TBOW Trunkbow International Holdings Ltd. (MM)

PROXY STATEMENT

This proxy statement contains information related to a special meeting of stockholders of Trunkbow International Holdings Limited which will be held at 10:00 a.m., Beijing time, on April 14, 2014, at the Company’s executive offices, Unit 1217-1218, 12F of Tower B, Gemdale Plaza No. 91 Jianguo Road, Chaoyang District, Beijing, People’s Republic of China (the “ PRC ” or “ China ”), and any adjournments or postponements thereof. We are furnishing this proxy statement to stockholders of Trunkbow International Holdings Limited as part of the solicitation of proxies by our board of directors for use at the special meeting. This proxy statement is dated March 10, 2014 and is first being mailed to stockholders on or about March 13, 2014.

SUMMARY TERM SHEET RELATED TO THE MERGER

This summary term sheet highlights selected information in this proxy statement regarding the merger and may not contain all of the information about the merger that is important to you. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary term sheet. You should carefully read this proxy statement in its entirety, including the annexes and the other documents to which we have referred you, for a more complete understanding of the matters being considered at the special meeting. You may obtain without charge copies of documents incorporated by reference into this proxy statement by following the instructions under “ Where You Can Find More Information ” beginning on page 98.

In this proxy statement, the terms “ we ,” “ us ,” “ our ,” “ Trunkbow ” and the “ Company ” refer to Trunkbow International Holdings Limited and its subsidiaries. We refer to Trunkbow Merger Group Limited as “ Parent ” and Trunkbow International Merger Sub Limited as “ Merger Sub .” We refer to Dr. Wanchun Hou (“ Dr. Hou ”), Mr. Qiang Li (“ Mr. Li ”), Chief Honour Investments Limited (“ Chief Honour ”) and Capital Melody Limited (“ Capital Melody ”) collectively as the “ Rollover Stockholders .” We refer to the stockholders of the Company (other than Parent, Merger Sub, the Rollover Stockholders and their respective affiliates, and the directors and officers of the Company) as the “ unaffiliated stockholders .” We refer to Parent, Merger Sub, Dr. Hou, Mr. Li, Chief Honour and Capital Melody collectively as the “ buyer group .” We refer to the Agreement and Plan of Merger, dated as of December 10, 2013, by and among the Company, Parent and Merger Sub, as the “ merger agreement ,” as it may be amended from time to time. We refer to the contribution agreement, dated as of December 10, 2013, by and among Parent and the Rollover Stockholders as the “ contribution agreement .” We refer to the commitment letter, dated as of December 10, 2013, by and among Dr. Hou and Mr. Li and Parent as the “ equity commitment letter .” We refer to the limited guaranty, dated as of December 10, 2013, by and among Dr. Hou and Mr. Li and the Company as the “ limited guaranty .”

The Parties

The Company

Trunkbow International Holdings Limited is a leading provider of mobile payment solutions (“ MPS ”) and mobile value added solutions (“ MVAS ”) in China. Trunkbow’s solutions enable the telecom operators to offer their subscribers access to unique mobile applications, innovative tools, and value-added services that create a superior mobile experience, and as a result generate higher average revenue per user and reduce subscriber churn. Since its inception in 2001, Trunkbow has established a proven track record of innovation, and has developed a significant market presence in both the mobile value added and mobile payment solutions markets. Trunkbow supplies its mobile payment solutions to all three Chinese mobile telecom operators, as well as re-sellers, in several provinces of China. The Company’s principal executive offices are located at Unit 1217-1218, 12F of Tower B, Gemdale Plaza No. 91 Jianguo Road, Chaoyang District, Beijing, China. The Company’s telephone number is (86) 10 8571 2518.

Parent

Trunkbow Merger Group Limited was formed under the laws of the British Virgin Islands solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, the contribution agreement and the equity commitment letter. Parent does not currently hold any shares of Company common stock. Parent is beneficially owned by Dr. Hou and Mr. Li. Parent has not engaged in any business except for activities incidental to its formation and in connection with the transactions contemplated by the merger agreement, the contribution agreement and the equity commitment letter. The business address of Parent is Room D, 5/F of Noble Center, No. 1006 Fuzhong San Road, Futian District, Shenzhen 518026, China, and its telephone number is (86) 10 8571 2518.

Merger Sub

Trunkbow International Merger Sub Limited was formed under the laws of the State of Nevada by Parent solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement . Merger Sub is a direct, wholly owned subsidiary of Parent. Merger Sub does not currently hold any shares of Company common stock. Upon completion of the merger, Merger Sub will no longer exist. Merger Sub has not engaged in any business except for activities incidental to its formation and in connection with the transactions contemplated by the merger agreement. The business address of Merger Sub is Room D, 5/F of Noble Center, No. 1006 Fuzhong San Road, Futian District, Shenzhen 518026, China, and its telephone number is (86) 10 8571 2518.

Dr. Wanchun Hou

Dr. Wanhun Hou is the chairman of our board of directors . Dr. Hou’s business address is Unit 1217-1218, 12F of Tower B, Gemdale Plaza No. 91 Jianguo Road, Chaoyang District, Beijing 100022, China. His telephone number is (86) 10 8571 2518 . He is a citizen of the PRC .

Mr. Qiang Li

Mr. Qiang Li is one of our directors and our chief executive officer. Mr. Li’s business address is Unit 1217-1218, 12F of Tower B, Gemdale Plaza No. 91 Jianguo Road, Chaoyang District, Beijing 100022, China. His telephone number is (86) 10 8571 2518 . H e is a citizen of the PRC .

Chief Honour Investments Limited

Chief Honour Investments Limited is a company registered in the British Virgin Islands. Its principal business office is at Unit 1217-1218, 12F of Tower B, No. 91 Jianguo Road, Chaoyang District, Beijing 100022, China and its telephone number is (86) 10 8571 2518.

Chief Honour is a holding company formed solely for the purpose of holding shares of Company common stock and arranging related investment transactions. Mr. Lao Chi Weng owns 100% of the outstanding ordinary shares of Chief Honour, but he does not have the power to vote or dispose of any of the shares of Company common stock owned by Chief Honour. Dr. Hou is the sole director of Chief Honour. Pursuant to a share transfer agreement dated September 21, 2009 by and between Lao Chi Weng, as transferor, and Dr. Hou, as transferee, Lao Chi Weng has irrevocably and unconditionally granted to Dr. Hou the right to acquire any or all of the 1,000 outstanding shares of Chief Honour at a nominal price of US$1.00 at any time after February 14, 2012. In addition, pursuant to an entrustment agreement dated May 30, 2011 (which replaced an entrustment agreement dated October 1, 2009), by and between Chief Honour, Capital Melody, Dr. Hou and Mr. Li (the “ Entrustment Agreement ”), Chief Honour and Capital Melody have authorized Dr. Hou and Mr. Li to act on behalf of Chief Honour and Capital Melody with respect to all matters concerning their shareholdings in the Company, including the exercise of all of the shareholders’ rights and shareholders’ voting rights enjoyed by Chief Honour and Capital Melody in the shares of Company common stock, which consist of the 8,558,764 shares of Company common stock owned by Chief Honour and 7,580,619 shares of Company common stock owned by Capital Melody. Dr. Hou and Mr. Li agreed in the Entrustment Agreement to act in concert collectively with one another when exercising all of their rights (including but not limited to the voting rights) under the Entrustment Agreement.

Capital Melody Limited

Capital Melody Limited is a company registered in the British Virgin Islands. Its principal business office is located at Unit 1217-1218, 12F of Tower B, No. 91 Jianguo Road, Chaoyang District, Beijing 100022, China and its telephone number is (86) 10 8571 2518.

Capital Melody is a holding company formed solely for the purpose of holding the shares of Company common stock and arranging the related investment transactions. Mr. Lao Chi Weng owns 100% of the outstanding ordinary shares of Capital Melody, but he does not have the power to vote or dispose of any of the shares of Company common stock owned by Capital Melody. Mr. Li is the sole director of Capital Melody. Pursuant to a share transfer agreement dated September 21, 2009 by and between Lao Chi Weng, as transferor, and Mr. Li, as transferee, Lao Chi Weng has irrevocably and unconditionally granted to Mr. Li the right to acquire any or all of the 1,000 outstanding shares of Capital Melody at a nominal price of US$1.00 at any time after February 14, 2012. Pursuant to the Entrustment Agreement, Chief Honour and Capital Melody have authorized Dr. Hou and Mr. Li to act on behalf of Chief Honour and Capital Melody with respect to all matters concerning their shareholdings in the Company, including the exercise of all of the shareholders’ rights and shareholders’ voting rights enjoyed by Chief Honour and Capital Melody in the shares of Company common stock owned by them.

During the last five years, none of the members of the buyer group or the respective directors or executive officers of the members of the buyer group as listed in Annex D of this proxy statement has been (a) convicted in a criminal proceeding (excluding misdemeanors similar to traffic violations) 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.

Overview of the Transaction (page 22)

The Company, Parent and Merger Sub entered into the merger agreement on December 10, 2013. Under the terms of the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent (the “ merger ”). The Company, as the surviving corporation, will continue to do business under the name “Trunkbow International Holdings Limited” following the merger.

At the effective time of the merger, each share of Company common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive an amount in cash equal to US$1.46 (the “ merger consideration ”) without interest, except for shares of Company common stock (i) held by the Company as treasury stock or (ii) owned, directly or indirectly, by Parent, Merger Sub or any wholly owned subsidiary of the Company, including shares of Company common stock contributed to Parent by the Rollover Stockholders pursuant to the contribution agreement immediately prior to the closing, which will be cancelled and will not be converted into the right to receive the merger consideration.

At the effective time of the merger, each warrant (each, a “ Company warrant ”) to purchase shares of Company common stock that is then outstanding and unexercised will remain outstanding. From and after the effective time of the merger, pursuant to the terms of such Company warrants, (i) each Company warrant will represent the right to receive, upon due exercise in accordance with its terms, including payment of the applicable cash exercise price, only the merger consideration with respect to each share of Company common stock subject to such Company warrant, and (ii) in no circumstances will holders of Company warrants be entitled to receive shares of Company common stock or other securities of any of the Company, the surviving corporation or Parent upon any exercise of Company warrants.

Following and as a result of the merger:

The Special Meeting (page 68)

The special meeting will be held at 10:00 a.m., Beijing time, on April 14, 2014, at the Company’s executive offices, Unit 1217-1218, 12F of Tower B, Gemdale Plaza No. 91 Jianguo Road, Chaoyang District, Beijing, China. At the special meeting, you will be asked to, among other things, adopt the merger agreement. See “ Questions and Answers About the Special Meeting and the Merger ” beginning on page 16 for additional information on the special meeting, including how to vote your shares of Company common stock.

