ordinary share, par value US$0.01 per share, of the Surviving Corporation, and
such share will constitute the only issued and outstanding share capital of the Surviving Corporation.
The Merger Consideration will not be paid
to holders of Class A ordinary shares or ADSs who are untraceable unless and until they notify the paying agent appointed by Parent
for payment of Merger Consideration (the “Paying Agent”) or the ADS Depositary, as applicable, of their current contact
details. A holder of Class A ordinary shares or ADSs will be deemed to be untraceable if (a) such person has no registered
address in the register of members (or branch register) maintained by the Company or the ADS Depositary, as applicable; (b) on
the last two consecutive occasions on which a dividend has been paid by the Company a check payable to such person either (i) has
been sent to such person and has been returned undelivered or has not been cashed or (ii) has not been sent to such person
because on an earlier occasion a check for a dividend so payable has been returned undelivered, and, in any such case, no valid
claim in respect thereof has been communicated in writing to the Company or the ADS Depositary, as applicable; or (c) notice
of the extraordinary general meeting convened to vote on the Merger Agreement, the Plan of Merger to be filed with the Cayman
Registrar and the Transactions has been sent to such person and has been returned undelivered. Monies due to holders of Dissenting
Shares and holders of Class A ordinary shares of the Company who are untraceable will be returned to the Surviving Corporation
on demand and held in a non-interest-bearing bank account for the benefit of the holders of Dissenting Shares and holders of Class
A ordinary shares of the Company (including holders of ADSs) who are untraceable. Monies unclaimed after a period of seven years
from the closing date of the Merger will be forfeited and will revert to the Surviving Corporation.
Treatment of Options
At the Effective Time, each Company Option
that is outstanding and unexercised immediately prior to the Effective Time, whether or not vested or exercisable, will be cancelled.
In exchange for a cancelled Company Option, the former holder (or his or her designee) of such Company Option will be paid in
cash, without interest and net of any applicable withholding taxes, by the Surviving Corporation or one of its subsidiaries, as
soon as practicable after the Effective Time, an amount equal to the product of (a) the total number of ordinary shares of
the Company underlying such Company Option immediately prior to the Effective Time multiplied by (b) the excess of US$3.55
over the exercise price payable per Share under such Company Option. If the exercise price per Share of any such Company Option
is equal to or greater than US$3.55, such Company Option will be cancelled without any payment therefor.
Treatment of Restricted Shares and Restricted Share Units
At the Effective Time, each Company Restricted
Share and Company RSU that is outstanding immediately prior to the Effective Time will be cancelled. In exchange for a cancelled
Company Restricted Share or Company RSU, each former holder (or his or her designee) of such Company Restricted Share or Company
RSU will be paid in cash, without interest and net of any applicable withholding taxes, by the Surviving Corporation or one of
its subsidiaries, as soon as practicable after the Effective Time, an amount equal to US$3.55 for each such cancelled Company
Restricted Share or Company RSU.
Exchange Procedures
Prior to the Effective Time, Parent will
enter into a paying agent agreement with a bank or trust company to act as paying agent for payments of Merger Consideration.
At or prior to the Effective Time, or in the case of payments related to the Dissenting Shares, when ascertained, Parent will
deposit with the Paying Agent, for the benefit of the holders of ordinary shares of the Company and ADSs, cash in an amount sufficient
for the Paying Agent to pay the Merger Consideration. Promptly after the Effective Time, the Paying Agent will deliver or mail
to each registered holder of Class A ordinary shares entitled to receive Per Share Merger Consideration (which does not include
holders of Excluded Shares, Dissenting Shares and Class A ordinary shares represented by ADSs and Company Restricted Shares) (a) a
letter of transmittal specifying the manner in which the delivery of the Merger Consideration to registered holders of the Class
A ordinary shares will be effected, and (b) instructions for effecting the surrender of any issued share certificates representing
Class A ordinary shares (or affidavits and indemnities of loss in lieu of the share certificates) or non-certificated Class A
ordinary shares represented by book-entry in exchange for the Merger Consideration. If any share certificate has been lost, stolen
or destroyed, then the person claiming such share certificate to be lost, stolen or destroyed will have to make an affidavit of
loss, theft or destruction, and, if required by the Surviving Corporation or the Paying Agent, post a bond in a reasonable amount
as the Surviving Corporation or the Paying Agent may direct, as indemnity against any claim that may be made against it with respect
to such share certificate before the Paying Agent will pay such person the Merger Consideration for the cancelled Share associated
with such share certificate. Upon the surrender of, if applicable, any share certificates (or affidavits and indemnities of loss
in lieu of the share certificates) or non-certificated Class A ordinary shares represented by book-entry, together with such other
documents as may be required pursuant to such instructions to the Paying Agent, each registered holder of Class A ordinary shares
(other than holders of Excluded Shares, Dissenting Shares and Class A ordinary shares represented by ADSs and Company Restricted
Shares) will receive a payment in an amount equal to (a) the number of Class A ordinary shares held multiplied by (b) the
Per Share Merger Consideration, without interest and net of any applicable withholding taxes. Any share certificate so surrendered
will be marked as cancelled.
Promptly after the Effective Time, the
Paying Agent will transmit to the ADS Depositary an amount in cash, without interest and net of any applicable withholding taxes,
equal to (a) the number of ADSs issued and outstanding immediately prior to the Effective Time (other than ADSs representing
Excluded Shares) multiplied by (b) the Per ADS Merger Consideration. The ADS Depositary will distribute the Per ADS Merger
Consideration to ADS holders pro rata to their holdings of ADSs (other than ADSs representing the Excluded Shares), without interest
and net of any applicable withholding taxes, upon delivery by them of the ADSs. The ADS holders will pay any applicable fees,
charges and expenses of the ADS Depositary and government charges (other than withholding taxes, if any) due to or incurred by
the ADS Depositary in connection with the cancellation of ADSs. The Surviving Corporation will pay any applicable fees, charges
and expenses of the ADS Depositary and government charges (other than withholding taxes, if any) due to or incurred by the ADS
Depositary in connection with the distribution of the Per ADS Merger Consideration to holders of ADSs and the termination of the
ADS program or facility.
In the event of a transfer of ownership
of ordinary shares of the Company that is not registered in the register of members of the Company, the Merger Consideration to
be exchanged upon due surrender of the share certificate may be paid to a person other than the person in whose name the relevant
ordinary shares are registered in the register of members of the Company only if the relevant share certificates, if any, are
presented to the Paying Agent, accompanied by all documents reasonably required to evidence and effect such transfer and to evidence
that any applicable share transfer taxes have been paid or are not applicable.
Representations and Warranties
The Merger Agreement contains representations
and warranties made by the Company to Parent and Merger Sub and representations and warranties made by Parent and Merger Sub to
the Company, in each case, as of specific dates. The statements embodied in those representations and warranties were made for
purposes of the Merger Agreement and are subject to important qualifications and limitations agreed by the parties to the Merger
Agreement in connection with negotiating the terms of the Merger Agreement (including those set forth in the disclosure schedules
delivered by the Company to, and accepted by, Parent and Merger Sub). In addition, some of those representations and warranties
may be subject to a contractual standard of materiality different from that generally applicable to shareholders and may have
been made for the principal purposes of establishing the circumstances in which a party to the Merger Agreement may have the right
not to close the Merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance
or otherwise and allocating risk between the parties to the Merger Agreement rather than establishing matters as facts. Moreover,
the representations and warranties made by the Company were qualified by its public disclosure with the SEC since December 31,
2012 and prior to the date of the Merger Agreement, as well as, in some cases, to additional specified exceptions and qualifications.
The representations and warranties made
by the Company to Parent and Merger Sub include representations and warranties relating to, among other things:
| · | the Company’s
and the Company’s subsidiaries’ organization, existence, good standing and
authority to carry on their respective businesses; |
| · | the memorandum
and articles of association or other equivalent organizational documents, as applicable,
of each of the Company and its subsidiaries being in full force and effect; |
| · | the Company’s
capitalization, the absence of subscription, repurchase or other similar rights with
respect to securities of the Company or any of its subsidiaries, or any other securities
of the Company that give their holders the right to vote with the Company’s shareholders; |
| · | the Company’s
corporate power and authority to execute and deliver the Merger Agreement, to perform
its obligations under and to consummate the Transactions, and the enforceability of the
Merger Agreement against the Company; |
| · | the Board’s
(a) determination that the execution of the Merger Agreement and the Plan of Merger and
the consummation of the Transactions, including the Merger, are fair to, and in the best
interests of, the Company and its shareholders (other than holders of Excluded Shares);
(b) approval and declaration of the advisability of the Merger Agreement, the Merger
and the other Transactions; and (c) resolution to recommend the approval and adoption
of the Merger Agreement, the Plan of Merger and the Transactions to the shareholders
and direction that the Merger Agreement be submitted for approval by the shareholders
of the Company at the extraordinary general meeting, such action in each case being made
upon the unanimous recommendation of the Special Committee; |
| · | the required
vote of the Company’s shareholders to approve the Merger Agreement; |
| · | the absence
of violations of, or conflict with, the governing documents of the Company, laws applicable
to the Company and certain agreements of the Company as a result of the Company entering
into and performing under the Merger Agreement and consummating the Merger; |
| · | compliance
with applicable laws, licenses and permits, including applicable anti-corruption laws; |
| · | compliance
with the applicable rules and regulations of NASDAQ; |
| · | the Company’s
SEC filings since December 31, 2012 and the financial statements included therein; |
| · | the Company’s
disclosure controls and procedures and internal controls over financial reporting; |
| · | the absence
of undisclosed liabilities; |
| · | the absence
of any “Company Material Adverse Effect” (as defined below) on the Company
and certain other changes or events since December 31, 2014; |
| · | the absence
of any legal proceedings and governmental orders against the Company; |
| · | labor and employment
matters, including matters relating to employee benefit plans; |
| · | material contracts
and the absence of any default under, or breach or violation of, any material contract; |
| · | the receipt
by the Special Committee of a fairness opinion from Merrill Lynch (Asia Pacific) Limited; |
| · | the absence
of any undisclosed broker’s or finder’s fees; and |
| · | the absence
of a shareholder rights agreement and the inapplicability of any anti-takeover law to
the Merger. |
Many of the representations and warranties
made by the Company are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes
of the Merger Agreement, a “Company Material Adverse Effect” means any fact, event, circumstance, change, condition
or effect that, individually or in the aggregate, with all other facts, events, circumstances, changes, conditions and effects,
has or would reasonably be expected to have a materially adverse effect on the business, financial condition, or results of operations
of the Company and its subsidiaries taken as a whole. However, none of the following events, either alone or in combination, will
constitute a Company Material Adverse Effect or will be taken into account in determining whether a Company Material Adverse Effect
has occurred or may, or would, occur:
| 1. | changes affecting the financial, credit or other securities
or capital markets, or in general economic, business, regulatory, legislative or political
conditions in any country or region in which the Company or any of its subsidiaries conduct
business, including changes in interest rates and foreign exchange rates; |
| 2. | changes in U.S. GAAP or any interpretation thereof after
the date hereof; |
| 3. | changes in applicable law, directives or policies of a governmental
authority of general applicability, or any interpretation, implementation or enforcement
thereof, that are binding on the Company or any of its subsidiaries; |
| 4. | changes that are the result of factors generally affecting
the industries and markets in which the Company and its subsidiaries operate; |
| 5. | effects resulting from the announcement, pendency or consummation
of the Merger Agreement or the identity of Parent and its affiliates, including, without
limitation, the initiation of litigation or other legal proceeding related to the Merger
Agreement or the Transactions, or any loss of or change in relationship with any customer,
supplier, employee, vendor or other business partner of the Company; |
| 6. | any failure by the Company or any of its subsidiaries to meet
any analyst estimates or expectations of the Company’s or such subsidiary’s
revenue, earnings or other financial performance or results of operations for any period,
or any failure by the Company or any of its subsidiaries to meet its internal or published
projections, estimates, budgets, plans or forecasts of its revenues, earnings or other
financial performance measures, operating statistics or results of operations (it being
understood that the facts or occurrences giving rise to or contributing to such failure
that are not otherwise excluded from the definition of “Company Material Adverse
Effect” may be taken into account in determining whether there has been a Company
Material Adverse Effect); |
| 7. | natural or man-made disasters, acts of sabotage or terrorism,
declarations, outbreaks or escalations of war or major hostilities, or other force majeure
events; |
| 8. | changes in the market price or trading volume of ordinary
shares of the Company or ADSs (it being understood that the facts or occurrences giving
rise to or contributing to such changes that are not otherwise excluded from the definition
of “Company Material Adverse Effect” may be taken into account in determining
whether there has been a Company Material Adverse Effect); or |
| 9. | any acts or omissions of the Company or any of its subsidiaries
taken, directly or indirectly, at the direction or request of, or with the consent of,
Parent or any officer or director of Parent, or at the request of Parent, |
provided that the facts, events, circumstances, developments,
conditions, changes, occurrences or effects set forth in clauses (1), (2), (3), (4) and (7) above may be taken into account in
determining whether a “Company Material Adverse Effect” has occurred or reasonably would be expected to occur if and
to the extent such facts, events, circumstances, developments, conditions, changes, occurrences or effects individually or in
the aggregate have a materially disproportionate impact on the Company and its subsidiaries, taken as a whole, relative to the
other participants in the industries in which the Company and its subsidiaries conduct their businesses.
The representations and warranties made
by Parent and Merger Sub to the Company include representations and warranties relating to, among other things:
| · | their due organization,
existence and good standing and authority to carry on their businesses; |
| · | their memorandum
and articles of association being in full force and effect; |
| · | their corporate
power and authority to execute, deliver and perform their obligations under the Merger
Agreement and to consummate the Transactions, and the enforceability of the Merger Agreement
against them; |
| · | the absence
of violations of, or conflicts with, the governing documents of Parent or Merger Sub,
laws applicable to Parent or Merger Sub and certain agreements of Parent or Merger Sub
as a result of Parent and Merger Sub entering into and performing under the Merger Agreement
and consummating the Transactions; |
| · | governmental
consents and approvals in connection with performance under the Merger Agreement and
the Transactions; |
| · | the absence
of any secured creditors of Merger Sub; |
| · | capitalization
of Parent and Merger Sub, Parent ownership of Merger Sub and the operations of Parent
and Merger Sub; |
| · | sufficiency
of funds in the financing to pay the Merger Consideration and any other amounts required
to be paid in connection with the consummation of the Transactions; |
| · | the absence
of any undisclosed broker’s or finder’s fees; |
| · | the validity
of the Limited Guarantees and the lack of any default thereunder; |
| · | the absence
of legal proceedings against Parent or Merger Sub or any of their respective affiliates; |
| · | the absence
of undisclosed ordinary shares of the Company or other securities of, any rights to acquire
the ordinary shares of the Company or other securities of, or any other economic interest
in, the Company, beneficially owned by Parent or Merger Sub; |
| · | solvency of
the Surviving Corporation immediately after giving effect to the Transactions; |
| · | the absence
of certain agreements or arrangements among (a) Parent, Merger Sub, any Rollover Shareholder,
any Sponsor or any of their respective affiliates or (b) Parent, Merger Sub, any Rollover
Shareholder, any Sponsor or any of their respective affiliates, on the one hand, and
any member of the Board, member of the Company’s management or a shareholder of
the Company, on the other hand; and |
| · | independent
investigation conducted by Parent and Merger Sub of the business, operations, assets,
liabilities, results of operations, financial condition and prospects of the Company
and its subsidiaries. |
Conduct of Business Prior to Closing
Under the Merger Agreement, the Company
has agreed that, subject to certain exceptions, from the date of the Merger Agreement until the Effective Time: (a) the businesses
of the Company and its subsidiaries will be conducted in the ordinary course of business and in a manner consistent with past
practice; and (b) the Company and each of its subsidiaries will use their reasonable best efforts to preserve intact their existing
assets in all material respects, preserve substantially intact their business organization, keep available the services of their
current officers and key employees, and maintain and preserve intact in all material respects their current relationships with
customers, suppliers and distributors with which the Company or any of its subsidiaries has material business relations.
In addition, from the date of the Merger
Agreement until the Effective Time, without the prior written consent of Parent, the Company will not, and will not permit any
of its subsidiaries to, among other things:
| · | amend its organizational
or governing documents; |
| · | other than
in connection with the exercise of any Company Options, Company Restricted Shares or
Company RSUs under the Company’s share incentive plans, issue, sell, pledge, terminate
or dispose of, or grant a lien on or permit a lien to exist on (or authorize any of the
foregoing with respect to): (a) any share capital or other ownership interests of the
Company or any of its subsidiaries, or any agreement, contract or instrument amounting
to control over, or enabling control of, the Company or any of its subsidiaries, or (b)
any options, warrants, convertible securities or other rights of any kind to acquire
any share capital or other ownership interest (including any phantom interest) of the
Company or any of its subsidiaries; |
| · | (a) sell, pledge
or dispose of, (b) grant a lien on or permit a lien to exist on, or (c) authorize the
sale, pledge or disposition of, or granting or placing of a lien on, any assets of the
Company or any of its subsidiaries having a current value in excess of US$50,000,000,
except in the ordinary course of business and in a manner consistent with past practice; |
| · | declare, set
aside, make or pay any dividend or other distribution, payable in cash, shares, property
or otherwise, with respect to any of its share capital, except for dividends by any of
the Company’s direct or indirect wholly owned subsidiaries to the Company or any
of its other wholly owned subsidiaries; |
| · | adjust, reclassify,
combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly,
any of its share capital, in each case other than in connection with an acquisition in
connection with the forfeiture of Company Options, Company Restricted Shares or Company
RSUs or an acquisition in connection with the net exercise of Company Options in accordance
with the terms thereof; |
| · | (a) acquire
(including by merger, consolidation or acquisition of shares or assets or any other business
combination) any corporation, partnership, other business organization or any division
thereof or any assets, except for any such acquisitions for consideration not exceeding
US$50,000,000; (b) incur any indebtedness or issue any debt securities or assume, guarantee
or endorse, or otherwise become responsible for, the obligations of any person, or make
any loans or advances or capital contribution to, or investment in, any person, except
(i) for indebtedness the outstanding amount of which (after deducting the aggregate amount
of cash and cash equivalents held by the Company and its subsidiaries) does not exceed
US$200,000,000 or its equivalent in the aggregate for the Company and its subsidiaries
or (ii) under the Company’s or any of its subsidiaries’ existing credit facilities
as in effect on the date hereof in an aggregate amount not to exceed the maximum amount
authorized under the contracts evidencing such indebtedness (including any renewal, extension,
refinancing or replacement of such contracts on substantially the same or similar terms);
(c) authorize, or make any commitment with respect to, any single capital expenditure
which is in excess of US$10,000,000 or capital expenditures which are, in the aggregate,
in excess of US$50,000,000 for the Company and its subsidiaries, taken as a whole, other
than expenditures necessary to maintain existing assets in good repair and working condition,
consistent with past practice; or (d) amend any contract to effect any matter set
forth above; |
| · | establish any
new subsidiary; |
| · | engage in the
conduct of any new line of business material to the Company and its subsidiaries, taken
as a whole, outside of the Company’s existing business segments; |
| · | make any material
changes with respect to accounting policies or procedures materially affecting the reported
consolidated assets, liabilities or results of operations of the Company and its subsidiaries,
except as required by changes in applicable generally accepted accounting principles
or law; |
| · | settle any
proceeding, other than settlements (a) in the ordinary course of business and consistent
with past practice, (b) requiring the Company and its subsidiaries to pay monetary damages
not exceeding US$10,000,000, and (c) not involving the admission of any wrongdoing by
the Company or any of its subsidiaries; |
| · | enter into
or materially amend or modify, terminate or consent to the termination of any material
contract, or amend, waive, modify, terminate or consent to the termination of the Company’s
or any of its subsidiaries’ material rights thereunder, other than in the ordinary
course of business and consistent with past practice; |
| · | make or change
any material tax election, materially amend any tax return (except as required by applicable
law), enter into any material closing agreement with respect to taxes, surrender any
right to claim a material refund of taxes, settle or finally resolve any material controversy
with respect to taxes or materially change any method of tax accounting; |
| · | (a) abandon,
fail to maintain, or allow to lapse, including by failure to pay the required fees in
any jurisdiction, or disclaim, dedicate to the public, sell, assign or grant any security
interest in, to or under any material intellectual property used in or necessary to conduct
the business of the Company and its subsidiaries; (b) grant to any third party any license,
or enter into any covenant not to sue, with respect to any such intellectual property,
except non-exclusive licenses in the ordinary course of business consistent with past
practice; (c) develop, create or invent any intellectual property jointly with any third
party, except under existing arrangements or in the ordinary course of business; (d) disclose
or allow to be disclosed any material confidential information or material confidential
intellectual property used in or necessary to conduct the business of the Company and
its subsidiaries to any person, other than employees of the Company or its subsidiaries
that are subject to a confidentiality or non-disclosure covenant protecting against further
disclosure thereof, except under existing arrangements or in the ordinary course of business
consistent with past practice; or (e) fail to notify Parent promptly of any material
infringement, misappropriation, unauthorized disclosure or other violation of or conflict
with any material intellectual property used in or necessary to conduct the business
of the Company and its subsidiaries of which the Company or any of its subsidiaries becomes
aware and to reasonably consult with Parent regarding the actions (if any) to take to
protect such intellectual property; |
| · | except as required
pursuant to existing written plans or contracts in effect as of the date hereof, or as
otherwise required by applicable law or carried out in the ordinary course of business
consistent with past practice, (a) enter into any new employment or compensatory agreements
(including the renewal of any consulting agreement) with any executive officer or director
of the Company or any of its wholly owned subsidiaries; (b) increase the compensation,
bonus or pension, welfare, severance or other benefits of, pay any bonus to, or make
any new equity awards to any director, employee or consultant of the Company or any of
its subsidiaries; (c) establish, adopt, materially amend or terminate any material
benefit or compensation plan (except as required by law) or materially amend the terms
of any outstanding equity-based awards (except as contemplated by the Merger Agreement);
(d) take any action to accelerate the vesting or payment, or fund or in any other way
secure the payment, of material compensation or benefits under any benefit or compensation
plan, to the extent not already required in any such plan or contemplated by the Merger
Agreement; (e) materially change any actuarial or other assumptions used to calculate
funding obligations with respect to any employee benefit or compensation plan or to materially
change the manner in which contributions to such plans are made or the basis on which
such contributions are determined, except as may be required by U.S. GAAP; (f) forgive
any loans to directors, officers or employees of the Company or any of its subsidiaries;
or (g) enter into any collective bargaining agreement or similar labor agreement; |
| · | fail to keep
in force material insurance policies providing insurance coverage with respect to the
assets, operations and activities of the Company or any of its subsidiaries as are currently
in effect; |
| · | take any action
that is intended, or would reasonably be expected, to result in any of the conditions
to the closing of the Merger not being satisfied; |
| · | fail to make
in a timely manner any filings with the SEC required under the Securities Act of 1933,
as amended, or the Exchange Act, or the rules and regulations promulgated thereunder;
or |
| · | agree, authorize,
commit, or enter into any formal agreement to do any of the foregoing. |
No Solicitation of Competing Transactions
The Company has agreed that, until the
earlier of the Effective Time or the termination of the Merger Agreement, neither it nor any of its subsidiaries will, and the
Company will instruct and cause its and its subsidiaries’ representatives not to, directly or indirectly:
| · | solicit, initiate
or purposefully encourage (including by way of furnishing nonpublic information concerning
the Company or any of its subsidiaries), or take any other action to purposefully facilitate,
any inquiries or the making of any proposal or offer that constitutes, or that in the
Company’s good-faith judgment could reasonably be expected to lead to, any Competing
Transaction; |
| · | enter into,
maintain or continue discussions or negotiations with, or provide any non-public information
concerning the Company or any of its subsidiaries to, any third party in furtherance
of such inquiries or to obtain such a proposal or offer for a Competing Transaction,
or that in the Company’s good-faith judgment could reasonably be expected to lead
to a Competing Transaction; |
| · | agree to, approve,
endorse, recommend or consummate any Competing Transaction or enter into any letter of
intent or contract (other than a confidentiality agreement that contains provisions that
are no less favorable in the aggregate to the Company than those contained in the existing
confidentiality agreements between the Company and each of the Sponsors, which does not
include any provisions calling for any exclusive right to negotiate with such party or
having the effect of prohibiting the Company from satisfying its obligations under the
Merger Agreement), or commitment contemplating or otherwise relating to any Competing
Transaction; |
| · | grant any waiver,
amendment or release under any standstill, confidentiality or similar agreement or anti-takeover
law (and the Company will promptly take all action necessary to terminate or cause to
be terminated any such waiver previously granted with respect to any provision of any
such confidentiality, standstill or similar agreement or anti-takeover law and to enforce
each such confidentiality, standstill and similar agreement); or |
| · | authorize or
permit any of the representatives of the Company or any of its subsidiaries to do any
of the foregoing. |
As used herein and for purposes of the
Merger Agreement, a “Competing Transaction” means any of the following (other than the Transactions): (a) any
merger, consolidation, share exchange, business combination, scheme of arrangement, amalgamation, recapitalization, liquidation,
dissolution or other similar transaction involving the Company or any of its subsidiaries whose assets, individually or in the
aggregate, constitute 15% or more of the consolidated assets of the Company or to which 15% or more of the total revenue or net
income of the Company are attributable; (b) any sale, lease, exchange, transfer or other disposition of assets or businesses
that constitute or represent 15% or more of the total revenue, net income or assets of the Company and its subsidiaries, taken
as a whole; (c) any sale, exchange, transfer or other disposition of 15% or more of any class of equity securities of the
Company, or securities convertible into or exchangeable for 15% or more of any class of equity securities of the Company; (d) any
tender offer or exchange offer that, if consummated, would result in any person beneficially owning 15% or more of any class of
equity securities of the Company; or (e) any combination of the foregoing.
The Company has agreed to notify Parent
as promptly as practicable (and in any event within two business days after the Company has knowledge thereof) of any proposal
or offer, or any inquiry or contact with any person, regarding a Competing Transaction or that in the Company’s good-faith
judgment could reasonably be expected to lead to a Competing Transaction, specifying the material terms and conditions thereof
(including material amendments or proposed material amendments) and the identity of the party making such proposal or offer or
inquiry or contact, and providing copies of any written requests, proposals or offers, including proposed amendments, if applicable.
The Company must also keep Parent informed, on a reasonably current basis (and in any event within two business days of the occurrence
of any material changes, developments, discussions or negotiations), of the status and the terms of any such proposal, offer,
inquiry, contact or request and of any material changes in the status and terms of any such proposal, offer, inquiry, contact
or request (including the material terms and conditions thereof). The Company is required to provide Parent with 24 hours’
prior notice (or such lesser prior notice as is provided to the directors of the Company or members of the Special Committee)
of any meeting of the Board or Special Committee at which the Board or the Special Committee, as applicable, is reasonably expected
to consider any Competing Transaction.
The Company has agreed (a) to immediately
cease and terminate all existing discussions or negotiations with any parties conducted as of the date of the Merger Agreement
with respect to a Competing Transaction and (b) not to, and will cause its subsidiaries not to, enter into any confidentiality
agreement with any third party subsequent to the date of the Merger Agreement that prohibits the Company from providing the information
discussed above to Parent.
Notwithstanding the above, prior to receipt
of the affirmative vote of shareholders holding two-thirds or more of the voting power represented by the ordinary shares of the
Company present and voting in person or by proxy as a single class at the extraordinary general meeting in favor of the Merger
Agreement and the Merger (the “Requisite Company Vote”), following the receipt of an unsolicited, written, bona
fide proposal or offer regarding a Competing Transaction that was not obtained in violation of the Company’s “no-shop”
obligations under the Merger Agreement described above (other than any immaterial non-compliance that does not adversely affect
Parent or Merger Sub), the Company and its representatives may, acting under the recommendation of the Special Committee (a) contact
the person who has made such proposal or offer to clarify and understand the terms and conditions thereof to the extent the Special
Committee has determined in good faith that such contact is necessary to determine whether such proposal or offer constitutes
a Superior Proposal (as defined below) or could reasonably be expected to result in a Superior Proposal; (b) provide information
in response to the request of the person who has made such proposal or offer if such person has executed an acceptable confidentiality
agreement satisfying the requirements of the Merger Agreement (provided that the Company will concurrently make available to Parent
any information concerning the Company and its subsidiaries that is provided to any such person and that was not previously made
available to Parent or its representatives); and (c) engage or participate in any discussions or negotiations with such person.
In each such case referred to in clauses (b) and (c) above, the Board (acting only upon recommendation of the Special
Committee) or the Special Committee must have (i) determined, in its good-faith judgment, after consultation with its financial
advisor and outside legal counsel that such proposal or offer constitutes or could reasonably be expected to result in a Superior
Proposal, (ii) determined, in its good-faith judgment, after consultation with its financial advisor and outside legal counsel,
that, in light of such Superior Proposal, failure to take such action would be inconsistent with its fiduciary duties under applicable
law, and (iii) provided written notice to Parent at least two business days prior to taking any such action.
As used herein and for purposes of the
Merger Agreement, a “Superior Proposal” means a bona fide written proposal or offer with respect to a Competing
Transaction, which was not obtained in violation of the Company’s “no-shop” obligations under the Merger Agreement
described above, that would result in any person (or its shareholders, members or other equity owners) becoming the beneficial
owner, directly or indirectly, of more than 50% of the assets (on a consolidated basis), or more than 50% of the total voting
power of the equity securities, of the Company that the Board (acting only upon the recommendation of the Special Committee) or
the Special Committee has determined in its good-faith judgment (after consultation with its financial advisor and outside legal
counsel) (a) is reasonably likely to be consummated in accordance with its terms without significant delay, taking into account
all legal, financial and regulatory aspects of the proposal (including financing, regulatory or other consents and approvals,
shareholder litigation, the identity of the person making the proposal, breakup or termination fee and expense reimbursement provisions,
expected timing, risk and likelihood of consummation and other relevant events and circumstances) and (b) would, if consummated,
result in a transaction more favorable to the Company’s shareholders (other than the Rollover Shareholders) from a financial
point of view than the Transactions; provided that no offer or proposal will be deemed to be a “Superior Proposal”
if any financing required to consummate the transaction contemplated by such offer or proposal is not fully committed or if the
receipt of any such financing is a condition to the consummation of such transaction, or if the Company’s recourse in the
event such transaction is not consummated because of the failure to obtain financing is less favorable to the Company in any material
respect than the Company’s recourse in such an event under the Merger Agreement.
No Change of Recommendation
The Board, acting upon the unanimous recommendation
of the Special Committee made on April 3, 2015, unanimously resolved to recommend in favor of the authorization and approval of
the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, to the shareholders of
the Company. Under the terms of the Merger Agreement, neither the Board nor any committee of the Board may:
| · | (a) change,
withhold, withdraw, qualify or modify (or publicly propose to do so), in a manner adverse
to Parent or Merger Sub, the Board’s recommendation in favor of the proposal to
authorize and approve the Merger Agreement, the Plan of Merger and the Transactions (which
is referred to as the “Company Recommendation”); (b) fail to include
the Company Recommendation in this proxy statement; (c) adopt, approve or recommend
(or publicly propose to do so) a Competing Transaction to the Company’s shareholders;
(d) if a tender offer or exchange offer that constitutes a Competing Transaction
is commenced, fail to publicly recommend against acceptance of such tender offer or exchange
offer by the Company shareholders (including, for these purposes, by disclosing that
it is taking no position with respect to the acceptance of such tender offer or exchange
offer by its shareholders, provided that a customary “stop, look and listen”
communication by the Board or a statement that the Board has received and is currently
evaluating such Competing Transaction will not be prohibited or be deemed to be a Change
in the Company Recommendation) within 10 business days after the commencement thereof;
(e) fail to recommend against any Competing Transaction subject to Regulation 14D
under the Exchange Act in a Solicitation/Recommendation Statement on Schedule 14D-9 within
10 business days after the commencement thereof; or (f) fail to publicly reaffirm
the Company Recommendation following any Competing Transaction having been publicly made,
proposed or communicated (and not publicly withdrawn) within 10 business days after Parent
so requests in writing (any of the foregoing is referred to as a “Change in the
Company Recommendation”); or |
| · | cause or permit
the Company or any of its subsidiaries to enter into any letter of intent, memorandum
of understanding, agreement in principle, merger agreement, acquisition agreement or
other or similar document or contract with respect to any Competing Transaction, other
than an acceptable confidentiality agreement satisfying the requirements of the Merger
Agreement (which is referred to as an “Alternative Acquisition Agreement”). |
If, however, from the date of the Merger
Agreement and prior to obtaining the Requisite Company Vote, the Company receives a bona fide written proposal or offer
with respect to a Competing Transaction that was not obtained in violation of the “no-shop” obligations under the
Merger Agreement described above (other than any immaterial non-compliance that does not adversely affect Parent or Merger Sub)
and the Board (acting only upon the recommendation of the Special Committee) or the Special Committee determines in its good-faith
judgment (after consultation with its financial advisor and outside legal counsel) that such proposal or offer constitutes a Superior
Proposal and failure to make a Change in the Company Recommendation with respect to such Superior Proposal would be inconsistent
with its fiduciary duties under applicable law, the Board (acting only upon the recommendation of the Special Committee) or the
Special Committee (to the extent it is within the authority of the Special Committee) may effect a Change in the Company Recommendation
and/or authorize the Company to enter into an Alternative Acquisition Agreement with respect to the Superior Proposal, but only:
| · | if the Company
has complied with the “no-shop” obligations under the Merger Agreement with
respect to such proposal or offer; |
| · | after providing
at least five business days’ written notice to Parent advising Parent that the
Board or the Special Committee, as applicable, has received a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal (and providing any proposed
agreements related thereto), identifying the person making such Superior Proposal and
indicating that the Board or the Special Committee (to the extent it is within the authority
of the Special Committee), as applicable, intends to effect a Change in the Company Recommendation
and the manner in which it intends (or may intend) to do so; |
| · | after negotiating
with and causing its financial and legal advisors to negotiate with Parent, Merger Sub
and their respective representatives in good faith (to the extent Parent desires to negotiate)
to make such adjustments in the terms and conditions of the Merger Agreement and the
equity financing, so that such third-party proposal or offer would cease to constitute
a Superior Proposal, and permitting Parent and its representatives to make a presentation
to the Board and the Special Committee regarding the Merger Agreement, the equity financing
and any adjustments with respect thereto (to the extent Parent desires to make such presentation);
provided that any material modifications to a third-party proposal or offer that the
Board or the Special Committee, as applicable, has determined to be a Superior Proposal
will be deemed a new Superior Proposal for which the Company must comply with the notice
and other obligations described above; provided further, that with respect to such new
Superior Proposal, the notice period will be deemed to be a three business day period;
and |
| · | following the
end of such five business day period or three business day period (as applicable), the
Board (acting only upon the recommendation of the Special Committee) or the Special Committee
has determined in its good-faith judgment (after consultation with its financial advisor
and outside legal counsel), taking into account any changes to the Merger Agreement and
the equity financing proposed by Parent and Merger Sub in response to the notice of Superior
Proposal or otherwise, that the proposal or offer with respect to the Competing Transaction
giving rise to the notice of Superior Proposal continues to constitute a Superior Proposal. |
In addition, the Company has agreed
not to enter into any agreement with respect to a Superior Proposal unless the Company has concurrently paid to Parent the termination
fee as described in further detail in “—Termination Fee and Reimbursement of Expenses” beginning on page 102.
The Board (acting upon the recommendation
of the Special Committee) or the Special Committee may also effect a Change in the Company Recommendation if, from the date of
the Merger Agreement and prior to obtaining the Requisite Company Vote, an Intervening Event (as defined below) occurs and the
Board or the Special Committee, as applicable, determines in its good-faith judgment upon advice of outside legal counsel engaged
by the Special Committee that the failure to take such action would reasonably be expected to breach its fiduciary duties under
applicable law.
As used herein and for purposes of the
Merger Agreement, an “Intervening Event” means a material event, development or change with respect to the Company
and its subsidiaries or the business of the Company and its subsidiaries that (a) is unknown by the Board and the Special
Committee as of or prior to the date of the Merger Agreement and (b) occurs, arises or becomes known to the Board or the
Special Committee after the date of the Merger Agreement and on or prior to the receipt of the Requisite Company Vote; provided
that the receipt by the Company of a Competing Transaction or Superior Proposal will not be deemed to constitute an Intervening
Event.
Shareholders Meeting
The Company has agreed that unless
the Merger Agreement is terminated (a) the Company will duly convene and cause to occur within 30 days after the date of the mailing
of this proxy statement to the Company’s shareholders an extraordinary general meeting for the purpose of obtaining shareholder
authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger; (b) the Board
will recommend that the Company’s shareholders vote to authorize and approve the Merger Agreement, the Plan of Merger and
the Transactions (unless, as described in “—No Change of Recommendation” on page 94, a Change in the Company
Recommendation has occurred) and such recommendation will be included this proxy statement; and (c) the Company will use its reasonable
best efforts to solicit from its shareholders proxies in favor of the proposal to authorize and approve the Merger Agreement,
the Plan of Merger and the Transactions, and take all other actions necessary or advisable to secure the required shareholder
authorization and approval.
The Company may, after consultation
in good faith with Parent, recommend the adjournment of the extraordinary general meeting to its shareholders: (a) to the
extent necessary to ensure that any required supplement or amendment to this proxy statement is provided to the holders of ordinary
shares of the Company within a reasonable amount of time in advance of the extraordinary general meeting; (b) as otherwise
required by applicable law; (c) if as of the time for which the extraordinary general meeting is scheduled as set forth in
this proxy statement, there are insufficient ordinary shares of the Company represented (in person or by proxy) to constitute
a quorum necessary to conduct the business of the extraordinary general meeting; or (d) if an Intervening Event has occurred
and the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines, in its good-faith
judgment upon advice by outside legal counsel engaged by the Special Committee, that the failure to take such action would reasonably
be expected to breach its fiduciary duties under applicable law. If the extraordinary general meeting is adjourned, the Company
will convene and hold the extraordinary general meeting as soon as reasonably practicable thereafter, subject to the immediately
preceding sentence; provided that the Company will not recommend to its shareholders the adjournment of the extraordinary general
meeting to a date that is less than five business days prior to the Termination Date.
Parent may request that the Company adjourn
or postpone the extraordinary general meeting for up to 90 days (but in any event no later than five business days prior to the
Termination Date) (a) if as of the time for which the extraordinary general meeting is originally scheduled (as set forth
in this proxy statement) there are insufficient ordinary shares of the Company represented (either in person or by proxy) (i) to
constitute a quorum necessary to conduct the business of the extraordinary general meeting or (ii) voting in favor of approval
of the Merger Agreement, the Plan of Merger and the Transactions to obtain the Requisite Company Vote in favor of the Merger Agreement,
the Plan of Merger and the Transactions; or (b) in order to allow reasonable additional time for (i) the filing and
mailing of, at the reasonable request of Parent, any supplemental or amended disclosure and (ii) such supplemental or amended
disclosure to be disseminated and reviewed by the Company’s shareholders prior to the extraordinary general meeting, in
which event the Company will, in each case, cause the extraordinary general meeting to be adjourned in accordance with Parent’s
request.
Indemnification; Directors’ and Officers’ Insurance
Pursuant to the Merger Agreement, Parent
and Merger Sub have agreed that:
| · | The indemnification,
advancement and exculpation provisions of certain indemnification agreements by and among
the Company and its directors and certain executive officers, as in effect at the Effective
Time, will survive the Merger and may not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of the current or former directors or officers of the Company
or any of its subsidiaries. |
| · | The memorandum
and articles of association of the Surviving Corporation will contain provisions no less
favorable to the directors, officers or employees of the Company with respect to exculpation
and indemnification of liability and advancement of expenses than are set forth in the
memorandum and articles of association of the Company as in effect on the date of the
Merger Agreement, which provisions will not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would affect adversely
the rights thereunder of individuals who, at or prior to the Effective Time, were directors,
officers, employees, fiduciaries or agents of the Company, unless such modification is
required by law. |
| · | The Surviving
Corporation will, and Parent will cause the Surviving Corporation to, maintain in effect
for six years from the Effective Time the current directors’ and officers’
liability insurance policies maintained by the Company with respect to matters occurring
prior to the Effective Time on terms with respect to coverage and amount no less favorable
to the indemnified parties than the existing insurance; provided that the Surviving Corporation
will not be required to expend in any one year an amount in excess of 300% of the current
annual premium paid by the Company for such insurance. If the annual premium for such
insurance exceeds 300% of the current annual premium paid by the Company for such insurance,
the Surviving Corporation must obtain a policy with the greatest coverage for a cost
not exceeding such amount. In addition, the Company may and, at Parent’s request,
the Company will, purchase a six-year “tail” prepaid policy prior to the
Effective Time on terms, conditions, retentions and limits of liability no less advantageous
to the indemnified parties than the existing directors’ and officers’ liability
insurance maintained by the Company. If a “tail” prepaid policy has been
obtained by the Company prior to the closing of the Merger, the Surviving Corporation
will (and Parent will cause the Surviving Corporation to) maintain the policy in full
force and effect, and continue to honor the obligations thereunder. |
| · | From
and after the Effective Time, the Surviving Corporation will (and Parent will cause the
Surviving Corporation to) comply with all of the Company’s obligations and cause
its subsidiaries to comply with their respective obligations to indemnify and hold harmless
(including obligations to advance funds or expenses): (a) the indemnified parties
against all kinds of Damages (as defined in the Merger Agreement) arising out of, relating
to or in connection with (i) the fact that such party is or was a director, officer
or employee of the Company or any of its subsidiaries, or (ii) any acts or omissions
occurring or alleged to have occurred prior to or at the Effective Time to the extent
provided under the Company’s or its subsidiaries’ respective organizational
and governing documents or agreements in effect on the date of the Merger Agreement and
to the fullest extent permitted by the Cayman Islands Companies Law or any other applicable
law, and (b) such persons against all kinds of damages arising out of acts or omissions
in such person’s official capacity as an officer, director or other fiduciary of
the Company or any of its subsidiaries if such service was at the request or for the
benefit of the Company or any of its subsidiaries. |
| · | Upon
being served with any summons, citation, subpoena, complaint, indictment, information,
or other document relating to any proceeding which may result in the payment or advancement
of any amounts described above, the organizational and governing documents of the Company
or any of its subsidiaries, or any existing indemnification agreements, the person seeking
indemnification must notify the Surviving Corporation no later than the earlier of (a)
five days after actual receipt, and (b) as soon as necessary after actual receipt to
prevent the Surviving Corporation or any of its subsidiaries from being materially and
adversely prejudiced by late notice. The surviving company (or a subsidiary nominated
by it) will have the right to participate in any such proceeding and, at its option,
assume the defense of such proceeding. The person seeking indemnification will have the
right to effectively participate in the defense and/or settlement of such proceeding,
including receiving copies of all correspondence and participating in all meetings and
teleconferences concerning the proceeding. In the event the Surviving Corporation (or
a subsidiary nominated by it) assumes the defense of any proceeding, neither the Surviving
Corporation nor any of its subsidiaries will be liable to the person seeking indemnification
for any fees of counsel subsequently incurred by such person with respect to the same
proceeding. |
Financing
As of the date of the Merger Agreement,
Parent has delivered to the Company true and complete copies of the executed Equity Commitment Letters from the Sponsors, pursuant
to which each of the Sponsors committed to purchase, or cause the purchase of, for cash, subject to the terms and conditions therein,
equity securities of Parent in the aggregate amount set forth therein.
Each of Parent and Merger Sub will use
their reasonable best efforts to (a) obtain the equity financing for the Merger on the terms and conditions described in the equity
commitment letters; (b) maintain in effect the equity commitment letters until the Transactions are consummated; (c) satisfy
all conditions in the equity commitment letters that are within its control on a timely basis; (d) consummate the equity
financing at or prior to the Effective Time; and (e) enforce the funding obligations under the equity commitment letters.
Parent and/or Merger Sub may amend or
modify the equity commitment letters so long as (a) the aggregate proceeds of the equity financing will be sufficient for
Parent and the Surviving Corporation to pay (i) the Merger Consideration and (ii) any other amounts required under the Merger
Agreement to be paid in connection with the consummation of the Transactions and (b) such amendment or modification would
not prevent, materially delay or materially impede or impair (i) the ability of Parent and Merger Sub to consummate the Transactions
or (ii) the rights and benefits of the Company under the equity commitment letters. Parent will deliver to the Company true and
complete copies of such amendment or modification as promptly as practicable after its execution. In the event any portion of
the equity financing becomes unavailable on the terms and conditions of the equity commitment letters, Parent will promptly notify
the Company.
Parent and Merger Sub have agreed not
to amend, modify or waive any provision of the equity commitment letters, if such amendment, modification or waiver reduces (or
would reduce) the aggregate amount of the equity financing or impose new or additional conditions that would be expected to prevent
or materially delay or otherwise materially and adversely affect the ability of Parent or Merger Sub to consummate the Transactions.
Parent will give the Company prompt notice (a) upon becoming aware of any breach of any material provision of the equity commitment
letters or termination of any such equity commitment letter or (b) upon the receipt of any written notice from any party to an
equity commitment letter with respect to any threatened breach of any material provision of the equity commitment letters or threatened
termination of any such equity commitment letters.
Agreement to Use Reasonable Best Efforts
The parties (and their respective representatives)
to the Merger Agreement have agreed to coordinate with one another and use reasonable best efforts to take all appropriate actions
and do all things necessary, proper or advisable to consummate and make effective the Transactions; provided that no party will
be required to take any action if such action would have a Company Material Adverse Effect.
