INFORMATION STATEMENT

 

These corporate actions will become effective on the date the Plan of Merger is registered by the Registrar of Companies of the Cayman Islands, which will occur at least 20 days after the date of the mailing of this Information Statement to our stockholders.

The Company will pay the cost of preparing, printing and distributing this Information Statement.

PLEASE NOTE THAT THIS IS NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO STOCKHOLDERS MEETING WILL BE HELD TO CONSIDER THE MATTERS DESCRIBED HEREIN. THIS INFORMATION STATEMENT IS BEING FURNISHED TO YOU SOLELY FOR THE PURPOSE OF INFORMING STOCKHOLDERS OF THE MATTERS DESCRIBED HEREIN PURSUANT TO SECTION 14(C) OF THE EXCHANGE ACT AND THE REGULATIONS PROMULGATED THEREUNDER, INCLUDING REGULATION 14C.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

 

By Order of the Board of Directors,

 

 

SUMMARY

The following summary highlights selected information from this Information Statement and may not contain all of the information that is important to you. To better understand the Merger Agreement, including the Redomicile Merger and other transactions contemplated thereby, you should carefully read this entire Information Statement, including the Merger Agreement attached as Annex A to this Information Statement and the Plan of Merger attached as Annex A to the Merger Agreement. For purposes of this Information Statement, the term “Merger Agreement” will refer to the Merger Agreement, as the same may be amended.

The Redomicile Merger

The Parties to the Merger Agreement and the Plan of Merger

China Biotech Holdings, Inc.   The Company is currently considered to be a “blank check” company. The SEC defines those companies as “any development stage company that is issuing a penny stock, within the meaning of Section 3(a)(51) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” Under SEC Rule 12b-2 under the Exchange Act, the Company also qualifies as a “shell company,” because it has no or nominal assets (other than cash) and no or nominal operations.

We intend to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of having its common stock registered under the Exchange Act. The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business. Although management has not restricted the geographical location of the target companies to China, management believes that it is probable that the target’s operations will be based in China or Asia.

Zhong Yuan Bio-Technical Holdings Limited.  Zhong Yuan Bio-Technical Holdings Limited (“Zhong Yuan”) was formed in July 2016 as an exempted company limited by shares under the laws of the Cayman Islands and is currently a wholly-owned subsidiary of the Company. An “exempted” company under the laws of the Cayman Islands is one which receives such registration as a result of satisfying the Registrar of Companies in the Cayman Islands that it conducts its operations mainly outside of the Cayman Islands and is, as a result, exempted from complying with certain provisions of the Companies Law (2016 Revision) of the Cayman Islands, such as the general requirement to file an annual return of its shareholders with the Registrar of Companies, and is permitted flexibility in certain matters, such as the ability to register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands. Zhong Yuan does not have a significant amount of assets or liabilities and has not engaged in any business since its incorporation other than activities associated with its anticipated participation in the Redomicile Merger.

 

The principal executive offices of each of the Company and Zhong Yuan are located at Suite 2432, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong; Telephone: +852 29198916; Facsimile: +852 25747287.

 

 

 

Background and Reasons for the Redomicile Merger

We believe that the Redomicile Merger, which would change our place of incorporation from Delaware to the Cayman Islands, (i) would allow us to reduce operational, administrative, legal and accounting costs over the long term because Zhong Yuan is expected to qualify as a foreign private issuer and be exempt from certain rules under the Exchange Act, which is in line with the Company’s expectation that, subsequent to a merger with an operating company, the Company’s business and operations will be conducted primarily outside of the United States, and (ii) will more closely align our structure with our international corporate strategy. Because we anticipate that, subsequent to our merger with an operating company, substantially all of our executive team and members of our board of directors will likely reside outside the United States, we believe that it is advisable to move our place of incorporation outside the United States. In reaching its decision to approve the Merger Agreement, our board of directors identified several potential benefits to our stockholders, which are described under “The Redomicile Merger — Background and Reasons for the Redomicile Merger.”

The Merger Agreement

A copy of the Merger Agreement, including the Plan of Merger, is attached as Annex A to this Information Statement. The Company encourages you to read the entire Merger Agreement and Plan of Merger carefully, as they are the principal documents governing the Redomicile Merger.

Zhong Yuan Ordinary Shares

When the Redomicile Merger is completed, each share of the Company's Common Stock shall convert into the right to receive one ordinary share in the capital of Zhong Yuan, which ordinary shares will be issued by Zhong Yuan in connection with the Redomicile Merger. Following the Redomicile Merger, the former stockholders of the Company will become holders of Zhong Yuan ordinary shares, and Zhong Yuan will own and continue to conduct our business in substantially the same manner as is currently being conducted by the Company. In light of the fact that the Company has only three stockholders, the ordinary shares will be issued to the stockholders of the Company in reliance on exemptions from registration provided by Regulation S with respect to Ms. Ting Ting Chang, and Section 4(a)(2) of the U.S. Securities Act of 1933 (the "Securities Act") with respect to all three shareholders. The share certificates issued by Zhong Yuan will each contain a restrictive legend, and all shares issued will constitute restricted securities.