Stockholders Entitled to Vote; Vote Required to Adopt the Merger Agreement (page 68)

You may vote at the special meeting and any adjournment or postponement thereof if you owned any shares of Company common stock at the close of business, New York time, on March 10, 2014, the record date for the special meeting. On that date, there are 36,807,075 shares of Company common stock expected to be outstanding and entitled to vote at the special meeting. You may cast one vote for each share of Company common stock that you owned on that date. Adoption of the merger agreement requires the affirmative vote of both (i) the holders of a majority of the outstanding shares of Company common stock and (ii) the holders of a majority of the outstanding shares of Company common stock (excluding the shares of Company common stock held by Dr. Hou and Mr. Li and their respective affiliates). Other than the voting requirements mentioned above, the adoption of the merger agreement does not separately require the approval by the holders of a majority of the outstanding shares of Company common stock held by the unaffiliated stockholders of the Company. The shares of Company common stock held by the directors and officers of the Company (other than Dr. Hou and Mr. Li) will be included in determining whether holders of a majority of the outstanding shares of Company common stock (excluding Dr. Hou and Mr. Li and their respective affiliates) have voted for the merger. See “ The Special Meeting ” beginning on page 68 for additional information.

Merger Consideration (page 72)

At the effective time of the merger, each share of Company common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive an amount in cash equal to the merger consideration without interest, except for shares of Company common stock (i) held by the Company as treasury stock or (ii) owned, directly or indirectly, by Parent, Merger Sub or any wholly owned subsidiary of the Company, including shares of Company common stock contributed to Parent by the Rollover Stockholders pursuant to the contribution agreement immediately prior to the closing, which will be cancelled and will not be converted into the right to receive the merger consideration.

Prior to the effective time of the merger, Parent will appoint a commercial bank or trust company reasonably acceptable to the Company to act as exchange agent. At or prior to the effective time of the merger, Parent will deposit, or cause to be deposited, with the exchange agent an amount in cash sufficient to make payments to the holders of shares of Company common stock and the holders of Company warrants pursuant to the merger agreement. Promptly after the effective time of the merger, each holder of record of shares of Company common stock will be sent (i) a letter of transmittal specifying that delivery of the merger consideration will be effected and (ii) instructions for effecting the surrender of stock certificates in exchange for its merger consideration. You will not be entitled to receive the merger consideration until you surrender your stock certificate or certificates along with a duly completed and validly executed letter of transmittal to the exchange agent or until the exchange agent receives an “agent’s message” in the case of shares held in book-entry form, and, in each case, such other documents as may be reasonably required by the exchange agent and approved by Parent and the Company. See “ The Merger Agreement—Merger Consideration ” and “ The Merger Agreement—Exchange Procedures ” beginning on page 73 for additional information.

Treatment of Company Warrants (page 73)

At the effective time of the merger, each Company warrant that is then outstanding and unexercised will remain outstanding. From and after the effective time of the merger, pursuant to the terms of such Company warrants, (i) each Company warrant will represent the right to receive, upon due exercise in accordance with its terms, including payment of the applicable cash exercise price, only the merger consideration with respect to each share of Company common stock subject to such Company warrant, and (ii) in no circumstances will holders of Company warrants be entitled to receive shares of Company common stock or other securities of any of the Company, the surviving corporation or Parent upon any exercise of Company warrants. See “ The Merger Agreement—Treatment of Company Warrants ” beginning on page 73 for additional information.

The exercise price of each Company warrant exceeds the merger consideration. During the course of negotiations of the merger agreement, the buyer group and we agreed that the treatment of Company warrants in the merger agreement should not infringe upon the rights of holders of Company warrants under the terms of the Company warrants. Pursuant to the terms of Company warrants, we may not be able to unilaterally cancel Company warrants without written consents from the relevant warrant holders notwithstanding the fact that their exercise prices are all above the merger consideration. Due to the fact that there are more than 200 holders of Company warrants, it is not practical for the Company to obtain written consents from all holders to terminate respective Company warrants. Therefore, the buyer group and we agreed to treat Company warrants in the manner disclosed above, which is consistent with the terms of the Company warrants.

Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger (page 32)

Our board of directors, after careful consideration and acting on the unanimous recommendation of the special committee composed entirely of independent directors, recommends that you vote “ FOR ” the proposal to adopt the merger agreement. Our board of directors also recommends that you vote “ FOR ” the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. Our board of directors and the special committee have determined that the merger is fair (both substantively and procedurally) to the unaffiliated stockholders. For a discussion of the material factors considered by our board of directors and the special committee in determining to recommend the adoption of the merger agreement and in determining that the merger is fair to the unaffiliated stockholders, see “ Special Factors Relating to the Merger—Purposes and Reasons of Our Board of Directors and Special Committee for the Merger ” beginning on page 31 and “ Special Factors Relating to the Merger—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger ” beginning on page 32.

Positions of the Buyer Group Regarding the Fairness of the Merger (page 50)

Each member of the buyer group believes that the merger is fair (both substantively and procedurally) to the unaffiliated stockholders. Their belief is based upon the factors discussed under the caption “ Special Factors Relating to the Merger—Positions of the Buyer Group Regarding the Fairness of the Merger ” beginning on page 50.

Each member of the buyer group is making the statements included in this paragraph solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of each member 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 stockholder of the Company as to how that stockholder should vote on the proposal to adopt the merger agreement.

Opinion of Duff & Phelps, Financial Advisor to the Special Committee (page 38)

At the meeting of the special committee on December 10, 2013, Duff & Phelps, LLC (“ Duff & Phelps ”) rendered to the special committee its oral opinion, subsequently confirmed in writing, that, as of such date and based upon and subject to the factors, assumptions, and limitations set forth in its opinion, the merger consideration to be received by the holders of the shares of Company common stock (other than holders of excluded shares) in the merger was fair, from a financial point of view, to such holders (without giving effect to any impact of the proposed transaction on any particular holder of the shares of the Company common stock other than in their capacity as holders of shares of Company common stock). The “ excluded shares ” refer to shares of Company common stock held, directly or indirectly, by Parent, Merger Sub, any wholly owned subsidiary of the Company and their respective affiliates, including shares of Company common stock to be contributed to Parent by the Rollover Stockholders pursuant to the contribution agreement, immediately prior to the effective time of the merger.

The full text of the written opinion of Duff & Phelps dated December 10, 2013, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated herein by reference. The summary of the opinion of Duff & Phelps set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The stockholders of the Company are urged to read the opinion in its entirety. Duff & Phelps’s written opinion is addressed to the special committee (in its capacity as such), is directed only to the merger consideration to be paid in the merger and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote or act with respect to the merger or any other matter. See “ Special Factors – Opinion of Duff & Phelps, Financial Advisor to the Special Committee ” beginning on page 38 for additional information.

Plans for the Company after the Merger (page 56)

After the effective time of the merger, Parent anticipates that the Company’s operations will be conducted substantially as they are currently being conducted, except that the Company will cease to be a publicly traded company and will instead be a direct wholly-owned subsidiary of Parent and beneficially owned by Dr. Hou and Mr. Li. See “ Special Factors Relating to the Merger—Plans for the Company after the Merger ” beginning on page 56 for additional information.

Financing of the Merger (page 58)

The buyer group estimates that the total amount of funds required to consummate the merger and related transactions will be approximately US$53.74 million. The buyer group expects to fund this amount through a combination of (i) the contribution of 16,156,983 shares of Company common stock from the Rollover Stockholders to Parent (valued at approximately US$23.59 million based on the merger consideration) and (ii) the equity financing in an aggregate amount of US$30.15 million to be provided by Dr. Hou and Mr. Li. See “ Special Factors Relating to the Merger—Financing of the Merger ” beginning on page 58 for additional information.

Limited Guaranty (page 59)

On December 10, 2013, Dr. Hou and Mr. Li delivered a limited guaranty to the Company, in which they (collectively, the “ guarantors ”) absolutely, unconditionally and irrevocably guaranteed to the Company, severally but not jointly, on the terms and subject to the conditions therein, the due and punctual payment when due of their respective percentages (Dr. Hou as to 52.97% and Mr. Li as to 47.03%) of the payment obligations of Parent to the Company with respect to the termination fee that may be payable by Parent to the Company under the merger agreement. See “ Special Factors Relating to the Merger—Limited Guaranty ” beginning on page 59 for additional information. A copy of the limited guaranty is attached as Annex B to this proxy statement.

Interests of Certain Persons in the Merger (page 60)

When considering the recommendation of our board of directors in favor of the adoption of the merger agreement, you should be aware that certain members of our board of directors and certain of our officers have the following interests in the merger in addition to their interests as our stockholders generally. These interests may be different from, or in addition to, your interests as our stockholders. As of the date of this proxy statement, (i) Dr. Hou, our chairman of the board of directors, beneficially owns approximately 23.3% of the shares of Company common stock entitled to vote, and (ii) Mr. Li, our chief executive officer and a director, beneficially owns approximately 20.6% of the shares of Company common stock entitled to vote. Concurrently with the execution and delivery of the merger agreement, Parent delivered to us the contribution agreement executed by the Rollover Stockholders, including Dr. Hou and Mr. Li, pursuant to which the Rollover Stockholders have agreed, among other things, to contribute all shares of Company common stock beneficially owned by them to Parent in exchange for newly issued shares of Parent. The effect of these transactions will be to allow the Rollover Stockholders to remain indirect owners of the surviving corporation after the merger is completed. Because of their equity ownership of Parent, each Rollover Stockholder will enjoy the benefits from any future earnings and growth of the Company after the merger and will also bear the corresponding risks of any possible decreases in future earnings, growth, or value. The Rollover Stockholders may also benefit after the merger from the elimination of expenses associated with public company reporting and compliance requirements and increased flexibility as a private rather than a publicly traded company.

Additionally, members of the special committee received compensation for their services in evaluating the merger and alternatives thereto, and negotiating the merger agreement and the transactions contemplated by the merger agreement, including the merger. The special committee members elected not to be compensated for their service as members of the special committee for the period from March to October, 2013 during which time the proposed transaction was on hold. See “ Special Factors Relating to the Merger—Background of the Merger ” beginning on page 23.

