STAR Listing and STAR IPO
Background
In June 2019, we announced our intention to complete:
We believe the listing of ACM Shanghai shares on the STAR Market will help us scale our business in mainland PRC, as we continue to seek to broaden our
markets in Europe, Japan, Korea, Taiwan and the United States. Our global headquarters will continue to be located in Fremont, California, and we are committed to maintaining the listing of Class A common stock of ACM Research on the Nasdaq Global
Market, or Nasdaq.
Certain STAR Listing Requirements
To meet a STAR Listing requirement that it have multiple independent stockholders in the PRC, ACM Shanghai completed private placements of its shares in
June and November 2019, following which, as of May 31, 2020, the private placement investors held a total of 8.3% of the outstanding shares of ACM Shanghai and ACM Research held the remaining 91.7%.
The board of directors of ACM Shanghai consists of nine members, seven of whom are nominated by ACM Research and two of whom are nominated by two of the
private placement investors. The directors nominated by ACM Research include two individuals who also are members of the board of directors of ACM Research: Haiping Dun and David H. Wang, who also is the Chief Executive Officer and President of ACM
Research.
Consistent with STAR Listing requirements and applicable law, ACM Shanghai has adopted a dividend distribution policy, which generally contemplates that
it will pay dividends, typically annually, based on its then-existing situation by fully considering and accepting the opinions of shareholders (especially small and medium shareholders), independent directors and supervisors through a variety of
channels. In the absence of a “major” project, if ACM Shanghai is profitable and has met statutory reserve, surplus reserve and similar legal requirements with respect to a year, the annual cash dividend amount will be at least ten percent of any
profits for that year, but any profit distribution established by the ACM Shanghai board will be subject to shareholder approval. We expect ACM Shanghai will not pay dividends under this policy for the foreseeable future, because the execution of
its business strategy and growth plans each year will involve a “major” project, which generally is defined to be a project for which ACM Shanghai’s cumulative expenditures for proposed capital investments, asset acquisitions, research and
development, and other items during that year will exceed five percent of its net assets.
Certain Proposed STAR IPO Terms
ACM Shanghai currently proposes to offer up to ten percent of its shares in the STAR IPO. The net proceeds of the STAR IPO would be used to fund:
There have not been any decisions made regarding the timing or terms of the STAR Listing and the STAR IPO or whether the proposed
actions will ultimately be approved by the Shanghai Stock Exchange. Accordingly, there is no assurance that the proposed STAR Listing and STAR IPO will be completed.
The ACM Shanghai shares referred to in the PID and this Item 7.01 have not been and will not be registered under the Securities Act
of 1933, or the Securities Act, or any state securities laws and may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from the registration requirements of the Securities Act and
applicable state securities laws. This report is neither an offer to sell nor a solicitation of an offer to buy, nor shall there be any offer, solicitation or sale of these shares in any jurisdiction in which such offer, solicitation or sale
would be unlawful.
ACM Research Undertaking Agreements
In connection with ACM Shanghai’s submission of the PID on May 26, 2020 with respect to the STAR IPO, ACM Research, as the controlling shareholder of ACM
Shanghai, was required to enter into a series of agreements with the STAR Market, which became effective upon submission and are described below:
The foregoing summaries of the agreements of ACM Research with the STAR Market are qualified
in their entirety by reference to the text of the agreements, which are being filed as Exhibits 10.01 through 10.16 to this report and which are incorporated in this report by reference.
David H. Wang Undertaking Agreements
In connection with ACM Shanghai’s submission with respect to the STAR IPO, David H. Wang, as our Chief Executive Officer, President and Chair of the
Board and a significant stockholder of ACM Research, was required to enter into a series of agreements with the STAR Market in his individual capacity. As of the date of the submission, Dr. Wang beneficially owned approximately 15% of the
outstanding shares of ACM Research Class A common stock (including shares issuable upon conversion of Class B common stock) and approximately 55% of the total voting power of ACM Research common stock. He did not beneficially own any ACM Shanghai
shares as of that date.
In addition to his commitments made under four of the agreements described above, Dr. Wang agreed that:
Risk Factors
If the STAR Listing and the STAR IPO are completed, ACM Research and ACM Shanghai both will be public reporting companies but each
will be subject to separate, and potentially inconsistent, accounting and disclosure requirements, which may lead to investor confusion or uncertainty that could cause decreased demand for, or fluctuations in the price of, one or both of the
companies’ publicly traded shares.
If ACM Shanghai completes the STAR Listing and the STAR IPO, it will be subject to accounting, disclosure and other regulatory requirements of the STAR
Market. At the same time, ACM Research will remain subject to accounting, disclosure and other regulatory requirements of the SEC and Nasdaq. As a result, ACM Research and ACM Shanghai periodically will disclose information simultaneously
pursuant to differing laws and regulations. Even though substantially all of the operations of ACM Research are currently conducted through ACM Shanghai, the information disclosed by the two companies will differ, and may differ materially from
time to time, due to the distinct, and potentially inconsistent, accounting standards applicable to the two companies and disclosure requirements imposed by securities regulatory authorities, as well as differences in language, culture and
expression habit, in composition of investors in the United States and PRC, and in the capital markets of the United States and the PRC.
Differing disclosures could lead to confusion or uncertainty among investors in the publicly traded shares of one or both companies. Differences
between the price of ACM Shanghai shares on the STAR Market and the price of ACM Research Class A common stock on Nasdaq could lead to increased volatility, as some investors seek to arbitrage price differences. Moreover, such volatility could be
exacerbated by the fact that ACM Shanghai shares currently represent substantially all of the assets of ACM Research.
We could be adversely affected if proposed legislation is adopted regarding improved access to audit and other information and
audit inspections of accounting firms, including registered public accounting firms operating in the PRC such as our auditor.
BDO China Shu Lun Pan Certified Public Accountants LLP, our independent registered public accounting firm, is not inspected by the Public Company
Accounting Oversight Board, or PCAOB. See “Item 1A. Risk Factors—Risks Related to Our Business and Our Industry—Our auditor, as a registered public accounting firm operating in the PRC, is not permitted to be inspected by the Public Company
Accounting Oversight Board, and consequently investors may be deprived of the benefits of such inspections” in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that we filed with the SEC on March 24, 2020.
On April 21, 2020, the SEC and the PCAOB issued a joint statement highlighting the significant disclosure, financial reporting and other risks associated
with emerging market investments, including the PCAOB’s continued inability to inspect audit work papers of auditors in the PRC. This statement is the latest in a series of recent proposed actions:
It remains unclear what further actions the SEC and the PCAOB will take to address these issues and what impact those actions will have on companies who
have significant operations in the PRC and who have securities listed on a U.S. stock exchange.