Certain Additional Covenants
Pursuant to the terms of the Merger Agreement,
the Company, Parent and Merger Sub have agreed to certain additional covenants related to the following:
| · | the filing
of this proxy statement and the Schedule 13E-3 with the SEC (and cooperation in response
to any comments from the SEC); |
| · | access by Parent
and its authorized representatives to the offices, properties, books and records of the
Company or any of its subsidiaries and other information between the date of the Merger
Agreement and the earlier of the Effective Time and termination of the Merger Agreement
(subject to all applicable legal or contractual obligations and restrictions); |
| · | notification
of certain events; |
| · | for Parent
to take all action necessary to cause Merger Sub to perform its obligations under the
Merger Agreement and to consummate the Transactions; |
| · | participation
in the defense and settlement of any shareholder litigation relating to the Merger Agreement
or the Transactions; |
| · | delivery to
Parent of the resignation of the directors of the Company or any of its subsidiaries
designated by Parent on the closing date of the Merger; |
| · | consultation
with respect to press releases and other public announcements relating to the Merger
Agreement and the Transactions; |
| · | delisting by
the Surviving Corporation from the NASDAQ and the de-registration of the Class A ordinary
shares and ADSs under the Exchange Act as promptly as practicable after the Effective
Time; |
| · | elimination
or minimization of the effects of certain takeover statutes; |
| · | for the Company,
using its commercially reasonable efforts to assist in the preparation of applications
to the State Administration of Foreign Exchange (“SAFE”) and causing its
PRC subsidiaries (to the extent applicable) to comply with the requirements of SAFE rules;
and |
| · | restrictions
on Parent, Merger Sub and the Parent Group (as defined in the Merger Agreement) entering
into or amending, modifying, withdrawing or terminating contracts with the Parent Group
or any contract pursuant to which any management members, directors or shareholders of
the Company, or any of their respective affiliates receives any consideration or other
economic value from any person in connection with the Transactions that is not provided
or expressly contemplated in existing contracts as of the date of the Merger Agreement. |
Conditions to the Merger
The obligations of the Company, Parent
and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of the following mutual conditions:
| · | the Merger
Agreement, the Plan of Merger and the Transactions being authorized and approved by the
holders of ordinary shares of the Company constituting the Requisite Company Vote at
the extraordinary general meeting; and |
| · | no governmental
authority of competent jurisdiction having enacted, issued, promulgated, enforced or
entered any law or award, writ, injunction, determination, rule, regulation, judgment,
decree or executive order, whether temporary, preliminary or permanent, that is in effect
and has or would have the effect of enjoining, restraining, prohibiting or otherwise
making illegal the consummation of the Transactions, and the consummation of the Transactions
not being subject to any requirement to obtain any regulatory approval under the Anti-monopoly
Law of the PRC. |
The obligations of Parent and Merger Sub
to consummate the Merger are also subject to the satisfaction, or waiver, of the following conditions:
| · | (a) representations
and warranties of the Company in the Merger Agreement regarding the Company’s power
and authority to enter into the Merger Agreement and consummate the Transactions, the
Board’s determination and recommendation with respect to the Merger, and the vote
required in connection with the Merger being true and correct in all material respects;
(b) representations and warranties of the Company in the Merger Agreement regarding the
Company’s capitalization being true and correct in all but de minimis respects;
and (c) each of the other representations and warranties of the Company set forth in
the Merger Agreement being true and correct in all respects as of the date of the Merger
Agreement and as of the closing date of the Merger, as if made on such date and time,
in each case without giving effect to any qualification as to “materiality”
or “Company Material Adverse Effect;” except in the case of (c) above, where
the failure of such representations and warranties to be true and correct would not constitute
a Company Material Adverse Effect; |
| · | the Company
having 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 date of the Merger; |
| · | since the date
of the Merger Agreement, there not having occurred a Company Material Adverse Effect; |
| · | the Company
having delivered to Parent a certificate, dated the closing date of the Merger, signed
by a senior executive officer of the Company, certifying as to the satisfaction of the
above conditions; and |
| · | the holders
of no more than 10% of the ordinary shares of the Company having validly exercised dissenters’
rights under the Cayman Islands Companies Law. |
The obligations of the Company to consummate
the Merger are also subject to the satisfaction, or waiver by the Company, of the following conditions:
| · | the representations
and warranties of Parent and Merger Sub in the Merger Agreement (without giving effect
to qualification by “materiality”) being true and correct in all respects
as of the date of the Merger Agreement and as of the closing date of the Merger, as if
made on and at such date and time (other than representations and warranties that by
their terms address matters only as of such a specified other time, which must be true
and correct as of such time), except where the failure of such representations and warranties
to be true and correct, individually or in the aggregate, have not, and would not reasonably
be expected to, prevent, materially delay or materially impede or impair the ability
of Parent and Merger Sub to consummate any of the Transactions; |
| · | each of Parent
and Merger Sub having performed or complied in all material respects with all covenants
and agreements required to be performed or complied with by it under the Merger Agreement
prior to or on the closing date of the Merger; and |
| · | Parent having
delivered to the Company a certificate, dated the closing date of the Merger, signed
by an executive officer of Parent, certifying as to the fulfillment of the above conditions. |
Termination of the Merger Agreement
The Merger Agreement may be terminated
at any time prior to the Effective Time:
| · | by mutual written
consent of the Company and Parent with the approval of their respective boards of directors
(or in the case of the Company, acting upon the recommendation of the Special Committee); |
| · | by either the
Company (acting only upon the recommendation of the Special Committee) or Parent (provided
that this termination right is not available to the party whose failure to fulfill any
of its obligations under the Merger Agreement has been a material cause of, or resulted
in, the failure of any applicable condition to the Merger being satisfied), if: |
| ○ | the Merger is not completed by the Termination Date (which
is referred to as a “Termination Date Termination Event”); |
| ○ | any
governmental authority of competent jurisdiction having enacted, issued, promulgated,
enforced or entered any final and non-appealable law or award, writ, injunction, determination,
rule, regulation, judgment, decree or executive order or taken any other final and non-appealable
action that has the effect of making consummation of the Transactions illegal or otherwise
prohibiting consummation of the Transactions (which is referred to as a “Permanent
Order Termination Event”); or |
| ○ | the
Requisite Company Vote is not obtained at the extraordinary general meeting or any adjournment
or postponement thereof (which is referred to as a “No-Vote Termination Event”); |
| · | by the Company
(acting only upon the recommendation of the Special Committee) at any time prior to the
Effective Time, if: |
| ○ | Parent
or Merger Sub has breached any of its representations, warranties, covenants or agreements
under the Merger Agreement, (a) such that the conditions to the obligations of the
Company to complete the Merger would not be satisfied and such condition is incapable
of being satisfied by the Termination Date and (b) which breach is incapable of
being cured or, if capable of being cured, is not cured by Parent or Merger Sub, as applicable,
within 30 days following receipt of written notice of such breach from the Company (or,
if the Termination Date is less than 30 calendar days from the date of receipt of such
notice, by the Termination Date); provided that the Company will not have the right to
terminate if the Company is in material breach of any representations, warranties, agreements
or covenants that would give rise to the failure of a condition to the obligations of
Parent and Merger Sub to close the Merger (which is referred to as a “Parent and
Merger Sub Breach Termination Event”); |
| ○ | (a)
all of the conditions to the obligations of Parent and Merger Sub to consummate the Merger
have been satisfied (other than those conditions that by their nature are to be satisfied
by actions taken at the closing of the Merger); (b) the Company has delivered to
Parent an irrevocable written notice confirming that all of the conditions to the obligation
of the Company to consummate the Merger have been satisfied (or that the Company is willing
to waive any unsatisfied conditions) and that it is ready, willing and able to consummate
the closing of the Merger; and (c) Parent and Merger Sub fail to complete the closing
of the Merger within five business days following the date on which the closing of the
Merger should have occurred pursuant to the Merger Agreement (which is referred to as
a “Parent and Merger Sub Failure to Close Termination Event”); or |
| ○ | prior
to the receipt of the Requisite Company Vote, (a) the Board (acting only upon the
recommendation of the Special Committee) or the Special Committee (to the extent it is
within the authority of the Special Committee) has authorized the Company to enter into
an Alternative Acquisition Agreement with respect to a Superior Proposal in accordance
with the terms of the Merger Agreement and (b) the Company concurrently with, 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
will not be entitled to terminate the Merger Agreement unless the Company has (i) complied
in all respects with the “no-shop” obligations under the Merger Agreement
with respect to such Superior Proposal and/or Alternative Acquisition Agreement (other
than immaterial non-compliance that does not adversely affect Parent or Merger Sub) and
(ii) pays in full the Company termination fee prior to or concurrently with taking
any such action and complied in all respects with the Merger Agreement with respect to
the payment of the termination fee and reimbursement of expenses (which is referred to
as a “Superior Proposal Termination Event”); or |
| · | by Parent,
at any time prior to the Effective Time, if: |
| ○ | the
Company has breached any of its representations, warranties, covenants or agreements
under the Merger Agreement, (a) such that the conditions to the obligations of Parent
and Merger Sub to complete the Merger would not be satisfied and such condition is incapable
of being satisfied by the Termination Date and (b) which breach is incapable of
being cured or, if capable of being cured, is not cured by the Company within 30 days
following receipt of written notice of such breach from Parent or Merger Sub (or, if
the Termination Date is less than 30 calendar days from the date of receipt of such notice,
by the Termination Date), provided that Parent and Merger Sub are not in material breach
of any representations, warranties, covenants or agreements that would give rise to the
failure of a condition to the obligations of the Company to close (which is referred
to as a “Company Breach Termination Event”); or |
| ○ | the
Board or any committee of the Board has effected a Change in the Company Recommendation
(which is referred to as a “Change in the Company Recommendation Termination Event”). |
Termination Fee and Reimbursement of Expenses
The Company is required to pay Parent
a termination fee of US$57,250,000 in the event the Merger Agreement is terminated:
| · | by
either the Company or Parent if (a) a bona fide proposal or offer with respect
to a Competing Transaction has been publicly made, proposed or communicated and not publicly
withdrawn after the date of the Merger Agreement and prior to the extraordinary general
meeting (or prior to the termination of the Merger Agreement if there has been no extraordinary
general meeting); (b) following the occurrence of an event described in the preceding
clause, the Company or Parent terminates the Merger Agreement due to a Termination Date
Termination Event or No-Vote Termination Event; and (c) within 12 months after the
termination of the Merger Agreement, the Company consummates or enters into a definitive
agreement in connection with any of the following transactions with a third party: (i) any
merger, consolidation, share exchange, business combination, scheme of arrangement, amalgamation,
recapitalization, liquidation, dissolution or other similar transaction involving the
Company or any of its subsidiaries whose assets, individually or in the aggregate, constitute
50% or more of the consolidated assets of the Company or to which 50% or more of the
total revenue or net income of the Company are attributable; (ii) any sale, lease,
exchange, transfer or other disposition of assets or businesses that constitute or represent
50% or more of the total revenue, net income or assets of the Company and its subsidiaries,
taken as a whole; (iii) any sale, exchange, transfer or other disposition of 50%
or more of any class of equity securities of the Company, or securities convertible into
or exchangeable for 50% or more of any class of equity securities of the Company; (iv) any
tender offer or exchange offer that, if consummated, would result in any person beneficially
owning 50% or more of any class of equity securities of the Company or (v) any combination
of the foregoing; |
| · | by Parent pursuant
to a Company Breach Termination Event or Change in the Company Recommendation Termination
Event; or |
| · | by the Company
pursuant to a Superior Proposal Termination Event. |
Parent is required to pay the Company
a termination fee of US$114,500,000 in the event the Merger Agreement is terminated:
| · | by the Company
pursuant to a Parent and Merger Sub Breach Termination Event; or |
| · | by the Company
pursuant to a Parent and Merger Sub Failure to Close Termination Event. |
Additionally, (a) in the event the Merger
Agreement is terminated by the Company pursuant to a Parent and Merger Sub Breach Termination Event or a Parent and Merger Sub
Failure to Close Termination Event, then Parent must pay to the Company, as promptly as possible (but in any event within three
business days) following the delivery by the Company of an invoice therefor, all expenses incurred by the Company and its affiliates
in connection with the Transactions, up to a maximum amount equal to US$3,000,000; and (b) in the event the Merger Agreement is
terminated by Parent pursuant to a Company Breach Termination Event or Change in the Company Recommendation Termination Event,
then the Company must pay to Parent, as promptly as possible (but in any event within three business days) following the delivery
by Parent of an invoice therefor, all expenses incurred by Parent, Merger Sub and their respective affiliates in connection with
the Transactions, including the equity financing, up to a maximum amount equal to US$3,000,000.
In the event that the Company or Parent
fails to pay the applicable termination fee or any expenses when due and in accordance with the requirements of the Merger Agreement,
the Company or Parent, as the case may be, is required to reimburse the other party for reasonable costs and expenses actually
incurred or accrued by the other party (including fees and expenses of counsel) in connection with collection of such unpaid termination
fee or any expenses, together with accrued interest on such unpaid termination fee or any expenses.
Except as described above or as otherwise
provided in the Merger Agreement, whether or not the Merger or any other Transaction is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the Transactions will be paid by the party incurring such costs and expenses.
Modification or Amendment; Waiver of Conditions
The Merger Agreement may be amended by
an instrument in writing signed by each of the parties hereto at any time prior to the Effective Time by action taken (a) with
respect to Parent and Merger Sub, by or on behalf of their respective boards of directors, and (b) with respect to the Company,
by the Board (upon recommendation of the Special Committee); provided that after the approval of the Merger Agreement and the
Transactions by the shareholders of the Company, no amendment may be made that would reduce the amount or change the type of consideration
in exchange for which each ordinary share of the Company (including ordinary shares represented by ADSs) will be cancelled upon
consummation of the Merger.
At any time prior to the Effective Time,
each of the parties (by action taken (a) with respect to Parent and Merger Sub, by or on behalf of their respective boards
of directors and (b) with respect to the Company, by action taken by or on behalf of the Special Committee) to the Merger
Agreement may, by an instrument in writing signed by the party or parties to be bound thereby, (i) extend the time for the
performance of any obligation or other act of any other party to the Merger Agreement, (ii) waive any inaccuracy in the representations
and warranties of any other party contained in the Merger Agreement or in any document delivered pursuant to the Merger Agreement
and (iii) waive compliance with any agreement of any other party or any condition to its obligations contained in the Merger
Agreement.
Remedies
The parties to the Merger Agreement may
be entitled to specific performance of the terms of the Merger Agreement, including an injunction or injunctions to prevent breaches
of the Merger Agreement, in addition to any other remedy at law or equity. The Company’s right to obtain an injunction or
injunctions, or other appropriate form of specific performance or equitable relief, to cause Parent and/or Merger Sub to cause
the equity financing from the Sponsors to be funded at any time or to effect the closing of the Merger is, however, subject to
(a) all of the conditions to Parent’s and Merger Sub’s obligations to consummate the Merger (other than those
conditions that by their nature are to be satisfied at the closing of the Merger) having been satisfied or waived, (b) Parent
and Merger Sub failing to complete the closing of the Merger by the date on which the closing should have occurred pursuant to
the Merger Agreement, and (c) the Company having irrevocably confirmed in writing that (i) all of the conditions to
the Company’s obligations to consummate the Merger have been satisfied or that it is willing to waive any of such conditions
and (ii) if specific performance is granted and the equity financing is funded, then the closing of the Merger will occur.
The maximum aggregate liabilities of Parent
and Merger Sub, on the one hand, and the Company, on the other hand, for monetary damages in connection with the Merger Agreement
or any of the Transactions are limited to (a) a termination fee of US$114,500,000 and US$57,250,000, respectively, and reimbursement
of certain expenses in the event the applicable termination fee is not paid when due and in accordance with the requirements of
the Merger Agreement; and (b) expenses of US$3,000,000 in the event the Merger Agreement is terminated under certain circumstances.
While the parties to the Merger Agreement
may pursue both a grant of specific performance and monetary damages, upon payment of the aforementioned amounts the remedy of
specific performance will not be available against the party paying such amount.
Provisions
for Unaffiliated Security Holders
No provision has been made to (a) grant
the Company’s shareholders or ADS holders access to corporate files of the Company and other parties to the Merger or any
of their respective affiliates or (b) obtain counsel or appraisal services at the expense of the Company or any other such party
or affiliate.
Dissenters’
Rights
The following is a brief summary of the
rights of holders of the Shares to object to the Merger and receive payment of the fair value of their Shares (“dissenters’
rights”). The complete text of Section 238 of the Cayman Islands Companies Law is attached as Annex D to this proxy statement.
If you are contemplating the possibility of objecting to the Merger, you should carefully review the text of Annex D, particularly
the procedural steps required to exercise dissenters’ rights. These procedures are complex and you should consult your Cayman
Islands legal counsel in respect of them. If you do not fully and precisely satisfy the procedural requirements of the Cayman
Islands Companies Law, you will lose your dissenters’ rights.
Requirements for Exercising Dissenters’ Rights
A dissenting registered shareholder of
the Company is entitled to payment of the fair value of his Shares upon dissenting from the Merger.
The exercise of your dissenters’
rights will preclude the exercise of any other rights by virtue of holding Shares in connection with the Merger including voting
at the extraordinary general meeting, other than the right to seek relief on the grounds that the Merger is void or unlawful.
To preserve your dissenters’ rights, the following procedures must be followed:
| · | you must give
written notice of objection (“Notice of Objection”) to the Company prior
to the vote to approve the Merger. The Notice of Objection must include a statement that
you propose to demand payment for your Shares if the Merger is authorized by the vote
at the extraordinary general meeting; |
| · | within twenty
(20) days immediately following the date on which the vote approving the Merger is made,
the Company must give written notice of the authorization of the Merger (“Approval
Notice”) to all shareholders who have served a Notice of Objection (“Dissenting
Shareholders”); |
| · | within twenty
(20) days immediately following the date on which the Approval Notice is given (the “Dissent
Period”), the Dissenting Shareholder must give a written notice of his decision
to dissent (a “Notice of Dissent”) to the Company stating his name and address,
the number and class of the Shares with respect to which he dissents and demanding payment
of the fair value of his Shares; a Dissenting Shareholder must dissent in respect of
all the Shares which he holds; the Dissenting Shareholder will cease to have any rights
as a shareholder upon the giving of such Notice of Dissent, except for (a) the right
to be paid the fair value of his or her Shares, (b) the right to participate in the court
proceedings to determine the fair value of his or her Shares, and (c) the right to institute
proceedings on the grounds that the Merger is unlawful or not valid; |
| · | within seven
(7) days immediately following (a) the date of expiry of the Dissent Period or (b) the
date on which the Plan of Merger is filed with the Cayman Registrar, whichever is later,
the Company, as the Surviving Corporation, must make a written offer (a “Fair Value
Offer”) to each Dissenting Shareholder to purchase their Shares at a price determined
by the Company to be the fair value of such Shares; |
| · | if,
within thirty (30) days immediately following the date of the Fair Value Offer, the Company
and the Dissenting Shareholder fail to agree on a price at which the Company will purchase
the Dissenting Shareholder’s Shares, then, within twenty (20) days immediately
following the date of the expiry of such 30-day period, the Company must, and the Dissenting
Shareholder may, file a petition with the Grand Court for a determination of the fair
value of the Shares held by all Dissenting Shareholders who have served a Notice of Dissent
and who have not agreed with the Company as to fair value, the petition by the Company
must be accompanied by a verified list containing the names and addresses of all shareholders
who have filed a Notice of Dissent and who have not agreed with the Company as to the
fair value of the Shares; and |
| · | if a petition
is timely filed and served, the Grand Court will determine at a hearing at which Dissenting
Shareholders are entitled to participate in (a) the fair value of the Shares held by
those Dissenting Shareholders together with a fair rate of interest, if any, to be paid
up to the amount determined to be the fair value and (b) the costs of the proceeding
and the allocation of such costs upon the parties. |
All notices and petitions must be executed
by or for the shareholder of record, fully and correctly, as such shareholder’s name appears on the register of members
of the Company. If the Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, these
notices must be executed by or for the fiduciary. If the Shares are owned by or for more than one person, such notices and petitions
must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute
the notices or petitions for a shareholder of record; however, the agent must identify the record owner and expressly disclose
the fact that, in exercising the notice, he is acting as agent for the record owner. A person having a beneficial interest in
Shares held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder
to follow the steps summarized above and in a timely manner to perfect whatever dissenters’ rights attached to the Shares.
You must be a registered holder of Shares
in order to exercise your dissenters’ rights. A holder of ADSs who wishes to dissent must surrender his or her ADSs to the
ADS Depositary and pay the fees of ADS Depositary to withdraw his or her Shares and then become a record holder of such Shares
and comply with the procedures described above in order to perfect the dissenters’ rights with respect to the Shares prior
to the extraordinary general meeting. The ADS Depositary will not exercise dissenters’ rights on behalf of a holder of ADSs,
and any Notice of Dissent delivered to the ADS depositary will not be effective under the Cayman Islands Companies Law. If you
wish to cancel your ADSs, please contact the ADS Depositary at 500 Stanton Christiana Road, Newark, DE 19713, USA, Attention:
ADR Operations, Telephone: +1 302 552 0230.
If you do not satisfy each of these requirements,
you cannot exercise dissenters’ rights and will be bound by the terms of the Merger Agreement and the Plan of Merger. Submitting
a proxy card that does not direct how the Shares represented by that proxy are to be voted will give the proxy discretion to vote
as it determines appropriate. In addition, failure to vote your Shares, or a vote against the proposal to approve and authorize
the Merger Agreement and the Plan of Merger and the Transactions (including the Merger), will not alone satisfy the notice requirement
referred to above. You must send all notices to the Company’s offices at No. 1 Office Building, No. 690 Bibo Road, Pudong
New Area, Shanghai 201203, the PRC, Attention: Investor Relations Department.
If you are considering dissenting, you
should be aware that the fair value of your Shares determined under Section 238 of the Cayman Islands Companies Law could be more
than, the same as, or less than the consideration that you would otherwise have received as consideration in the Merger. In addition,
in any proceedings for determination of the fair value of the Shares covered by a Notice of Dissent, the Company and the Buyer
Group intend to assert that the Per Share Merger Consideration is equal to the fair value of each of your Shares.
The provisions of Section 238 of the
Cayman Islands Companies Law are technical and complex. If you fail to comply strictly with the procedures set forth in
Section 238, you will lose your dissenters’ rights. You should consult your Cayman Islands legal counsel if you wish to
exercise dissenters’ rights.
Financial
Information
The functional currency of the Company
is U.S. dollars and its reporting currency is the RMB. The functional currency of the Company’s PRC subsidiaries and the
VIEs is RMB. Actoz Soft Co., Ltd. (“Actoz”) and Eyedentity Games Inc.’s (“Eyedentity”) functional
currency is the Korean Won. Actoz Soft Europe GmbH’s (“Actoz Europe”) functional currency is the Euro (or “€”).
The functional currency of the Company’s major subsidiaries other than the PRC subsidiaries, the VIEs, Actoz, Eyedentity,
and Actoz Europe is the U.S. dollar. Assets and liabilities of the Company and its subsidiaries are translated at current exchange
rates quoted by the People’s Bank of China or Seoul Money Brokerage Services Limited in effect at the balance sheet dates.
Equity accounts are translated at historical exchange rates and revenues and expenses are translated at the average exchange rates
in effect during the reporting period to RMB. Gains and losses resulting from foreign currency translation to reporting currency
are recorded in accumulated other comprehensive income (loss) in the consolidated statements of changes in shareholders’
equity for the years presented. Transactions denominated in currencies other than functional currencies are remeasured into the
functional currencies at the exchange rates quoted by the People’s Bank of China or Seoul Money Brokerage Services Limited
prevailing at the dates of the transactions. Gains and losses resulting from foreign currency transactions are included in the
consolidated statements of operations and comprehensive income. Monetary assets and liabilities denominated in foreign currencies
are remeasured into the functional currencies using the applicable exchange rates quoted by the People’s Bank of China or
Seoul Money Brokerage Services Limited at the balance sheet dates. All such exchange gains and losses are included in the statements
of operations and comprehensive income within other income (expense), net.
This proxy statement contains translations
of RMB into U.S. dollars at specific rates solely for the convenience of the reader. Amounts in US$ are presented for the convenience
of the reader and are translated at the exchange rate of US$1.00 to RMB6.2046 as set forth in the H.10 statistical release of
the U.S. Federal Reserve Board on December 31, 2014. No representation is made that the RMB amounts could have been, or could
be, converted into US$ at such rate.
Selected Historical Financial Information
The following table sets forth the
Company’s selected consolidated financial data. The selected consolidated statements of income data and balance sheet data
in the table below have been derived from the audited financial statements of the Company for each of the two years ended December
31, 2013 and 2014, included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2014, at pages F-1
and the following pages thereto, in each case prepared in accordance with U.S. GAAP. The information set forth below is not necessarily
indicative of future results and should be read in conjunction with “Item 5. Operating and Financial Review and Prospects”
and the consolidated financial statements, related notes and other financial information included in the Company’s Annual
Report on Form 20-F for the year ended December 31, 2014 filed with the SEC on April 17, 2015 and the Company's earnings release
for the six months ended June 30, 2015 to be filed with the SEC on Form 6-K are incorporated herein by reference. See “Where
You Can Find More Information” for a description of how to obtain a copy of such Annual Report and earnings release.
| |
For
the year ended December 31, | |
| |
2013 | | |
2014 | | |
2014 | |
| |
(RMB) | | |
(RMB) | | |
(US$) | |
| |
(in millions, except earnings per share/ADS
data) | |
Net revenue: | |
| | | |
| | | |
| | |
MMO game revenues | |
| 3,806.4 | | |
| 3,276.4 | | |
| 528.1 | |
Mobile game revenues | |
| 482.2 | | |
| 396.4 | | |
| 63.9 | |
Other revenue, net | |
| 56.1 | | |
| 44.5 | | |
| 7.2 | |
Total net revenue | |
| 4,344.7 | | |
| 3,717.3 | | |
| 599.1 | |
Cost of services | |
| (1,135.7 | ) | |
| (940.1 | ) | |
| (151.5 | ) |
Gross profit | |
| 3,209.0 | | |
| 2,777.2 | | |
| 447.6 | |
Operating (expenses) income | |
| | | |
| | | |
| | |
Research and product development | |
| (714.1 | ) | |
| (657.6 | ) | |
| (106.0 | ) |
Sales and marketing | |
| (447.4 | ) | |
| (615.0 | ) | |
| (99.1 | ) |
General and administrative | |
| (348.7 | ) | |
| (320.6 | ) | |
| (51.7 | ) |
Impairment of goodwill | |
| (30.8 | ) | |
| — | | |
| — | |
| |
For
the year ended December 31, | |
| |
2013 | | |
2014 | | |
2014 | |
| |
(RMB) | | |
(RMB) | | |
(US$) | |
Settlement of gain contingency with former
shareholder | |
| 59.9 | | |
| — | | |
| — | |
Total operating expenses | |
| (1,481.1 | ) | |
| (1,593.2 | ) | |
| (256.8 | ) |
| |
| | | |
| | | |
| | |
Income from operations | |
| 1,727.9 | | |
| 1,184.0 | | |
| 190.8 | |
Interest income/(expenses) | |
| 77.6 | | |
| 16.6 | | |
| 2.7 | |
Investment income/(loss) | |
| 16.3 | | |
| (0.8 | ) | |
| (0.1 | ) |
Other income, net | |
| 136.0 | | |
| 75.8 | | |
| 12.2 | |
Income before income tax expenses | |
| 1,957.8 | | |
| 1,275.6 | | |
| 205.6 | |
Income tax expenses | |
| (322.3 | ) | |
| (248.6 | ) | |
| (40.1 | ) |
Share of loss of an equity investee | |
| (7.5 | ) | |
| (30.4 | ) | |
| (4.9 | ) |
Net income | |
| 1,628.0 | | |
| 996.6 | | |
| 160.6 | |
Net (income)/loss attributable to noncontrolling interests | |
| (40.1 | ) | |
| 43.9 | | |
| 7.1 | |
Net income attributable to the Company’s
shareholders | |
| 1,587.9 | | |
| 1,040.5 | | |
| 167.7 | |
Other comprehensive income (loss), net of tax | |
| | | |
| | | |
| | |
Unrealized (loss) gain on marketable securities | |
| 15.7 | | |
| — | | |
| — | |
Realized gain on marketable securities reclassified to investment income | |
| (20.1 | ) | |
| — | | |
| — | |
Currency translation adjustments of the Company | |
| 122.7 | | |
| (17.7 | ) | |
| (2.9 | ) |
Currency translation adjustments of affiliated companies/subsidiaries | |
| (94.7 | ) | |
| (10.8 | ) | |
| (1.7 | ) |
Comprehensive income | |
| 1,651.6 | | |
| 968.1 | | |
| 156.0 | |
Comprehensive income attributable to noncontrolling interests | |
| (49.7 | ) | |
| 48.0 | | |
| 7.8 | |
Comprehensive income attributable
to Shanda Games Limited | |
| 1,601.9 | | |
| 1,016.1 | | |
| 163.8 | |
| |
| | | |
| | | |
| | |
Earnings per share: | |
| | | |
| | | |
| | |
Basic | |
| 2.96 | | |
| 1.94 | | |
| 0.31 | |
Diluted | |
| 2.95 | | |
| 1.92 | | |
| 0.31 | |
| |
| | | |
| | | |
| | |
Weighted average ordinary shares: | |
| | | |
| | | |
| | |
Basic | |
| 536,790,221 | | |
| 537,189,172 | | |
| 537,189,172 | |
Diluted | |
| 537,395,413 | | |
| 543,196,160 | | |
| 543,196,160 | |
Consolidated Balance Sheet Data:
In millions | |
For
the year ended December 31, | |
| |
2013 | | |
2014 | | |
2014 | |
| |
(RMB) | | |
(RMB) | | |
(US$) | |
Cash and cash equivalents | |
| 877.6 | | |
| 797.5 | | |
| 128.5 | |
Total assets | |
| 5,127.4 | | |
| 3,647.5 | | |
| 587.9 | |
Total liabilities | |
| 4,208.2 | | |
| 1,748.9 | | |
| 281.9 | |
Redeemable non-controlling interest | |
| 13.9 | | |
| — | | |
| — | |
Total equity | |
| 595.0 | | |
| 1,613.9 | | |
| 260.1 | |
Non-controlling interests | |
| 310.3 | | |
| 284.7 | | |
| 45.9 | |
Total shareholders’ equity | |
| 905.3 | | |
| 1,898.6 | | |
| 306.0 | |
Ratio of Earnings to Fixed Charges
| |
As
of December 31, | |
| |
2012 | | |
2013 | | |
2014 | |
| |
(unaudited) | |
Ratio of earnings to fixed charges | |
| 19.8 | | |
| 43.8 | | |
| 31.8 | |
Net Book Value per Share
of Shares
The net book value per Share as of December
31, 2014 was US$0.57 based on the weighted average number of issued and outstanding Shares during 2014.
Transactions
in Shares and ADS s
Purchases by the Company
In June 2012, the Board approved another
share repurchase program (the “2012 Share Repurchase Program”) authorizing the Company to repurchase up to US$100
million worth of the Company’s outstanding ADSs from time to time during the next 12 months. The Company concluded this
share repurchase program in May 2013, under which the Company had repurchased a total of approximately 14.4 million ADSs for an
aggregate consideration of US$50.3 million from the open market.
In May 2013, the Board approved another
share repurchase program (the “2013 Share Repurchase Program”) authorizing the Company to repurchase up to US$100
million worth of the Company’s outstanding ADSs from time to time during the next 12 months. As of the date of this proxy
statement, the Company had not repurchased any ADSs from the open market under this program.
The table below sets forth the details
of the Company’s purchases of its own equity securities for each quarter during the past three years. All of the Company’s
share repurchases during the past three years have been under either the 2012 or 2013 Share Repurchase Program.
Period |
|
Total
Number
of ADSs
Purchased |
|
|
Range
of Prices
Paid per ADS
(US$) |
|
|
Average
Price
Paid per ADS
(US$) (1) |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Second quarter |
|
|
547,495 |
|
|
|
3.82 - 4.34 |
|
|
|
4.04 |
|
Third quarter |
|
|
6,730,101 |
|
|
|
3.20 - 4.00 |
|
|
|
3.64 |
|
Fourth quarter |
|
|
3,695,781 |
|
|
|
2.99 - 3.82 |
|
|
|
3.61 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
|
1,311,503 |
|
|
|
2.95 - 3.00 |
|
|
|
2.99 |
|
Second quarter |
|
|
2,124,032 |
|
|
|
2.72 - 3.00 |
|
|
|
2.94 |
|
Third quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Fourth quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Second quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Third quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Fourth quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Second quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
14,408,912 |
|
|
|
N/A |
|
|
|
N/A |
|
| (1) | Average price paid per ADS repurchased is the execution price,
excluding commissions paid to brokers. |
All Shares underlying ADSs repurchased
by the Company were considered cancelled under Cayman Islands law, and the excess of the repurchase price over the par value of
the repurchased Shares was charged to additional paid-in capital.
Transactions within the Buyer Group
On August 31, 2014, Shanda SDG and Orient
Finance entered into a share purchase agreement (the “Orient Share Purchase Agreement”) pursuant to which Shanda SDG
agreed to sell, and Orient Finance agreed to purchase, 123,552,669 Class A ordinary shares (the “Orient Purchase Shares”)
at US$3.45 per Class A ordinary share (the “Orient Purchase Price”) subject to the terms and conditions thereof. Such
purchase was completed on September 23, 2014 and the Orient Purchase Shares were subsequently transferred by Orient Finance
to Orient Hongtai and Orient Hongzhi on November 24, 2014. Pursuant to the Orient Share Purchase Agreement, if (i) a “going
private” transaction occurs within one year of the closing date of the sale of the Orient Purchase Shares where Orient Finance
is part of the buyer consortium and the per Share “going private” price is higher than the Orient Purchase Price,
or (ii) a “going private” transaction occurs within one year of the closing date of the sale of the Orient Purchase
Shares where Orient Finance is not part of the buyer consortium due to its own decision or election without Shanda SDG’s
written consent and the per Share “going private” price is higher than the Orient Purchase Price, Orient Finance will
pay Shanda SDG, with respect to each of the Orient Purchase Shares, a “make-whole” payment equal to the difference
between the Orient Purchase Price and the price per share paid in the “going private” transaction, the effect of which
would be that Shanda SDG would receive the same price per share for the Orient Purchase Shares as would be paid in the “going
private” transaction.
On September 1, 2014, Shanda SDG and Haitong
entered into a share purchase agreement (the “Haitong Share Purchase Agreement I”) pursuant to which Shanda SDG agreed
to sell, and Haitong agreed to purchase, 48,152,848 Class A ordinary shares at US$3.45 per Class A ordinary share subject to the
terms and conditions thereof. Concurrently with the execution of the Haitong Share Purchase Agreement I, Primavera, Perfect World
and Haitong entered into a share purchase agreement (the “Haitong Share Purchase Agreement II”), pursuant to which
Haitong agreed to purchase 28,959,276 and 30,326,005 Class A ordinary shares from Primavera and Perfect World, respectively. Pursuant
to the Haitong Share Purchase Agreement I and Haitong Share Purchase Agreement II, Haitong agreed to pay a “make-whole”
payment to each of Shanda SDG, Primavera and Perfect World on terms substantially the same as those in the Orient Share Purchase
Agreement and the purchases thereunder were completed by Hao Ding, an affiliate of Haitong, on September 23, 2014.
On September 1, 2014, Shanda SDG and Ningxia
entered into a share purchase agreement (the “Ningxia Share Purchase Agreement”) pursuant to which Shanda SDG agreed
to sell, and Ningxia agreed to purchase, 80,577,828 Class A ordinary shares at US$3.45 per Class A ordinary share subject to the
terms and conditions thereof. Pursuant to the Ningxia Share Purchase Agreement, Ningxia agreed to pay a “make-whole”
payment to Shanda SDG on terms substantially the same as those in the Orient Share Purchase Agreement and the purchase thereunder
was completed by Zhongrong Investment, an affiliate of Ningxia, on September 23, 2014.
On November 25, 2014, Shanda SDG, Ningxia,
Zhongrong Shengda, and Yili Shengda entered into a share purchase agreement (the “SDG Class B Share Purchase Agreement”),
pursuant to which each of Zhongrong Shengda and Yili Shengda agreed to purchase 48,759,187 Class B ordinary shares from Shanda
SDG. The purchases under the SDG Class B Share Purchase Agreement were completed on the same day.
On June 25, 2015, Litian, Orient Zhihui,
HuaSung and Orient Hongzhi entered into a share purchase agreement (the “HuaSung Share Purchase Agreement”), pursuant
to which Litian agreed to purchase 100% of the equity interest of HuaSung from Orient Zhihui. The purchase under the HuaSung Share
Purchase Agreement was completed on June 30, 2015, as a result of which, 61,776,335 Class A ordinary shares of the Company were
indirectly transferred to Litian at approximately US$4.44 per Class A ordinary share.
On June 25, 2015, Lihua, Orient Zhisheng,
TonSung and Orient Hongtai entered into a share purchase agreement (the “TonSung Share Purchase Agreement”), pursuant
to which Lihua agreed to purchase 100% of the equity interest of TonSung from Orient Zhisheng. The purchase under the TonSung
Share Purchase Agreement was completed on June 30, 2015, as a result of which, 61,776,334 Class A ordinary shares of the Company
were indirectly transferred to Lihua at approximately US$4.44 per Class A ordinary share.
On June 25, 2015, Lihai, Haitong, Xizang
Runda, Hai Sheng Tong and Hao Ding entered into a share purchase agreement (the “Hai Sheng Tong Share Purchase Agreement”),
pursuant to which Lihai agreed to purchase 100% of the equity interest of Hai Sheng Tong from Haitong and Xizang Runda. The purchase
under the Hai Sheng Tong Share Purchase Agreement was completed on June 30, 2015, as a result of which, 107,438,129 Class A ordinary
shares of the Company were indirectly transferred to Lihai at approximately US$4.44 per Class A ordinary share.
Prior Public Offerings
On September 30, 2009, the Company completed
its initial public offering (the “IPO”), which involved the sale by the Company and certain of its shareholders of
83,500,000 ADSs. The initial public offering price was US$12.50 per ADS. The net proceeds to the Company from the IPO, after deducting
commissions and offering expenses, were approximately US$152.5 million.
Transactions in Prior 60 Days
Except as described above and other than
the Merger Agreement and the agreements entered into in connection with the Merger Agreement, including the Support Agreement,
the Limited Guarantees and the Equity Commitment Letters, there have been no transactions in Shares or ADSs during the prior 60
days by the Company, any of the Company’s officers or directors, Parent, Merger Sub or any other person with respect to
which disclosure is provided in Annex F or any associate or majority-owned subsidiary of the foregoing.
Security
Ownership of Certain Beneficial Owners and Management of the Company
The following table sets forth information
with respect to the beneficial ownership of Shares, as of the date of this proxy statement, by:
| · | each of the
Company’s directors and executive officers; |
| · | the Company’s
directors and executive officers as a group; and |
| · | each person
known to the Company to beneficially own more than 5.0% of the total issued and outstanding
Shares. |
As of the date of this proxy statement,
we have 443,701,684 Class A ordinary shares and 97,518,374 Class B ordinary shares issued and outstanding. Beneficial ownership
is determined in accordance with the rules and regulations of the SEC. In computing the number of Shares beneficially owned by
a person and the percentage ownership of that person, we have included Shares that the person has the right to acquire within
60 days from the date of this proxy statement, including through the exercise of any option, warrant or other right, vesting of
restricted share units or the conversion of any other security. These Shares, however, are not included in the computation of
the percentage ownership of any other person.
| |
Beneficially
Owned | |
Name | |
Number | | |
Percentage
of Class A Ordinary Shares | | |
Percentage
of Class B Ordinary Shares | | |
Percentage
of Total Voting Power | |
Hao Ding International Limited(1) | |
| 107,438,129 | | |
| 24.2 | % | |
| — | | |
| 7.6 | % |
Orient Hongtai (Hong Kong) Limited(2) | |
| 61,776,334 | | |
| 13.9 | % | |
| — | | |
| 4.4 | % |
Orient Hongzhi (Hong Kong) Limited(2) | |
| 61,776,335 | | |
| 13.9 | % | |
| — | | |
| 4.4 | % |
Yili Shengda Investment Holdings
(Hong Kong) Company Limited(3) | |
| 48,759,187 | | |
| — | | |
| 50.0 | % | |
| 34.4 | % |
Zhongrong Shengda Investment
Holdings (Hong Kong) Limited(4) | |
| 48,759,187 | | |
| — | | |
| 50.0 | % | |
| 34.4 | % |
Zhongrong Investment Holdings (Hong Kong) Co., Ltd.(4) | |
| 80,577,828 | | |
| 18.2 | % | |
| — | | |
| 5.7 | % |
Yingfeng Zhang(3) | |
| 48,803,359 | | |
| * | | |
| 50.0 | % | |
| 34.4 | % |
Danian Chen | |
| * | | |
| * | | |
| — | | |
| * | |
Li Yao | |
| * | | |
| * | | |
| — | | |
| * | |
Shaolin Liang | |
| — | | |
| — | | |
| — | | |
| — | |
Lijun Lin | |
| * | | |
| * | | |
| — | | |
| * | |
Heng Wing Chan | |
| * | | |
| * | | |
| — | | |
| * | |
Yong Gui | |
| * | | |
| * | | |
| — | | |
| * | |
Tunghai Chien | |
| * | | |
| * | | |
| — | | |
| * | |
Jisheng Zhu | |
| * | | |
| * | | |
| — | | |
| * | |
Jin Zhang | |
| * | | |
| * | | |
| — | | |
| * | |
Directors and Executive Officers as a Group | |
| 52,035,382
| | |
| * | | |
| 50.0 | % | |
| 34.6 | % |
| * | Upon exercise of all options currently exercisable or vesting within
60 days of the date of this table, would beneficially own less than 1.0% of ordinary
shares of the Company. |
| (1) | Hao Ding is a member of the Buyer Group and an affiliate of
the Li-Funds Persons. See “Summary Term Sheet—The Parties Involved in the
Merger” beginning on page 3 for additional information. |
| (2) | Orient Hongtai and Orient Hongzhi are members of the Buyer
Group and affiliates of the Li-Funds Persons. See “Summary Term Sheet—The
Parties Involved in the Merger” beginning on page 3 for additional information. |
| (3) | Yili Shengda is an affiliate of Ningxia Yilida, which is a
PRC limited partnership whose general partner is Shanghai Yingfeng, a PRC company whose
sole shareholder is the chairman of the Board and acting chief executive officer of the
Company, Mr. Zhang. See “Summary Term Sheet—The Parties Involved in the Merger”
beginning on page 3 for additional information. |
| (4) | Zhongrong Shengda and Zhongrong Investment are affiliates of
Ningxia, which is a member of the Buyer Group. See “Summary Term Sheet—The
Parties Involved in the Merger” beginning on page 3 for additional information. |
Future
Shareholder Proposals
If the Merger is completed, we will not
have public shareholders and there will be no public participants in any future shareholders’ meeting. If, however, the
Merger is not completed, an annual general meeting is expected to be held later in the year.
Cautionary
Note Regarding Forward-Looking Statements
Certain statements in this proxy statement,
the documents attached hereto and the documents incorporated by reference into this proxy statement are forward-looking statements
based on estimates and assumptions. These include statements as to such things as our financial condition, results of operations,
plans, objectives, future performance and business, as well as forward-looking statements relating to the Merger. Such forward-looking
statements are based on facts and conditions as they exist at the time such statements are made. Forward-looking statements are
also based on current expectations, estimates and projections about our business and the Merger, the accurate prediction of which
may be difficult and involve the assessment of events beyond our control. The forward-looking statements are further based on
assumptions made by management. Forward-looking statements can be identified by forward-looking language, including words such
as “believes,” “anticipates,” “expects,” “estimates,” “intends,” “may,”
“plans,” “predicts,” “projects,” “will,” “would” and similar expressions,
or the negative of these words. These statements are not guarantees of the underlying expectations or future performance and involve
risks and uncertainties that are difficult to predict. Readers of this proxy statement are cautioned to consider these risks and
uncertainties and not to place undue reliance on any forward-looking statements.
The following factors, among others, could
cause actual results or matters related to the Merger to differ materially from what is expressed or forecasted in the forward-looking
statements:
| · | the satisfaction
of the conditions to completion of the Merger, including the authorization and approval
of the Merger Agreement by the Company’s shareholders; |
| · | the occurrence
of any event, change or other circumstance that could give rise to the termination of
the Merger Agreement; |
| · | the cash position
of the Company and its subsidiaries at the Effective Time; |
| · | the effect
of the announcement or pendency of the Merger on our business relationships, results
of operations and business generally; |
| · | the risk that
the Merger may not be completed in a timely manner or at all, which may adversely affect
our business and the price of Shares and ADSs; |
| · | the potential
adverse effect on our business, properties and operations because of certain covenants
we agreed to in the Merger Agreement; |
| · | diversion of
our management’s attention from our ongoing business operations; |
| · | loss of our
senior management; |
| · | the amount
of the costs, fees, expenses and charges related to the Merger and the actual terms of
the financings that will be obtained for the Merger; |
| · | our failure
to comply with regulations and changes in regulations; |
| · | the outcome
of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted
against us and others relating to the Merger; and |
| · | other risks
detailed in our filings with the SEC, including the information set forth under the section
entitled “Item 3D. Risk Factors” in our Annual Report on Form 20-F for the
year ended December 31, 2014. See “Where You Can Find More Information” beginning
on page 116 for additional information. |
Furthermore, the forward-looking statements
do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, dividends
or investments made by the parties. We believe that the assumptions on which our forward-looking statements are based are reasonable.
However, forward-looking statements involve inherent risks, uncertainties and assumptions. In addition, many of the factors that
will determine our future results are beyond our ability to control or predict and we cannot guarantee any future results, levels
of activity, performance or achievements. We cannot assure you that the actual results or developments we anticipate will be realized
or, if realized, that they will have the expected effects on our business or operations. In light of the significant uncertainties
inherent in the forward-looking statements, readers should not place undue reliance on forward-looking statements, which speak
only as of the date on which the statements were made, and it should not be assumed that the statements remain accurate as of
any future date. All subsequent written and oral forward-looking statements concerning the Merger or other matters addressed in
this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Further, forward-looking statements speak only as of the date
they are made, and, except as required by applicable law or regulation, we undertake no obligation to update these forward-looking
statements to reflect future events or circumstances.
Where
You Can Find More Information
We are subject to the reporting requirements
of the Exchange Act applicable to foreign private issuers and we file or furnish our annual and current reports and other information
with the SEC. You may read and copy these reports and other information at the SEC’s Public Reference Room at 100 F Street
NE, Washington, D.C. 20549 at prescribed rates. Information on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. The information we file or furnish is also available free of charge on the SEC’s website at http://www.sec.gov.
You also may obtain free copies of the
documents the Company files with the SEC by going to the “Investor Relations” section of our website at http://www.shandagames.com.
Our website address is provided as an inactive textual reference only. The information provided on our website is not part of
this proxy statement, and therefore is not incorporated by reference.
Because the Merger is a “going private”
transaction, the Company and the Buyer Group have filed with the SEC a Transaction Statement on Schedule 13E-3 with respect to
the Merger. The Schedule 13E-3, including any amendments and exhibits filed or incorporated by reference therein, is available
for inspection as set forth above. The Schedule 13E-3 will be amended to report promptly any material changes in the information
set forth in the most recent Schedule 13E-3 filed with the SEC.
Statements contained in this proxy statement
regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in
its entirety by reference to that contract or other document attached as an exhibit hereto. The SEC allows us to “incorporate
by reference” information into this proxy statement. This means that we can disclose important information by referring
to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this
proxy statement. This proxy statement and the information that we later file with the SEC may update and supersede the information
incorporated by reference. Similarly, the information that we later file with the SEC may update and supersede the information
in this proxy statement. The Company’s Annual Report on Form 20-F for the year ended December 31, 2014 filed with the SEC
on April 17, 2015 is incorporated herein by reference. To the extent that any of the periodic reports incorporated by reference
in this proxy statement contain references to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995
with respect to forward-looking statements, we note that these safe harbor provisions do not apply to any forward-looking statements
we make in connection with the “going private” transaction described in this proxy statement.
We undertake to provide without charge
to each person to whom a copy of this proxy statement has been delivered, upon request, by first-class mail or other equally prompt
means, within one business day of receipt of the request, a copy of any or all of the documents incorporated by reference into
this proxy statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference
into the information that this proxy statement incorporates.
Requests for copies of our filings should
be directed to our proxy solicitor, Georgeson Inc., at the address and phone numbers provided in this proxy statement.
THIS PROXY STATEMENT DOES NOT CONSTITUTE
THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION
IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO
VOTE YOUR SHARES AT THE EXTRAORDINARY GENERAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT.