Pursuant to the merger agreement, Parent has agreed that it and the surviving corporation will indemnify and hold harmless each individual who at the effective time of the merger is, or at any time prior to the effective time of the merger was, a director or officer of the Company or any of its subsidiaries against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in settlement incurred in connection with any actual or threatened proceeding, whether civil, criminal, administrative or investigative, arising out of or related to such indemnified parties’ service as a director or officer of the Company or its subsidiaries at or prior to the effective time of the merger, or matters existing or occurring at or prior to the effective time of the merger in connection with (a) the adoption or approval of the merger agreement or the transactions contemplated by the merger agreement, including the merger, or arising out of, in connection with or relating to the transactions contemplated by the merger agreement and (b) actions to enforce such provision or any other indemnification or advancement right of any indemnified party to the fullest extent permitted by applicable law. The articles of incorporation or bylaws of the surviving corporation will contain provisions with respect to exculpation and indemnification that are at least as favorable to the directors, officers or employees of the Company as those contained in the Company’s charter documents as in effect on the date of the merger agreement, except to the extent prohibited by applicable law, which provisions will not be amended, repealed or otherwise modified for a period of six years from the effective time of the merger in any manner that would adversely affect the rights thereunder of the indemnified parties, unless such modification is required by applicable law.

The members of our board of directors were aware of these additional interests, and considered them, when they adopted the merger agreement, the merger and the other transactions contemplated by the merger agreement. See “ Special Factors Relating to the Merger—Interests of Certain Persons in the Merger ” beginning on page 60.

Conditions to the Merger (page 86)

The respective obligations of each of the Company, Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “ The Merger Agreement—Conditions to the Merger ” beginning on page 86.

Regulatory Matters (page 62)

The Company does not believe that any material federal, national, provincial, local or state, whether domestic or foreign, regulatory approvals, filings or notices are required in connection with the merger other than the approvals, filings or notices required under the U.S. federal securities laws and the filing of the articles of merger with the Secretary of State of the State of Nevada with respect to the merger.

Acquisition Proposals (page 80)

The Company and its subsidiaries will not, and will instruct their representatives not to, directly or indirectly:

However, prior to the adoption of the merger agreement at the meeting of the stockholders, if the Company receives an unsolicited bona fide written acquisition proposal from any person that did not result from a breach by the Company of its obligations set forth above, and that has not been withdrawn, the Company and its representatives may:

The merger agreement provides that, prior to the adoption of the merger agreement at the meeting of the stockholders, the board of directors of the Company may (i) effect a change of recommendation (as defined below under “ The Merger Agreement—No Change of Recommendation ” ) in response to a superior proposal and (ii) authorize the Company to terminate the merger agreement to enter into an alternative acquisition agreement with respect to a superior proposal (as defined below under “ The Merger Agreement—No Change of Recommendation ”), if (x) our board of directors determines in good faith upon the recommendation of the special committee, after consultation with its independent legal counsel, that failure to do so would reasonably be expected to be inconsistent with the directors’ fiduciary duties under applicable law and (y) in response to the receipt of an acquisition proposal, our board of directors determines in good faith upon the recommendation of the special committee (after consultation with its independent financial advisor and independent legal counsel) that such acquisition proposal constitutes a superior proposal.

For a more detailed description of the acquisition proposals, see “ The Merger Agreement—Acquisition Proposals ” beginning on page 80 and “ The Merger Agreement – No Change of Recommendation ” beginning on page 82.

Termination of the Merger Agreement (page 87)

The merger agreement may be terminated at any time prior to the effective time, whether before or after stockholder approval has been obtained (except as expressly set forth below):

Termination Fees (page 89)

The Company is required to pay Parent a termination fee of $1.25 million, if:

Parent is beneficially owned by Dr. Hou, chairman of our board of directors, and Mr. Li, our chief executive officer and director. Parent is required to pay the Company a termination fee of $2.5 million, if:

Parent is required to pay the Company a termination fee of $3.5 million, if:

Remedies and Limitations on Liability (page 90)

Subject to certain conditions set forth in the merger agreement, the Company is entitled to an injunction or injunctions to prevent breaches of the merger agreement by Parent or Merger Sub and to specifically enforce the terms and provisions thereof against Parent and Merger Sub, which remedies are in addition to any other remedy to which the Company is entitled at law or in equity. Notwithstanding anything in the merger agreement to the contrary, the parties explicitly acknowledge and agree that the Company’s right to seek an injunction, specific performance or other equitable relief to cause Parent or Merger Sub to draw down the full proceeds of the US$30.15 million equity financing and to cause Parent or Merger Sub to consummate the transactions contemplated by the merger agreement, including to effect the closing of the merger, will be subject to the requirements that (a) all conditions to the obligations of Parent and Merger Sub to complete the merger (other than those conditions that by their nature are to be satisfied at the closing) have been satisfied, (b) Parent and Merger Sub have failed to complete the closing by the date the closing is required to have occurred pursuant to the merger agreement, and (c) the Company has irrevocably confirmed in writing that if specific performance is granted and the financing is funded, then the closing will occur. Other than the equitable remedies described in the foregoing sentence, the Company’s right to receive payment of a termination fee of US$2.5 million or US$3.5 million from Parent (or the guarantors pursuant to the limited guaranty) is the Company’s sole and exclusive remedy against Parent, Merger Sub, Dr. Hou, Mr. Li and their respective affiliates for any loss or damage suffered as a result of the failure of the merger to be completed under certain circumstances or for a breach or failure to perform by Parent or Merger Sub under the merger agreement or otherwise.

Parent and Merger Sub are entitled to an injunction or injunctions to prevent breaches of the merger agreement and to enforce specifically the terms and provisions thereof against the Company, which remedies are in addition to any other remedy to which they are entitled at law or in equity. Other than the equitable remedies described in the foregoing sentence, Parent’s right to receive payment of a termination fee of US$1.25 million from the Company is the sole and exclusive remedy of Parent and Merger Sub against the Company and its affiliates for any loss or damage suffered as a result of the failure of the merger to be completed under certain circumstances or for a breach or failure to perform under the merger agreement by the Company or otherwise.

While the Company, Parent and Merger Sub may pursue both a grant of specific performance and monetary damages, none of them will be permitted or entitled to receive both a grant of specific performance that results in the completion of the merger and monetary damages.

Material U.S. Federal Income Tax Consequences (page 63)

The receipt of cash in exchange for Company common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under applicable state, local, non-U.S. or other tax laws. In general, a U.S. Holder (as defined below under “ Special Factors Relating to the Merger—Material U.S. Federal Income Tax Consequences ”) of Company common stock will recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received in the merger and the U.S. Holder’s adjusted tax basis in its shares of Company common stock. In general, a Non-U.S. Holder (as defined below under “ Special Factors Relating to the Merger—Material U.S. Federal Income Tax Consequences ”) of shares of Company common stock will not be subject to U.S. federal income tax in respect of cash received in the merger, unless such Non-U.S. Holder has certain connections to the United States. The tax consequences of the merger to you will depend upon your own personal circumstances. You should consult your tax advisors to determine the particular tax consequences to you (including the application and effect of any state, local or non-U.S. income and other tax laws) of the merger.

Material PRC Tax Consequences (page 66)

The Company does not believe that it should be considered a resident enterprise under the PRC Enterprise Income Tax Law (the “ EIT Law ”) or that the gain recognized on the receipt of cash for shares of Company common stock should otherwise be subject to PRC tax to holders of such shares of Company common stock that are not PRC residents. However, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a resident enterprise. If the PRC tax authorities were to determine that the Company should be considered a resident enterprise, then gain recognized on the receipt of cash for shares of Company common stock pursuant to the merger by the Company’s stockholders who are not PRC residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of 10% in the case of enterprises or 20% in the case of individuals (subject to applicable tax treaty relief, if any), and, even in the event that the Company is not considered a resident enterprise, gain recognized on the receipt of cash for shares of Company common stock is subject to PRC tax if the holders of such shares of Company common stock are PRC resident individuals. You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you, including any PRC tax consequences.

Litigation Relating to the Merger (page 66)

Between November 8, 2012 and January 7, 2014, seven putative class action lawsuits were filed by purported stockholders of the Company in District Court, Clark County, Nevada. In general, the plaintiffs in these cases alleged that the offer price was unfair and resulted from an unfair process. The plaintiffs in the state court cases alleged that several directors and officers of the Company, namely, Dr. Hou, Mr. Li, Jihong Bao, Xin Wang, Albert Liu, Regis Kwong, Kokhui Tan, Iris Geng, Tingjie Lv, Zhaoxing Huang and Dong Li (the “ Individual Defendants ”), the Company, Parent and Merger Sub each breached fiduciary duties or aided and abetted such breaches. Certain of the complaints further allege that the Preliminary Proxy Statement filed on December 20, 2013 omitted information necessary for the statements not to be materially misleading and asserted claims for violation of the duty of candor. The complaints sought various relief, including to enjoin the proposed merger or to recovery rescissionary damages.

On January 9, 2014, counsel for all the named plaintiffs except the Davis action filed a motion seeking consolidation of all the filed actions (as well as any similar actions that may be filed) into a single proceeding, for appointment of lead plaintiff, and for appointment of lead counsel, liaison counsel, and for a plaintiffs’ counsels’ executive committee to oversee litigation of a consolidated action. This motion is set to be heard on March 13, 2014.

On January 10, 2014, counsel for the plaintiff in Davis voluntarily dismissed that action without prejudice.

On January 22, 2014, a putative securities fraud class action lawsuit was filed by a purported stockholder of the Company in the United States District Court for the District of Nevada, captioned Olivier v. Hou et al., Case No. 2:14-cv-00106. The complaint named the Company and the Individual Defendants as defendants. The plaintiff in Olivier sought recovery on behalf of all stockholders of the Company in connection with the proposed merger, for the alleged violation of Section 14(a) of the Exchange Act by the defendants, alleged violation of Section 20(a) of the Exchange Act by the Individual Defendants, and for the alleged breaches of fiduciary duties by the Individual Defendants. The plaintiff alleged that the disclosures contained in the Company’s Preliminary Proxy Statement filed with the U.S. Securities and Exchange Commission on December 20, 2013 omitted information necessary for the statements not to be false and misleading. Among other things, the plaintiff sought to enjoin the proposed merger until such time as the disclosures have been amended so that they are not false and misleading.

Where You Can Find More Information (page 98)

You can find more information about the Company in the periodic reports and other information we file with the SEC. The information is available at the website maintained by the SEC at www.sec.gov. For a more detailed description of the additional information available, see “ Where You Can Find More Information ” beginning on page 98.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to address commonly asked questions regarding the merger, the merger agreement, and the special meeting. These questions and answers may not address all questions that may be important to you as a Company stockholder. Please refer to the section titled “Summary Term Sheet Related to the Merger” beginning on page 1 and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement, and the documents referred to in this proxy statement, all of which you should read carefully and in their entirety. You may obtain the documents incorporated by reference in this proxy statement without charge by following the instructions in the section titled “Where You Can Find More Information” beginning on page 98 .

See “ Special Factors Relating to the Merger—Material U.S. Federal Income Tax Consequences ” and “— Material PRC Tax Consequences ” beginning on pages 63 and 66, respectively, for a description of the material U.S. federal income and PRC tax consequences of the merger. You should consult your own tax advisor for a full understanding of how the merger will affect your U.S. federal, state, local, PRC and/or other non-U.S. taxes.

