SUMMARY

 

This summary highlights selected information from this proxy statement/prospectus. It may not contain all of the information that is important to you. You are urged to carefully read the entire proxy statement/prospectus and the other documents attached to or referred to in this proxy statement/prospectus in order to fully understand the merger agreement, the disposition agreement, the proposed merger, the proposed disposition and the other proposals to be considered at the special meeting. Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.

 

The Companies (See Page 61)

 

Lianluo Smart Limited

 

The Company, through its wholly owned subsidiaries in the People’s Republic of China (which we refer to as the PRC or China), has been engaged in the medical device business, currently focusing on the development, production and marketing of sleep respiratory analysis system and cardiopulmonary resuscitation devices in China.

 

The Company has developed and distributed medical devices, with a focus on sleep respiratory solutions for the Obstructive Sleep Apnea Syndrome, or OSAS, since 2010. The Company provides users with medical grade detection and monitoring, long-distance treatment and integration solutions of professional rehabilitation. Since 2018, the Company has been providing examination services to hospitals and medical centers through its proprietary medical wearable devices, and doctors are able to refer to examination results provided by such devices in making diagnoses regarding OSAS.

 

The Company was incorporated pursuant to the laws of the British Virgin Islands, or BVI, on July 22, 2003 under the name “De-Haier Medical Systems Limited.” It changed its name to “Lianluo Smart Limited” on November 21, 2016. As a holding company, the Company does not conduct business in China and instead relies on Lianluo Connection, and prior to August 2020, Beijing Dehaier Medical Technology Company Limited, or Beijing Dehaier, to operate in China.

 

The Company’s Class A common shares are listed on the NASDAQ Capital Market under the symbol “LLIT.” The Company’s principal executive offices are located at Room 611, 6th Floor, BeiKong Technology Building, No. 10 Baifuquan Road, Changping District, Beijing 102200, People’s Republic of China, and its telephone number is +86-10-89788107. Information on the Company’s website is not incorporated by reference into or otherwise part of this proxy statement/prospectus.

 

On October 21, 2020, we completed a share combination of our common shares at a ratio of one-for-eight, which decreased our outstanding Class A common shares from 17,685,475 shares to 2,210,683 shares and our outstanding Class B common shares from 11,111,111 shares to 1,388,888 shares. This share combination also decreased our authorized shares to 6,250,000 common shares of par value of $0.021848 each, of which 4,736,111 are designated as Class A common shares and 1,513,889 are designated as Class B common shares. Accordingly, except as otherwise indicated, all share and per share information contained in this proxy statement/prospectus has been restated to retroactively show the effect of this share combination.

 

See “Information about the Company” and “Management Discussion and Analysis of Financial Condition and Results of Operations for the Company” for important business and financial information regarding the Company.

 

Lightning Delaware Sub, Inc.

 

Merger Sub was formed in the State of Delaware on September 23, 2020 and is a wholly owned subsidiary of the Company. Merger Sub was formed solely for the purpose of completing the merger. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the merger agreement and the merger.

 

Merger Sub is a privately-held corporation and its securities do not trade on any marketplace. The principal executive offices of Merger Sub are located at c/o the Company, Room 611, 6th Floor, BeiKong Technology Building, No. 10 Baifuquan Road, Changping District, Beijing 102200, People’s Republic of China, and its telephone number is +86-10-89788107.

 

Newegg Inc.

 

Newegg is a tech-focused e-commerce company in North America, and ranked second after Best Buy as the global top electronics online marketplace according to Web Retailer’s report, as measured by 32.4 million visits per month in 2019. Through newegg.com and other online platforms, Newegg operates a direct sales and marketplace models for IT computer components, consumer electronics, entertainment, smart home and gaming products and provides certain third party logistics services globally.

 

Newegg is a privately-held corporation and its securities do not trade on any marketplace. The principal executive offices of Newegg are located at 17560 Rowland Street, City of Industry, CA 91748, and its telephone number is 626-271-9700. Newegg maintains a website at www.newegg.com. Information on Newegg’s website is not incorporated by reference into or otherwise part of this proxy statement/prospectus.