THIS PROXY STATEMENT IS DATED [ ],
2015. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
ANNEX A
Execution
Version
CONFIDENTIAL
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
among
CAPITALHOLD LIMITED
CAPITALCORP LIMITED
and
SHANDA GAMES LIMITED
Dated as of September 23, 2015
TABLE OF CONTENTS
|
Page |
Article
I THE MERGER |
A-6 |
|
|
Section
1.01 The Merger. |
A-6 |
Section
1.02 Closing; Closing Date. |
A-6 |
Section
1.03 Effective Time. |
A-8 |
Section
1.04 Effects of the Merger. |
A-6 |
Section
1.05 Memorandum and Articles of Association of Surviving Corporation. |
A-7 |
Section
1.06 Directors and Officers. |
A-7 |
|
|
Article
II CONVERSION OF SECURITIES; MERGER CONSIDERATION |
A-7 |
|
|
Section
2.01 Conversion of Securities. |
A-7 |
Section
2.02 Share Incentive Plan, Outstanding Company Options, Company RS and Company RSUs. |
A-8 |
Section
2.03 Dissenting Shares. |
A-8 |
Section
2.04 Exchange of Share Certificates, etc. |
A-9 |
Section
2.05 No Transfers. |
A-10 |
Section
2.06 Termination of Deposit Agreement. |
A-12 |
Section
2.07 Agreement of Fair Value. |
A-12 |
|
|
Article
III REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
A-13 |
|
|
Section
3.01 Organization and Qualification; Subsidiaries. |
A-13 |
Section
3.02 Memorandum and Articles of Association. |
A-13 |
Section
3.03 Capitalization. |
A-14 |
Section
3.04 Authority Relative to This Agreement. |
A-15 |
Section
3.05 No Conflict; Required Filings and Consents. |
A-16 |
Section
3.06 Permits; Compliance. |
A-17 |
Section
3.07 SEC Filings; Financial Statements. |
A-18 |
Section
3.08 No Undisclosed Liabilities. |
A-19 |
Section
3.09 Absence of Certain Changes or Events. |
A-19 |
Section
3.10 Absence of Litigation. |
A-19 |
Section
3.11 Employee Benefit Plans. |
A-19 |
Section
3.12 Labor and Employment Matters. |
A-20 |
Section
3.13 Real Property. |
A-21 |
Section
3.14 Intellectual Property. |
A-21 |
Section
3.15 Taxes. |
A-25 |
Section
3.16 Environmental Matters. |
A-26 |
Section
3.17 Material Contracts. |
A-26 |
Section
3.18 Insurance. |
A-29 |
Section
3.19 Opinion of Financial Advisor. |
A-27 |
Section
3.20 Brokers. |
A-27 |
Section
3.21 Takeover Statute. |
A-28 |
Section
3.22 No Additional Representations. |
A-28 |
TABLE OF CONTENTS
|
Page |
Article
IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB |
A-28 |
|
|
Section
4.01 Corporate Organization. |
A-28 |
Section
4.02 Authority Relative to This Agreement. |
A-29 |
Section
4.03 No Conflict; Required Filings and Consents. |
A-29 |
Section
4.04 Capitalization. |
A-30 |
Section
4.05 Available Funds and Equity Financing. |
A-30 |
Section
4.06 Brokers. |
A-31 |
Section
4.07 Guarantees. |
A-31 |
Section
4.08 Absence of Litigation. |
A-32 |
Section
4.09 Ownership of Company Shares. |
A-32 |
Section
4.10 Solvency |
A-32 |
Section
4.11 Parent Group Contracts |
A-32 |
Section
4.12 Independent Investigation |
A-33 |
Section
4.13 No Additional Representations. |
A-33 |
|
|
Article
V CONDUCT OF BUSINESS PENDING THE MERGER |
A-34 |
|
|
Section
5.01 Conduct of Business by the Company Pending the Merger. |
A-34 |
Section
5.02 Conduct of Business by Parent and Merger Sub Pending the Merger. |
A-37 |
Section
5.03 No Control of Other Party’s Business. |
A-37 |
|
|
Article
VI ADDITIONAL AGREEMENTS |
A-37 |
|
|
Section
6.01 Proxy Statement and Schedule 13E-3. |
A-37 |
Section
6.02 Company Shareholders’ Meeting. |
A-39 |
Section
6.03 Access to Information. |
A-41 |
Section
6.04 No Solicitation of Transactions. |
A-41 |
Section
6.05 Directors’ and Officers’ Indemnification and Insurance. |
A-45 |
Section
6.06 Notification of Certain Matters. |
A-48 |
Section
6.07 Financing. |
A-49 |
Section
6.08 Further Action; Reasonable Best Efforts. |
A-49 |
Section
6.09 Obligations of Parent and Merger Sub. |
A-50 |
Section
6.10 Participation in Litigation. |
A-50 |
Section
6.11 Resignations. |
A-51 |
Section
6.12 Public Announcements. |
A-51 |
Section
6.13 Stock Exchange Delisting. |
A-51 |
Section
6.14 Takeover Statutes. |
A-51 |
Section
6.15 SAFE Registration. |
A-52 |
Section
6.16 No Amendment to Parent Group Contracts or Certain Other Documents. |
A-52 |
|
|
Article
VII CONDITIONS TO THE MERGER |
A-53 |
|
|
Section
7.01 Conditions to the Obligations of Each Party. |
A-53 |
Section
7.02 Conditions to the Obligations of Parent and Merger Sub. |
A-53 |
Section
7.03 Conditions to the Obligations of the Company. |
A-54 |
Section
7.04 Frustration of Closing Conditions. |
A-54 |
TABLE OF CONTENTS
|
Page |
Article
VIII TERMINATION |
A-55 |
|
|
Section
8.01 Termination by Mutual Consent. |
A-55 |
Section
8.02 Termination by Either the Company or Parent. |
A-55 |
Section
8.03 Termination by the Company. |
A-55 |
Section
8.04 Termination by Parent. |
A-56 |
Section
8.05 Effect of Termination. |
A-57 |
Section
8.06 Termination Fee and Expenses. |
A-57 |
|
|
Article
IX GENERAL PROVISIONS |
A-60 |
|
|
Section
9.01 Non-Survival of Representations, Warranties and Agreements. |
A-60 |
Section
9.02 Notices. |
A-60 |
Section
9.03 Certain Definitions. |
A-61 |
Section
9.04 Severability. |
A-72 |
Section
9.05 Interpretation. |
A-72 |
Section
9.06 Entire Agreement; Assignment. |
A-73 |
Section
9.07 Parties in Interest. |
A-73 |
Section
9.08 Specific Performance. |
A-73 |
Section
9.09 Governing Law; Dispute Resolution. |
A-74 |
Section
9.10 Amendment. |
A-75 |
Section
9.11 Waiver. |
A-75 |
Section
9.12 Counterparts. |
A-75 |
|
|
Annex A |
Plan of Merger |
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made as of September 23, 2015 (the “Execution Date”),
among Capitalhold Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”),
Capitalcorp Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly-owned
subsidiary of Parent (“Merger Sub”), and Shanda Games Limited, an exempted company with limited liability incorporated
under the laws of the Cayman Islands (the “Company”) and amends and restates in entirety that certain Agreement
and Plan of Merger (the “Original Merger Agreement”), dated as of April 3, 2015 (the “Original Execution
Date”), among Parent, Merger Sub and the Company.
WHEREAS, the parties
to the Original Merger Agreement desire to amend and restate the Original Merger Agreement in its entirety on the terms and subject
to the conditions set forth therein and accordingly, (i) the boards of directors of each of Parent, Merger Sub and the Company
have approved this Agreement and (ii) a special committee, comprised of independent members of the board of directors of the Company
(the “Special Committee”), has recommended this Agreement;
WHEREAS, the Parties
intend, as set forth in Section 9.05(b), that (i) all references in this Agreement to “the date hereof” or “the
date of this Agreement” shall refer to the Original Execution Date, (ii) the date on which the representations and warranties
set forth in Articles III and IV are made shall not change as a result of the execution of this Agreement and shall be made as
of such dates as they were in the Original Merger Agreement and (iii) each reference to “this Agreement” or “herein”
in the representations and warranties set forth in Articles III and IV shall refer to “the Original Merger Agreement,”
in each of cases (i), (ii) and (iii), unless expressly indicated otherwise in this Agreement;
WHEREAS, Parent
and the Company intend to enter into a transaction pursuant to which Merger Sub will be merged with and into the Company (the
“Merger”), with the Company surviving the Merger and becoming a wholly-owned Subsidiary of Parent as a result
of the Merger;
WHEREAS, the board
of directors of the Company (the “Company Board”), acting upon the unanimous recommendation of the Special
Committee, has (a) determined that the Merger and other transactions contemplated by this Agreement (collectively, the “Transactions”),
are fair to and in the best interests of the Company and the shareholders and holders of American depositary shares of the Company
who are unaffiliated with the Company and whose securities are to be purchased pursuant to this Agreement and (b) acknowledged,
approved, adopted, authorized, confirmed and ratified this Agreement;
WHEREAS, the board
of directors of each of Parent and Merger Sub has (a) approved the execution, delivery and performance by Parent and Merger Sub,
respectively, of this Agreement, the Plan of Merger and the consummation of the Transactions and (b) declared it advisable for
Parent and Merger Sub, respectively, to enter into this Agreement and the Plan of Merger;
WHEREAS, concurrently
with the execution and delivery of the Original Merger Agreement, Yili Shengda, Zhongrong Shengda, Zhongrong Investment, Hongtai,
Hongzhi and Hao Ding (collectively, the “Rollover Shareholders”) and Parent executed and delivered a support
agreement, dated as of the Original Execution Date (the “Support Agreement”), providing that, among other things,
(a) the Rollover Shareholders will vote all Shares held directly or indirectly by them in favor of the authorization and approval
of the Original Merger Agreement, as amended from time to time, the Plan of Merger and the Transactions and (b) the Rollover Shareholders
agree, upon the terms and subject to the conditions in the Support Agreement, to receive no consideration for the cancellation
of the Rollover Shares in accordance with the Original Merger Agreement, as amended from time to time; and
WHEREAS, concurrently
with the execution of the Original Merger Agreement, each of the Sponsors (each, a “Guarantor”, and collectively
the “Guarantors”) executed and delivered a limited guarantee in favor of the Company with respect to certain
obligations of Parent under the Original Merger Agreement, as amended from time to time (each, a “Limited Guarantee”
and collectively, the “Limited Guarantees”).
NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
Article
I
THE MERGER
Section 1.01 The
Merger.
Upon the terms and
subject to the conditions set forth in this Agreement, and in accordance with the Cayman Islands Companies Law Cap. 22 (Law 3
of 1961, as consolidated and revised) (the “CICL”), at the Effective Time, Merger Sub shall be merged with
and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation in the Merger (the “Surviving Corporation”) under the Laws of the Cayman
Islands and become a wholly-owned Subsidiary of Parent.
Section 1.02 Closing;
Closing Date.
Unless otherwise unanimously
agreed in writing between the Company, Parent and Merger Sub, the closing for the Merger (the “Closing”) shall
take place at 10:00 a.m. (Beijing time) at the offices of Wilson Sonsini Goodrich & Rosati, P.C., Jin Mao Tower, 38F, Unit
3, 88 Century Blvd, Pudong, Shanghai, China as soon as practicable, but in any event no later than the second Business Day following
the day on which the last of the conditions set forth in Article VII to be satisfied or, if permissible, waived (other than those
conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, if permissible, waiver
of those conditions) shall be satisfied or, if permissible, waived in accordance with this Agreement (such date being the “Closing
Date”).
Section 1.03 Effective
Time.
Subject to the
provisions of this Agreement, on the Closing Date, Merger Sub and the Company shall execute a plan of merger (the “Plan
of Merger”) substantially in the form set out in Annex A attached hereto and such parties shall file the Plan of Merger
and other documents required under the CICL to effect the Merger with the Registrar of Companies of the Cayman Islands as provided
by Section 233 of the CICL. The Merger shall become effective on the date when the Plan of Merger is registered by the Registrar,
or such other date specified in the Plan of Merger being not later than the ninetieth (90th) day after the date of such registration,
in accordance with the CICL (the “Effective Time”).
Section 1.04 Effects
of the Merger.
At the Effective Time,
the Merger shall have the effects specified in the CICL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, the Surviving Corporation shall succeed to and assume all the rights, property of every description, including
choses in action, and the business, undertaking, goodwill, benefits, immunities and privileges, mortgages, charges or security
interests and all contracts, obligations, claims, debts and liabilities of the Company and Merger Sub in accordance with the CICL.
Section 1.05 Memorandum
and Articles of Association of Surviving Corporation.
At the Effective Time,
the memorandum and articles of association of Merger Sub, as in effect immediately prior to the Effective Time, shall be the memorandum
and articles of association of the Surviving Corporation until thereafter amended as provided by Law and such memorandum and articles
of association; provided that at the Effective Time, (a) Article I of the memorandum of association of the Surviving Corporation
shall be amended to read as follows: “The name of the corporation is “Shanda Games Limited” and the articles
of association of the Surviving Corporation shall be amended to refer to the name of the Surviving Corporation as “Shanda
Games Limited”, (b) references therein to the authorized share capital of the Surviving Corporation shall be amended to
refer to the correct authorized capital of the Surviving Corporation as approved in the Plan of Merger, if necessary, and (c)
the memorandum and articles of association of the Surviving Corporation will contain provisions no less favorable to the intended
beneficiaries with respect to exculpation and indemnification of liability and advancement of expenses than are set forth in the
memorandum and articles of association of the Company as in effect on the date hereof, in accordance with Section 6.05(a).
Section 1.06 Directors
and Officers.
The parties hereto
shall take all actions necessary so that (a) the directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation and (b) the officers of the Company immediately prior to the Effective Time shall
be the initial officers of the Surviving Corporation, in each case, unless otherwise determined by Parent prior to the Effective
Time, and until their respective successors are duly elected or appointed and qualified or until the earlier of their death, resignation
or removal in accordance with the memorandum and articles of association of the Surviving Corporation.
Article
II
CONVERSION OF SECURITIES; MERGER CONSIDERATION
Section 2.01 Conversion
of Securities.
At the Effective Time,
by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any securities
of the Company:
(a) each Class A
ordinary share, par value $0.01 each, of the Company (a “Class A Share” or, collectively, the “Class
A Shares”) issued and outstanding immediately prior to the Effective Time (other than the Excluded Shares, the Dissenting
Shares and Class A Shares represented by ADSs and Company RSs) shall be cancelled in exchange for the right to receive $3.55 in
cash per Class A Share without interest (the “Per Share Merger Consideration”) payable in the manner provided
in Section 2.04;
(b) each American
Depositary Share, representing two (2) Class A Shares (each, an “ADS” or collectively, the “ADSs”),
issued and outstanding immediately prior to the Effective Time (other than ADSs representing the Excluded Shares), and each Class
A Share represented by such ADSs, shall be cancelled in exchange for the right to receive $7.10 in cash per ADS without interest
(the “Per ADS Merger Consideration”) pursuant to the terms and conditions set forth in this Agreement and the
Deposit Agreement; provided that in the event of any conflict between this Agreement and the Deposit Agreement, this Agreement
shall prevail;
(c) each of the Excluded
Shares issued and outstanding immediately prior to the Effective Time, shall be cancelled without payment of any consideration
or distribution therefor;
(d) each of the Dissenting
Shares shall carry no rights other than the right to receive the applicable payments set forth in Section 2.03;
(e) each of the Company
RSs shall be cancelled in accordance with Section 2.02(a) and thereafter represent only the right to receive the applicable payments
set forth in Section 2.02(c);
(f) each of the Company
RSUs shall be cancelled in accordance with Section 2.02(a) and thereafter represent only the right to receive the applicable payments
set forth in Section 2.02(c);
(g) all Shares issued
and outstanding immediately prior to the Effective Time, including Shares represented by ADSs, shall cease to be outstanding,
shall be cancelled and shall cease to exist, and the register of members of the Company shall be amended accordingly; and
(h) each ordinary
share, par value $0.01 each, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into
and become one validly issued, fully paid and non-assessable ordinary share, par value $0.01 each, of the Surviving Corporation.
Such ordinary shares shall constitute the only issued and outstanding share capital of the Surviving Corporation, which shall
be reflected in the register of members of the Surviving Corporation.
Section 2.02 Share
Incentive Plan, Outstanding Company Options, Company RS and Company RSUs.
(a) At the Effective
Time, the Company shall (i) terminate the Company’s Share Incentive Plan and any relevant award agreements entered into
under the Share Incentive Plan, (ii) cancel each Company Option that is outstanding and unexercised, whether or not vested or
exercisable, (iii) cancel each Company RS that is outstanding and (iv) cancel each Company RSU that is outstanding.
(b) Each former holder
(or his or her designee) of a Company Option that is cancelled at the Effective Time shall, in exchange thereof, be paid by the
Surviving Corporation or one of its Subsidiaries, as soon as practicable after the Effective Time (without interest), a cash amount
equal to the product of (i) the excess, if any, of the Per Share Merger Consideration over the Exercise Price of such Company
Option and (ii) the number of Shares underlying such Company Option; provided that if the Exercise Price of any such Company
Option is equal to or greater than the Per Share Merger Consideration, such Company Option shall be cancelled without any payment
therefor.
(c) Each former holder
(or his or her designee) of a Company RS that is cancelled at the Effective Time shall, in exchange thereof, be paid by the Surviving
Corporation or one of its Subsidiaries, as soon as practicable after the Effective Time (without interest), a cash amount equal
to the Per Share Merger Consideration for each cancelled Company RS of such former holder.
(d) Each former holder
(or his or her designee) of a Company RSU that is cancelled at the Effective Time shall, in exchange thereof, be paid by the Surviving
Corporation or one of its Subsidiaries, as soon as practicable after the Effective Time (without interest), a cash amount equal
to the Per Share Merger Consideration for each cancelled Company RSU of such former holder.
(e) Any payment under
this Section 2.02 shall be subject to all applicable Taxes and Tax withholding requirements, and each former holder of Company
Options, Company RSs and Company RSUs shall be personally responsible for the proper reporting and payment of all Taxes related
to any distribution contemplated by this Section 2.02.
(f) At or prior to
the Effective Time, the Company, the Company Board or the compensation committee of the Company Board, as applicable, shall pass
any resolutions and take any actions that are reasonably necessary to effectuate the provisions of this Section 2.02. The Company
shall take all reasonable actions necessary to ensure that from and after the Effective Time neither Parent nor the Surviving
Corporation will be required to issue Shares or other share capital of the Company or the Surviving Corporation to any person
pursuant to the Share Incentive Plan or in settlement of any Company Option, Company RS or Company RSU (as applicable). Promptly
following the date hereof, the Company shall deliver written notice to each holder of Company Options, Company RSs and/or Company
RSUs informing such holder of the effect of the Merger on his or her Company Options, Company RSs and/or Company RSUs (as applicable).
Section 2.03 Dissenting
Shares.
(a) Notwithstanding
any provision of this Agreement to the contrary and to the extent available under the CICL, Shares that are issued and outstanding
immediately prior to the Effective Time and that are held by shareholders who shall have validly exercised and not effectively
withdrawn or lost their rights to dissent from the Merger, or dissenter rights, in accordance with Section 238 of the CICL (collectively,
the “Dissenting Shares” and holders of Dissenting Shares collectively being referred to as “Dissenting
Shareholders”) shall not be entitled to receive the Per Share Merger Consideration and shall instead be entitled to
receive only the payment of the fair value of such Dissenting Shares held by them determined in accordance with the provisions
of Section 238 of the CICL.
(b) For the avoidance
of doubt, all Shares held by Dissenting Shareholders who shall have failed to exercise or who effectively shall have withdrawn
or lost their dissenter rights under Section 238 of the CICL shall thereupon (i) not be deemed to be Dissenting Shares and (ii)
be deemed to have been converted into, and to have become exchanged for, as of the Effective Time, the right to receive the Per
Share Merger Consideration, without any interest thereon, in the manner provided in Section 2.04. Parent shall promptly deposit
or cause to be deposited with the Paying Agent any additional funds necessary to pay in full the aggregate Per Share Merger Consideration
so due and payable to such shareholders who have failed to exercise or who shall have effectively withdrawn or lost such dissenter
rights under Section 238 of the CICL.
(c) The Company shall
give Parent (i) prompt notice of any notices of objection, notices of dissent or demands for appraisal, under Section 238 of the
CICL received by the Company, attempted withdrawals of such notices or demands, and any other instruments served pursuant to applicable
Laws of the Cayman Islands and received by the Company relating to its shareholders’ rights to dissent from the Merger or
appraisal rights and (ii) the opportunity to direct all negotiations and proceedings with respect to any such notice or demand
for appraisal under the CICL. The Company shall not, except with the prior written consent of Parent, make any payment with respect
to any exercise by a shareholder of its rights to dissent from the Merger or any demands for appraisal or offer to settle or settle
any such demands or approve any withdrawal of any such demands.
(d) In the event
that any written notices of objection to the Merger are served by any shareholders of the Company pursuant to section 238(2) of
the CICL, the Company shall serve written notice of the authorization and approval of this Agreement, the Plan of Merger and the
Transactions on such shareholders pursuant to section 238(4) of the CICL within 20 days of obtaining the Requisite Company Vote
at the Shareholders’ Meeting.
Section 2.04 Exchange
of Share Certificates, etc.
(a) Paying Agent.
Prior to the Effective Time, Parent shall appoint a bank or trust company selected by Parent with the Company’s prior consent
(such consent not to be unreasonably withheld, conditioned or delayed) to act as paying agent (the “Paying Agent”)
for all payments required to be made pursuant to Section 2.01(a), Section 2.01(b) and Section 2.03(b) (collectively, the “Merger
Consideration”), and Parent shall enter into a paying agent agreement with the Paying Agent in form and substance reasonably
acceptable to the Company. At or prior to the Effective Time, or in the case of payments pursuant to Section 2.03(b), when ascertained
pursuant to Section 2.03(b), Parent shall deposit, or cause to be deposited, with the Paying Agent, for the benefit of the holders
of Shares and ADSs, cash in an amount sufficient to pay the Merger Consideration (such cash being hereinafter referred to as the
“Exchange Fund”).
(b) Exchange Procedures.
Promptly after the Effective Time (and in any event within three Business Days), the Surviving Corporation shall cause the Paying
Agent to mail to each person who was, at the Effective Time, a registered holder of Shares entitled to receive the Per Share Merger
Consideration pursuant to Section 2.01(a): (i) a letter of transmittal (which shall
be in customary form for a company incorporated in the Cayman Islands reasonably acceptable to Parent and the Company, and shall
specify the manner in which the delivery of the Per Share Merger Consideration to registered holders of Shares shall be effected
and contain such other provisions as Parent and the Company may mutually agree prior to the Effective Time) and (ii) instructions
for use in effecting the surrender of any issued share certificates representing Shares (the “Share Certificates”)
(or affidavits and indemnities of loss in lieu of the Share Certificates as provided in Section
2.04(c)) or non-certificated Shares represented by book entry (“Uncertificated
Shares”) and/or such other documents as may be required in exchange for the Per Share Merger Consideration. Upon surrender
of, if applicable, a Share Certificate (or affidavit and indemnity of loss in lieu of the Share Certificate as provided in Section
2.04(c)) or Uncertificated Shares and/or such other documents as may be required pursuant
to such instructions to the Paying Agent in accordance with the terms of such letter of transmittal, duly executed in accordance
with the instructions thereto, each registered holder of Shares represented by such Share Certificate (or affidavits and indemnities
of loss in lieu of the Share Certificates as provided in Section 2.04(c))
and each registered holder of Uncertificated Shares shall be entitled to receive in exchange therefor a check, in the amount equal
to (x) the number of Shares represented by such Share Certificate (or affidavit and indemnity of loss in lieu of the Share
Certificate as provided in Section 2.04(c)) or the
number of Uncertificated Shares multiplied by (y) the Per Share Merger Consideration, and any Share Certificate
so surrendered shall forthwith be marked as cancelled. Prior to the Effective Time, Parent and the Company shall establish procedures
with the Paying Agent and the Depositary to ensure that (A) the Paying Agent will transmit to the Depositary as promptly as reasonably
practicable following the Effective Time an amount in cash in immediately available funds equal to the product of (x) the number
of ADSs issued and outstanding immediately prior to the Effective Time (other than ADSs representing Excluded Shares) and (y)
the Per ADS Merger Consideration and (B) the Depositary will distribute the Per ADS Merger Consideration to holders of ADSs pro
rata to their holdings of ADSs (other than ADSs representing Excluded Shares) upon surrender by them of the ADSs. Pursuant to
the terms of the Deposit Agreement, the ADS holders will pay any applicable fees, charges and expenses of the Depositary and government
charges (other than withholding Taxes, if any) due to or incurred by the Depositary in connection with the cancellation of their
ADSs. The Surviving Corporation will pay any applicable fees, charges and expenses of the Depositary and government charges (other
than withholding Taxes, if any) due to or incurred by the Depositary in connection with the distribution of the Per ADS Merger
Consideration to ADS holders and the termination of the ADS program or facility (other than the ADS cancellation fee, which shall
be payable in accordance with the Deposit Agreement). No interest shall be paid or will accrue on any amount payable in respect
of the Shares or ADSs pursuant to the provisions of this Article II. In the event of a transfer of ownership of Shares, including,
but not limited to, through the exercise of a Company Option or Company Options, as the case may be, prior to the Effective Time
that is not registered in the register of members of the Company as of the Effective Time, the Per Share Merger Consideration
in respect of such Shares will be paid to such transferee upon delivery of evidence to the reasonable satisfaction of the Paying
Agent of such transferee’s entitlement to the relevant Shares and evidence that any applicable share transfer Taxes have
been paid or are not applicable, in each case, as of the Effective Time; provided that in the case of an exercise of a
Company Option or Company Options, among other things, evidence of payment for Shares together with the applicable notice of exercise
shall constitute reasonably satisfactory evidence of such transferee’s entitlement to the relevant Shares.
(c) Lost Certificates.
If any Share Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Share Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation or the Paying Agent,
the posting by such person of a bond, in such reasonable amount as the Surviving Corporation or the Paying Agent may direct, as
indemnity against any claim that may be made against it with respect to such Share Certificate, the Paying Agent will pay in respect
of such lost, stolen or destroyed Share Certificate an amount equal to the Per Share Merger Consideration multiplied by
the number of Shares represented by such Share Certificate to which the holder thereof is entitled pursuant to Section 2.01(a).
(d) Untraceable
and Dissenting Shareholders. Remittances for the Per Share Merger Consideration or the Per ADS Merger Consideration, as the
case may be, shall not be sent to holders of Shares or ADSs who are untraceable unless and until, except as provided below, they
notify the Paying Agent or the Depositary, as applicable, of their current contact details. A holder of Shares or ADSs will be
deemed to be untraceable if (i) such person has no registered address in the register of members (or branch register) maintained
by the Company or the Depositary, as applicable, (ii) on the last two consecutive occasions on which a dividend has been paid
by the Company a check payable to such person either (A) has been sent to such person and has been returned undelivered or has
not been cashed or (B) has not been sent to such person because on an earlier occasion a check for a dividend so payable has been
returned undelivered, and in any such case no valid claim in respect thereof has been communicated in writing to the Company or
the Depositary, as applicable or (iii) notice of the Shareholders’ Meeting convened to vote on the Merger has been sent
to such person and has been returned undelivered. Monies due to Dissenting Shareholders and shareholders of the Company who are
untraceable shall be returned to the Surviving Corporation on demand and held in a non-interest bearing bank account for the benefit
of Dissenting Shareholders and shareholders of the Company (including holders of ADSs) who are untraceable. Monies unclaimed after
a period of seven years from the Closing Date shall be forfeited and shall revert to the Surviving Corporation.
(e) Adjustments
to Merger Consideration. The Per Share Merger Consideration and the Per ADS Merger Consideration shall be equitably adjusted
to reflect appropriately the effect of any share split, reverse share split, share dividend (including any dividend or distribution
of securities convertible into Shares), extraordinary cash dividends, reorganization, recapitalization, reclassification, combination,
exchange of shares or other like change with respect to Shares occurring on or after the date hereof and prior to the Effective
Time and to provide to the holders of Shares (including Shares represented by ADSs), Company Options, Company RSs and Company
RSUs the same economic effect as contemplated by this Agreement prior to such action.
(f) Investment
of Exchange Fund. The Exchange Fund, pending its disbursement to the holders of Shares and ADSs, shall be invested by the
Paying Agent as directed by Parent; provided that (i) Parent shall not direct the Paying Agent to make any such investments
that are speculative in nature and (ii) no such investment or losses shall affect the amounts payable to such holders and Parent
shall promptly replace or cause to be replaced any funds deposited with the Paying Agent that are lost through any investment
so as to ensure that the Exchange Fund is at all times maintained at a level sufficient for the Paying Agent to pay the Merger
Consideration. Earnings from investments shall be the sole and exclusive property of Parent and the Surviving Corporation. Except
as contemplated by Section 2.04(b) and this Section 2.04(f), the Exchange Fund shall not be used for any other purpose.
(g) Termination
of Exchange Fund. Any portion of the Exchange Fund that remains unclaimed by the holders of Shares or ADSs for six months
after the Effective Time shall be delivered to the Surviving Corporation upon demand, and any holders of Shares and ADSs who have
not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation for the cash to which they
are entitled pursuant to Section 2.01(a) and Section 2.01(b).
(h) No Liability.
None of the Paying Agent, the Rollover Shareholders, the Sponsors, Parent, the Surviving Corporation or the Depositary shall be
liable to any former holder of Shares for any such Shares (including Shares represented by ADSs) (or dividends or distributions
with respect thereto) or cash properly delivered to a public official pursuant to any applicable abandoned property, bona vacantia,
escheat or similar Law. Any amounts remaining unclaimed by such holders at such time at which such amounts would otherwise escheat
to or become property of any Governmental Authority shall become, to the extent permitted by applicable Laws, the property of
the Surviving Corporation or its designee, free and clear of all claims or interest of any person previously entitled thereto.
(i) Withholding
Rights. Each of Parent, the Surviving Corporation, the Paying Agent and the Depositary shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any holder of Shares, ADSs, Company Options, Company RSs
or Company RSUs such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision
of applicable Tax Law. To the extent that amounts are so withheld by Parent, the Surviving Corporation, the Paying Agent or the
Depositary, as the case may be, such withheld amounts shall be (i) remitted by Parent, the Surviving Corporation, the Paying Agent
or the Depositary to the applicable Governmental Authority and (ii) to the extent so remitted, treated for all purposes of
this Agreement as having been paid to the holder of the Shares, ADSs, Company Options, Company RSs or Company RSUs in respect
of which such deduction and withholding was made by Parent, the Surviving Corporation, the Paying Agent or the Depositary, as
the case may be.
Section 2.05 No
Transfers.
From and after the
Effective Time, (a) no transfers of Shares shall be effected in the register of members of the Company and (b) the holders of
Shares (including Shares represented by ADSs) issued and outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to such Shares, except as otherwise provided in this Agreement or by Law. On or after the Effective Time,
any Share Certificates presented to the Paying Agent, Parent or Surviving Corporation for transfer or any other reason shall be
canceled in exchange for the right to receive the cash consideration to which the holders thereof are entitled under this Article
II in the case of Shares other than the Excluded Shares, and for no consideration in the case of Excluded Shares.
Section 2.06 Termination
of Deposit Agreement.
As soon as reasonably
practicable after the Effective Time, the Surviving Corporation shall provide notice to JPMorgan Chase Bank, N.A. (the “Depositary”)
to terminate the deposit agreement, dated September 24, 2009, between the Company, the Depositary and all holders from time to
time of ADSs issued thereunder (the “Deposit Agreement”) in accordance with its terms.
Section 2.07 Agreement
of Fair Value.
Parent, Merger Sub
and the Company respectively agree that the Per Share Merger Consideration represents the fair value of the Shares for the purposes
of Section 238(8) of the CICL.
Article
III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (a) as set
forth in the Company Disclosure Schedule (it being understood that (1) any information set forth in one section or subsection
of the Company Disclosure Schedule shall be deemed to apply to and qualify the section or subsection of this Agreement to which
it corresponds in number and each other section or subsection of this Agreement to the extent that it is reasonably apparent that
such information is relevant to such other section or subsection, and (2) notwithstanding that any representation specifically
references a section or subsection of the Company Disclosure Schedule, each representation shall be deemed to be qualified by
any information in the Company Disclosure Schedule where it is reasonably apparent that such information is relevant to such representation),
and (b) as disclosed in the Company SEC Reports filed or furnished prior to the date of this Agreement (excluding any language
in such reports that is predictive or forward-looking, in each case other than any specific factual information contained therein),
the Company hereby represents and warrants to Parent and Merger Sub that:
Section 3.01 Organization
and Qualification; Subsidiaries.
Each of the Company
and its Subsidiaries (i) is an entity duly organized, validly existing and in good standing (with respect to jurisdictions that
recognize the concept of good standing) under the Laws of the jurisdiction of its organization and (ii) has the requisite corporate
or similar power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being
conducted, except, with respect to clause (ii), where the failure to have such power and authority would not reasonably be expected
to have a Company Material Adverse Effect. The Company and each of its Subsidiaries is duly qualified or licensed as a foreign
corporation or other legal entity to do business, and is in good standing (with respect to jurisdictions that recognize the concept
of good standing), in each jurisdiction where the character of the properties or assets owned, leased or operated by it or the
nature of its business makes such qualification or licensing necessary, except where the failure to be so qualified or licensed
or in good standing would not reasonably be expected to have a Company Material Adverse Effect.
Section 3.02 Memorandum
and Articles of Association.
Except as disclosed
in Section 3.02 of the Company Disclosure Schedule, the memorandum and articles of association or other equivalent organizational
documents, as applicable, of each of the Company and its Subsidiaries are in full force and effect. Neither the Company nor any
of its Subsidiaries is in violation of any of the provisions of its memorandum and articles of association or equivalent organizational
documents, as applicable, in any material respect.
Section 3.03 Capitalization.
(a) The authorized
share capital of the Company consists of 16,000,000,000 Class A Shares and 4,000,000,000 Class B ordinary shares of a nominal
or par value of $0.01 each (“Class B Shares” and together with the Class A Shares, the “Shares”).
As of the date hereof, (i) 443,179,215 Class A Shares (which number includes 11,440,370 vested Company RSs and 768,020 vested
Company RSUs) and 97,518,374 Class B Shares are issued and outstanding, all of which are duly authorized, validly issued, fully
paid and non-assessable, (ii) 11,666,618 Shares are reserved for future issuance pursuant to outstanding Company Options, and
(iii) 626,377 Shares and 136,368 Shares are reserved for future issuance pursuant to outstanding unvested Company RSUs and unvested
Company RSs, respectively. Each Company Option, Company RS and Company RSU was granted in accordance with all applicable Laws
in all material respects, all of the terms and conditions of the relevant Share Incentive Plan and in compliance with the rules
and regulations of the NASDAQ (“NASDAQ”) in all material respects. All Shares subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and non-assessable.
(b) Except for the
Company Options, Company RSs and Company RSUs referred to in Section 3.03(a) or as disclosed in Section 3.03(b) of the Company
Disclosure Schedule, there are no options, warrants, convertible debt, other convertible instruments or other rights, agreements,
arrangements or commitments of any character issued by the Company or any of its Subsidiaries relating to the issued or unissued
share capital of the Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue or sell
any shares of capital stock or other securities of the Company or any of its Subsidiaries or any securities or obligations convertible
or exchangeable into or exercisable for, or giving any person a right to subscribe for or acquire, any securities of the Company
or any of its Subsidiaries and no securities or obligations evidencing such rights are authorized, issued or outstanding. There
are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any Shares or any share capital or other securities of the Company or any of its Subsidiaries. As of the date of this Agreement,
no bonds, debentures, notes or other Indebtedness of the Company having the right to vote (or convertible into or exercisable
for securities having the right to vote) on any matters on which shareholders of the Company may vote are issued or outstanding.
(c) Each outstanding
share of capital stock of, or other equity interest in, each Subsidiary wholly-owned by the Company is (i) duly authorized, validly
issued, fully paid and non-assessable (to the extent such concept is applicable in the relevant jurisdiction), (ii) owned
by the Company or another of its wholly-owned Subsidiaries free and clear of all Liens (other than Permitted Encumbrances) and
(iii) not subject to any outstanding obligations of the Company or any of its Subsidiaries requiring the registration under any
securities Law for sale of such share of capital stock or other equity interests. Each outstanding share of capital stock of or
other equity interest that is directly or indirectly owned by the Company in each Subsidiary that is not wholly-owned by the Company
is (i) duly authorized, validly issued, fully paid and non-assessable (to the extent such concept is applicable in the relevant
jurisdiction), (ii) owned by the Company or another of its Subsidiaries free and clear of all Liens (other than Permitted Encumbrances)
and (iii) not subject to any outstanding obligations of the Company or any of its Subsidiaries requiring the registration under
any securities Law for sale of such share of capital stock or other equity interest.
Section 3.04 Authority
Relative to This Agreement.
(a) The Company has
all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and, subject
to receipt of the Company Shareholder Approval, to consummate the Transactions. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the Transactions have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate
the Transactions (other than, with respect to the approval of this Agreement and the Merger, obtaining the Company Shareholder
Approval). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to bankruptcy, insolvency (including all Laws relating to fraudulent
transfers), reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights
and to general equity principles (the “Bankruptcy and Equity Exception”).
(b) The Company Board,
acting upon the unanimous recommendation of the Special Committee, by resolutions duly adopted by unanimous vote of those directors
voting at a meeting duly called and held and not subsequently rescinded or modified in a manner adverse to Parent, has (i) determined
that the execution of this Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, are
fair to, and in the best interests of, the Company and its shareholders (other than holders of Excluded Shares); (ii) approved
and declared advisable the Merger, the other Transactions and this Agreement; (iii) resolved to recommend the approval and adoption
of this Agreement, the Plan of Merger and the Transactions to the holders of Shares, and directed that this Agreement be submitted
for approval by the shareholders of the Company at the Shareholders’ Meeting (the “Company Recommendation”)
and (iv) taken all such actions as may be required to enter into this Agreement and, as of the Closing Date, shall have taken
all actions as may be required to be taken by the Company to effect the Transactions, including obtaining any necessary consents
in respect of the Share Incentive Plans.
(c) The only vote
of the holders of any class or series of share capital of the Company necessary to approve and adopt this Agreement and the Merger
is the affirmative vote of shareholders holding two-thirds or more of the voting power represented by the Shares present and voting
in person or by proxy as a single class at the Shareholders’ Meeting (the “Requisite Company Vote”).
(d) The representations
and warranties set forth in this Section 3.04 shall be made (i) with respect to the Original Merger Agreement, as of the
Original Execution Date, and (ii) with respect to this Agreement, as of the Execution Date.
Section 3.05 No
Conflict; Required Filings and Consents.
(a) The execution
and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company and the consummation
of the Merger will not, (i) assuming the Requisite Company Vote is obtained, conflict with or violate the memorandum and articles
of association or other equivalent organizational documents of the Company or any of its Subsidiaries; (ii) assuming all consents,
approvals, authorizations and other actions described in Section 3.05(b) have been obtained or taken and all filings and obligations
described in Section 3.05(b) have been made or satisfied and that the Requisite Company Vote is obtained, conflict with or violate
any Law applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries
is bound or affected; or (iii) violate, conflict with, require consent under, result in any breach of, result in loss of
benefit under, or constitute a default (or an event that, with notice or lapse of time or both, would become a default) under,
or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on
any property or asset of the Company or any of its Subsidiaries (other than Permitted Encumbrances) pursuant to, any note, bond,
mortgage, indenture, deed of trust, contract, agreement, Lease, license, Company Permit or other instrument or obligation to which
the Company of any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective
assets or properties is bound or affected, except, (1) with respect to clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences which would not reasonably be expected to have a Company Material Adverse Effect, and
(2) with respect to clause (iii), as disclosed in Section 3.05(a)(iii) of the Company Disclosure Schedule.
(b) Other than filings
and/or notices required for (i) compliance with the applicable requirements of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and the rules and regulations promulgated thereunder (including the joining of the Company
in the filing of the Schedule 13E-3, the furnishing of Form 6-K with the proxy statement relating to the Merger (including any
amendment or supplement thereto, the “Proxy Statement”), and the filing or furnishing of one or more amendments
to the Schedule 13E-3 and such Form 6-K to respond to comments of the SEC, if any, on the Schedule 13E-3 and such Form 6-K), (ii)
compliance with the rules and regulations of NASDAQ, (iii) the filing of the Plan of Merger and related documentation with the
Registrar of Companies of the Cayman Islands and the publication of notification of the Merger in the Cayman Islands Government
Gazette pursuant to the CICL, and (iv) the consent, approvals, authorizations or permits of, or filing with or notifications
to, the Governmental Authorities set forth in Section 3.05(b) of the Company Disclosure Schedule (collectively, the “Requisite
Regulatory Approvals”), no notices, reports or other filings are required to be made by the Company with, nor are any
consents, registrations, approvals, permits or authorizations required to be obtained by the Company from, any Governmental Authority
in connection with the execution, delivery and performance of this Agreement by the Company and the consummation by the Company
of the Merger and the other Transactions, except for those that the failure to make or obtain would not reasonably be expected
to have a Company Material Adverse Effect.
Section 3.06 Permits;
Compliance.
(a) Except as disclosed
in Section 3.06(a) of the Company Disclosure Schedule, (i) the business of each of the Company and its Subsidiaries is conducted
in compliance with all Laws applicable to the Company or such Subsidiary or by which any property, asset or right of the Company
or such Subsidiary is bound, (ii) the Company is in compliance with the applicable listing, corporate governance and other rules
and regulations of NASDAQ, (iii) each of the Company and its Subsidiaries is in possession of all Company Permits necessary for
the lawful conduct of its business and the ownership, use, occupancy and operation of its assets and properties, (iv) all approvals
of, and filings and registrations and other requisite formalities with, Governmental Authorities in the PRC required to be made
by the Company or its Subsidiaries in respect of the Company and the Subsidiaries and their capital structure and operations,
including registrations with the State Administration for Industry and Commerce, the State Administration of Foreign Exchange
(“SAFE”) and the State Administration of Taxation, and their respective local counterparts, have been duly
completed in accordance with applicable PRC Laws, (v) each of the Company and its Subsidiaries is in compliance with the terms
of such Company Permits, and (vi) no such Company Permit shall cease to be effective as a result of the Transactions, except,
in each case, for such non-compliance, non-possession or failure to complete or remain effective as would not reasonably be expected
to have a Company Material Adverse Effect. Without limiting the foregoing, each of the Company and its Subsidiaries is in compliance
with all applicable Law relating to: (A) the privacy of users of (including Internet users who view or interact with) the Company
Products and all of the Company’s and its Subsidiaries’ websites; and (B) the collection, use, storage, retention,
disclosure, and disposal of any Personal Information collected by the Company or any of its Subsidiaries, or, to the knowledge
of the Company, by third parties acting on the Company’s or any of its Subsidiaries’ behalf or having authorized access
to the Company’s or any of its Subsidiaries’ records, except, in each case, for such non-compliance as would not reasonably
be expected to have a Company Material Adverse Effect.
(b) In the past
three (3) years, except as would not reasonably be expected to have a Company Material Adverse Effect, none of the Company, any
of its Subsidiaries or any of their respective directors, officers or employees or, to the knowledge of the Company, any agent
or any other person acting for or on behalf of the Company or any of its Subsidiaries has (i) made any bribe, influence payment,
kickback, payoff, or any other type of payment that would be unlawful under any applicable Law or (ii) offered, paid, promised
to pay, or authorized any payment or transfer of, anything of value, directly or indirectly, to any Government Official for the
purpose of (1) improperly influencing any act or decision of such Government Official in his official capacity, (2) improperly
inducing such Government Official to do or omit to do any act in relation to his lawful duty, (3) securing any improper advantage,
or (4) inducing such Government Official to improperly influence or affect any act or decision of any Governmental Authority,
in each case, in order to assist the Company or any of its Subsidiaries in obtaining or retaining business for or with, or in
directing business to, any person.
Section 3.07 SEC
Filings; Financial Statements.
(a) The Company has
filed or furnished, as the case may be, all forms, reports, statements, schedules and other documents required to be filed with
or furnished to the Securities and Exchange Commission (the “SEC”) by it since December 31, 2012 (the “Company
SEC Reports”). The Company SEC Reports (i) at the time they were filed and, if amended, as of the date of such
amendment, complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the “Securities
Act”) or the Exchange Act (in each case, including the rules and regulations promulgated thereunder), and (ii) did not,
at the time they were filed, and, if amended, as of the date of such amendment, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(b) The Company maintains
internal control over financial reporting (as defined in Rule 13a-15 or 15d-15, as applicable, of the Exchange Act) that is designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP.
(c) The audited consolidated
financial statements included in or incorporated by reference into the Company SEC Reports (including the related notes and schedules)
fairly present, or, in the case of Company SEC Reports filed after the date hereof, will fairly present, in all material respects,
the consolidated financial position of the Company and its consolidated Subsidiaries as of their respective dates, and the consolidated
results of operations, changes in shareholders’ equity and cash flows, as the case may be, of the Company and its consolidated
Subsidiaries for the periods set forth therein, in each case in accordance with GAAP, except to the extent that such information
has been amended or superseded by later Company SEC Reports filed prior to the date hereof.
(d) The Company has
implemented disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure
that material information relating to the Company required to be included in reports filed under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and related forms, and that such
information is accumulated and communicated to the Company’s chief executive officer and chief financial officer (or other
persons performing similar functions), as appropriate, to allow timely decisions regarding required disclosure. Neither the Company
nor, to the Company’s knowledge, its independent registered public accounting firm, has identified or been made aware of
any “significant deficiencies” or “material weaknesses” (as defined by the Public Company Accounting Oversight
Board) in the design or operation of the internal controls and procedures of the Company which are reasonably likely to adversely
affect the ability of the Company to record, process, summarize and report financial data, in each case which has not been subsequently
remediated. To the Company’s knowledge, there is, and since December 31, 2011 there has been, no fraud, whether or not material,
that involves the management of the Company or other employees who have a significant role in the internal controls over financial
reporting utilized by the Company.
Section 3.08 No
Undisclosed Liabilities. Except as disclosed in Section 3.08 of the Company Disclosure Schedule, none of the Company
or any Subsidiary of the Company has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required by GAAP to be reflected on a consolidated balance sheet of the Company and its Subsidiaries, except for
liabilities or obligations (i) which have not and would not reasonably be expected to have a Company Material Adverse Effect,
(ii) reflected or reserved against in the 2014 Balance Sheet, (iii) incurred after December 31, 2014, in the ordinary course of
business consistent with past practice, or (iv) incurred pursuant to the Transactions.
Section 3.09 Absence
of Certain Changes or Events. Except as disclosed in Section 3.09 of the Company Disclosure Schedule, since December
31, 2014, (a) the Company and its Subsidiaries have conducted their respective businesses in all material respects in the ordinary
course of business consistent with past practice, and (b) there has not been (A) any Company Material Adverse Effect, (B) any
declaration, setting aside or payment of any dividend or other distribution with respect to any shares of share capital of the
Company or any of its Subsidiaries (except for dividends or other distributions by any Subsidiary of the Company to the Company
or to any other Subsidiary of the Company), (C) any adoption of, resolution to approve or petition or similar proceeding or order
in relation to, a plan of complete or partial liquidation, dissolution, scheme of arrangement, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its Subsidiaries, or (D) any receiver, trustee, administrator
or other similar person appointed in relation to the affairs of the Company or its property or any part thereof.
Section 3.10 Absence
of Litigation. Except as disclosed in Section 3.10 of the Company Disclosure Schedule, as of the date hereof, there
is no Proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or any
property or asset of the Company or any of its Subsidiaries before any Governmental Authority that has had or would reasonably
be expected to have a Company Material Adverse Effect. None of the Company, its Subsidiaries or any material property or asset
of the Company or any of its Subsidiaries is subject to any continuing order of, consent decree, settlement agreement or other
similar written agreement with, or, to the knowledge of the Company, continuing investigation by, any Governmental Authority or
any Order of any Governmental Authority, except as would not reasonably be expected to have a Company Material Adverse Effect.
Section 3.11 Employee
Benefit Plans. True and complete copies of all material benefit and compensation plans, agreements, or arrangements, including
plans and agreements to provide severance, change-in-control or retention bonuses, profit-sharing, equity compensation or incentives,
deferred compensation, welfare benefits or fringe benefits, employment or consulting agreements (collectively, the “Plans”)
covering current or former directors, employees or consultants of the Company or any of its Subsidiaries (or a summary thereof,
if any Plan is not in writing), including all amendments thereto, have been provided or made available to Parent and Merger Sub,
and Section 3.11(a) of the Company Disclosure Schedule sets forth a complete list of the Plans; provided that with respect
to each Plan that is documented on a standard form or template, only such standard form or template is listed in Section 3.11(a)
of the Company Disclosure Schedule and only a copy of such standard form or template has been provided or made available to Parent
and Merger Sub. Except as disclosed in Section 3.11(a) of the Company Disclosure Schedule: (i) neither the Company nor any of
its Subsidiaries has made any commitment, whether legally binding or not, to create any additional Plan or materially modify or
change any existing Plan and (ii) since December 31, 2014 there has been no material change, amendment, modification to, or adoption
of, any Plan.
(b) Except as otherwise
specifically provided in this Agreement regarding the Company Options, Company RSs and Company RSUs, neither the execution and
delivery of this Agreement nor the consummation of the Transactions (either alone or in conjunction with another event, such as
a termination of employment) will (x) result in any material payment becoming due to any current or former director, employee
or consultant of the Company or any of its Subsidiaries under any of the Plans or otherwise; (y) materially increase any benefits
otherwise payable under any of the Plans; or (z) result in any acceleration of the time of payment or vesting of any such material
payments or benefits.
(c) There is no outstanding
Order against the Plans that would reasonably be expected to have a Company Material Adverse Effect. (i) Each document prepared
in connection with each Plan complies in all material respects with applicable Law; (ii) each Plan has been operated in material
compliance with its terms, applicable Law, and, to the extent applicable, in accordance with generally accepted accounting practices
in the applicable jurisdiction applied to such matters; (iii) no circumstance, fact or event exists that would result in any material
default under, or violation of, any Plan; and (iv) no material Proceeding is pending or, to the knowledge of the Company, threatened
with respect to any Plan.