At the close of business, New York time, on March 10, 2014, the record date, there are 36,807,075 shares of Company common stock expected to be outstanding and entitled to vote at the special meeting. Pursuant to the contribution agreement, the Rollover Stockholders have agreed to vote approximately 43.9% of the total outstanding shares of Company common stock in favor of the adoption of the merger agreement. The directors and officers of the Company (other than Dr. Hou and Mr. Li) currently hold 951,293 outstanding shares of Company common stock, representing approximately 2.6% of the total outstanding shares of Company stock. Those directors and officers of the Company who hold shares of Company common stock have advised us that they intend to vote in favor of the proposal to adopt the merger agreement at the special meeting. The shares of Company common stock held by the directors and officers of the Company (other than Dr. Hou and Mr. Li) will be included in determining whether holders of a majority of the outstanding shares of Company common stock (excluding Dr. Hou and Mr. Li and their respective affiliates) have voted for the merger. Based on the number of shares of Company common stock expected to be outstanding on the record date, in addition to the 951,293 outstanding shares of Company common stock held by the directors and officers of the Company (other than Dr. Hou and Mr. Li), the adoption of the merger agreement requires the affirmative vote of at least 9,373,754 shares of Company common stock owned by the unaffiliated stockholders (representing approximately 25.5% of the total outstanding shares of Company common stock or approximately 47.6% of the total outstanding shares of Company common stock held by the unaffiliated stockholders).

If you properly transmit your proxy, but do not indicate how you want to vote, your proxy will be voted “FOR” the proposal to adopt the merger agreement, and “FOR” the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

All proposals involve matters that we believe will be considered non-routine. We encourage you to provide voting instructions to the organization that holds your shares of Company common stock by carefully following the instructions provided on your proxy card.

Holders of uncertificated shares of Company common stock (i.e., holders whose shares of Company common stock are held in book-form entry) will automatically receive their cash consideration as soon as practicable after the effective time of the merger without any further action required on the part of such holders.

SPECIAL FACTORS RELATING TO THE MERGER

The following is a description of the material aspects of the merger. While we believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the merger agreement attached to this proxy statement as Annex A, for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement.

Overview of the Transaction

The Company, Parent and Merger Sub entered into the merger agreement on December 10, 2013. Under the terms of the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent. The Company, as the surviving corporation, will continue to do business under the name “Trunkbow International Holdings Limited” following the merger.

At the effective time of the merger, each share of Company common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive an amount in cash equal to the merger consideration without interest, except for shares of Company common stock (i) held by the Company as treasury stock or (ii) owned, directly or indirectly, by Parent, Merger Sub or any wholly owned subsidiary of the Company, including shares of Company common stock contributed to Parent by the Rollover Stockholders pursuant to the contribution agreement immediately prior to the closing, which will be cancelled and will not be converted into the right to receive the merger consideration.

At the effective time of the merger, each Company warrant that is then outstanding and unexercised will remain outstanding. From and after the effective time of the merger, pursuant to the terms of such Company warrants, (i) each Company warrant will represent the right to receive, upon due exercise in accordance with its terms, including payment of the applicable cash exercise price, only the merger consideration with respect to each share of Company common stock subject to such Company warrant, and (ii) in no circumstances will holders of Company warrants be entitled to receive shares of Company common stock or other securities of any of the Company, the surviving corporation or Parent upon any exercise of Company warrants.

Following and as a result of the merger:

Management and Board of Directors of the Surviving Corporation

The board of directors of the surviving corporation will, from and after the effective time of the merger, consist of the directors of Merger Sub as of immediately prior to the effective time of the merger (identified below under “ Annex D—Directors and Executive Officers of Each Filing Person ”), until their respective successors are duly elected and qualified or the earlier of their death, resignation or removal in accordance with the surviving corporation’s articles of incorporation and bylaws. The officers of the surviving corporation will, from and after the effective time of the merger, be the officers of the Company as of immediately prior to the effective time of the merger (identified below under “ Annex D—Directors and Executive Officers of Each Filing Person ”), until their respective successors are duly elected or appointed and qualified, or until their earlier death, resignation or removal in accordance with the surviving corporation’s articles of incorporation and bylaws.

Background of the Merger

Events leading to the execution of the merger agreement described in this Background of the Merger primarily occurred in China. As a result, China Standard Time is used for all dates and times given.

Our board of directors and senior management periodically review the Company’s long-term strategic plans, industry trends, and potential opportunities with the goal of enhancing stockholder value. As part of this ongoing process, our board of directors and senior management have, from time to time, considered potential strategic alternatives for the Company.

In late August 2012, Dr. Wanchun Hou, chairman of the Company’s board of directors, and Mr. Qiang Li, chief executive officer and a director of the Company, were contacted by VStone Investment Management Limited (“ VStone ”), which indicated an interest in providing financing in support of a potential going-private transaction involving the Company.

On October 2, 2012, the Company received a letter (the “ October Letter ”) from the Nasdaq Stock Market LLC (“ NASDAQ ”), stating that based upon the closing bid price for the last 30 consecutive business days, the shares of Company common stock were unable to maintain a minimum bid price of US$1 per share (the “ Minimum Bid Price Rule ”). The Company was provided with a period of 180 calendar days, or until April 1, 2013, to regain compliance with the Minimum Bid Price Rule.

After receipt of the October Letter, Dr. Hou and Mr. Li began to seriously consider a going-private transaction involving the Company, and engaged in further discussions with VStone. At the end of October 2012, Dr. Hou and Mr. Li also discussed with attorneys at Cleary Gottlieb Steen & Hamilton LLP (“ Cleary ”) about the going-private process and the key issues and concerns in a potential going-private transaction. On October 31, 2012, Dr. Hou and Mr. Li retained Cleary as their U.S. legal advisor in connection with the potential transaction.

On November 2, 2012, Dr. Hou and Mr. Li submitted a preliminary non-binding proposal (the “ Proposal Letter ”) to our board of directors proposing to acquire all the outstanding shares of Company common stock not already beneficially owned by Dr. Hou and Mr. Li for US$1.46 per share in cash. The closing price per share of Company common stock on November 1, 2012 was US$1.17. For more information on historical market prices of Company common stock, see “ Market Price and Dividend Information .” At the time the Proposal Letter was sent, Dr. Hou and Mr. Li owned approximately 43.9% of the outstanding shares of Company common stock. In the Proposal Letter, Dr. Hou and Mr. Li, among other things, indicated that they did not intend to sell their stake in the Company to a third party.

On November 2, 2012, our board of directors held a special meeting via teleconference. Our board of directors reviewed the key terms of the Proposal Letter and discussed the role of a potential special committee consisting of the independent directors evaluating a potential going-private transaction involving the Company. Our board of directors resolved unanimously to form a special committee and to convene another meeting, at which the non-independent directors would recuse themselves and the independent directors would further discuss the composition, power, authority and compensation of a special committee. Our board of directors also instructed the Company to issue a press release announcing the receipt of the going-private proposal from Dr. Hou and Mr. Li.

Immediately following the special meeting of our board of directors on November 2, 2012, our board of directors held another special meeting via teleconference, from which all non-independent directors recused themselves. Following due deliberation, our independent directors resolved unanimously to form a special committee consisting of three independent directors, Messrs. Kokhui Tan, Tingjie Lv and Zhaoxing Huang, which would consider and have responsibility for the matters described below in connection with the Proposal Letter and any other alternative transactions involving the Company. Our independent directors also appointed Mr. Kokhui Tan as the chairman of the special committee. The members of the special committee were selected based on each satisfying the criteria for an “independent director” under the NASDAQ listing rules as well as on the belief of our independent directors that each of the three individuals was free from all personal, professional or business relationships with Dr. Hou, Mr. Li and the management of the Company, and from any other personal, professional or business relationships which could affect his ability to act impartially in discharging his duties on behalf of the Company’s stockholders in connection with a potential going-private transaction. Our independent directors authorized the special committee to, among other things: (i) explore, review and determine the best course or courses of action for the Company in order to maximize the Company’s value in the best interests of the Company and its stockholders; (ii) review and evaluate the terms and conditions and determine the advisability of the proposed transaction or any alternative transaction; (iii) negotiate the price, structure, form, terms and conditions of the proposed transaction or any alternative transaction; (iv) determine whether, and under what process and conditions, to seek or commence any alternative transaction; (v) grant or withhold waivers as implicated by the proposed transaction or any alternative transaction under the NRS; (vi) if the special committee deems it appropriate, in its sole discretion, disapprove or reject the proposed transaction or any alternative transaction on behalf of the Company; (vii) determine whether the proposed transaction or any alternative transaction is fair to, and in the best interests of, the Company and its unaffiliated stockholders; (viii) obtain any necessary or desirable opinions from legal, financial and other advisors; (ix) review and evaluate the employee benefit plans of the Company, including severance plans and equity plans of the Company, in view of the proposed transaction or any alternative transaction; (x) recommend to our entire board of directors what action, if any, should be taken by the Company with respect to the proposed transaction or any alternative transaction; (xi) take such other actions related to or arising in connection with the proposed transaction or any alternative transaction as the special committee deems necessary, appropriate or advisable; and (xii) provide reports and/or recommendations to our board of directors in regard to such matters at such time as the special committee shall deem appropriate and consistent with its activities. Our board of directors also resolved that the chairman and each other member of the special committee would receive US$10,000 and US$5,000, respectively, per month for their active service on the special committee.

Between November 2, 2012 and November 6, 2012, the special committee carefully considered proposals from three highly qualified law firms experienced with going-private transactions. After conducting interviews with the three candidate law firms and considering the presentations made by each on November 6, 2012, including information about each firm’s respective experience in similar transactions, qualifications and reputation, the special committee engaged Shearman & Sterling LLP (“ Shearman ”) to serve as its legal counsel.

On November 6, 2012, Dr. Hou and Mr. Li jointly filed with the SEC a Schedule 13D announcing the execution and submission of the Proposal Letter to the board of directors. According to the Schedule 13D, as of November 6, 2012, Dr. Hou and Mr. Li beneficially owned approximately 43.9% of the outstanding shares of Company common stock.

On November 7, 2012, Dr. Hou and Mr. Li retained Lionel Sawyer & Collins as their Nevada legal advisor in connection with the potential transaction.

In early November 2012, Dr. Hou and Mr. Li also held preliminary discussions on debt financing for the merger with potential sources of debt financing.

On November 8, 2012, after reviewing proposals submitted by six investment banks to serve as financial advisor to the special committee, the special committee, assisted by its counsel, Shearman, interviewed three investment banks including Duff & Phelps.