Treatment of the Company’s Options, Warrants and Convertible Securities

In connection with the Redomicile Merger, each outstanding option, warrant or convertible security exercisable or convertible into Common Stock of the Company will be assumed by Zhong Yuan and will become an option, warrant or convertible security exercisable or convertible into an equal number of ordinary shares in the capital of Zhong Yuan under the same terms and conditions.

Overview of the Merger Agreement

The Company and Zhong Yuan are required to complete the Redomicile Merger only if certain customary conditions are satisfied or waived, including the Merger Agreement and the Plan of Merger being approved by the Company’s and Zhong Yuan’s stockholders.

Board of Directors; Management of Zhong Yuan Following the Redomicile Merger

Following the Redomicile Merger, Zhong Yuan will be managed by the same board of directors and executive officers that manage the Company.

Accounting Treatment

The Redomicile Merger will be accounted for as a legal reorganization with no change in ultimate ownership interest immediately before and after the transaction. Accordingly, all assets and liabilities will be recorded at historical cost as an exchange between entities under common control.

Material U.S. Federal Income Tax Consequences

We do not anticipate that Zhong Yuan will be treated as a U.S. corporation for U.S. federal income tax purposes after the Redomicile Merger. In addition, we intend the Redomicile Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Assuming the Redomicile Merger qualifies as a reorganization, a U.S. Holder will not recognize any gain or loss for U.S. federal income tax purposes upon receipt of Zhong Yuan ordinary shares in the Redomicile Merger. A U.S. Holder will have an adjusted tax basis in the Zhong Yuan ordinary shares received in the Redomicile Merger equal to the adjusted tax basis of the Company Common Stock surrendered by such U.S. Holder in the Redomicile Merger. The holding period for Zhong Yuan ordinary shares received in the Redomicile Merger will include the holding period for the Company Common Stock surrendered therefor. Please see the section entitled “Taxation - United States Taxation” beginning on page 16.

Comparison of Stockholder/Shareholder Rights

Upon consummation of the Redomicile Merger, the holders of issued and outstanding Common Stock of the Company will be entitled to receive Zhong Yuan ordinary shares. The rights of the holders of the Company’s Common Stock are governed by the Company’s articles of incorporation and bylaws and DGCL, while the rights of holders of Zhong Yuan’s ordinary shares are generally governed by Zhong Yuan’s memorandum and articles of association and the Companies Law (2016 Revision) of the Cayman Islands as well as the common law of the Cayman Islands. There are differences in rights afforded under Delaware law and Cayman Islands law. Please see the section entitled “Comparison of Rights under Delaware and Cayman Islands Laws.”

 

 

THE REDOMICILE MERGER

The Merger Agreement and the Plan of Merger

The following includes a brief summary of the material provisions of the Merger Agreement, a copy of which is attached as Annex A and incorporated by reference into this Information Statement. We encourage you to read the Merger Agreement and the Plan of Merger in their entirety for a more complete description of the Redomicile Merger. In the event of any discrepancy between the terms of the Merger Agreement or the Plan of Merger and the following summary, the Merger Agreement and the Plan of Merger will control.

Introduction

The Merger Agreement and the Plan of Merger provide for a Redomicile Merger that will result in each share of Common Stock of the Company being converted into the right to receive one ordinary share in the capital of Zhong Yuan, an exempted company limited by shares which is incorporated under the laws of the Cayman Islands. Under the Merger Agreement, the Company will merge with and into Zhong Yuan, with Zhong Yuan as the surviving company. We anticipate that the Redomicile Merger will become effective in February of 2018. Following the Redomicile Merger, Zhong Yuan will own and continue to conduct our business in substantially the same manner as it is currently being conducted by the Company. Immediately following the Redomicile Merger, you will own an interest in Zhong Yuan, which will be managed by the same board of directors and executive officers that managed the Company immediately prior to the Redomicile Merger. Additionally, the consolidated assets and liabilities of Zhong Yuan will be the same as those of the Company immediately prior to the Redomicile Merger.

The Parties to the Redomicile Merger

China Biotech Holdings Limited.  The Company is currently considered to be a “blank check” company. The SEC defines those companies as “any development stage company that is issuing a penny stock, within the meaning of Section 3(a)(51) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” Under SEC Rule 12b-2 under the Exchange Act, the Company also qualifies as a “shell company,” because it has no or nominal assets (other than cash) and no or nominal operations.