(d) Except as disclosed
in Section 3.11(d) of the Company Disclosure Schedule, the Company is not obligated, pursuant to any of the Plans, to grant any
options or other rights to purchase Shares to any director, employee or, consultant of the Company or any of its Subsidiaries
after the date hereof.
Section 3.12 Labor
and Employment Matters.
(a) Neither the Company
nor any of its Subsidiaries is a party to any collective bargaining agreement applicable to persons employed by the Company or
any of its Subsidiaries. Except as would not have a Company Material Adverse Effect, (i) neither the Company nor any of its Subsidiaries
has breached or otherwise failed to comply in any respect with the provisions of any collective bargaining agreement and there
are no grievances outstanding against the Company or any of its Subsidiaries under any such agreement and (ii) there are no employment
related or unfair labor practice complaints pending against the Company or any of its Subsidiaries before any Governmental Authority.
No labor strikes, work stoppages, slowdowns or other material labor disputes are underway or have occurred or, to the knowledge
of the Company, been threatened in the past three (3) years.
(b) Except as disclosed
in Section 3.12(b) of the Company Disclosure Schedule or as would not reasonably be expected to have a Company Material Adverse
Effect, (i) the Company and its Subsidiaries are currently in compliance in all respects with all Laws relating to the employment
of labor, including those related to wages, hours, collective bargaining, retaliation, civil rights, safety and health, immigration
laws, and the payment and withholding of Taxes; and (ii) to the Company’s knowledge, there is no charge of discrimination
in employment or employment practices for any reason, including age, gender, race, religion or other legally protected category,
which has been asserted or is now pending or threatened, against the Company or any of its Subsidiaries before any Governmental
Authority in any jurisdiction in which the Company or any of its Subsidiaries has employed or currently employs any person.
Section 3.13 Real
Property.
(a) Section 3.13(a)
of the Company Disclosure Schedule sets forth all of the real property owned by the Company and its Subsidiaries that is material
to the business of the Company and its Subsidiaries taken as a whole (the “Owned Real Property”). Except as
would not reasonably be expected to have a Company Material Adverse Effect, each of the Company and its Subsidiaries has good
and marketable title to each parcel of Owned Real Property, free and clear of all Liens, except Permitted Encumbrances.
(b) The Company has
made available to Parent copies of all Leases under which the Company or any of its Subsidiaries uses or occupies or has the right
to use or occupy, now or in the future, any real property that is material to the business of the Company and its Subsidiaries
taken as a whole (the “Leased Real Property”) (and all modifications, amendments and supplements thereto).
Except as disclosed in Section 3.13(b) of the Company Disclosure Schedule or as would not reasonably be expected to have a Company
Material Adverse Effect, each of the Company and its Subsidiaries has a good and valid leasehold interest in each parcel of the
Leased Real Property, free and clear of all Liens, except Permitted Encumbrances.
(c) As of the date
of this Agreement, no third party to any such Leases has given written notice to the Company or any of its Subsidiaries or made
a written claim against the Company or any of its Subsidiaries with respect to any material breach or default thereunder.
(d) Except as would
not reasonably be expected to have a Company Material Adverse Effect, the Company and its Subsidiaries have good and marketable
title to, or a valid and binding leasehold interest in, all other properties and assets (excluding Owned Real Property, Leased
Real Property and Intellectual Property) that are material to the business of the Company and its Subsidiaries taken as a whole,
in each case free and clear of all Liens, except Permitted Encumbrances.
Section 3.14 Intellectual
Property.
(a) Section 3.14(a)
of the Company Disclosure Schedule contains a list of (i) each item of Registered IP in which the Company or any of its Subsidiaries
has or purports to have an ownership interest of any nature (whether exclusively, jointly with another person, or otherwise),
(ii) the jurisdiction in which such item of Registered IP has been registered or filed and the applicable application, registration,
or serial or other similar identification number, and (iii) any other person that, to the knowledge of the Company, has an ownership
interest in such item of Registered IP and the nature of such ownership interest.
(b) Except as would
not reasonably be expected to have a Company Material Adverse Effect or as disclosed in Section 3.14(b) of the Company Disclosure
Schedule, the Company and its Subsidiaries have valid and enforceable rights to use all Intellectual Property and Technology used
in, or necessary to conduct, the business of the Company or its Subsidiaries as it is currently conducted (the “Company
Intellectual Property”), free and clear of all Liens (other than Permitted Encumbrances).
(c) Except as would
not reasonably be expected to have a Company Material Adverse Effect, neither the Company nor any of its Subsidiaries has received
written notice of any claim that it, or the business conducted by it, is infringing, diluting, disclosing without authorization
or misappropriating or has infringed, diluted, disclosed without authorization or misappropriated any Intellectual Property right
of any person, including any demands or unsolicited offers to license any Intellectual Property. Except as would not reasonably
be expected to have a Company Material Adverse Effect, to the knowledge of the Company, neither the Company nor any of its Subsidiaries
nor the business conducted by the Company or any of its Subsidiaries infringes, dilutes, discloses without authorization or misappropriates
any Intellectual Property rights of any person or engages in unfair competition or trade practices under the Laws of any relevant
jurisdiction. Except as would not reasonably be expected to have a Company Material Adverse Effect, to the knowledge of the Company,
no third party is currently infringing, diluting, disclosing without authorization or misappropriating any Company Owned IP.
(d) Except as would
not reasonably be expected to have a Company Material Adverse Effect, there are no pending or, to the knowledge of the Company,
threatened, Proceedings by any person challenging the validity or enforceability of, or the use or ownership by the Company or
any of its Subsidiaries of, any of the Company Intellectual Property, or to the knowledge of the Company, against any Person who
may be entitled to be indemnified or reimbursed by the Company or any of its Subsidiaries with respect to such Proceeding.
(e) Except as would
not reasonably be expected to have a Company Material Adverse Effect, the Company and each of its Subsidiaries own all right,
title and interest in and to all Intellectual Property and Technology owned by, claimed or purported to be owned by, or created
or developed by, for or under the direction or supervision of, the Company or any such Subsidiary (collectively, “Company
Owned IP”), free and clear of any Liens (other than Permitted Encumbrances), and all current or former employees, consultants,
or contractors of the Company and each such Subsidiary, as applicable, who are participating or have participated in the creation
or development of any such Company Owned IP, have executed and delivered to the Company or such Subsidiary a valid and enforceable
agreement (i) providing for the non-disclosure and restricted use by such person of confidential information (ii) providing for
the assignment by such person to the Company or such Subsidiary of any Intellectual Property developed or arising out of such
person’s employment by or engagement by the Company or such Subsidiary, and (iii) providing for the waiver of any non-assignable
rights, including moral rights, to such Company Owned IP. Except as would not reasonably be expected to have a Company Material
Adverse Effect, to the knowledge of the Company, no employee of the Company or any of its Subsidiaries is (1) bound by or otherwise
subject to any Contract restricting such employee from performing their duties for the Company or any such Subsidiary or (2) in
breach of any Contract with any former employer or other person concerning Intellectual Property rights or confidentiality due
to their activities as an employee of the Company or any such Subsidiary. Except as would not reasonably be expected to have a
Company Material Adverse Effect, neither the Company nor any of its Subsidiaries has transferred ownership of (whether a whole
or partial interest), or granted any exclusive right to use, any Company Owned IP to any person.
(f) Except as disclosed
in Section 3.14(f) of the Company Disclosure Schedule, the Company and its Subsidiaries have taken all actions reasonably necessary
to maintain and protect each material item of Company Owned IP. Immediately subsequent to the Effective Time, the Company Intellectual
Property shall be owned by or available for use by the Company and its Subsidiaries on terms and conditions materially identical
to those under which the Company and its Subsidiaries owned or used the Company Intellectual Property immediately prior to the
Effective Time.
(g) Except as disclosed
in Section 3.14(g) of the Company Disclosure Schedule or as would not reasonably be expected to have a Company Material Adverse
Effect, neither the execution, delivery, or performance of this Agreement by the Company nor the consummation of the Merger will,
with or without notice or the lapse of time, result in, or give any other person the right or option to cause or declare, (i)
a loss of, or Lien on, any Company Owned IP; (ii) a breach, termination, suspension, acceleration or modification of any right
or obligation under any Company IP Contract; (iii) the release, disclosure or delivery of any Company Owned IP by or to any escrow
agent or other person; (iv) the grant, assignment or transfer by the Company or any Subsidiary to any other person of any license
or other right or interest under, to, or in any Company Intellectual Property; or (v) payment of any amount or offer of any discounts
by the Company or any Subsidiary in connection with any Company Intellectual Property to any person, in each case in a manner
other than that in which the Company or any of its Subsidiaries would be obligated had the Transactions not occurred.
(h) Except as would
not reasonably be expected to have a Company Material Adverse Effect, no funding, facilities, or personnel of any Governmental
Authority or any public or private university, college or other educational or research institution were used, directly or indirectly,
to develop or create, in whole or in part, any Company Owned IP.
(i) Section 3.14(i)
of the Company Disclosure Schedule contains a list and description of all standard-setting organizations, industry bodies and
other standards related activities in which the Company or any of its Subsidiaries has participated in or contributed to, as well
as a list of Patents which the Company or any of its Subsidiaries license as a result of its participation in such standards bodies.
(j) Except as would
not reasonably be expected to have a Company Material Adverse Effect, to the knowledge of the Company, no Software used in the
operation of the business of the Company and any of its Subsidiaries, including in or for the Company Products (collectively,
“Company Software”) contains any “back door,” “drop dead device,” “time bomb,”
“Trojan horse,” “virus,” “worm,” “spyware” or “adware” (as such terms
are commonly understood in the software industry) or any other code designed or intended to disrupt or disable the operation of,
or provide unauthorized access to, a computer system or network or compromise the privacy or data security of a user.
(k) No Source Code
for Software included in the Company Owned IP for any Company Product has been delivered, licensed, or made available to any escrow
agent or other person who is not, as of the date of this Agreement, an employee of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has any duty or obligation (whether present, contingent or otherwise) to deliver, license,
or make available such Source Code for any Company Product to any escrow agent or other person. No event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, result
in the delivery, license or disclosure of any such Source Code for any Company Product to any other person who is not, as of the
date of this Agreement, an employee of the Company or any of its Subsidiaries.
(l) No Company Software
included in the Company Owned IP is subject to any “copyleft” or other obligation or condition (including any obligation
or condition under any “open source” license such as the GNU Public License, Lesser GNU Public License, or Mozilla
Public License) that (i) could require, or could condition the use or distribution of such Company Software or portion thereof
on, (A) the disclosure, licensing or distribution of any Source Code for any portion of such Company Software, or (B) the granting
to licensees of the right to make derivative works or other modifications to such Company Software or portions thereof, (C) the
licensing under terms that allow the Company Software or portions thereof or interfaces therefor to be reverse engineered, reverse
assembled or disassembled (other than by operation of law), or (D) redistribution at no license fee or (ii) could otherwise impose
any limitation, restriction or condition on the right or ability of the Company or any of its Subsidiaries to use, distribute
or charge for any such Company Software.
(m) Except as would
not reasonably be expected to have a Company Material Adverse Effect, the Company IT Assets are adequate for, and operate and
perform in accordance with their documentation and functional specifications and otherwise as required in connection with, the
operation of the Company’s business and the Company and its Subsidiaries have implemented reasonable backup, security and
disaster recovery measures and technology consistent with industry practices in the PRC.
(n) Except as would
not reasonably be expected to have a Company Material Adverse Effect, the Company and each of its Subsidiaries maintain commercially
reasonable information security practices with respect to the collection, storage, retention, use, disclosure and disposal of
Personal Information, and there has been no unauthorized access to, or misuse of, Personal Information owned or licensed by the
Company or any of its Subsidiaries or in the Company’s or any of its Subsidiaries’ possession or control.
Section 3.15 Taxes.
(a) Except as disclosed
in Section 3.15 of the Company Disclosure Schedule or as would not reasonably be expected to have a Company Material Adverse Effect,
all Tax Returns required to be filed by or with respect to the Company or any of its Subsidiaries have been timely filed and all
such Tax Returns are true, correct, and complete in all material respects and all entitlements of Tax exemption, Tax holidays,
Tax incentive or other preferential treatments or financial subsidies enjoyed by the Company or any of its Subsidiaries have been
obtained in compliance with applicable Laws.
(b) Except as would
not reasonably be expected to have a Company Material Adverse Effect, all Taxes of the Company and its Subsidiaries due and payable
have been timely paid. The unpaid Taxes of the Company and its Subsidiaries did not, as of December 31, 2014, exceed in any material
respect the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth in the 2014 Balance Sheet (including any notes thereto). Neither the Company nor any of its Subsidiaries
has incurred any material liability for Taxes since December 31, 2014 other than in the ordinary course of business consistent
with past practice. Except as would not reasonably be expected to have a Company Material Adverse Effect, there are no Tax liens
on the assets of the Company or any of its Subsidiaries other than for Taxes not yet due and payable and Taxes that are being
contested in good faith and by appropriate proceedings.
(c) Except as would
not reasonably be expected to have a Company Material Adverse Effect, each of the Company and its Subsidiaries has timely paid
or withheld all Taxes required to be paid or withheld with respect to their employees, independent contractors, creditors and
other third parties (and timely paid over such Taxes to the appropriate Governmental Authority).
(d) Neither the Company
nor any of its Subsidiaries has executed any outstanding waiver of any statute of limitations or outstanding extension of the
period, for the assessment or collection of any material Tax and there has been no request by any Governmental Authority to execute
such a waiver or extension. No audit or other examination or administrative, judicial or other proceeding of, or with respect
to, any material Tax Return or material Taxes of the Company or any of its Subsidiaries is currently in progress, and neither
the Company nor any of its Subsidiaries has been notified of any written request for, or, to the knowledge of the Company, any
threat of, such an audit or other examination or administrative, judicial or other proceeding. No deficiency for any material
amount of Tax has been asserted or assessed by any Governmental Authority against the Company or any of its Subsidiaries that
has not been satisfied by payment, settled or withdrawn. No claim has been made by any Governmental Authority in a jurisdiction
where the Company or any of its Subsidiaries does not file Tax Returns that the Company or such Subsidiary is or may be subject
to taxation by such jurisdiction.
(e) Each of the Company’s
Subsidiaries formed in the PRC has, in accordance with applicable Law, duly registered with the relevant PRC Governmental Authority,
obtained and maintained the validity of all national and local Tax registration certificates and complied in all material respects
with all requirements imposed by such Governmental Authority. No submissions made by or on behalf of the Company or any of its
Subsidiaries to any Governmental Authority in connection with obtaining Tax exemptions, Tax holidays, Tax deferrals, Tax incentives
or other preferential Tax treatments or Tax rebates contained any material misstatement or omission that would have affected the
granting of such Tax exemptions, preferential treatments or rebates. No suspension, revocation or cancellation of any such Tax
exemptions, preferential treatments or rebates is pending or, to the Company’s knowledge, threatened. Except as would not
reasonably be expected to have a Company Material Adverse Effect, the Transactions will not have any adverse effect on the continued
validity and effectiveness of any such Tax exemptions, preferential treatments or rebates and will not result in the claw-back
or recapture of any such Tax exemptions, preferential treatments or rebates.
Section 3.16 Environmental
Matters.
Except as would not
reasonably be expected to have a Company Material Adverse Effect:
(a) The Company
and its Subsidiaries are in compliance with all applicable Environmental Laws. The Company and each of its Subsidiaries have obtained
and possess all permits, licenses and other authorizations currently required for their establishment and their operation under
any Environmental Law (the “Environmental Permits”), and all such Environmental Permits are in full force and
effect.
(b) To the knowledge
of the Company, neither the Company nor any of its Subsidiaries has received any written notice, demand, letter, claim or request
for information alleging that the Company or any of its Subsidiaries is in violation of or liable under any Environmental Law.
(c) Neither the Company
nor any of its Subsidiaries is subject to any Order by any Governmental Authority or agreement with any third party concerning
liability under any Environmental Law.
Section 3.17 Material
Contracts.
(a) Except (1) for
this Agreement, (2) for Contracts filed as exhibits to the Company SEC Reports or incorporated therein by reference and (3) as
disclosed in Section 3.17(a) of the Company Disclosure Schedule, as of the date hereof, none of the Company or its Subsidiaries
is a party to or bound by:
(i) any Contract
that would be required to be filed by the Company pursuant to Item 4 of the Instructions to Exhibits of Form 20-F under the Exchange
Act;
(ii) any Contract
between the Company or any of its Subsidiaries and any director or executive officer of the Company or any person beneficially
owning five percent or more of the outstanding Shares required to be disclosed pursuant to Item 7B or Item 19 of Form 20-F under
the Exchange Act;
(iii) any Contract
for the license to or from the Company or any of its Subsidiaries of any material Intellectual Property; and
(iv) any Contract
containing noncompetition or other covenants that in any way purport to restrict the Company or any of its Subsidiaries’
business or limit the freedom of the Company or any of its Subsidiaries to engage in any line of business or containing exclusivity
obligations, “most favored nation” or right of first refusal provisions.
Each such Contract
described in clauses (i) through (iv) above and each such Contract that would be a Material Contract but for the exception of
being filed as an exhibit to the Company SEC Reports is referred to herein as a “Material Contract”.
(b) The Company has
made available to Parent true and correct copies of all Material Contracts. Except as would not reasonably be expected to have
a Company Material Adverse Effect, (i) each Material Contract is a legal, valid and binding obligation of the Company or
its Subsidiaries party thereto and, to the Company’s knowledge, the other parties thereto, and enforceable against the Company
or such Subsidiary in accordance with its terms, in each case subject to the Bankruptcy and Equity Exception, (ii) neither the
Company nor any of its Subsidiaries nor, to the Company’s knowledge, any other party thereto is in breach or violation of,
or default under, any Material Contract and no event has occurred or not occurred through the Company’s or any of its Subsidiaries’
action or inaction or, to the Company’s knowledge, the action or inaction of any third party, that with notice or lapse
of time or both would constitute a breach or violation of, or default under, any Material Contract and (iii) the Company and its
Subsidiaries have not received any written claim or notice of default, termination or cancellation under any such Material Contract.
Section 3.18 Insurance.
Except as would not
reasonably be expected to have a Company Material Adverse Effect, (a) all insurance policies and all self-insurance programs and
arrangements relating to the business, assets, liabilities and operations of the Company and its Subsidiaries are in full force
and effect, and (b) the Company has no reason to believe that it or any of its Subsidiaries will not be able to (i) renew its
existing insurance policies as and when such policies expire or (ii) obtain comparable coverage from comparable insurers as may
be necessary to continue its business without a significant increase in cost.
Section 3.19 Opinion
of Financial Advisor.
The Special Committee
has received the written opinion of Merrill Lynch (Asia Pacific) Limited (the “Financial Advisor”), dated as
of the date hereof, to the effect that, as of the date of this Agreement, the Per Share Merger Consideration and Per ADS Merger
Consideration to be received by holders of Shares and ADSs (other than holders of Excluded Shares) is fair, from a financial point
of view, to such holders and a copy of such opinion will promptly be provided to Parent, solely for informational purposes, following
receipt thereof by the Special Committee. It is agreed and understood that such opinion may not be relied on by Parent or Merger
Sub.
Section 3.20 Brokers.
No broker, finder
or investment banker (other than the Financial Advisor and the Strategic Advisor) is entitled to any brokerage, finder’s
or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the Company. The
Company has furnished to Parent a correct and complete copy of all agreements on behalf of the Company with the Financial Advisor
and the Strategic Advisor pursuant to which such firms would be entitled to any payment relating to the Transactions.
Section 3.21 Takeover
Statute.
The Company is not
a party to any shareholder rights plan or “poison pill” agreement. No “business combination”, “fair
price”, “moratorium”, “control share acquisition” or other similar anti-takeover statute or regulation
save for the CICL or any similar anti-takeover provision in the Company’s memorandum and articles of association (each,
a “Takeover Statute”) is applicable to the Company, the Shares, the Merger or the other Transactions.
Section 3.22 No
Additional Representations.
Except for the representations
and warranties made by the Company in this Article III, neither the Company nor any other person makes any other express or implied
representation or warranty with respect to the Company or any of its Subsidiaries or their respective business, operations, assets,
liabilities, condition (financial or otherwise) or prospects or any information provided to Parent, Merger Sub or any of their
Affiliates or Representatives, notwithstanding the delivery or disclosure to Parent, Merger Sub or any of their Affiliates or
Representatives of any documentation, estimates, projections, forecasts or other information in connection with the Transactions,
and each of Parent and Merger Sub acknowledges the foregoing. Neither the Company nor any other person will have or be subject
to any liability or indemnity obligations to Parent, Merger Sub or any other person resulting from the distribution or disclosure
or failure to distribute or disclose to Parent, Merger Sub or any of their Affiliates or Representatives, or their use of, any
information, unless and to the extent such information is expressly included in the representations and warranties contained in
this Article III.
Article
IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger
Sub hereby, jointly and severally, represent and warrant to the Company that:
Section 4.01 Corporate
Organization.
Each of Parent and
Merger Sub is an exempted company duly incorporated, validly existing and in good standing under the Laws of the Cayman Islands
and has the requisite corporate power and authority and all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted, except where the failure to be so organized, existing or in good standing
or to have such power, authority and governmental approvals would not, individually or in the aggregate, prevent or materially
delay consummation of any of the Transactions by Parent or Merger Sub or otherwise be materially adverse to the ability of Parent
or Merger Sub to perform their material obligations under this Agreement. Parent has heretofore made available to the Company
complete and correct copies of the memorandum and articles of association of Parent and Merger Sub, each as amended to date, and
each as so delivered is in full force and effect.
Section 4.02 Authority
Relative to This Agreement.
(a) Each of
Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the Transactions. The execution and delivery of this Agreement by Parent and Merger Sub and the consummation
by Parent and Merger Sub of the Transactions have been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement and the Plan of Merger or
to consummate the Transactions (other than the filings, notifications and other obligations and actions described in Section
4.03(b)). This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and, assuming due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub, enforceable
against each of Parent and Merger Sub in accordance with its terms, subject to the Bankruptcy and Equity Exception.
(b) The representations
and warranties set forth in this Section 4.02 shall be made (i) with respect to the Original Merger Agreement, as of the
Original Execution Date, and (ii) with respect to this Agreement, as of the Execution Date.
Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the Transactions. The execution and delivery of this Agreement by Parent and Merger Sub and the consummation
by Parent and Merger Sub of the Transactions have been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement and the Plan of Merger or
to consummate the Transactions (other than the filings, notifications and other obligations and actions described in Section 4.03(b)).
This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and, assuming due authorization, execution
and delivery by the Company, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub, enforceable against
each of Parent and Merger Sub in accordance with its terms, subject to the Bankruptcy and Equity Exception.
Section 4.03 No
Conflict; Required Filings and Consents.
(a) The execution
and delivery of this Agreement and the Plan of Merger by Parent and Merger Sub do not, and the performance of this Agreement and
the Plan of Merger by Parent and Merger Sub will not, (i) conflict with or violate the memorandum and articles of association
of either Parent or Merger Sub, (ii) assuming that all consents, approvals, authorizations and other actions described in Section
4.03(b) have been obtained and all filings and obligations described in Section 4.03(b) have been made, conflict with or violate
any Law applicable to Parent or Merger Sub or by which any property or asset of either of them is bound or affected, or (iii)
result in any breach of, or constitute a default (or an event that, with notice or lapse of time or both, would become a default)
under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a
Lien on any property or asset of Parent or Merger Sub pursuant to, any Contract or obligation to which Parent or Merger Sub is
a party or by which Parent or Merger Sub or any property or asset of either of them is bound or affected, except, with respect
to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences that would not, individually
or in the aggregate, prevent or materially delay consummation of any of the Transactions by Parent or Merger Sub or otherwise
be materially adverse to the ability of Parent and Merger Sub to perform their material obligations under this Agreement.
(b) The execution
and delivery of this Agreement by Parent and Merger Sub do not, and the performance of this Agreement by Parent and Merger Sub
and the consummation by Parent and Merger Sub of the Transactions will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, except (i) for the filings and/or notices pursuant to Section
13 of the Exchange Act and the rules and regulations thereunder, (ii) for compliance with the rules and regulations of NASDAQ,
(iii) for the filing of the Plan of Merger and related documentation with the Registrar of Companies of the Cayman Islands
and publication of notification of the Merger in the Cayman Islands Government Gazette pursuant to the CICL and (iv) for the Requisite
Regulatory Approvals.
(c) Merger Sub has
no secured creditors holding a fixed or floating security interest.
Section 4.04 Capitalization.
(a) The authorized
share capital of Parent consists solely of 1,000,000,000 ordinary shares, consisting of 800,000,000 class A ordinary shares and
200,000,000 class B ordinary shares, par value $0.000001 each. As of the date hereof, (i) no class A ordinary shares of Parent
are issued and outstanding and (ii) 10 class B ordinary shares of Parent are issued and outstanding, which are duly authorized,
validly issued, fully paid and non-assessable, half of which are owned by each of Yili Shengda and Zhongrong Shengda. As of the
Effective Time, (i) approximately 443,179,215 class A ordinary shares of Parent shall be issued and outstanding, which shall be
duly authorized, validly issued, fully paid and non-assessable, approximately 61,776,334, 61,776,335, 80,577,828, 107,438,129,
33,034,220 and 66,068,441 of which shall be owned by Hongtai, Hongzhi, Zhongrong Investment, Hao Ding, Zhengjun Investment and
Ningxia Silkroad, respectively, and the remainder of which shall be owned by Zhongrong Legend; and (ii) 97,518,374 class B ordinary
shares of Parent shall be issued and outstanding, which shall be duly authorized, validly issued, fully paid and non-assessable,
half of which shall be owned by each of Yili Shengda and Zhongrong Shengda. Parent was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement, and it has not conducted any business prior to the date hereof and has no,
and prior to the Effective Time will have no, assets, liabilities or obligations of any nature other than the Equity Commitment
Letters and those incident to its formation and capitalization pursuant to this Agreement and the Transactions.
(b) The authorized
share capital of Merger Sub consists solely of 100,000 ordinary shares, par value $0.01 each. As of the date hereof and as of
immediately prior to the Effective Time, one ordinary share of Merger Sub is and shall be issued and outstanding, which is and
shall be duly authorized, validly issued, fully paid and non-assessable and is and shall be owned by Parent. Merger Sub was formed
solely for the purpose of engaging in the Transactions, and it has not conducted any business prior to the date hereof and has
no, and prior to the Effective Time will have no, assets, liabilities or obligations of any nature other than those incident to
its formation and capitalization and pursuant to this Agreement and the Transactions.
Section 4.05 Available
Funds and Equity Financing.
(a) Parent has delivered
to the Company true and complete copies of executed equity commitment letters from the Sponsors (the “Equity Commitment
Letters”) pursuant to which each of the Sponsors has committed to purchase, or cause the purchase of, for cash, subject
to the terms and conditions thereof, equity securities of Parent, up to the aggregate amount set forth in its Equity Commitment
Letter (the “Equity Financing”). The proceeds of the Equity Financing shall be used to finance the consummation
of the Transactions.
(b) As of the date
hereof, (i) each of the Equity Commitment Letters is in full force and effect and is a legal, valid and binding obligation of
Parent and/or Merger Sub (as applicable and subject to the Bankruptcy and Equity Exception) and, to the knowledge of Parent, the
other parties thereto (subject to the Bankruptcy and Equity Exception) and (ii) none of the Equity Commitment Letters has been
amended or modified and no such amendment or modification (other than as permitted by Section 6.07 or this Section 4.05) is contemplated,
and the respective commitments contained in the Equity Commitment Letters have not been withdrawn or rescinded in any material
respect (other than as permitted by Section 6.07 or this Section 4.05). Assuming (A) the Equity Financing is funded in accordance
with the Equity Commitment Letters and (B) the satisfaction of the conditions to the obligation of Parent and Merger Sub to consummate
the Merger as set forth in Section 7.01 and Section 7.02 or the waiver of such conditions, as of the date hereof, the net proceeds
of the Equity Financing contemplated by the Equity Commitment Letters will be sufficient for Parent and the Surviving Corporation
to pay (1) the Merger Consideration and (2) any other amounts required to be paid in connection with the consummation of
the Transactions upon the terms and conditions contemplated hereby and all related fees and expenses associated therewith. The
Equity Commitment Letters contain all of the conditions precedent to the obligations of the parties thereunder to make the Equity
Financing available to Parent or Merger Sub on the terms and conditions contained therein. As of the date hereof, there are no
side letters or other agreements, Contracts or arrangements (whether written or oral) to which Parent or any of its Affiliates
is a party related to the funding or investing, as applicable, of the full amount of the Equity Financing other than as expressly
set forth in the Equity Commitment Letters. As of the date hereof, no event has occurred that, with or without notice, lapse of
time or both, would constitute a default or breach under the Equity Commitment Letters on the part of Parent or Merger Sub or,
to the knowledge of Parent, any other parties thereto.
Section 4.06 Brokers.
No broker, finder
or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Transactions
based upon arrangements made by or on behalf of Parent or Merger Sub.
Section 4.07 Guarantees.
Assuming the due authorization,
execution and delivery by the Company, each Limited Guarantee is in full force and effect and is a legal, valid and binding obligation
of the Guarantor that executed it, subject to the Bankruptcy and Equity Exception, and no event has occurred that, with or without
notice, lapse of time or both, would constitute a default on the part of such Guarantor under such Limited Guarantee.
Section 4.08 Absence
of Litigation.
To the knowledge of
Parent and Merger Sub, as of the date hereof, (a) there is no material Proceeding pending or threatened against Parent or Merger
Sub or any of their respective Affiliates before any Governmental Authority and (b) neither Parent nor Merger Sub nor any of their
Affiliates is subject to any continuing order of, consent decree, settlement agreement or other similar written agreement with,
or continuing investigation by, any Governmental Authority, or any order, writ, judgment, injunction, decree, determination or
award of any Governmental Authority, in each case that seeks to, or would reasonably be expected to, prevent or materially impair
or delay the consummation of the Merger or other Transactions.
Section 4.09 Ownership
of Company Shares.
As of the date hereof,
other than the Rollover Shares, each of which shall be cancelled without payment of any consideration or distribution therefor
at the Effective Time, none of Parent, Merger Sub, the Rollover Shareholders and the Sponsors nor any of their respective Affiliates
beneficially own (as such term is used in Rule 13d-3 promulgated under the Exchange Act) any Shares or other securities or any
other economic interest (through derivative securities or otherwise) of the Company or any options, warrants or other rights to
acquire Shares or other securities of, or any other economic interest (through derivative securities or otherwise) in the Company.
Section 4.10 Solvency.
Neither Parent nor
Merger Sub is entering into the Transactions contemplated hereby with the intent to hinder, delay or defraud either present or
future creditors. Immediately after giving effect to all of the Transactions contemplated hereby, including the Equity Financing
and the payment of the Merger Consideration and all other amounts required to be paid in connection with the consummation of the
Transactions assuming (a) satisfaction of the conditions to the obligation of Parent and Merger Sub to consummate the Merger as
set forth herein, or the waiver of such conditions and (b) the accuracy of the representations and warranties of the Company set
forth in Article III (for such purposes, the representations and warranties that are qualified as to materiality or “Company
Material Adverse Effect” shall be true and correct in all respects and those not so qualified shall be true and correct
in all material respects), the Surviving Corporation will be solvent (as such term is used under the Laws of the Cayman Islands)
at and immediately after the Effective Time.
Section 4.11 Parent
Group Contracts.
Parent has delivered
to the Company and the Special Committee a true and complete copy of each of: (a) the Consortium Agreement, (b) the Equity Commitment
Letters, (c) the Support Agreement, and (d) the Limited Guarantees (collectively, the “Parent Group Contracts”),
including all amendments thereto or modifications thereof, if any. Other than the Parent Group Contracts, there are no side letters
or other oral or written Contracts, agreements, arrangements or understandings (whether or not legally enforceable) (i) relating
to or entered into in connection with the Transactions between or among Parent, Merger Sub, any Rollover Shareholder, any Sponsor
or any of their respective Affiliates (excluding any agreements among any one or more of the foregoing solely relating to the
Surviving Corporation following the Effective Time), (ii) relating to or entered into in connection with the Transactions between
or among Parent, Merger Sub, any Rollover Shareholder, any Sponsor or any of their respective Affiliates, on the one hand, and
any member of the Company’s management, any members of the Company Board or any of the Company’s shareholders in their
capacities as such, on the other hand, (iii) relating to the operation, governance or management of the Company between or among
Parent, Merger Sub, any Rollover Shareholder, any Sponsor or any of their respective Affiliates, and there have been no such Contracts,
agreements, arrangements or understanding prior to the date of this Agreement, or (iv) pursuant to which any shareholder of the
Company would be entitled to receive consideration of a different amount or nature than the Per Share Merger Consideration or
the Per ADS Merger Consideration or pursuant to which any shareholder of the Company has agreed to vote to approve this Agreement
or the Merger or has agreed to vote against any Superior Proposal and to which, in each case, Parent, Merger Sub, any Rollover
Shareholder, any Sponsor or any of their respective Affiliates is a party.
Section 4.12 Independent
Investigation.
Parent and Merger
Sub have conducted their own independent investigation, review and analysis of the business, operations, assets, liabilities,
results of operations, financial condition and prospects of the Company and its Subsidiaries, which investigation, review and
analysis were performed by Parent, Merger Sub, their respective Affiliates and Representatives. Each of Parent and Merger Sub
acknowledges that as of the date hereof, it, its Affiliates and their respective Representatives have been provided adequate access
to the personnel, properties, facilities and records of the Company and its Subsidiaries for such purpose. In entering into this
Agreement, each of Parent and Merger Sub acknowledges that it has relied solely upon the aforementioned investigation, review
and analysis and not on any statements, representations or opinions of any of the Company, its Affiliates or their respective
Representatives (except for the representations and warranties of the Company set forth in this Agreement and in any certificate
delivered pursuant to this Agreement).
Section 4.13 No
Additional Representations.
Except for the representations
and warranties set forth in this Article IV, neither Parent nor Merger Sub nor any other person on behalf of either of them makes
any other express or implied representation or warranty with respect to Parent or Merger Sub, or their respective business, operations,
assets, liabilities, condition (financial or otherwise) or prospects, notwithstanding the delivery or disclosure to the Company
or any of its Affiliates or Representatives of any documentation, forecasts or other information with respect to any one or more
of the foregoing, and the Company acknowledges the foregoing.
Article
V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.01 Conduct
of Business by the Company Pending the Merger.
(a) The Company covenants
and agrees that, between the date of this Agreement and the Effective Time, except (i) as required by applicable Law, (ii) as
set forth in Section 5.01 of the Company Disclosure Schedule, (iii) as expressly contemplated or permitted by any other provision
of this Agreement or (iv) with the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned,
or delayed), the businesses of the Company and its Subsidiaries shall be conducted in the ordinary course of business and in a
manner consistent with past practice and the Company and each of its Subsidiaries shall use their reasonable best efforts to (A)
preserve intact their existing assets in all material respects, (B) preserve substantially intact their business organization,
(C) keep available the services of their current officers and key employees and (D) maintain and preserve intact in all material
respects their current relationships with customers, suppliers and distributors with which the Company or any of its Subsidiaries
has material business relations.
(b) By way of amplification
and not limitation, except (i) as set forth in Section 5.01 of the Company Disclosure Schedule, (ii) as required by applicable
Law, (iii) as expressly contemplated or permitted by any other provision of this Agreement or (iv) with the prior written
consent of Parent (which consent shall not be unreasonably withheld, conditioned, or delayed), the Company will not and will not
permit its Subsidiaries to:
(i) amend or otherwise
change its memorandum and articles of association or other equivalent organizational documents;
(ii) other than
in connection with the exercise of any Company Options, Company RSs or Company RSUs in accordance with the Share Incentive Plan,
(A) issue, sell, pledge, terminate or dispose of, (B) grant a Lien on or permit a Lien to exist on, or (C) authorize the issuance,
sale, pledge, termination or disposition of, or granting or placing of a Lien on, any share capital or other ownership interests
of the Company or any of its Subsidiaries, or any agreement, contract or instrument amounting to control over, or enabling control
of, the Company or any of its Subsidiaries, or any options, warrants, convertible securities or other rights of any kind to acquire
any share capital or other ownership interest (including any phantom interest) of the Company or any of its Subsidiaries;
(iii) (A) sell,
pledge or dispose of, (B) grant a Lien on or permit a Lien to exist on, or (C) authorize the sale, pledge or disposition of, or
granting or placing of a Lien on, any assets of the Company or any of its Subsidiaries having a current value in excess of $50,000,000,
except in the ordinary course of business and in a manner consistent with past practice;
(iv) declare,
set aside, make or pay any dividend or other distribution, payable in cash, share, property or otherwise, with respect to any
of its share capital, except for dividends by any of the Company’s direct or indirect wholly-owned Subsidiaries to the Company
or any of its other wholly-owned Subsidiaries;
(v) adjust, reclassify,
combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its share capital, in each
case other than in connection with (A) acquisition in connection with the forfeiture of Company Options, Company RSs or Company
RSUs or (B) acquisition in connection with the net exercise of Company Options in accordance with the terms thereof;
(vi) (A)
acquire (including by merger, consolidation or acquisition of share or assets or any other business combination) any corporation,
partnership, other business organization or any division thereof or any assets, except for any such acquisitions for consideration
not exceeding $50,000,000; (B) incur any Indebtedness or issue any debt securities or assume, guarantee or endorse, or otherwise
become responsible for, the obligations of any person, or make any loans or advances or capital contribution to, or investment
in, any person, except (1) for Indebtedness the outstanding amount of which (after deducting the aggregate amount of cash and
cash equivalents held by the Company and its Subsidiaries), does not exceed $200,000,000 or its equivalent in the aggregate for
the Company and its Subsidiaries or (2) under the Company’s or any of its Subsidiaries’ existing credit facilities
as in effect on the date hereof in an aggregate amount not to exceed the maximum amount authorized under the Contracts evidencing
such Indebtedness (including any renewal, extension, refinancing or replacement of such Contracts on substantially the same or
similar terms); (C) authorize, or make any commitment with respect to, any single capital expenditure which is in excess
of $10,000,000 or capital expenditures which are, in the aggregate, in excess of $50,000,000 for the Company and its Subsidiaries
taken as a whole, other than expenditures necessary to maintain existing assets in good repair and working condition, consistent
with past practice; or (D) amend any Contract to effect any matter set forth in this Section
5.01(b)(vi);
(vii) establish
any new Subsidiary;
(viii) engage
in the conduct of any new line of business material to the Company and its Subsidiaries, taken as a whole, outside of the Company’s
existing business segments;
(ix) make any
material changes with respect to accounting policies or procedures materially affecting the reported consolidated assets, liabilities
or results of operations of the Company and its Subsidiaries, except as required by changes in applicable generally accepted accounting
principles or Law;
(x) settle any
Proceeding, other than settlements (A) in the ordinary course of business and consistent with past practice, (B) requiring the
Company and its Subsidiaries to pay monetary damages not exceeding $10,000,000, and (C) not involving the admission of any wrongdoing
by the Company or any of its Subsidiaries;
(xi) enter into
or materially amend or modify, terminate or consent to the termination of any Material Contract (or any Contract that would be
a Material Contract if such Contract had been entered into prior to the date of this Agreement), or amend, waive, modify, terminate
or consent to the termination of the Company’s or any of its Subsidiaries’ material rights thereunder, other than
in the ordinary course of business and consistent with past practice;
(xii) make or
change any material Tax election, materially amend any Tax Return (except as required by applicable Law), enter into any material
closing agreement with respect to Taxes, surrender any right to claim a material refund of Taxes, settle or finally resolve any
material controversy with respect to Taxes or materially change any method of Tax accounting;
(xiii) (A) abandon,
fail to maintain, or allow to lapse, including by failure to pay the required fees in any jurisdiction, or disclaim, dedicate
to the public, sell, assign or grant any security interest in, to or under any material Company Intellectual Property; (B) grant
to any third party any license, or enter into any covenant not to sue, with respect to any material Company Intellectual Property,
except non-exclusive licenses in the ordinary course of business consistent with past practice; (C) develop, create or invent
any Intellectual Property jointly with any third party, except under existing arrangements or in the ordinary course of business;
(D) disclose or allow to be disclosed any material confidential information or material confidential Company Intellectual
Property to any person, other than employees of the Company or its Subsidiaries that are subject to a confidentiality or non-disclosure
covenant protecting against further disclosure thereof, except under existing arrangements or in the ordinary course of business
consistent with past practice; or (D) fail to notify Parent promptly of any material infringement, misappropriation, unauthorized
disclosure or other violation of or conflict with any material Company Intellectual Property of which the Company or any of its
Subsidiaries becomes aware and to reasonably consult with Parent regarding the actions (if any) to take to protect such Company
Intellectual Property;
(xiv) except as
required pursuant to existing written plans or Contracts in effect as of the date hereof, or as otherwise required by applicable
Law or carried out in the ordinary course of business consistent with past practice, (A) enter into any new employment or compensatory
agreements (including the renewal of any consulting agreement) with any executive officer or director of the Company or any of
its wholly-owned Subsidiaries, (B) increase the compensation, bonus or pension, welfare, severance or other benefits of,
pay any bonus to, or make any new equity awards to any director, employee or consultant of the Company or any of its Subsidiaries,
(C) establish, adopt, materially amend or terminate any Plan (except as required by Law) or materially amend the terms of any
outstanding equity-based awards (except as contemplated by this Agreement), (D) take any action to accelerate the vesting or payment,
or fund or in any other way secure the payment, of material compensation or benefits under any Plan, to the extent not already
required in any such Plan or contemplated by this Agreement, (E) materially change any actuarial or other assumptions used to
calculate funding obligations with respect to any Plan or to materially change the manner in which contributions to such plans
are made or the basis on which such contributions are determined, except as may be required by GAAP, (F) forgive any loans to
directors, officers or employees of the Company or any of its Subsidiaries, or (G) enter into any collective bargaining agreement
or similar labor agreement;
(xv) fail to keep
in force material insurance policies providing insurance coverage with respect to the assets, operations and activities of the
Company or any of its Subsidiaries as are currently in effect;
(xvi) take any
action that is intended, or would reasonably be expected to, result in any of the conditions to the Merger set forth in Article
VII not being satisfied;
(xvii) fail to
make in a timely manner any filings with the SEC required under the Securities Act or the Exchange Act or the rules and regulations
promulgated thereunder; or
(xviii) agree,
authorize, commit, or enter into any formal agreement to do any of the foregoing.
Section 5.02 Conduct
of Business by Parent and Merger Sub Pending the Merger.
Each
of Parent and Merger Sub agrees that, from the date hereof until the earlier of the Effective Time and termination of this Agreement
pursuant to Article VIII, it shall not: (a) take any action that
is intended to or would reasonably be likely to result in any of the conditions to effecting the Merger becoming incapable of
being satisfied; or (b) take any action or fail to take any action that would, or would be reasonably likely to, individually
or in the aggregate, prevent, materially delay or materially impede the ability of Parent or Merger Sub to consummate the Merger
or the other Transactions in accordance with the terms of this Agreement.
Section 5.03 No
Control of Other Party’s Business.
Except as otherwise
expressly provided herein, nothing contained in this Agreement is intended to give Parent or Merger Sub, directly or indirectly,
the right to control or direct the Company’s or the Company’s Subsidiaries’ operations prior to the Effective
Time, and nothing contained in this Agreement is intended to give the Company, directly or indirectly, the right to control or
direct Parent’s or Merger Sub’s operations. Prior to the Effective Time, each of Parent, Merger Sub and the Company
shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its
Subsidiaries respective operations.
Article
VI
ADDITIONAL AGREEMENTS
Section 6.01 Proxy
Statement and Schedule 13E-3.
(a) As soon as practicable
following the date hereof, the Company with the assistance of Parent and Merger Sub, shall prepare the Proxy Statement. Concurrently
with the preparation of the Proxy Statement, the Company, Parent and Merger Sub shall jointly prepare and cause to be filed with
the SEC a Rule 13e-3 transaction statement on Schedule 13E-3 relating to the authorization and approval of this Agreement, the
Plan of Merger and the Transactions by the shareholders of the Company (such Schedule 13E-3, as amended or supplemented, being
referred to herein as the “Schedule 13E-3”). Each of the Company, Parent and Merger Sub shall use its reasonable
best efforts to ensure that the Proxy Statement and the Schedule 13E-3 comply in all material respects with the requirements of
the Exchange Act and the rules and regulations promulgated thereunder. Each of the Company, Parent and Merger Sub shall use its
reasonable best efforts to respond promptly to any comments of the SEC with respect to the Proxy Statement and the Schedule 13E-3.
Each of Parent and Merger Sub shall provide reasonable assistance and cooperation to the Company in the preparation, filing and
distribution of the Proxy Statement, the Schedule 13E-3 and the resolution of comments from the SEC. Upon its receipt of any comments
from the SEC or its staff or any request from the SEC or its staff for amendments or supplements to the Proxy Statement and the
Schedule 13E-3, the Company shall promptly notify Parent and Merger Sub and in any event within 24 hours and shall provide Parent
with copies of all correspondence between the Company and its representatives, on the one hand, and the SEC and its staff, on
the other hand. Prior to filing the Schedule 13E-3 or mailing the Proxy Statement (or in each case, any amendment or supplement
thereto) or responding to any comments of the SEC with respect thereto, the Company (i) shall provide Parent and Merger Sub with
a reasonable period of time to review and comment on such document or response and (ii) shall consider in good faith all
additions, deletions or changes reasonably proposed by Parent in good faith. If at any time prior to the Shareholders’ Meeting,
any information relating to the Company, Parent, Merger Sub or any of their respective Affiliates, officers or directors, is discovered
by the Company, Parent or Merger Sub that should be set forth in an amendment or supplement to the Proxy Statement and/or the
Schedule 13E-3 so that the Proxy Statement and/or Schedule 13E-3 shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading, the party that discovers such information shall promptly notify
the other parties hereto and the Company shall file an appropriate amendment or supplement describing such information with the
SEC and, to the extent required by applicable Law, disseminate to the shareholders of the Company.
(b) Each of Parent,
Merger Sub and the Company agrees, as to itself and its respective Affiliates or Representatives, that none of the information
supplied or to be supplied by Parent, Merger Sub or the Company, as applicable, expressly for inclusion or incorporation by reference
in the Proxy Statement, the Schedule 13E-3 or any other documents filed or to be filed with the SEC in connection with the Transactions,
will, as of the time such documents (or any amendment thereof or supplement thereto) are mailed to the holders of Shares and at
the time of the Shareholders’ Meeting, contain any untrue statement of a material fact, or omit to state any material fact
required to be stated therein in order to make the statements therein, in light of the circumstances under which they were made,
not misleading. Each of Parent, Merger Sub and the Company further agrees that all documents that such party is responsible for
filing with the SEC in connection with the Merger will comply as to form and substance in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and any other applicable Laws and that all information supplied by such party
for inclusion or incorporation by reference in such document will not contain any untrue statement of a material fact, or omit
to state any material fact required to be stated therein in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. If at any time prior to the Effective Time, any event or circumstance relating to
Parent, Merger Sub or the Company, or their respective officers or directors, should be discovered that should be set forth in
an amendment or a supplement to the Proxy Statement or the Schedule 13E-3 so that such document would not include any misstatement
of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading, the party discovering such event or circumstance shall promptly inform the other parties
and an appropriate amendment or supplement describing such event or circumstance shall be promptly filed with the SEC and disseminated
to the shareholders of the Company to the extent required by Law; provided that prior to such filing, the Company and Parent,
as the case may be, shall consult with each other with respect to such amendment or supplement and shall afford the other party
and their Representatives a reasonable opportunity to comment thereon.
(c) At the Shareholders’
Meeting, and any other meeting of the shareholders of the Company called to seek the Company Shareholder Approval or in any other
circumstances upon which a vote, consent or other approval (including by written consent) with respect to this Agreement, the
Plan of Merger or the Transactions contemplated herein is sought, Parent shall vote, and shall cause the Rollover Shareholders
and their respective Affiliates to vote, or cause to be voted, all Shares held directly or indirectly by the Rollover Shareholders
and their respective Affiliates as of the date hereof in favor of the authorization and approval of this Agreement, the Plan of
Merger and the Transactions.
Section 6.02 Company
Shareholders’ Meeting.