On November 9, 2012, the special committee held a telephonic meeting to further discuss the engagement of a financial advisor. After considering the reputation, experience with similar transactions, knowledge of the relevant industry, fee proposals, relevant qualifications of each of the three investment banks and whether any past, current or future conflicts or other circumstances would undermine their ability to assess objectively the fairness of the proposed transaction, the special committee decided to engage Duff & Phelps as its financial advisor in connection with the proposed transaction and instructed Shearman to begin negotiating the terms of an engagement letter with Duff & Phelps. The services of Duff & Phelps would be delivered through two entities, with Duff & Phelps to provide valuation related services including potentially a fairness opinion and with Duff & Phelps Securities, LLC (“ DPS ”) to provide financial and market related advice and assistance including assisting the special committee in initiating, soliciting and encouraging any alternative transaction proposals from third parties prior to signing of a merger agreement if the special committee determined to perform a pre-signing market check. On November 9, 2012, the special committee held another telephonic meeting with Shearman. Among other issues, Shearman made a detailed presentation to the special committee members about their fiduciary duties in connection with the proposed transaction.

On November 9, 2012, the Company received an email enquiry from an unaffiliated stockholder (“ Stockholder A ”) about the proposed transaction. Following the announcement that the special committee had engaged legal and financial advisors, the special committee responded to Stockholder A on November 14, 2012 and instructed Shearman to reach out to Stockholder A to fully understand his view regarding the proposed transaction.

On November 13, 2012, the special committee executed an engagement letter with Duff & Phelps and DPS. See “ Special Factors Relating to the Merger—Opinion of Duff & Phelps, Financial Advisor to the Special Committee ” for more details. On November 14, 2012, the Company issued a press release announcing the special committee’s engagement of Shearman as its legal counsel and Duff & Phelps as its financial advisor.

On November 19, 2012, the special committee held a telephonic meeting with Duff & Phelps, DPS and Shearman. The special committee’s advisors introduced the function, process and timeline of a typical market check process in similar transactions. After deliberation, the special committee decided that, to maximize the value of the Company in the best interests of the Company and its stockholders, the special committee would initiate a process to solicit interest from, and engage in discussions with, any other potential qualified interested parties regarding a possible transaction involving the Company, and to evaluate any proposals received. The special committee instructed DPS to prepare for the special committee’s review and discussion a list of potential strategic and financial buyers that DPS proposed to contact during the market check process and to prepare a cover letter to be sent to potential strategic and financial buyers together with an information memorandum based on publicly available information about the Company. Duff & Phelps also reported to the special committee on the process and information necessary in developing a preliminary valuation analysis of the Company. The special committee instructed Duff & Phelps to follow up with the management of the Company and obtain all information necessary for its valuation analysis. No preliminary valuation analysis was communicated by Duff & Phelps to the special committee on this date or prior to December 2, 2013.

On November 28, 2012, VStone executed a confidentiality agreement and commenced due diligence on the Company. On the same date, VStone visited the Company’s primary operational site in Jinan, China and conducted due diligence meetings with the management of the Company.

On November 30, 2012, the special committee held a telephonic meeting with Duff & Phelps, DPS and Shearman. Among other issues, the special committee reviewed a draft list of potential strategic and financial buyers that DPS planned to contact during the market check process. DPS compiled the list based on a review of, among other things, key competitors of the Company, previous investments by potential financial buyers in the similar industry, other strategic investors with operations in the Company’s industry in China and worldwide, and the size of the potential transaction. After discussion with its advisors, the special committee instructed DPS to further revise the list of potential buyers to indicate reasons why each potential buyer was selected. Shearman also updated the special committee and Duff & Phelps on its discussions with Stockholder A.

In addition, between November 28 and December 6, 2012, Duff & Phelps had various discussions and meetings with the senior management and finance team of the Company regarding the business, operations and financial performance of the Company. These due diligence meetings focused on, among other things, understanding the nature of the Company’s business and prospects, its historical performance, the Company management’s view on industry outlook, market competition, the risks and challenges facing the Company and the rationale for the transaction.

On December 4, 2012, Cleary circulated an initial draft merger agreement to Shearman.

On December 8, 2012, Shearman provided to the special committee for its consideration a summary of certain issues raised by the initial draft merger agreement, including, among others, stockholders’ approvals, the “force the vote” provision, the “go shop” provision, closing conditions, the Company termination fee and Parent termination fee.

On December 12, 2012, the special committee held a telephonic meeting with Duff & Phelps, DPS and Shearman. After careful review and discussion, the special committee approved the information memorandum prepared by its advisors and the list of potential strategic and financial buyers to be contacted, and authorized DPS to begin the market check process. The special committee also discussed with Shearman the pertinent issues posed by the draft merger agreement provided by Cleary. In addition, the special committee discussed with Shearman the necessity of engaging Nevada counsel and the role of such counsel in the proposed transaction. The special committee then reviewed the credentials, relevant experience, and fee proposals from two Nevada law firms.

On December 19, 2012, Shearman provided a revised draft merger agreement to the special committee for its consideration.

On December 25, 2012, the special committee held a telephonic meeting with Shearman and discussed the revised draft merger agreement and the reasons for the proposed revisions. In addition, after reviewing relevant terms of the proposed engagement letter and experience in similar transactions, the special committee decided to engage Snell & Wilmer L.L.P. (“ Snell ”) as its Nevada counsel. As instructed by the special committee, Shearman circulated a revised draft merger agreement to Cleary on that same day.

On January 4, 2013, representatives of Shearman and Cleary held face-to-face negotiations with respect to issues in the draft merger agreement.

On January 8, 2013, Cleary circulated a revised draft merger agreement to Shearman, requesting, among others, (i) no “go shop” right, (ii) no “majority of the minority” voting requirement and (iii) Parent termination fee in an amount equal to US$2.5 million with a Company termination fee of the same amount. In this revised draft, the buyer group agreed not to include a “force the vote” provision or a closing condition regarding dissenting stockholders.

On January 12, 2013, Cleary circulated draft limited guaranty and equity commitment letters to Shearman.

On January 12, 2013, Shearman provided to the special committee for its consideration a summary of the issues raised by the revised draft merger agreement sent by Cleary on January 8, 2013.

On January 17, 2013, the special committee held a telephonic meeting with Duff & Phelps, DPS and Shearman. At the request of the special committee, DPS reported that it had contacted 61 potential buyers, comprising 11 potential strategic buyers and 50 potential financial buyers, as part of the market check process but had not received any indication of interest. VeriFone Systems, Inc., an existing stockholder of the Company, was also contacted but expressed no interest in making a proposal to acquire the Company. Due to the lack of interest from those 61 potential buyers, DPS proposed to the special committee a supplemental list of additional potential buyers. After discussion with its advisors, the special committee instructed DPS to contact such additional potential buyers as part of the market check. Duff & Phelps also informed the special committee that it was continuing its financial due diligence on the Company and had held meetings and discussions with members of the management of the Company. Shearman also discussed with the special committee issues raised by the revised merger agreement circulated by Cleary on January 8, 2013.

On January 21, 2013, Shearman circulated a revised draft merger agreement and limited guaranty and equity commitment letters to Cleary, requesting, among others, (i) the “go shop” right, (ii) the “majority of the minority” voting requirement and (iii) the Company termination fee in an amount equal to US$1.25 million. In this revised draft, the special committee agreed to the Parent termination fee in an amount equal to US$2.5 million.

In late January 2013, VStone discontinued discussions with Dr. Hou and Mr. Li with respect to the potential transaction after conducting preliminary due diligence on the Company, without giving any reasons.

On February 7, 2013, DPS reported to the special committee that, as of that date, it had contacted a total of 75 potential buyers, comprising 11 potential strategic buyers and 64 potential financial buyers, as part of the market check process. Forty-nine potential buyers had expressly declined the opportunity, but none had expressed any indication of interest.

Beginning in late January 2013, Dr. Hou and Mr. Li were concerned that the Company might face a significant decline in sales, as the Company experienced certain delays in concluding sales contracts with its key customers and feedback from China Telecom, China Unicom and China Mobile, the three largest telecommunication service providers in China and the top three customers of the Company, indicated that each might decrease or delay the procurement of the Company’s products in the first two quarters of 2013. In response to such business challenges, Dr. Hou and Mr. Li decided around mid-February 2013 to suspend the proposed going-private transaction to focus on the management and operations of the Company. The special committee members elected not to be compensated for their service as members of the special committee for the period from March to October, 2013 during which time the proposed transaction was on hold.

NASDAQ halted trading in the shares of Company common stock from April 17 to May 6, 2013 due to the Company’s inability to timely file its Annual Report on Form 10-K for the year ended December 31, 2012 with the SEC. In April, June and August 2013, the Company received multiple notices and letters from NASDAQ notifying that the Company was not in compliance with NASDAQ listing rules either because of the Company’s inability to timely file its annual and/or quarterly reports or because the Company no longer met the Minimum Bid Price Rule.

In early September 2013, Dr. Hou and Mr. Li considered resuming the proposed going-private transaction in anticipation of the Company’s improved business operations in the third quarter of 2013, which primarily resulted from the management’s efforts to enhance the Company’s sales and marketing and to improve the operational efficiency of the Company. At a meeting in Beijing, China on September 7, 2013, Mr. Li informed Dr. Tan, the chairman of the special committee, that the buyer group was considering resuming the proposed going-private transaction. In late October 2013, representatives of Dr. Hou and Mr. Li commenced preliminary discussions with several banks about the possibility of providing financing for the transaction.

In October and early November of 2013, Ms. Yuanjun Ye, the chief financial officer of the Company, prepared financial projections of the Company for the years ending 2013 through 2018. Mr. Li, the chief executive officer of the Company, did not participate in the preparation of such financial projections. Before Ms. Yuanjun Ye provided the financial projections to Duff & Phelps on November 5, 2013, Mr. Li reviewed but made no changes to these financial projections. During the period between November 11 and 21, 2013, Duff & Phelps had meetings and telephone calls with the management to understand the Company’s performance over the prior few months, management’s views on the industry outlook, market competition and the key assumptions used in the financial projections. See “ Special Factors Relating to the Merger—Prospective Financial Information ” for details of the financial projections of the Company.

On November 7, 2013, Mr. Li provided the members of the special committee an update on the buyer group’s plan with respect to the proposed transaction.

In early November 2013, Ms. Qi Cheng, a finance director of Trunkbow Asia Pacific (Shandong) Co., Ltd., a wholly owned subsidiary of the Company, as the representative of Dr. Hou and Mr. Li, began discussions with China Minsheng Bank Corporation Limited (“ Minsheng Bank ”) regarding arranging debt financing for the proposed transaction. Between November 14, 2013 and November 18, 2013, Shearman and Minsheng Bank negotiated the terms of a confidentiality agreement. Minsheng Bank entered into the confidentiality agreement on November 18, 2013 and began its due diligence on the Company.