We intend to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of having its common stock registered under the Exchange Act. The Company's principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business. Although management has not restricted the geographical location of the target companies to China, management believes that it is probable that the target's operations will be based in China or Asia.

 

Zhong Yuan Bio-Technology Holdings Limited.   Zhong Yuan Bio-Technology Holdings Limited (“Zhong Yuan”) was incorporated in July 2016 as an exempted company limited by shares under the laws of the Cayman Islands, and is currently a wholly-owned subsidiary of the Company. An “exempted” company under the laws of the Cayman Islands is one which receives such registration as a result of satisfying the Registrar of Companies in the Cayman Islands that it conducts its operations mainly outside of the Cayman Islands and is, as a result, exempted from complying with certain provisions of the Companies Law (2016 Revision) of the Cayman Islands, such as the general requirement to file an annual return of its shareholders with the Registrar of Companies, and is permitted flexibility in certain matters, such as the ability to register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands. Zhong Yuan does not have a significant amount of assets or liabilities and has not engaged in any business since its incorporation other than activities associated with its anticipated participation in the Redomicile Merger.

The principal executive offices of each of the Company and Zhong Yuan are located at Suite 2432, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong; Telephone: + 852 29198916; Facsimile: +852 25747287.

 

 

 

Background and Reasons for the Redomicile Merger

We believe that the Redomicile Merger, which would change our place of incorporation from Delaware to the Cayman Islands, (i) would allow us to reduce operational, administrative, legal and accounting costs over the long term because Zhong Yuan is expected to qualify as a foreign private issuer and be exempt from certain rules under the Exchange Act, which is in line with the Company’s expectation that, subsequent to a merger with an operating company, the Company’s business and operations will be conducted primarily outside of the United States, and (ii) will more closely align our structure with our international corporate strategy. Because we anticipate that, subsequent to our merger with an operating company, substantially all of our executive team and members of our board of directors will likely reside outside the United States, we believe that it is advisable to move our place of incorporation outside the United States. In reaching its decision to approve the Merger Agreement, our board of directors identified several potential benefits to our stockholders, which are described below.

We believe the Redomicile Merger, which would change our place of incorporation from Delaware to the Cayman Islands, is consistent with our corporate strategy of merging with a company which primarily conducts its operations outside the United States, and would allow us to reduce operational, administrative, legal and accounting costs over the long term.

We have chosen to reorganize under the laws of the Cayman Islands because of its political and economic stability, effective judicial system, absence of exchange control or currency restrictions and availability of professional and support services.

 

 

 

Zhong Yuan expects to take advantage of these exemptions after the Redomicile Merger is effected. Accordingly, after the completion of the Redomicile Merger, if you hold Zhong Yuan securities, you may receive less information about Zhong Yuan and its business than you currently receive with respect to the Company and may be afforded less protection under the U.S. federal securities laws than you are entitled to currently.

 

 

 

Additionally, as a foreign private issuer, Zhong Yuan will be permitted to follow corporate governance practices in accordance with Cayman Islands laws in lieu of certain exchange corporate governance standards, such as the following NASDAQ corporate governance standards requiring that:

We believe  that there are no comparable Cayman Islands laws related to the above corporate governance standards.

Subsequent to merging with an operating target, it is the intent of Zhong Yuan to list its ordinary shares on the NASDAQ Stock Market or the NYSE American Market as soon as it qualifies to do so under the applicable rules.

We believe the Redomicile Merger will enhance shareholder value for the reasons discussed above. However, in light of the fact that the achievement of our objectives depends on many things, including, among other things, future laws and regulations, as well as the development of our business after effecting a merger with an operating target, we cannot predict what impact, if any, the Redomicile Merger will have in the long term when these factors change.

There are certain disadvantages that accompany redomicile in the Cayman Islands, including:

 

 

 

Zhong Yuan’s corporate affairs are governed by Zhong Yuan’s memorandum and articles of association, as amended and restated from time to time, the Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors and officers of Zhong Yuan, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands, as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors, although clearly established under Cayman Islands law, are not specifically prescribed in statute or a particular document in the same way that they are in certain statutes or judicial precedent in some jurisdictions in the United States.