 

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See “Information about Newegg” and “Management Discussion and Analysis of Financial Condition and Results of Operations for Newegg” for important business and financial information regarding Newegg.

 

The Merger (See Page 66)

 

The merger agreement provides for the merger, in which Merger Sub will be merged with and into Newegg, with Newegg surviving the merger as a wholly owned subsidiary of the Company.

 

The merger will be completed and become effective at such time as the certificate of merger for the merger is filed with the Secretary of State of the State of Delaware (or at such time as agreed to between the Company and Newegg and specified in such certificate of merger in accordance with applicable law). Unless another date and time are agreed to by the Company and Newegg, completion of the merger will occur no earlier than the second business day following the day on which the last of the conditions described in this proxy statement/prospectus is to be satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of such conditions).

 

As of the date of this proxy statement/prospectus, we expect that the merger will be completed in the first quarter of 2021. However, completion of the merger is subject to the satisfaction or waiver of the conditions to completion of the merger, which are summarized below. There can be no assurances as to when, or if, the merger will occur. If the merger is not completed on or before April 30, 2021 or June 30, 2021, if extended under certain circumstances, either the Company or Newegg may terminate the merger agreement. The right to terminate the merger agreement if the merger is not completed on or prior to such date will not be available to either of the Company or Newegg if the failure of the merger to be consummated by such date is due to a material breach by such party of any representation, warranty, covenant or other agreement of such party set forth in the merger agreement. See “The Merger Agreement—Conditions to Completion of the Merger” and “The Merger Agreement—Termination of the Merger Agreement.”

 

Upon the completion of the merger, the principal executive offices of the Company will be located at 17560 Rowland Street, City of Industry, CA 91748 and its telephone number will be 626-271-9700.

 

A copy of the merger agreement, as amended to the date of this proxy statement/prospectus, is attached as Annex A to this proxy statement/prospectus. You should read the merger agreement carefully because it is the legal document that governs the conversion and the merger.

 

Special Meeting of Shareholders (See Page 62)

 

Meeting. The special meeting will be held on [   ], 2020 at 10:00 a.m., local time, at our offices located at Room 611, 6th Floor, BeiKong Technology Building, No. 10 Baifuquan Road, Changping District, Beijing, 102200, People’s Republic of China. At the special meeting, shareholders will be asked to consider and vote on the merger proposal, the disposition proposal, the redesignation proposal, the share combination proposal, the share increase proposal, the name change proposal, the charter amendment proposal and the adjournment proposal. Under our amended and restated memorandum and articles of association, the business to be conducted at the special meeting will be limited to the proposals set forth in the notice to shareholders provided with this proxy statement/prospectus.

 

Record Date. Our board of directors has fixed the close of business on [   ], 2020 as the record date for determination of the shareholders entitled to vote at the special meeting, or any adjournment or postponement thereof. Only shareholders of record at the record date are entitled to receive notice of, and to vote at, the special meeting, or any adjournment or postponement thereof. As of the close of business on the record date, there were [   ] Class A common shares and [   ] Class B common shares outstanding and entitled to vote at the special meeting. Each Class A common share is entitled to one vote per share and each Class B common share is entitled to ten votes per share.

 

Quorum. The presence at the commencement of the special meeting, in person or by proxy, of not less than 50% of the votes of the common shares issued and outstanding and entitled to vote constitutes a quorum for the special meeting. Abstentions will be deemed present at the special meeting for the purpose of determining the presence of a quorum. Shares held in “street name” with respect to which the beneficial owner fails to give voting instructions to the broker, bank or other nominee holder of record will not be deemed present at the special meeting for the purpose of determining the presence of a quorum. Shares held in “street name” with respect to which the beneficial owner fails to give voting instructions to the broker, bank or other nominee holder of record on any of the proposals to be voted on at the special meeting, and shares with respect to which the beneficial owner otherwise fails to vote, will not be deemed present at the special meeting for the purpose of determining the presence of a quorum. Accordingly, we encourage you to provide voting instructions to your broker, whether or not you plan to attend the special meeting. There must be a quorum to hold the special meeting. Failure of a quorum to be present at the special meeting will necessitate an adjournment of the meeting and will subject us to additional expense.