(a) As soon as practicable
after the SEC confirms that it has no further comments on the Schedule 13E-3 but in any event no later than five days after such
confirmation, the Company shall (i) establish a record date for determining shareholders of the Company entitled to vote at the
Shareholders’ Meeting (the “Record Date”) and shall not change such Record Date or establish a different
record date for the Shareholders’ Meeting without the prior written consent of Parent, unless required to do so by applicable
Laws; and in the event that the date of the Shareholders’ Meeting as originally called is for any reason adjourned or postponed
or otherwise delayed, the Company agrees that unless Parent shall have otherwise approved in writing or as required by applicable
Laws or stock exchange requirement, the Company shall, if possible, implement such adjournment or postponement or other delay
in such a way that the Company does not establish a new Record Date for the Shareholders’ Meeting, as so adjourned, postponed
or delayed, (ii) mail or cause to be mailed the Proxy Statement to the holders of Shares (and concurrently furnish the Proxy Statement
under Form 6-K), including Shares represented by ADSs, as of the Record Date, for the purpose of voting upon the authorization
and approval of this Agreement, the Plan of Merger and the Transactions and (iii) instruct the Depositary to (A) fix the
Record Date as the record date for determining the holders of ADSs who shall be entitled to give instructions for the exercise
of the voting rights pertaining to the Shares represented by ADSs (the “Record ADS Holders”), (B) provide all
proxy solicitation materials to all Record ADS Holders and (C) vote all Shares represented by ADSs in accordance with the instructions
of such corresponding Record ADS Holders. Subject to Section 6.02(b), without the consent of Parent, the authorization and approval
of this Agreement, the Plan of Merger and the Transactions, are the only matters (other than procedural matters) that shall be
proposed to be voted upon by the shareholders of the Company at the Shareholders’ Meeting.
(b) No later than
30 days after the date of mailing the Proxy Statement, the Company shall hold the Shareholders’ Meeting. Subject to Section
6.04, (i) the Company Board shall recommend to holders of the Shares that they authorize and approve this Agreement, the Plan
of Merger and the Transactions, and shall include such recommendation in the Proxy Statement and (ii) the Company shall use its
reasonable best efforts to solicit from its shareholders proxies in favor of the authorization and approval of this Agreement,
the Plan of Merger and the Transactions and shall take all other action necessary or advisable to secure the Requisite Company
Vote. Notwithstanding anything to the contrary contained in this Agreement, unless this Agreement is validly terminated in accordance
with Section 8.03(c), the Company’s obligations pursuant to this Section 6.02 shall not be limited or otherwise affected
by the commencement, public proposal, public disclosure or communication to the Company or any other person of any Competing Transaction
or by any Change in the Company Recommendation.
(c) Notwithstanding
Section 6.02(b), after consultation in good faith with Parent, the Company may recommend the adjournment of the Shareholders’
Meeting to its shareholders (i) to the extent necessary to ensure that any required supplement or amendment to the Proxy Statement
is provided to the holders of Shares within a reasonable amount of time in advance of the Shareholders’ Meeting, (ii) as
otherwise required by applicable Law, (iii) if as of the time for which the Shareholders’ Meeting is scheduled as set forth
in the Proxy Statement, there are insufficient Shares represented (in person or by proxy) to constitute a quorum necessary to
conduct the business of the Shareholders’ Meeting or (iv) if an Intervening Event has occurred and the Company Board (acting
upon the recommendation of the Special Committee) or the Special Committee determines, in its good faith judgment upon advice
by outside legal counsel engaged by the Special Committee, that the failure to take such action would reasonably be expected to
breach its fiduciary duties under applicable Law. If the Shareholders’ Meeting is adjourned, the Company shall convene and
hold the Shareholders’ Meeting as soon as reasonably practicable thereafter, subject to the immediately preceding sentence;
provided that the Company shall not recommend to its shareholders the adjournment of the Shareholders’ Meeting to
a date that is less than five Business Days prior to the Termination Date.
(d) Parent may request
that the Company adjourn or postpone the Shareholders’ Meeting for up to 90 days (but in any event no later than five Business
Days prior to the Termination Date), (i) if as of the time for which the Shareholders’ Meeting is originally scheduled (as
set forth in the Proxy Statement) there are insufficient Shares represented (either in person or by proxy) (A) to constitute a
quorum necessary to conduct the business of the Shareholders’ Meeting or (B) voting in favor of approval of this Agreement
and the Transactions to obtain the Requisite Company Vote, or (ii) in order to allow reasonable additional time for (A) the filing
and mailing of, at the reasonable request of Parent, any supplemental or amended disclosure and (B) such supplemental or amended
disclosure to be disseminated and reviewed by the Company’s shareholders prior to the Shareholders’ Meeting, in which
event the Company shall, in each case, cause the Shareholders’ Meeting to be postponed or adjourned in accordance with Parent’s
request.
Section 6.03 Access
to Information.
(a) From the date
hereof until the earlier of the Effective Time and termination of this Agreement pursuant to Article VIII and subject to applicable
Law and the Confidentiality Agreements, upon reasonable advance notice from Parent, the Company shall (i) provide to Parent (and
Parent’s officers, directors, employees, accountants, consultants, financial and legal advisors, agents, financing sources
(including potential sources) and other authorized representatives of Parent and such other parties, collectively, “Representatives”)
reasonable access during normal business hours to the offices, properties, books and records of the Company or any of its Subsidiaries,
(ii) furnish to Parent and its Representatives such existing financial and operating data and other existing information as such
persons may reasonably request in writing and (iii) instruct its and its Subsidiaries’ employees, legal counsel, financial
advisors, auditors and other Representatives to reasonably cooperate with Parent and its Representatives in their investigation.
Notwithstanding the foregoing, any such investigation shall be conducted in such a manner as not to interfere unreasonably with
the business or operations of the Company or its Subsidiaries or otherwise result in any significant interference with the timely
discharge by the employees of the Company or its Subsidiaries of their duties.
(b) Notwithstanding
anything to the contrary in Section 6.03(a), nothing in this Agreement shall require the Company or any of its Subsidiaries to
provide Parent or any of its Representatives with access to any books, records, documents or other information to the extent that
(i) such books, records, documents or other information is subject to any confidentiality agreement with a Third Party; provided
that at the request of Parent, the Company shall use its reasonable best efforts to obtain a waiver from such Third Party,
(ii) the disclosure of such books, records, documents or other information would result in the loss of attorney-client or other
legal privilege or (iii) the disclosure of such books, records, documents or other information is prohibited by applicable Law.
(c) All information
provided or made available pursuant to this Section 6.03 to Parent or its Representatives shall be subject to the Confidentiality
Agreements.
(d) No investigation
pursuant to this Section 6.03 shall affect any representation or warranty in this Agreement of any party hereto or any condition
to the obligations of the parties hereto.
Section 6.04 No
Solicitation of Transactions.
(a) Until the earlier
of the Effective Time and termination of this Agreement pursuant to Article VIII, except as set forth in Section 6.04(b), the
Company agrees that neither it nor any of its Subsidiaries, and that it will cause its and its Subsidiaries’ Representatives
(including any investment banker, attorney or accountant retained by the Company or any of its Subsidiaries), not to, in each
case, directly or indirectly, (i) solicit, initiate or purposefully encourage (including by way of furnishing nonpublic information
concerning the Company or any of its Subsidiaries), or take any other action to purposefully facilitate, any inquiries or the
making of any proposal or offer (including any proposal or offer to its shareholders) that constitutes, or that in the Company’s
good faith judgment could reasonably be expected to lead to, a Competing Transaction, (ii) enter into, maintain or continue discussions
or negotiations with, or provide any nonpublic information concerning the Company or any of its Subsidiaries to, any Third Party
in furtherance of such inquiries or to obtain such proposal or offer for a Competing Transaction or any proposal or offer that
in the Company’s good faith judgment could reasonably be expected to lead to a Competing Transaction, (iii) agree to, approve,
endorse, recommend or consummate any Competing Transaction or enter into any letter of intent or Contract (other than an Acceptable
Confidentiality Agreement) or commitment contemplating or otherwise relating to any Competing Transaction, (iv) grant any waiver,
amendment or release under any standstill, confidentiality or similar agreement or Takeover Statutes (and the Company shall promptly
take all action necessary to terminate or cause to be terminated any such waiver previously granted with respect to any provision
of any such confidentiality, standstill or similar agreement or Takeover Statute and to enforce each such confidentiality, standstill
and similar agreement) or (v) authorize or permit any of the Representatives of the Company or any of its Subsidiaries to
take any action set forth in clauses (i) – (iv) of this Section 6.04(a). The Company shall notify Parent as promptly as
practicable (and in any event within two Business Days after the Company has knowledge thereof), orally and in writing, of any
proposal or offer, or any inquiry or contact with any person, regarding a Competing Transaction or that in the Company’s
good faith judgment could reasonably be expected to lead to a Competing Transaction, specifying (x) the material terms and conditions
thereof (including material amendments or proposed material amendments) and providing, if applicable, copies of any written requests,
proposals or offers, including proposed agreements, and (y) the identity of the party making such proposal or offer or inquiry
or contact. The Company shall keep Parent informed, on a reasonably current basis (and in any event within two Business Days of
the occurrence of any material changes, developments, discussions or negotiations) of the status and terms of any such proposal,
offer, inquiry, contact or request and of any material changes in the status and terms of any such proposal, offer, inquiry, contact
or request (including the material terms and conditions thereof). Without limiting the foregoing, the Company shall provide Parent
with 24 hours prior notice (or such lesser prior notice as is provided to the members of the Company Board or members of the Special
Committee) of any meeting of the Company Board or Special Committee at which the Company Board or Special Committee, as applicable,
is reasonably expected to consider any Competing Transaction. The Company shall, and shall cause its Subsidiaries and the Representatives
of the Company and its Subsidiaries to, immediately cease and terminate all existing discussions or negotiations with any parties
conducted heretofore with respect to a Competing Transaction. The Company shall not, and shall cause its Subsidiaries not to,
enter into any confidentiality agreement with any Third Party subsequent to the date hereof which prohibits the Company from providing
such information to Parent.
(b) Notwithstanding
anything to the contrary in Section 6.04(a), at any time prior to the receipt of the Requisite Company Vote, following the receipt
of an unsolicited, written, bona fide proposal or offer regarding a Competing Transaction that was not obtained in violation of
this Section 6.04 (other than any immaterial non-compliance that does not adversely affect Parent or Merger Sub), the Company
and its Representatives may, with respect to such proposal or offer and acting only upon the recommendation of the Special Committee:
(i) contact the
person who has made such proposal or offer to clarify and understand the terms and conditions thereof to the extent the Special
Committee shall have determined in good faith that such contact is necessary to determine whether such proposal or offer constitutes
a Superior Proposal or could reasonably be expected to result in a Superior Proposal;
(ii) provide information
in response to the request of the person who has made such proposal or offer, if and only if, prior to providing such information,
the Company has received from the person so requesting such information an executed Acceptable Confidentiality Agreement; provided
that the Company shall concurrently make available to Parent any information concerning the Company and the Subsidiaries that
is provided to any such person and that was not previously made available to Parent or its Representatives; and
(iii) engage or
participate in any discussions or negotiations with the person who has made such proposal or offer;
provided that
prior to taking any actions described in clause (ii) or (iii), the Company Board (acting only upon recommendation of the Special
Committee) or the Special Committee, has (A) determined, in its good faith judgment, after consultation with its financial
advisor and outside legal counsel, that such proposal or offer constitutes or could reasonably be expected to result in a Superior
Proposal, (B) determined, in its good faith judgment, after consultation with its financial advisor and outside legal counsel,
that, in light of such Superior Proposal, failure to take such action would be inconsistent with its fiduciary duties under applicable
Law and (C) provided written notice to Parent at least two Business Days prior to taking any such action.
(c) Except as set
forth in Section 6.04(d), neither the Company Board nor any committee thereof shall (i) (A) change, withhold, withdraw, qualify
or modify (or publicly propose to change, withhold, withdraw, qualify or modify), in a manner adverse to Parent or Merger Sub,
the Company Recommendation, (B) fail to include the Company Recommendation in the Proxy Statement, (C) adopt, approve or recommend,
or publicly propose to adopt, approve or recommend to the shareholders of the Company, a Competing Transaction, (D) if a tender
offer or exchange offer that constitutes a Competing Transaction is commenced, fail to publicly recommend against acceptance of
such tender offer or exchange offer by the Company shareholders (including, for these purposes, by disclosing that it is taking
no position with respect to the acceptance of such tender offer or exchange offer by its shareholders, which shall constitute
a failure to recommend against acceptance of such tender offer or exchange offer; provided that a customary “stop,
look and listen” communication by the Company Board pursuant to Rule 14d−9(f) of the Exchange Act or a statement that
the Company Board has received and is currently evaluating such Competing Transaction shall not be prohibited or be deemed to
be a Change in the Company Recommendation) within 10 Business Days after the commencement thereof, (E) fail to recommend against
any Competing Transaction subject to Regulation 14D under the Exchange Act in a Solicitation/Recommendation Statement on Schedule
14D-9 within 10 Business Days after the commencement thereof or (F) fail to publicly reaffirm the Company Recommendation
following any Competing Transaction having been publicly made, proposed or communicated (and not publicly withdrawn) within 10
Business Days after Parent so requests in writing; provided that Parent may not make such request more than one time with
respect to any given Competing Transaction unless there shall have been an additional public announcement with respect to such
Competing Transaction (any of the foregoing, a “Change in the Company Recommendation”) or (ii) cause or permit
the Company or any of its Subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle,
merger agreement, acquisition agreement or other or similar document or Contract with respect to any Competing Transaction other
than an Acceptable Confidentiality Agreement entered into in compliance with Section 6.04(b) (an “Alternative Acquisition
Agreement”).
(d) Notwithstanding
anything to the contrary set forth in this Agreement, from the date hereof and at any time prior to the receipt of the Requisite
Company Vote, if the Company has received a bona fide written proposal or offer with respect to a Competing Transaction that was
not obtained in violation of Section 6.04 (other than any immaterial non-compliance that does not adversely affect Parent or Merger
Sub) and the Company Board (acting only upon the recommendation of the Special Committee) or the Special Committee determines
in its good faith judgment (after consultation with its financial advisor and outside legal counsel), that such proposal or offer
constitutes a Superior Proposal and failure to make a Change in the Company Recommendation with respect to such Superior Proposal
would be inconsistent with its fiduciary duties under applicable Law, the Company Board (acting only upon the recommendation of
the Special Committee) or the Special Committee (to the extent it is within the authority of the Special Committee) may effect
a Change in the Company Recommendation and/or authorize the Company to enter into an Alternative Acquisition Agreement with respect
to such Superior Proposal but only (i) if the Company shall have complied with the requirements of Section 6.04(a) and Section
6.04(b) with respect to such proposal or offer (ii) after (A) providing at least five Business Days’ (the “Superior
Proposal Notice Period”) written notice to Parent (a “Notice of Superior Proposal”) advising Parent
that the Company Board or the Special Committee, as applicable, has received a Superior Proposal, specifying the material terms
and conditions of such Superior Proposal (and providing any proposed agreements related thereto), identifying the person making
such Superior Proposal and indicating that the Company Board or the Special Committee (to the extent it is within the authority
of the Special Committee), as applicable, intends to effect a Change in the Company Recommendation and the manner in which it
intends (or may intend) to do so; it being understood that the Notice of Superior Proposal or any amendment or update thereto
or the determination to so deliver such notice shall not constitute a Change in the Company Recommendation, (B) negotiating with
and causing its financial and legal advisors to negotiate with Parent, Merger Sub and their respective Representatives in good
faith (to the extent Parent desires to negotiate) to make such adjustments in the terms and conditions of this Agreement and the
Equity Financing, so that such Third-Party proposal or offer would cease to constitute a Superior Proposal, and (C) permitting
Parent and its Representatives to make a presentation to the Company Board and the Special Committee regarding this Agreement,
the Equity Financing and any adjustments with respect thereto (to the extent Parent desires to make such presentation); provided
that any material modifications to such Third-Party proposal or offer that the Company Board or the Special Committee, as
applicable, has determined to be a Superior Proposal shall be deemed a new Superior Proposal and the Company shall be required
to again comply with the requirements of this Section 6.04, provided, further, that with respect to such new Superior Proposal,
the Superior Proposal Notice Period shall be deemed to be a three Business Day period rather than the five Business Day period
first described above and (iii) following the end of such five Business Day period or three Business Day period (as applicable),
the Company Board (acting only upon the recommendation of the Special Committee) or the Special Committee shall have determined
in its good faith judgment (after consultation with its financial advisor and outside legal counsel) that taking into account
any changes to this Agreement and the Equity Financing proposed by Parent and Merger Sub in response to the Notice of Superior
Proposal or otherwise, that the proposal or offer with respect to the Competing Transaction giving rise to the Notice of Superior
Proposal continues to constitute a Superior Proposal.
(e) Notwithstanding
anything to the contrary set forth in this Agreement, from the date hereof and at any time prior to the receipt of the Requisite
Company Vote, if an Intervening Event has occurred and the Company Board (acting upon the recommendation of the Special Committee)
or the Special Committee determines, in its good faith judgment upon advice by outside legal counsel engaged by the Special Committee,
that the failure to take such action would reasonably be expected to breach its fiduciary duties under applicable Law, the Company
Board (acting upon the recommendation of the Special Committee) or the Special Committee may effect a Change in the Company Recommendation.
(f) A “Competing
Transaction” means any of the following (other than the Transactions): (i) any merger, consolidation, share exchange,
business combination, scheme of arrangement, amalgamation, recapitalization, liquidation, dissolution or other similar transaction
involving the Company or any of its Subsidiaries whose assets, individually or in the aggregate, constitute 15% or more of the
consolidated assets of the Company or to which 15% or more of the total revenue or net income of the Company are attributable,
(ii) any sale, lease, exchange, transfer or other disposition of assets or businesses that constitute or represent 15% or more
of the total revenue, net income or assets of the Company and its Subsidiaries, taken as a whole, (iii) any sale, exchange,
transfer or other disposition of 15% or more of any class of equity securities of the Company, or securities convertible into
or exchangeable for 15% or more of any class of equity securities of the Company, (iv) any tender offer or exchange offer that,
if consummated, would result in any person beneficially owning 15% or more of any class of equity securities of the Company, (v)
any combination of the foregoing.
(g) An “Intervening
Event” means a material event, development or change with respect to the Company and its Subsidiaries or the business
of the Company and its Subsidiaries, that (i) is unknown by the Company Board and the Special Committee as of or prior to the
date hereof and (ii) occurs, arises or becomes known to the Company Board or the Special Committee after the date hereof and on
or prior to the receipt of the Requisite Company Vote; provided that the receipt by the Company of a Competing Transaction
or Superior Proposal will not be deemed to constitute an Intervening Event.
(h) A “Superior
Proposal” means a bona fide written proposal or offer with respect to a Competing Transaction, which was not obtained
in violation of Section 6.04, that would result in any person (or its shareholders, members or other equity owners) becoming the
beneficial owner, directly or indirectly, of more than 50% of the assets (on a consolidated basis), or more than 50% of the total
voting power of the equity securities, of the Company that the Company Board (acting only upon the recommendation of the Special
Committee) or the Special Committee has determined in its good faith judgment (after consultation with its financial advisor and
outside legal counsel): (A) is reasonably likely to be consummated in accordance with its terms without significant delay, taking
into account all legal, financial and regulatory aspects of the proposal (including financing, regulatory or other consents and
approvals, shareholder litigation, the identity of the person making the proposal, breakup or termination fee and expense reimbursement
provisions, expected timing, risk and likelihood of consummation and other relevant events and circumstances) and (B) would, if
consummated, result in a transaction more favorable to the Company’s shareholders (other than the Rollover Shareholders)
from a financial point of view than the Transactions; provided that no offer or proposal shall be deemed to be a “Superior
Proposal” if any financing required to consummate the transaction contemplated by such offer or proposal is not fully committed
or if the receipt of any such financing is a condition to the consummation of such transaction, or if the Company’s recourse
in the event such transaction is not consummated because of the failure to obtain financing is less favorable to the Company in
any material respect than the Company’s recourse in such an event hereunder.
(i) Prior to the
termination of this Agreement pursuant to Article VIII, the Company shall not submit to the vote of its shareholders any Competing
Transaction or enter into any Alternative Acquisition Agreement or propose to do so.
(j) Nothing contained
in this Section 6.04 shall be deemed to prohibit the Company, the Company Board or the Special Committee from (i) complying with
its disclosure obligations under U.S. federal or state or non-U.S. Law, including (A) disclosure of factual information regarding
the business, financial condition or results of operations of the Company or (B) taking and disclosing to its shareholders a position
contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act (or any similar
communication to shareholders in connection with the making or amendment of a tender offer or exchange offer); provided
that any such disclosure (other than a “stop, look and listen” communication of the type contemplated by Rule 14d-9(f)
under the Exchange Act or a statement that the Company Board or the Special Committee has received and is currently evaluating
such Competing Transaction) that does not include an express rejection of any applicable Competing Transaction or an express reaffirmation
of its recommendation in favor of the transactions contemplated by this Agreement shall be deemed to be a Change in the Company
Recommendation or (ii) making any “stop-look-and-listen” communication of the type contemplated by Rule 14d-9(f) under
the Exchange Act.
Section 6.05 Directors’
and Officers’ Indemnification and Insurance.
(a) The indemnification,
advancement and exculpation provisions of the indemnification agreements by and among the Company and its directors and certain
executive officers as in effect at the Effective Time shall survive the Merger and shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that would adversely affect the rights thereunder of
the current or former directors or officers of the Company or any of its Subsidiaries. The memorandum and articles of association
of the Surviving Corporation shall contain provisions no less favorable to the intended beneficiaries with respect to exculpation
and indemnification of liability and advancement of expenses than are set forth in the memorandum and articles of association
of the Company as in effect on the date hereof, and Parent shall cause such provisions not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals
who, at or prior to the Effective Time, were directors, officers, employees, fiduciaries or agents of the Company, unless such
modification shall be required by Law. From and after the Effective Time, any agreement of any Indemnified Party with the Company
or any of its Subsidiaries regarding exculpation or indemnification of liability or advancement of expenses shall be assumed by
the Surviving Corporation, shall survive the Merger and shall continue in full force and effect in accordance with its terms.
(b) The Surviving
Corporation shall, and Parent shall cause the Surviving Corporation to, maintain in effect for six years from the Effective Time
the current directors’ and officers’ liability insurance policies maintained by the Company with respect to matters
occurring prior to the Effective Time, including acts or omissions occurring in connection with this Agreement and the consummation
of the Transactions (the parties covered thereby, the “Indemnified Parties”) on terms with respect to coverage
and amount no less favorable to the Indemnified Parties than those in effect as of the Effective Time; provided that the
Surviving Corporation may substitute therefor policies of at least the same coverage containing terms, conditions, retentions
and limits of liability that are no less favorable than those provided under the Company’s current policies; provided,
further, that in no event shall the Surviving Corporation be required to expend pursuant to this Section 6.05(b) more than an
amount per year equal to 300% of current annual premiums paid by the Company for such insurance, and if the cost of such insurance
policy exceeds such amount, then the Surviving Corporation shall obtain a policy with the greatest coverage for a cost not exceeding
such amount. In addition, the Company may and, at Parent’s request, the Company shall, purchase a six-year “tail”
prepaid policy prior to the Effective Time on terms, conditions, retentions and limits of liability no less advantageous to the
Indemnified Parties than the existing directors’ and officers’ liability insurance maintained by the Company. If such
“tail” prepaid policies have been obtained by the Company prior to the Effective Time, the Surviving Corporation shall,
and Parent shall cause the Surviving Corporation to, maintain such policies in full force and effect, and continue to honor the
respective obligations thereunder, and all other obligations of Parent or Surviving Corporation under this Section 6.05(b) shall
terminate.
(c) Subject to the
terms and conditions of this Section 6.05, from and after the Effective Time, the Surviving Corporation shall comply, and Parent
shall cause the Surviving Corporation to comply, with all of the Company’s obligations, and each of the Surviving Corporation
and Parent shall cause its Subsidiaries to comply with their respective obligations to indemnify and hold harmless (including
any obligations to advance funds for expenses) (i) the Indemnified Parties against any and all costs or expenses (including reasonable
attorneys’ fees and expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in
connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative
or investigative (“Damages”), arising out of, relating to or in connection with (A) the fact that an Indemnified
Party is or was a director, officer or employee of the Company or any of its Subsidiaries or (B) any acts or omissions occurring
or alleged to have occurred (including acts or omissions with respect to the approval of this Agreement or the Transactions or
arising out of or pertaining to the Transactions and actions to enforce this provision or any other indemnification or advancement
right of any Indemnified Party) prior to or at the Effective Time, to the extent provided under the Company’s or such Subsidiaries’
respective organizational and governing documents or agreements in effect on the date hereof (true and complete copies of which
shall have been delivered to Parent prior to the date hereof) and to the fullest extent permitted by the CICL or any other applicable
Law; provided that such indemnification shall be subject to any limitation imposed from time to time under applicable Law
and (ii) such persons against any and all Damages arising out of acts or omissions in such persons’ official capacity as
an officer, director or other fiduciary of the Company or any of its Subsidiary if such service was at the request or for the
benefit of the Company or any of its Subsidiaries.
(d) Upon being served
with any summons, citation, subpoena, complaint, indictment, information, or other document relating to any Proceeding which may
result in the payment or advancement of any amounts under Section 6.05(c), the organizational and governing documents of the Company
or any of its Subsidiaries, or any existing indemnification agreements, the person seeking indemnification shall notify the Surviving
Corporation promptly, but in all events no later than the earlier of (i) five days after actual receipt, and (ii) as soon as necessary
after actual receipt to prevent the Surviving Corporation or any of its Subsidiaries from being materially and adversely prejudiced
by late notice. The Surviving Corporation (or a Subsidiary nominated by it) shall have the right to participate in any such Proceeding
and, at its option, assume the defense of such Proceeding. The person seeking indemnification shall have the right to effectively
participate in the defense and/or settlement of such Proceeding, including receiving copies of all correspondence and participating
in all meetings and teleconferences concerning the Proceeding. In the event the Surviving Corporation (or a Subsidiary nominated
by it) assumes the defense of any Proceeding pursuant to this Section 6.05(d), neither the Surviving Corporation nor any of its
Subsidiaries shall be liable to the person seeking indemnification for any fees of counsel subsequently incurred by such person
with respect to the same Proceeding.
(e) In the event
the Company or the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers
all or substantially all of its properties and assets to any person, then, and in each such case, proper provision shall be made
so that the successors and assigns of the Company or the Surviving Corporation, as the case may be, or at Parent’s option,
Parent, shall assume the obligations set forth in this Section 6.05.
(f) The agreements
and covenants contained in this Section 6.05 shall be in addition to any other rights an Indemnified Party may have under the
memorandum and articles of association of the Company or any of its Subsidiaries (or equivalent constitutional documents), or
any agreement between an Indemnified Party and the Company or any of its Subsidiaries, under the CICL or other applicable Law,
or otherwise. The provisions of this Section 6.05 shall survive the consummation of the Merger and are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties and their heirs and legal representatives, each of which
shall be a Third-Party beneficiary of the provisions of this Section 6.05. The obligations of Parent and the Surviving Corporation
under this Section 6.05 shall not be terminated or modified in such a manner as to adversely affect the rights of any Indemnified
Party without the consent of such Indemnified Party.
(g) Nothing in this
Agreement is intended to, shall be construed to or shall release, waive or impair any rights to directors’ and officers’
insurance claims under any policy that is or has been in existence with respect to the Company or any of its Subsidiaries or their
respective officers, directors and employees; it being understood and agreed that the indemnification provided for in this Section
6.05 is not prior to or in substitution for any such claims under any such policies.
Section 6.06 Notification
of Certain Matters.
Each of the Company
and Parent shall promptly notify the other in writing of:
(a) any notice or
other communication from any person alleging that the consent of such person is or may be required in connection with the Transactions;
(b) any notice or
other communication from any Governmental Authority in connection with the Transactions;
(c) any Proceedings
commenced or, to the knowledge of the Company or the knowledge of Parent, threatened against the Company or any of its Subsidiaries
or Parent and any of its Subsidiaries, as the case may be, that, if pending on the date hereof, would have been required to have
been disclosed by such party pursuant to any of such party’s representations and warranties contained herein, or that relate
to such party’s ability to consummate the Transactions; and
(d) if a breach of
any representation or warranty or failure to perform any covenant or agreement on the part of such party set forth in this Agreement
shall have occurred that would cause the conditions set forth in Section 7.01, Section 7.02 or Section 7.03 not to be satisfied;
together, in each case,
with a copy of any such notice, communication or Proceeding; provided that the delivery of any notice pursuant to this
Section 6.06 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice; provided,
further, that failure to give prompt notice pursuant to Section 6.06(d) shall not constitute a failure of a condition to the Merger
set forth in Article VII except to the extent that the underlying breach of a representation or warranty or failure to perform
any covenant or agreement not so notified would, standing alone, constitute such a failure; provided, further, that the
Company’s unintentional failure to give notice under this Section 6.06 shall not be deemed to be a breach of covenant under
this Section 6.06 but instead shall constitute only a breach of the underlying representation or warranty or covenant or condition,
as the case may be.
Section 6.07 Financing.
(a) Subject
to the terms and conditions of this Agreement, each of Parent and Merger Sub shall use its reasonable best efforts to (i) obtain
the Equity Financing on the terms and conditions described in the Equity Commitment Letters, (ii) maintain in effect the Equity
Commitment Letters until the Transactions are consummated, (iii) satisfy, or cause to be satisfied, on a timely basis all conditions
to the closing of and funding under the Equity Commitment Letters applicable to Parent and/or Merger Sub that are within its control,
(iv) consummating the Equity Financing at or prior to the Effective Time and (v) subject to Section 9.08, enforcing the parties’
funding obligations and the rights of Parent and Merger Sub under the Equity Commitment Letters to the extent necessary
to fund the Merger Consideration; provided that Parent and/or Merger Sub may amend or modify the Equity Commitment Letters
so long as (A) the aggregate proceeds of the Equity Financing (as amended or modified) will be sufficient for Parent and the Surviving
Corporation to pay (1) the Merger Consideration and (2) any other amounts required to be paid in connection with the consummation
of the Transactions upon the terms and conditions contemplated hereby and (B) such amendment or modification would not prevent,
materially delay or materially impede or impair (1) the ability of Parent and Merger Sub to consummate the Transactions or (2)
the rights and benefits of the Company under the Equity Commitment Letters. Parent shall deliver to the Company true and complete
copies of such amendment or modification as promptly as practicable after execution thereof. In the event any portion of the Equity
Financing becomes unavailable on the terms and conditions contemplated in the Equity Commitment Letters, Parent shall promptly
notify the Company.
(b) Subject
to the terms and conditions of this Agreement, Parent and Merger Sub agree not to amend, modify or waive any provision of the
Equity Commitment Letters, if such amendment, modification or waiver reduces (or would reduce) the aggregate amount of the Equity
Financing or imposes new or additional conditions or otherwise expands, amends or modifies the conditions to the Equity Financing
in a manner that, in each case, would be expected to prevent or materially delay or otherwise materially and adversely affect
the ability of Parent or Merger Sub to consummate the Transactions. Parent shall give the Company prompt notice (i) upon
becoming aware of any breach of any material provision of the Equity Commitment Letters or termination of any such Equity Commitment
Letter by any party to such Equity Commitment Letter or (ii) upon the receipt of any written notice from any party to an Equity
Commitment Letter with respect to any threatened breach of any material provision of the Equity Commitment Letters or threatened
termination of any such Equity Commitment Letters.
Section 6.08 Further
Action; Reasonable Best Efforts.
(a) Upon the terms
and subject to the conditions of this Agreement, each of the parties hereto and their respective Representatives shall (i) make
promptly its respective filings, and thereafter make any other required submissions, with each relevant Governmental Authority
with jurisdiction over enforcement of any applicable antitrust or competition Laws with respect to the Transactions, and coordinate
and cooperate fully with the other parties in exchanging such information and providing such assistance as the other parties may
reasonably request in connection therewith (including (A) obtaining consent (such consent not be unreasonably withheld, conditioned
or delayed) from the other parties promptly before making any substantive communication (whether verbal or written) with any Governmental
Authority in connection with such filings or submissions, (B) permitting the other parties to review in advance, and consulting
with the other parties on, any proposed filing, submission or communication (whether verbal or written) by such party to any Governmental
Authority and (C) giving the other parties the opportunity to attend and participate at any meeting with any Governmental
Authority in respect of any filing, investigation or other inquiry) and (ii) cooperate with the other parties hereto and
use its reasonable best efforts, and cause its Subsidiaries to use their respective reasonable best efforts, to take or cause
to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable
Laws or otherwise to consummate and make effective the Transactions, including employing such resources as are necessary to obtain
the Requisite Regulatory Approvals and taking any and all steps necessary to avoid or eliminate each and every impediment under
any antitrust or competition Law that may be asserted by any Governmental Authority so as to enable the parties hereto to expeditiously
consummate the Transactions, including committing to and effecting, by consent decree, hold separate orders, or otherwise, the
restructuring, reorganization, sale, divestiture or disposition of such of its assets, properties or businesses; provided
that no party hereto shall be required to take any such action if such action would have a Company Material Adverse Effect.
(b) Each party hereto
shall, upon request by any other party, furnish such other party with all information concerning itself, its Subsidiaries, directors,
officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement,
the Schedule 13E-3, or any other statement, filing, notice or application made by or on behalf of Parent, Merger Sub, the Company
or any of their respective Subsidiaries to any Third Party and/or any Governmental Authority in connection with the Transactions.
Section 6.09 Obligations
of Parent and Merger Sub.
Parent shall take
all action necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the Transactions on
the terms and subject to the conditions set forth in this Agreement.
Section 6.10 Participation
in Litigation.
Prior to the Effective
Time, Parent shall give prompt notice to the Company, and the Company shall give prompt notice to Parent, of any Proceedings commenced
or, to the Company’s knowledge on the one hand and Parent’s knowledge on the other hand, threatened against such party
or its directors that relate to this Agreement and the Transactions. The Company shall give Parent the opportunity to participate
in the defense or settlement of any shareholder Proceeding against the Company and/or its directors relating to this Agreement
or the Transactions, and no such Proceeding shall be settled without Parent’s prior written consent (such consent not be
unreasonably withheld, conditioned or delayed); provided that the Company may, without Parent’s prior written consent,
settle Proceedings that involve only the payment of money damages not in excess of $1,000,000 in the aggregate.
Section 6.11 Resignations.
To the extent requested
by Parent in writing at least three Business Days prior to Closing, on the Closing Date, the Company shall use reasonable best
efforts to cause to be delivered to Parent duly signed resignations, effective as of the Effective Time, of the directors of the
Company or any of its Subsidiaries designated by Parent.
Section 6.12 Public
Announcements.
Except as may be required
by applicable Law, the press release announcing the execution of this Agreement shall be issued only in such form as shall be
mutually agreed upon by the Company and Parent. Thereafter, at any time prior to termination of this Agreement pursuant to Article
VIII, Parent and the Company shall consult with each other before issuing any press release, having any communication with the
press (whether or not for attribution), making any other public statement or scheduling any press conference or conference call
with investors or analysts with respect to this Agreement or the Transactions and, except in respect of any such press release,
communication, other public statement, press conference or conference call as may be required by applicable Law or rules and policies
of NASDAQ, shall not issue any such press release, have any such communication, make any such other public statement or schedule
any such press conference or conference call prior to such consultation. Notwithstanding the foregoing, the restrictions set forth
in this Section 6.12 shall not apply to any release or announcement made or proposed to be made by the Company in connection with
a Change in Company Recommendation made in compliance with this Agreement.
Section 6.13 Stock
Exchange Delisting.
Prior to the Effective
Time, the Company shall cooperate with Parent and use reasonable best efforts to take, or cause to be taken, all actions, and
do or cause to be done all things, reasonably necessary, proper or advisable on its part under applicable Laws and rules and policies
of NASDAQ to enable the delisting of the Class A Shares and ADSs from NASDAQ and the deregistration of the Class A Shares and
ADSs under the Exchange Act as promptly as practicable after the Effective Time.
Section 6.14 Takeover
Statutes.
If any Takeover Statute
is or may become applicable to any of the Transactions, the parties hereto shall use their respective reasonable best efforts
(a) to take all action necessary so that no Takeover Statute is or becomes applicable to any of the Transactions and (b) if any
such Takeover Statute is or becomes applicable to any of the foregoing, to take all action necessary (including, in the case of
the Company and the Company Board, grant all necessary approvals) so that the Transactions may be consummated as promptly as practicable
on the terms contemplated by this Agreement, including all actions to eliminate or lawfully minimize the effects of such Takeover
Statute on the Transactions.
Section 6.15 SAFE
Registration.
The Company shall
as soon as practicable after the date hereof, (a) use its commercially reasonable efforts to assist in the preparation of applications
to SAFE by shareholders of the Company who are PRC residents for the registration of their respective holdings of Shares (whether
directly or indirectly) in accordance with the requirements of applicable SAFE rules, including by promptly providing such shareholders
with such information relating to the Company and its Subsidiaries as is required for such application, and (b) cause its PRC
Subsidiaries (to the extent applicable) to comply with the requirements of such SAFE rules.
Section 6.16 No
Amendment to Parent Group Contracts or Certain Other Documents.
Without
the Company’s prior written consent, (a) Parent and Merger Sub shall not, and shall cause the members of the Parent Group
not to, enter into any Contract or amend, modify, withdraw or terminate any Parent Group Contract or waive any rights thereunder
in a manner that would (i) result, directly or indirectly, in any of the Rollover Shares ceasing to be treated as Excluded Shares
or change the number of Rollover Shares of Yili Shengda, Zhongrong Shengda, Zhongrong Investment, Hongtai, Hongzhi and Hao Ding,
(ii) individually or in the aggregate, prevent or materially delay the ability of Parent or Merger Sub to consummate the Merger
and the other Transactions or (iii) prevent or materially impair the ability of any management member or director of the Company,
with respect to any Superior Proposal, taking any of the actions described in Section
6.04 to the extent such actions are permitted to be taken by the Company thereunder, (b) Parent and Merger Sub shall not, and
shall cause the members of the Parent Group not to, enter into or modify any Contract pursuant to which any management members,
directors or shareholders of the Company, or any of their respective Affiliates receives any consideration or other economic value
from any person in connection with the Transactions that is not provided or expressly contemplated in the Parent Group Contracts
as of the date hereof, including any carried interest, share option, share appreciation right or other forms of equity or quasi-equity
right and (c) Parent and Merger Sub shall not, and shall cause the members of the Parent Group not to, adopt, enter into
or modify any constitutional documents of any member of the Parent Group, any Contract or any understanding that would prevent
or materially impair the satisfaction of the condition set forth in Section 7.01(b).
Within two Business Days after the execution thereof, Parent and Merger Sub shall provide the Company with a copy of any Contract
relating to the Transactions that is entered into after the date hereof and to which a member of the Parent Group is a party.
Article
VII
CONDITIONS TO THE MERGER
Section 7.01 Conditions
to the Obligations of Each Party.
The obligations of
the Company, Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver (where permissible under
applicable Law) of the following conditions at or prior to the Closing Date:
(a) Shareholder Approval.
This Agreement, the Plan of Merger and the Transactions shall have been authorized and approved by holders of Shares constituting
the Requisite Company Vote at the Shareholders’ Meeting in accordance with the CICL and the Company’s memorandum and
articles of association.
(b) No Injunction.
No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or award,
writ, injunction, determination, rule, regulation, judgment, decree or executive order (an “Order”), whether
temporary, preliminary or permanent, that is then in effect or has the effect of enjoining, restraining, prohibiting or otherwise
making illegal the consummation of the Transactions, and the consummation of the Transactions shall not have been subject to any
requirement to make any regulatory filing or obtain any regulatory approval under the PRC Anti-Monopoly Law.
Section 7.02 Conditions
to the Obligations of Parent and Merger Sub.
The obligations of
Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver (where permissible under applicable Law)
of the following additional conditions at or prior to the Closing Date:
(a) Representations
and Warranties. (i) The representations and warranties of the Company contained in Section
3.04 shall be true and correct in all material respects, (ii) the representations and warranties of the Company contained in the
first two sentences of Section 3.03(a) shall be true and correct in all respects (except for de minimis inaccuracies),
and (iii) each of the other representations and warranties of the Company contained in this Agreement (without giving effect to
any qualification as to “materiality” or “Company Material Adverse Effect” set forth therein), shall be
true and correct in all respects, in each case as of the date of this Agreement and as of the Closing Date, as though made on,
or at, and as of such date or time (except to the extent expressly made as of a specific date, in which case as of such date),
except in the case of clause (iii), where the failure of such representations and warranties of the Company to be so true and
correct would not constitute a Company Material Adverse Effect.
(b) Agreements and
Covenants. The Company shall have performed or complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the Closing Date.
(c) No Material Adverse
Effect. No Company Material Adverse Effect shall have occurred since the date hereof and be continuing.
(d) Officer Certificate.
The Company shall have delivered to Parent a certificate, dated the Closing Date, signed by a senior executive officer of the
Company, certifying as to the satisfaction of the conditions specified in Section 7.02(a), Section 7.02(b) and Section 7.02(c).
(e) Dissenting Shareholders.
The holders of no more than 10% of the Shares shall have validly served a notice of dissent under Section 238(2) of the CICL.
Section 7.03 Conditions
to the Obligations of the Company.
The obligations of
the Company to consummate the Merger are subject to the satisfaction or waiver (where permissible under applicable Law) of the
following additional conditions at or prior to the Closing Date:
(a) Representations
and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement (without giving effect
to any qualification as to “materiality” set forth therein) shall be true and correct in all respects as of the date
hereof and as of the Closing Date, as though made on and as of such date and time (other than representations and warranties that
by their terms address matters only as of a specified time, which shall be true and correct only as of such time), except where
the failure of such representations and warranties of Parent and Merger Sub to be so true and correct, individually or in the
aggregate, have not, and would not reasonably be expected to, prevent, materially delay or materially impede or impair the ability
of Parent and Merger Sub to consummate the Transactions.
(b) Agreements and
Covenants. Each of Parent and Merger Sub shall have performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to the Closing Date.
(c) Officer Certificate.
Parent shall have delivered to the Company a certificate, dated the date of the Closing, signed by an executive officer of Parent,
certifying as to the satisfaction of the conditions specified in Section 7.03(a) and Section 7.03(b).
Section 7.04 Frustration
of Closing Conditions.
Prior to the Termination
Date, none of the Company, Parent or Merger Sub may rely on the failure of any condition set forth in this Article VII to be satisfied
if such failure was caused by such party’s failure to act in good faith to comply with this Agreement and consummate the
Transactions.
Article
VIII
TERMINATION
Section 8.01 Termination
by Mutual Consent.
This Agreement may
be terminated and the Transactions may be abandoned at any time prior to the Effective Time by mutual written consent of Parent
and the Company with the approval of their respective boards of directors (or in the case of the Company, acting upon the recommendation
of the Special Committee).
Section 8.02 Termination
by Either the Company or Parent.
This Agreement may
be terminated by either the Company (acting only upon the recommendation of the Special Committee) or Parent at any time prior
to the Effective Time, if:
(a) the Effective
Time shall not have occurred on or before December 31, 2015 (the “Termination Date”); or
(b) any Governmental
Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any final and non-appealable
Order that, or taken any other final and non-appealable action that, has the effect of making consummation of the Transactions
illegal or otherwise preventing or prohibiting consummation of the Transactions; or
(c) the Requisite
Company Vote shall not have been obtained at the Shareholders’ Meeting duly convened therefor and concluded or at any adjournment
or postponement thereof;
provided that
the right to terminate this Agreement pursuant to this Section 8.02 shall not be available to any party whose failure to fulfill
any of its obligations under this Agreement has been a material cause of, or resulted in, the failure of the applicable condition(s)
being satisfied.
Section 8.03 Termination
by the Company.
This Agreement may
be terminated by the Company (acting only upon the recommendation of the Special Committee) at any time prior to the Effective
Time, if:
(a) a breach of any
representation, warranty, agreement or covenant of Parent or Merger Sub set forth in this Agreement shall have occurred, which
breach (i) would give rise to the failure of a condition set forth in Section 7.03(a) or Section 7.03(b) and as a result of such
breach, such condition would not be capable of being satisfied prior to the Termination Date and (ii) is incapable of being
cured or, if capable of being cured, is not cured by Parent or Merger Sub, as applicable, within 30 days following receipt of
written notice of such breach from the Company (or, if the Termination Date is less than 30 calendar days from the date of receipt
of such notice, by the Termination Date); provided that the Company shall not have the right to terminate this Agreement
pursuant to this Section 8.03(a) if the Company is then in material breach of any representations, warranties, agreements or covenants
of the Company hereunder that would give rise to the failure of a condition set forth in Section 7.02;
(b) (i) all of the
conditions set forth in Section 7.01 and Section 7.02 (other than those conditions that by their nature are to be satisfied by
actions taken at the Closing) have been satisfied, (ii) the Company has delivered to Parent an irrevocable written notice confirming
that all of the conditions set forth Section 7.03 have been satisfied (or that the Company is willing to waive any unsatisfied
conditions in Section 7.03) and that it is ready, willing and able to consummate the Closing and (iii) Parent and Merger Sub fail
to complete the Closing within five Business Days following the date on which the Closing should have occurred pursuant to Section
1.02; or
(c) prior
to the receipt of the Requisite Company Vote, (i) the Company Board (acting only upon the recommendation of the Special Committee)
or the Special Committee (to the extent it is within the authority of the Special Committee) has authorized the Company to enter
into an Alternative Acquisition Agreement with respect to a Superior Proposal pursuant to Section
6.04(d) and (ii) the Company concurrently with, or immediately after, the termination of this Agreement enters into the Alternative
Acquisition Agreement with respect to the Superior Proposal referred to in the foregoing clause (i); provided that the
Company shall not be entitled to terminate this Agreement pursuant to this Section 8.03(c) unless the Company has (A) complied
in all respects with the requirements of Section 6.04 with respect to such Superior Proposal and/or Alternative Acquisition Agreement
(other than immaterial non-compliance that does not adversely affect Parent or Merger Sub) and (B) complied in all respects with
Section 8.06 and pays in full the Company Termination Fee prior to or concurrently with taking any action pursuant to this Section
8.03(c). Any purported termination of this Agreement by the Company pursuant to this Section 8.03(c) shall be void and of no force
or effect if the Company shall not have paid the Company Termination Fee in accordance with this Section 8.03(c).
Section 8.04 Termination
by Parent.
This Agreement may
be terminated by Parent at any time prior to the Effective Time, if:
(a) a breach of any
representation, warranty, agreement or covenant of the Company set forth in this Agreement shall have occurred, which breach (i)
would give rise to the failure of a condition set forth in Section 7.02(a) or Section 7.02(b) and as a result of such breach,
such condition would not be capable of being satisfied prior to the Termination Date and (ii) is incapable of being cured or,
if capable of being cured, is not cured by the Company within 30 days following receipt of written notice of such breach from
Parent or Merger Sub (or, if the Termination Date is less than 30 calendar days from the date of receipt of such notice, by the
Termination Date); provided that Parent shall not have the right to terminate this Agreement pursuant to this Section 8.04(a)
if either Parent or Merger Sub is then in material breach of any representations, warranties or covenants of Parent or Merger
Sub hereunder that would give rise to the failure of a condition set forth in Section 7.03; or
(b) the Company Board
or any committee thereof shall have effected a Change in the Company Recommendation.
Section 8.05 Effect
of Termination.
In the event of the
termination of this Agreement pursuant to Article VIII, this Agreement shall forthwith become void, and there shall be no liability
under this Agreement on the part of any party hereto (or any Representative of such party); provided that the terms of
Section 6.03(c), Section 6.12, Article VIII and Article IX shall survive any termination of this Agreement.
Section 8.06 Termination
Fee and Expenses.