We anticipate that, subsequent to our merger with an operating company, substantially all of our executive team and members of our board of directors will continue to reside outside the United States and all or a substantial portion of such persons’ assets will be located outside the United States. In addition, we anticipate that all of our operations will be conducted outside the United States and that all of our assets will be located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon Zhong Yuan or such persons, or to enforce against them in courts of the United States or of the Cayman Islands, judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

The Redomicile Merger

The steps that have been taken to date, and that will be taken, to complete the Redomicile Merger are:

At the Effective Time, any existing equity compensation plans of the Company, as may be amended, will be adopted and assumed by Zhong Yuan. Each outstanding option and other equity award issued under our equity compensation plans for the purchase or receipt of, or payment based on, each share of the Company’s Common Stock will represent the right to purchase or receive, or receive payment based on, one ordinary share in the capital of Zhong Yuan on substantially the same terms.

Additionally, at the Effective Time, Zhong Yuan will adopt and assume the obligations of the Company under or with respect to any contracts or agreements as described in the Merger Agreement. The contracts and agreements will become the obligations of Zhong Yuan and will be performed in the same manner and without interruption until the same are amended or otherwise lawfully altered or terminated.

The Merger Agreement and the Plan of Merger may be amended, modified or supplemented at any time. However, no amendment, modification or supplement that requires approval by the Company’s stockholders may be made or effected without obtaining that approval.

 

 

 

Possible Abandonment

Pursuant to the Merger Agreement, the board of directors of the Company may exercise its discretion to terminate the Merger Agreement, and therefore abandon the Redomicile Merger, at any time prior to the Effective Time, including after the adoption of the Merger Agreement by the Company’s stockholders.

Additional Agreements

Zhong Yuan expects to enter into indemnification agreements in the future with its officers and directors that are consistent with the laws of the Cayman Islands. Generally, we anticipate that the indemnification agreements will require that Zhong Yuan indemnify and hold an indemnitee harmless to the fullest extent permitted by law for liabilities arising out of the indemnitee’s current or past association with Zhong Yuan, any subsidiary of Zhong Yuan or another entity where he or she is or was serving at Zhong Yuan’s request as a director or officer or in a similar capacity that involves services with respect to any employee benefit plan.

The indemnification agreements also are expected to provide for the advancement of defense expenses by Zhong Yuan. Please also see the section entitled “Comparison of Rights under Delaware and Cayman Islands Laws — Indemnification of Directors and Officers” for a description of indemnification of directors and officers under Cayman Islands law and Zhong Yuan’s memorandum and articles of association.

Conditions to Completion of the Redomicile Merger

The following conditions must be satisfied or waived, if allowed by law, to complete the Redomicile Merger:

 

 

 

Our board of directors currently does not anticipate any circumstances in which it would waive the conditions listed above; however, in the event it determines that a waiver of any such conditions is in the best interests of the Company and our stockholders and that such change to the terms of the Redomicile Merger does not make the disclosure provided to our stockholders materially misleading (for example, if a representation in the Merger Agreement is not true but there is otherwise no harm to the Company or our stockholders), our board of directors will not resolicit stockholder approval of the Redomicile Merger. If a waiver of any condition listed above would make the disclosure provided to our stockholders materially misleading, our board of directors will resolicit shareholder approval of the Redomicile Merger. Additionally, our board of directors reserves the right to defer or abandon the Redomicile Merger.

Stock Compensation and Benefit Plans and Programs

As part of the Redomicile Merger, Zhong Yuan has agreed to assume all of the Company’s rights and obligations under any stock-based benefit and compensation plans and programs of the Company at the Effective Time. All rights to purchase or receive, or receive payment based on, each share of the Company’s Common Stock arising under our equity compensation plans will entitle the holder to purchase or receive, or receive payment based on, as applicable, one Zhong Yuan ordinary share. At present, neither the Company nor Zhong Yuan has any stock-based compensation plans or programs. Such plans or programs may be adopted in the future.

Warrants, Convertible Debentures or Convertible Securities

In addition, as part of the Redomicile Merger, Zhong Yuan has agreed to assume all of the Company’s rights and obligations of any warrants, convertible debentures or other convertible securities that may convert into the Company’s Common Stock at the Effective Time. All rights to purchase or receive, or receive payment based on, each share of the Company’s Common Stock arising under our warrants, convertible debentures or other convertible securities will entitle the holder thereof to purchase or receive, or receive payment based on, as applicable, one Zhong Yuan ordinary share. At present, neither the Company nor Zhong Yuan has any warrants, debentures or convertible securities.

Effective Time

We anticipate that the Redomicile Merger will become effective in February 2018. Our board of directors will have the right, however, to defer or abandon the Redomicile Merger at any time if it concludes that completion of the Redomicile Merger would not be in the best interests of the Company or our stockholders.

 

 

 

Management of Zhong Yuan

Immediately prior to the Effective Time, the directors and officers of the Company at such time will be elected or appointed as the directors and officers of Zhong Yuan (to the extent the directors and officers of Zhong Yuan and the Company are not already identical), each such person to have the same office(s) with Zhong Yuan (and the same class designations and committee memberships in the case of directors) as he or she held with the Company, with the directors to serve until the earlier of the next meeting of Zhong Yuan’s shareholders at which an election of directors of their respective classes is required or until their successors are elected or appointed (or their earlier death, disability or retirement).