 

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Required Vote. Assuming that a quorum is present, approval of the merger proposal, the disposition proposal, the redesignation proposal, the share combination proposal, the share increase proposal, the name change proposal and the charter amendment proposal each requires the affirmative vote of both (i) a majority of the votes cast at the special meeting and (ii) a majority of the votes cast at the special meeting which are not beneficially owned by Hangzhou Lianluo. In addition, assuming that a quorum is present, approval of the redesignation proposal also requires the affirmative vote of a majority of the issued and outstanding Class B common shares entitled to vote and voting on that proposal at the special meeting. The affirmative vote of a majority of the votes cast at the special meeting is required to approve the adjournment proposal.

 

Share Ownership of and Voting by Directors and Executive Officers. At the record date for the special meeting (the close of business on [   ], 2020), our directors and executive officers and their affiliates beneficially owned and had the right to vote in the aggregate [   ] common shares, which represents approximately [   ]% of the common shares entitled to vote as of that date. It is expected that our directors and executive officers and their affiliates will vote their shares for each of the proposals at the time of the special meeting.

 

What Newegg Stockholders Will Receive in the Merger (See Page xi)

 

If the merger is completed, each share of the capital stock of Newegg that was issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 5.8417 common shares of the Company (which we refer to as the exchange ratio), plus the right, if any, to receive cash in lieu of fractional shares of the Company (which we collectively refer to as the merger consideration); provided that the exchange ratio shall be appropriately adjusted to reflect the effect of any share split, split-up, reverse share split, share dividend or distribution of securities convertible into the Company’s common shares or Newegg’s capital stock or any reorganization, recapitalization, reclassification or other like change with respect to Company’s common shares or Newegg’s capital stock having a record date occurring on or after the date of the merger agreement and prior to the completion of the merger.

 

Although the exchange ratio for the merger consideration is fixed (subject to the adjustments described above), the market value of the merger consideration will fluctuate with the market price of our Class A common shares. Based on the closing price on October 23, 2020, the last trading day before the public announcement of the signing of the merger agreement, the implied aggregate value of the merger consideration is approximately $1.18 billion. Based on the closing price on [   ], 2020, the last practicable date before the date of the accompanying proxy statement/prospectus, the implied aggregate value of the merger consideration will be up to approximately $[   ] million. 

 

Treatment of Newegg Equity Awards (See Page 75)

 

The terms of the equity-based compensation issued by Newegg prior to the merger will be assumed by the Company. The shares of common stock that are issued or may be issued under Newegg’s Incentive Award Plan and Significant Shareholder Incentive Plan will be exchanged for our common shares, adjusted for the exchange ratio, but otherwise on the same terms and conditions.

 

Recommendation of the Board and its Reasons for the Merger (See Page 67)

 

Each of the special committee and our board of directors unanimously determined that the merger agreement and the transactions contemplated thereby, including the issuance of common shares in connection with the merger, are advisable and fair to and in the best interests of shareholders and unanimously recommended that shareholders vote “FOR” the merger proposal. For the factors considered by the special committee and the board of directors in reaching this decision, see “Proposal I: The Merger—Reasons for the Merger.”

 

Ownership of Common Shares After the Merger (See Page 72)

 

We estimate that we may issue approximately 363,325,542 common shares to Newegg stockholders upon completion of the merger, based on the number of shares of Newegg issued and outstanding as of October 23, 2020, the most recent practicable date for which such information was available. Based on the number of our common shares and Newegg stock outstanding as of such date, immediately following the completion of merger, our shareholders immediately prior to the merger are expected to own approximately 0.98% of our outstanding common shares and former Newegg stockholders are expected to own approximately 99.02% of our outstanding common shares (on a fully-diluted basis).