On November 15, 2013, Cleary circulated a revised draft merger agreement to Shearman, requesting, among others, (i) no “go shop” right, (ii) no “majority of the minority” voting requirement and (iii) the Company termination fee to be in an amount equal to US$2.5 million.

On November 22, 2013, the special committee held a telephonic meeting with Duff & Phelps, DPS and Shearman. At the request of the special committee, Duff & Phelps reported that it had received management projections from the Company. DPS also reported that since the completion of the market check process on February 7, 2013, it had not received any indication of interest in a potential transaction involving the Company from any potential buyer that it had previously contacted or from any other third party. After discussion with its advisors and taking into account the facts that: (i) the proposed merger had been publicly announced on November 2, 2012 and the market had been aware of a potential transaction for over a year, (ii) neither the Company nor the buyer group had ever announced or made the market aware of the suspension of negotiations of the proposed transaction with the buyer group, (iii) there was no interest in an alternative transaction from any third party after an extensive market check, and (iv) despite improved business operations in the third quarter of 2013 as compared to the previous two quarters, the Company’s projected net income for the full year of 2013 would still be significantly lower than the net income for 2012 when DPS conducted an extensive market check, the special committee considered that it was not necessary to conduct a new market check process and thus did not request DPS to do so. Shearman also discussed with the special committee issues raised in the revised merger agreement circulated by Cleary on November 15, 2013. In light of the same facts described above, the special committee agreed not to insist on a “go shop” provision in the merger agreement, but instructed Shearman to remain firm as to the “majority of the minority” voting requirement and a lower Company termination fee. As instructed by the special committee, Shearman circulated a revised draft merger agreement to Cleary on the same day reflecting the special committee’s positions on the terms described above.

On November 29, 2013, Shearman circulated the Company’s disclosure schedule to Cleary.

On December 2, 2013, the special committee held a telephonic meeting with Duff & Phelps and Shearman. At this meeting, Duff & Phelps gave an oral presentation on its preliminary valuation analyses of the Company. The discussion included a preliminary selected companies analysis, last twelve months Revenue/EBITDA/EBIT trading analysis, selected transactions analysis and discounted cash flow analysis. In discussing the preliminary financial analyses performed by the representatives of Duff & Phelps, the special committee considered the criteria for selecting the different groups of companies included in the selected companies analysis, and the rationale for the various assumptions used by Duff & Phelps in its analyses, including the multiples, discount rates and perpetuity growth rate in connection with each analysis, as appropriate. The analyses discussed in the oral presentation were substantially similar to the presentation to the special committee by Duff & Phelps on December 10, 2013 and there were no material differences between the information communicated in such oral presentation and the materials presented on December 10, 2013. See “ Special Factors–Opinion of Duff & Phelps, Financial Advisor to the Special Committee ” and Annex C to this proxy statement for the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken. Duff & Phelps reported that, based on its preliminary analysis, the proposed offer price of $1.46 per share of Company common stock by the buyer group was above the mid-point of the valuation range. The special committee discussed whether this proposed offer price was high enough, and subsequently requested Shearman to instruct Duff & Phelps to contact the buyer group to request that it increase the offer price.

On December 4, 2013, the members of the special committee received a memo prepared by Snell discussing the statutory regime and case law related to directors’ fiduciary duties in Nevada.

On December 5, 2013, Cleary held a telephonic meeting with Shearman to discuss Shearman’s comments on the revised merger agreement, including, among others, the “majority of minority” voting requirement and Company termination fee. During the telephonic meeting, Cleary also provided an update to Shearman regarding the buyer group’s financing efforts, including the equity financing to be provided by Dr. Hou and Mr. Li and a term loan to be obtained by Chief Honour and Capital Melody pursuant to a facility letter (the “ facility letter ”) to be executed with Minsheng Bank, Hong Kong Branch. Cleary also mentioned that the proceeds utilized under the facility letter would be used for dividend distribution to the shareholders of Chief Honour and Capital Melody and that Dr. Hou and Mr. Li would cause the proceeds of such distribution to be used to fund the equity financing to be provided by Dr. Hou and Mr. Li.

Later on the same day, Cleary circulated to Shearman a revised draft limited guaranty, an initial draft contribution agreement and the draft facility letter prepared by Minsheng Bank. On the afternoon of December 6, 2013, Cleary circulated a revised draft merger agreement and a draft equity commitment letter to Shearman. In the revised draft merger agreement, among other revisions, Cleary deleted the “majority of the minority” voting requirement and reflected the financing arrangement of the buyer group, including the equity financing and rollover financing from Dr. Hou and Mr. Li. In addition, the buyer group offered in the draft merger agreement to deposit the full amount of the equity financing into an escrow account to be jointly controlled by Parent and the Company within two months after the signing of the merger agreement.

Later on the same day, Shearman circulated a revised draft limited guaranty and contribution agreement to Cleary.

On December 6, 2013, the special committee held a telephonic meeting with Shearman. The special committee reviewed the financing arrangements of the buyer group for the proposed transaction, including the equity financing and the rollover financing, as well as the term loan facility to be arranged with Minsheng Bank, Hong Kong Branch by Chief Honour and Capital Melody, the proceeds of which will be used for dividend distribution to the shareholders of Chief Honour and Capital Melody and that Dr. Hou and Mr. Li will cause the proceeds of such distribution to be used to fund the equity financing under the equity commitment letter. The special committee then discussed the certainty and sufficiency of financing for the proposed merger and the protection of interests of the unaffiliated stockholders. The special committee noted that, according to the most recent draft merger agreement received from the buyer group, the buyer group offered to put the full merger consideration into an escrow account within two months of the signing of the merger agreement. In addition, the escrow account would be under joint administration of the Company and the buyer group. The special committee considered that the pre-funding of the full merger consideration into an escrow account before closing demonstrated the buyer group’s confidence in funding, and that such arrangement would provide greater deal certainty to the unaffiliated stockholders. After discussion with Shearman, the special committee considered a two-tiered Parent termination fee, with a higher amount of Parent termination fee payable if the full merger consideration has not been deposited into an escrow account within two months after signing or if the financing is not otherwise available at closing, as further protection to unaffiliated stockholders against any funding risk. After discussion and consideration, the special committee instructed Shearman to request a two-tiered Parent termination fee from the buyer group. The special committee also reviewed with Shearman issues in the latest draft of the merger agreement and the other transaction documents, including the limited guaranty, the equity commitment letter and the contribution agreement. After discussion, the special committee instructed Shearman to revise the merger agreement and the other transaction documents in a manner to safeguard the interests of the unaffiliated stockholders, including a two-tiered Parent break-up fee, a lower Company termination fee and the “majority of the minority” voting requirement. Shearman also discussed the statutory regime and case law related to directors’ fiduciary duties in Nevada based on the memorandum prepared by Snell and explained in detail directors’ fiduciary duties in the context of the proposed transaction.

On the evening of December 6, 2013, Cleary held a telephonic meeting with Shearman to negotiate the key remaining open issues in the draft limited guaranty and contribution agreement and then circulated a revised draft limited guaranty and contribution agreement to Shearman. Chief Honour and Capital Melody executed the facility letter, dated December 6, 2013, with Minsheng Bank, Hong Kong Branch, a copy of which was subsequently furnished to Shearman.

Also on December 6, 2013, as instructed by the special committee, Duff & Phelps contacted the buyer group to seek an increased offer price, although the precise amount or range of such an increase was not specified. On December 7, 2013, Mr. Li advised Duff & Phelps that the buyer group was not willing to increase the offer price.

On December 7, 2013, Shearman circulated a revised draft merger agreement, limited guaranty and equity commitment letter to Cleary, with provisions, among others, providing for the “majority of the minority” voting requirement and a two-tiered Parent termination fee (with the first tier Parent termination fee in the amount of US$2.5 million and the second tier Parent termination fee in the amount of US$4.0 million). On the same day, Shearman and Cleary held a telephonic meeting to discuss the draft merger agreement and equity commitment letter. Later on the same day, Cleary circulated a revised draft merger agreement and equity commitment letter to Shearman, with provisions, among others, stating that the buyer group would accept the “majority of the minority” voting requirement on the condition that the special committee accepted the second tier Parent termination in the amount equal to US$3.5 million.

On December 8, 2013, Shearman reported to the special committee that (i) on the condition that the second tier Parent termination fee is US$3.5 million, the buyer group would accept the “majority of the minority” voting requirement, and (ii) the buyer group confirmed to Duff & Phelps that it would not consider increasing the current offer price of US$1.46 per share of Company common stock.

On December 9, 2013, the members of the special committee agreed to accept the higher amount of Parent termination fee in an amount of US$3.5 million on the condition that the buyer group accepted the “majority of the minority” voting requirement. Later on the same day, Shearman circulated a proposed execution version of the merger agreement, limited guaranty, contribution agreement and equity commitment letter. Cleary circulated the Parent’s disclosure schedule to Shearman.

On the morning of December 10, 2013, a meeting of the special committee was convened via teleconference, with Duff & Phelps and Shearman in attendance, to discuss the proposed transaction. The special committee discussed the buyer group’s refusal to increase the offer price and determined that the offer price was the last and best price available. Duff & Phelps reviewed with the special committee its financial analysis and delivered to the special committee its oral opinion, which was subsequently confirmed in writing, that, as of such date and based upon and subject to the factors, assumptions, and limitations set forth in its opinion, the merger consideration to be received by the holders of the shares of Company common stock (other than holders of excluded shares) in the merger was fair, from a financial point of view, to such holders (without giving effect to any impact of the proposed transaction on any particular holder of the shares of the Company common stock other than in their capacity as holders of shares of Company common stock). Shearman described the principal terms of the merger agreement and the other transaction documents contemplated by the merger agreement and provided an overview and summary of the transactions contemplated therein. After consideration of the proposed transaction, the terms of the merger agreement and the other transaction documents contemplated by the merger agreement, the presentation by Duff & Phelps, including receipt of the fairness opinion of Duff & Phelps, and taking into account the other substantive and procedural factors described below under the caption “ —Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger ,” the members of the special committee unanimously (i) approved and adopted in all respects, and recommended that our board of directors approve and adopt in all respects, the form, terms, provisions and conditions of the merger agreement, the limited guaranty and the contribution agreement, (ii) approved in all respects, and recommended that our board of directors approve in all respects, the merger and the other transactions contemplated by the merger agreement, the limited guaranty and the contribution agreement, and (iii) recommended that our board of directors (A) submit the merger agreement to the stockholders of the Company for approval and adoption at a meeting of the stockholders of the Company for the purpose of considering and acting on the merger agreement, and (B) recommended that the stockholders of the Company vote for the approval and adoption of the merger agreement and the consummation of the merger and the other transactions contemplated by the merger agreement.