Regulatory Approvals

The only governmental or regulatory approvals or actions that are required to complete the Redomicile Merger are compliance with U.S. federal and state securities laws and Delaware corporate law (including the filing with the Secretary of State of the State of Delaware of a certificate of merger).

Rights of Dissenting Stockholders

Under the DGCL, the Company's shareholders will have appraisal rights in connection with the Redomicile Merger, unless they have voted in favor of the Redomicile Merger or consented to the Redomicile Merger in writing. The Company will notify any shareholder who is entitled to appraisal rights of the approval of the Redomicile Merger and that appraisal rights are available, and will furnish such shareholder with a copy of the relevant section of the Delaware General Corporation Law which sets forth the procedure for demanding an appraisal of the shareholder's shares. Since all of the Company's shareholders have consented in writing to the Redomicile Merger, none of the Company's shareholders have appraisal rights under the DGCL.

Ownership in Zhong Yuan

Each share of the Company’s Common Stock registered in your name or which you beneficially own through your broker will be converted into the right to receive one ordinary share in the capital of Zhong Yuan and such ordinary share will be registered in your name (or your broker’s name, as applicable) in Zhong Yuan’s register of members upon completion of the Redomicile Merger, without any further action on your part. Upon completion of the Redomicile Merger, only registered shareholders reflected in Zhong Yuan’s register of members will have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon Zhong Yuan ordinary shares registered in their respective names. Any attempted transfer of the Company’s stock prior to the Redomicile Merger that is not properly documented and reflected in the stock records maintained by the Company as of immediately prior to the Effective Time will not be reflected in Zhong Yuan’s register of members upon completion of the Redomicile Merger.

If you hold the Company’s Common Stock in an account with a broker or other securities intermediary, you will receive delivery of ordinary shares in your account with that same broker or securities intermediary without any action on your part. If you hold the Company’s Common Stock in certificated form, you may exchange your stock certificates for new Zhong Yuan share certificates following the Redomicile Merger. We will request that all Company stock certificates be returned to the Company following the Redomicile Merger. Soon after the closing of the Redomicile Merger, you will be sent a letter of transmittal from us. The letter of transmittal will contain instructions explaining the procedure for surrendering your stock certificates of the Company for new Zhong Yuan share certificates.

Stock Exchange Listing

There is currently no established public trading market for the Company’s Common Stock or for Zhong Yuan’s ordinary shares.

 

 

Accounting Treatment of the Redomicile Merger

The Redomicile Merger will be accounted for as a legal reorganization with no change in ultimate ownership interest immediately before and after the transaction. Accordingly, no business combination has occurred and all assets and liabilities will be recorded at historical cost as an exchange between entities under common control.

Taxation

The following discussion of the material Cayman Islands and U.S. federal income tax consequences of the Redomicile Merger is based upon laws and relevant interpretations thereof effective as of the date of this Information Statement, all of which are subject to change, possibly with retroactive effect. This discussion does not deal with all possible tax consequences relating to the Redomicile Merger or otherwise, such as the tax consequences under laws of countries other than the Cayman Islands and the United States or under state and local tax laws.

Cayman Islands Taxation

The Cayman Islands government (or any other taxing authority in the Cayman Islands) currently does not levy taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the Cayman Islands in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to Zhong Yuan levied by the government of the Cayman Islands except for stamp duty, which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. No stamp duties or other similar taxes or charges are payable under the laws of the Cayman Islands in respect of the execution or delivery of any of the documents relating the proposed Redomicile Merger or the performance or enforcement of any of them, unless they are executed in or thereafter brought within the jurisdiction of the Cayman Islands for enforcement purposes or otherwise. We do not intend that any documents relating the proposed Redomicile Merger be executed in or brought within the jurisdiction of the Cayman Islands. There are no exchange control regulations or currency restrictions in the Cayman Islands.

 

 

United States Taxation

The following are the material U.S. federal income tax consequences of the Redomicile Merger to beneficial owners of Company Common Stock. This discussion is based on the Code, applicable Treasury regulations, administrative interpretations and court decisions as in effect as of the date of this Information Statement, all of which may change, possibly with retroactive effect.