 

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Opinion of Financial Advisor (See Page 68)

 

The Company engaged The Benchmark Company, LLC, or Benchmark, to render an opinion as to whether the merger consideration is fair to the Company’s shareholders from a financial point of view. Benchmark rendered its written opinion to the special committee on October 23, 2020 that merger consideration to be paid by the Company was fair to the Company’s shareholders from a financial point of view. 

 

The full text of the Benchmark’s written opinion, dated October 23, 2020, which describes the assumptions made and limitations upon the review undertaken by Benchmark in preparing its opinion, is attached hereto as Annex D and is incorporated by reference herein. You should read the opinion carefully in its entirety.

 

Interests of Directors and Executive Officers in the Merger (See Page 72)

 

In considering the recommendations of the special committee and the board to vote for the merger proposal, you should be aware that certain of the current directors, executive officers and major shareholders of the Company and Newegg have interests in the merger that may be different from, or in addition to, the interests of our unaffiliated shareholders generally and may create potential conflicts of interest. These interests are described in more detail below. The special committee was aware of each of these interests in reviewing, considering and negotiating the terms of the proposed merger and in recommending that the board and the shareholders approve the proposed merger. The board was also aware of these interests in approving the merger agreement and the transactions thereby and in recommending the approval of the merger agreement to our shareholders.

 

Mr. Zhitao He, our former Chairman and Chief Executive Officer, who also controls approximately 86.6% of our total voting power, also serves on the board of Newegg and, through Digital Grid (Hong Kong) Technology Co., Limited, or Digital Grid, beneficially owns a majority of the equity interests in Newegg. Ms. Yingmei Yang, our Interim Chief Financial Officer and one of directors, also serves on the board of Newegg.

 

The merger agreement provides that all of Newegg’s shareholders, including Digital Grid, will receive common shares. Following the merger, Mr. Zhitao He will beneficially own approximately 224,269,418 common shares, representing approximately 61.12% of our total voting power.

 

Dissenters’ Rights Available to Shareholders (See Page 73)

 

Under BVI law, shareholders will not be entitled to appraisal or dissenters’ rights in connection with the merger.

 

Completion of the Merger is Subject to Certain Conditions (See Page 75)

 

The obligation of each of the Company, Newegg and Merger Sub to complete the merger is subject to the fulfillment (or waiver, to the extent permissible under applicable law) of the following conditions:

 

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the shareholders of the Company shall have approved the merger, the disposition and the other proposals set forth herein, which shall in all cases include approval of a majority of votes cast which are not beneficially owned by Hangzhou Lianluo;

 

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all consents or filings required to be obtained from or made with any governmental authority or third parties in order to consummate the transactions contemplated by the merger agreement shall have been obtained or made;

 

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no governmental authority shall have enacted, issued, promulgated, enforced or entered any law (whether temporary, preliminary or permanent) or order that is then in effect and which has the effect of making the transactions or agreements contemplated by the merger agreement or the disposition agreement illegal or which otherwise prevents or prohibits consummation of the transactions contemplated by the merger agreement;

 

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there shall not be any pending action brought by a third-party non-affiliate to enjoin or otherwise restrict the consummation of the merger or the disposition;

 

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the persons identified by Newegg shall have been elected or appointed to the Company’s board of directors;

 

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all of the conditions to the obligations of each party to consummate the disposition described in the disposition agreement shall have been satisfied;

 

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Benchmark shall have delivered its fairness opinion to the Company’s board;

 

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amendment to certain stockholder agreement, dated March 30, 2017, between Newegg and certain stockholders of Newegg that is being entered into concurrently with the merger agreement shall be in full force and effect and shall be assigned from Newegg to LLIT at the closing of the merger;

 

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the registration statement of which this proxy statement/prospectus forms a part shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order;

 

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the registration statement on Form F-1 relating to a public offering of common shares of the Company shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order; and

 

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the foregoing offering and the deposition are capable of being consummated on the closing date.