(a) In the event
that:
(i) (A) a bona
fide proposal or offer with respect to a Competing Transaction shall have been publicly made, proposed or communicated (and not
publicly withdrawn), after the date hereof and prior to the Shareholders’ Meeting (or prior to the termination of this Agreement
if there has been no Shareholders’ Meeting), (B) following the occurrence of an event described in the preceding clause
(A), this Agreement is terminated by the Company or Parent pursuant to Section 8.02(a) or Section 8.02(c) and (C) within 12 months
after the termination of this Agreement, the Company consummates, or enters into a definitive agreement in connection with, any
Competing Transaction by a Third Party (in each case whether or not the Competing Transaction was the same Competing Transaction
referred to in Clause (A)); provided that for purposes of this Section 8.06(a), all references to “15%” in
the definition of “Competing Transaction” shall be deemed to be references to “50%”);
(ii) this Agreement
is terminated by Parent pursuant to Section 8.04; or
(iii) this Agreement
is terminated by the Company pursuant to Section 8.03(c),
then the Company shall
pay to Parent or its designees an amount equal to $57,250,000 (the “Company Termination Fee”) by
wire transfer of same day funds as promptly as possible (but in any event (A) within five Business Days after such termination
in the case of a termination referred to in clause (ii), (B) within two Business Days following the consummation by the Company
of a Competing Transaction or entry by the Company into the definitive agreement in connection with a Competing Transaction in
the case of a termination referred to in clause (i) or (C) prior to or concurrently with the termination of this Agreement in
the case of a termination pursuant to clause (iii)); it being understood that in no event shall the Company be required to pay
the Company Termination Fee on more than one occasion.
(b) Parent will pay,
or cause to be paid, to the Company an amount equal to $114,500,000 (the “Parent Termination Fee”)
if this Agreement is terminated by the Company pursuant to Section 8.03(a) or Section 8.03(b), such payment to be made as promptly
as possible (but in any event within five Business Days) following such termination by wire transfer of same day funds); it being
understood that in no event shall Parent be required to pay the Parent Termination Fee on more than one occasion.
(c) In the event
that the Company shall terminate this Agreement pursuant to Section 8.03(a) or Section 8.03(b), then Parent shall pay, or caused
to be paid, to the Company by wire transfer of same day funds, as promptly as possible (but in any event within three Business
Days) following the delivery by the Company of an invoice therefor, all Expenses incurred by the Company and its Affiliates in
connection with the Transactions up to a maximum amount equal to $3,000,000.
(d) In the event
that Parent shall terminate this Agreement pursuant to Section 8.04, the Company shall pay Parent or its designees by wire transfer
of same day funds, as promptly as possible (but in any event within three Business Days) following the delivery by Parent of an
invoice therefor, all Expenses incurred by Parent, Merger Sub and their respective Affiliates in connection with the Transactions,
including the Equity Financing, up to a maximum amount equal to $3,000,000.
(e) Except as set
forth in Section 8.06(c) and Section 8.06(d), all Expenses incurred in connection with this Agreement and the Transactions shall
be paid by the party incurring such Expenses, whether or not the Merger or any other Transaction is consummated.
(f) In the event
that the Company fails to pay the Company Termination Fee or any Expenses, or Parent fails to pay the Parent Termination Fee or
any Expenses, when due and in accordance with the requirements of this Agreement, the Company or Parent, as the case may be, shall
reimburse the other party for reasonable costs and expenses actually incurred or accrued by the other party (including fees and
expenses of counsel) in connection with the collection under and enforcement of this Section 8.06, together with interest on such
unpaid Company Termination Fee or Parent Termination Fee or Expenses, as the case may be, commencing on the date that the Company
Termination Fee or Parent Termination Fee or Expenses, as the case may be, became due, at the prime rate as published in the Wall
Street Journal Table of Money Rates on such date plus 5.00%. Such collection expenses shall not otherwise diminish in any way
the payment obligations hereunder.
(g) Each of the Company,
Parent and Merger Sub acknowledges that (i) the agreements contained in this Section 8.06 are an integral part of the Transactions,
(ii) the damages resulting from termination of this Agreement under circumstances where a Company Termination Fee or Parent
Termination Fee is payable are uncertain and incapable of accurate calculation and therefore, the amounts payable pursuant to
Section 8.06(a) or Section 8.06(b) are not a penalty but rather constitute amounts akin to liquidated damages in a reasonable
amount that will compensate Parent or the Company, as the case may be, for the efforts and resources expended and opportunities
foregone while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the
Transactions, and (iii) without the agreements contained in this Section 8.06, the parties hereto would not have entered into
this Agreement.
(h) (i) Subject
to Section 9.08, the Equity Commitment Letters or the Limited
Guarantees, in the event that Parent or Merger Sub fails to effect the Closing for any reason or no reason or they otherwise breach
this Agreement (whether willfully, intentionally, unintentionally or otherwise) or otherwise fail to perform hereunder (whether
willfully, intentionally, unintentionally or otherwise), then the Company’s right to terminate this Agreement and receive
the Parent Termination Fee pursuant to Section 8.06(b), the Expenses under Section 8.06(c) and the expenses under Section 8.06(f)
and the guarantee of such obligations pursuant to the Limited Guarantees (subject to their terms, conditions and limitations),
shall be the sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) of the Company or any of
its Subsidiaries and all members of the Company Group against (A) Parent, Merger Sub, the Guarantors, and the Sponsors, (B) the
former, current and future holders of any equity, partnership or limited liability company interest, controlling persons, directors,
officers, employees, agents, attorneys, Affiliates, members, managers, general or limited partners, stockholders, or assignees
of Parent, Merger Sub or any Guarantor or Sponsor, (C) any lender or prospective lender, lead arranger, arranger, agent or representative
of or to Parent, Merger Sub or any Guarantor or Sponsor, or (D) any holders or future holders of any equity, stock, partnership
or limited liability company interest, controlling persons, directors, officers, employees, agents, attorneys, Affiliates, members,
managers, general or limited partners, stockholders, assignees of any of the foregoing (clauses (A)-(D), collectively, the “Parent
Group”), for any loss or damage suffered as a result of any breach of any representation, warranty, covenant or agreement
(whether willfully, intentionally, unintentionally or otherwise) or failure to perform hereunder (whether willfully, intentionally,
unintentionally or otherwise) or other failure of the Merger or the other Transactions to be consummated (whether willfully, intentionally,
unintentionally or otherwise). For the avoidance of doubt, neither Parent nor any other member of the Parent Group shall have
any liability for monetary damages of any kind or nature or arising in any circumstance in connection with this Agreement or any
of the Transactions (including the Equity Commitment Letters and
the Limited Guarantees) other than the payment of the Parent Termination Fee pursuant to Section 8.06(b), the Expenses under Section
8.06(c) and the expenses pursuant to Section 8.06(f), and in no event shall the Company or any of its Subsidiaries, the direct
or indirect shareholders of the Company or any of its Subsidiaries, or any of their respective Affiliates, directors, officers,
employees, members, managers, partners, representatives, advisors or agents of the foregoing (collectively, the “Company
Group”) seek, or permit to be sought, on behalf of any member of the Company Group, any monetary damages from any member
of the Parent Group in connection with this Agreement or any of the Transactions (including the Equity Commitment Letters
and the Limited Guarantees), other than (without duplication) from Parent
or Merger Sub to the extent provided in Section 8.06(b), Section 8.06(c) and Section 8.06(f), or the Guarantors to the extent
provided in the relevant Limited Guarantee.
(ii) Subject to Section
9.08, Parent’s right to terminate this Agreement and receive the Company Termination Fee pursuant to Section 8.06(a), the
Expenses under Section 8.06(d) and expenses under Section 8.06(f) shall be the sole and exclusive remedy (whether at law, in equity,
in contract, in tort or otherwise) of any member of the Parent Group against any member of the Company Group for any loss or damage
suffered as a result of any breach of any representation, warranty, covenant or agreement (whether willfully, intentionally, unintentionally
or otherwise) or failure to perform hereunder (whether willfully, intentionally, unintentionally or otherwise) or other failure
of the Merger to be consummated (whether willfully, intentionally, unintentionally or otherwise). Neither the Company nor any
other member of the Company Group shall have any liability for monetary damages of any kind or nature or arising in any circumstance
in connection with this Agreement or any of the Transactions other than the payment by the Company of the Company Termination
Fee pursuant to Section 8.06(a), the Expenses under Section 8.06(d) and the expenses under Section 8.06(f), and in no event shall
any of Parent, Merger Sub or any other member of the Parent Group seek, or permit to be sought, on behalf of any member of the
Parent Group, any monetary damages from any member of the Company Group in connection with this Agreement or any of the Transactions,
other than (without duplication) from the Company to the extent provided in Section 8.06(a), Section 8.06(d) and Section 8.06(f).
Article
IX
GENERAL PROVISIONS
Section 9.01 Non-Survival
of Representations, Warranties and Agreements.
The representations,
warranties and agreements in this Agreement and in any certificate delivered pursuant hereto shall terminate at the earlier of
the Effective Time and termination of this Agreement pursuant to Article VIII, except that this Section 9.01 shall not limit any
covenant or agreement of the parties hereto that by its terms contemplates performance after the Effective Time or termination
of this Agreement, including the agreements set forth in Article I and Article II, Section 6.06 and this Article IX.
Section 9.02 Notices.
All notices, requests,
claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by facsimile or by international overnight courier to the respective parties at the
following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section
9.02):
if to Parent or Merger
Sub:
c/o Ningxia Yilida
Capital Investment Limited Partnership
No. 19, Lane 666,
Zhangheng Road,
Pudong New Area, Shanghai,
China
Attention: Mr. Yingfeng
Zhang
c/o Ningxia Zhongyincashmere
International Group Co., Ltd.
Zhongyin Avenue, The
Cashmere Industrial Park
Lingwu, Ningxia Province,
China
Attention: Ms. Xiaofei
Chen
Facsimile: +86 591
4519290
with a copy to:
Wilson Sonsini Goodrich
& Rosati
Jin Mao Tower, 38F,
Unit 3
88 Century Blvd, Pudong
Shanghai 200121, China
Attention: Zhan
Chen, Esq.
Facsimile: +86 21
6165 1799
if to the Company:
Shanda Games
Limited
No. 1 Office Building
No. 690 Bibo Road
Pudong New Area
Shanghai 201203
The People’s
Republic of China
Attention: Mr.
Yingfeng Zhang
Facsimile: +86
21 5050 4740 (ext. 897286)
with a copy to:
Sullivan & Cromwell
28th Floor, Nine Queen’s
Road Central
Hong Kong
Attention: Chun
Wei, Esq.
Facsimile: +852
2522 2280
Section 9.03 Certain
Definitions.
(a) For purposes
of this Agreement:
“2014 Balance
Sheet” means the audited consolidated balance sheet of the Company and its consolidated Subsidiaries as at December 31,
2014, including the notes thereto.
“Acceptable
Confidentiality Agreement” means a confidentiality agreement that contains provisions that are no less favorable in the
aggregate to the Company than those contained in the Confidentiality Agreements; provided that such agreement and any related
agreements (i) need not contain “standstill” provisions and (ii) shall not include any provision calling for
any exclusive right to negotiate with such party or having the effect of prohibiting the Company from satisfying its obligations
under this Agreement.
“Affiliate”
of a specified person means a person who, directly or indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with, such specified person.
“Business Day”
means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close in New York, the Cayman
Islands, the British Virgin Islands, Hong Kong or Singapore, a public holiday in the PRC.
“Company Disclosure
Schedule” means the disclosure schedule delivered by the Company to and accepted by Parent and Merger Sub on the date hereof.
“Company IP
Contract” means any Contract, to which the Company or any of its Subsidiaries is party or by which the Company or any of
its Subsidiaries is bound, that contains any assignment or license of, or covenant not to assert or enforce, any Intellectual
Property or that otherwise relates to any Company Owned IP or Intellectual Property licensed by, with or to the Company or any
of its Subsidiaries.
“Company IT
Assets” means all Software, systems, servers, computers, hardware, firmware, middleware, networks, data communications lines,
routers, hubs, switches and all other information technology equipment, and all associated documentation owned by or licensed,
pursuant to valid and enforceable license agreements, to the Company and its Subsidiaries.
“Company Material
Adverse Effect” means any fact, event, circumstance, change, condition or effect that, individually or in the aggregate
with all other facts, events, circumstances, changes, conditions and effects, has or would reasonably be expected to have a materially
adverse effect on the business, financial condition, or results of operations of the Company and its Subsidiaries taken as a whole;
provided, however, that in no event shall any of the following, either alone or in combination, constitute, or be taken
into account in determining whether there has been or would be, a Company Material Adverse Effect: (i) changes affecting the financial,
credit or other securities or capital markets, or in general economic, business, regulatory, legislative or political conditions
in any country or region in which the Company or any of its Subsidiaries conduct business, including changes in interest rates
and foreign exchange rates; (ii) changes in GAAP or any interpretation thereof after the date hereof; (iii) changes in applicable
Law, directives or policies of a Governmental Authority of general applicability, or any interpretation, implementation or enforcement
thereof, that are binding on the Company or any of its Subsidiaries; (iv) changes that are the result of factors generally affecting
the industries and markets in which the Company and its Subsidiaries operate; (v) effects resulting from the announcement,
pendency or consummation of this Agreement or the identity of Parent and its Affiliates, including, without limitation, the initiation
of litigation or other legal proceeding related to this Agreement or the Transactions, or any loss of or change in relationship
with any customer, supplier, employee, vendor or other business partner of the Company; (vi) any failure by the Company or
any of its Subsidiaries to meet any analyst estimates or expectations of the Company’s or such Subsidiary’s revenue,
earnings or other financial performance or results of operations for any period, or any failure by the Company or any of its Subsidiaries
to meet its internal or published projections, estimates, budgets, plans or forecasts of its revenues, earnings or other financial
performance measures, operating statistics or results of operations (it being understood that the facts or occurrences giving
rise to or contributing to such failure that are not otherwise excluded from the definition of “Company Material Adverse
Effect” may be taken into account in determining whether there has been a Company Material Adverse Effect); (vii) natural
or manmade disasters, acts of sabotage or terrorism, declarations, outbreaks or escalations of war or major hostilities, or other
force majeure events; (viii) changes in the market price or trading volume of Shares or ADSs (it being understood that the facts
or occurrences giving rise to or contributing to such changes that are not otherwise excluded from the definition of “Company
Material Adverse Effect” may be taken into account in determining whether there has been a Company Material Adverse Effect);
(ix) any acts or omissions of the Company or any of its Subsidiaries taken, directly or indirectly, at the direction or request
of, or with the consent of, Parent or any officer or director of Parent, or at the request of Parent; provided that facts,
events, circumstances, developments, conditions, changes, occurrences or effects set forth in clauses (i), (ii), (iii), (iv) and
(vii) above may be taken into account in determining whether a “Company Material Adverse Effect” has occurred or reasonably
would be expected to occur if and to the extent such facts, events, circumstances, developments, conditions, changes, occurrences
or effects individually or in the aggregate have a materially disproportionate impact on the Company and its Subsidiaries, taken
as a whole, relative to the other participants in the industries in which the Company and its Subsidiaries conduct their businesses.
“Company Option”
means each option to purchase Shares whether or not granted under the Share Incentive Plan on or prior to the Closing Date, whether
or not such option has become vested on or prior to the Closing Date in accordance with the terms thereof.
“Company Permits”
means all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, concessions, registrations,
clearances, exemptions, certificates, approvals and orders of any Governmental Authority required under applicable Law for the
conduct of the Company’s business.
“Company Products”
means the products and services designed, developed, manufactured, offered, provided, marketed, licensed, sold, distributed or
otherwise made available by or for the Company or any of its Subsidiaries.
“Company RS”
means each share of restricted stock whether or not granted under the Share Incentive Plan on or prior to the Closing Date, the
restrictions over which have not lapsed on or prior to the Closing Date in accordance with the terms thereof.
“Company RSU”
means each restricted stock unit or other right to acquire Shares whether or not granted under the Share Incentive Plan on or
prior to the Closing Date, whether or not the restrictions over which have lapsed on or prior to the Closing Date in accordance
with the terms thereof.
“Company Shareholder
Approval” means the approval and adoption of this Agreement and the Transactions (including the Merger) at the Shareholders’
Meeting by the Requisite Company Vote.
“Confidentiality
Agreements” means the confidentiality agreements between the Company and each of the Sponsors, as amended and restated from
time to time.
“Consortium
Agreement” means the Consortium Agreement by and among Ningxia Yilida, Ningxia Zhongyincashmere, Hongtai, Hongzhi and Hao
Ding dated as of March 16, 2015, as amended and supplemented from time to time.
“Contract”
means any legally enforceable note, bond, mortgage, indenture, deed of trust, contract, agreement, lease, license, permit, franchise
or other instrument.
“control”
(including the terms “controlled by” and “under common control with”) means the possession, directly or
indirectly, or as trustee or executor, of the power to direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities or the possession of voting power, as trustee or executor, by contract or credit
arrangement or otherwise.
“Environmental
Law” means any applicable PRC local, provincial or national Law relating to (a) the protection of health, safety or the
environment or (b) the handling, use, transportation, disposal, release or threatened release of any Hazardous Substance.
“Exercise Price”
means, with respect to any Company Option, the applicable exercise price per Share underlying such Company Option.
“Excluded Shares”
means, collectively, (i) the Rollover Shares and (ii) Shares held by Parent, the Company or any of their Subsidiaries.
“Expenses”
means, with respect to any party hereto, all out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants,
investment banking firms and other financial institutions, experts and consultants to such party and its Affiliates) actually
incurred or accrued by such party or its Affiliates or on its or their behalf or for which it or they are liable in connection
with or related to the authorization, preparation, negotiation, execution and performance of the Transactions, the preparation,
printing, filing and mailing of the Schedule 13E-3 and the Proxy Statement, the solicitation of shareholder approvals, the
filing of any required notices under applicable Laws and all other matters related to the closing of the Merger and the other
Transactions.
“Governmental
Authority” means any federal, national, foreign, supranational, state, provincial, county, local or other governmental,
regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral
body of competent jurisdiction.
“Government
Official” means any officer, employee or other individual acting in an official capacity for a Governmental Authority or
agency or instrumentality thereof (including any state-owned or controlled enterprise).
“Hao
Ding” means Hao Ding International Limited, a company established
under the laws of the British Virgin Islands.
“Hazardous Substance”
means any chemical, pollutant, waste or substance that is (i) listed, classified or regulated under any Environmental Law
as hazardous substance, toxic substance, pollutant, contaminant or oil or (ii) any petroleum product or by product, asbestos containing
material, polychlorinated biphenyls or radioactive material.
“Hongtai”
means Orient Hongtai (Hong Kong) Limited, a company incorporated and existing under the laws of Hong Kong and
an Affiliate of Orient Securities Company Limited.
“Hongzhi”
means Orient Hongzii (Hong Kong) Limited, a company incorporated and existing under the laws of Hong Kong and
an Affiliate of Orient Securities Company Limited.
“Indebtedness”
means, with respect to any person, (i) all indebtedness of such person, whether or not contingent, for borrowed money, (ii) all
obligations of such person for the deferred purchase price of property or services, (iii) all obligations of such person evidenced
by notes, bonds, debentures or other similar instruments, (iv) all obligations of such person under currency, interest rate or
other swaps, and all hedging and other obligations of such person under other derivative instruments, (v) all indebtedness created
or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even
though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession
or sale of such property), (vi) all obligations of such person as lessee under leases that have been or should be, in accordance
with GAAP, recorded as capital leases, (vii) all obligations, contingent or otherwise, of such person under acceptance, letter
of credit or similar facilities, (viii) all Indebtedness of others referred to in clauses (i) through (vii) guaranteed directly
or indirectly in any manner by such person and (ix) all Indebtedness referred to in clauses (i) through (vii) secured by (or for
which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Liens on property
(including accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the
payment of such Indebtedness.
“Intellectual
Property” means all (i) patents worldwide, including utility models, inventions and discoveries, statutory invention registrations,
mask works, invention disclosures, and industrial designs, community designs and other designs, and including all divisionals,
substitutions, continuations, continuations-in-part, continuing prosecution applications, reissues, re-examinations, renewals,
restorations, and extensions, and any counterparts worldwide claiming priority therefrom, and all rights in and to any of the
foregoing (“Patents”), including all members of (a) all Patents in the same priority chain (i.e., all Patents
that claim priority to the same non-provisional application or applications, and all Patents from which priority is claimed by
the identified Patent), (b) all corresponding foreign Patents, and (c) all Patents that are subject to a terminal disclaimer that
disclaims the term of any such Patent beyond the term of any member of the family, (ii) Trademarks, (iii) copyrights and all other
rights with respect to Works of Authorship, including moral and economic rights however denominated, design rights and database
rights therein and thereto, (iv) information and materials not generally known to the public and qualifying as a trade secret
under applicable Law, including (A) any technical, engineering, manufacturing, product, marketing, servicing, financial, supplier,
and other information and materials, and (B) any customer, vendor, and distributor lists, contact and registration information,
and correspondence (“Trade Secrets”), including rights to limit the use or disclosure thereof by any person,
(v) rights of privacy and publicity, including all rights with respect to the use of a person’s name, signature, likeness,
image, photograph, voice, identity, personality, and biographical and personal information and materials, (vi) claims and causes
of action arising out of or related to any past, current or future infringement, misappropriation, interference or violation of
any of the foregoing, (vii) registrations, applications, renewals and extensions for any of the foregoing in clauses (i)-(v),
and (viii) any and all other proprietary rights equivalent or similar to the foregoing which may exist or be created under the
laws of any jurisdiction in the world.
“knowledge”
means, with respect to the Company, the actual knowledge after inquiry of such individual’s direct reports as would be usual
in connection with the ordinary course of, and consistent with the past practice of, such individual’s position at the Company,
as of the date of this Agreement, of the Chief Executive Officer, Chief Financial Officer, Chief Technology Officer and General
Counsel of the Company, and with respect to any other party hereto, the actual knowledge of any director or executive officer
of such party.
“Law”
means any federal, state, local, national, supranational, foreign or administrative law (including common law), statute, ordinance,
regulation, requirement, regulatory interpretation, rule, code or Order.
“Leases”
shall mean all leases, subleases, licenses, or other similar agreements, including all amendments, extensions, renewals, guarantees
and other agreements with respect thereto, pursuant to which the Company or any of its Subsidiaries holds any Leased Real Property,
including the right to all security deposits and other amounts and instruments deposited by or on behalf of the Company or any
of its Subsidiaries.
“Liens”
means any security interest, pledge, hypothecation, mortgage, lien (including environmental and Tax liens), violation, charge,
lease, license, encumbrance, easement, adverse claim, reversion, reverter, preferential arrangement, restrictive covenant, condition
or restriction of any kind, including any restriction on the use, voting, transfer, receipt of income or other exercise of any
attributes of ownership.
“Ningxia
Silkroad” means Ningxia Silkroad Equity Investment Partnership Enterprise (Limited Partnership), a limited partnership
formed under the laws of the People’s Republic of China and controlled
by Ningxia Zhongyincashmere.
“Ningxia
Yilida” means Ningxia Yilida Capital Investment Limited Partnership, a limited partnership formed under the laws
of the People’s Republic of China and an Affiliate of Mr.
Yingfeng Zhang.
“Ningxia Zhongyincashmere”
means Ningxia Zhongyincashmere International Group Co., Ltd., a company formed under the laws of the People’s Republic of
China.
“Permitted Encumbrances”
shall mean (i) Liens for Taxes, assessments and charges or levies by Governmental Authorities not yet due and payable or that
are being contested in good faith and by appropriate proceedings, (ii) mechanics’, carriers’, workmen’s, repairmen’s,
materialmen’s or other Liens or security interests arising or incurred in the ordinary course of business relating to obligations
as to which there is no default on the part of the Company or any of its Subsidiaries or that secure a liquidated amount, that
are being contested in good faith and by appropriate proceedings, (iii) leases, subleases and licenses (other than capital leases
and leases underlying sale and leaseback transactions), (iv) Liens imposed by applicable Law, (v) pledges or deposits to secure
obligations under workers’ compensation Laws or similar legislation or to secure public or statutory obligations, (vi) pledges
and deposits to secure the performance of bids, trade contracts, leases, surety and appeal bonds, performance bonds and other
obligations of a similar nature, in each case in the ordinary course of business, (vii) easements, covenants and rights of way
(unrecorded and of record) and other similar restrictions of record, and zoning, building and other similar restrictions, in each
case that do not adversely affect in any material respect the current use of the applicable property owned, leased, used or held
for use by the Company or any of its Subsidiaries, (viii) Liens securing indebtedness or liabilities that (A) are reflected in
the Company SEC Reports filed or furnished prior to the date hereof, or (B) have otherwise been disclosed to Parent in writing
as of the date of this Agreement, (ix) matters which would be disclosed by an accurate survey or inspection of the real property
which do not materially impair the occupancy or current use of such real property which they encumber, (x) outbound non-exclusive
license agreements and non-disclosure agreements entered into in the ordinary course of business consistent with past practice,
(xi) standard survey and title exceptions, and (xii) any other Liens that have been incurred or suffered in the ordinary
course of business and that would not have a Company Material Adverse Effect.
“person”
means an individual, corporation, partnership, limited partnership, limited liability company, syndicate, person (including a
“person” as defined in Section 13(d)(3) of the Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.
“Personal Information”
means individually-identifiable information from or about an individual, including an individual’s: first and last name,
home or other physical address, including street name and city or town; telephone number, including home telephone number and
mobile telephone number; email address or other online contact information, such as a user identifier or screen name; photograph;
financial account number or credit card number; tax identification number, social security number, driver’s license number,
passport number or other government-issued identifier; employee identification number; persistent identifier, such as IP address
or other unique identifier associated with a person, device or web browser; list of contacts; physical location; or any other
information deemed to be personally identifiable information pursuant to applicable Law.
“PRC”
means the People’s Republic of China, which for the purposes of this Agreement only shall not include the Hong Kong Special
Administrative Region, the Macau Special Administrative Region and Taiwan.
“Proceeding”
means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate
proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise
involving, any arbitrator, arbitration panel, court or other Governmental Authority.
“Registered
IP” means all Company Owned IP that, as of the date of this Agreement, is registered, filed or issued under the authority
of, with or by any Governmental Authority, including all Patents, registered copyrights, registered Trademarks, registered domain
names, and all applications for any of the foregoing.
“Rollover
Shares” means (i) with respect to Yili Shengda, 48,759,187
Class B Shares, (ii) with respect to Zhongrong Shengda, 48,759,187 Class B Shares, (iii) with respect to Zhongrong Investment,
80,577,828 Class A Shares, (iv) with respect to Hongtai, 61,776,334 Class A Shares, (v) with respect to Hongzhi, 61,776,335 Class
A Shares and (vi) with respect to Hao Ding, 107,438,129 Class A Shares.
“Share Incentive
Plan” means the amended and restated Shanda Games Limited 2008 Equity Compensation Plan and all amendments and modifications
thereto.
“Shareholders’
Meeting” means the meeting of the Company’s shareholders (including any adjournments or postponements thereof) to
be held to consider the authorization and approval of this Agreement, the Plan of Merger and the Transactions, including the Merger.
“Software”
means all (i) computer programs, applications, systems and software code of any nature, whether operational or under development,
including executable code, data files, rules, definitions derived from the foregoing, and any derivations, updates, enhancements
and customizations of any of the foregoing, and any related processes, know-how, APIs, user interfaces, command structures, menus,
buttons and icons, flow charts, software implementations of algorithms, models and methodologies, program interfaces, and Source
Code and object code, (ii) Internet and intranet websites, databases and compilations, including data and collections of data,
whether machine-readable or otherwise, (iii) development and design tools, library functions and compilers, (iv) technology
supporting websites, and the contents and audiovisual displays of websites and (v) media, documentation and other works of authorship,
including operating procedures, methods, tools, developers’ kits, utilities, developers’ notes, user manuals and training
materials, including comments and annotations related thereto, whether machine-readable or otherwise, relating to or embodying
any of the foregoing or on which any of the foregoing is recorded, stored, encoded or written on disk, tape, film, memory device,
paper or other media of any nature.
“Source Code”
means human-readable computer software code, including related programmer comments and annotations, build scripts, test scripts,
help text, data and data structures, instructions and other documentation for such computer software code that enables a programmer
to understand and modify such software.
“Special Committee”
means a committee of the Company Board consisting of members of the Company Board that are not affiliated with Parent or Merger
Sub and are not members of the management of the Company.
“Sponsors”
means Zhengjun Investment, Ningxia Silkroad and Zhongrong
Legend.
“Strategic Advisor”
means Kilometre Capital Management Cayman.
“Subsidiary”
means, with respect to any party, any person (i) of which such party or any other Subsidiary of such party is a general or managing
partner, (ii) of which at least a majority of the securities (or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or other performing similar functions with respect to such corporation or other organization)
is, directly or indirectly, owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries or (iii) whose assets and financial results are consolidated with the net earnings of such party
and are recorded on the books of such party for financial reporting purposes in accordance with GAAP.
“Tax”
or “Taxes” means any and all taxes, fees, levies, duties, tariffs, imposts and other charges of any kind (together
with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental
Authority or taxing authority, including: taxes or other charges on or with respect to income, franchise, windfall or other profits,
gross receipts, occupation, property, real estate, deed, land use, sales, use, capital stock, payroll, severance, wages, employment
(including withholding obligations imposed on employer/payer), social security, workers’ compensation, unemployment compensation
or net worth; taxes or other charges in the nature of excise, withholding (as payor or payee), ad valorem, stamp, transfer, value-added
or gains taxes; license, registration and documentation fees; and customers’ duties, tariffs and similar charges.
“Tax Return”
means any return, declaration, report, election, claim for refund or information return or other statement or form filed or required
to be filed with any Governmental Authority relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
“Technology”
means and includes diagrams, inventions (whether or not patentable), invention disclosures, protocols, layout rules, schematics,
including, build instructions, test instructions, test reports, performance data, procedures, specifications, technical data,
product roadmaps, personnel information, customer purchasing histories and any other forms of technology, in each case whether
or not embodied in any tangible form and including all tangible embodiments of any of the foregoing.
“Third Party”
means any person or “group” (as defined under Section 13(d) of the Exchange Act) of persons, other than Parent or
any of its Affiliates or Representatives.
“Trademarks”
means trademarks, service names, service marks, domain names, uniform resource locators, trade dress, trade names, geographical
indications, logos and design marks, fictitious and other business names and identifiers, brand names, collective membership marks,
certification marks, slogans, 800 numbers, social media pages or designations, hash tags and other forms of indicia of origin,
whether or not registrable as a trademark in any given jurisdiction, including the goodwill symbolized thereby or associated therewith.
“Works of Authorship”
means Software, websites, content, images, graphics, text, photographs, artwork, audiovisual works, sound recordings, graphs,
drawings, reports, analyses, writings, and other works of authorship and copyrightable subject matter, and any modifications,
improvements and derivative works of any of the foregoing.
“Yili
Shengda” means Yili Shengda Investment Holdings (Hong Kong) Company Limited, a company formed under the laws of Hong Kong
and an Affiliate of Mr. Yingfeng Zhang.
“Zhengjun
Investment” means Ningxia Zhengjun Equity Investment Partnership Enterprise (Limited Partnership), a limited partnership
formed under the laws of the People’s Republic of China and an
Affiliate of Ningxia Yilida.
“Zhongrong Investment”
means Zhongrong Investment Holdings (Hong Kong) Co., Ltd., a company organized under the laws of Hong Kong and controlled by Ningxia
Zhongyincashmere.
“Zhongrong
Legend” means Ningxia Zhongrong Legend Equity Investment Partnership Enterprise (Limited Partnership), a limited
partnership formed under the laws of the People’s Republic of China
and controlled by Ningxia Zhongyincashmere.
“Zhongrong Shengda”
means Zhongrong Shengda Investment Holdings (Hong Kong) Company Limited, a company formed under the laws of Hong Kong and controlled
by Ningxia Zhongyincashmere.
(b) The following
terms have the meaning set forth in the Sections set forth below:
Defined Term |
Location of Definition |
|
|
ADS; ADSs |
Section 2.01(c) |
Agreement |
Preamble |
Alternative Acquisition Agreement |
Section 6.04(c) |
Arbitrator |
Section 9.09(b) |
Bankruptcy and Equity Exception |
Section 3.04(a) |
Change in the Company Recommendation |
Section 6.04(c) |
CICL |
Section 1.01 |
Class A Share; Class A Shares |
Section 2.01(a) |
Class B Shares |
Section 3.03(a) |
Closing |
Section 1.02 |
Closing Date |
Section 1.02 |
Company |
Preamble |
Company Board |
Recitals |
Company Group |
Section 8.06(h)(i) |
Company Intellectual Property |
Section 3.14(a) |
Company Owned IP |
Section 3.14(f) |
Company Recommendation |
Section 3.04(b) |
Company SEC Reports |
Section 3.07(a) |
Company Software |
Section 3.14(j) |
Company Termination Fee |
Section 8.06(a) |
Competing Transaction |
Section 6.04(e) |
Damages |
Section 6.05(c) |
Deposit Agreement |
Section 2.06 |
Depositary |
Section 2.06 |
Dissenting Shareholders |
Section 2.03(a) |
Dissenting Shares |
Section 2.03(a) |
Defined Term |
Location of Definition |
|
|
Effective Time |
Section 1.03 |
Environmental Permits |
Section 3.16(a) |
Equity Commitment Letters |
Section 4.05(a) |
Equity Financing |
Section 4.05(a) |
Exchange Act |
Section 3.05(b) |
Exchange Fund |
Section 2.04(a) |
Execution Date |
Preamble |
Financial Advisor |
Section 3.19 |
GAAP |
Section 3.07(c) |
Guarantor; Guarantors |
Recitals |
HKIAC |
Section 9.09(b) |
Indemnified Parties |
Section 6.05(b) |
Leased Real Property |
Section 3.13(b) |
Limited Guarantee; Limited Guarantees |
Recitals |
Material Contracts |
Section 3.17(a) |
Merger |
Recitals |
Merger Consideration |
Section 2.04(a) |
Merger Sub |
Preamble |
NASDAQ |
Section 3.03(a) |
NDA |
Section 3.17(a)(v) |
Notice of Superior Proposal |
Section 6.04(d) |
Order |
Section 7.01(b) |
Original Execution Date |
Preamble |
Original Merger Agreement |
Preamble |
Owned Real Property |
Section 3.13(a) |
Parent |
Preamble |
Parent Group |
Section 8.06(h)(i) |
Parent Termination Fee |
Section 8.06(b) |
Paying Agent |
Section 2.04(a) |
Per ADS Merger Consideration |
Section 2.01(c) |
Per Share Merger Consideration |
Section 2.01(a) |
Plan |
Section 3.11(a) |
Plan of Merger |
Section 1.03 |
Proceeding |
Section 3.10 |
Proxy Statement |
Section 3.05(b) |
Record ADS Holders |
Section 6.02(a) |
Record Date |
Section 6.02(a) |
Representatives |
Section 6.03(a) |
Requisite Company Vote |
Section 3.04(c) |
Requisite Regulatory Approvals |
Section 3.05(b) |
Rollover Shareholders |
Recitals |
SAFE |
Section 3.06 |
Schedule 13E-3 |
Section 6.01(a) |
SEC |
Section 3.07(a) |
Defined Term |
Location of Definition |
|
|
Securities Act |
Section 3.07(a) |
Share Certificates |
Section 2.04(b) |
Shares |
Section 3.03(a) |
Special Committee |
Recitals |
Superior Proposal |
Section 6.04(h) |
Superior Proposal Notice Period |
Section 6.04(d) |
Support Agreement |
Recitals |
Surviving Corporation |
Section 1.01 |
Takeover Statute |
Section 3.21 |
Termination Date |
Section 8.02(a) |
Transactions |
Recitals |
Uncertificated Shares |
Section 2.04(b) |
Section 9.04 Severability.
If any term or other
provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that
the Transactions be consummated as originally contemplated to the fullest extent possible.
Section 9.05 Interpretation.
(a) When a reference
is made in this Agreement to a Section, Article or Exhibit such reference shall be to a Section, Article or Exhibit of this Agreement
unless otherwise indicated. The table of contents and headings contained in this Agreement or in any Exhibit are for convenience
of reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All words used in
this Agreement will be construed to be of such gender or number as the circumstances require. Any capitalized terms used in any
Exhibit but not otherwise defined therein shall have the meaning set forth in this Agreement. All Exhibits annexed hereto or referred
to herein are hereby incorporated in and made a part of this Agreement as if set forth herein. The word “including”
and words of similar import when used in this Agreement will mean “including, without limitation,” unless otherwise
specified. The words “hereof,” “herein” and “hereunder” and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions
contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified
or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession
of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to
a person are also to its permitted successors and assigns. References to clauses without a cross-reference to a Section or subsection
are references to clauses within the same Section or, if more specific, subsection. References from or through any date shall
mean, unless otherwise specified, from and including or through and including, respectively. The symbol “$” refers
to United States Dollars. All $ amounts used in Article III and Article V include
the equivalent amounts denominated in other currencies. The word “extent” in the phrase “to the extent”
means the degree to which a subject or other thing extends and such phrase shall not mean simply “if.” Reference to
“day” means a calendar day unless otherwise indicated as a “Business Day.”
(b) Notwithstanding
anything to the contrary elsewhere in this Agreement, (i) all references in this Agreement to “the date hereof”
or “the date of this Agreement” shall refer to the Original Execution Date, (ii) the date on which the representations
and warranties set forth in Articles III and IV are made shall not change as a result of the execution of this Agreement and shall
be made as of such dates as they were in the Original Merger Agreement, it being agreed that if any such representations and warranties
are not expressly made as of another date such representations and warranties shall be made as of the Original Execution Date,
and (iii) each reference to “this Agreement” or “herein” in the representations and warranties set forth
in Articles III and IV shall refer to “the Original Merger Agreement,” in each of cases (i), (ii) and (iii), unless
expressly indicated otherwise in this Agreement.
Section 9.06 Entire
Agreement; Assignment.
This Agreement (including
the Exhibits and Schedules hereto), the Company Disclosure Schedule and the Confidentiality Agreements constitute the entire agreement
among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned (whether
pursuant to a merger, by operation of Law or otherwise), except that Parent and Merger Sub may assign all or any of their rights
and obligations hereunder to any Affiliate of Parent, provided that no such assignment shall relieve the assigning party
of its obligations hereunder if such assignee does not perform such obligations.
Section 9.07 Parties
in Interest.
This Agreement shall
be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement,
other than Section 6.05 and Section 8.06(h) (which are intended to be for the benefit of the persons covered thereby and may be
enforced by such persons); provided that in no event shall any holders of Shares (including Shares represented by ADSs)
or holders of Company Options, Company RSs and Company RSUs, in each case in their capacity as such, have any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
Section 9.08 Specific
Performance.
(a) Subject to Section
9.08(b) and Section 9.08(d), the parties hereto agree that irreparable damage would occur in the event any provision of this Agreement
were not performed in accordance with the terms hereof by the parties, and that money damages or other legal remedies would not
be an adequate remedy for such damages. Accordingly, subject to Section 9.08(b) and Section 9.08(d), the parties hereto acknowledge
and hereby agree that in the event of any breach by the Company, on the one hand, or Parent or Merger Sub, on the other hand,
of any of their respective covenants or obligations set forth in this Agreement, the Company, on the one hand, or Parent or Merger
Sub, on the other hand, shall each be entitled to specific performance of the terms hereof (including the obligation of the parties
to consummate the Merger, subject in each case to the terms and conditions of this Agreement), including an injunction or injunctions
to prevent breaches of this Agreement by any party, in addition to any other remedy at law or equity (including, subject to Section
9.08(b), the Company demanding that Parent and Merger Sub use reasonable best efforts to obtain the Equity Financing in accordance
with Section 6.07).
(b) Notwithstanding
the foregoing, the Company’s right to seek or obtain an injunction or injunctions, or other appropriate form of specific
performance or equitable relief, in each case, with respect to causing Parent and/or Merger Sub to cause the Equity Financing
to be funded at any time and/or to effect the Closing in accordance with
Section 1.02, on the terms and subject to the conditions in this Agreement, shall be subject to the satisfaction of each of the
following conditions: (i) all conditions in Section 7.01 and Section 7.02 (other than those conditions that by their terms are
to be satisfied at the Closing) have been satisfied or waived, (ii) Parent and Merger Sub fail to complete the Closing by
the date on which the Closing is required to have occurred pursuant to Section 1.02 and (iii) the Company has irrevocably confirmed
in writing that (A) all conditions set forth in Section 7.03 have been satisfied or that it is willing to waive any of the conditions
to the extent not so satisfied in Section 7.03 and (B) if specific performance is granted and the Equity Financing is funded,
then the Closing will occur.
(c) Each party (i)
waives any defenses in any action for an injunction or other appropriate form of specific performance or equitable relief, including
the defense that a remedy at law would be adequate and (ii) waives any requirement under any Law to post a bond or other security
as a prerequisite to obtaining an injunction or other appropriate form of specific performance or equitable relief.
(d) Notwithstanding
anything herein to the contrary, (i) Parent and Merger Sub, on the one hand, and the Company, on the other hand, agree that the
election to pursue an injunction or other appropriate form of specific performance or equitable relief shall not restrict, impair
or otherwise limit Parent and Merger Sub or the Company from, in the alternative, seeking to terminate the Agreement and collect
the Company Termination Fee pursuant to Section 8.06(a), Expenses under Section 8.06(d) and expenses under Section 8.06(f), by
Parent on the one hand, or the Parent Termination Fee pursuant to Section 8.06(b), Expenses under Section 8.06(c) and expenses
under Section 8.06(f), by the Company on the other hand and (ii) upon the payment of such amounts, the remedy of specific
performance shall not be available against the party making such payment and, if such party is Parent or Merger Sub, any other
member of the Parent Group or, if such party is the Company, any other member of the Company Group.
(e) This
Section 9.08 shall not be deemed to alter, amend, supplement or otherwise modify the terms of any Equity Commitment Letter
(including the expiration or termination provisions thereof).
Section 9.09 Governing
Law; Dispute Resolution.
(a) This Agreement
shall be interpreted, construed and governed by and in accordance with the Laws of the State of New York without regard to the
conflicts of Law principles thereof that would subject such matter to the Laws of another jurisdiction, except that the following
matters arising out of or relating to this Agreement shall be interpreted, construed and governed by and in accordance with the
Laws of the Cayman Islands in respect of which the parties hereto hereby irrevocably submit to the nonexclusive jurisdiction of
the courts of the Cayman Islands: the Merger, the vesting of the undertaking, property and liabilities of Merger Sub in the Surviving
Corporation, the cancellation of the Shares (including Shares represented by ADSs), the rights provided for in Section 238 of
the CICL with respect to any Dissenting Shares, the fiduciary or other duties of the Company Board and the directors of Merger
Sub and the internal corporate affairs of the Company and Merger Sub.
(b) Subject to Section
9.08 and the last sentence of this Section 9.09(b), any disputes, actions and proceedings against any party or arising out of
or in any way relating to this Agreement shall be submitted to the Hong Kong International Arbitration Centre (“HKIAC”)
and resolved in accordance with the Arbitration Rules of HKIAC in force at the relevant time (the “Rules”)
and as may be amended by this Section 9.09. The place of arbitration shall be Hong Kong. The official language of the arbitration
shall be English and the arbitration tribunal shall consist of three arbitrators (each, an “Arbitrator”). The
claimant(s), irrespective of number, shall nominate jointly one Arbitrator; the respondent(s), irrespective of number, shall nominate
jointly one Arbitrator; and a third Arbitrator will be nominated jointly by the first two Arbitrators and shall serve as chairman
of the arbitration tribunal. In the event the claimant(s) or respondent(s) or the first two Arbitrators shall fail to nominate
or agree the joint nomination of an Arbitrator or the third Arbitrator within the time limits specified by the Rules, such Arbitrator
shall be appointed promptly by the HKIAC. The arbitration tribunal shall have no authority to award punitive or other punitive-type
damages. The award of the arbitration tribunal shall be final and binding upon the disputing parties. Any party to an award may
apply to any court of competent jurisdiction for enforcement of such award and, for purposes of the enforcement of such award,
the parties irrevocably and unconditionally submit to the jurisdiction of any court of competent jurisdiction and waive any defenses
to such enforcement based on lack of personal jurisdiction or inconvenient forum.
Section 9.10 Amendment.
This Agreement may
be amended by the parties hereto at any time prior to the Effective Time by action taken (a) with respect to Parent and Merger
Sub, by or on behalf of their respective boards of directors, and (b) with respect to the Company, by the Company Board (upon
recommendation of the Special Committee); provided that after the approval of this Agreement and the Transactions by the
shareholders of the Company, no amendment may be made that would reduce the amount or change the type of consideration in exchange
for which each Share (including Shares represented by ADSs) shall be cancelled upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed by each of the parties hereto.
Section 9.11 Waiver.
At any time prior
to the Effective Time, any party hereto may by action taken (a) with respect to Parent and Merger Sub, by or on behalf of
their respective boards of directors and (b) with respect to the Company, by action taken by or on behalf of the Special
Committee, (i) extend the time for the performance of any obligation or other act of any other party hereto, (ii) waive any
inaccuracy in the representations and warranties of any other party contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any agreement of any other party or any condition to its own obligations contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby.
No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right,
power or privilege.
Section 9.12 Counterparts.
This Agreement may
be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
[Remainder of Page Left
Blank Intentionally]
IN WITNESS WHEREOF,
Parent, Merger Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
|
CAPITALHOLD LIMITED |
|
|
|
|
By: |
/s/ Zhang Yingfeng |
|
|
Name: Zhang Yingfeng |
|
|
Title: Director |
|
|
|
|
CAPITALCORP LIMITED |
|
|
|
|
By: |
/s/ Zhang Yingfeng |
|
|
Name: Zhang Yingfeng |
|
|
Title: Director |
[Signature Page
to Agreement and Plan of Merger]
IN WITNESS WHEREOF,
Parent, Merger Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
|
SHANDA GAMES LIMITED |
|
|
|
|
By: |
/s/ Li Yao |
|
|
Name: Li Yao |
|
|
Title: CFO |
[Signature Page
to Agreement and Plan of Merger]
ANNEX A
PLAN OF MERGER
THIS PLAN OF MERGER is made on ________
2015.
BETWEEN
(1) Capitalcorp
Limited, an exempted company incorporated under the laws of the Cayman Islands on September 16, 2014, with its registered office
situate at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111,
Cayman Islands (“Merger Sub”); and
(2) Shanda Games
Limited, an exempted company incorporated under the laws of the Cayman Islands on June 12, 2008, with its registered office situate
at the offices of Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands (the “Company”
or “Surviving Corporation” and together with Merger Sub, the “Constituent Companies”).
WHEREAS
(a) Merger Sub
and the Company have agreed to merge (the “Merger”) on the terms and conditions contained or referred to in an Agreement
and Plan of Merger (the “Agreement”) dated April 3, 2015, made between Capitalhold Limited, Merger Sub and the Company,
a copy of which is attached as Appendix I to this Plan of Merger and under the provisions of Part XVI of the Companies Law Cap.
22 (Law 3 of 1961, as consolidated and revised) (the “Companies
Law”) pursuant to which the Merger Sub will merge with and into the Company and cease to exist and the Surviving Corporation
will continue as the Surviving Corporation in the Merger.
(b) This Plan of
Merger is made in accordance with section 233 of the Companies Law.
(c) Terms used
in this Plan of Merger and not otherwise defined in this Plan of Merger shall have the meanings given to them in the Agreement.
WITNESSETH
CONSTITUENT COMPANIES
1. The constituent
companies (as defined in the Companies Law) to the Merger are Merger Sub and the Company.
NAME OF THE SURVIVING
CORPORATION
2. The name of the
surviving corporation (as defined in the Companies Law) shall be Shanda Games Limited.
REGISTERED OFFICE
3. The Surviving
Corporation shall have its registered office at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins
Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
AUTHORIZED AND
ISSUED SHARE CAPITAL
4. Immediately prior
to the Effective Date (as defined below) the authorized share capital of Merger Sub was $1,000 divided into 100,000 ordinary shares
of $0.01 par value per share, of which one share has been issued.
5. Immediately prior
to the Effective Date the authorized share capital of the Company was $200,000,000 divided into 16,000,000,000 Class A ordinary
shares of a par value of $0.01 each and 4,000,000,000 Class B ordinary shares of a par value of $0.01 each, of which [·]
Class A ordinary shares and [·] Class B ordinary shares have been issued fully
paid.
6. The authorized
share capital of the Surviving Corporation shall be $1,000 divided into 100,000 ordinary shares of $0.01 par value per share.
7. On the Effective
Date, and in accordance with the terms and conditions of the Agreement:
(a) Each
Share issued and outstanding immediately prior to the Effective Date other than (i) the Excluded Shares and (ii) the Dissenting
Shares shall be cancelled in exchange for the right to receive the Per Share Merger Consideration, being US$3.55 without interest.