This discussion addresses only the consequences of the exchange of shares of Company Common Stock held as capital assets. It does not address all aspects of U.S. federal income taxation that may be important to a beneficial owner in light of his or her particular circumstances, including alternative minimum tax and Medicare contribution tax consequences, or tax consequences that may apply to a beneficial owner subject to special rules, such as:

This discussion of material U.S. federal income tax consequences is not a complete analysis or description of all potential U.S. federal income tax consequences of the Redomicile Merger. This discussion does not address tax consequences that may vary with, or are contingent on, individual circumstances. In addition, it does not address any non-income tax or any non-U.S., state or local tax consequences. Accordingly, each Company shareholder should consult its own tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences to it of the Redomicile Merger.

U.S. Federal Income Tax Consequences of the Redomicile Merger to the Company and Zhong Yuan

Neither the Company nor Zhong Yuan will recognize any gain or loss for U.S. federal income tax purposes as a result of the Redomicile Merger.

Pursuant to Section 7874 of the Code, Zhong Yuan will not be treated as a U.S. corporation under the Code because (i) after the Redomicile Merger, Zhong Yuan will have acquired substantially all of the properties held directly or indirectly by the Company, (ii) after the Redomicile Merger, Zhong Yuan will not have substantial business activities in the Cayman Islands, and (iii) the former holders of the Company’s Common Stock will hold, by reason of owning shares of the Company’s Common Stock, at least 80% or more of the Zhong Yuan ordinary shares.

 

 

 

U.S. Federal Income Tax Consequences of the Redomicile Merger to U.S. Holders

This section applies to beneficial owners of Company Common Stock that are U.S. Holders. A U.S. Holder is a beneficial owner of Company Common Stock that is for U.S. federal income tax purposes:

A U.S. Holder will not recognize any gain or loss for U.S. federal income tax purposes upon receipt of Zhong Yuan ordinary shares in the Redomicile Merger. A U.S. Holder will have an adjusted tax basis in the Zhong Yuan ordinary shares received in the Redomicile Merger equal to the adjusted tax basis of the Company Common Stock surrendered by such U.S. Holder in the Redomicile Merger. The holding period for Zhong Yuan ordinary shares received in the Redomicile Merger will include the holding period for the Company Common Stock surrendered therefor.

The U.S. federal income tax consequences of owning and disposing of Zhong Yuan ordinary shares received in the Redomicile Merger will be the same as the U.S. federal income tax consequences of owning and disposing of Company Common Stock before the Redomicile Merger. Each U.S. Holder should consult its own tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences to it of the ownership and disposition of Zhong Yuan ordinary shares.

 

 

U.S. Federal Income Tax Consequences of the Redomicile Merger to Non-U.S. Holders

This section applies to beneficial owners of Company Common Stock that are Non-U.S. Holders. A Non-U.S. Holder is a beneficial owner of Company Common Stock that is for U.S. federal income tax purposes:

A beneficial owner is not a Non-U.S. Holder if the beneficial owner is a nonresident alien individual present in the United States for 183 days or more in the taxable year of disposition, or if the beneficial owner is a former citizen or former resident of the United States, in either of which cases the beneficial owner should consult his or her tax advisor regarding the U.S. federal income tax consequences of the Redomicile Merger and of owning or disposing of Zhong Yuan ordinary shares.

The receipt of Zhong Yuan ordinary shares in exchange for Company Common Stock will not be a taxable transaction to Non-U.S. Holders for U.S. federal income tax purposes.

The U.S. federal income tax consequences of owning and disposing of Zhong Yuan ordinary shares received in the Redomicile Merger will be the same as the U.S. federal income tax consequences of owning and disposing of Company Common Stock before the Redomicile Merger, including that dividends paid by Zhong Yuan to Non-U.S. Holders will generally be subject to U.S. federal withholding tax at a 30% rate (or a reduced rate specified by an applicable income tax treaty). Each Non-U.S. Holder should consult its own tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences to it of the ownership and disposition of Zhong Yuan ordinary shares.

DESCRIPTION OF SHARE CAPITAL OF ZHONG YUAN

The following description of the material terms of Zhong Yuan’s ordinary shares following the Redomicile Merger includes a summary of specified provisions of the amended and restated memorandum of association and articles of association of Zhong Yuan that will be in effect upon completion of the Redomicile Merger. This description is qualified by reference to the amended and restated memorandum of association and articles of association of Zhong Yuan that will become effective upon consummation of the Redomicile Merger, which are attached as Annex B to this Information Statement and incorporated herein by reference. You are encouraged to read the relevant provisions of the Companies Law and Zhong Yuan’s amended and restated memorandum and articles of association as they relate to the following summary.

Authorized Share Capital

Zhong Yuan is authorized to issue 500,000,000 shares of a par value of US$0.0001 each. The board of directors of Zhong Yuan is authorized to issue these shares in different classes and series and, with respect to each class or series, to determine the designations, powers, preferences, privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the ordinary shares, at such times and on such other terms as they think proper.