 

In addition, the obligation of Newegg to complete the merger is subject to the satisfaction (or waiver, to the extent permitted by applicable law) of the following conditions:

 

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all of the representations and warranties of the Company and the Merger Sub set forth in the merger agreement and in any certificate delivered by the Company and the Merger Sub pursuant thereto shall be true and correct on and as of the date of the agreement and on and as of the completion date of the merger as if made on the completion date, except for (i) those representations and warranties that address matters only as of a particular date (which representations and warranties shall have been accurate as of such date), and (ii) any failures to be true and correct that (without giving effect to any qualifications or limitations as to materiality or material adverse effect), individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect on, or with respect to, the Company and its subsidiaries or materially and adversely affects the Company and the Merger Sub’s ability to consummate the transactions contemplated by the merger agreement;

 

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the Company and the Merger Sub shall have performed in all material respects all of such party’s obligations and complied in all material respects with all of such party’s agreements and covenants under the merger agreement to be performed or complied with by it on or prior to the completion of the merger;

 

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no material adverse effect shall have occurred with respect to the Company, Merger Sub and any subsidiary since the date of the merger agreement;

 

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the Company shall have entered into employment agreements, in form and substance reasonably satisfactory to Newegg, with the persons identified by Newegg;

 

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Newegg shall have received a duly executed legal opinion addressed to Newegg from the Company’s legal counsel in form and substance reasonably satisfactory to Newegg;

 

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Newegg shall have received from the Company copy of the amended and restated memorandum and articles of association of the Company approved by shareholders at the special meeting;

 

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the Company and Merger Sub shall have delivered to Newegg customary officer’s certificates, secretary’s certificates and good standing certificates;

 

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if required, the transactions contemplated by the merger agreement shall have been approved by the investors pursuant to the Securities Purchase Agreements that the investors and the Company entered into on February 12, February 21 and February 27, 2020; and

 

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the Company shall have been approved by NASDAQ for listing following the merger.

 

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In addition, the obligation of each of the Company and Merger Sub to complete the merger is subject to the satisfaction (or waiver, to the extent permitted by applicable law) of the following conditions:

 

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all of the representations and warranties of Newegg (including its subsidiaries) set forth in the merger agreement and in any certificate delivered by Newegg pursuant thereto shall be true and correct on and as of the date of the merger agreement and on and as of the completion date of the merger as if made on the completion date, except for (i) those representations and warranties that address matters only as of a particular date (which representations and warranties shall have been accurate as of such date), and (ii) any failures to be true and correct that (without giving effect to any qualifications or limitations as to materiality or material adverse effect), individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect on, or with respect to, Newegg and any subsidiary or materially and adversely affect Newegg’s ability to consummate the transactions contemplated by the merger agreement;

 

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Newegg shall have performed in all material respects all of Newegg’s obligations and complied in all material respects with all of Newegg’s agreements and covenants under the merger agreement to be performed or complied with by it on or prior to the completion of the merger;

 

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lock-up agreements which are entered into on the date of the merger agreement by among Newegg, the Company and any Newegg stockholders who would hold more than 5% of the Company common shares immediately after the closing shall be in full force and effect in accordance with their as of the closing;

 

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No material adverse effect shall have occurred and be continuing with respect to Newegg and its subsidiaries, taken as whole, since the date of the merger agreement;

 

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the Newegg shall have delivered to the Company and Merger Sub customary officer’s certificates, secretary’s certificates and good standing certificates; and

 

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the Company and Merger Sub shall have received a duly executed legal opinion addressed to the Company and Merger Sub from the Newegg’s legal counsel in form and substance reasonably satisfactory to the Company and Merger Sub.

 

The Company and Newegg cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

 

Regulatory Approvals (See Page 73)

 

The consummation of the merger is not subject to any regulatory or governmental approvals or filings, other than (i) the filing of a certificate of merger with the Secretary of State of the State of Delaware and (ii) the declaration by the Securities and Exchange Commission, or the SEC, of the effectiveness of the registration statement of which this proxy statement/prospectus forms a part, and any required notice or other filings under applicable state securities laws.