Later on the same day, our board of directors convened a special meeting with Duff & Phelps and Shearman. At the beginning of the meeting, Dr. Hou and Mr. Li disclosed their interests in the proposed transaction, which interests are described under the caption “ — Interests of Certain Persons in the Merger .” Thereafter, the special committee presented its recommendation to the board of directors. After consideration of the proposed transaction, the terms of the merger agreement and the other transaction documents contemplated by the merger agreement, Duff & Phelps’s fairness opinion to the special committee, the recommendations of the special committee, and the other substantive and procedural factors described below under the caption “ —Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger ,” the board of directors unanimously (i) determined that the merger and the other transactions contemplated by the merger agreement, the limited guaranty and the contribution agreement, on such terms and subject to the conditions set forth respectively therein, are fair and advisable to and in the best interests of the Company and its unaffiliated stockholders, (ii) approved and adopted the merger agreement, the limited guaranty and the contribution agreement and approved the execution, delivery and performance by the Company of the merger agreement and the limited guaranty and the consummation of the transactions contemplated thereby, including the merger and (iii) recommended the adoption of the merger agreement by the Company’s stockholders. Other than the participation in this board meeting and voting with the rest of the board at this board meeting, Dr. Hou and Mr. Li were not involved in the formation of the special committee, the review or consideration of the proposed transaction and/or alternative transactions or the negotiation of the proposed transaction by the special committee and the Company.

Later in the day on December 10, 2013, the Company, Parent and Merger Sub executed the merger agreement and the parties to the other transaction documents executed such other transaction documents that, on their terms, were to be executed simultaneously with the merger agreement, including the equity commitment letter, the contribution agreement and the limited guaranty. On the same day, the Company issued a press release announcing the execution of the merger agreement, and furnished the press release, the merger agreement and the limited guaranty as exhibits to its Current Report on Form 8-K.

On December 11, 2013, Dr. Hou and Mr. Li jointly filed with the SEC an amendment to their Schedule 13D in connection with the execution of the merger agreement, the contribution agreement, the equity commitment letter, the limited guaranty and the facility letter.

Purposes and Reasons of Our Board of Directors and Special Committee for the Merger

The special committee and our board of directors believe that, as a privately held entity, the Company’s management may have greater flexibility to focus on improving the Company’s financial performance without the constraints caused by the public equity market’s valuation of the Company and emphasis on short-term period-to-period performance. As a publicly traded entity, the Company faces pressure from public stockholders and investment analysts to make decisions that might produce better short-term results, but over the long term lead to a reduction in the per share price of the Company’s publicly traded common stock.

The special committee and our board of directors also believe that it is appropriate for the Company to undertake the merger and terminate the registration of shares of Company common stock at this time due to the high costs of remaining a publicly traded company, including the cost of complying with the Sarbanes-Oxley Act of 2002 and other U.S. federal securities laws. We estimate such costs to be, on an annualized basis, an aggregate amount of approximately US$1.4 million for service fees and expenses of public accountants, fees and expenses of U.S. securities counsel, fees and expenses of the Company’s investor relations firm and publicly traded company directors’ liability insurance premium (in each case, excluding fees and expenses relating to the merger). These costs are ongoing, comprise a significant element of our corporate overhead expense, and are difficult to reduce. In addition to the direct out-of-pocket costs associated with SEC reporting and compliance, the Company’s management and accounting staff, which comprises a handful of individuals, need to devote significant time to these matters.

Furthermore, as an SEC-reporting company, the Company is required to disclose a considerable amount of business information to the public, some of which would be considered proprietary and would not be disclosed by a non-reporting company. As a result, our actual or potential competitors, customers, lenders and vendors all have ready access to this information which potentially may help them compete against us or make it more difficult for us to negotiate favorable terms with them, as the case may be.

The special committee reviewed the financial projections prepared by our management in November 2013 and reviewed by Duff & Phelps in its preparation of fairness opinion, which are subject to assumptions and uncertainties presented under “ Special Factors Relating to the Merger — Prospective Financial Information ”. Despite the fact the Company’s business operations improved in the third quarter of 2013 as compared to the previous two quarters of 2013, the Company’s projected net income for the full year of 2013 would still be much lower than that of the prior year. The financial projections also indicated that the Company’s net income margins for 2014 and beyond would decline as compared to 2013. The special committee also noted that Duff & Phelps was of the opinion that, as of December 10, 2013 and based upon and subject to the factors, assumptions, and limitations set forth in its opinion, the merger consideration to be received by the holders of the shares of Company common stock (other than holders of excluded shares) in the merger was fair, from a financial point of view, to such holders (without giving effect to any impact of the proposed transaction on any particular holder of the shares of the Company common stock other than in their capacity as holders of shares of Company common stock). The special committee also noted that the buyer group had secured financing to complete the merger.

The special committee and our board of directors also believe that it is appropriate for the Company to undertake the merger and terminate the registration at this time because the merger consideration represents a premium over recent market prices of shares of Company common stock.

Based on the foregoing considerations, each of the special committee and our board of directors has concluded that it is more beneficial to the Company to undertake the proposed merger and become a private company than to remain a publicly traded company.

Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger

At a meeting on December 10, 2013, the special committee unanimously recommended that our board of directors adopt resolutions that:

On December 10, 2013, our board of directors unanimously adopted resolutions as recommended by the special committee. In reaching these determinations, our board of directors considered the special committee’s unanimous recommendation and adopted resolutions that:

In the course of reaching their respective determinations, the special committee and our board of directors considered the following substantive factors and potential benefits of the merger, each of which the special committee and our board of directors believed supported their respective decisions, but which are not listed in any order of importance:

In addition, the special committee and our board of directors believed that sufficient procedural safeguards were and are present to ensure that the merger, based upon the terms of the merger agreement, was procedurally fair to the unaffiliated stockholders and to permit the special committee and our board of directors to represent effectively the interests of such unaffiliated stockholders. These procedural safeguards, which are not listed in any relative order of importance, are discussed below:

The special committee and our board of directors also considered a variety of potentially negative factors discussed below concerning the merger agreement and the merger, which are not listed in any order of importance:

The special committee and our board of directors did not consider the lack of appraisal rights as a factor in setting the structure of the proposed transaction nor did they consider whether appraisal rights would have been available under different means. The special committee and our board of directors considered that the “majority of the minority” voting requirement for the adoption of the merger agreement and the Company’s rights under the merger agreement in the event of 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 such party, engage in discussions and negotiations with such party, and terminate the merger agreement, provided substantive and procedural safeguards to the unaffiliated stockholders despite the lack of appraisal rights.

Neither the special committee nor our board of directors considered the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the stockholders of the Company as a factor because they believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs. The Company’s net book value per diluted share as of September 30, 2013 was US$2.70 based on the weighted average number of outstanding shares of Company common stock during the nine months ended September 30, 2013. Net book value does not take into account the future prospects of the Company, market conditions, trends in the industry in which the Company conducts its business or the business risks inherent in competing with other companies in the same industry.

Neither the special committee nor our board of directors 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, the special committee and our board of directors believed that the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going concern value. In the course of reaching their respective conclusions regarding the fairness of the merger to the unaffiliated stockholders of the Company and their respective decisions to recommend the adoption of the merger agreement, neither the special committee nor our board of directors sought to establish a pre-merger going concern value for the Company in determining the fairness of the merger consideration to the Company’s unaffiliated stockholders because they did not believe there was a single method for determining going concern value. However, each of the special committee and our board of directors believed that the financial analyses presented by Duff & Phelps (i.e., discounted cash flow analysis, selected public companies and merger and acquisition transactions analyses and premium paid analysis as each is more fully summarized below under the caption “ Special Factors – Opinion of Duff & Phelps, Financial Advisor to the Special Committee ”) represented potential valuations of the Company as it continues to operate its business, and, to that extent, the special committee and our board of directors collectively characterized such analyses as forms of going concern valuations. The special committee and our board of directors considered each of these analyses in the context of the fairness opinion provided by Duff & Phelps as well as various additional factors, including the historical market prices of our shares of Company common stock as described under the caption “ Market Price and Dividend Information ”, as the trading price of the shares of Company common stock at any given time represents the best available indicator of the Company’s going concern value at that time so long as the trading price at that time is not impacted by speculation regarding the likelihood of a potential transaction.

Except as discussed in “ Special Factors – Background of the Merger ,” “ Special Factors – Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger ,” and “ Special Factors – Opinion of Duff & Phelps, Financial Advisor to the Special Committee ,” 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 transaction and/or preparing a report concerning the fairness of the transaction.

The special committee and our board of directors did not view the purchase prices paid in the transactions described under “ Common Stock Transaction Information ” to be relevant except to the extent those prices indicated the trading price of the shares of Company common stock during the applicable periods.

The Company is not aware of any firm offers made by any unaffiliated person during the past two years for: (i) the merger or consolidation of the Company with or into another company, or vice-versa; (ii) the sale or other transfer of all or any substantial part of the assets of the Company; or (iii) a purchase of the Company’s securities that would enable the holder to exercise control of the Company.

Other than Dr. Hou and Mr. Li and their affiliates, the Company currently does not have any affiliates except for the remaining directors and officers of the Company. The directors and officers of the Company (other than Dr. Hou and Mr. Li) currently hold 951,293 outstanding shares of Company common stock, which accounts for only 2.6% of total outstanding shares of Company common stock. See “ Common Stock Ownership of Management and Certain Beneficial Owners ” beginning on page 91 for additional information. In addition, the merger consideration to be received by such directors and officers of the Company who are affiliated stockholders of the Company is identical in all respects to the merger consideration to be received by the unaffiliated stockholders of the Company. Therefore, the shares of Company common stock held by the directors and officers of the Company (other than Dr. Hou and Mr. Li) will be included in determining whether holders of a majority of the outstanding shares of Company common stock (excluding Dr. Hou and Mr. Li and their respective affiliates) have voted for the merger. Based on the number of shares of Company common stock expected to be outstanding on the record date, in addition to the 951,293 outstanding shares of Company common stock held by the directors and officers of the Company (other than Dr. Hou and Mr. Li), the adoption of the merger agreement requires the affirmative vote of at least 9,373,754 shares of Company common stock owned by the unaffiliated stockholders (representing approximately 25.5% of the total outstanding shares of Company common stock or approximately 47.6% of the total outstanding shares of Company common stock held by the unaffiliated stockholders). After the consideration of the above as well as the other factors mentioned in this section, the special committee and our board of directors believed that the voting requirements for the adoption of the merger agreement would give the unaffiliated stockholders a meaningful opportunity to consider and vote upon the adoption of the merger agreement and provide sufficient safeguards to ensure that the merger was procedurally fair to the unaffiliated stockholders.