As of the close of business on November 15, 2017, Zhong Yuan had 100 ordinary shares issued and outstanding and no preference shares issued and outstanding. Upon the completion of the Redomicile Merger, Zhong Yuan will issue approximately 8,500,000 ordinary shares in the Redomicile Merger and the 100 ordinary shares issued and outstanding prior to the Redomicile Merger will be cancelled.

Ordinary Shares

General

Dividends

The holders of Zhong Yuan’s ordinary shares are entitled to such dividends as may be declared by Zhong Yuan’s board of directors, subject to the Companies Law and the memorandum and articles of association of Zhong Yuan, as amended and restated from time to time. Under Cayman Islands law, dividends may be declared and paid only out of funds legally available therefor, namely out of either profit or share premium account, provided that in no circumstances may Zhong Yuan pay a dividend if this would result in Zhong Yuan being unable to pay its debts as they fall due in the ordinary course of business.

Register of Members

Under Cayman Islands law, Zhong Yuan must keep a register of members and there shall be entered therein:

Under Cayman Islands law, the register of members of Zhong Yuan is prima facie evidence of the matters set out therein (i.e., the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members shall be deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members. Upon the closing of the Redomicile Merger, the register of members shall be immediately updated to reflect the issue of ordinary shares by Zhong Yuan to the Company’s stockholders. Once Zhong Yuan’s register of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the ordinary shares set against their name in the register of members.

 

 

 

Voting Rights

Each holder of ordinary shares is entitled to one vote on all matters upon which the ordinary shares are entitled to vote on a show of hands or, on a poll, each holder is entitled to have one vote for each share registered in his name on the register of members. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of Zhong Yuan’s board of directors or by any one or more shareholders holding at least one-tenth of the votes attaching to the issued and outstanding ordinary shares in Zhong Yuan entitled to vote at general meetings, present in person or by proxy.

A quorum required for a general meeting of shareholders consists of one or more shareholders who hold in aggregate at least one-third of the votes attaching to the issued and outstanding ordinary shares in Zhong Yuan entitled to vote at general meetings, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Although not required by the Companies Laws or Zhong Yuan’s amended and restated memorandum and articles of association, Zhong Yuan expects to hold shareholders’ meetings annually and such meetings may be convened by Zhong Yuan’s board of directors on its own initiative or upon a request to the directors by shareholders holding in aggregate at least 25% in par value of Zhong Yuan’s issued shares that carry the right to vote at general meetings. An extraordinary general meeting may also be called by the Chairman of the Board or the President of Zhong Yuan. Advance notice of at least 10 days is required for the convening of Zhong Yuan’s annual general meeting and other shareholders meetings.

An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy in a general meeting. An ordinary resolution may also be passed by a written resolution signed by a simple majority of all votes entitled to be cast, whereas a special resolution requires a written resolution signed by all the shareholders of Zhong Yuan, as required by the Companies Law and the amended and restated memorandum and articles of association of Zhong Yuan. A special resolution will be required for important matters such as change of name or making changes to the memorandum and articles of association of Zhong Yuan.

Transfer of Ordinary Shares

 

 

Zhong Yuan’s board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which Zhong Yuan has a lien. Zhong Yuan’s directors may also decline to register any transfer of any ordinary share unless:

If Zhong Yuan’s directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, on 14 days’ notice being given by advertisement in one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as Zhong Yuan’s board of directors may from time to time determine; provided, however, that the registration of transfers shall not be suspended and the register shall not be closed for more than 30 days in any year.

Liquidation

On a winding up of Zhong Yuan, if the assets available for distribution among its shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus will be distributed among its shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to Zhong Yuan for unpaid calls or otherwise. If Zhong Yuan’s assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by its shareholders in proportion to the par value of the shares held by them.

Calls on Ordinary Shares and Forfeiture of Ordinary Shares

Zhong Yuan’s board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.

 

 

 

Redemption, Repurchase and Surrender of Ordinary Shares

Zhong Yuan may issue shares on terms that are subject to redemption, at Zhong Yuan’s option or at the option of the holders, on such terms and in such manner as may be determined before the issue of such shares, by Zhong Yuan’s board of directors or by a special resolution of Zhong Yuan’s shareholders. Zhong Yuan may also repurchase any of its shares provided that the manner and terms of such purchase have been agreed between the board of directors and the relevant shareholder or are otherwise authorized by its memorandum and articles of association.

Under the Companies Law, the redemption or repurchase of any share may be paid out of Zhong Yuan’s profits or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if Zhong Yuan can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, Zhong Yuan may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares

All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied either with the written consent of the holders of not less than two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.