 

Listing on NASDAQ (See Page 73)

 

The approval for listing of our common shares on the NASDAQ Capital Market, including the shares issued in the merger, subject only to official notice of issuance, is a condition to the obligations of Newegg to complete the merger. We will apply for such listing under the symbol “N.”

 

Completion and Effectiveness of the Merger (See Page 74)

 

The merger will be completed and become effective at such time as the certificate of merger for the merger is filed with the Secretary of State of the State of Delaware (or at such time as agreed to between the Company and Newegg and specified in such certificate of merger in accordance with applicable law). Unless another date and time are agreed to by the Company and Newegg, completion of the merger will occur no earlier than the second business day following the day on which the last of the conditions is to be satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of such conditions).

 

As of the date of this proxy statement/prospectus, we expect that the merger will be completed in the first quarter of 2021. However, completion of the merger is subject to the satisfaction or waiver of the conditions to completion of the merger. There can be no assurances as to when, or if, the merger will occur. If the merger is not completed on or before April 30, 2021 or June 30, 2021, if extended under certain circumstances, either the Company or Newegg may terminate the merger agreement; provided that the right to terminate the merger agreement if the merger is not completed on or prior to such date will not be available to either of the Company or Newegg if the failure of the merger to be consummated by such date is due to a material breach by such party of any representation, warranty, covenant or other agreement of such party set forth in the merger agreement.

 

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Go Shop (See Page 81)

 

During the period from the date of the merger agreement and continuing until the earlier of the termination of the merger agreement or the completion of the merger, each of the Company and Newegg may and may cause its representatives to directly or indirectly, (i) solicit, assist, initiate or facilitate the making, submission or announcement of, or intentionally encourage, any acquisition proposal, (ii) furnish any non-public information regarding such party or its affiliates or their respective businesses, operations, assets, liabilities, financial condition, prospects or employees to any person or group in connection with or in response to an acquisition proposal, (iii) engage or participate in discussions or negotiations with any person or group with respect to, or that could be expected to lead to, an acquisition proposal, (iv) approve, endorse or recommend, or publicly propose to approve, endorse or recommend, any acquisition proposal, (v) negotiate or enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any acquisition proposal, or (vi) release any third person from, or waive any provision of, any confidentiality agreement to which such party is a party.

 

Each of the Company and Newegg agreed to notify the other as promptly as practicable (and in any event within 48 hours) orally and in writing of the receipt by such party or any of its representatives of (i) any bona fide inquiries, proposals or offers, requests for information or requests for discussions or negotiations regarding or constituting any acquisition proposal or any bona fide inquiries, proposals or offers, requests for information or requests for discussions or negotiations that could be expected to result in an acquisition proposal, and (ii) any request for non-public information relating to such party or its affiliates (or any subsidiary), specifying in each case, the material terms and conditions thereof (including a copy thereof if in writing or a written summary thereof if oral) and the identity of the party making such inquiry, proposal, offer or request for information. Each of the Company and Newegg agreed to shall keep the other promptly informed of the status of any such inquiries, proposals, offers or requests for information.

 

For purposes of the merger agreement, an “acquisition proposal” means any inquiry, proposal or offer, or any indication of interest in making an offer or proposal, from any person or group at any time relating to a transaction (other than the transactions contemplated by the merger agreement) concerning the sale of (i) all or any material part of the business or assets of any subsidiaries of Newegg or the Company (including any subsidiary), or (ii) any of the shares or other equity interests or profits of any subsidiaries of Newegg or the Company (including any subsidiary), in any case, whether such transaction takes the form of a sale of shares or other equity, assets, merger, consolidation, issuance of debt securities, management contract, joint venture or partnership, or otherwise.