The foregoing discussion of information and factors considered by the special committee and our board of directors is not intended to be exhaustive, but includes all of the material factors considered by the special committee and our board of directors. In view of the wide variety of factors considered by the special committee and our board of directors, neither the special committee nor our board of directors found it practicable to, and neither did quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusion. In addition, individual members of the special committee and our board of directors may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The special committee recommended that our board of directors approve, and our board of directors approved, the merger agreement based upon the totality of the information presented to and considered by it.

The special committee expressly adopted the analyses and the opinion of Duff & Phelps, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the merger agreement.

In reaching its determination that the merger is fair and advisable to, and in the best interests of, the Company and the unaffiliated stockholders, and its decision to adopt the merger agreement and declare its advisability, to recommend that the stockholders of the Company adopt the merger agreement, and to direct that the merger agreement be submitted to the stockholders of the Company for their adoption at a special meeting of the stockholders of the Company, our board of directors considered the analysis and recommendation of the special committee and the factors examined by the special committee as described above under the captions “ Special Factors Relating to the Merger—Purposes and Reasons of Our Board of Directors and Special Committee for the Merger ” and “ Special Factors Relating to the Merger—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger ,” and adopted such recommendations and analysis. For the foregoing reasons, our board of directors, on behalf of the Company, believes that the merger agreement and the transactions contemplated thereby are fair to the unaffiliated stockholders.

Our board of directors recommends that you vote “FOR” the proposal to adopt the merger agreement, and “FOR” the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

Opinion of Duff & Phelps, Financial Advisor to the Special Committee

Pursuant to an engagement letter dated November 13, 2012, the special committee retained Duff & Phelps as its financial advisor to deliver a fairness opinion in connection with the merger. Duff & Phelps is an internationally recognized financial services firm that, among other things, is regularly engaged in the investment banking business, including the valuation of businesses and securities in connection with mergers and acquisitions, underwritings and private placements of securities, and other investment banking services.

At the meeting of the special committee on December 10, 2013, Duff & Phelps rendered to the special committee its oral opinion, subsequently confirmed in writing, that, as of such date and based upon and subject to the factors, assumptions, and limitations set forth in its opinion, the merger consideration to be received by the holders of the shares of Company common stock (other than holders of excluded shares) in the merger was fair, from a financial point of view, to such holders (without giving effect to any impact of the proposed transaction on any particular holder of the shares of the Company common stock other than in their capacity as holders of shares of Company common stock). No limitations were imposed by the special committee upon Duff & Phelps with respect to the investigations made or procedures followed by it in rendering its opinion.

The full text of the written opinion of Duff & Phelps dated December 10, 2013, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated herein by reference. The summary of the opinion of Duff & Phelps set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The stockholders of the Company are urged to read the opinion in its entirety. Duff & Phelps’s written opinion is addressed to the special committee (in its capacity as such), is directed only to the per share merger consideration to be paid in the merger and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote or act with respect to the merger or any other matter.

In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation in general, and with respect to similar transactions in particular. Duff & Phelps’s procedures, investigations and financial analyses with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

In performing its analyses and rendering its opinion with respect to the merger, Duff & Phelps, with the special committee’s consent:

To the extent that any of the foregoing assumptions on which Duff & Phelps’s opinion was based prove to be untrue in any material respect, Duff & Phelps’s opinion cannot and should not be relied upon for any purpose. In its analysis and in connection with the preparation of its opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the merger and as to which Duff & Phelps does not express any view or opinion in its opinion, including as to the reasonableness of such assumptions.

Duff & Phelps prepared its opinion effective as of the date of such opinion. Its opinion was necessarily based upon the information made available to Duff & Phelps as of the date thereof and market, economic, financial and other conditions as they exist and can be evaluated as of the date thereof, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date of its opinion. Duff & Phelps assumes no obligation to update, revise or reaffirm its opinion.

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise) of the Company. Duff & Phelps is not expressing any opinion as to the market price or value of the shares of Company common stock (or anything else) after the announcement or the consummation of the proposed transaction (or any other time). Duff & Phelps’s opinion should not be construed as a valuation opinion, a credit rating, a solvency opinion, an analysis of the Company’s credit worthiness, tax advice, or accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter. The issuance of Duff & Phelps’s opinion was approved by an authorized fairness opinion committee of Duff & Phelps.

In rendering its opinion, Duff & Phelps was not expressing any opinion with respect to the amount or nature or any other aspect of any compensation payable to or to be received by any of the Company’s officers, directors or employees, or any class of such persons, relative to the merger consideration, or with respect to the fairness of any such compensation. In addition, Duff & Phelps’s opinion does not address the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company, other than the holders of the shares of Company common stock (excluding the excluded shares).

Duff & Phelps’s opinion was furnished for the use and benefit of the special committee in connection with its consideration of the merger and is not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’s express consent. The opinion (i) does not address the merits of the underlying business decision to enter into the merger versus any alternative strategy or transaction; (ii) does not address any transaction related to the merger; (iii) is not a recommendation as to how the special committee or any stockholder should vote or act with respect to any matters relating to the merger, or whether to proceed with the merger or any related transaction; and (iv) does not indicate that the merger consideration is the best possibly attainable under any circumstances; instead, it merely states whether the merger consideration is within a range suggested by certain financial analyses. The decision as to whether to proceed with the merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the opinion is based.

Set forth below is a summary of the material analyses performed by Duff & Phelps in connection with the delivery of its opinion to the special committee. This summary is qualified in its entirety by reference to the full text of the opinion, attached hereto as Annex C. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentation to the special committee, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis. In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it in rendering the fairness opinion without considering all analyses and factors could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken as a whole, and also on the application of Duff & Phelps’s own experience and judgment.

The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’s financial analyses to be fully understood, 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. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’s financial analyses.

Discounted Cash Flow Analysis

Duff & Phelps performed a discounted cash flow analysis of the estimated future unlevered free cash flows of the Company for the fiscal years ending December 31, 2013 through December 31, 2018, with ‘‘free cash flow’’ defined as cash that is available either to reinvest or to distribute to security holders. The discounted cash flow analysis was used to determine the net present value of estimated future free cash flows utilizing a weighted average cost of capital as the applicable discount rate. For the purposes of its discounted cash flow analysis, Duff & Phelps utilized and relied upon the management projections, which are described in this proxy statement in the section entitled ‘‘ Special Factors—Prospective Financial Information ’’ beginning on page 56. In the course of its analysis, Duff & Phelps excluded the costs associated with the Company being a publicly listed company from the management projections because such costs would likely be eliminated as a result of the merger. Duff & Phelps also excluded non-recurring income and expenses, such as going-private costs, from the management projections. Financial projections for the fiscal years ending December 31, 2019 through December 31, 2022, which reflect the Company achieving a stable growth rate by the end of the fiscal year ending December 31, 2022, were extrapolated based on the management projections (described in this proxy statement in the section entitled ‘‘ Special Factors—Prospective Financial Information ’’) and discussions with Company management. The following table sets forth the financial projections used in Duff & Phelps’ analysis:

Notes:

(1) Adjusted gross profit excludes depreciation and amortization.

(2) EBITDA and EBIT exclude public company costs and non-recurring income (expenses).

Based on Duff and Phelps’ discussions with the management of the Company, the main assumptions underlying the extrapolated financial projections for the fiscal years ending December 31, 2019 through December 31, 2022 are:

Duff & Phelps estimated the net present value of all cash flows of the Company after fiscal year 2022 (the “ terminal value ”) using a perpetuity growth formula assuming a 3.0% terminal growth rate, which took into consideration an estimate of the expected long-term growth rate of the economy and the Company’s business. Duff & Phelps used discount rates ranging from 16.0% to 18.0%, reflecting Duff & Phelps’s estimate of the Company’s weighted average cost of capital, to discount the projected free cash flows and terminal value. Duff & Phelps estimated the Company’s weighted average cost of capital by estimating the weighted average of the Company’s cost of equity (derived using the capital asset pricing model, which took into account the betas of comparable companies, the risk-free rate, an equity market risk premium, a stock risk premium and a country risk premium) and the Company’s after-tax cost of debt. Duff & Phelps believes that this range of discount rates is consistent with the rate of return that security holders could expect to realize on alternative investment opportunities with similar risk profiles. Set forth below is the calculation for the Company’s weighted-average cost of capital:

Based on these assumptions, Duff & Phelps’s discounted cash flow analysis resulted in an estimated enterprise value for the Company of US$45.8 million to US$61.4 million. Based on the above enterprise value, Duff & Phelps estimated the range of implied common equity value of the Company to be US$42.0 million to US$57.6 million by:

Based on the foregoing analysis, Duff & Phelps estimated a range of implied values of the Company’s shares of US$1.14 to US$1.57 per share.

Selected Public Companies and Merger and Acquisition Transactions Analyses

Duff & Phelps analyzed selected public companies and selected merger and acquisition transactions for purposes of estimating valuation multiples with which to calculate a range of implied enterprise values of the Company. This collective analysis was based on publicly available information and is described in more detail in the sections that follow.

The companies utilized for comparative purposes in the following analyses were not identical to the Company, and the transactions utilized for comparative purposes in the following analyses were not identical to the merger. Duff & Phelps does not have access to nonpublic information of any of the companies used for comparative purposes. Accordingly, a complete valuation analysis of the Company and the merger cannot rely solely upon a quantitative review of the selected public companies and selected transactions, but involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies and targets, as well as other factors that could affect their value relative to that of the Company. Therefore, the selected public companies and selected merger and acquisition transactions analyses are subject to certain limitations.

Selected Public Companies Analysis. Duff & Phelps compared certain financial information of the Company to corresponding data and ratios from publicly traded companies in the software and information technology services industry that Duff & Phelps deemed relevant to its analysis. For purposes of its analysis, Duff & Phelps used certain publicly available historical financial data and consensus equity analyst estimates for the selected publicly traded companies. This analysis produced valuation multiples of selected financial metrics which Duff & Phelps utilized to estimate the enterprise value of the Company. The twelve companies included in the selected public company analysis in the software and information technology services industry were:

Duff & Phelps selected these companies for its analysis based on their relative similarity, primarily in terms of business model and primary customers, to that of the Company.

The tables below summarize certain observed trading multiples and historical and projected financial performance, on an aggregate basis, of the selected public companies. The estimates for 2013 and 2014 in the tables below with respect to the selected public companies were derived based on information for the 12-month periods ending closest to the Company’s fiscal year ends for which information was available. Data related to the Company’s earnings before interest, taxes, depreciation and amortization (“ EBITDA ”) as well as earnings before interest and taxes (“ EBIT ”) were adjusted for purposes of this analysis to eliminate public company costs and estimated transaction costs related to the merger.