(b) Each
of the Excluded Shares issued and outstanding immediately prior to the Effective Date shall be cancelled without payment of any
consideration or distribution therefor.
(c) Each of the
Dissenting Shares of persons who have validly exercised and not withdrawn or lost their right to dissent from the merger pursuant
to Section 238 of the Companies Law shall be exchanged for a payment of the fair value of such shares resulting from the procedure
in Section 238 of the Companies Law.
(d) All
Shares issued and outstanding immediately prior to the Effective Date, including Shares represented by ADSs, shall cease to be
outstanding, shall be cancelled and shall cease to exist.
(e) Each
ordinary share of Merger Sub issued and outstanding immediately prior to the Effective Date shall be converted into one validly
issued and fully paid share of a nominal or par value $0.01 of the Surviving Corporation.
8. On the Effective
Date, the rights and restrictions attaching to ordinary shares of the Surviving Corporation are set out in the Amended and Restated
Memorandum of Association and Articles of Association of the Surviving Corporation in the form attached as Appendix II to this
Plan of Merger.
EFFECTIVE DATE
9. The Merger
shall take effect on [●], 2015 (the “Effective Date”).
PROPERTY
10. On the Effective
Date, the rights, property of every description including choses in action, and the business, undertaking, goodwill, benefits,
immunities and privileges of each of the Constituent Companies shall immediately vest in the Surviving Corporation which shall
be liable for and subject, in the same manner as the Constituent Companies, to all mortgages, charges, or security interests and
all contracts, obligations, claims, debts and liabilities of each of the Constituent Companies.
MEMORANDUM OF ASSOCIATION
AND ARTICLES OF ASSOCIATION
11. The Memorandum
of Association and Articles of Association of the Surviving Corporation shall be amended and restated in the form attached as
Appendix II to this Plan of Merger on the Effective Date.
DIRECTORS BENEFITS
12. There are no
amounts or benefits payable to the directors of the Constituent Companies upon the Merger taking effect.
DIRECTORS OF THE
SURVIVING CORPORATION
13. The names and
addresses of the directors of the Surviving Corporation are as follows:
SECURED CREDITORS
14. Merger Sub has
no secured creditors and has granted no fixed or floating security interests that are outstanding as of immediately prior to the
Merger; and the Company has no secured creditors and has granted no fixed or floating security interests that are outstanding
as at the date of this Plan of Merger.
RIGHT OF TERMINATION
15. This Plan of
Merger may be terminated pursuant to the terms and conditions of the Agreement at any time prior to the Effective Date.
APPROVAL AND AUTHORIZATION
16. This Plan of
Merger has been approved by the board of directors of each of Merger Sub and the Company pursuant to Section 233(3) of the Companies
Law.
17. This Plan of
Merger has been authorized by the shareholders of each of Merger Sub and the Company pursuant to Section 233(6) of the Companies
Law.
COUNTERPARTS
18. This Plan of
Merger may be executed by facsimile and in one or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
GOVERNING LAW
19. This Plan of Merger
shall be governed by and construed in accordance with the Laws of the Cayman Islands.
For and on behalf of
Capitalcorp Limited:
[Name]
Director
For
and on behalf of the Company:
[Name]
Director
APPENDIX I
(the Agreement)
APPENDIX II
(Amended and Restated
Memorandum of Association and Articles of Association of the Surviving Corporation)
ANNEX B
PLAN OF MERGER
THIS PLAN OF MERGER is made on ________
2015.
BETWEEN
(1) Capitalcorp
Limited, an exempted company incorporated under the laws of the Cayman Islands on September 16, 2014, with its registered office
situate at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111,
Cayman Islands (“Merger Sub”); and
(2) Shanda Games
Limited, an exempted company incorporated under the laws of the Cayman Islands on June 12, 2008, with its registered office situate
at the offices of Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands (the “Company”
or “Surviving Corporation” and together with Merger Sub, the “Constituent Companies”).
WHEREAS
(a) Merger Sub
and the Company have agreed to merge (the “Merger”) on the terms and conditions contained or referred to in an Agreement
and Plan of Merger (the “Agreement”) dated April 3, 2015, made between Capitalhold Limited, Merger Sub and the Company,
a copy of which is attached as Appendix I to this Plan of Merger and under the provisions of Part XVI of the Companies Law Cap.
22 (Law 3 of 1961, as consolidated and revised) (the “Companies
Law”) pursuant to which the Merger Sub will merge with and into the Company and cease to exist and the Surviving Corporation
will continue as the Surviving Corporation in the Merger.
(b) This Plan of
Merger is made in accordance with section 233 of the Companies Law.
(c) Terms used
in this Plan of Merger and not otherwise defined in this Plan of Merger shall have the meanings given to them in the Agreement.
WITNESSETH
CONSTITUENT COMPANIES
1. The constituent
companies (as defined in the Companies Law) to the Merger are Merger Sub and the Company.
NAME OF THE SURVIVING
CORPORATION
2. The name of the
surviving corporation (as defined in the Companies Law) shall be Shanda Games Limited.
REGISTERED OFFICE
3. The Surviving
Corporation shall have its registered office at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins
Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
AUTHORIZED AND
ISSUED SHARE CAPITAL
4. Immediately prior
to the Effective Date (as defined below) the authorized share capital of Merger Sub was $1,000 divided into 100,000 ordinary shares
of $0.01 par value per share, of which one share has been issued.
5. Immediately prior
to the Effective Date the authorized share capital of the Company was $200,000,000 divided into 16,000,000,000 Class A ordinary
shares of a par value of $0.01 each and 4,000,000,000 Class B ordinary shares of a par value of $0.01 each, of which [·]
Class A ordinary shares and [·] Class B ordinary shares have been issued fully
paid.
6. The authorized
share capital of the Surviving Corporation shall be $1,000 divided into 100,000 ordinary shares of $0.01 par value per share.
7. On the Effective
Date, and in accordance with the terms and conditions of the Agreement:
(a) Each
Share issued and outstanding immediately prior to the Effective Date other than (i) the Excluded Shares and (ii) the Dissenting
Shares shall be cancelled in exchange for the right to receive the Per Share Merger Consideration, being US$3.55 without interest.
(b) Each
of the Excluded Shares issued and outstanding immediately prior to the Effective Date shall be cancelled without payment of any
consideration or distribution therefor.
(c) Each of the
Dissenting Shares of persons who have validly exercised and not withdrawn or lost their right to dissent from the merger pursuant
to Section 238 of the Companies Law shall be exchanged for a payment of the fair value of such shares resulting from the procedure
in Section 238 of the Companies Law.
(d) All
Shares issued and outstanding immediately prior to the Effective Date, including Shares represented by ADSs, shall cease to be
outstanding, shall be cancelled and shall cease to exist.
(e) Each
ordinary share of Merger Sub issued and outstanding immediately prior to the Effective Date shall be converted into one validly
issued and fully paid share of a nominal or par value $0.01 of the Surviving Corporation.
8. On the Effective
Date, the rights and restrictions attaching to ordinary shares of the Surviving Corporation are set out in the Amended and Restated
Memorandum of Association and Articles of Association of the Surviving Corporation in the form attached as Appendix II to this
Plan of Merger.
EFFECTIVE DATE
9. The Merger
shall take effect on [●], 2015 (the “Effective Date”).
PROPERTY
10. On the Effective
Date, the rights, property of every description including choses in action, and the business, undertaking, goodwill, benefits,
immunities and privileges of each of the Constituent Companies shall immediately vest in the Surviving Corporation which shall
be liable for and subject, in the same manner as the Constituent Companies, to all mortgages, charges, or security interests and
all contracts, obligations, claims, debts and liabilities of each of the Constituent Companies.
MEMORANDUM OF ASSOCIATION
AND ARTICLES OF ASSOCIATION
11. The Memorandum
of Association and Articles of Association of the Surviving Corporation shall be amended and restated in the form attached as
Appendix II to this Plan of Merger on the Effective Date.
DIRECTORS BENEFITS
12. There are no
amounts or benefits payable to the directors of the Constituent Companies upon the Merger taking effect.
DIRECTORS OF THE
SURVIVING CORPORATION
13. The names and
addresses of the directors of the Surviving Corporation are as follows:
SECURED CREDITORS
14. Merger Sub has
no secured creditors and has granted no fixed or floating security interests that are outstanding as of immediately prior to the
Merger; and the Company has no secured creditors and has granted no fixed or floating security interests that are outstanding
as at the date of this Plan of Merger.
RIGHT OF TERMINATION
15. This Plan of
Merger may be terminated pursuant to the terms and conditions of the Agreement at any time prior to the Effective Date.
APPROVAL AND AUTHORIZATION
16. This Plan of
Merger has been approved by the board of directors of each of Merger Sub and the Company pursuant to Section 233(3) of the Companies
Law.
17. This Plan of
Merger has been authorized by the shareholders of each of Merger Sub and the Company pursuant to Section 233(6) of the Companies
Law.
COUNTERPARTS
18. This Plan of
Merger may be executed by facsimile and in one or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
GOVERNING LAW
19. This Plan of Merger
shall be governed by and construed in accordance with the Laws of the Cayman Islands.
For and on behalf of
Capitalcorp Limited:
[Name]
Director
For
and on behalf of the Company:
[Name]
Director
APPENDIX I
(the Agreement)
APPENDIX II
(Amended and Restated
Memorandum of Association and Articles of Association of the Surviving Corporation)
ANNEX C
Opinion of Merrill Lynch as Financial
Advisor
April 3, 2015
The Special Committee of Independent Directors of the Board
Shanda Games Limited
No. 1 Office Building
No. 690 Bibo Road
Pudong New Area
Shanghai 201203
The People’s Republic of China
Members of the Special Committee of Independent Directors of
the Board:
We understand Capitalhold Limited, an
exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), Capitalcorp
limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary
of Parent (“Merger Sub”), and Shanda Games Limited, an exempted company with limited liability incorporated under
the laws of the Cayman Islands (the “Company” or “Shanda”) propose to enter into the Agreement (as defined
below), pursuant to which, among other things, Merger Sub will merge with and into the Company (the “Merger”) with
the Company surviving the Merger (the “Surviving Corporation”) and that,
(a) each Class A ordinary share,
par value $0.01 each, of the Company (a “Class A Share” or, collectively, the “Class A Shares”) issued
and outstanding other than the Excluded Shares (as defined below), Shares (as defined below) as to which dissenters’ rights
have been validly exercised (the “Dissenting Shares”), Class A Shares represented by ADSs (as defined below), Company
RSs (as defined below) and RSUs (as defined below), shall be cancelled in exchange for the right to receive $3.55 in cash per
Class A Share without interest (the “Per Share Merger Consideration”); and
(b) each American Depositary
Share, representing two (2) Class A Shares (each, an “ADS” or collectively, the “ADSs”), issued and outstanding
immediately prior to the Effective Time (other than ADSs representing the Excluded Shares), and each Class A Share represented
by such ADSs, shall be cancelled in exchange for the right to receive $7.10 in cash per ADS without interest (the “Per ADS
Merger Consideration”) pursuant to the terms and conditions set forth in the Agreement.
We further understand that (a)(i) the
Class B ordinary shares, par value $0.01 each, of the Company (together with the Class A Shares, the “Shares”) held
by Zhongrong Shengda Investment Holdings (Hong Kong) Company Limited and Yili Shengda Investment Holdings (Hong Kong) Company
Limited, (ii) the Class A Shares and ADSs held by Zhongrong Investment Holdings (Hong Kong) Co., Ltd., Orient Hongtai (Hong Kong)
Limited, Orient Hongzhi (Hong Kong) Limited and Hao Ding International Limited (collectively, subclauses (i) and (ii), the “Rollover
Shares”), (iii) the Shares and ADSs held by Parent, the Company or any of their subsidiaries (together with the Rollover
Shares, the “Excluded Shares”), and (iv) the Shares represented by ADSs representing such Excluded Shares, will be
cancelled without payment of any consideration and (b) Dissenting Shares, Company RSs and RSUs will be cancelled and will represent
the right to receive certain payments under the terms of the Agreement. “Company RSs” and “Company RSUs”
are defined in the Agreement as shares of restricted stock and restricted stock units respectively, granted under the Company’s
Share Incentive Plan on or prior to the Closing Date (as defined in the Agreement), the restrictions over which have not lapsed
on or prior to the Closing Date in accordance with the terms thereof. The terms and conditions of the Merger are more fully set
forth in the Agreement.
The Special Committee of Independent Directors of the Board
Shanda Games Limited
Page 2
You have asked Merrill Lynch (Asia Pacific)
Limited (“Merrill Lynch”) to provide an opinion (this “Opinion”) to the Special Committee of the Independent
Directors of the Board of the Company (the “Special Committee”) as to the fairness, from a financial point of view,
to the holders of the Shares or ADSs (other than holders of Excluded Shares) of the Per Share Merger Considerations or the Per
ADS Merger Consideration, as applicable, to be received by such holders in the Merger.
In connection with this opinion, we have,
among other things:
| (1) | reviewed certain publicly available
business and financial information relating to the Company that we deemed to be relevant,
including certain public research analyst estimates with respect to the future financial
performance of the Company; |
| (2) | reviewed certain internal financial
and operating information with respect to the business, operations and prospects of the
Company furnished to or discussed with us by the management of the Company, including
certain financial forecasts relating to the Company prepared by the management of the
Company (such forecasts, the “Management Forecasts”); |
| (3) | discussed the past and current
business, operations, financial condition and prospects of the Company with members of
senior management of the Company; |
| (4) | reviewed the trading history for
the ADSs and a comparison of that trading history with the trading histories of certain
other publicly traded companies we deemed relevant; |
| (5) | compared certain financial and
stock market information of the Company with similar information of certain other publicly
traded companies we deemed relevant; |
| (6) | compared certain financial terms
of the Merger to financial terms, to the extent publicly available, of other transactions
we deemed relevant; |
| (7) | reviewed a draft of the Agreement
and Plan of Merger among Parent, Merger Sub and the Company dated April 3, 2015 (the
“Agreement”); and |
| (8) | performed such other analyses and
studies and considered such other information and factors as we deemed appropriate, including
our assessment of general economic, market and monetary conditions. |
The Special Committee of Independent Directors of the Board
Shanda Games Limited
Page 3
In arriving at this Opinion, we have assumed
and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data
publicly available or provided to or otherwise reviewed by or discussed with us and have relied upon the assurances of the management
of the Company that they are not aware of any facts or circumstances that would make such information or data inaccurate
or misleading in any material respect. With respect to the Management Forecasts, we have been advised by Company, and have assumed,
that they have been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of
the management of the Company as to the future financial performance of the Company. We have not made or been provided with any
independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor have we made any
physical inspection of the properties or assets of the Company. We have not evaluated the solvency or fair value of the Company
under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. We have assumed, at the direction
of the Company, that the final executed Agreement will not differ in any material respect from the draft dated April 3, 2015 reviewed
by us. We have also assumed, at the direction of the Company, that the Merger will be consummated in accordance with its terms,
without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the
necessary governmental, regulatory and other approvals, consents, releases and waivers for the Merger, no delay, limitation,
restriction or condition, including any divestiture requirements or amendments or modifications, will be imposed that would have
an adverse effect on the Company or the contemplated benefits of the Merger.
We express no view or opinion as to any
terms or other aspects of the Merger (other than the Per Share Merger Consideration or the Per ADS Merger Consideration to the
extent specified herein), including, without limitation, the form or structure of the Merger. Our opinion is limited to the fairness,
from a financial point of view, to the Company of the Per Share Merger Consideration and the Per ADS Merger Consideration, as
the case may be, to be paid to the holders of the Shares or ADSs (other than holders of Excluded Shares), in the Merger and no
opinion or view is expressed with respect to any consideration received in connection with the Merger by the holders of any class
of securities, creditors or other constituencies of any party. In addition, no opinion or view is expressed with respect to the
fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors
or employees of any party to the Merger, or class of such persons, relative to the Per Share Merger Consideration or the Per ADS
Merger Consideration. Furthermore, no opinion or view is expressed as to the relative merits of the Merger in comparison to other
strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying
business decision of the Company to proceed with or effect the Merger. In addition, we express no opinion or recommendation as
to how any stockholder should vote or act in connection with the Merger or any related matter.
We have acted as financial advisor to
the Special Committee in connection with the Merger and will receive a fee for our services, a significant portion of which is
payable upon the completion of our work and the rendering of this Opinion. In addition, the Company has agreed to reimburse our
expenses and indemnify us against certain liabilities arising out of our engagement.
We and our affiliates comprise a full
service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other
brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment
management, financing and financial advisory services and other commercial services and products to a wide range of companies,
governments and individuals. In the ordinary course of our businesses, we and our affiliates may invest on a principal basis or
on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise
effect transactions in equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations)
of the Company and certain of their respective affiliates.
We and our affiliates in the past have
provided, and in the future may provide, investment banking, commercial banking and other financial services to the Company and
certain of its affiliates, including acting as financial advisor to the Special Committee of the Independent Board of Directors
of Shanda Interactive Entertainment Limited in a “going-private” proposal until the completion of that role on February
14, 2012 and acting as Joint Bookrunner in connection with the proposed Initial Public Offering of Cloudary Corporation until
the termination of that role prior to July 12, 2011 and in the future may receive compensation for the rendering of any such investment
banking, commercial banking or any other financial services.
The Special Committee of Independent Directors of the Board
Shanda Games Limited
Page 4
It is understood that this letter is for
the benefit and use of the Special Committee (in its capacity as such) in connection with and for purposes of its evaluation of
the Merger. Except to the extent legally required, this Opinion may not be disclosed, referred to, or communicated (in whole or
in part) to any third party, nor shall any public reference to us be made, for any purpose whatsoever except with our prior written
consent in each instance; provided, however, that the Company may reproduce this Opinion in full, and also may include references
to us and our Opinion, in any Schedule 13E-3, proxy statement or Schedule 14D-9 relating to the Merger that the Company is required
to file under the Exchange Act, and to distribute to its shareholders; and provided further that, all references to us or our
Opinion in any such document and the description or inclusion of our Opinion therein shall be subject to our prior written consent
(such consent not to be unreasonably withheld) as to form and substance.
Our opinion is necessarily based on financial,
economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to us as
of, the date hereof. It should be understood that subsequent developments may affect this opinion, and we do not have any obligation
to update, revise, or reaffirm this opinion. The issuance of this Opinion was approved by our Asia Pacific and Americas Fairness
Opinion Review Committee.
Based upon and subject to the foregoing,
including the various assumptions and limitations set forth herein, we are of the opinion on the date hereof that the Per Share
Merger Consideration or Per ADS Merger Consideration, as applicable, to be received in the Merger by holders of the Class A Shares
or ADSs (other than holders of Excluded Shares) is fair, from a financial point of view, to such holders.
Very
truly yours,
MERRILL LYNCH (ASIA PACIFIC)
LIMITED
ANNEX D
Cayman Islands Companies Law Cap. 22
(Law 3 of 1961, as consolidated and revised) – Section 238
Companies Law (2013 Revision)
Rights of dissenters
238. (1) A member of a constituent company incorporated
under this Law shall be entitled to payment of the fair value of his shares upon dissenting from a merger or consolidation.
(2) A member who desires to exercise
his entitlement under subsection (1) shall give to the constituent company, before the vote on the merger or consolidation, written
objection to the action.
(3) An objection under subsection
(2) shall include a statement that the member proposes to demand payment for his shares if the merger or consolidation is authorised
by the vote.
(4) Within twenty days immediately
following the date on which the vote of members giving authorisation for the merger or consolidation is made, the constituent
company shall give written notice of the authorisation to each member who made a written objection.
(5) A member who elects to dissent
shall, within twenty days immediately following the date on which the notice referred to in subsection (4) is given, give to the
constituent company a written notice of his decision to dissent, stating:
| (b) | the number and classes of shares in respect of which he dissents; |
and
| (c) | a demand for payment of the fair value of his shares. |
(6) A member who dissents shall do
so in respect of all shares that he holds in the constituent company.
(7) Upon the giving of a notice of
dissent under subsection (5), the member to whom the notice relates shall cease to have any of the rights of a member except the
right to be paid the fair value of his shares and the rights referred to in subsections (12) and (16).
(8) Within seven days immediately
following the date of the expiration of the period specified in subsection (5), or within seven days immediately following the
date on which the plan of merger or consolidation is filed, whichever is later, the constituent company, the surviving company
or the consolidated company shall make a written offer to each dissenting member to purchase his shares at a specified price that
the company determines to be their fair value; and if, within thirty days immediately following the date on which the offer is
made, the company making the offer and the dissenting member agree upon the price to be paid for his shares, the company shall
pay to the member the amount in money forthwith.
(9) If the company and a dissenting
member fail, within the period specified in subsection (8), to agree on the price to be paid for the shares owned by the member,
within twenty days immediately following the date on which the period expires:
(a) the company shall (and any dissenting
member may) file a petition with the Court for a determination of the fair value of the shares of all dissenting members; and
(b) the petition by the company shall
be accompanied by a verified list containing the names and addresses of all members who have filed a notice under subsection (5)
and with whom agreements as to the fair value of their shares have not been reached by the company.
(10) A copy of any petition filed
under subsection (9)(a) shall be served on the other party; and where a dissenting member has so filed, the company shall within
ten days after such service file the verified list referred to in subsection (9)(b).
(11) At the hearing of a petition,
the Court shall determine the fair value of the shares of such dissenting members as it finds are involved, together with a fair
rate of interest, if any, to be paid by the company upon the amount determined to be the fair value.
(12) Any member whose name appears
on the list filed by the company under subsection (9)(b) or (10) and who the Court finds are involved may participate fully in
all proceedings until the determination of fair value is reached.
(13) The order of the Court resulting
from proceeding on the petition shall be enforceable in such manner as other orders of the Court are enforced, whether the company
is incorporated under the laws of the Islands or not.
(14) The costs of the proceeding may
be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances; and upon application
of a member, the Court may order all or a portion of the expenses incurred by any member in connection with the proceeding, including
reasonable attorney’s fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares
which are the subject of the proceeding.
(15) Shares acquired by the company
pursuant to this section shall be cancelled and, if they are shares of a surviving company, they shall be available for re-issue.
(16) The enforcement by a member of
his entitlement under this section shall exclude the enforcement by the member of any right to which he might otherwise be entitled
by virtue of his holding shares, except that this section shall not exclude the right of the member to institute proceedings to
obtain relief on the ground that the merger or consolidation is void or unlawful.
EXECUTION VERSION
CONFIDENTIAL
ANNEX E
Support Agreement
SUPPORT AGREEMENT
This SUPPORT AGREEMENT (this “Agreement”)
is entered into as of April 3, 2015 by and among (1) Capitalhold Limited, a Cayman Islands exempted company (“Parent”)
and (2) certain shareholders of Shanda Games Limited, a Cayman Islands exempted company (the “Company”),
listed on Schedule A hereto (each, a “Shareholder” and collectively, the “Shareholders”).
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Merger Agreement (as defined
below).
WHEREAS, Parent, Capitalcorp Limited, a
Cayman Islands exempted company and a wholly-owned subsidiary of Parent (“Merger Sub”), and the Company have,
concurrently with the execution of this Agreement, entered into an Agreement and Plan of Merger, dated as of the date hereof (as
may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), pursuant to
which Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned
subsidiary of Parent (the “Merger”), upon the terms and subject to the conditions set forth in the Merger Agreement;
WHEREAS, as of the date hereof, each Shareholder
is the beneficial owner (as defined under Rule 13d-3 of the Exchange Act) of certain ordinary shares of the Company (“Shares”)
(including Shares represented by American Depositary Shares (the “ADSs”), each representing two Class A ordinary
shares of the Company, par value US$0.01 per share (“Class A Shares”)) as set forth in the column titled “Owned
Shares” opposite such Shareholder’s name on Schedule A hereto (such Shares, together with any other Shares
acquired (whether beneficially or of record) by such Shareholder after the date hereof and prior to the earlier of the Effective
Time and the termination of all of such Shareholder’s obligations under this Agreement, including any Shares acquired by
means of purchase, dividend or distribution, or issued upon the exercise of any Company Options or warrants or the conversion
of any convertible securities or otherwise, being collectively referred to herein as the “Securities”);
WHEREAS, in connection with the consummation
of the Merger, each Shareholder agrees to (a) the cancellation of the Shares (including Shares represented by ADSs) as set forth
in the column titled “Rollover Shares” opposite such Shareholder’s name on Schedule A hereto (the
“Rollover Shares”) for no consideration in the Merger, (b) subscribe for newly issued Parent Shares (as defined
below) immediately prior to the Closing, and (c) vote the Securities at the Shareholders’ Meeting in favor of the Merger,
in each case upon the terms and conditions set forth herein;
WHEREAS, receipt of the Requisite Company
Vote is a condition to the consummation of the Merger;
WHEREAS, in order to induce Parent and
Merger Sub to enter into the Merger Agreement and consummate the transactions contemplated thereby, including the Merger, the
Shareholders are entering into this Agreement;
WHEREAS, the Shareholders acknowledge that
Parent and Merger Sub are entering into the Merger Agreement in reliance on the representations, warranties, covenants and other
agreements of the Shareholders set forth in this Agreement; and
NOW, THEREFORE, in consideration of the
foregoing, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
VOTING; GRANT AND APPOINTMENT OF PROXY
Section 1.1
Voting. From and after the date hereof until the earlier of the (x) Closing and the (y) termination of the Merger Agreement
pursuant to and in compliance with the terms therein (such earlier time, the “Expiration Time”), each Shareholder
hereby irrevocably and unconditionally agrees that at the Shareholders’ Meeting or any other annual or special meeting of
the shareholders of the Company, however called, at which any of the matters described in paragraphs (a) – (f) hereof is
to be considered (and any adjournment or postponement thereof), such Shareholder shall (i) cause its representative(s) to appear
at such meeting or otherwise cause its Securities to be counted as present thereat for purposes of determining whether a quorum
is present and (ii) vote or cause to be voted (including by proxy, if applicable) all of such Shareholder’s Securities:
(a)
for the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions,
(b)
against any Competing Transaction or any other transaction, proposal, agreement or action made in opposition to approval
of the Merger Agreement or in competition or inconsistent with the Transactions, including the Merger,
(c)
against any other action, agreement or transaction that is intended, that could reasonably be expected, or the effect of
which could reasonably be expected, to materially impede, interfere with, delay, postpone, discourage or adversely affect any
of the Transactions, including the Merger, or this Agreement or the performance by such Shareholder of its obligations under this
Agreement,
(d)
against any action, proposal, transaction or agreement that would reasonably be expected to result in a breach in any respect
of any covenant, representation or warranty or any other obligation or agreement of the Company contained in the Merger Agreement,
or of such Shareholder contained in this Agreement or otherwise reasonably requested by Parent in order to consummate the Transactions,
including the Merger,
(e)
in favor of any adjournment or postponement of the Shareholders’ Meeting or other annual or special meeting of the
shareholders of the Company, however called, at which any of the matters described in paragraphs (a) – (f) hereof is to
be considered (and any adjournment or postponement thereof) as may be reasonably requested by Parent, and
(f)
in favor of any other matter necessary to effect the Transactions, including the Merger.
Section 1.2
Grant of Irrevocable Proxy; Appointment of Proxy.
(a)
Each Shareholder hereby irrevocably appoints Parent and any designee thereof as its proxy and attorney-in-fact (with full
power of substitution), to vote or cause to be voted (including by proxy, if applicable) such Shareholder’s Securities in
accordance with Section 1.1 above at the Shareholders’ Meeting or other annual or special meeting of the shareholders
of the Company, however called, including any adjournment or postponement thereof, at which any of the matters described in Section
1.1 above is to be considered, in each case prior to the Expiration Time. Each Shareholder represents that all proxies, powers
of attorney, instructions or other requests given by such Shareholder prior to the execution of this Agreement in respect of the
voting of such Shareholder’s Securities, if any, are not irrevocable and each Shareholder hereby revokes any and all previous
proxies, powers of attorney, instructions or other requests with respect to such Shareholder’s Securities. Each Shareholder
shall take such further action or execute such other instruments as may be necessary to effectuate the intent of this proxy.
(b)
Each Shareholder affirms that the irrevocable proxy set forth in this Section 1.2 is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of such Shareholder
under this Agreement. Each Shareholder further affirms that the irrevocable proxy is coupled with an interest and, except as set
forth in this Section 1.2, is intended to be irrevocable prior to the Expiration Time. If for any reason the proxy granted
herein is not irrevocable, then each Shareholder agrees to vote such Shareholder’s Securities in accordance with Section
1.1 above prior to the Expiration Time. The parties hereto agree that the foregoing is a voting agreement.
Section 1.3
Restrictions on Transfers. Except as provided for in Article II below or pursuant to the Merger Agreement each
Shareholder hereby agrees that, from the date hereof until the Expiration Time, such Shareholder shall not, directly or indirectly,
(a) offer for sale, sell (constructively or otherwise), transfer, assign, tender in any tender or exchange offer, pledge, grant,
encumber, hypothecate or similarly dispose of (by merger, testamentary disposition, operation of Law or otherwise) (collectively,
“Transfer”), or enter into any Contract, option or other arrangement or understanding with respect to the Transfer
of any Securities or any interest therein, including, without limitation, any swap transaction, option, warrant, forward purchase
or sale transaction, futures transaction, cap transaction, floor transaction, collar transaction or any other similar transaction
(including any option with respect to any such transaction) or combination of any such transactions, in each case involving any
Securities and (x) has, or would reasonably be expected to have, the effect of reducing or limiting such Shareholder’s economic
interest in such Securities and/or (y) grants a third party the right to vote or direct the voting of such Securities, (b) deposit
any Securities into a voting trust or enter into a voting agreement or arrangement or grant any proxy or power of attorney with
respect thereto that is inconsistent with this Agreement, (c) convert or exchange, or take any action which would result
in the conversion or exchange of, any Securities, (d) knowingly take any action that would make any representation or warranty
of such Shareholder set forth in this Agreement untrue or incorrect or have the effect of preventing, disabling, or delaying such
Shareholder from performing any of its obligations under this Agreement, or (e) agree (whether or not in writing) to take any
of the actions referred to in the foregoing clauses (a), (b), (c) or (d).
ARTICLE II
ROLLOVER SHARES
Section 2.1
Cancellation of Rollover Shares. Subject to the terms and conditions set forth herein, (a) each Shareholder agrees
that its Rollover Shares shall be cancelled at the Closing for no consideration, and (b) other than its Rollover Shares, all equity
securities of the Company held by such Shareholder, if any, shall be treated as set forth in the Merger Agreement and not be affected
by the provisions of this Agreement. Each Shareholder will take all actions necessary to cause the number of Rollover Shares opposite
such Shareholder’s name on Schedule A hereto to be treated as set forth herein.
Section 2.2
Subscription of Parent Shares. Immediately prior to the Closing, in consideration for the cancellation of the Rollover
Shares held by each Shareholder in accordance with Section 2.1, Parent shall issue to such Shareholder (or, if designated
by such Shareholder in writing, an Affiliate of such Shareholder), and such Shareholder or its Affiliate (as applicable) shall
subscribe for, the number of newly issued Class A ordinary shares of Parent, par value US$0.00001 per share (the “Class
A Parent Shares”) or Class B ordinary shares of Parent, par value US$0.00001 per share (the “Class B Parent
Shares”, together with the Class A Parent Shares, the “Parent Shares”) set forth in the column titled
“Parent Shares” opposite such Shareholder’s name on Schedule A hereto, at a consideration per
share equal to its par value. Each Shareholder hereby acknowledges and agrees that (a) delivery of such Parent Shares shall
constitute complete satisfaction of all obligations towards or sums due to such Shareholder by Parent and Merger Sub in respect
of the Rollover Shares held by such Shareholder and cancelled at the Closing as contemplated by Section 2.1 above, and
(b) such Shareholder shall have no right to any Merger Consideration in respect of the Rollover Shares held by such Shareholder.
Section 2.3
Rollover Closing. Subject to the satisfaction in full (or waiver, if permissible) of all of the conditions set forth
in Section 7.01 and Section 7.02 of the Merger Agreement (other than conditions that by their nature are to be satisfied
or waived, as applicable, at the Closing), the closing of the subscription and issuance of Parent Shares contemplated hereby shall
take place immediately prior to the Closing (the “Rollover Closing”). For the avoidance of doubt, Schedule
A sets forth opposite each Shareholder’s name the number of (a) Rollover Shares of such Shareholder, (b) Shares
owned by such Shareholder as of the date hereof and (c) Parent Shares to be issued to such Shareholder at the Rollover Closing.
Section 2.4
Deposit of Rollover Shares. No later than three (3) Business Days prior to the Closing, each Shareholder and any agent
of such Shareholder holding certificates evidencing any Rollover Shares shall deliver or cause to be delivered to Parent all certificates
representing such Rollover Shares in such person’s possession, for disposition in accordance with the terms of this Agreement;
such certificates and documents shall be held by Parent or any agent authorized by Parent until the Closing.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SHAREHOLDERS
Section 3.1
Representations and Warranties. Each Shareholder, severally and not jointly, represents and warrants to Parent as of
the date hereof and as of the Closing:
(a)
such Shareholder has the requisite corporate power and authority to execute and deliver this Agreement, to perform such
Shareholder’s obligations hereunder and to consummate the transactions contemplated hereby;
(b)
this Agreement has been duly executed and delivered by such Shareholder and the execution, delivery and performance of
this Agreement by such Shareholder and the consummation of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of such Shareholder and no other corporate actions or proceedings on the part of such Shareholder
are necessary to authorize this Agreement or to consummate the transactions contemplated hereby;
(c)
assuming due authorization, execution and delivery by Parent, this Agreement constitutes a legal, valid and binding agreement
of such Shareholder, enforceable against such Shareholder in accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and
by general principles of equity (regardless of whether considered in a proceeding in equity or at law);
(d)
(i) such Shareholder (A) is and, immediately prior to the Closing, will be the record and beneficial owner of, and has
and will have good and valid title to, the Securities, free and clear of Liens other than as created by this Agreement, and (B)
has and will have sole or shared (together with Affiliates controlled by such Shareholder) voting power, power of disposition,
and power to demand dissenter’s rights, in each case with respect to all of the Securities, with no limitations, qualifications,
or restrictions on such rights, subject to applicable United States federal securities Laws, Laws of the Cayman Islands, Laws
of the People’s Republic of China and the terms of this Agreement; (ii) except pursuant hereto, there are no options, warrants
or other rights, agreements, arrangements or commitments of any character to which Shareholder is a party relating to the pledge,
disposition or voting of any of its Securities and its Securities are not subject to any voting trust agreement or other Contract
to which such Shareholder is a party restricting or otherwise relating to the voting or Transfer of such Securities other than
this Agreement; (iii) such Shareholder has not Transferred any interest in any of the Securities; (iv) as of the date hereof,
other than its Owned Shares, such Shareholder does not own, beneficially or of record, or have the right to acquire, any Shares,
securities of the Company, or any direct or indirect interest in any such securities (including by way of derivative securities);
and (v) such Shareholder has not appointed or granted any proxy or power of attorney that is still in effect with respect to any
of its Owned Shares, except as contemplated by this Agreement.
(e)
Except for the applicable requirements of the Exchange Act and Laws of the Cayman Islands, (i) no filing with, and no permit,
authorization, consent or approval of, any Governmental Authority is necessary on the part of such Shareholder for the execution,
delivery and performance of this Agreement by such Shareholder or the consummation by such Shareholder of the transactions contemplated
hereby, and (ii) neither the execution, delivery or performance of this Agreement by such Shareholder, nor the consummation by
such Shareholder of the transactions contemplated hereby, nor compliance by such Shareholder with any of the provisions hereof
shall (A) conflict with or violate any provision of the organizational documents of such Shareholder, (B) result in any breach
or violation of, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under,
or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on
property or assets of such Shareholder pursuant to any Contract to which such Shareholder is a party or by which such Shareholder
or any property or asset of such Shareholder is bound or affected, or (C) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to such Shareholder or any of such Shareholder’s properties or assets;
(f)
on the date hereof, there is no Action pending against such Shareholder or, to the knowledge of such Shareholder, any other
person or, to the knowledge of such Shareholder, threatened against any such Shareholder or any other person that restricts or
prohibits (or, if successful, would restrict or prohibit) the performance by such Shareholder of its obligations under this Agreement;
(g)
such Shareholder has been afforded the opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of Parent concerning the terms and conditions of the transactions contemplated hereby and the merits
and risks of owning Parent Shares and such Shareholder acknowledges that it has been advised to discuss with its own counsel the
meaning and legal consequences of such Shareholder’s representations and warranties in this Agreement and the transactions
contemplated hereby; and
(h)
such Shareholder understands and acknowledges that Parent and Merger Sub are entering into the Merger Agreement in reliance
upon such Shareholder’s execution, delivery and performance of this Agreement.
Section 3.2
Covenants. Each Shareholder hereby:
(a)
agrees, prior to the Expiration Time, not to knowingly take any action that would make any representation or warranty of
such Shareholder contained herein untrue or incorrect or have or could have the effect of preventing, impeding or interfering
with or adversely affecting the performance by such Shareholder of its obligations under this Agreement;
(b)
irrevocably waives, and agrees not to exercise, any rights of appraisal or rights of dissent from the Merger that such
Shareholder may have with respect to such Shareholder’s Securities (including without limitation any rights under Section
238 of the CICL) prior to the Expiration Time;
(c)
agrees to permit the Company to publish and disclose in the Proxy Statement (including all documents filed with the SEC
in accordance therewith), such Shareholder’s identity and beneficial ownership of Shares or other equity securities of the
Company and the nature of such Shareholder’s commitments, arrangements and understandings under this Agreement;
(d)
agrees and covenants, severally and not jointly, that such Shareholder shall promptly notify Parent of any new Shares with
respect to which beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) is acquired by such Shareholder,
including, without limitation, by purchase, as a result of a stock dividend, stock split, recapitalization, combination, reclassification,
exchange or change of such shares, or upon exercise or conversion of any securities of the Company after the date hereof;
(e)
agrees and covenants that each Shareholder who is, or whose ultimate shareholder is, deemed to be a resident of the PRC
under the Laws of the PRC, shall, as soon as practicable after the date hereof, use its reasonable best efforts to (i) submit
an application to the State Administration of Foreign Exchange (“SAFE”) for the registration of its holding
of Shares (whether directly or indirectly) in the Company in accordance with the requirements of SAFE Circular 75 (or any successor
Law, rule or regulation) and (ii) complete such registration prior to the Closing; and
(f)
agrees further that, upon request of Parent, such Shareholder shall execute and deliver any additional documents, consents
or instruments and take such further actions as may reasonably be deemed by Parent to be necessary or desirable to carry out the
provisions of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to each
Shareholder that as of the date hereof and as of the Closing:
(a)
Parent is duly organized, validly existing and in good standing under the Laws of the Cayman Islands and has all requisite
power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and the execution, delivery and
performance of this Agreement by Parent and the consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and no other corporate actions or proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the transactions contemplated hereby. Assuming due authorization, execution
and delivery by the Shareholders, this Agreement constitutes a legal, valid and binding obligation of Parent, enforceable against
Parent in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar Laws affecting creditors’ rights generally and by general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
(b)
Except for the applicable requirements of the Exchange Act and Laws of the Cayman Islands, (i) no filing with, and no permit,
authorization, consent or approval of, any Governmental Authority is necessary on the part of Parent for the execution, delivery
and performance of this Agreement by Parent or the consummation by Parent of the transactions contemplated hereby, and (ii) neither
the execution, delivery or performance of this Agreement by Parent, nor the consummation by Parent of the transactions contemplated
hereby, nor compliance by Parent with any of the provisions hereof shall (A) conflict with or violate any provision of the organizational
documents of Parent, (B) result in any breach or violation of, or constitute a default (or an event which, with notice or lapse
of time or both, would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of a Lien on such property or asset of Parent pursuant to, any Contract to which Parent is a party
or by which Parent or any of its property or asset is bound or affected, or (C) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent or any of its properties or assets.
(c)
At and immediately after the Closing, the authorized capital stock of Parent shall consist of 1,000,000,000 Parent Shares,
of which a number of Parent Shares as set forth in Schedule A shall be issued and outstanding (collectively, the “Issued
Shares”). The Issued Shares, together with the Parent Shares to be issued to the Sponsors at the Closing pursuant to
the Consortium Agreement and the Equity Commitment Letters, shall be all of the Parent Shares outstanding at and immediately after
the Closing.
(d)
At the Closing, the Parent Shares to be issued under this Agreement shall have been duly and validly authorized and when
issued and delivered in accordance with the terms hereof, will be validly issued, fully paid and nonassessable, free and clear
of all claims, liens and encumbrances, other than restrictions arising under applicable securities Laws.
ARTICLE V
TERMINATION
This Agreement, and the obligations of
the Shareholders hereunder (including, without limitation, Section 1.2 hereof), shall terminate and be of no further force
or effect immediately upon the earlier to occur of (a) the Closing and (b) the date of termination of the Merger Agreement in
accordance with its terms; provided, that this Article V and Article VI shall survive any termination of this
Agreement. Nothing in this Article V shall relieve or otherwise limit any party’s liability for any breach of
this Agreement prior to the termination of this Agreement. If for any reason the Merger fails to occur but the Rollover Closing
contemplated by Article II has already taken place, then Parent shall promptly take all such actions as are necessary to
restore each Shareholder to the position it was in with respect to ownership of the Rollover Shares prior to the Rollover Closing.
ARTICLE VI
MISCELLANEOUS
Section 6.1
Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile or by international overnight
courier to the respective parties at the address set forth on the signature pages hereto under each party’s name (or at
such other address for a party as shall be specified in a notice given in accordance with this Section 6.1).
Section 6.2
Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by
any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the Transactions is not affected in any manner adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible
in a mutually acceptable manner in order that the Transactions be consummated as originally contemplated to the fullest extent
possible.
Section 6.3
Entire Agreement. This Agreement, the Consortium Agreement and the Merger Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter hereof.
Section 6.4
Specific Performance. Each party acknowledges and agrees that monetary damages would not be an adequate remedy in the
event that any covenant or agreement in this Agreement is not performed in accordance with its terms, and therefore agrees that,
in addition to and without limiting any other remedy or right available to the parties, each party will have the right to an injunction,
temporary restraining order or other equitable relief in any court of competent jurisdiction enjoining any such breach and enforcing
specifically the terms and provisions hereof. Each party agrees not to oppose the granting of such relief in the event a court
determines that such a breach has occurred, and to waive any requirement for the securing or posting of any bond in connection
with such remedy. All rights, powers, and remedies provided under this Agreement or otherwise available in respect hereof at law
or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by a party
shall not preclude the simultaneous or later exercise of any other such right, power or remedy by a party.
Section 6.5
Amendments; Waivers. At any time prior to the Expiration Time, any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Shareholders and Parent,
or in the case of a waiver, by the party against whom the waiver is to be effective. Notwithstanding the foregoing, no failure
or delay by a party hereto in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise of any other right hereunder.
Section 6.6
Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New
York, without giving effect to any choice of Law or conflict of Law rules or provisions that would cause the application of the
Laws of any jurisdiction other than the State of New York.
Section 6.7
Dispute Resolution.
(a)
Any disputes, actions and proceedings against any party or arising out of or in any way relating to this Agreement shall
be submitted to the Hong Kong International Arbitration Centre (“HKIAC”) and resolved in accordance with the
Arbitration Rules of HKIAC in force at the relevant time (the “Rules”) and as may be amended by this Section
6.7. The place of arbitration shall be Hong Kong. The official language of the arbitration shall be English and the arbitration
tribunal shall consist of three arbitrators (each, an “Arbitrator”). The claimant(s), irrespective of number,
shall nominate jointly one Arbitrator; the respondent(s), irrespective of number, shall nominate jointly one Arbitrator; and a
third Arbitrator will be nominated jointly by the first two Arbitrators and shall serve as chairman of the tribunal. In the event
the claimant(s) or respondent(s) or the first two Arbitrators shall fail to nominate or agree the joint nomination of an Arbitrator
or the third Arbitrator within the time limits specified by the Rules, such Arbitrator shall be appointed promptly by the HKIAC.
The arbitration tribunal shall have no authority to award punitive or other punitive-type damages. The award of the arbitration
tribunal shall be final and binding upon the disputing parties. Any party to an award may apply to any court of competent jurisdiction
for enforcement of such award and, for purposes of the enforcement of such award, the Parties irrevocably and unconditionally
submit to the jurisdiction of any court of competent jurisdiction and waive any defenses to such enforcement based on lack of
personal jurisdiction or inconvenient forum.
(b)
Notwithstanding the foregoing, the parties hereby consent to and agree that in addition to any recourse to arbitration
as set out in this Section 6.7, any party may, to the extent permitted under the Laws of the jurisdiction where application
is made, seek an interim injunction from a court or other authority with competent jurisdiction and, notwithstanding that this
Agreement is governed by the Laws of the State of New York, a court or authority hearing an application for injunctive relief
may apply the procedural Law of the jurisdiction where the court or other authority is located in determining whether to grant
the interim injunction. For the avoidance of doubt, this Section 6.7(b) is only applicable to the seeking of interim injunctions
and does not restrict the application of Section 6.7(a) in any way.
Section 6.8
No Third Party Beneficiaries. There are no third party beneficiaries of this Agreement and nothing in this Agreement,
express or implied, is intended to confer on any person other than the parties hereto (and their respective successors, heirs
and permitted assigns), any rights, remedies, obligations or liabilities, except as specifically set forth in this Agreement.
Section 6.9
Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the prior written consent of the other
parties, except that Parent may assign this Agreement (in whole but not in part) in connection with a permitted assignment of
the Merger Agreement by Parent, as applicable. Subject to the preceding sentence, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and permitted assigns and, in the case of each Shareholder,
his, her or its estate, heirs, beneficiaries, personal representatives and executors.
Section 6.10
No Presumption Against Drafting Party. Each of the parties to this Agreement acknowledges that it has been represented
by independent counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any
rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the drafting
party has no application and is expressly waived.
Section 6.11
Counterparts. This Agreement may be executed in two or more consecutive counterparts (including by facsimile or email
pdf format), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same
instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by
telecopy, email pdf format or otherwise) to the other parties; provided, however, that if any of the Shareholders
fails for any reason to execute, or perform its obligations under, this Agreement, this Agreement shall remain effective as to
all parties executing this Agreement.
[Signature Pages
to follow]
IN WITNESS WHEREOF, the parties hereto
have duly executed and delivered this Agreement as of the date and year first written above.
PARENT
CAPITALHOLD LIMITED
By: /s/ Yingfeng Zhang
Name: Yingfeng Zhang
Title: Director
Notice details:
Address: No. 19, Lane 666, Zhangheng
Road,
Pudong New Area, Shanghai, China
Attention: Yingfeng Zhang
Facsimile: +86 21 5027 0092
Address: Zhongyin Avenue, The Cashmere
Industrial Park, Lingwu, Ningxia Province, China
Attention: Xiaofei Chen
Facsimile: +86 591 4519290
with a copy to (which alone shall
not constitute notice):
Wilson Sonsini Goodrich & Rosati,
P.C. Address: Jin Mao Tower, 38F, Unit 3,
88 Century Blvd, Pudong
Shanghai 200121
Attention: Zhan Chen
Facsimile: +86 21 6165 1799
[Signature Page to Support Agreement]
SHAREHOLDERS
Yili
Shengda Investment Holdings (Hong Kong) Company Limited
By: /s/ Yingfeng Zhang
Name: Yingfeng Zhang
Title: Director
Notice details:
Address: No. 19, Lane 666, Zhangheng Road,
Pudong New Area, Shanghai, China
Attention: Yingfeng Zhang
Facsimile: +86 21 5027 0092
With a copy to (which alone shall
not constitute notice):
Wilson Sonsini Goodrich & Rosati,
P.C. Address: Jin Mao Tower, 38F, Unit 3,
88 Century Blvd, Pudong
Shanghai 200121
Attention: Zhan Chen
Facsimile: +86 21 6165 1799
[Signature Page to
Support Agreement]
SHAREHOLDERS
Zhongrong
Shengda Investment Holdings (Hong Kong) Company Limited
By: /s/ Shengming Ma
Name: Shengming Ma
Title: Director
Zhongrong
Investment Holdings (Hong Kong) Co., Ltd.