 

Termination of the Merger Agreement (See Page 83)

 

The merger agreement may be terminated at any time prior to the completion of the merger, whether before or after shareholders have approved the merger, in any of the following ways:

 

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by mutual written consent of the Company and Newegg;

 

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by either the Company or Newegg (i) if the merger shall not have occurred on or prior to April 30, 2021; provided, that the right to terminate shall not be available to any party whose material breach of a representation, warranty or covenant in the merger agreement has been a principal cause of the failure of the merger to be consummated on or before such outside date, provided further that such outside date shall be automatically extended up to two additional times by one month each time if, on the then current outside date (A) all conditions to closing, except for NASDAQ initial listing, have been satisfied or waived, or are imminently capable of being satisfied, (B) NASDAQ initial listing is reasonably likely to be satisfied by such outside date, as extended, and (C) the parties have exercised and continue to exercise their best efforts to satisfy the conditions of NASDAQ initial listing; (ii) if any governmental authority of competent jurisdiction shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the merger, and, in each case, such order or action shall have become final and non-appealable; provided, that the right to terminate shall not be available to any party whose material breach of a representation, warranty or covenant in the merger agreement has been the principal cause of such action, (iii) if the approval of a majority of votes cast which are not beneficially owned by Hangzhou Lianluo shall not have been obtained at the special shareholder meeting; or (iv) if any required approval by the Newegg shareholders shall not have been obtained within five days after the date of the merger agreement;

 

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by Newegg (provided it is not then in material breach of any of its obligations under the merger agreement) (i) if there is any breach of any representation, warranty, covenant or agreement on the part of the Company or Merger Sub set forth in the merger agreement, or if any representation or warranty of the Company or Merger Sub shall have become untrue, in either case such that the applicable conditions set forth in the merger agreement would not be satisfied; provided, however, if such breach is curable by the Company or Merger Sub, Newegg may not terminate for so long as the Company or Merger Sub continue to exercise their best efforts to cure such breach, unless such breach is not cured within thirty (30) days after notice of such breach is provided by Newegg to the Company, (ii) if for any reason the Company fails to call and hold the special meeting within sixty (60) days following the filing of this registration statement of which this proxy statement/prospectus forms a part, unless such failure is as a result of the Company responding in good faith to comments on this proxy statement/prospectus or the registration statement on Form F-1 related to the concurrent offering received from the SEC or comments from NASDAQ, (iii) if the Company’s board (or any subgroup or committee thereof) withdraws, modifies or changes its recommendation of the merger agreement or the merger in a manner adverse to Newegg or shall have resolved to do any of the foregoing, or approves or recommends, or proposes to approve or recommend, an acquisition proposal; or (iv) if the escrow amount is not placed into the escrow account within five days after the date of the merger agreement;

 

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by the Company (provided neither it nor its subsidiary is then in material breach of any of their obligations under the merger agreement) (i) if there is any breach of any representation, warranty, covenant or agreement on the part of Newegg as set forth in the merger agreement or if any representation or warranty of Newegg shall have become untrue, in either case such that the applicable conditions set forth in the merger agreement would not be satisfied; provided, however, if such breach is curable by Newegg, the Company may not terminate the merger agreement for so long as Newegg continues to exercise its best efforts to cure such breach, unless such breach is not cured within thirty (30) days after notice of such breach is provided by the Company to Newegg, or (ii) if the Newegg board (or any subgroup or committee thereof) (A) withdraws, modifies or changes its recommendation of the merger agreement or the merger in a manner adverse to the Company or shall have resolved to do any of the foregoing, or (B) approves or recommends, or proposes to approve or recommend, an acquisition proposal;

 

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by Newegg if it receives an unsolicited, bona fide written offer prior to the approval of the shareholders at the special meeting, and Newegg’s special committee determines in good faith (based upon a written opinion of an independent financial advisor) that such offer constitutes a superior offer to the stockholders of Newegg to the terms set forth in the merger agreement, and the special committee determines in good faith (based upon advice of counsel) that, in light of such superior offer, the withdrawal or modification of the board’s approval is required in order for the board to comply with its fiduciary obligations to Newegg’s stockholders under the applicable law; or

 

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by the Company if it receives an unsolicited, bona fide written offer prior to the approval of the shareholders at the special meeting, and the Company’s special committee determines in good faith (based upon a written opinion of an independent financial advisor) that such offer constitutes a superior offer to the shareholders of the Company to the terms set forth in the merger agreement, and the special committee determines in good faith (based upon advice of counsel) that, in light of such superior offer, the withdrawal or modification of the board’s approval is required in order for the board to comply with its fiduciary obligations to the Company’s shareholders under the applicable law.