Inspection of Books and Records

Holders of Zhong Yuan’s ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of Zhong Yuan’s list of shareholders or its corporate records. However, Zhong Yuan will file Annual Reports on Form 20-F, including audited financial statements. See “Additional Information.”

Changes in Capital

Zhong Yuan may from time to time by ordinary resolution:

 

 

 

Subject to the Companies Law and confirmation by the Grand Court of the Cayman Islands on an application by Zhong Yuan for an order confirming such reduction, Zhong Yuan may by special resolution reduce its share capital and any capital redemption reserve in any manner authorized by law.

Issuance of Additional Shares

Zhong Yuan’s amended memorandum and articles of association authorizes Zhong Yuan’s board of directors to issue additional ordinary shares from time to time as its board of directors shall determine, to the extent of available authorized but unissued shares.

Zhong Yuan’s amended memorandum and articles of association authorizes Zhong Yuan’s board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

Zhong Yuan’s board of directors may issue preferred shares without action by its shareholders to the extent authorized but unissued. In addition, the issuance of preferred shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of these shares may dilute the voting power of holders of ordinary shares.

 

Exempted Company

Zhong Yuan is an exempted company duly incorporated with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies and exempted companies. Any company, the objects of which are to conduct business mainly outside of the Cayman Islands, may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for certain exemptions and privileges, including (a) an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies, (b) an exempted company is not required to open its register of members for inspection, (c) an exempted company does not have to hold an annual general meeting, (d) an exempted company may issue no par value, negotiable or bearer shares, (e) an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands, (f) an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance), (g) an exempted company may register as a limited duration company and (h) an exempted company may register as a segregated portfolio company.

 

 

 

 “Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on that shareholder’s shares of the company (except in exceptional circumstances, such as fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

Transfer Agent

Zhong Yuan will serve as its own transfer agent and registrar for its ordinary shares unless and at least until it completes a merger or acquisition of an operating company.

COMPARISON OF RIGHTS UNDER DELAWARE

AND CAYMAN ISLANDS LAWS

Your rights as a stockholder of the Company are governed by the DGCL and the Company’s articles of incorporation and bylaws. After the Redomicile Merger, you will become a shareholder of Zhong Yuan and your rights will be governed by the Companies Law and Zhong Yuan’s memorandum of association and articles of association.

The principal attributes of the Company’s Common Stock and Zhong Yuan ordinary shares are similar. However, there are differences between your rights under the DGCL and under the Companies Law. In addition, there are differences between the Company’s articles of incorporation and bylaws and Zhong Yuan’s memorandum of association and articles of association. The following discussion is a summary of certain material differences in your rights that will result from the Redomicile Merger. As such, this summary does not cover all the differences between the Companies Law and the DGCL affecting corporations and their shareholders or all of the differences between the Company’s articles of incorporation and bylaws and Zhong Yuan’s memorandum of association and articles of association. While we believe this summary is accurate in all material respects, the following descriptions are qualified in their entirety by reference to the complete text of the relevant provisions of the Companies Law, the DGCL, the Company’s articles of incorporation and bylaws and Zhong Yuan’s memorandum of association and articles of association. Zhong Yuan plans to adopt an amended memorandum and articles of association, which will become effective immediately upon the completion of the Redomicile Merger and will replace its existing memorandum and articles of association in their entirety. A copy of Zhong Yuan’s amended memorandum of association and articles of association that will become effective upon consummation of the Redomicile Merger is attached hereto as Annex C to this Information Statement. We encourage you to read the laws and documents referenced above.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ENFORCEABILITY OF CIVIL LIABILITIES

Zhong Yuan is incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides less protection for investors. In addition, Cayman Islands companies do not have standing to sue before the federal courts of the United States.

We anticipate that, subsequent to a merger with or acquisition of an operating company, substantially all of Zhong Yuan’s assets will be located outside the United States. In addition, all of Zhong Yuan’s directors and officers are expected to be nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are expected to be located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon Zhong Yuan or these persons, or to bring an action against Zhong Yuan or against these persons in the United States, in the event that you believe that your rights have been infringed under the securities laws of the United States or any state in the United States. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against Zhong Yuan and its officers and directors. Zhong Yuan has appointed Schlueter & Associates, P.C. as its agent to receive service of process in the United States.

We believe that that there is uncertainty as to whether the courts of the Cayman Islands would (1) recognize or enforce judgments of U.S. courts obtained against Zhong Yuan or its directors or officers, predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (2) entertain original actions brought in the Cayman Islands against Zhong Yuan or its directors or officers, predicated upon the securities laws of the United States or any state in the United States.

We believe that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine or a penalty, (e) is not inconsistent with a Cayman Islands judgment of the same matter; (f) is not impeachable on grounds of fraud, and (g) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.