By: /s/ Shengming Ma
Name: Shengming Ma
Title: Director
Notice details:
Address: Zhongyin Avenue, The Cashmere
Industrial Park, Lingwu, Ningxia Province, China
Attention: Xiaofei Chen
Facsimile: +86 591 4519290
With a copy to each of (which shall
not constitute notice):
Wilson Sonsini Goodrich & Rosati,
P.C. Address: Jin Mao Tower, 38F, Unit 3,
88 Century Blvd, Pudong
Shanghai 200121
Attention: Zhan Chen
Facsimile: +86 21 6165 1799
Skadden, Arps, Slate, Meagher &
Flom LLP
Address: 30F China World Office
2
No. 1 Jianguomenwai Avenue,
Beijing 100004
Attention: Peter Huang
Facsimile: +86 10 6535 5577
[Signature Page to
Support Agreement]
SHAREHOLDERS
Orient
Hongtai (Hong Kong) Limited
By: /s/ Yuntao Ma
Name: Yuntao Ma
Title: Director
Orient
Hongzhi (Hong Kong) Limited
By: /s/ Yuntao Ma
Name: Yuntao Ma
Title: Director
Notice details:
Address: 100 Queens Road C, Central
District, Hong Kong, People’s Republic of China, SAR
Attention:
Facsimile:
With a copy to (which shall not
constitute notice):
DaCheng Law Offices LLP
Address: 2 Wall Street, 21st Floor,
New York, NY 10005
Attention: Ling Xiao
Facsimile: +1 212 810 1995
[Signature Page to
Support Agreement]
SHAREHOLDERS
Hao
Ding International Limited
By: /s/ Jing Liu
Name: Jing Liu
Title: Director
Notice details:
Address: Room 2802, No. 689 Guangdong Road, Huangpu District, Shanghai
Attention:
Facsimile:
With a copy to (which shall not
constitute notice):
DaCheng Law Offices LLP
Address: 2 Wall Street, 21st Floor,
New York, NY 10005
Attention: Ling Xiao
Facsimile: +1 212 810 1995
[Signature Page to
Support Agreement]
SCHEDULE A
Rollover Shares
Shareholder |
Owned
Shares |
Rollover
Shares |
Parent
Shares |
Yili
Shengda Investment Holdings (Hong Kong) Company Limited |
48,759,187
Class B Shares |
48,759,187
Class B Shares |
48,759,187
Class B Parent Shares |
Zhongrong
Shengda Investment Holdings (Hong Kong) Company Limited |
48,759,187
Class B Shares |
48,759,187
Class B Shares |
48,759,187
Class B Parent Shares |
Zhongrong
Investment Holdings (Hong Kong) Co., Ltd. |
80,577,828
Class A Shares |
80,577,828
Class A Shares |
80,577,828
Class A Parent Shares |
Orient
Hongtai (Hong Kong) Limited |
61,776,334
Class A Shares |
61,776,334
Class A Shares |
61,776,334
Class A Parent Shares |
Orient
Hongzhi (Hong Kong) Limited |
61,776,335
Class A Shares |
61,776,335
Class A Shares |
61,776,335
Class A Parent Shares |
Hao
Ding International Limited |
107,438,129
Class A Shares |
107,438,129
Class A Shares |
107,438,129
Class A Parent Shares |
[Schedule A to Support Agreement]
ANNEX F
Directors and Executive Officers of
Each Filing Person
1. |
Directors
and Executive Officers of the Company |
The Company is an exempted company with
limited liability incorporated under the laws of the Cayman Islands with its principal business address at No. 1 Office Building,
No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC. The telephone number of the Company’s principal executive
office is +86 21 5050 4740.
During the last five years, none of the
Company or any of its directors and executive officers has been (a) convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (b) a party to any judicial or administrative proceeding (except for matters that were
dismissed without sanction or settlement) that resulted in a judgment or decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal
or state securities laws.
The name, business address, present principal
employment and citizenship of each director and executive officer of the Company are set forth below. Unless otherwise indicated,
the business address of each director and executive officer is No. 1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai
201203, the PRC.
Name |
|
Business Address |
|
Present Principal
Employment |
|
Principal Business of
Organization |
|
Citizenship |
Yingfeng Zhang |
|
No. 1 Office Building, No. 690 Bibo
Road, Pudong New Area, Shanghai 201203, PRC |
|
Acting Chief Executive Officer
Shanda Games Limited |
|
Online game developer, operator, publisher |
|
PRC |
Shaolin Liang |
|
Sixth Floor, Heping Mansion, No. 6
Laiguangying East Road, Chaoyang District, Beijing 100102, PRC |
|
Vice General Manager
Ningxia Zhongyincashmere
International Group Co., Ltd. |
|
Manufacturer of cashmere products |
|
PRC |
Danian Chen |
|
No 1, Lane 666, Zhangheng Road
Pudong New Area
Shanghai 201203, PRC |
|
Chariman, Chief Executive Officer
Shanghai Lianshang Network Technology Ltd. |
|
Technology developer |
|
PRC |
Li Yao |
|
No 1, Lane 666, Zhangheng Road
Pudong New Area
Shanghai 201203, PRC |
|
Chief Financial Officer
Shanda Games Limited
|
|
Online game developer, operator, publisher |
|
PRC |
Lijun Lin |
|
22/F Aurora Plaza
99 Fucheng Road, Pudong
Shanghai 200120, PRC |
|
Director
Shanda Games Limited |
|
Online game developer, operator, publisher |
|
PRC |
Heng Wing Chan |
|
Tanglin, Singapore 248163 |
|
Senior advisor
Singapore Ministry of Foreign Affairs |
|
Government |
|
Singapore |
Yong Gui |
|
220 Handan Road
Shanghai 200433, PRC |
|
Professor
Fudan University |
|
Education |
|
PRC |
Tunghai Chien |
|
No. 1 Office Building, No. 690 Bibo
Road, Pudong New Area, Shanghai 201203, PRC |
|
President
Shanda Games Limited |
|
Online game developer, operator, publisher |
|
Republic of Korea |
Jisheng Zhu |
|
No. 1 Office Building, No. 690 Bibo
Road, Pudong New Area, Shanghai 201203, PRC |
|
Chief Operating Officer
Shanda Games Limited |
|
Online game developer, operator, publisher |
|
PRC |
Jin Zhang |
|
No. 1 Office Building, No. 690 Bibo
Road, Pudong New Area, Shanghai 201203, PRC |
|
Chief Administrative Officer
Shanda Games Limited |
|
Online game developer, operator, publisher |
|
PRC |
Mr. Yingfeng Zhang has served as the chairman
of the Board since November 2014 and as a director and the acting chief executive officer of the Company since October 2014. Mr.
Zhang joined Shanda Interactive in 2001 and was the head of the legal and intellectual property department of Shanda Interactive
and in charge of screening, negotiations and licensing of online games, including “Mir II.” After the spinoff of the
Company from Shanda Interactive in 2009, Mr. Zhang served as the general counsel of Shanda Interactive from April 4, 2008 to September
14, 2011, and as the co-general counsel of Shanda Interactive from September 15, 2011 to December 16, 2014. Mr. Zhang also served
as a vice president of Shanda Interactive from August 10, 2011 to December 16, 2014, and as was a partner of Shanda Capital Limited.
On behalf of Shanda Interactive, he was involved in the daily operations of various subsidiaries of Shanda Interactive, including
Hangzhou Bianfeng Networking Technology Co., Ltd., Haofang Co., Ltd. and us. Mr. Zhang also has extensive experience in capital
market transactions and participated in the initial public offering of Shanda Interactive and the Company, the privatization of
Shanda Interactive, and the trade sale of Hangzhou Bianfeng Networking Technology Co., Ltd. and Haofang Co., Ltd. Before joining
Shanda Interactive, Mr. Zhang worked with Shanghai Hujiang Law Firm. Mr. Zhang holds a bachelor’s degree in law from East
China University of Political Science and Law and an LL.M. degree from SMU Dedman School of Law.
Mr. Shaolin Liang has served as a director
of the Company since February 2015. Mr. Shaolin Liang has served as a vice general manager at Ningxia since February 2015. Mr.
Liang previously served at Zhongyin Cashmere, a company listed on the Shenzhen Stock Exchange, as a vice general manager from
December 2007 to February 2015 and as a member of its board of directors from December 2007 to December 2014. From 1999 to December
2007, he served as a vice president of Zhongyin Cashmere. From 1995 to 1999, Mr. Liang served as the section chief of the State
Post Bureau of the PRC. He worked for the State Post Bureau of the PRC and Beijing Municipal Postal Administration from March
1986 to 1992 and from 1983 to 1986, respectively. Mr. Liang received his bachelor’s degree from Beijing University of Posts
and Telecommunications in 1982 and a master’s degree in project planning and development from the University of Bradford
in 1994.
Mr. Danian Chen has served as a director
of the Company since June 2008. Mr. Danian Chen has served as the chairman and the chief executive officer of Shanghai Lianshang
Network Technology Ltd.( 上海连尚网络科技有限公司 ) since
October 2013. Mr. Danian Chen is one of the co-founders of Shanda Interactive. Mr. Danian Chen has served in various capacities
at Shanda Interactive, most recently as the chief operating officer from 2008 to 2012. Mr. Chen is also a member of the board
of directors of Shanda Interactive, a position which he has held since its inception in 1999, and Cloudary Corporation. Mr. Danian
Chen is the brother of Mr. Chen, a former chairman of the Board.
Mr. Li Yao has served as a director of
the Company since March 2013 and the chief financial officer of the Company since April 2015. Mr. Yao has served as a director
of Actoz since March 2013 and previously as a director and the chief financial officer of Actoz from March 2008 to March 2012
and from March 2008 to July 2011, respectively. Mr. Yao served as Shanda Interactive’s senior vice president and head of
finance from June 2013 to April 2015, previously as a vice president and the head of finance of Shanda Interactive from November
2007 to June 2013, and as acting chief finance officer of Ku6 Media Co., Ltd. from October 2009 to September 2010. Prior to joining
Shanda Interactive, Mr. Yao worked for over 11 years at KPMG Huazhen Certified Public Accountants (Special General Partnership).
Mr. Yao graduated from the College of International Business and Management of Shanghai University with a finance major and an
executive master of business administration degree from Fudan University. Mr. Yao is a member of the Institute of Certified Public
Accountants of the PRC.
Mr. Lijun Lin has served as a director
of the Company since May 2009. Mr. Lin previously served as the chief executive officer of China Universal Asset Management Co.,
Ltd., which is one of the largest asset managers in the PRC and an affiliate of Orient Hongtai and Orient Hongzhi, each of which
is a member of the Buyer Group, from April 2004 to April 2015. Prior to that, he served as a manager and an assistant director
of the listing department of the Shanghai Stock Exchange and served at the China Securities Regulatory Commission (“CSRC”)
as a regulator. Mr. Lin obtained a bachelor’s and a master’s degree in economics from Fudan University and a master
of business administration degree from the Harvard Business School.
Mr. Heng Wing Chan has served as a director
of the Company since June 2009. Mr. Chan currently serves as a senior advisor to the Singapore Ministry of Foreign Affairs and
is Singapore’s High Commissioner to the People’s Republic of Bangladesh, resident in Singapore. Mr. Chan also serves
as an independent director of Banyan Tree Holdings, a resort development and management group, and Fraser Centrepoint Limited,
a property development and hospitality company, each of which is listed on the Singapore Stock Exchange. He was appointed chairman
of the Asia Center of the Milken Institute in September 2013. From 2008 to 2011, he was managing director of international relations
for Temasek International Pte. Ltd. and was Temasek’s chief representative in the PRC. Prior to that, he worked for the
Ministry of Foreign Affairs and the Ministry of Information of Singapore, including serving in Singapore’s Permanent Mission
to the United Nations, as Consul-General to Hong Kong, Ambassador to Thailand and Consul-General to Shanghai. Mr. Chan also served
as the Press Secretary to Prime Minister Goh Chok Tong and head of the Media Division in the Singapore Ministry of Information
and the Arts. Mr. Chan holds a bachelor’s and master’s degree in philosophy from the University of Singapore and a
master’s degree from the Columbia Graduate School of Journalism.
Mr. Yong Gui has served as a director
of the Company since June 2013. Mr. Gui is a deputy dean, professor and Ph.D. supervisor at Fudan University’s Department
of Sociology. He also serves in various managerial and academic roles, including as a council member of the China Sociological
Association, a deputy director of the “Economic Sociology Special Committee,” a council member of the “Social
Network and Social Capital Special Committee” of the China Sociological Association, the vice general secretary of the Shanghai
Sociology Association and the deputy director of the Shanghai Association of Young Talent for Societal Construction. Mr. Gui received
his bachelor’s and master’s degrees in Sociology and a doctoral degree in economics from Fudan University.
Mr. Tunghai Chien has served as the Company’s
president since March 2013. Prior to becoming the Company’s president, Mr. Chien served as the Company’s assistant
vice president, vice president and senior vice president for global business development. Prior to joining the Company, Mr. Chien
served as the head of business development at leading Korean online game companies, including CJ Internet Holdings, Webzen Co.,
Ltd., Wemade Entertainment Co., Ltd., and Actoz. Mr. Chien holds a bachelor’s degree in economics from National Shinshu
University in Japan.
Mr. Jisheng Zhu has served as the chief
operating officer of the Company since November 2014. Mr. Zhu worked for the Company from April 2008 to October 2011 and rejoined
the Company in October 2013 as a vice president. Prior to joining the Company, he worked with Shanda Interactive from May 2003
to April 2008 and from October 2011 to October 2013. Prior to joining Shanda Interactive, Mr. Zhu served as the engineering service
director of Kingnet Security Inc. from 2001 to 2003 and as the product development director of Eachnet.com from 2000 to 2001.
Mr. Zhu holds a master’s degree in automatic control from East China University of Science and Technology and an executive
master of business administration degree from Peking University Guanghua School of Business.
Ms. Jin Zhang has served as the chief
administrative officer of the Company since November 2014. Before joining the Company, Ms. Zhang was a vice president of human
resources and later a senior vice president with Shanda Interactive from June 2009 to November 2014. Before that, she served as
a vice president of Lenovo Group where she was in charge of human resources in Great China, India, Russia and other emerging markets.
From 1999 to 2002, Ms. Zhang held various positions in Lenovo Group, including, among others, manager of planning, quality control.
She holds a master’s degree in management science from Renmin University of China.
2. |
Directors and Executive
Officers of Parent |
Parent is an exempted company with limited
liability incorporated under the laws of the Cayman Islands for the purpose of completing the Transactions, including the Merger,
with its registered office located at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O.
Box 2681, Grand Cayman, KY1-1111, Cayman Islands, and its business telephone number is +86 21 5050 4740. Each of Yili Shengda
and Zhongrong Shengda holds 50% of the outstanding shares of Parent.
The name, business address, present principal
employment and citizenship of the sole director of Parent are set forth below. As of the date of this proxy statement, Parent
does not have any executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Yingfeng
Zhang |
No.
1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC |
Chairman
of the board and acting chief executive officer of the Company |
PRC |
During the last five (5) years, none of
Parent or its director has been (a) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors)
or (b) a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement)
that resulted in a judgment or decree or final order enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.
3. |
Directors and Executive
Officers of Merger Sub |
Merger Sub is an exempted company with
limited liability incorporated under the laws of the Cayman Islands for the purpose of completing the Transactions, including
the Merger, with its registered office located at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins
Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands, and its business telephone number is +86 21 5050 4740. Merger Sub
is directly and wholly owned by Parent.
The name, business address, present principal
employment and citizenship of the sole director of Merger Sub are set forth below. As of the date of this proxy statement, Merger
Sub does not have any executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Yingfeng
Zhang |
No.
1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC |
Chairman
of the board and acting chief executive officer of the Company |
PRC |
During the last five (5) years, none of
Merger Sub or its director has been (a) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors)
or (b) a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement)
that resulted in a judgment or decree or final order enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.
4. |
Directors and Executive
Officers of Yili Shengda |
Yili Shengda is a company organized under
the laws of Hong Kong with its principal business address at Room 2803-05, AXA Tower, Landmark East, 100 How Ming Street, Kwun
Tong, Kowloon, Hong Kong, and its business telephone number is +852 8208 5118. The principal business of Yili Shengda is venture
capital and private equity investment and portfolio management. Yili Shengda is directly and wholly owned by Ningxia Yilida.
The name, business address, present principal
employment and citizenship of the sole director of Yili Shengda are set forth below. As of the date of this proxy statement, Yili
Shengda does not have any executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Yingfeng
Zhang |
No.
1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC |
Chairman
of the board and acting chief executive officer of the Company |
PRC |
During the last five (5) years, none of
Yili Shengda or its director has been (a) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors)
or (b) a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement)
that resulted in a judgment or decree or final order enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.
5. |
Directors and Executive
Officers of Ningxia Yilida |
Ningxia Yilida is a limited partnership
organized under the laws of the PRC with its principal business address at Ecological Textile Park, Lingwu, Ningxia 750400, the
PRC, and its business telephone number is +86 21 5050 4740. The principal business of Ningxia Yilida is venture capital and private
equity investment and portfolio management. The general partner of Ningxia Yilida is Shanghai Yingfeng.
The name, business address, present principal
employment and citizenship of the sole representative of the general partner of Ningxia Yilida are set forth below. As of the
date of this proxy statement, Ningxia Yilida does not have any directors or other executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Yingfeng
Zhang |
No.
1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC |
Chairman
of the board and acting chief executive officer of the Company |
PRC |
During the last five (5) years, none of
Ningxia Yilida or the sole representative of its general partner has been (a) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (b) a party to any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that resulted in a judgment or decree or final order enjoining the person
from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation
of federal or state securities laws.
6. |
Directors and Executive
Officers of Zhengjun Investment |
Zhengjun Investment is a limited partnership
organized under the laws of the PRC with its principal business address at Ecological Textile Park, Lingwu, Ningxia 750400, the
PRC, and its business telephone number is +86 21 5050 4740. The principal business of Zhengjun Investment is equity investment
and related investment consulting services. The general partner of Zhengjun Investment is Shanghai Yingfeng.
The name, business address, present principal
employment and citizenship of the sole representative of the general partner of Zhengjun Investment are set forth below. As of
the date of this proxy statement, Zhengjun Investment does not have any directors or other executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Yingfeng
Zhang |
No.
1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC |
Chairman
of the board and acting chief executive officer of the Company |
PRC |
During the last five (5) years, none of
Zhengjun Investment or its sole representative of executive partner has been (a) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (b) a party to any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that resulted in a judgment or decree or final order enjoining the person
from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation
of federal or state securities laws.
7. |
Directors and Executive
Officers of Shanghai Yingfeng |
Shanghai Yingfeng is a limited liability
company organized under the laws of the PRC with its principal business address at Room 2055, No. 5358 Huyi Road, Jiading District,
Shanghai 201806, the PRC, and its business telephone number is +86 21 5050 4740. Shanghai Yingfeng is directly and wholly owned
by Mr. Yingfeng Zhang. Shanghai Yingfeng’s principal business is investment management, asset management, industry investment,
enterprise management consulting, investment consulting (except for finance and securities) and business consulting.
The name, business address, present principal
employment and citizenship of the sole director of Shanghai Yingfeng are set forth below. As of the date of this proxy statement,
Shanghai Yingfeng does not have any executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Yingfeng
Zhang |
No.
1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, the PRC |
Chairman
of the board and acting chief executive officer of the Company |
PRC |
During the last five (5) years, none of
Shanghai Yingfeng or its director has been (a) convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (b) a party to any judicial or administrative proceeding (except for matters that were dismissed without
sanction or settlement) that resulted in a judgment or decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities
laws.
8. |
Directors and Executive
Officers of Ningxia Filing Persons |
Zhongrong Shengda is a company organized
under the laws of Hong Kong with its principal business address at Room 2803-05, AXA Tower, Landmark East, 100 How Ming Street,
Kwun Tong, Kowloon, Hong Kong, and its business telephone number is +852 8208 5118. The principal business of Zhongrong Shengda
is making investments in private and public companies. Zhongrong Shengda is directly and wholly owned by Zhongrong Equity, the
general partner of which is Ningxia.
The name, business address, present principal
employment and citizenship of the sole director of Zhongrong Shengda are set forth below. As of the date of this proxy statement,
Zhongrong Shengda does not have any executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Shengming
Ma |
Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia Province, the PRC |
Chairman
of the Board and General Manager of Ningxia |
PRC |
Zhongrong Equity is a limited partnership
organized under the laws of the PRC with its principal business address at Ecological Textile Park, Lingwu 750400, Ningxia, the
PRC, and its business telephone number is +86 951 4038 950, extension 8969. The principal business of Zhongrong Equity is making
equity investments in private and public companies. The general partner of Zhongrong Equity is Ningxia.
The name, business address, present principal
employment and citizenship of the sole representative of the general partner of Zhongrong Equity are set forth below. As of the
date of this proxy statement, Zhongrong Equity does not have any directors or other executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Shengming
Ma |
Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia Province, the PRC |
Chairman
of the Board and General Manager of Ningxia |
PRC |
Zhongrong Investment is a company organized
under the laws of Hong Kong with its principal business address at Room 2803-05, AXA Tower, Landmark East, 100 How Ming Street,
Kwun Tong, Kowloon, Hong Kong, and its business telephone number is +852 8208 5118. The principal business of Zhongrong Investment
is making equity investments in private and public companies. Zhongrong Investment is directly and wholly owned by Zhongrong Culture,
the general partner of which is Ningxia.
The name, business address, present principal
employment and citizenship of the sole director of Zhongrong Investment are set forth below. As of the date of this proxy statement,
Zhongrong Investment does not have any executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Shengming
Ma |
Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia Province, the PRC |
Chairman
of the Board and General Manager of Ningxia |
PRC |
Zhongrong Culture Industry Equity Investment
Enterprise (Limited Partnership) (“Zhongrong Culture”) is a limited partnership organized under the laws of the PRC
with its principal business address at Ecological Textile Park, Lingwu 750400, Ningxia, the PRC and its business telephone number
is +86 951 4038 950, extension 8969. The principal business of Zhongrong Culture is making equity investments in private and public
companies. The general partner of Zhongrong Culture is Ningxia.
The name, business address, present principal
employment and citizenship of the sole representative of the general partner of Zhongrong Culture are set forth below. As of the
date of this proxy statement, Zhongrong Culture does not have any director or executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Shengming
Ma |
Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia Province, the PRC |
Chairman
of the Board and General Manager of Ningxia |
PRC |
Zhongrong Legend is a limited partnership
organized under the laws of the PRC with its principal business address at Ecological Textile Park, Lingwu 750400, Ningxia, the
PRC and its business telephone number is +86 951 4038 950, extension 8969. The principal business of Zhongrong Legend is making
equity investments in private and public companies. The general partner of Zhongrong Legend is Ningxia.
The name, business address, present principal
employment and citizenship of the sole representative of the general partner of Zhongrong Legend are set forth below. As of the
date of this proxy statement, Zhongrong Legend does not have any director or other executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Shengming Ma |
Zhongyin Avenue,
the Cashmere Industrial Park, Lingwu 750400, Ningxia Province, the PRC |
Chairman of the
Board and General Manager of Ningxia |
PRC |
Ningxia Silkroad is a limited partnership
organized under the laws of the PRC with its principal business address at Ecological Textile Park, Lingwu 750400, Ningxia, the
PRC and its business telephone number is +86 951 4038 950, extension 8969. The principal business of Ningxia Silkroad is making
equity investments in private and public companies. The general partner of Zhongrong Silkroad is Ningxia.
The name, business address, present principal
employment and citizenship of the sole representative of the general partner of Ningxia Silkroad are set forth below. As of the
date of this proxy statement, Ningxia Silkroad does not have any director or other executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Shengming
Ma |
Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia Province, the PRC |
Chairman
of the Board and General Manager of Ningxia |
PRC |
Ningxia is a company organized under the
laws of the PRC with its principal business address at Ecological Textile Park, Lingwu 750400, Ningxia, the PRC and its business
telephone number is +86 951 4038 950, extension 8969. Ningxia is a holding company with operating subsidiaries engaged in the
business of the production, processing and sale of cashmere wool products and is also acting as the general partner of Zhongrong
Equity, Zhongrong Culture, Zhongrong Legand and Ningxia Silkroad, whose principal business is investing in private and public
companies.
The name, business address, present principal
employment and citizenship of each director and executive officer of Ningxia are set forth below.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Shengming
Ma |
Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia Province, the PRC |
Chairman
of the Board and General Manager of Ningxia |
PRC |
Shengguo
Ma |
Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia, the PRC |
Director of Ningxia
|
PRC |
Wei
Ma |
Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia, the PRC |
Vice Chairman of the
Board of Zhongyin Cashmere
|
PRC |
Shaolin
Liang |
Sixth
Floor, Heping Mansion, No. 6 Laiguangying East Road, Chaoyang District, Beijing 100102, the PRC |
Vice General Manager
of Ningxia
|
PRC |
Mr. Wei Ma has served as a vice chairman
of the board of Zhongyin Cashmere since April 2013. From 2009 to March 2013, Mr. Wei Ma served as assistant general manager of
Zhongyin Cashmere. Zhongyin Cashmere is a company organized under the laws of the PRC with its principal business address at Zhongyin
Avenue, the Cashmere Industrial Park, Lingwu 750400, Ningxia Province, the PRC and its business telephone number is +86 951 4038
950, extension 8000. Zhongyin Cashmere is a holding company with operating subsidiaries engaged in the business of the production,
processing and sale of cashmere wool products.
Mr. Shaolin Liang has served as a vice
general manager at Ningxia since February 2015. Mr. Liang served as a vice general manager at Zhongyin Cashmere from December
2007 to February 2015 and a member of its board of directors from December 2007 to December 2014.
Except for Mr. Wei Ma and Mr. Shaolin
Liang, each of the persons listed above has been in his current positions for the past five years. During the last five (5) years,
none of Zhongrong Shengda, Zhongrong Equity, Zhongrong Culture, Zhongrong Investment, Zhongrong Legend, Ningxia Silkroad, Ningxia
or their respective directors, executives or representatives of executive partner (as the case may be) has been (a) convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) a party to any judicial or administrative
proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment or decree or final
order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws,
or a finding of any violation of federal or state securities laws.
9. |
Directors and Executive
Officers of Li-Funds Filing Persons |
Orient Hongtai is a company organized
under the laws of Hong Kong with its principal business address at Flat 2, 19/F, Henan Building, 90-92 Jaffe Road, Wanchai, Hong
Kong, and its business telephone number is +86 575 8220 5036. Orient Hongtai is wholly owned and controlled by TonSung. Orient
Hongtai’s principal business is making equity investments in private and public companies.
The name, business address, present principal
employment and citizenship of each director of Oriental Hongtai are set forth below. As of the date of this proxy statement, Orient
Hongtai does not have any executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Ji
Wang |
391
Guiping Road, New International Commercial Center, Building A, 19th Floor, Xuhui District, Shanghai, the PRC |
Director;
director of Century Huatong |
PRC |
Liang
Tian |
1829
Beijing Xi Road, Jing’an District, Shanghai, the PRC |
Director;
chief brand officer of Shanghai Yuanliu (as defined below) |
Australia |
Mr. Ji Wang has served as a director of
Century Huatong, a PRC company engaged in the development and operation of online games as well as manufacturing of automotive
accessories with its business address at 439 Cao’e Street Renmin Xi Road, Shangyu, Zhejiang, the PRC since September 2014.
Mr. Liang Tian has served as the chief
brand officer of Yuanliu International Trading (Shanghai) Company Limited, a PRC-based liquor
and wine trading company with its business address as 1829 Beijing Xi Road, Jing’an District, Shanghai, the PRC (“Shanghai
Yuanliu”) since January 2014. From March 2010 to January 2014, Mr. Tian served as the senior operations
manager of the greater China region of InterContinental Hotels Group PLC, a UK-based multinational hotel company with its Shanghai’s
business address at 33 Huayuanshiqiao Road, Pudong New Area, Shanghai, the PRC.
TonSung is a business company organized
under the laws of British Virgin Islands with its principal business address at Geneva Place, Waterfront Drive, P.O. Box 3469,
Road Town, Tortola, British Virgin Islands, and its business telephone number is +86 575 8220 5036. TonSung’s principal
business is making equity investments in private and public companies.
The name, business address, present principal
employment and citizenship of each director of TonSung are set forth below. As of
the date of this proxy statement, TonSung does not have any executive officers.
Name |
Business Address |
Present
Principal Employment |
Citizenship |
Ji Wang |
391
Guiping Road, New International
Commercial Center, Building A, 19th Floor,
Xuhui District, Shanghai, the PRC
|
Director;
director of Century Huatong |
PRC |
Liang
Tian |
1829
Beijing Xi Road, Jing’an District,
Shanghai, the PRC |
Director; chief brand
officer of Shanghai Yuanliu |
Australia |
Lihua is a limited partnership organized
under the laws of the PRC with its principal business address at 55 Xili Road, Room 1545A, 15th Floor, Shanghai Free Trade Zone,
Shanghai 200131, the PRC, and its business telephone number is +86 575 8220 5036. Lihua’s principal business is venture
capital or private equity investment and portfolio management. Liyou and Huatong are the ordinary general partners of Lihua.
The name, business address, present principal
employment and citizenship of the sole authorized representative of the ordinary general partners of Lihua are set forth below.
As of the date of this proxy statement, Lihua does not have any directors or executive officers.
Name |
|
Business Address |
|
Present Principal Employment |
|
Citizenship |
Bo Chen |
|
36F, Building No. 2, Orient International
Finance
Center, 318 South Zhong Shan Road, Shanghai
200010, the PRC |
|
Authorized representative; director and general manager of Orient
Capital |
|
PRC |
Bo Chen has served as a director and the
general manager of Orient Capital, a PRC limited liability company with its business address at 36F, Building No. 2, Orient International
Finance Center, 318 South Zhong Shan Road, Shanghai, the PRC, since April 1, 2013. From February 2010 to March 2013, Mr. Chen
served as Orient Capital’s deputy general manager.
Orient Hongzhi is a company organized
under the laws of Hong Kong with its principal business address at Flat 2, 19/F, Henan Building, 90-92 Jaffe Road, Wanchai, Hong
Kong, and its business telephone number is +86 575 8220 5036. Orient Hongzhi’s principal business is making equity investments
in private and public companies.
The name, business address, present principal
employment and citizenship of each director of Orient Hongzhi are set forth below.
As of the date of this proxy statement, Orient Hongzhi does not have any executive officers.
Name |
Business Address |
Present Principal Employment |
Citizenship |
Ji Wang |
391
Guiping Road, New International
Commercial Center, Building A, 19th Floor,
Xuhui District, Shanghai, the PRC
|
Director;
director of Century Huatong |
PRC |
Liang
Tian |
1829
Beijing Xi Road, Jing’an District,
Shanghai, the PRC |
Director; chief brand officer of Shanghai
Yuanliu |
Australia |
HuaSung is a business company organized
under the laws of British Virgin Islands with its principal business address at Geneva Place, Waterfront Drive, P.O. Box 3469,
Road Town, Tortola, British Virgin Islands, and its business telephone number is +86 575 8220 5036. HuaSung’s principal
business is making equity investments in private and public companies.
The name, business address, present principal
employment and citizenship of each director of HuaSung are set forth below. As of
the date of this proxy statement, Orient HuaSung does not have any executive officers.
Name
|
Business
Address |
Present
Principal Employment |
Citizenship |
Ji Wang |
391
Guiping Road, New International
Commercial Center, Building A, 19th Floor,
Xuhui District, Shanghai, the PRC
|
Director;
director of Century Huatong |
PRC |
Liang
Tian |
1829
Beijing Xi Road, Jing’an District,
Shanghai, the PRC |
Director; chief brand
officer of Shanghai Yuanliu |
Australia |
Litian is a limited partnership organized
under the laws of the PRC with its principal business address at 55 Xili Road, Room 1513B, 15th Floor, Shanghai Free Trade Zone,
Shanghai 200131, the PRC, and its business telephone number is +86 575 8220 5036. Litian’s principal business is venture
capital or private equity investment and portfolio management. Liyou and Huatong are the ordinary general partners of Litian.
The name, business address, present principal
employment and citizenship of the sole authorized representative of the ordinary general partners of Litian are set forth below.
As of the date of this proxy statement, Litian does not have any directors or executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Bo
Chen |
36F,
Building No. 2, Orient International
Finance Center, 318 South Zhong Shan
Road, Shanghai 200010, the PRC |
Authorized
representative; director and general manager of Orient Capital |
PRC |
Hao Ding is a British
Virgin Islands business company formed for the purpose of holding interests in the Company and completing the Transactions, including
the Merger. The principal business address and telephone number of Hao Ding are 2810, 689 Guangdong Road, Huangpu District, Shanghai
200001, the PRC, +86 575 8220 5036.
The name, business address, present principal
employment and citizenship of each director of Hao Ding are set forth below. As of
the date of this proxy statement, Hao Ding does not have any executive officers.
Name
|
Business
Address |
Present
Principal Employment |
Citizenship |
Ji Wang |
391
Guiping Road, New International
Commercial Center, Building A, 19th Floor,
Xuhui District, Shanghai, the PRC
|
Director;
director of Century Huatong |
PRC |
Liang
Tian |
1829
Beijing Xi Road, Jing’an District,
Shanghai, the PRC |
Director; chief brand
officer of Shanghai Yuanliu |
Australia |
Hai Sheng Tong is a limited liability
company organized under the laws of the PRC for the purpose of holding interests directly in Hao Ding and indirectly in the Company
and completing the Transactions, including the Merger. Hai Sheng Tong’s principal business address and telephone number
are 2810, 689 Guangdong Road, Huangpu District, Shanghai 200001, the PRC, +86 575 8220 5036.
The name, business address, present principal
employment and citizenship of each director of Hai Sheng Tong are set forth below. As of the date of this proxy statement, Hai
Sheng Tong does not have any executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Ji
Wang |
391
Guiping Road, New International Commercial Center, Building A, 19th Floor, Xuhui District, Shanghai, the PRC |
Director;
director of Century Huatong |
PRC |
Liang
Tian |
1829
Beijing Xi Road, Jing’an District, Shanghai, the PRC |
Director;
chief brand officer of Shanghai Yuanliu |
Australia |
Lihai is a limited partnership organized
under the laws of the PRC with its principal business address at 55 Xili Road, Room 1545A, 15th Floor, Shanghai, Free Trade Zone,
Shanghai, the PRC, and its business telephone number is +86 575 8220 5036. The principal business of Lihai is venture capital
or private equity investment and portfolio management. Liyou and Huatong are the ordinary general partners of Lihai.
The name, business address, present principal
employment and citizenship of the sole authorized representative of the ordinary general partners of Lihai are set forth below.
As of the date of this proxy statement, Lihai does not have any directors or executive officers.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Bo
Chen |
36F,
Building No. 2, Orient International Finance Center, 318 South Zhong Shan Road, Shanghai 200010, the PRC |
Authorized
representative; director and general manager of Orient Capital |
PRC |
Liyou is a company organized under the
laws of the PRC with its principal business address at 55 Xili Road, Room 1547B, 15th Floor, Shanghai, Free Trade Zone, Shanghai,
the PRC and its business telephone number is +86 575 8220 5036. The principal business of Liyou is capital investment and portfolio
management.
The name, business address, present principal
employment and citizenship of the sole director of Liyou are set forth below. As of the date of this proxy statement, Liyou does
not have any executive officers.
Name
|
Business
Address |
Present
Principal Employment |
Citizenship |
Ji Wang |
391
Guiping Road, New International
Commercial Center, Building A, 19th Floor,
Xuhui District, Shanghai, the PRC
|
Executive
director of the board; director of Century Huatong |
PRC |
Huatong is a company organized under the
laws of the PRC with its principal business address at 439 Renmin Xi Road, Shangyu District, Shaoxing, Zhejiang, the PRC and its
business telephone number is +86 575 8214 8872. The principal business of Huatong is capital investment and portfolio management.
The name, business address, present principal
employment and citizenship of each director and executive officer of Huatong are set forth below.
Name |
Business
Address |
Present
Principal Employment |
Citizenship |
Miaotong
Wang |
439
Renmin Xi Road, Shangyu District, Shaoxing, Zhejiang, the PRC |
Chairman
of the board of directors and manager; chairman of the board of Century Huatong |
PRC |
Juanzhen
Wang |
439
Renmin Xi Road, Shangyu District, Shaoxing, Zhejiang, the PRC |
Director |
PRC |
Yifeng
Wang |
439
Renmin Xi Road, Shangyu District, Shaoxing, Zhejiang, the PRC |
Director |
PRC |
Mr. Miaotong Wang has served as the chairman
of the board of directors and manager of Huatong since February 2001. He has also served as the chairman of the board of directors
of Century Huatong since October 2005.
Ms. Juanzhen Wang has served as a director
of Huatong since May 2015. From September 2008 to November 2014, Ms. Wang served as a director of Century Huatong.
Mr. Yifeng Wang has served as a director
of Huatong since May 2015. He has also served as a director and the chief executive officer of Century Huatong since September
2008.
During the last five (5) years, none of
Orient Hongtai, TonSung, Lihua, Orient Hongzhi, HuaSung, Litian, Hao Ding, Hai Sheng Tong, Lihai, Liyou, Huatong or any of their
respective directors, executive officers or representatives of general partner (as the case may be) has been (a) convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) a party to any judicial or administrative
proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment or decree or final
order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws,
or a finding of any violation of federal or state securities laws.
FORM OF PROXY CARD
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
SHANDA GAMES LIMITED
FOR THE EXTRAORDINARY GENERAL MEETING
OF SHAREHOLDERS
TO BE HELD ON [ ],
2015
The undersigned shareholder
of Shanda Games Limited, a Cayman Islands company (the “Company”), hereby acknowledges receipt of the Notice of Extraordinary
General Meeting of Shareholders (the “Meeting”) and the accompanying proxy statement (the “Proxy Statement”),
each dated [ ], 2015, and hereby appoints [ ] and, if no person is specified, the chairman of the Meeting, as proxy, with full
power of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the Meeting to be held on
[ ], 2015, at [ ] a.m. (Hong Kong time). The Meeting will be held at the offices of Davis Polk & Wardwell, The Hong Kong Club
Building, 3A Chater Road, Central, Hong Kong, or at any adjournment or postponement thereof, and to vote all Class A or Class
B ordinary shares of the Company which the undersigned would be entitled to vote if then and there personally present, on the
matters set forth below (i) as specified by the undersigned below and (ii) in the discretion of any proxy upon such other business
as may properly come before the Meeting, all as set forth in the Notice of the Meeting and in the Proxy Statement furnished herewith.
This proxy when
properly executed will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy
will be voted FOR the following proposals:
PROPOSAL NO. 1: |
As a special resolution, authorize, approve and adopt the Agreement and Plan
of Merger, dated as of April 3, 2015 (as amended and restated from time to time, the “Merger Agreement”), among
Capitalhold Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”),
Capitalcorp Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly
owned subsidiary of Parent, and the Company (such Merger Agreement being in the form attached to the Proxy Statement and to
be produced and made available for inspection at the extraordinary general meeting), the plan of merger (the “Plan of
Merger”) required to be registered with the Registrar of Companies in the Cayman Islands (such Plan of Merger being
in the form attached to the Proxy Statement and to be produced and made available for inspection at the extraordinary general
meeting) in order to give effect to the merger of Merger Sub with and into the Company, with the Company continuing as the
surviving corporation and becoming a wholly owned subsidiary of Parent (the “Merger”), and any and all transactions
contemplated by the Merger Agreement and the Plan of Merger (collectively, the “Transactions”), including without
limitation (i) the Merger, (ii) the amendment of the authorized share capital of the Company from [ ] to [ ], and (iii) the
replacing of the existing memorandum and articles of association in their entirety with a new memorandum and articles of association,
a copy of which is attached as Appendix II to the Plan of Merger. |
PROPOSAL NO. 2: |
As an ordinary resolution, authorize the directors of the Company to do all things
necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger. |
PROPOSAL NO. 3: |
If necessary, as an ordinary resolution, instruct the chairman of the extraordinary
general meeting to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in
the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the resolutions
in Proposal No. 1 and Proposal No. 2 above to be proposed at the extraordinary general meeting. |
This proxy should
be marked, dated and signed by the shareholder exactly as his or her name appears on the share certificate and be returned promptly
in the enclosed envelope. Any person signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or
as community property, both should sign.
Please date, sign and mail this
proxy
card back as soon as possible.
¨ê
DETACH PROXY CARD HERE ê
-----------------------------------------------------------------------------------------------------------------------------------------
Mark, sign, date and return
this Proxy Card promptly |
|
|
using the enclosed envelope. |
|
|
|
|
|
This Proxy Card must be received |
|
Votes must be indicated |
prior to 10:00 a.m., Hong Kong time,
on [ ], 2015 |
|
(x) in Black or
Blue ink. |
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
PROPOSAL NO. 1: As
a special resolution, authorize, approve and adopt the Agreement and Plan of Merger, dated
as of April 3, 2015 (as amended and restated from time to time, the “Merger Agreement”),
among Capitalhold Limited, an exempted company with limited liability incorporated under the
laws of the Cayman Islands (“Parent”), Capitalcorp Limited, an exempted company
with limited liability incorporated under the laws of the Cayman Islands and a wholly owned
subsidiary of Parent, and the Company (such Merger Agreement being in the form attached to
the Proxy Statement and to be produced and made available for inspection at the extraordinary
general meeting), the plan of merger (the “Plan of Merger”) required to be registered
with the Registrar of Companies in the Cayman Islands (such Plan of Merger being in the form
attached to the Proxy Statement and to be produced and made available for inspection at the
extraordinary general meeting) in order to give effect to the merger of Merger Sub with and
into the Company, with the Company continuing as the surviving corporation and becoming a
wholly owned subsidiary of Parent (the “Merger”), and any and all transactions
contemplated by the Merger Agreement and the Plan of Merger (collectively, the “Transactions”),
including without limitation (i) the Merger, (ii) the amendment of the authorized share capital
of the Company from [ ] to [ ], and (iii) the replacing of the existing memorandum and articles
of association in their entirety with a new memorandum and articles of association, a copy
of which is attached as Appendix II to the Plan of Merger.
|
|
o |
|
o |
|
o |
PROPOSAL NO. 2: As an ordinary
resolution, authorize the directors of the Company to do all things necessary to give effect to the Merger Agreement,
the Plan of Merger and the Transactions, including the Merger.
|
|
o |
|
o |
|
o |
PROPOSAL NO. 3: If
necessary, as an ordinary resolution, instruct the chairman of the extraordinary general meeting to adjourn the extraordinary
general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies
received at the time of the extraordinary general meeting to pass the resolutions in Proposal No. 1 and Proposal No. 2 above
to be proposed at the extraordinary general meeting. |
|
o |
|
o |
|
o |
This Proxy Card must be signed by the person
registered in the register of members and returned to the Company’s offices at No. 1 Office Building, No. 690 Bibo
Road, Pudong New Area, Shanghai 201203, the PRC, Attention: Investor Relations Department, no later than [ ], 2015 at
10:00 a.m. (Hong Kong time). In the case of a corporation, this Proxy Card must be executed by a duly authorized officer
or attorney of such corporation. Capitalized terms used but not defined herein shall have the meanings ascribed to them
in the proxy statement dated [ ], 2015. |
|
|
|
Share
Owner signs here |
|
Co-Owner
signs here |
Date: |
|
|
FORM OF ADS VOTING
INSTRUCTION CARD
SHANDA GAMES LIMITED
TO THE REGISTERED
HOLDERS OF AMERICAN DEPOSITARY RECEIPTS (“ADRs”)
REPRESENTING CLASS
A ORDINARY SHARES OF
SHANDA GAMES LIMITED
(THE “COMPANY")
Please refer to the reverse
side of this card for the proposals to be voted at the Meeting. |
FOLD AND DETACH HERE
PROPOSALS
| 1. | As a
special resolution, authorize, approve and adopt the Agreement and Plan of Merger, dated
as of April 3, 2015 (as amended and restated from time to time, the “Merger Agreement”),
among Capitalhold Limited, an exempted company with limited liability incorporated under
the laws of the Cayman Islands (“Parent”), Capitalcorp Limited, an exempted
company with limited liability incorporated under the laws of the Cayman Islands and
a wholly owned subsidiary of Parent, and the Company (such Merger Agreement being in
the form attached to the Proxy Statement and to be produced and made available for inspection
at the extraordinary general meeting), the plan of merger (the “Plan of Merger”)
required to be registered with the Registrar of Companies in the Cayman Islands (such
Plan of Merger being in the form attached to the Proxy Statement and to be produced and
made available for inspection at the extraordinary general meeting) in order to give
effect to the merger of Merger Sub with and into the Company, with the Company continuing
as the surviving corporation and becoming a wholly owned subsidiary of Parent (the “Merger”),
and any and all transactions contemplated by the Merger Agreement and the Plan of Merger
(collectively, the “Transactions”), including without limitation (i) the
Merger, (ii) the amendment of the authorized share capital of the Company from [ ] to
[ ], and (iii) the replacing of the existing memorandum and articles of association in
their entirety with a new memorandum and articles of association, a copy of which is
attached as Appendix II to the Plan of Merger. |
| 2. | As an ordinary
resolution, authorize the directors of the Company to do all things necessary to give
effect to the Merger Agreement, the Plan of Merger and the Transactions, including the
Merger. |
| 3. | If necessary, as
an ordinary resolution, instruct the chairman of the extraordinary general meeting to
adjourn the extraordinary general meeting in order to allow the Company to solicit additional
proxies in the event that there are insufficient proxies received at the time of the
extraordinary general meeting to pass the resolutions in Proposal No. 1 and Proposal
No. 2 above to be proposed at the extraordinary general meeting. |
Shanda Games Limited |
|
Voting
Instruction Card |
JPMorgan Chase Bank, N.A., Depositary |
|
P.O.
Box 64507, St. Paul, MN 55164-0507 |
|
JPMorgan
Chase Bank, N.A., (the “Depositary”) has received advice that the Extraordinary General Meeting of Shareholders (the
“Meeting”) of Shanda Games Limited (the “Company”) will be held at the offices of Davis Polk & Wardwell,
The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong on Xxxxday, xxxx xx, 2015 at xx:xx a.m. (Hong Kong time), for
the purposes set forth on this card.
If
you are desirous of having the Depositary, through its Nominee or Nominees, vote or execute a proxy to vote the Class A Ordinary
Shares represented by your ADRs FOR or AGAINST or to ABSTAIN from the Proposals to be proposed at the Meeting, kindly execute
and forward to the Depositary the attached Voting Instruction Card. The enclosed postage-paid envelope is provided for this purpose.
This Voting Instruction Card should be executed in such a manner as to show clearly whether you desire the Nominee or Nominees
of the Depositary to vote FOR or AGAINST or to ABSTAIN from the Proposals. The Voting Instruction Card MUST be forwarded in sufficient
time to reach the Depositary before 12:00 p.m. (New York City time), Xxxxx xx, 2015. Only the registered holders of record at
the close of business on Xxxxx xx, 2015 will be entitled to execute the attached Voting Instruction Card.
The
signatory, a registered holder of ADRs representing Class A Ordinary Shares of the Company, hereby requests and authorizes the
Depositary, through its Nominee or Nominees, to vote or execute a proxy to vote the underlying Class A Ordinary Shares of the
Company represented by such ADRs registered in the name of the signatory on the books of the Depositary at the close of business
on Xxxxx xx, 2015, at the Meeting to be held on Monday, Xxxxx xx, 2015, or at any adjournment thereof.
These
instructions, when properly signed and dated, will be voted in the manner directed herein. If you mark the box to indicate that
you wish to give a discretionary proxy to a person designated by the Company, the underlying Class A Ordinary Shares represented
by your ADRs will be voted by such person in his or her discretion. If these instructions are properly signed and dated but no
direction is made, the underlying Class A Ordinary Shares represented by such Receipts will not be voted by the Depositary at
the Meeting.
NOTE:
In order to have the aforesaid shares voted, this Voting Instruction Card must be received by the Depositary before 12:00 p.m.
(New York City time), Xxxxx xx, 2015.
For
more information regarding the Meeting please visit the Company’s website at http://ir.shandagames.com/egm.cfm
JPMorgan
Chase Bank, N.A., Depositary
PLEASE MARK, DATE
AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
Please see reverse
side for Voting Instructions.
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