 

If the merger agreement is validly terminated, the merger agreement will terminate (except that the confidentiality agreement between Newegg and the Company, and the provisions described in Section 5.12 (Public Announcements), Section 5.13 (Confidential Information), Section 7.2 (Effect of Termination), Article VII (Termination), Article VIII (Indemnification) and Article IX (General Provisions) of the merger agreement, which provisions shall survive such termination), and there will be no other liability on the part of either party to the other except as described under “—Termination Fees and Expenses;” provided, that no party will be relieved from liability for fraud or a willful breach of a representation or warranty contained in the merger agreement or the breach of any covenant contained in the merger agreement, in which case the aggrieved party will be entitled to all rights and remedies available at law or in equity.

 

Termination Fees and Expenses (See Page 84)

 

If the merger agreement is terminated (i) due to the failure of the Company to obtain the approval of a majority of votes cast which are not beneficially owned by Hangzhou Lianluo at the special shareholder meeting, or (ii) upon any of the events described in the third or seventh bullet under “—Termination of the Merger Agreement” above, then the Company is required to immediately repay to Newegg in cash or by wire transfer of immediately available funds, all legal and accounting fees incurred by Newegg in connection with the merger agreement and the transactions contemplated thereby up to an amount equal to $450,000.

 

If the merger agreement is terminated (i) due to the failure of Newegg to obtain any required approval by the Newegg shareholders within five days after the date of the merger agreement, or (ii) upon the event described in the fifth or sixth bullet under “—Termination of the Merger Agreement” above, then Newegg is required to immediately repay to the Company in cash or by wire transfer of immediately available funds all legal and accounting fees incurred by the Company in connection with the merger agreement and the transactions contemplated thereby up to an amount equal to $450,000. During the period from the date of the merger agreement and continuing until the earlier of the termination of the merger agreement or the completion of the merger, Newegg agrees to keep $450,000 of cash available for the payment of the foregoing termination fee.

 

Specific Performance (See Page 84)

 

Under the merger agreement, each of the Company and Newegg is entitled to an injunction or injunctions to prevent breaches of the merger agreement and to specifically enforce the terms and provisions of the merger agreement.

 

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Anticipated Accounting Treatment (See Page 73)

 

The merger will be accounted for as a reverse merger in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. Under this method of accounting, the Company will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on Newegg comprising the ongoing operations of the combined company, Newegg’s senior management comprising the senior management of the combined company and Newegg shareholder having a majority of the voting power of the combined company. For accounting purposes, Newegg will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Newegg (i.e., a capital transaction involving the issuance of shares by the Company for the stock of Newegg). Accordingly, the consolidated assets, liabilities and results of operations of Newegg will become the historical financial statements of the combined company, and the Company’s assets, liabilities and results of operations will be consolidated with Newegg beginning on the acquisition date.

 

Transaction Expenses (See Page 73)

 

The Company estimates that its total merger transaction expenses will be approximately $[   ], which includes financial advisor fees of approximately $[   ], legal fees in the amount of approximately $[   ], accounting fees in the amount of approximately $[   ], transfer agent fees in the amount of approximately $[   ], printing fees in the amount of approximately $[   ], filing fees in the amount of approximately $[   ] and other expenses in the amount of approximately $[   ]. None of these expenses are contingent on approval and consummation of the merger.

 

Newegg estimates that its total merger transaction expenses will be approximately $[   ], which includes legal fees in the amount of approximately $[   ], accounting fees in the amount of approximately $[   ] and other expenses in the amount of approximately $[   ]. None of these expenses are contingent on approval and consummation of the merger.

 

Risk Factors (See Page 23)

 

You should carefully read this proxy statement/prospectus and especially consider the factors discussed in “Risk Factors” in connection with your consideration of the merger and disposition before deciding whether to vote for approval of the merger proposal and the disposition proposal.

 

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